Something for Nothing?

Okay, old-timers, let'sget one thing straight right now. The Austin Convention Center is a wonderful place and a great boon to our city. Kirk Watson says so. Even Daryl Slusher says so. We have been wrong all these years. We must repent. Repeat softly to yourselves, "I love my Convention Center." Do it now. Now.

And while you're doing that, think about how much you'll love the new Convention Center hotel, presumably to be built by the Landmark Corporation and operated by Hilton Hotels, long conspicuous by their absence in downtown Austin, and to be located next to Brush Square, north of the center expansion site. It's gonna be big! At 800 rooms, it will easily be downtown's largest hotel, perhaps even downtown's largest building. (Or at least tallest.)

At their July 22 meeting, when the City Council authorized staff to negotiate the final deal with Hilton and Landmark, the council members were so happy with themselves it was almost embarrassing to watch.

The item could have been passed on consent, but was held for "discussion" -- and delayed until the mayor could be present -- just so Watson and Slusher could remind us that Hilton did not, repeat, did not ask the city for any subsidy to do the deal.

And so they could point out that the Hilton will deliver 20 times more property tax revenue -- actually, "payments in lieu of taxes" -- than the the city gets from the site's current occupants (O.Henry's Back 40, the Pit Bar-B-Q, and a mix of small retailers and services). And so we could hear about the $70 million estimated payroll and thousands of jobs to be created by the construction, and the subsequent $24 million payroll once the hotel is up and running. "I want to say," said Watson after this went on for a while, "that this is an example of how public/private partnerships can work."

Of course, as we know from the CSC/City Hall deal seven blocks away, it's not an example of how public/private partnerships have worked in Austin. It's also not how convention center hotel projects have worked in many other cities. And not to throw too much cold water on this, but since the deal is yet to be done, it's too early to say whether the city might have been better off becoming a full partner in this deal, putting up some of its own money, and getting more control of the project. But for now, the stars appear to be in their proper alignment.

You're probably wondering why, if the city isn't putting up any money, this qualifies as a "public/private partnership" at all. Well, as the "official Convention Center hotel," Hilton and Landmark can sell tax-exempt bonds to support the project. (They're doing the same right now with their other Austin project, the conversion of the old Air Force base headquarters building, better known as the Donut, into the "official Bergstrom Airport hotel.") This does not obligate the city to repay these bonds, but the tax-exempt status does make them more attractive to bond buyers, which translates into lower costs for Hilton and Landmark on this $200 million project. They will be making payments-in-lieu-of-taxes to the city for the life of the bonds; after that, the property would likely go onto the tax rolls.

That wasn't enough of an incentive, apparently, for the other six developer-operator teams who responded to the city's invitation to submit proposals, since the Hilton/ Landmark proposal "was the only one that met all the criteria," according to Convention Center director Bob Hodge. Those criteria included building a hotel with at least 800 rooms and a parking garage with at least 1,000 spaces, about half of which would be used by the Center itself; having actual "control" of the proposed site; and having a good reputation in the hospitality market, as well as not asking Austin for any money.

"Not that the other proposals weren't good, but they just weren't as good," continues Hodge, who along with Assistant City Manager Jim Smith coordinated the selection process. "The level of city financial participation was certainly the key issue, and we communicated [to all the proposal teams] that it would be important in the review. What we have now -- a project without any financial participation by the city -- was always our hope."

Hilton-Landmark Hotels and city staff are negotiating a deal that could bring an 800-room hotel and 1,000-space parking garage to this block north of what will be the newly expanded Convention Center

From the trade standpoint, it makes sense that Hilton -- one of those hotel chains you expect to find everywhere, and are surprised to not find in downtown Austin -- would see breaking into this market, and in a big way, as enough of a reason to play by the city's rules and wishes. Several of the other proposals involved more niche operators like Adam's Mark, whom you don't expect to find everywhere, so they're not competing for the "I stay at a Hilton/Hyatt/Sheraton wherever I go" traffic, which is a huge segment of the business travel market.

So Hilton would be guaranteed a certain level of business just for being Hilton, and then a bunch more by being the "official hotel." While these details are among the items to be negotiated, it's likely that Hilton can count on some preferred access to the hotel bookings produced by events at the convention center, as well as all the meeting-and-banquet action that goes with being the "headquarters hotel" of a big convention. And, of course, the center benefits immeasurably from having a huge number of rooms within walking distance. "They're going to be dependent on each other for their optimum success," Hodge notes.

Over the next several months, as the deal gets negotiated, it will be instructive to see who needs the other more. Because the city isn't putting up any money, it will have less leverage on issues like design review, or construction scheduling, or the terms of the marketing relationship between Hilton, the center, and the Austin Convention and Visitors Bureau, which handles center sales. "We're speculating on what the relationship will be, because we haven't talked to anyone yet," says Hodge. "The city's main interest is in how the hotel would work with and around the Convention Center and the rest of the hospitality industry -- so that's what's going to take a while to negotiate."

Despite Watson's praise from the dais for Hodge, Smith and the rest of city staff for getting this process done quickly, it's already taken several months longer than anticipated to bring a finalist to the contract stage. As a result, it appears highly unlikely that the hotel -- and, just as important, the parking garage -- will be ready for business when the center expansion is done in early 2002. (Landmark is hoping to break ground next January and finish in July 2002.) "The hotel project is bigger than the expansion, and it's a high-rise, so it'll take longer," says Hodge. "But it will be open within months, and not years, of the expansion's being finished."

As you can imagine, the downtown booster community is only slightly less pleased than is the council with the relative painlessness of this deal. "If the city hasn't had to forfeit anything in quality by not having to subsidize the project, then it's definitely a good thing for downtown," says Charles Heimsath, chair of the economic development committee of the Downtown Austin Alliance. "That's remarkable for this industry. I don't think that approach will work in all major investments downtown, but it seems to have worked here."