Baytown council has unanimously authorized the issuance of millions in certificates of obligation bonds for the Bayland Island hotel-convention center project.
City Attorney Ignacio Ramirez said the COs are not to exceed the $20.5 million.
“They are for the purpose of providing for the payment of the contractual obligations to be incurred of the planning, acquisition, construction, equipment, expansion repair and the renovation of city-owned property including the convention center and hotel,” Ramirez said.
City Manager Rick Davis has said the COs will allow the city to have funds to help add upgrades to the project, such as a lift station and a 12-inch water line.
The groundbreaking for the Bayland Island hotel-convention center looks promising for late March, Davis said.
Davis added the overall completion date for the project could land around October or November 2021.
Davis and other city officials have maintained the city’s portion of the project is $21.1 million, and the remaining $42 million of the $63 million project will come from institutional investors working through CitiGroup, who Davis referred to as a premier vendor of private investments,” and they will invest in the hotel portion of the project.
“These are people with large portfolios of investments, and they put some of their money into these types of investments,” Davis said. “What facilitates their decision to invest in a project like this is the rating we get from Standard & Poor’s. Any company or institution that had millions they are moving around all of the time would have to evaluate the worthiness of every project. Standard & Poor’s does that for them.”
Davis said the city is awaiting a preliminary statement that should provide a rating for the bonds.
“That will give us a rating. What we are hoping for is a designation or rating that says this is an investment-grade rating,” Davis said. “That along with an alphanumeric designation on this project, be it AA, BB, or even a AAA rating, communicates to the potential investor the worthiness of this project and these bonds.”
The bonds are in an A, B and C series. The A Bond Series is a first-lien hotel revenue bond worth $23.25 million. The B Bond Series is $15.7 million and is a second-lien hotel revenue bond. The third, a C Bond Series, is $12.5 million and is a combination of third-lien hotel revenue and limited sales tax revenue bond.
“These bonds will be paid back through the proceeds of the hotel,” Davis said. “So, that is the flow of revenues out of the hotel. The first ones to dip their cup in are the investors of this project. They get a return, a dividend from investing in this project.
Down at the bottom are other obligations paid out of this flow of revenue. The institutional investors who are investing in this project accept a certain amount of risk, but they also reap a certain amount of return. We try to minimize the risk by knowing the S&P rating. They are analyzing every aspect of it. The ultimate rating we will get is reflective of what quality of investment they think this is.”
Baytown officials have referred to the project as a joining of the public and private sectors. However, the city’s legal department has a different view on this, according to Davis.
“Legal says because the city technically owns the hotel and convention center it is not a public-private partnership,” Davis said. “It is in a literal definition, but not a legal one. We have private sector investors investing in the hotel. The city is putting up not dollar one for this hotel. The city is investing in the convention center side (of the project). There is a certain amount we need to contribute to take care of the entire obligation associated with the convention center, because these two facilities are joined at the hip. So, we are paying for that and the convention center. When it comes to the hotel tower, that part is all private sector investment. And the city is not on the hook for any of that. They get paid back their investment plus a return of their investment, way before this investment is paid off.”
Davis has also stressed the taxpayers in Baytown will not experience an increase in their taxes as a result of the hotel/convention center project.
“I think most will be appreciative that we have been able to bring a beautiful, iconic, defining project to Baytown without asking them to spend dollar one on the hotel. And without any tax implications on the convention center,” Davis said.
Davis said the city will also receive, based on their projections, millions in state-shared Hotel Occupancy Tax money over a period of 10 years thanks to House Bill 4347. The law allows Baytown to be eligible to receive the state’s portion of the HOT and sales tax associated with the project for 10 years. This is estimated to be about $9 million.
“Also, $500,000 will be generated in HOT money for a combined revenue of $1.4 million, and that is before we realize any profits of the hotel,” Davis said. “This is expected to emerge in Year 3 of the operation of the hotel. This thing begins paying the city in Year 3, but in Year 1 of operation, we start getting a check from the state and our own HOT money. The more than amply covers the debt service, we will pay through the COs for the convention center development.”
Davis added no one is expecting the Municipal Development District to pay anything.
“It will all be covered,” he said. “By Year 10, by the time the state runs out, the hotel should be producing way more than enough in terms of profit to cover our debt service on the convention center. This thing is very technical, but the payoffs are tremendous for the city of Baytown.”
Bayland Q & A
Question: Will the hotel/convention center project pay any taxes to Goose Creek CISD, Lee College or Harris County?
Answer: The facilities will be owned by the City and the MDD and should not be subject to ad valorem taxes.
Question: Is the yet-to-be-named-hotelier putting up any money for the construction side of the project?
Answer: The hotelier will put in $600,000 key money.
Question: How many hotels brands have passed on that so far? Marriot and Hilton ... anyone else?
Answer: Since 2018, the City/MDD has been in earnest discussions with two different hoteliers to include the current hotelier.
Question: Any idea which company will insure the hotel/convention center?
Answer: This has yet to be determined. — Matt Hollis