The city may soon issue $347 million in bonds to fund an 1,100-room high-rise somewhere along 15th Street. The gaudy glare from that figure would probably knock Bodett right off his porch. After all, a typical Motel 6 can usually be built for a couple million dollars; one of the most recent hotels to open in metro Denver, the 164-room SpringHill Suites in Westminster, which debuted in April, cost $16 million.
At that price, Denver could use its bond money to build 21 all-suites hotels in the suburbs, with nearly 3,500 rooms. But, of course, you can't compare some white-bread suburb with the throbbing heart of downtown Denver.
"Obviously, land is far more expensive downtown, with the proximity across from the convention center," says Chris Power Bain, spokeswoman for the Denver Metro Chamber of Commerce. "How can you even calculate the value of a location like that?"
And certainly, the city's hotel will be a classy affair, with sweeping views of the mountains and grand ballrooms that will leave your typical Rotarian from Toledo breathless, especially after he makes his way from the 600-space underground parking garage to his $162-a-night bed on the thirtieth floor.
But it's still not clear if Denver will get the go-ahead to spend a third of a billion dollars on its swanky new Hyatt. Even as the $303 million expansion of the Colorado Convention Center starts to rise from the ground along Speer Boulevard, the city's attempt to get into the hotel business is becoming increasingly controversial.
Last spring, Mayor Wellington Webb ended an agreement with Denver developer Bruce Berger to build a hotel on the square block he owns at 15th and California streets, across the street from the convention center. Berger had repeatedly failed to meet city-imposed deadlines to find private financing for his proposed $220 million, 35-story hotel.
In exasperation, Webb announced that Denver would form a nonprofit corporation that would finance and build the hotel. The city was adopting a strategy that has become increasingly popular around the country, as banks and other lenders refuse to fund new convention-center hotels ("Hopin' for Business," October 11, 2001). Cities such as Houston and Sacramento have built city-backed hotels, floating bonds to foot the bill.
The hotel itself will cost $250 million, but the city plans to issue nearly $100 million in additional bonds to create a $35 million reserve fund that will provide a financial "cushion" in case projected revenues fall short. The rest of the additional funding will go to cover interest, financing and insurance costs, according to backers.
Critics fear that if occupancy is lower than expected and revenues don't cover the cost of repaying the bonds, the city could be forced to cut funding for parks and police to bail out its huge downtown hotel. "If we build this thing out of desperation, it could be another Colorado's Ocean Journey," says Denver City Councilwoman Susan Barnes-Gelt.
The city maintains that all risk in the project will be borne by the nonprofit corporation and the bondholders, and that even in the event of a default, taxpayers wouldn't be left holding the bag. In a worst-case scenario, the city would lose the hotel to its creditors, says Liz Orr, the mayor's director of special projects. "It would simply mean it's no longer our hotel," she told a recent city council meeting.
However, Barnes-Gelt fears that in a financial meltdown, Denver would decide it couldn't let the bonds go into default, since it might harm the city's ability to sell bonds in the future. That would mean city tax dollars would be used to pay off the debt. "This is a much clearer risk than Denver International Airport was," says the councilwoman. "It could affect the city's credit rating."
If the hotel is able to keep most of its rooms full and charge an average room rate of $162 a night, the city will have no problem paying off the bonds, Orr insists. She points to several studies by city consultants that predict the hotel will be a success. "We're not making up hotel revenue projections and room rates," she says. "The numbers are coming from expert parties."
If the hotel is successful, it would eventually become a cash cow for Denver, reaping millions in new tax revenue. Since the city can issue tax-free revenue bonds, explains Orr, the cost of financing the hotel will be much less for Denver than it would be for a private developer.
"Because 100 percent of this project is at tax-exempt interest rates, it's a less expensive way to finance the project," she says.
In his comments to the council, Webb said he would prefer to have a private developer do the project, but he has concluded that in the present financial climate, that isn't likely to happen. He also made it clear that he thinks the hotel is crucial to the success of the expanded convention center. "In order to accommodate the conventions we want to bring in, we need more hotel rooms," said Webb.
But Barnes-Gelt thinks the city should put off the project until the economy recovers and a private developer is willing to assume most of the risk (although some kind of city subsidy would almost certainly be given to a developer).
"I think there still could be a private deal," she says. "I think the market will respond to the new convention center. The market will say, 'What an opportunity: Downtown Denver is under-hoteled.' I think the hotel will come."
Denver officials are moving forward with plans for the new Hyatt. Webb has okayed negotiations to buy either the Art Supply block, at 15th and Stout streets, or Berger's block. The city also recently announced that it is interviewing six firms to act as project-management teams on the hotel. Backers hope to sell the bonds for the project sometime this spring, but first a majority of the city council will have to approve the idea.
Barnes-Gelt has long opposed expanding the convention center, arguing that the huge new building will smother all pedestrian life in that part of downtown and won't generate the economic benefits that boosters claim. She says that Denver voters may have to make the final decision about whether it's wise to spend so much money putting up a new downtown hotel.
"I think we may need to have a vote on this," she says. "I don't think you can put $347 million into a money-losing proposition."