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Vacancy

If we build it, will anyone come?
Mark Graham

If you build it, they'll be pissed.

Dallas hotel owners, already struggling with what one hotel manager describes as the lowest occupancy rates in the city's history, are none too happy with a proposal being forwarded by some local government officials to use taxpayer money to build a 1,200-room upscale hotel onto the city's convention center.

Hotel owners and investors and a couple of taxpayer watchdog groups say a study they commissioned that shows how the proposed hotel would hurt them was ignored by the media and sloughed off by city officials. The reason? It's not because the watchdogs paid for the $28,000 study; it's because the study says the hotel proposal is a lousy idea that investors with money to lose wouldn't touch in this economy or in this market, the study's sponsors claim.

"No private developer would undertake to develop this hotel project, as it is not a sound investment," the study by private consultants Source Strategies Inc. of San Antonio says in part.

The company uses public records to determine how many rooms of what type exist in a given market and how many are being rented. The company has been around since the 1980s and produces dozens of similar studies for the public and for the private sector. Its findings are used by banks as a basis for loans, and studies are not infrequently cited in large newspapers, its owners say.

Peggy Venable, the Citizens for a Sound Economy's Texas director, says her group opposes the hotel idea on the principle that government should not compete with private industry. But, she says, it is important to note that no investor from the private hotel industry has seized upon the idea of building the convention center hotel in Dallas because it's not a good idea right now.

"We oppose it from a public policy perspective. It's not the appropriate role of government. We think cities should not be in the hotel business...and if they use taxpayer dollars to do it, we would sure hope that it was going to be financially feasible," she says. "We believe in the Yellow Pages concept. If you can open the Yellow Pages and it's done in the private sector, then why should our tax dollars be used to do it. Moreover, why should our tax dollars be used to do it if it's going to compete with private industry?"

Local government representatives such as Dallas Mayor Laura Miller and her husband, state Representative Steve Wolens, are among those who are pushing legislation that would enable Dallas to build the hotel mostly with hotel occupancy taxes, the same way that Houston built a soon-to-open hotel near their convention center. The Dallas hotel, which would be managed by a private company, would draw convention business to the city, proponents say. Other details, such as the proposed financing arrangements, were not available, and neither was Wolens nor Miller.

Michael H. Anderson, who owns some property where the hotel could be built and who represents other owners of potential hotel property, says the watchdog groups' study concerned itself more with raw data than it did analysis. Besides that, the watchdog groups' study was delivered near the end of a long process and offered incongruous comparisons between hotel types.

The Source Strategies "definition of convention center hotels, of area hotels versus headquarters, attached, adjacent hotels is the tragic flaw in my opinion of the analysis," Anderson says.

The study says that the hotel in itself will not create demand for hotel rooms and that it will be bad for the already depressed Dallas hotel market. Todd Walker, vice president of Source Strategies, said that "barring a massive turnaround in the Dallas-area economy," the convention center hotel would start draining from existing hotels immediately after it opened, "but there is nothing like that on the horizon," he says.

"Dallas had a huge increase in supply and a commensurate decrease in demand," he says. "They are suffering."

Among other things, the study says that even if occupancy rates edged up between now and when a convention center hotel opened, the large number of new rooms would flood the market and reverse a positive trend.

"The negative pressure put on market performance by the addition of 1,200 unnecessary rooms in 2006 short-circuits the lodging recovery projected for the downtown market," the study says.

The study estimated that the lost profit to existing upscale hotels would be $175 million during the first five years after the hotel opened. The study did not say the negative impact of new hotel rooms is permanent but that it exists now and probably will for the next eight to 10 years. The study's authors also wrote that their review showed that no Texas hotel like the one proposed ever amounted to an attraction.

"Not one of the 16 new convention-size 'headquarters' hotels that opened in Texas since 1981 has ever generated a significant demand increase for hotel rooms in any market," the study said in part. "...Unfortunately, some municipalities falsely believe that a major new hotel is a solution for the lack of visitor growth and economic health of the downtown area."

Despite the study's apparent findings, proponents say it failed to look at the impact of hotels that were physically attached to convention centers like the proposed Dallas hotel would be. Walker says the distinction is dubious.

"There's no difference between having an attached building than it is having a 1,000-room hotel open a block away or next door. If you have a convention of 20,000 people, they are not going to all stay at that hotel anyway even if it is all attached," he says.

Despite what would appear to be a significant downside to the hotel proposal, representatives of the watchdog groups say their study has been disregarded because it disagrees with what hotel proponents want. They say it's no coincidence that WFAA-Channel 8 and The Dallas Morning News ignored the news conference announcing the study. The Dallas Morning News, which has editorialized in favor of the hotel several times, also ignored requests that letters to the editor on the subject be published, says Tara Ross, spokesperson for the Dallas Taxpayers Rights Coalition, the second watchdog group that helped pay for the study.

The Belo Corp., which owns WFAA and The Dallas Morning News, owns property in the vicinity of the proposed hotel. In addition, Robert Decherd, Belo chairman, is also chairman of the "Inside the Loop" committee that is boosting the hotel among other ideas for downtown. Ross says she does not want to "bad-mouth" The Dallas Morning News but says she would have "hoped more interest would have been shown."

"I will note that The Dallas Morning News has written some editorials in favor of the convention center hotel, and we did give them a copy of everything we gave everybody else, and they failed to show up at the press conference or to even write on this yet."

The newspaper subsequently reported that hotel proponents believed the study did not address the Dallas idea. Walker, whose company or one of its officials has been quoted more than a half-dozen times by The Dallas Morning News for a variety of projects since the mid-1990s, is more direct about the fact that the paper has ignored the study's findings.

"To do it the way they are doing it, just ignoring it without actually reading the study, that just shows you how little interest they have in actually having an open dialogue on the issue," he says.

Frank Naboulsi, general manager of the Fairmont Hotel, says study or not, this is a bad time to add hotel rooms.

"At this point I think it would be a mistake for us to create more competition when we have 12,000 room nights within the downtown and the suburbs of downtown core that could be accommodated for large conventions," he says. "I believe this hotel is not needed at this point."


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