Dallas Convention Center Headquarters Hotel
Frequently Asked Questions

1.  Who are developers that have submitted proposals for the project?

• Six Teams responded to RFP
• Faulkner
• Hamilton
• Jones Lang LaSalle
• Matthews Southwest
• Woodbine Development
• Hines (determined non-responsive)

2.  Who are the parties involved with the evaluation of the proposals and development of the City project?

•  Financial Team
• Chief Financial Officer
• Office of Financial Services
• Financial Advisors
• First Southwest Corp
• Estrada, Hinojosa
• Consultant Support
• Citigroup Global Markets, Inc.
• UBS Securities, LLC
• Siebert Brandford Shank & Co. LLC
• Project Scope/Development
• Convention and Event Services
• Office of Economic Development
• Public Works and Transportation
• RFP Process
• Business Development and Procurement Services 
• Evaluation Team Advisors
• City Attorney’s Office
• McCall, Parkhurst & Horton L.L.P. (Bond Counsel)
• Escamilla & Poneck, Inc. (Bond Counsel)
• Busby + Associates, Inc. (Construction Costs Consultants)
• Other Resources
• Dallas Convention & Visitors Bureau (DCVB) staff
• City Manager’s Private Sector Advisory Committee
• AC Gonzalez, Co-Chair, Assistant City Manager, City of Dallas
• J. Peter Kline, Co-Chair, DCVB Board
• John Crawford, Downtown Dallas Association
• Doug Ducate, Center for Exhibition Industry Research
• Tom Garcia, Adolphus Hotel
• Steven Hacker, International Association of Events/Exhibitions
• Matthew Jones, DCVB
• Cassandra Matej, DCVB
• Mike Rawlings, DCVB Board
• Anne Raymond, Crow Holdings
• Leigh Ann Stockard, American Heart Association
• Ron Trammell, Mary Kay Cosmetics
• Charles Bierfeld, City of Dallas
• Kathleen Cervenka, City of Dallas
• Dave Cook, City of Dallas
• Mark Duebner, City of Dallas
• Warren Ernst, City of Dallas
• Noe Hinojosa, Estrada Hinojosa & Company, Inc.
• Wayne Placide, First Southwest Company
• Frank Poe, City of Dallas
• Nicole Roberts, Estrada Hinojosa & Company, Inc.
• Al Rojas, City of Dallas
• Troy Thorn, City of Dallas
• Tom Wurtz, City of Dallas
• Gwen Satterthwaite, City of Dallas
• Jeff Leuschel, McCall, Parkhurst & Horton L.L.P.

• The DCVB Customer Advisory Board
• The DCVB Customer Advisory Board represents key city wide convention customer accounts, inclusive  of state, regional and national groups
• Meets twice per year – spring and fall
• 35 Key Customer Accounts were present for the spring meeting

3.  What did we find out regarding the Dallas Central Appraisal District’s (DCAD) assessment of the Chavez property?

• The DCAD told us that they did not have the information we had regarding recent land transactions. Based on the information, they thought the property should be valued between $90 and $100 per square foot. We recently learned the DCAD sent an assessment value of $100 per square foot to the Chavez property representative. Therefore, based on the latest information, DCAD value rose from $ 20 per square foot for the tract to $100 per square foot.

4.  What is the effective maximum capacity of the Convention Center?

• Maximum occupancies for multi-purpose convention facilities are difficult to calculate.  You must consider the event size, attendance, space utilized, complexity of move in/out, amount of freight, type (tradeshow, professional association, consumer event and the total or partial use of the facility.   Most exhibit facilities will calculate occupancies on the bases of available exhibit space and number of individual exhibit halls. Maximum availability is influenced by holiday periods, move in/out requirements for tradeshows/conventions, and maintenance turnaround.  A commonly used calendar day number for practical maximum utilization is between 265-275 days.  Assuming the preceding factors, a convention hall could achieve maximum utilization at between 70-75% for exhibit hall occupancy.

5.  Why should the city be in the convention center hotel business?

• Staff presented a Business Case Briefing on January 11, 2008 which outlines the competitive need for this project, the impact the City has been experiencing, the possible consequences of not taking action, as well as the possible benefits of making this investment.

• Given the significant challenges involved in redeveloping the core of Downtown Dallas, a strategy built around three “anchors” has been developed and endorsed by the City Council to create a strong vibrant downtown.  This requires a large public sector investment in a convention center hotel and adjacent retail, food and entertainment complexes.  It is normal for the public sector to invest in strategic initiatives to stimulate timely economic activity that would not otherwise occur.  Examples include southern sector industrial parks, Trinity River project, brownfields redevelopment, historic district and building preservation, targeted industry recruitment and retention, transit-oriented development, sports facilities, tourist and entertainment facilities, municipal airports and retail development.

• The City has funded, partially or entirely, the construction/renovation of many venues which are deemed to be critical for the development of Dallas citizens’ quality of life. Examples include: Reunion Arena, Union Station, Fair Park, Mercantile, Dallas Museum of Art, Meyerson Symphony Center, and American Airlines Center. In each of them, the City was not in the business of professional sports, music concerts, fine arts, residential, or retail development. Yet, the City made it possible for the professionals in the respective businesses to add value to the community’s economic and social welfare. In a similar way, the City seeks to enhance the positive benefits of the convention and hospitality industry by investing in the construction of a convention center hotel and having professionals (in the form of a nationally recognized hotelier) run the facility.

6.  If we build the hotel, do we know they will come?

• City of Dallas engaged HVS Consulting & Valuation to update a 2003/04 Convention Center Hotel Marketing Study.  A link to that study is provided.  Please see this study and more specifically pages 1.3 – 1.7.

• The City realizes that continued downtown development is critical and this project would enhance city core vibrancy making Dallas a more attractive destination for conventions. See Downtown Briefing slides 6-8, 19, 27 and 33.  

• Having a good Hotel and entertainment package has produced good results in most of our national competitive market. See HVS Study specifically pages 6.24 – 6.33.

7.  What has been the experience of other cities that have constructed a convention hotel?

• We have attempted to assemble information to this question in several ways. Overall, it has been difficult because many of them recently opened or have not been open long enough to reach stabilization, or access to financial information has been difficult.  We have collected information regarding operations in Houston, Austin and Chicago.

• The HVS report, pages 6.34 – 6.68, contains information regarding several of our competitor cities attached/proximate convention center.

• Staff has assembled information from various cities seeking to gain some insight as to the question. Please see  the matrix which summarizes those findings

• Staff collected information regarding the impact before and after the construction of a Hotel on Hotel Occupancy tax.

• Three markets did experience difficulties after the construction of their Convention Center Hotels: Houston, Myrtle Beach, and St. Louis.

• The Houston Convention Center hotel was the result of a decade-long examination of how to best encourage increased convention center booking at the George R. Brown convention center.  In 2000 Mayor Lee Brown appointed an advisory committee to help expedite the development of the hotel.  Members of the committee included a diverse array of prominent Houstonians as well as owners/general managers of other City hotels.  After analyzing the alternatives, the City decided it was in its best interest to proceed with a publicly owned and funded hotel.  The hotel was funded with a pledge of the city-wide hotel occupancy taxes, parking revenues from city-owned parking garages and the rebated State HOT and sales taxes for 10 years.  The hotel, branded as a Hilton, cost approximately $320mm.  Recently, the City just issued a request for interest to sell the hotel to the private sector.  The current thinking is that the hotel has been sufficiently successful to regain the original investment and perhaps justify the construction of a second convention center hotel on the site.  Current press reports indicate the hotel is performing extremely well, with the City of Houston seeking a buyer.  The proceeds from such a sale are being considered for the development of a second hotel adjacent to the George R. Brown Convention Center. 

• The City’s underwriters have experience with two hotel financings that have been troubled - St. Louis (Citigroup Senior Manager) and Myrtle Beach (UBS Senior Manager).  In St. Louis, the general consensus it that too many new rooms came into the market during a post 9/11 environment and the addition of rooms alone did not drive demand.  Turnover of staff at the convention center was also a hindrance in the center's marketing efforts.  In addition, some of the ancillary infrastructure improvements proposed did not materialize.  Finally, the operator initially was questioned about not pushing corporate business when group business did not materialize. Further Information on St. Louis can be found at www.conventionhotelbondholders.com.  In the case of Myrtle Beach, while not an operable comparison to the Dallas market, it was also the victim of the immediate post-9/11 environment.  The Myrtle Beach hotel is 400 rooms and is in a marketplace not noted for a significant flow of conventions.  The City refinanced the hotel and changed the flag from Radisson to Hilton. The hotel appears to be performing much better. 

8.  Will not a new hotel hurt existing hotels?

• New room supply can, but does not necessarily hurt existing hotels in a market. Massive overbuilding, such as the vast addition to Dallas hotel rooms in the 1980’s will obviously have an adverse effect on all hotels in the market. However, rational increases in supply help keep a market fresh and competitive, and frequently enhance the overall performance in a market.

In fact, in the Greater Dallas Market, the cities that have added the most rooms since 2000 are operating at the highest occupancy levels and at the highest average rates. While no new meetings-oriented hotels (hotels with more than 300 rooms) have been added within the Dallas City Limits, 1371 rooms were added to the Plano/Frisco/Richardson area (a 125% increase in supply) and 1913 rooms have been added to the Grapevine market (a 401% increase in supply). The relative performance of these markets for the year 2007 (as reported by Smith Travel Research) is illustrated below:

The proposed 1200-room Dallas Convention Center Hotel would increase the supply of meetings-oriented hotel rooms in the City of Dallas by 12.5% and would increase the total room supply by only 4.1%. Given that no new meetings-oriented hotels have been added to the City of Dallas in the past seven years, this does not represent a significant distortion in the supply and demand equation for the City. In fact, a new hotel would command higher room rates, making it easier for existing hotels to increase their rates, even if occupancy levels were temporarily impacted.

Ultimately, the relative market performance of an individual hotel will be determined by the quality of their location, facilities and management. The greatest threat to the existing hotels in the City of Dallas is from new hotels being built in our suburbs. The average age of our meetings oriented hotels is 27 years. If we do not proactively recreate our room supply through new additions and major redevelopments of existing hotels, the City of Dallas can expect the performance of our existing hotel stock to deteriorate on an accelerating basis.

9.  Is it possible that the current rankings will change as a result of further negotiations with developers?

Yes, the City fully anticipates the ranking of the developers will change as a result of the next round of negotiations.  While the same evaluation criteria will apply, the City will be more specific in the size and type of development it desires and will be requesting more detailed information which will be verified.  Additionally, as the major deals points are identified and agreed to by the developers, we fully expect one developer to emerge as having the most advantageous proposal for the City.

10.  Who are the members of the current Dallas Convention & Visitors Bureau (DCVB) customer advisory group?

The DCVB customer advisory group is comprised of local, regional, and national event/meeting planners.  The group meets semi-annually to provide feedback to the DCVB regarding event planning, marketing, and operational issues.

11.  Are there any parallels between the convention center hotel project and other publicly funded local projects like DFW Hyatt and American Airlines Center?  How have these projects performed? 

The DFW Grand Hyatt is publicly owned and privately operated by Hyatt, which is similar to the ownership and operational structure proposed for the Convention Center Hotel. The hotel includes a total of 298 rooms, a ballroom, banquet room, and pre-function space.  The Grand Hyatt is fully integrated into the Airport’s Terminal D, which makes it convenient for Airline passengers to use the Hotel accommodation without leaving the terminal.  The Convention Center Hotel will be integrated with the Convention Center to provide the same convenience to conventioneers.  The Grand Hyatt was financed with tax-exempt debt issued by DFW Airport which is secured by the net revenues of the hotel and a pledge of DFW’s Discretionary Fund.  This is very similar to the financing structure that is being developed for the Convention Center Hotel.

The DFW Grand Hyatt opened on July 1, 2005, and since the opening, the Hotel performance has met or exceeded the projection of PKF Consulting.  The hotel occupancy has continued to grow each year since opening and is consistent with the occupancy assumption of 76% for FY2007 in the original PKF study (March 2001).  The average daily rate has grown each of the last three years and reached $194 in FY 2007, which far surpasses the PKF study Average Daily Room Rate assumption FY 2007 of $150.

The Hotel’s total FY 2007 sales are projected to be approximately $26.7 million, which is 29 % higher than the FY2007 PKF estimate of $20.7 million.  The Grand Hyatt generated approximately $10 million of profit in FY 2007 that will be transferred into the FF&E Fund, Capital fund, and Owners Residual Account.  

While American Airlines Center is not a hotel, it is City-owned and leased to a partnership owned by Stars and Mavericks.  The teams are required under the lease to make an annual rent payment of $3.4 million to the City, and to expend annually at least $1 million in capital improvements to the facility.  Like the proposed Convention Center Hotel, the AAC is maintained not by the City but by the operator.   It differs in that it has a voter-approved 5% rent car tax and a 2% additional hotel tax to pay the debt service on the City’s revenue bonds that were issued for the City’s $125 million portion of the Arena’s initial cost.  The teams privately financed, and are responsible for, the remaining costs of the ACC.  Both of these special tax levies end once the City’s Arena Bonds are paid off, which is expected to occur well ahead of schedule.

12.  If we wait, will construction costs increase? 

Yes, the escalation of construction costs we have experienced has averaged approximately 8% annually for the years 2004 through 2007. These escalation rates have increased the cost of construction for a project being built in year 2008 versus that same project built in year 2004 a total of 36%. These abnormally high escalation rates are not forecasted to subside to historical normal  ranges and our best projection is construction costs will continue to increase at the current 8% rate for the foreseeable future.

13.  What is an empowerment zone?  Are they still available?  Do we qualify?

During the first round of Empowerment Zones (in the Clinton administration), the City applied for EZ funding and was designated an Enterprise Community (EC), the consolation prize.  We received a grant for $2.95 million.  Mark Obeso ran the program.  Our EC designation expired in 2004.  The City did not apply and was not designated a Round II or Round III EZ at the end of the Clinton Administration because the program was not funded and a decision was made to not raise community expectations through a comprehensive community input and planning process with no hope of delivery.  Round III EZ’s received only tax incentives and no funds. 

The EZ program is now defunct.  The Bush administration has not supported any funding for the EZ’s and has not proposed new selection rounds.  No presidential candidate is talking about new rounds of EZ’s.

14.  Does the debt liability belong to the city or the LGC?

The proposed financing plan contemplates that an LGC (a separate corporation established by the City) would issue tax-exempt revenue senior and junior bonds. The debt service for both classes of bonds would be paid from the revenues of the hotel project.

The senior bonds would have additional sources of repayment, ranked so that each additional source would be used up before the next source is utilized. The exact list and ranking is not yet established; however, we do know that there will be several accounts established that will serve as backup sources. These will include:

A surplus account, containing a portion of hotel revenues not previously used;
a debt service reserve account, which will be an amount of money from the original bond issuance that is set aside and held to be the first backup source if hotel revenues are not sufficient; a portion of the operator’s management fee, which will be held back for this purpose; amounts held in various ff&e, capital expenditure and other reserve funds and accounts; the junior bonds’ debt service account; additional sources to be negotiated with the developer and the operator, such as letters of credit obtained by them.

The City’s financial advisors have advised staff that, in addition to the listed sources of repayment, and after they have been fully used, the bond market may require a contingent credit support from the City. This is likely to take the form of an agreement by the City that, if the other sources of debt service are not sufficient, the City will make the necessary payment, subject to appropriation at the time by the then-sitting City Council.

15.  How is the cost of the Chavez Property recovered?

The Certificates of Obligation that will be used to purchase the Chavez site will be called-in (paid off) when the Convention Center Hotel Project Bonds are issued.  The entire Chavez site will then become an asset of the project.  If, at a later date, it is determined that some portion of the site that is not needed for the hotel project, the unneeded portion will be considered for lease and/or sale for other development purposes.  Because any such portion leased or sold will be an asset of the hotel project, it is expected that any proceeds of such a lease or sale will be used for debt service for the hotel bonds, rather than being available to the City’s general account.

16.  What portion of occupancy tax is unencumbered?  

A guest in a hotel in Dallas pays a 15% occupancy tax. Of that, 6% is the State HOT, and 2% is the special tax approved by the voters to repay the AAC bonds. The remaining 7% is the City’s HOT.

The City’s HOT is apportioned as follows: by ordinance, a 4.65% portion out of the 7% of the City’s HOT (or approximately 66.43%) is pledged to the Convention Center Bonds;  by contract, 32.60% of the City’s HOT (or approximately a 2.282% portion out of the 7%) is paid to the DCVB to promote tourism and convention business for Dallas; and the remaining 1% of the City’s HOT (or a 0.07% portion out of the 7%) is by ordinance dedicated to the Dallas Convention Center and is currently also used for debt service on the DCC Bonds.

17.  How was the Gaylord able to build only using private financing?

The Gaylord Texan was subsidized by the City of Grapevine in an amount of approximately $57.9 million.

A Tax Increment Finance Zone was created and the City issued $27.5 million in TIF bonds to pay for various infrastructure improvements. At time of construction Gaylord received $1.7 million in fee waivers. 

The Gaylord also receives a 2% Hotel Occupancy Tax rebate which until last years was split, with 50% going to the City of Grapevine for marketing efforts, and 50% going to Gaylord.  That rebate was recently renegotiated and now the entire 2% rebate goes directly to Gaylord.  The total value of the rebate paid to Gaylord over the life of the rebate is and estimated $30.4 million.

The expansion also received fee waivers and the HOT rebate will apply to the room expansion as well.

18.  Which cities have publicly financed a convention center hotel?

View a list of publicly owned convention center hotels.