Financial questions around Conroe’s new $107 million Hyatt Regency Hotel and Conference Center continue to linger with council members calling the facility a “money pit” and revenue projections for 2024 unrealistic.
The hotel and convention center opened in May but has continued to be a financial drain on the city as occupancy rates lag.
Days before it opened, the city council was forced to allocate $5.1 million in operating costs that were not budgeted.
Collin Booth, assistant city manager and director of finance, said the projections for the hotel will likely force the city to borrow money from the Conroe Industrial Development Corp. to cover debt service for the hotel.
The CIDC is a nonprofit development corporation operated under the supervision of the city council to promote economic development. Revenue from a one-half-cent sales tax levied by the city provides incentive funding to attract new business.
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“We are going to have to be very cautious as we move into fiscal year 2024,” Boothe said.
Jeff Binford, with Garfield Public Private and asset manager for the hotel, presented the financial forecast showing the hotel would see a $217,000 profit for the year at a council workshop meeting Wednesday, However, he was quick to say the city would have to use that money to pay other expenses related to the hotel, leaving the city in the red.
Boothe said Binford’s projections don’t include all city costs for the hotel. Boothe presented slightly different numbers to the council factoring in all costs.
Operating revenues for the hotel are expected to be $12,761,358, with expenses at $12,754,935. That leaves just $6,423 in operating revenue, Boothe said.
“As you can see, there is not enough to cover debt service expensed for 2024,” Boothe said.
The city issued three separate series of revenue bonds to fund part of the hotel, Boothe said. For 2024, the city will need to repay $3.3 million toward that debt.
While the CIDC is contractually obligated to pay the third lien, Boothe said the city will also have to ask the corporation to cover the first two liens.
“This is what we have to prepare for,” Boothe said.
Councilwoman Marsha Porter said the hotel won’t likely make the city money for years.
“Essentially, this is a money pit,” Porter said. “Employees, CIDC, taxpayers and future councils are going to have to make a sacrifice in wages, budgets and missed income opportunities if these projections are accurate and we have no date on when the city is going to make a profit. I have a great concern about this.”
Councilman Harry Hardman questioned how the numbers were gathered to provide the financial outlook. He said there is too much “optimism” in occupancy rates Hyatt says will double in the second quarter of 2024 especially with higher room rates.
According to the information from Binford that Hyatt officials provided, occupancy rates for the first quarter of 2024 are expected to be at about 37.9 percent. That rate jumps to 62.4 percent for the second quarter.
“I want to know what the real deal is,” Hardman said. “We have to prepare for the worst-case scenario. I think these numbers are overly optimistic because, based on what our occupancy is today, that’s a hell of a jump in six months.”
Binford said the hotel has had a slow start and hasn’t attracted guest as it was originally expected.
“The whole premise for the hotel was being able to peel off business from The Woodlands Waterway Marriott, The Woodlands Resort, Margaritaville,” Binford said. “(The hotel) is having difficulty gaining that share, so occupancy is below that competitive set.”
To help bring in guests, Binford said the rates are lower than neighboring hotels and convention centers.
“We had some success with that,” Binford said. “What is not happening is the corporate business travelers staying in The Woodlands don’t seem to be willing to come to Conroe because of the amenities, quite frankly, in The Woodlands.”
Boothe said the city is receiving bids from a third-party consultant to provide a more accurate financial outlook, including short-, medium- and long-term projections.
The council will revisit the financial projections and select the consultant in October.
