City could check out of debt obligations through Grand Hyatt sale

Hyatt wants to sell its River Walk and convention center-adjacent hotel in $450M deal

San Antonio – The City of San Antonio could get out of its debt obligations with the Grand Hyatt San Antonio River Walk hotel through a proposed deal totaling up to $450 million.

Hyatt wants to continue managing the 1,003-room hotel next to the Henry B. Gonzalez Convention Center while selling off the actual building. It’s an arrangement that city staff members say would reimburse the city for debt payments it has had to cover on behalf of the Grand Hyatt while keeping the city from future payments.

The deal would eventually transfer hotel ownership to the city, which already owns the ground underneath the building.

“From a financial standpoint and a control standpoint, I think the city is in a much better position,” said City Manager Erik Walsh.

Though mostly a private deal, the San Antonio City Council would have to sign off on certain aspects. It’s scheduled to vote at its March 3 meeting.

In 2005, eager to attract big events and conventions, the city supported issuing $208.1 million worth of hotel bonds to finance the construction of a convention center hotel. It also agreed to lease land next to the convention center to build it upon.

But, to help with the project’s financing, the city pledged to cover debt payments on the bond with city tax dollars in case the hotel’s revenues weren’t enough.

When the pandemic hit in 2020, that’s exactly what happened, leaving the city to pay out $10.4 million to make up payment shortfalls in 2020 and 2021.

Additionally, the city has never been able to collect the rent it is owed under the ground lease. Although $4.9 million worth of 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 any of it.

“In the 2005 structure, there’s like seven or eight buckets that have to be filled with revenue from the hotel, and the city was at the very bottom in that deal,” Walsh said.

The new deal being considered would move the city higher up in the priorities, making it more likely to get its annual payments.

The hotel’s new owner would be an Arizona-based nonprofit Community Finance Corporation, which is focused on “lessening the burdens of government.”

Under the proposed deal, Hyatt would continue to operate the hotel, while the 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 hotel sale
  • Pay the remaining $168.3 million from the original hotel bonds
  • Reimburse the city for the $10.4 million it paid to cover the hotel’s debt payments
  • Pay the $4.9 million in ground lease payments the city is owed
  • Fund debt and operating reserves for the Grand Hyatt

The city would have no part in financially backing these new bonds.

The bonds are scheduled to be paid back over 40 years, though the city says it could happen even sooner. Once they are, the ownership of the hotel would be transferred over to the city.

In the meantime, bond holders would have a lien on the building, like a mortgage.

City officials say Hyatt approached them before the pandemic about changing the structure of their arrangement, but things were put on pause once that hit.

“As we looked at options, this became, you know, we think, an option that can be a win-win for all parties here,” said city Chief Financial Officer Ben Gorzell.

In a briefing with reporters Wednesday night, Walsh suggested Hyatt may have approached the city to change the structure because of its business model.

“And this is an appropriate question for Hyatt,” Walsh said. “‘What is their model? Do they own buildings or do they operate buildings?’”

In an emailed statement Thursday, Grand Hyatt San Antonio River Walk Area Vice-President and General Manager Philip Stamm said, in part:

“The proposed sale is part of Hyatt’s asset-sale strategy to transform toward a more fee-based earnings mix, fund Hyatt’s continued growth in key markets where our guests are traveling, and fuel new lines of business that strengthen opportunities to care for guests in more ways and more places.”

Stamm said Hyatt does “not anticipate any business disruption at this time.”

CLARIFICATION: A previous story had incorrectly stated how the deal had evolved. That has been corrected in this version.

About the Authors

Garrett Brnger is a reporter with KSAT 12.

Sal Salazar is a photojournalist at KSAT 12. Before coming to KSAT in 1998, he worked at the Fox affiliate in San Antonio. Sal started off his career back in 1995 for the ABC Affiliate in Lubbock and has covered many high-profile news events since. In his free time, he enjoys spending time at home, gaming and loves traveling with his wife.

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