San Antonio –The city of San Antonio could free itself of its debt to the Grand Hyatt San Antonio River Walk hotel with a proposed deal totaling up to $450 million.
Hyatt wants to continue to manage the 1,003-room hotel next to the Henry B. Gonzalez Convention Center while selling the current building. According to city staffers, this is an arrangement that would reimburse the city for debt payments it had to cover on behalf of the Grand Hyatt while preventing the city from paying in the future.
The deal would eventually transfer ownership of the hotel to the city, which already owns the land beneath the building.
“From a financial standpoint and from a control standpoint, I think the city is in a much better position,” City Manager Erik Walsh said.
Although this is mostly a private deal, the San Antonio City Council would have to approve some aspects. It is scheduled to vote at its March 3 meeting.
In 2005, eager to attract large events and conventions, the city supported the issuance of hotel bonds worth $208.1 million to finance the construction of a convention center hotel. He also agreed to lease land next to the convention center to build it.
But, to help fund the project, the city has pledged to cover the debt payments on the bond with city tax money in case the hotel’s revenue isn’t enough.
When the pandemic hit in 2020, that’s exactly what happened, leaving the city to pay $10.4 million to make up payment shortfalls in 2020 and 2021.
In addition, the city has never been able to collect the rent owed to it under the ground lease. Although $4.9 million in lease payments will have accrued by April 2022 — when the deal could be finalized — the city is too far down the financial pecking order to have seen anything of it.
“In the 2005 structure, there are seven or eight buckets that have to be filled with hotel revenue, and the city was way down in that deal,” Walsh said.
The proposed new deal would put the city higher in the priorities, making it more likely to get its annual payments.
The hotel’s new owner is said to be an Arizona-based nonprofit Community finance companywhich aims to “lighten the burdens of government”.
Under the proposed deal, Hyatt would continue to operate the hotel, while CFC holds the building in trust for the city of San Antonio.
New bonds, worth up to $450 million, would:
Cover the price of the sale of the hotel
Pay the remaining $168.3 million of the original hotel bonds
Reimburse the city for the $10.4 million it paid to cover hotel debt payments
Pay the $4.9 million in ground lease payments the city owes
Financing the Grand Hyatt’s debt and operating reserves
The city would have no part in financially supporting these new obligations.
The bonds are expected to be repaid over 40 years, although the city says that could happen even sooner. Once they are, ownership of the hotel would transfer to the city.
In the meantime, bondholders would have a lien on the building, like a mortgage.
City officials say Hyatt approached them to sell the property before the pandemic hit, but things were put on hold once it hit.
“As we looked at the options, it became, you know, we think, an option that can be a win-win for all parties here,” city chief financial officer Ben Gorzell said.
During a briefing with reporters Wednesday night, Walsh suggested Hyatt may have approached the city to change the structure because of its business model.
“And that’s an appropriate question for Hyatt,” Walsh said. “’What is their model? Do they own buildings or operate buildings? »
In an emailed statement Thursday, Grand Hyatt San Antonio River Walk Area Vice President and General Manager Philip Stamm said, among other things:
“The proposed sale is part of Hyatt’s asset sale strategy to transition into a more fee-based revenue mix, fund Hyatt’s continued growth in key markets where our guests travel, and fuel new new business lines that strengthen opportunities to care for customers in more ways and more places.
Stamm said Hyatt “does not anticipate any business disruptions at this time.”
Copyright 2022 by KSAT – All rights reserved.