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City of San Antonio Selecting a Developer for
 $280 million, 1,000 room Convention Center Hotel
San Antonio Express-News
Knight Ridder/Tribune Business News

Dec. 7, 2004 - Fearing that San Antonio will become an also-ran in the competition for big meetings, city officials appear ready to plunge into yet another deal to build a hotel attached to the Convention Center.

Two previous agreements have fallen apart since the mid-1980s, with the latest coming undone when the developers failed to come up with financing. But many city staffers and elected officials remain adamant about getting a 1,000-room hotel built, saying San Antonio needs it to attract major conventions.

And they're not deterred by the fact that hotel financing hasn't fully recovered from the Sept. 11, 2001, attacks. That means some kind of public financing might be inevitable, even though serious questions remain about the project's viability.

"The state of the convention market is so bad in this country right now," said Bruce Walker, president of locally based hotel consulting firm Source Strategies. "The attractiveness of coming here for conventions won't be enhanced significantly by adding a new hotel."

Within weeks, the City Council is expected to select a developer for the $280 million hotel. Three companies will make pitches directly to council members during a special session today.

Firms fighting for the deal are FaulknerUSA, formerly known as Landmark Organization of Austin; Houston-based Hines; and a partnership between an affiliate of locally based Zachry Construction Corp., JER Partners and Related Lodging Group of New York.

Related Lodging is competing for a second chance.

In 2000, the company and Starwood Hotels & Resorts Worldwide, owner of Sheraton hotels, signed a 75-year lease agreement to develop a Convention Center hotel. But they couldn't find the funding on time, and the City Council pulled the plug in February 2002.

Faulkner recently built the 800-room Hilton next to Austin's convention center, and Hines developed the 1,200-room Hilton next to Houston's convention center -- projects that officials contend have added pressure to bring a similar hotel to San Antonio.

Councilman Art Hall is sold on the need for a Convention Center hotel, citing mounting competition from the likes of Austin and Houston.

"For me," Hall said, "the bottom line is we have to compete."

But doubts persist in some quarters.

San Antonio has nearly 11,000 hotel rooms downtown, more than any other Texas city. But tourism leaders say meeting planners would prefer a headquarters hotel to keep their attendees in one spot.

The San Antonio Convention & Visitors Bureau said that since June 2001, it has lost $188 million in delegate spending, including the National Medical Association's planned 2009 convention.

"They (San Antonio) have enough rooms, but our association doesn't like to spread out," said Pat Norman, the association's director of conference services. "They need another 1,000-room hotel."

Another group, the American Chemical Society, backed out of its deal with the city because of too little space at the Convention Center and nearby hotels, according to Nancy Todd, the group's manager of conference management.

The city's prior agreement with Related Lodging and Starwood featured tax concessions worth more than $8 million from the city, county and hospital district. The city also pledged $8 million to cover part of rebuilding a parking garage.

The deal this time promises to be vastly different, said Assistant City Manager Chris Brady.

"We're not putting any city money into parking like before," Brady said, "and we're not putting up any tax abatements like before."

Instead, the city's "preferred" financing plan turns mostly on private funding and up to $130 million in tax-exempt Empowerment Zone bonds, which are intended to bring jobs to downtrodden areas. Taxable bonds would cover leftover expenses.

The Convention Center sits in the midst of an Empowerment Zone that stretches across the downtown business district and into the near-West and East sides.

Bidders can offer alternative plans, but Brady said, "The way we're scoring proposals -- at least the financial part -- is based on how closely they come to that preferred financing plan."

Walker said the city isn't losing a lot of business. He said one reason people come to San Antonio is because of the nice weather and to walk around the tourist-friendly city.

He also thinks building a convention center hotel is the wrong way to use taxpayer dollars.

"If you take the $280 million, think what you can buy for it," he said. "You can make the River Walk far more attractive and subsidize an additional theme park. There are hundreds of ways to make the city more attractive for visitors."

Walker also points out that San Antonio should learn from Houston, where the city owns the $285 million Hilton Americas hotel. He said it's a "disaster in downtown Houston," since the area has about a 50 percent occupancy rate for the third quarter, compared with an industry standard of about 65 percent.

But Pat Kennedy, developer and owner of La Mansion and the Watermark hotels in San Antonio, says there's too much competition from other cities for San Antonio not to have another large hotel -- if it's done right.

"If we don't move forward, we will throw in the towel," Kennedy said.

Convention bureau director Melvin Tennant said new headquarters hotels in Austin and Houston have made competition among Texas cities even tougher.

Though San Antonio is largely a leisure-tourist destination, Tennant said, the city needs to expand its convention business. He said the city is finding it's getting harder to bring in another large meeting when one is winding down due to a lack of hotel rooms.

A recent report from Smith Travel Research and PKF Consulting said 29 Texas convention hotels still haven't returned to their 2000 peaks when occupancy averaged 68.2 percent. It was just 59 percent in 2004 and will be an estimated 61 percent next year.

By Melissa Monroe and Greg Jefferson

-----To see more of the San Antonio Express-News, or to subscribe to the newspaper, go to http://www.mysanantonio.com.

(c) 2004, San Antonio Express-News. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com. HOT, HLT,

 
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