Dallas City Council Forms Public Corporation to Issue Hotel Bonds

DALLAS - The Dallas City Council has established a local government corporation to issue lease revenue bonds that will finance the construction of a large hotel near the city's downtown convention center.

The newly created Dallas Convention Center Hotel Development Corp. will act for the city by issuing the tax-exempt bonds with approval by the City Council. The three-member board of directors includes first assistant city manager Ryan S. Evans and Frank Poe, convention and event services director for the city, which will own the hotel.

The hotel, which the city said would be a "four-star, full-service" facility, is expected to cost up to $550 million. The council has capped the city's contribution to the project at $400 million.

The council on Wednesday also approved a memorandum of understanding with Matthews Southwest Inc. to develop the 1,200-room hotel. With the approval, the development company can begin negotiating design and construction costs with architects and builders.

The hotel will be built on an eight-acre site adjacent to the convention center that the city agreed to purchase in June with the proceeds from $42 million of certificates of obligation. It will be operated as either an Omni or a Marriott hotel, as those two were the only hotel firms submitting bids to the city.

The final development agreement is set for consideration by the council in December, with the revenue bonds for the hotel scheduled for sale in January 2009.

The council will consider a request next week to replace one of the senior co-managers on the underwriting team for the hotel bonds at the request of chief financial officer David Cook.

Cook said the city will replace UBS Securities LLC on the underwriting team with Goldman, Sachs & Co. because UBS closed its municipal finance department in May.

Citi is the book-running manager and co-senior manager for the issue. Siebert Brandford Shank & Co. is also a co-senior manager, with co-managers including Jackson Securities LLC, RBC Capital Markets, and Southwest Securities Inc.

The city will allocate 30% of the debt to Citi, with each of the other senior co-managers receiving 20%. The three co-managers will each receive 10% of the debt.

The council's economic development committee met behind closed doors last week to hear a report from city officials on an iconic design for the hotel. The city said the design effort could add 10% to 20% to the total construction costs, but it would provide an instantly recognizable building that would be associated around the world with downtown Dallas.

Mayor Tom Leppert, a former construction company executive, said the 1,200-room hotel could be built for approximately $330,000 per room, but the cost could go up to $380,000 per room if a unique design is selected.

No illustrations or drawings of the proposed iconic design have been released by the city, but Leppert described it as a curved tower. Assistant city manager A.C. Gonzalez, who is heading the convention center hotel effort for the city, said the design was a tower of unusual shape with unique building materials used to emphasize architectural details.

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