Another Mother of Hotel Giveaways Angle Sounds Familiar
Some City Hall boondoggles keep getting resurrected, each time with a stranger twist. One of these is the “Mother of All Hotel Giveaways,” as I dubbed the convention center hotel when it was first proposed seven years ago.
It began with the $200 million Convention Center expansion that city leaders said would win us the Really Big Conventions that would fill up local hotel rooms and increase occupancy tax revenues.
But after the expansion failed to draw the huge meetings, they said we needed more rooms and then gave multimillion-dollar subsidies to three big hotels. And when the conventioneers still didn’t show, it was because we needed a hotel at the convention center itself. It will be the Mother of All Hotel Giveaways, I predicted.
In addition to the biggest subsidy to date, it will also get a free city parking lot and sit on prime city land rented for a song.
At that time, headquarters hotel plans were as common, nationally, as huge convention center expansions. Literally every large city was doing one or both, so all would soon be competing for the same limited big conventions.
Undeterred, city officials picked a developer and waited, and were still waiting when I cited what Grid, a real estate trade journal, had reported in its April 2002 edition: “Both the city (of San Antonio) and the development team continue to put the best face on the situation, (but) the deal is coming undone.”
By then, our headquarters hotel plans were 6 years old and the hotel was five years behind on its original opening date. And the travel industry had still not recovered from its post-Sept. 11, 2001, nosedive.
After Related Lodging and Starwood Hotels & Resorts Worldwide Inc. missed its umpteenth financing deadline, the council dropped the developer – but not before vowing to “find other ways” to make the hotel a reality.
One year later, city officials are still quietly exploring ways to revive it. They are considering financing the hotel entirely with tax money and handing it over to an operator, and even expanding it from 1,000 to 1,200 rooms to 1,600 rooms.
But a newly released study of Dallas’ proposed convention center hotel sheds some interesting light on these deals. (It was conducted for Washington-based Citizens for a Sound Economy by Source Strategies Inc., which also provides detailed analysis of hotel occupancy rates and taxes for the Texas Department of Commerce.)
After studying development in Texas’ largest convention markets over the last two decades, researchers concluded that “headquarters hotels do not generate their own market demand, (but instead) absorb existing demand.”
Source Strategies also found that if “the investment criteria of a private developer” were applied, subsidies for such boondoggles are “not a sound investment” because “the city would assume massive financial risk for a minimal return.”
Finally, the research group concluded that “a ‘Convention Headquarters’ hotel will be financially devastating to the existing hotels in the downtown district, causing extensive loss of revenues, reduced real estate values (and diminished tax base), and in some cases bankruptcies and closures.”
Of course, what they found concerns Dallas’ proposed hotel. What we have been writing for almost seven years is about ours. But I must emphasize a key point made in that study: “Where private enterprise fears to tread, beware!”