On the heels of yesterday’s idiocy about the fantabulous Astrodome Hotel, today we learn that the city of Houston may soon take control of a second hotel:
Houston taxpayers have millions of dollars on the line — money that former Mayor Lee Brown’s administration loaned to private hotel developers. Now the current mayor is threatening to foreclose on two hotels that owe the city a small fortune.
As downtown Houston revived, the city government orchestrated a hotel building binge.
Around the same time, the city built its 1200 room convention center hotel. It also helped private developers build two other downtown hotels.
But the 11 News Defenders reported earlier this year that the Magnolia Hotel hasn’t paid back a dime of the $9.5 million it owes the city — missing payment after payment.
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But the Magnolia is a different story. City officials are already talking about foreclosing on the property and hiring an outside management team to come in and take the place over and keep it running until another buyer can be found.
In effect, the city of Houston would own yet another downtown hotel.
Some downtown hotels managers complain the city government helped flood the market with empty rooms.
“It seems, sometimes, politicians get into the supply and demand business, trying to force supply and demand to balance,” said Sergio Ortiz, GM of the Lancaster Hotel. “But there’s only one way it is balanced, which is free economics.”
Now the city government’s playing a different tune, saying it’ll never again put taxpayer’s money on the line for one of these downtown hotel deals.
It’s a little late for that epiphany now.
As Tom Kirkendall has said previously, this is why the City of Houston should not be in the business of financing redevelopment projects.
UPDATE: Tom Kirkendall cautions Mayor White about seeking to foreclose on The Magnolia Hotel:
Note to Mayor White — before you have the City foreclose its second lien on either of those hotel properties, please check to see whether either of them is generating enough revenue to pay operating expenses, much less debt service on the first lien indebtedness. Hotel properties “eat” money, and if the current owners are at least contributing enough to subsidize negative cash flows to operations, considering an alternative to foreclosure could save the City a ton of money. Sometimes you get more than you wish for when driving a hard bargain.
