The city council's Economic Development Committee this morning predictably approved placing an item on the agenda of Friday's special called council meeting authorizing a maximum bond issuance of nearly $514 million with a maximum interest yield of 5.5 percent for the convention center hotel project. The committee also weighed in on the new market study from HVS, which was used by city staff to project more than $315 million in profits after 30 years of operation.
Assistant City Manager A.C. Gonzalez touted the new bookings resulting from the hotel and $58 million in cost reductions, but as committee member Jerry Allen said, "There's really nothing new at all." Indeed, not a heckuva lot has changed. Although, as Allen also mentioned, the reserves keeping the city from paying dough from the general fund to subsidize any losses has been strengthened. Yet the most important aspect of the lengthy briefing was barely mentioned -- the reserves won't be replenished by the general fund as we feared.
Three reserve accounts will be tapped before taxpayers are on the hook for the hotel's inability to cover its mortgage, including a senior debt service reserve of approximately $42.7 million, an operating expense reserve of $10 million and a surplus reserve holding any profits from the hotel, which the city projects will have a balance of $40 million at the end of 10 years. The first two reserves have long been a part of the city's plan for approximately $50 million in reserves, but the addition of the surplus fund ensures that the city is restricted from spending any profits elsewhere.
The updated HVS market study includes lowered projections, which Gonzalez explained is a reflection of a 15 percent correction in the market. Most notably, the total number of occupied rooms projected in the first 10 years is 434,270 less than the 2008 study over the same period of time. He tried to spin the bad news by adding that the stabilized occupancy jumped one percent from '08 , but he failed to mention that last year's study was for a 1,200-room hotel and this year's is for a 1,000-room hotel. (The latest design includes 1,016 rooms.)
The hotel was originally expected to take up half of the more than eight acres purchased by the city for $42 million, but now it will occupy six acres. Only $30 million of the $42 million will be reimbursed with the bond issuance, with the remaining $12 million debt and two acres of land absorbed by the convention center. After the meeting, developer Jack Matthews told us the plan changed a while ago regarding how much space the hotel would use, and his June deadline to submit an ancillary development plan has been delayed.
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Gonzalez acknowledged a gaffe in the report that we also noticed last night while paging through the 225-page document. Despite the importance of the study, somehow HVS managed to repeat the statistics (tables 6-15 through 6-25) from the convention center in Indianapolis for 10 other cities, including Austin and San Antonio. He also mentioned the city's own error in the agenda, which incorrectly states a target interest rate of 6 percent.
"It's a pretty big typo when we're talking about hundreds of millions of dollars," council member Dave Neumann said.
Some committee members mentioned the possibility of selling the hotel, with Allen describing the opportunity to do so as "great." However, with no private developer willing to build the hotel, there's no evidence to suggest anyone will be buying it from the city anytime soon.
The briefing also included a $3 million estimate from the Dallas Convention & Visitors Bureau of "media exposure" received related to convention center hotel, to which we say, "You're welcome."