San Antonio – The San Antonio City Council approved several items Thursday that pave the way for Hyatt to sell off its 1,003-room River Walk hotel, which sits on city land, in a deal worth up to $450 million.
City officials have called the deal, which would free the city from making any more debt payments on behalf of the hotel, a “win-win.”
The sale of the building is a private deal between Hyatt and an Arizona-based non-profit, but City Council had to approve several measures that would let it move forward.
Seven council members voted in favor, while three abstained: Councilman Jalen McKee-Rodriguez (D2), Councilwoman Teri Castillo (D5), and Councilwoman Ana Sandoval (D7).
Councilman Clayton Perry (D10) was absent from Thursday’s meeting.
Hyatt wants to continue managing the Grand Hyatt San Antonio River Walk next to the Henry B. Gonzalez Convention Center while selling off the building itself. 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 off the hook for future payments.
The deal would also eventually transfer hotel ownership to the city.
Several council members gave the prospective deal a five-star review.
“What we’ve been brought today, Ben, I have to say, can’t be described anything other than a ‘win-win,’” Mayor Ron Nirenberg said, addressing city Chief Financial Officer Ben Gorzell.
“Can you bring me a deal this good every week?” quipped District 1 Councilman Mario Bravo.
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 and interest 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.
DETAILS OF THE DEAL
The new deal 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 CFC-SA, a limited liability company, whose sole member is the 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 nonprofit holds the building in trust for the City of San Antonio.
New bonds, worth up to $450 million, depending on their pricing, would:
- Pay Hyatt for the hotel acquisition - estimated to be about $140 million depending on market conditions
- 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 an estimated $75 million in debt and operating reserves for the Grand Hyatt
- Pay the costs to finance the transaction - estimated at about $10 million
The city would have no part in financially backing these new bonds, which would be issued by the Public Finance Authority, a Wisconsin governmental entity.
The bonds are scheduled to be paid back over 40 years through hotel revenues, 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.
EVOLUTION OF THE DEAL
Hyatt had previously approached the city about buying out its ground lease and basically take over the city land underneath the building, too, Gorzell said. The two sides looked at a number of options, he said, before the pandemic hit and the talks were put on pause.
David Peters, the senior vice president of the Corporate Transactions Group for Hyatt Hotels Corporation, told reporters Thursday that Hyatt is trying to sell down its property.
“And that’s geared towards shifting our earnings mix more toward a fee based earnings mix, as opposed to a owned real estate based earnings mix,” Peters said.
Peters confirmed that part of Hyatt’s original strategy had been to acquire the land so it could sell the hotel and land off as a package deal.
Ultimately, though, the city decided it wanted to keep control of the land.
“We really didn’t see an option that made sense for us to sell that, and it really then kind of morphed into this proposed transaction,” Gorzell said.
Because the city will no longer be providing a financial incentive in the hotel, Gorzell told council members that the requirement to have a “living wage standard” in the ground lease agreement would disappear.
That standard in the current agreement is about $10 an hour, Gorzell said, which was based on 2008 levels when the hotel was substantially completed.
Members of COPS Metro spoke against the exclusion of living wage clause in the new agreement and Councilwoman Sandoval said “I see Living Wage is something that we want for everybody, whether or not it’s an economic incentive package.”
Hyatt Area Vice-President and General Manager Philip Stamm, though, said the hotel does not plan on cutting wages, and that the union contract that covers many of its employees “far exceeds the living wage scenario.”
Gorzell said the deal will not be completed until the bond pricing and a financial close happens. The bond pricing is scheduled for late March, and the financial closing is expected in late April.
CLARIFICATION: A previous story had incorrectly stated how the deal had evolved. That has been corrected in this version.