CityScrapes: San Antonio should have recognized its Grand Hyatt project was a debacle all along

Over a decade of changing mayors, new councilmembers and different city staffers, no one seemed to question the wisdom of a city-financed hotel.

The City of San Antonio’s eagerness to back the Grand Hyatt has been problematic from the beginning. - COURTESY OF GRAND HYATT
Courtesy of Grand Hyatt
The City of San Antonio’s eagerness to back the Grand Hyatt has been problematic from the beginning.
Editors Note: CityScrapes is a column of opinion and analysis.

The "Mother of All Hotel Giveaways." That's what the late Express-News columnist Carlos Guerra dubbed the plan for a 1,000-room convention center hotel in March 1996. The city and county had already doled out tax abatements to two downtown hotels, the Westin Riverwalk and the Adam's Mark, later the Wyndham. But city staff decided that we needed a really big hotel next to the Henry B. Gonzalez Convention Center to lure the most enviable conventions to town.

When Guerra used the "mother" characterization, the hotel was just a gleam in the eyes of city staff and local business interests. It wasn't clear who might pay for or develop the property — just that a whopping big public subsidy would be required. But there would be gold at the end of the rainbow, they promised. Without the new hotel, we wouldn't see the full benefit of the convention center expansion then planned. They sold the project as crucial to our place in the convention business — a central element in the continuing development of downtown.

Now, 26 years later, with the city paying Hyatt to take that "mother" hotel, the Grand Hyatt, off our hands, it's imperative that we ask how the City of San Antonio got into the hotel business, how that plan worked out and what went wrong. For that, we need to start in March 1997, when city council approved ITT Sheraton as the developer of the new convention center hotel, doling out a $7 million, 10-year property tax abatement.

The project came with a host of promises neatly set out by then-Mayor Bill Thornton. He pledged the project would "increase annual visitor spending in San Antonio by $100 million, create a payroll of $15 million for 850 jobs and pump an average of $777,000 in sales tax rebates into city coffers. The city's share of hotel occupancy taxes from the hotel when it is in full swing will be about $1.3 million," according to the Express-News.

There were lots of comments from councilmembers about how much more other cities had to dole out in subsidies, about the quality of the promised jobs. They were "fine jobs," then-councilmember Lynda Billa Burke said. "These people need to be proud of what they do."

But during that discussion, no one at the city bothered to explain why a major corporation like Sheraton needed a subsidy to build a hotel in downtown San Antonio.

That should have been the first hint the project was uncertain and that it carried real risk, despite repeated promises a major expansion of the convention center would draw more visitors to San Antonio.

It took a few years for the second shoe to drop, or perhaps we should say "the second hint." In 2000, Sheraton agreed to a revised deal, promising a 1,200-room hotel in exchange for a reduced tax abatement deal of just $3.1 million, together with a commitment to a minimum of $7 an hour to hotel employees. Finally, in February 2002, with the convention center expansion complete and Sheraton still unable to come up with financing, the city pulled the plug on the deal. How much clearer could that have been? A major hotel brand couldn't make the numbers work.

So, did the city staff call a halt, or even a timeout, and ask if the long-sought hotel was really viable? Simply put, no.

A year after the collapse of the Sheraton, after all those warning signs, staff — notably assistant city manager Chris Brady — pressed the case for a headquarters hotel, indeed one even larger than the 1,200 rooms Sheraton had proposed. To get an outside perspective on the need for such a massive lodging property, Brady proposed creating an "advisory board of experts."

That body largely consisted of local hoteliers and hospitality interests, and rather predictably, it endorsed the need for a big, new hotel. Former councilmember Art Hall seemed to sum up their thinking when he said: "For me, the bottom line is we have to compete."

So, to get that long sought-after hotel, city staff in 2004 promoted a scheme to use "mostly private" financing aided by $130 million in federal empowerment zone bonds. And when no such private financing materialized, the city financed the project by itself with a $208 million empowerment zone bond backed by citywide hotel taxes.

Hint after hint, warning after warning. All as what began as the "Mother of All Hotel Giveaways" morphed into an even more substantial public commitment. Over a decade of changing mayors, new councilmembers and different city staffers, the dream of a grand convention center hotel remained unabated, carried along by promises of a convention boom.

Yet once the new Grand Hyatt opened in 2008, our elected officials and city staff appeared to remain willfully ignorant — not questioning the Hyatt's performance, not asking if the convention boom had ever materialized. Indeed, even before the Hyatt was fully operating, the city commissioned yet another consultant study of a convention center expansion. And just as predictably, even as the Grand Hyatt consistently underperformed its forecasts, the city moved ahead on that expansion.

There was no serious inquiry. There was no evaluation. There was no accountability.

Somehow, San Antonio for all its charms and appeal, seems to regularly manage grand public policy failures: Fiesta Plaza, Rivercenter, St. Paul Square, SeaWorld, Fiesta Texas, the Alamodome, Sunset Station, Downtown TriParty, PGA Village, the Regional Mobility Authority. When do we learn from those mistakes?

But don't worry, an Elon Musk-built tunnel from the airport to downtown will surely fix everything.

Heywood Sanders is a professor of public policy at the University of Texas at San Antonio.

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