Denton’s hoteliers have escalated their concerns over a proposed convention center and hotel, telling a pair of council members that the hotel market is glutted and calling for a moratorium.
The City Council needs a broad understanding of the problems in the Denton hotel market before going ahead with the proposed public-private partnership, they said. About 1,000 of the 2,100 hotel rooms in Denton are empty every night, driving down earnings so low that some owners are having trouble making their mortgages.
They were quick to say that it wasn’t the convention center that concerned them, but the hotel attached to it.
“It’s not your fault that the city’s overbuilt,” Charles Helm told council members Kevin Roden and Chris Watts in Wednesday’s meeting at his hotel, the Best Western Premier Crown Chase Inn & Suites.
Rakesh Patel, owner of Courtyard by Marriott in Denton, had told city leaders several years ago that too many hotels were coming in, but no one made any adjustments. Other hoteliers didn’t know about each other’s construction plans.
Tom Jariwala said that if he had known, he would not have built Denton’s Hilton Garden Inn at all.
“I put it off as long as I could, but I was in so deep with the contracts I had to construct,” Jariwala said.
Patel was the first to open his select-service hotel in 2009. Jariwala was the last to open, in April 2010. At one point, during the building frenzy, three hotels opened within two weeks of each other, they said.
Helm, Jariwala and Patel said that, although about 20 other hoteliers in the city didn’t come to the meeting, they knew them to be concerned about the convention center hotel, too.
They have repeatedly asked the city staff to update a feasibility study to look not only at the viability of a convention center in the region, but also at how the attached hotel would affect the Denton hotel market, they said.
They were skeptical that, even for what would be the city’s only full-service hotel, the projected average daily earnings of about $145 per room was realistic. Currently, Denton area hotels are earning about $55 per room.
After Frisco’s convention center and attached hotel opened, the earnings for surrounding hotels — which were close to $100 a night for some — dropped about $10 per room, they said.
“But in Denton, we are already starting from a very low base,” Patel said.
The hoteliers said much of the business in Denton comes from activities at the two universities and the Federal Emergency Management Administration, which is a good base. But the federal reimbursement rate, set at $77 per night for Denton, also puts additional downward pressure on the earnings, they said.
Some sports groups will negotiate for even lower rates, Jariwala said, asking for free access to meeting rooms, free rooms for bus drivers and free upgrades to suites for the coaches. But the hotels make deals to keep the business, since owner equity is what is keeping the doors open and the lights on for now.
The hoteliers were skeptical that new convention business would outpace the losses during those times that all the hotels, including the convention hotel, compete for customers when there is no convention in town.
The convention center hotel wouldn’t necessarily be less vulnerable to the market’s vagaries, either, which could also put the city at risk, they said.
Talks for the proposed center at the former site of the Radisson Hotel, dormant since 2009, revived earlier this year with an unsolicited proposal from O’Reilly Hospitality Management. A preliminary agreement between Denton, O’Reilly and the University of North Texas, which owns the land, shows city leaders paying for the $25 million convention center with city tax revenue from the project and lease payments from O’Reilly.
Cities that build convention centers without an attached hotel are having a much harder time in the convention business, according to Kim Phillips, vice president for the Denton Convention and Visitors Bureau.
The bureau has prepared several reports for the city showing that the lack of facilities has cost the city business. From 2006 to 2012, Denton was in talks for about $20 million in convention and conference business that went elsewhere, Phillips said. In addition, there are about 2,000 expos and state association conventions each year that the bureau hasn’t even approached because there is no way to accommodate them, she said.
Big cities, such as Dallas, San Francisco and New York City, are hurting from a nationwide trend that sees larger conventions saving costs by having more smaller, regional meetings. But that trend creates opportunities for cities like Denton that would never have been able to compete before, Phillips said.
Roden asked the hoteliers what the city could do to address their concerns, should the council still agree to the project.
The hoteliers said Denton would need a moratorium on adding hotel rooms until the city’s market for rooms could grow and recover.
Patel also suggested the city consider property or sales tax rebates for the hoteliers, too, so that they can afford to pay for the periodic upgrades required to maintain their franchises. Without the brand and franchise, it’s not hard to see what happens next, he said.
“Rakesh’s hotel,” Watts said.
“$19.99 a night,” Patel said.
Jariwala was more fatalistic.
“If you approve this, there is nothing you can do for us,” Jariwala said.
PEGGY HEINKEL-WOLFE can be reached at 940-566-6881. Her e-mail address is pheinkel-wolfe@dentonrc.com.
