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Majority of Dallas City Council Members Favoring Outright City
 Ownership of $500 million Convention Center Hotel
By Dave Levinthal, The Dallas Morning NewsMcClatchy-Tribune Regional News

May 7, 2008 - CITY HALL SHOULD OWN OUTRIGHT -- not simply subsidize with public funds -- a planned Dallas Convention Center hotel, a key City Council committee unanimously recommended Tuesday.

The recommendation is a marked philosophical shift for the council. Many members had previously leaned toward subsidizing an attached convention center hotel with public funds, leaving the hotel's ownership to a private entity in order to keep the city out of the hospitality industry.

The mayor said the cost of the project could approach $500 million, to be financed with revenue bonds.

The advantages of public ownership, council member Ron Natinsky said, include the city not having to pay itself property taxes and lower lending rates to develop the project. Most council members view the hotel development as Dallas' best chance to attract more business to a convention center suffering from dwindling bookings at the hands of flashier facilities with attached lodging.

"It becomes a better financial deal for the city. Owning the hotel becomes a moneymaker for the city," said Mr. Natinsky, chairman of the economic development committee.

"This is absolute insanity," council member Mitchell Rasansky retorted. "We have no business being in the hotel business. This is not our job. We should not be taking a chance with taxpayers' money."

Mr. Rasansky represents a minority, however. A majority of council members appears to back public hotel ownership. Six economic development committee members, plus Mayor Tom Leppert and several other council members, expressed support for it.

Four developers' proposals for the project range from $343 million to about $850 million, Assistant City Manager A.C. Gonzalez said.

But Mr. Leppert predicted the final cost would probably stand between $450 million and $500 million.

Underscoring its support for the hotel, the economic development committee also recommended Tuesday that the full council vote May 14 to purchase an 8.34-acre tract of downtown land on which to build the development.

First, the land

City Hall is slated to pay up to $42 million in taxpayer money for the land, which is bounded by Young, Lamar and Market streets and owned by a subsidiary of Chavez Properties.

But the committee, after engaging in a lengthy closed-door executive session before emerging for a brief public session, declined to recommend any of the remaining hotel developers vying to build the convention center hotel project.

The developers, down from six, are:

  • Faulkner USA of Austin,
  • Matthews Southwest of Lewisville,
  • Hamilton Properties of Dallas and
  • Woodbine Development of Dallas.

The city has not made details of the developers' proposals public.

City officials likewise said they do not have firm details on the funding mechanisms for building a publicly owned hotel, in part because they haven't selected a winning plan.

No matter the winning plan, city officials say the hotel project will include ancillary development on the 8.34-acre plot -- retail, restaurant and entertainment facilities, perhaps -- although these details aren't firm, either.

The final cost of the project will be determined by a number of factors, including the hotel's size, scope, amenities and operator, Mr. Natinsky said, adding that the hotel's developer and operator may not necessarily be the same company.

What is known: Under its public ownership plan, the city would sell revenue bonds to fund the development's construction and to create an operations and development reserve fund. A vote to sell such bonds would be the City Council's alone; the issue would not go before Dallas voters, Mr. Leppert said.

Debt approaching $500 million, Mr. Gonzalez explained, would primarily be repaid through the hotel's operating revenue. Other revenue streams, including naming rights for developments adjacent to the hotel or negotiated payments from the eventual hotel operator to the city, may also come to fruition.

In all, Mr. Gonzalez said he expects the city will not only cover the bonds' annual debt service but run a surplus that may allow the city to pay off bonds more quickly.

"It's a smart way to do it. Clearly, anything we do has risk, and to say it doesn't is wrong," Mr. Leppert said. "But the reward is there ... It's not just a hotel. It's protecting the convention center. It's about attracting investment downtown. It's about securing our position in the convention industry."

Developer choice

City staff is scheduled to report back to the council's economic development committee on June 16, at which time Mr. Natinsky said he hopes the body is prepared to recommend a final developer.

In the meantime, Mr. Rasansky isn't the only council member planning to question the convention center hotel development process.

"Why do we have to look to the public sector to fund a convention center hotel?" asked council member Angela Hunt, who attended Tuesday's meeting but doesn't sit on the committee. She cited the primarily private development of the Gaylord Texas hotel and convention center in Grapevine.

Without Dallas publicly owning its convention center hotel, "the numbers did not work in regards to this particular project," Mr. Gonzalez said. "We had a project that just did not pencil out."

Ms. Hunt replied, "I'm just not satisfied that that makes a lot of sense in my mind."

Mr. Gonzalez quickly drew a parallel with the Grand Hyatt hotel at the Dallas/Fort Worth International Airport, a publicly owned facility that's generating profit.

After the meeting, Ms. Hunt also questioned the council's upcoming land purchase vote. "It's obviously putting the cart before the horse. It's like children in a candy store: We want it, so we've got to have it."

Mr. Natinsky said he expected the land vote to pass. He also noted that cities such as Austin, Houston, Denver and Baltimore publicly own their convention center hotels.

But Houston recently announced it's putting its convention center hotel up for sale through a process that will also seek proposals for a second convention hotel, The Houston Chronicle reported.


Several mileposts await the Dallas City Council as it moves to seal a deal for a Dallas Convention Center hotel project estimated to cost between $450 million and $500 million:

May 14: The council is scheduled to vote on buying an 8.34-acre plot of downtown land on which to build the hotel. The city will probably pay up to $42 million for the land and associated fees.

June 16: The city staff is slated to brief the council's economic development committee on selecting a hotel project developer from among four companies in contention.

Mid- to late 2008: The council must approve a development and operation plan for the hotel, then vote to sell revenue bonds to fund the project's development.

SOURCE: City of Dallas officials


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