|By Greg Jefferson, San Antonio Express-News|
Knight Ridder/Tribune Business News
Dec. 17, 2004 - The City Council sought assurances Thursday that proposals to build a 1,000-room Convention Center hotel -- a twice-thwarted project -- contained no fairy dust.
"We've gone through Round One, we've gone through Round Two and here we are in Round Three," Councilman Art Hall said. "We've got to make this thing happen."
Last week, Austin-based FaulknerUSA caught the council's eye by pledging $77.3 million to the deal. That eclipsed the financing offered by its two competitors, Houston-based Hines and a partnership between Related Lodging Group and a subsidiary of locally based Zachry Construction Corp.
Thursday night, council members wanted to know how solid FaulknerUSA's backing really is.
The council is expected to select the hotel developer Tuesday. FaulknerUSA, which won the city staff's recommendation, appears to have the edge heading into the special session.
Partnering with local architectural firm Kell Muñoz, FaulknerUSA also pledged to have the hotel built on time for an early 2008 opening and within its budget of $215 million.
The company's plans call for erecting two towers, incorporating the San Antonio River, and building five levels of underground parking and a 34,800-square-foot grand ballroom.
Council members, meanwhile, homed in on the company's financial backers, especially its biggest potential investor, New York-based Marathon Asset Management.
The firm's burgeoning real estate fund has committed $47.3 million to the project, according to FaulknerUSA.
Jorge Rodriguez of Coastal Securities, one of the city's financial advisers, said he met with Marathon executives several weeks ago and studied two years worth of the firm's Securities and Exchange Commission filings. He reported no red flags Thursday.
FaulknerUSA President Mark Schultz said the company's overall commitments total $120 million. But the company is looking to trim that to $77.3 million to make the deal more attractive to bond buyers.
The commitments "are as firm as you can get at this point in the game," Schultz said in an interview.
City officials want the project's financing to draw on private investment and up to $130 million in tax-exempt empowerment zone bonds, which would be backed by hotel revenue.
If that hotel revenue wasn't enough to cover payments to bondholders, the developer would turn to state sales and occupancy tax revenues, and then local hotel taxes.
A taxable bond would cover expenses not paid for with the developer's money and EZ bond proceeds.
City officials contend that having a hotel attached to the Convention Center would help it attract bigger meetings and more delegate spending. Austin and Houston have opened convention center hotels -- FaulknerUSA built the former, Hines the latter -- leaving many officeholders and staffers feeling pressured to build a hotel here.
Questions, meanwhile, have hung over FaulknerUSA's proposal at least partly because its financing offer was far higher than its competitors.
"You've got to make sure beyond a shade of a doubt that the financing is in place, and that they have the money committed for the equity," said Henry Feldman, a member of the city's Convention Center Hotel Advisory Board. "If they don't, that really changes the picture. If they don't, I think we should go back to the other two (bidders) and start over -- definitely."
Related Lodging and Zachry, owner of Palacio Del Rio and the Airport Hilton, offered $35 million for the project. Hines pledged $30 million.
But they promised more if the city would allow the developer to use state sales and hotel occupancy tax revenue, generated at the hotel, for debt repayment. Related would raise its pledge to $50 million, while Hines' offer would jump to $85 million.
Assistant City Manager Chris Brady, however, said he wants to hold that tax revenue -- which would work out to an estimated $50 million over 10 years -- in reserve in case the hotel's revenue isn't enough to make the bond payments.
The last effort to build a Convention Center hotel faded in early 2002.
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