San Antonio taxpayers take another piece of the tab for the construction of the downtown Grand Hyatt

City officials were forced to make a $ 5.8 million payment on the bond debt of the Grand Hyatt, the hotel connected to the Convention Center, on Thursday.

This was the third such payment in a year. Since last July, San Antonio taxpayers have made $ 10.4 million in payments the hotel has been unable to make because its occupancy and revenue have been hit hard by the COVID-19 pandemic.

The city is on the hook because it guaranteed $ 208 million in bonds issued in 2005 to build the hotel.

The next payment of $ 4.2 million is due on January 15. City spokeswoman Laura Mayes said on Thursday the hotel should be able to meet the payment.

“Based on Hyatt’s current distributions and the evolving recovery in the travel industry, the city expects the Hyatt to be able to meet its debt service obligations in January,” she said. declared.

In December, city officials predicted they would have to make a payment of $ 9.1 million on Thursday. But Mayes said the city’s liability was reduced to $ 5.8 million as revenue from hotel operations was available to make up the remainder of the $ 9.1 million that was owed.

Although the city is tracking payments, Moody’s Investors Service downgraded its debt rating from stable to lowest in its investment grade category on May 21.

On June 8, the credit rating firm also issued a negative outlook on bonds due to the “potential for a prolonged impact on consumer habits after the pandemic.”

At the same time, Moody’s said the Hyatt could return to pre-pandemic income levels by summer 2022 and predicted the city would have the funds to make another bond payment in January.

Much of the financial health of the Grand Hyatt depends on the resurgence of the San Antonio convention and major event trade, which has dried up amid the pandemic.

Big meetings and conventions are starting to come back. An association of 13,000 high school and college coaches in Texas will hold their annual conference at the Convention Center Sunday through Wednesday.

But a full recovery is not expected until 2023 or 2024, said Paul Vaughn, senior vice president of hotel consultancy Source Strategies.

“The Grand Hyatt is a great hotel. They have a long way to go before they get back to a really healthy operation, ”he said.

With over 1,000 rooms, the hotel is the largest in the city center.

Responsibility of the city

The city is financially responsible for the Grand Hyatt due to the 2005 city council decision to build the hotel using city guaranteed bonds.

San Antonio officials were confident that a new hotel connected to the Convention Center would boost the city’s convention activities. A consultant’s glowing report on the hotel’s benefits in attracting conventions and filling rooms convinced board members to support the project.

But the city couldn’t find a developer willing to pay the hotel’s construction costs.

The city therefore issued more than $ 200 million in bonds to build the 34-story hotel, the third tallest building in the city. He guaranteed investors buying the securities that he would step in and make the payments if hotel owners couldn’t.

It happened last year.

The occupancy rate dropped to an average of 17% at the Grand Hyatt in 2020, and the hotel was closed for five months.

“Certainly the pandemic was absolutely, indeed unpredictable,” said Heywood Sanders, acting chair of the Department of Public Administration at the University of Texas at San Antonio.

But Sanders, a convention center finance expert, said the Grand Hyatt, which opened in 2008, has never lived up to expectations – whether it’s filling its own rooms or attracting enough convention companies to fill the rooms of other downtown hotels.

City data shows 766,259 room nights were attributable to conventions and meetings at downtown hotels in 2019, before the pandemic. This was an increase of only about 4% from 2006, before the Hyatt was built.

The Hyatt itself rarely filled up.

Occupancy forecast not respected

Project bond documents in 2005 predicted an average annual hotel occupancy of 76 percent within a few years of construction. Sanders said the hotel has never hit this average. It only came close once, reaching 74% in 2014.

The hotel filled 69.8% of its rooms in 2019, the last full year before the pandemic, according to city data.

“I would say there are lessons to be learned,” Sanders said. “And one of the lessons… is the kind of trust you place in consultants’ long-term forecasts. And they have to be evaluated very, very carefully.

Even though San Antonio hotels have started to recover – mostly with an influx of tourists – the Grand Hyatt continues to struggle. The hotel generated $ 1.6 million in revenue in May, down 61.6% from the same month in 2019, according to data from Source Strategies.

A third of the hotel’s 400 employees have yet to be called back to work, said Jake Tucker, shop steward of United Here, the union representing hotel workers.

Tucker, who organizes conventions, meetings and banquets, is one of those still out of work.

“Summer has traditionally been slow in the convention industry,” he said. “I hope things improve in September.”

Payments until 2039

Payments on the bonds are expected to continue through 2039. Hyatt Corp., which owns and operates the Grand Hyatt, still owes $ 173 million.

As part of the bond deal, Hyatt Corp. – which bought the stake of the initial investor Marathon Asset Management in the hotel in 2013 for an amount estimated at 70 million dollars – is supposed to repay its debt after paying its expenses. If it doesn’t, the restrictive covenants provide that the payments come from the resort tax on hotel guests and other visitors.

After paying off the debt, the hotel generated more than $ 34 million in profit for Hyatt Corp. from 2016 to 2019, according to city data. It suffered a loss of $ 17.7 million in 2020. In addition, Hyatt, who is also the manager of the hotel, collected a management fee of more than $ 12 million for the operation of the hotel. hotel from 2015 to 2020, city documents indicate.

Hyatt is entitled to 12% annual profit under the deal.

Most of the more than $ 10 million for the Grand Hyatt’s debt payments come from funds meant to pay off the Convention Center’s expansion debt. The center was expanded in 2016 at a cost of $ 325 million, another part of the plan to increase the city’s share of convention activities. The city makes part of the convention center payments through a provident account.

The other money to pay off Hyatt’s debt came from accounts that were supposed to promote overall tourism marketing and arts programming in the city.

Executives at Visit San Antonio, the public-private nonprofit that markets the city to convention and meeting planners, insisted that building the Grand Hyatt was not a mistake – that it has helped attract major conventions to the city.

“The Grand Hyatt is an invaluable part of San Antonio’s efforts to rebuild its meeting landscape in the wake of the unprecedented COVID-19 pandemic,” said CEO Marc Anderson. “This not only increases the community’s $ 15.2 billion tourism industry, but also helps identify San Antonio as a top convention destination.”

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