Jul. 19, 2009--MCALLEN -- City leaders are seeking low-interest loans from the state and federal government for a pair of hotels to be built at the site of the McAllen Convention Center.

Within two months, the city should learn whether it will receive more than $13 million in government loans for private developers who want to build an Embassy Suites and La Quinta Inn.

City officials say the loans would help kick-start the construction of hotels at the convention center, which is hurting from a lack of nearby lodging.

The loans are intended "to get the projects going at the convention center so we can be competitive for those conventions," said Deputy City Manager Brent Branham. "We need hotels within walking distance."

Steve Ahlenius, who heads the McAllen Chamber of Commerce, has said more than 20 conventions have skipped McAllen simply because there was no hotel on site.

The proposed 195-room Embassy Suites is being developed by a team of local investors called Venture Assets Ltd. which includes Larry Fallek, Michael Fallek and Robert Wallace.

The group also owns and operates McAllen's Tony Roma's restaurants, Romano's Macaroni Grill and Courtyard by Marriott and the Laredo Embassy Suites, among other properties.

The 168-room La Quinta Inn is being developed by local investors Tri-Wanis Ventures, led by Sunil Wadhwani and Martin P. Garza Jr.

The state loans would come from the Texas Leverage Fund, a program that provides funding for projects that lead to economic development.

They would be paid back at a 3.25 percent interest rate over 15 years.

The federal loan, from the Department of Housing and Urban Development, would be paid at a 3.65 percent interest rate over 20 years.

The agencies would loan the money to the city, which would act as a conduit and in turn loan the money to the developers.

Larry Fallek, one of the Embassy Suites developers, emphasized the funding is a loan -- not a grant -- and must be repaid.

He said the idea for the Embassy Suites was conceived of more than two years ago, "when times were different." But in the wake of the country's economic slowdown, it is unlikely a project like his could get funding from the usual sources.

"It's become apparent that conventional financing is just not available for hotels being done virtually anywhere in the United Sates," he said. "A hotel such as this, which is over a $30 million project, is just not likely to happen unless there are certain things done by the city to assist it."

It's not unusual for cities to provide financing for hotels as other funding sources dry up.

Washington, D.C., recently approved public financing of a new Marriott near that city's convention center.

Cities including Boston, Milwaukee, Wis., and Bakersfield, Calif., have also spent the summer considering public financing options for new hotels.

Banks are skittish about investing heavily in hotel projects at a time when the hospitality industry is ailing.

Last month, 13 hotel loans totaling $596 million defaulted, according to a study cited by the trade publication National Real Estate Investor.

The publication also said that in the first week of July, occupancy rates were down 6 percent compared to the previous year.

The McAllen projects are also viewed as a way to boost the local economy by creating jobs. The Embassy Suites would employ 117 people and La Quinta Inn would employ about 40, according to city documents.

Omar Rodriguez, director of the convention center, said the project will help the local economy by giving a boost to the convention center and creating employment opportunities.

"It's a win-win," he said.

City leaders initially were brokering the deal for only the Embassy Suites project.

But the developers of La Quinta Inn also experienced difficulties finding funding for their project, Branham said, prompting the city to also seek loans on their behalf.

The Embassy Suites had originally been scheduled to open in fall 2009, and La Quinta Inn was slated to open in late 2008. Construction has begun on neither.

Larry Fallek said construction could begin on the Embassy Suites as soon as two months after the government loans are secured.

The city initially had planned to help fund the construction of that hotel by borrowing money from its firefighters pension fund, but when that proposal met resistance, McAllen officials chose to pursue state funding as an alternative.

Mike Blum, a spokesman for the Embassy Suites team, said the hotel would eventually generate $500,000 annually in occupancy tax for the city as well as $150,000 annually in property tax.

The two hotels would be on the southwest portion of the convention center site, in front of the reflecting pool.

The Embassy Suites would also be funded with a $12.3 million bank loan and $9.5 million of owner equity.

La Quinta Inn would have additional financing in the form of an $11.25 million bank loan and $4.15 million of owner equity.

"The city's risk is very small, but it will have a tremendous return on its investment," Blum said earlier this spring.

Wadhwani and Garza, of the La Quinta Inn project, did not return calls for this story.

A third developer, who plans to open a Holiday Inn near the intersection of South 29th Street and Lindberg Avenue is also asking the city to help with loans. That project is being pursued by Ocean Gate Investments, a group of local investors led by Vinod Kasan and Pratiba Kasan.

The team is facing resistance from the city, since the hotel technically would not be located on municipal property at the convention center site.

Meanwhile, there is space for as many as three more hotels at the actual convention center campus.

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