Conroe to cover $133M hotel debt until ’50
Study finds city will be on the hook for $1M annually
Conroe will have to cover debt on its new $133 million Hyatt Regency Hotel and Conference Center until 2050 according to an updated report, which shows the city will be on the hook for around $1 million in annual payments until then.
Last year, the city hired consultant Virginia-based REVPAR International to provide estimated future cash flow for debt service and surplus revenue from the hotel operations. Chris Cylke with REVPAR International presented the study to the City Council during a Wednesday workshop. While the hotel will see some positive cash flow moving forward, it won’t cover the city’s debt payments, the study shows.
According to information from Cylke, the original projections by commercial and real estate research company CBRE for revenue are a “stark” difference to the new projections. CBRE predicted the hotel in 2024 would generate $6.16 million in earnings before interest, taxes, depreciation and amortization.
However, REVPAR’s updated data shows the same earnings figure for 2024 at just $407,000, a $5.75 million difference.
“These original projections were prepared prior to COVID and prior to the impact of COVID,” Cylke said.
Council Member Howard Wood asked if the way the hotel was built and how it was structured with the city owning it is common.
“I wouldn’t say this is common,” Cylke said.
Typically, Cylke said municipalities own a convention center, and a third party owns the hotel.
City Administrator Gary
Scott said REVPAR’s report was critical for the city and its future.
“It doesn’t look good,” Scott said of the report. “The hotel is ours; we own it. Right now, we aren’t going to change that.”
S&P rating change
The city issued three separate series of revenue bonds to fund part of the hotel, and according to information from the city, the total debt on those three liens on the hotel total about $144 million, including interest.
This latest financial outlook comes after S&P Global analysts warned investors in February that the hotel may not earn enough to pay back the debt and lowered the credit rating on its first-lien and second-lien hotel revenue bonds. These ratings show that the city depends on good business, financial and economic conditions to repay the debt.
The hotel and convention center, which opened in May 2023, is the city’s largest taxpayer-funded economic development project.
However, due to missed economic projections, the project has been dogged by cost overruns and multimillion-dollar taxpayer bailouts.
Scott said the hotel has had lasting financial impact on the city and will continue to affect future projects and needs.
“We are spending money on the hotel instead of doing other projects or hiring staff,” Scott said. “But with this report, we hope we can move forward with some reasonable solutions.”