Feb. 18, 2005 - HOUSTON -- A year after Texas' biggest city opened a municipally financed convention center hotel downtown, the city's former flagship hotel -- the Hyatt Regency -- is being posted for foreclosure, officials confirmed Thursday.

"I can tell you the hotel's in foreclosure," general manager Don Henderson said.

The hotel will continue to operate. "Hyatt has a lease on the building well into the future," Henderson said. "We'll be around for a long time. This is a piece of real estate. It has absolutely no effect on us." The news comes a little more than a year after the opening of the 1,200-room Hilton Americas adjacent to the George R. Brown Convention Center, and after a couple of years of low hotel occupancy rates in downtown Houston.

The development undoubtedly will figure into the debate over development of a convention hotel in Dallas.

"This is just another piece of the puzzle that people are going to look at," said Greg Crown, a Dallas-based vice president for PKF Consulting, which specializes in the hotel business. Hotel operators in Dallas have expressed concern about the impact of a big new hotel.

Dallas Mayor Pro Tem John Loza said he wasn't aware of Houston's situation and didn't know if it would have any bearing on Dallas' efforts to build a hotel attached to the Dallas Convention Center.

But Dallas convention officials tell Loza that an attached hotel is desperately needed to attract bigger, better and more frequent conventions, he said. "I'm surprised, but I suspect there's more to the story in Houston than Houston building a convention center hotel," he said.

The foreclosure is emblematic of increasingly visible stress in the vaunted redevelopment of downtown Houston, which has transformed itself under the leadership of Central Houston Inc. in the last 10 years. The restaurant and bar business has slowed recently.

Analysts blamed the collapse of Enron Corp. and the energy-trading business it pioneered as well as the economic and travel slowdown that followed the 9-11 terrorist attacks.

"It's not a straight line up," said Bob Eury, president of Central Houston Inc.

"We have a regrettable situation ... in terms of business conditions, and unfortunately downtown redevelopment is not immune."

The convention center hotel -- a $285 million city-owned project -- was not the only new hotel built in downtown Houston recently. Several properties opened in advance of the Super Bowl of 2004, raising downtown capacity from 1,800 rooms to 5,500 rooms.

Hotel occupancy rates averaged 52.9 percent in downtown Houston last year, well below the 60 percent that is considered healthy. The Hyatt, built in the 1970s and one of the older hotels downtown, reportedly had rates below 50 percent.

Still, total hotel bookings in downtown Houston were up last year, said John Keeling of PKF Consulting's Houston office.

"Last year, 2004, was really a strong year for Houston," Keeling said.

"They ended up at 52.9 percent occupancy. That's pretty low, but in 2004, you had a 40 percent increase in supply."

Details of the foreclosure were not available, and analysts suggested it was a "friendly" deal in which the owner decided to unload some property. A Pakistani investor owned the company that owned the hotel. Henderson would not identify the lenders, but court documents suggested that one recent financier of the project was the German American Capital Corp.

Staff writer Dave Levinthal contributed to this report.

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