Omni Hotel Helps Relieve Convention Center Debt? Great. All We Need Is 10 of Them.

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crater.jpg
Wikipedia
View from space of the convention center's annual budget.
When the Omni Dallas Hotel opened next to the convention center in downtown Dallas in 2011, the story was that it would dig the convention center out of its financial hole. That was a big part of the pitch in 2008 when then-Mayor Tom Leppert was selling voters on bonds for a city-owned hotel.

Wow. I don't remember. Did we ever look down in that hole? This week in response to an inquiry from City Council member Philip Kingston, the city's chief financial officer provided an unaudited statement of the convention center's fiscal year ending September 30, 2013. When I looked down into that debt cavern, I couldn't even see the hotel.

Halloooo! Hallooo! Can anybody hear me down there? Do you need water? Are you able to urinate?

In 2013, according to data provided by Dallas Chief Financial Officer Jeanne Chipperfield, the convention center ran at an operating loss of $37 million against operating revenues of 32 million. So basically it was in the hole by 117 percent as a so-called "enterprise fund" or self-sufficient entity.

That's not a hole. It's an impact crater.

It stays in business because taxpayers subsidize it to the tune of $53 million a year. Just for scale, our annual budget for streets is $59 million.

I looked back a year to the previous audited statement. In the fiscal year that ended in September 2012, the convention center had an operating loss of $33 million, so over one year its operating losses increased by 12 percent. If you were the one on the gurney and that was your trend line, your loved ones would already be arguing over who got your lawnmower.

It's not money down a rat-hole. The Convention Center is a kind of loss leader that draws a lot of business to the city, especially to hotels and the entertainment sector. But we never see a sharp pencil: how much should taxpayers pay to help out the hotel business, and how much is it helping exactly? And meanwhile, were we not told that opening the new convention hotel would begin to ease the burden?

The Dallas Morning News keeps telling us that revenues are increasing at the Omni, which is definitely a good thing. What I have not seen them talk about much is the long-term debt for the hotel -- a mortgage you and I have co-signed, dear taxpayer -- which actually increased by about $7 million in the most recently available audited statement from the city, not that that means the hotel is not doing well. By all accounts, it is renting rooms ahead of projection. But that only makes the trend at the convention center more ominous. We're pumping in saline and electrolytes, but the vitals just keep getting worse.

Leppert's pitch back in the day was that a major convention hotel was all Dallas needed to make its convention center boom. At the same time, however, experts like UT-San Antonio's Heywood Sanders were saying the convention industry was in tank mode nationally and nothing was ever going to make it boom again.

I do get that you don't close the doors and deep-six an entire industry just because it's on a long-term trajectory to the toilet. If that were true, not a single daily newspaper in American would still be publishing today. You ride it down, liquidate goodwill, mine it for cash-flow and all those other dismal dragged out garage-sale practices that are keeping so many of my old colleagues at dailies in paychecks these days.

But we don't want to deform downtown and even cheat it of what might otherwise be a bright future just to keep a dead letter alive a little longer. From the early discussions about the hotel to debates on where to put a second rail alignment through downtown, the Morning News has been an adamant promoter of putting all the city's eggs in the convention center basket, because ... let's see ... why would that be? Well, does it have anything to do with the convention center being in the otherwise moribund southwest corner of downtown where the people who own the paper also own a lot of land?

Nah. Sorry. Forget I mentioned that, will you?

Downtown could go so many other ways. Kingston sees the future as mainly residential and walk-to-work office, meaning we should put a lot of our eggs and our rail lines in that basket instead of sticking them all in downtown's deadest corner. In that larger equation, the convention center hotel may not be a bad thing, just not much of anything.

At the very least, would it not be a wise thing for the city to debate some of these questions openly and candidly: 1) Is current downtown development policy tipped too much toward the convention center corner of downtown? 2) Do we know what the future is for convention centers nationally? 3) Are we sure a bet on the convention center is our best bet for downtown?

Just asking.

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36 comments
Cliffhanger
Cliffhanger

Dammit, just start taking potential convention clients to titty bars again.

holmantx
holmantx topcommenter

The City knew aforehand it was going to be a loser.  Gonzales knew the day (way before the bond election) he signed the change order.

HVS was running a fourth and final feasibility study.  They emailed him and told him it was not feasible (would never pay for itself).  So they gave him a choice - finish the feasibility study (not feasible) or . . . change it to a "market study".  For you see, a market study doesn't have to measure feasibility.  In the biz, a market study is also known as a 10 lb sales brochure.  See?  No problem!

The City then dumped its emails due to lack of space since those terrabyte hard disks were upwards of $100 a piece and the City was in a financial crunch.  Why it might have filled half of one of those bigass hard disks.

Unfortunately for Gonzales, HVS has to keep meticulous file records by law for years and also so the old fat sow doesn't roll over them, or as Rick said in Casablanca on why he came to that shithole "I came for the waters".  "But Rick Algiers is in the desert!", says Capt. Renault.

"I was misinformed"

Naw Rick you weren't misinformed.  And it's in HVS's files.  The Vichy. 

holmantx
holmantx topcommenter

Sam Merten hoisted up a tale of two scenarios back in the day by the pencilnecks.

The City tasked the HVS people to guestimate the impact upon the annual Convention Center profit and loss a) without the hotel, and b) with the hotel.

$3 mill loss without it.

$12 mill loss with it in place.

You's have to revisit it, but apparently the study boys and girls only meant the loss attributable only to the hotel part.  I thought they were only running a $3 Mill loss per annum, which would increase to $12 if they built the damn thing.  

From your numbers, they were only measuring the impact of the loss apportioned to the hotel, or no hotel.

It's a lot worse than even I thought it was.

greg.shelton91
greg.shelton91

Well the head of the convention centery is not even a Dallas Resident...  if he wont' live here then why would he be albe to sell us?

roo_ster
roo_ster

Dear Lord in Heaven, just sell off the whole lot, get out of the hotel and horny conventioneer business, and get back into the gov't business.

becoolerifyoudid
becoolerifyoudid

And yet, the city giving a "forgivable loan" in the amount of $275,000 to the Two Podners guys will get more scrutiny by the general public. 

zqpm
zqpm

Come on, lets cut through the bullshit. This was Leppert, Suhm & Gonzales catering to the aristocrats that wanted it: Bob Rowling, who owns Omni Hotels, Jack Matthews, who was best buds with Leppert. 


Many projected this thing would be a siv, and here we are bleeding to the tune of 50 million per year, which will only get worse.........


Now here comes the kicker, they will finally stop paying the debt service and let one of the aristocrats pick it up for a real "bargain."  

WylieH
WylieH

Leppert, Suhm and Gonzalez structured the debt in such a manner that payments are artificially low for the first few years (basically, they borrow more money to help pay interest on the existing debt), then... Payments escalate sharply.

At the time, I viewed it as a cynical attempt on the part of Suhm and Leppert to ensure that any potential financial problems with the project wouldn't occur until they were both long gone.

ammercngrl
ammercngrl

what is the economic impact the convention center generates?  If it's $2 billion dollars, I think I'd pay $57 million to generate $2 billion and keep people in jobs

observist
observist topcommenter

If you don't want to subsidize a convention center that loses $37m per year, you don't want Dallas to be World Class.

Myrna.Minkoff-Katz
Myrna.Minkoff-Katz topcommenter

The Omni has certainly been a rousing success.  Take a glance at TripAdvisor, which gives the Omni Convention Center Hotel a number 2 ranking out of 187 hotels reviewed by guests. 

WylieH
WylieH

@roo_ster  Unfortunately, Leppert, Suhm and Gonzalez built us a bit of a "trap."  The hotel is worth several hundred million less than the amount of the debt.  So... if we sell the hotel, the City would have to write a several hundred million check to make up the difference--- this is money the City doesn't have.

WylieH
WylieH

Remember that this is the same Jack Matthews who has been backed by Dallas Police & Fire in numerous other ventures such as the Beat Condominiums and Nylo Hotel.

RM1001
RM1001

@WylieH  If we sold the hotel on the open market today, how much would it fetch?  Not $675,000 per room, the current debt per room!  Operating margins look okay now, but only because we're not even making full interest payments, much less paying off the actual debt.  Call Goldman Sachs and ask them how much they want to take the hotel off our books and fulfill our obligations.  Ballpark, around $250 million.

JimSX
JimSX topcommenter

@ammercngrl  

What is the economic impact of banking? Toss them another $57 million? What about the economic impact of warehousing? $57 million? Economic impacts of data storage, web security contracting, lipstick research, grease disposal? Just saying. And, wait ... Who measures economic impact? It's usually the people getting the $57 million. Shouldn't we try harder on that?

observist
observist topcommenter

@ammercngrl  You mean the convention center that brings in soooooooo much business no private investors would build a hotel next to it?

Myrna.Minkoff-Katz
Myrna.Minkoff-Katz topcommenter

Oh, and they invited hundreds of homeless people to spend Christmas at the hotel as their guests.  Good show!

holmantx
holmantx topcommenter

@WylieH @roo_ster  

And the debt is a bond issue, not a reduction loan.  It's not being paid down.  When it sells, it has to payoff the whole issue.  Or somebody has to make up the difference.

As they say in the car biz, you're first loss is probably you're best loss.

It was in reference to a car that has sat on the lot too long.  Somebody offers a price that results in a $2,000 loss to the dealer.  The dealer doesn't take it, but accepts a $4,000 loss thirty days later.

mavdog
mavdog topcommenter

@WylieH @roo_ster

I don't tuly know what the Omni is worth vs the cost invested, but why do you say it's "worth several hundred million less than the amount of debt"?

A recent WSJ article stated "the volume of sales rose in all commercial real-estate sectors, the lodging industry logged the biggest increase in 2013."

An offshore investor is buying a hotel in NYC for about $1.2M a room. For the city to get its money back the Omni sale would need to be around $410 a room.

not beyond a possible price wouldn't you think?

zqpm
zqpm

@WylieH  


Yeah, I have a feeling when all the City of Dallas funded "Jack Matthews" projects are analyzed, there are going to by a quite a sum total of red numbers to look at........................


I just wonder how this guy got so many of the Dallas politicos in his back pocket?

WylieH
WylieH

You're generally correct, the hotel is worth several hundred million dollars less than the amount of the related debt (which is increasing, yet again, as the City uses part of the bond offering proceeds to fund a City-owned high-end restaurant complex in a new building).

The true operating margins are much worse than they appear on the surface due to the fact that the hotel is exempt from property tax and not only gets to keep its own sales taxes, but also get subsidies via sales taxes collected on competing hotels. And then, of course, there are huge direct financial subsidies paid each year by the Federal government.

observist
observist topcommenter

@JimSX @ammercngrl I had a econ professor whose anti-subsidy/tariff mantra was "Just give 'em the goddamn money!"  He'd make the whole class say it.  The point was, if the goal is to "keep people in jobs" it's more efficient to just hand the $57m/year to the people who need the jobs, instead of subsidizing money-losing businesses for the purposes of employing them in make-work jobs.

ruddski
ruddski topcommenter

At 11AM, all tossed out on the street, including dozens of children. Wonder how they rated it on tripadvisor.

mavdog
mavdog topcommenter

@WylieH

I'm not trying to "compare" the Omni to the Standard, merely to point out the demand for lodging is very strong. some would use the word "frothy".

Again, one would need to see the financial performance of the asset to estimate the price an investor or operator would pay. I don't have those numbers, and I don't believe anyone on this board does either.

It is not beyond reason to say the asset COULD bring the $410K/room price. If RevPer is above $41k, a buyer could step up and pay that amount.

WylieH
WylieH

Yes, beyond a possible price. You are comparing this to the Standard Hotel, which commands average daily rates that are multiples of the Omni's, plus far greater barriers to entry for potential competition.

observist
observist topcommenter

@ammercngrl So you're saying the economic benefit of the convention center consists largely of the amount of money people spend on hotel rooms when they come to a convention...   yet, curiously, no private enterprise was willing to build a hotel there, square in the path of the supposed money tsunami emanating from the convention center.

ammercngrl
ammercngrl

Easy there Sparky...there is a bonified formula you can use to determine how many convention delegates or trades show attendees come in and out of Dallas, I looked at the website but don't see attendee numbers...you may have to do your homework before spouting off with an unsupported opinion, next, take that number x the average length of stay in a hotel, again you would want to uncover the factual account of how long the average person who spends money to stay in the hotel, and that would be available I'm guessing from the convention center, the CVB or the city, multiply by you state tax. The Dallas CVB says 13million people a year x 2.5 days average stay x average hotel rate I'm guessing is $150-200 per night 6.25% is tax revenue generated, which BTW helps keep your tax rate at said 6.25%....THEN...determine what the average spend per person is to get the full picture of the economic impact. You likely don't trust the source, so check the airlines, trains, automobile statistics. My guess is your handheld calculator E's out before you get that far, but if you do and are among the believers that math don't lie, you might try wrapping your brain around the fact that this revenue is generated for the community interest not profit, as is the case for a bank, warehouse or lipstick research..shameless plus inserted here for MaryKay Cosmetics, headquartered in Texas. The full economic impact and exponential jobs is what you need to be prepared to accept responsibility for cheering the demise if it all goes away due in any part to your previously uneducated but constitutionally supported opinion.

ruddski
ruddski topcommenter

Myrna, you enjoy decapitating kittens, so you shouldn't talk.

Myrna.Minkoff-Katz
Myrna.Minkoff-Katz topcommenter

@ruddski  You particularly enjoy watching homeless children tossed out on the street, as you've admitted before.

ruddski
ruddski topcommenter

Imagine what the people checking in were thinking as they watched who was checking out.

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