Sep. 28, 2002 - FORT WORTH, Texas-- After years of debate, top Fort Worth officials are recommending that the city spend $130 million to build a 600-room convention center hotel without seeking voter approval. 

The proposal, which could go to the City Council for a vote within two weeks, has been criticized by downtown hoteliers who don't want the competition and by some analysts who say the project could be financially risky. 

But Mayor Kenneth Barr, City Manager Gary Jackson and a slew of outside consultants say a publicly owned hotel would more than pay for itself by generating additional convention business. 

"There is a pent-up demand for quality hotel rooms in downtown Fort Worth," Jackson said. "I feel confident that this is a safe project." 

If approved, the hotel could open by January 2006 under management of the Hilton Hotel Corp. on a tract of downtown land that now houses Tarrant County College's administration building. 

The project would be funded through the sale of certificates of obligation, a type of financing that is growing in popularity among cities unable to lure private developers. Similar to bonds, the certificates do not require voter approval. 

"This has become the new thing," said Sam Staley, a senior fellow and policy analyst with the Los-Angeles based Reason Foundation, a national public policy group. 

"Cities are looking at these kinds of tools much more," he said. 

"The truth is, the private sector won't touch this with a 10-foot pole because they don't think it will be a very good deal." 

Under the proposal, revenue from the hotel would be used to repay the certificates without tapping city coffers, officials said. 

If the project failed, the city would be forced to use cash from its general fund to cover the annual debt payments -- perhaps by raising the tax rate or cutting other expenses. 

Council members will get their first briefing on Jackson's proposed financing plan during a 3 p.m. work session Tuesday at City Hall, 1000 Throckmorton St. 

The proposal comes while hotel occupancy and tourism are down and as competition is growing for conventions and trade shows. 

But three outside studies commissioned by the city and several national consulting firms have concluded that the project is safe and viable, officials said. 

"This is not devoid of risk," Assistant City Manager Charles Boswell said this week. "We wouldn't want to kid anyone about that. We're putting the full faith and credit of the city behind the deal. 

"But based on all the reasonable assumptions that a person can make, we think the risk is very, very minimal." 

The city has chosen Hilton to operate the facility, but details of a management contract have not been completed, said Public Events Director Kirk Slaughter. 

Slaughter said the city is expecting Hilton to kick in about $3.5 million toward the project's cost. 

City officials have long argued that a first-class headquarters hotel is needed to attract larger, more lucrative conventions to the remodeled Fort Worth Convention Center. 

Without a luxury headquarters hotel, the city could lose convention business to Houston, Austin, Grapevine, Sacramento, Calif., or Overland Park, Kan., all of which are building luxury hotels aimed at convention and business travelers. 

Increased tourism can generate millions of dollars in business throughout Tarrant County as convention-goers dine, shop and visit attractions such as Six Flags Over Texas, NRH2O and local museums. 

"The do-nothing scenario is simply not viable," Boswell said. 

"Groups won't come unless they have rooms to stay in." 

But Bruce Walker, a hotel consultant who has studied the issue for competing downtown hotels, says quality attractions lure conventions, not new hotel rooms. 

"Fort Worth's problem is that it's just not a popular destination," said Walker of Source Strategies in San Antonio. 

"Build a Disney World, a Sea World -- that's what brings people in," he said. "Not the addition of new hotel rooms." 

Despite the criticism, public financing of hotels is becoming increasingly popular across the country as cities take advantage of lower interest rates not available to private developers. 

"There's not a single convention center hotel that's been built in America in the last 10 years that didn't have some public support," said John Keeling, senior vice president of Houston-based PKF Consulting, a hotel consulting company. 

"And in the last five or six years, public ownership of hotels has started to become more common than unusual." 

In Denver this year, for example, the city scrapped four years of work by opting out of a proposal to build a convention center hotel with a private developer. Mayor Wellington Webb has instead proposed that the city own and finance the project. 

Houston, after trying for several years to find a private developer for a luxury convention hotel, finally issued tax-exempt bonds without voter approval to fund a $300 million, 1,200-room Hilton Hotel that is scheduled to open next year. 

"It's virtually impossible to get a private developer to do this kind of project unless you have gaming or Mickey Mouse," said Gerard "Jordy" Tollett, president of the Houston Convention Center Hotel Corp., a nonprofit company the city set up to build the hotel. 

"Orlando and Las Vegas are really the only markets where the private sector is willing to go." 

Hotel operators in downtown Fort Worth said the new hotel would hurt their business. 

Stan Kennedy, vice president of operations at the convention-busy Radisson Plaza Hotel, said a tax-exempt facility would give the city an unfair advantage, allowing it to charge lower room rates than competitors. 

"It's an unfair business practice," he said. "They won't have the same financial obligations as we do." 

He said the proposed city hotel could cause occupancy at the Radisson to drop 10 to 15 percentage points. 

"We might have to lay off employees," he said. "They seem to have this theory that, if you build it, the business will come. My theory is, if you build it, the business will just move to that hotel." 

Bob Jameson, general manager of the Renaissance Worthington, said the city should work with a developer to renovate an existing property. 

"When the city started talking about the need for a convention center hotel years ago, I envisioned it would have some sort of city support," Jameson said. "I never envisioned it would be city-owned. 

"I guess I appreciate the city's vision and the fact they know where they want to go. I just think that in getting there, we should ensure that everyone is still standing." 

A city-commissioned study by HVS International found that the average annual hotel occupancy in downtown Fort Worth has not climbed above 60 percent since 1996. 

Since the Sept. 11 attacks, it has dropped further. Occupancy rates from January through May were below 55 percent, a drop of about 5.2 percentage points from the same period last year. 

The study, however, predicts that occupancy at the city's new hotel would reach 69 percent by 2009, three years after its opening. 

According to the HVS analysis, occupancy rates are already above average at the Renaissance Worthington and the Blackstone Courtyard by Marriott, the only two downtown hotels considered in the study to be "first-class." 

In 2001, occupancy of the Worthington's 504 rooms fluctuated from a low of 67 percent to a high of 72 percent. The Courtyard's occupancy was higher: 77 percent to 82 percent for the year. 

Barr said the figures prove that people would flock to a first-class property. 

"I believe this theory about a 'flight to quality' is very accurate," he said. "Having an adequate supply of first-class hotel rooms will bring in more convention business." 

Jed Wagenknecht, general manager at the Marriott Courtyard, hopes that the mayor's prediction is accurate. 

"I do believe that it will actually help the city by allowing us to focus on markets that we currently can't go after," he said. "On a week-to-week basis, when we don't have conventions in town, then we might suffer, but I think you have to look long term." 

Financial analysts say the hotel would need to fill an average of 44.6 percent to 55.6 percent of its rooms to break even, paying its costs and debt. 

But city officials believe that the hotel will do better and could generate as much as $26 million -- in addition to repaying the debt -- over the next 35 years. 

Much work is still left to be done, however, before the project becomes reality, officials said. 

The City Council must first approve the project, and the city would then have to acquire land for the site. The city is now negotiating with Tarrant County College to buy its administration building at 1500 Houston St., west of the Fort Worth Water Gardens. 

If all goes according to plan, ground could be broken on the new hotel by June. 

"I was originally very skeptical that this was the best financing plan," Barr said Friday. "But this is the surest way and the safest way to get a substantial new headquarters hotel. To not move forward would be very shortsighted." 

Several hotels in downtown Fort Worth now handle the bulk of the convention business. They say their business would be hurt by a city-owned facility. They are: Renaissance Worthington, a 504-room, full-service hotel located on Second Street between Houston and Main Street. The Worthington is generally considered the nicest of all the downtown hotels, with full-service restaurants, meeting and ballroom space and health club facilities. 

Radisson Plaza Hotel, the largest hotel in downtown Fort Worth, has 517 rooms, half of which were remodeled after the March 2000 tornadoes. It is the closest large hotel to the Fort Worth Convention Center, located at 815 Main St., about one-half block from the convention center arena. 

Blackstone Courtyard by Marriott, located on Main Street between Fifth and Sixth streets. This 203-room hotel reopened in 1999 after a $21 million renovation. It features an outdoor swimming pool and the popular Corner Bakery restaurant. 

The city's proposed 600-room convention center hotel would cost about $130 million and would be operated by the Hilton Hotel Corp. 

Officials say it would be a first-class property, with features that would include: 

-- Full-service restaurant 

-- Room service 

-- Health club 

-- Swimming pool 

-- Whirlpool 

-- Laundry service 

-- Ample meeting and ballroom space 

-- On-site parking and/or valet service 

Fort Worth's proposed $130 million city-owned hotel would be one of many hotels across the country financed by local governments. They include: 

-- Chicago: 800-room Hyatt Regency McCormack Place Opened: June 1998 Financing: Tax-exempt bonds issued by the Metropolitan Pier and Exposition Authority. Cost: $166 million 

-- Denver: 1,100-room Hyatt Completion: Late 2005 Financing: Tax-exempt bonds Cost: $285 million 

-- Overland Park, Kan.: 412-room Sheraton Completion: December 2002 Financing: Tax-exempt bonds Cost: $92 million 

-- Houston: 1,200-room Hilton Completion: Mid-2003 Financing: Tax-exempt bonds issued through a nonprofit corporation created by the city of Houston Cost: $300 million 

-- Myrtle Beach, S.C.: 404-room Radisson Open: January 2003 Financing: Tax-exempt bonds Cost: $78 million 

What are certificates of obligation? 

COs, as they are called, are similar to bonds and are sold by cities and other government agencies, typically to finance large public projects. They do not require voter approval. 

Is it legal for the city to publicly own and finance a hotel? 

The Internal Revenue Service has determined that municipalities can issue debt for a hotel that is tax-exempt only if the project serves a public purpose. 

Cities have used the method to construct convention center and airport hotels. 

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(c) 2002, Fort Worth Star-Telegram, Texas. Distributed by Knight Ridder/Tribune Business News. HLT, PKS, DIS,