The $100 million tax-subsidized convention center hotel is in the starting blocks...

There are a couple of interesting points about the proposed convention center hotel site that weren't mentioned in the weekend's DMN story about the $40 million deal for an 8.34-acre site located right next door to the Dallas Morning News offices.

1) It's interesting that a site valued on the tax appraisal roles at $7.5 million is costing the city $40 million to buy. That says one of two things (and maybe both): a) the site is worth $40 million to the city, and only the city, because the property owners know the land's political value for the convention center hotel, and b) the tax professionals who represent the property owner have done a heckuva job keeping the assessed value of the property much, much lower than its retail value, to the detriment of the rest of us who are Dallas taxpayers. (As a real estate aside, given that the above is true, it makes me wonder why the city didn't set up a third-party buyer publicly unaffiliated with the city to contract to purchase the property for somewhere between $7.5 million and $40 million, understanding that the city is the only buyer at this point in time willing to pay anywhere near $40 million for the property? Just a thought...)

2) Let's say the city (and by that, I mean us) pays $40 million for the site. A number of hotel bidders already are sniffing around the deal. This isn't anything that happened overnight; the city has been pointing toward this moment since Tom Leppert announced his candidacy for mayor. Laura Miller wasn't overly interested in making this deal happen, but when Leppert signed on as the establishment candidate, this task followed in importance right after saving the Trinity Tollroad package.

3) The DMN story first indicates that city officials believe a 1,000-room convention center hotel could cost as much as $200 to $300 million and "would require significant taxpayer investment." Several paragraphs later in the story, a consultant with PKF Consulting in Houston, guesses that the price for the hotel is probably closer to $400 million. Now, who would you believe on a cost estimate like this: an unnamed city official or a named private construction expert? In truth, both estimates are probably too low, given the way construction costs and estimates typically jibe. Leppert is also quoted as declining to "speculate on how much public participation a convention center hotel would require, saying it would be premature to do so." Leppert may not be commenting in public, but the word floating around city hall privately is that as much as $100 million in city investment might be necessary to make a deal happen. I know it's kind of play money to the guys downtown, but that sounds like a lot of money to me.

4) The story then finishes the subtle argument for the project by indicating that the Dallas Convention & Visitors Bureau (of which I am a past board member, having resigned in January due to other commitments after three years on the board) has a list of 10 large groups that it believes will more seriously consider bringing their conventions to Dallas if we commit to building a convention center hotel. Having sat in DCVB board and marketing committee meetings and listened to the DCVB sales guys talk about their efforts, I have no doubt that estimate is correct; the DCVB is clearly crippled in marketing Dallas as a convention destination without at the very least a high-quality hotel attached to the convention center (a lot more fun things to do immediately surrounding the convention center would probably help, too).

5) What's being saved for the next DMN story — which will presumably appear a few weeks after the council ultimately gives the go-ahead to put the land under contract on Wednesday or shortly thereafter (as much a lead-pipe cinch as you'll ever see) — is a compelling story using DCVB estimates showing that bringing even half of these major conventions to town will generate even more than $100 million in economic gain for Dallas, thereby and miraculously offsetting the $100 million or so we'll be asked to invest in the hotel. Get the math here? We invest $100 million, and we get paid back in economic gain probably within the first 3 years the hotel is being operated.

So what's not to like about this deal?

There's no question that the city needs a big, cool, new hotel attached to the convention center to get back to being competitive, and it's clear we're not even close to being competitive now. Las Vegas has that amenity. Atlanta has that amenity. Chicago has that amenity. Orlando and New York City, too. The question is how much pot-sweetening the city has to provide to entice a quality developer to do the deal.

Having already conducted off-the-record talks with a few of the developers, the city knows the answer — but the mayor and city manager aren't eager to throw that $100 million number out in public yet because on its own, it's a pretty shocking number. Instead, they're going to build a case that the money they're going to be spending is an investment rather than a subsidy, which sounds a whole lot better than just writing a check to some developer.

Here's the unfortunate part: Had the city prevailed upon Perot/Hicks to build the AAC/Victory development somewhere nearer the convention center way back when, the $150 million we used as a clear, out-and-out subsidy for Victory could very well have been enough seed money to spur either independent development of this convention center hotel or, at the very least, would have been enough to significantly reduce the subsidy we're going to be asked for this time around.

The proof? Look around at the Victory Development — everything being built there is exactly the type of thing that the DCVB people need to sell conventioneers on coming to Dallas: high-end retail and restaurants, high-end offices, high-end residential, high-quality hotel (not big enough for the convention-center hotel, but a good amenity to have close-by). Perot/Hicks wanted to build on the old TXU site for one reason and one reason only: They could cheaply acquire virtually all of the land in the vicinity, thereby leveraging their profit by using the city's $150 million investment. That wouldn't have been the case around the convention center, which has too many owners and a higher value on the available land; they could have built the arena and a few other things, but nothing like the building orgy going on over at Victory today, and mostly on Hicks/Perot-controlled land. The mistake we made wasn't necessarily agreeing to be part of that deal; our mistake was not playing chicken with Hicks/Perot just like they were doing with us and saying "hey, we'll give you your money, and maybe even some more, but you need to build this deal near the convention center/Farmers Market, where it will provide maximum benefit to the city instead of maximum benefit to you."

In short, we need a convention center hotel. But we blew it by mishandling the Victory development, and that $100 million convention hotel subsidy is only going to be the beginning — we'll probably have to spend another $300-$500 million in city subsidy money (our tax dollars) during the next 10 years to create something of similar feel around our convention center to be competitive with the other cities that actually have cool downtowns. And honestly, I don't know if we have another $500 million in tax money/TIF/tax abatements/what-have-you left to give away.

Just think about it: Would you rather go to Las Vegas, Chicago, New York City or Dallas for a convention, if you're going to be in town for awhile and want to have something fun to do and a fun atmosphere right outside the convention center? I think you can see what I'm talking about...

Comments

[Aren Cambre]

This is a superb case for limited government.

When businesses screw up, they get trounced or go out of business.*

When the government screws up, it soaks taxpayers.

*Yes, that happens the vast majority of the time despite notable exceptions.

[CM]

Actually, it's a superb case for Republicans in action. It's called "crony captitalism".

[Norman Alston]

Remember that we don't play chicken well, either, as evidenced by the handling of the Cowboys Stadium and Jerry Jones.

It's pretty well established that DCAD is the one place you don't want to refer to for 1) actual current market value of property and 2) the age of the improvements. Perhaps a knowledgeable reader in real estate can tell us what the market value per square foot is for downtown land near the Convention Center, for buyers who actually have options.

The Republicans in action comment is curious, given the sweet deal done for Forest City and the "flavor" of the City administration at that time. Also, let us not forget the skepticism surrounding Victory and whether any of that associated development would ever happen after the City ponied up on that one. It appears to be proving the potential value of public/private partnerships.

[JKR]

I nearly dropped my newspaper when I saw the $40 million price...perhaps this is one case where I might approve of eminent domain for the DCAD 'assessment'.