Downtown hotels may get relief from city loans/Deal would offer the opportunity

Aug 8, 2006

Two downtown hotels that have fallen seriously behind repaying $15 million in city-sponsored loans could get a break from Houston City Council this week.

City officials said giving the Crowne Plaza and Magnolia hotels more time to pay was better than foreclosing on them.

"We decided that the better course of action was to restructure the loans," said John Walsh, Mayor Bill White's deputy chief of staff for neighborhoods and housing.

Walsh said the hotels suffered from the economic downturn after the Sept. 11 attacks and the collapse of Enron.

The hotels also opened as part of a downtown lodging boom that nearly doubled the number of rooms between 2001 and 2004. Existing hotel owners complained it was too much for the market, and they did not like their competitors being subsidized.

The city lent $5 million to the ownership of the Crowne Plaza, 1700 Smith, in February 2000 and $9 million to the Magnolia, 1100 Texas, in October 2002.

Walsh said the Crowne Plaza had made a few payments, but the Magnolia has made none. The loans supplemented about $43 million in primary financing from North Houston Bank. Those loans have been kept current, he said.

The city offered its loans - funded through a U.S. Housing and Urban Development program and not local tax money - to help revitalize downtown and create jobs.

The incentives led at least one downtown hotelier, J. William Sharman Jr., CEO of the company that formerly operated the Lancaster Hotel, to question using government resources to support projects that don't make sense to private financiers.

Walsh acknowledged that some might criticize the deals, made during the administration of former Mayor Lee Brown. But he said the two hotels had contributed jobs and about $5 million in taxes to the local economy.

The city has been paying back the hotels' HUD loans through another federal program intended to serve as a "backstop" when higher-risk investments falter. Walsh wants the City Council to approve continuation of that program.

The new deal calls for the Magnolia to pay interest-only to the city through December 2008. The Crowne Plaza would get the same terms through the end of next year. The deadline for both to repay their principal would be extended from 19 years to 25, Walsh said.

In return, the owners offered additional collateral and agreed to give the city and North Houston Bank more control over revenues and expenditures, Walsh said.

Walsh said both facilities are performing better and on track to meet the newly restructured obligations, should City Council approve the deal Wednesday.

Joan Johnson, president of the Hotel & Motel Association of Greater Houston, agrees that the local market has rebounded. Magnolia Hotels CEO Steve Holtze and representatives from MHI Hotels, which owns Crowne Plaza, couldn't be reached for comment.

Read More: Matt Stiles, houston chronicle

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