City Weighs Selling Hilton Move Could Result in Second Hotel near Convention Center

The city of Houston is considering selling its 1,200-room Hilton Americas-Houston convention center hotel.

The sale would allow the city to pay off bonds used to finance the property and create more financial flexibility to undertake another project, such as a second convention hotel downtown.

That's according to Richard Campo, chairman of the Houston Convention Center Hotel Corp., the nonprofit created by the city to develop and own the hotel.

City leaders have been talking about bringing another large hotel to a site next to the George R. Brown Convention Center and across the Discovery Green park from the Hilton Americas, Mayor Bill White said Monday.

For a sale to occur, however, the city would first have to clear up hotel-related obligations tied to its employee pension fund.

The City Council approved a proposal in 2004 to use the Hilton Americas as collateral to cover $300 million of a $2 billion shortfall in the Houston Municipal Employees' Pension System.
Instead of issuing a bond, the city worked out an arrangement with the pension system allowing it until 2033 to pay off the obligation. In exchange, if the city defaulted, it would have to turn over ownership of the hotel.

But as soon as next week, the city plans to seek council approval to issue pension obligation bonds that would pay off the note to the pension fund, said Judy Gray Johnson, the city's director of finance and administration. The city owes the pension fund about $360 million, including interest.

David Long, the pension system's executive director, said the Hilton Americas must be doing well if the city is considering selling it. "That means the need for that second hotel is very good," he said. With the pension system out of the picture, it lifts the city's collateral obligation, allowing the hotel corporation to sell it. Approximately $280 million is owed on the property, which White estimates could be worth "substantially more than $350 million."

"The sale of the existing hotel could help in the financial flexibility of the city to help it make a new hotel possible," Campo said. "When you can reduce debt and free up cash flow, that's a good thing. Those involved said the idea of a second hotel is still very much in the embryonic stage.

Land has not been acquired nor have terms been set. While city officials said they would like to see a new hotel financed privately, one of the alternatives is selling the Hilton Americas in conjunction with building a new hotel. But the two are not mutually exclusive, Campo said.

City officials contend another hotel would make Houston more competitive for big conventions.
They said Houston loses out because of a lack of hotel rooms close to the convention center.

Downtown has less than 5,000 rooms. For conference attendees that can't find room near the convention center, traveling from the Galleria area can be an inconvenience.

Houston also competes with other cities in amenities. Places like Houston and Dallas that lack mountains, lakes and other natural features must have man-made attractions to compensate, said Doug Ducate, president and CEO of the Center for Exhibition Industry Research in Dallas.

Such cities "need to have some really attractive benefits in order to attract business," he said.

Moreover, midrange convention center hotels are having a hard time competing for business, as more individual travelers tend to stay at either budget or luxury properties, Ducate said
.
"People are going up or down," he said. Convention center hotels "are more and more reliant on meeting and convention business." To that end, hotel developers are more likely to risk capital on properties like Courtyard by Marriott on the lower end or Ritz-Carlton on the high end.

And that could prove challenging for the city, which would like the private sector to build another convention hotel.

Outside of New York, Orlando and Las Vegas, there hasn't been a major convention center hotel built without some public subsidy for more than 15 years, Ducate said.
By NANCY SARNOFF and CAROLYN FEIBELCopyright 2008 Houston Chronicle TOOLSnancy.sarnoff@chron.com