John Keeling is still banging his hotel drum.

It is said that the definition of insanity is continually repeating the same actions in the expectation of receiving differing results.

If that's the case then maybe Houston City Government needs to schedule some face time with a therapist...

(from Nancy Sarnoff of the Chron)

City officials said earlier this year that they were considering selling downtown's 1,200-room Hilton Americas-Houston convention center hotel, a move that could pave the way for a second convention hotel.

Mayor Bill White said he thought the city could get more than $350 million for the hotel, which would enable it to pay off its debt and create more financial flexibility to undertake another project.

But is it really worth that? And if so, are there any buyers out there in this time of tight credit?

Industry analysts said it could go for $350 million, depending on what kind of return on investment a buyer expects.

The property posted a record $77.5 million in revenue last year with operating profits of $23.5 million, according to the Houston Convention Center Hotel Corp., the city-chartered group that owns the hotel and contracts with Hilton Hotels Corp. to manage it. Those figures were up 40 percent and 95 percent, respectively, from 2004, the hotel's first full year of operation.

That ratio is in line with what's expected, hotel consultant John Keeling said.

Occupancy, too, has been on par with other downtown hotels. And the city's convention business is growing.

"There's plenty of equity looking for good investments, and this is a good investment," said Keeling, senior vice president of PKF Consulting in Houston.

(snip)

When the hotel opened in 2003, officials said it would make the city a player in the convention business.

Now the city is using the same argument for another hotel.

Large meeting planners generally shy away from convention sites that don't have enough hotel rooms nearby because the cost of busing attendees is expensive.

The mayor has said that he would like to see a second hotel financed with private capital. But outside of Las Vegas, Orlando and New York, all the big convention hotels around the country have required public assistance, Keeling said.

(snip)

Every major convention city has at least three 1,000-room hotels, Keeling said.

"A 1,200-room hotel by itself basically put Houston in the game. Houston is not in position to win the game until they get at least another 1,000-room hotel," he said.

Ah John Keeling, he of the continually rosy projections that tend to overstate the actuals by 10-30 percentage points.

And now he's saying that Houston needs "three 1,000 room hotels" to compete with "major convention cities" and that somehow building a "second" hotel will "help Houston win the game".

So, let's follow the logic: Houston built the Hilton Americas Downtown Hotel with an eye toward seeing an uptick in local convention business. The uptick didn't happen and occupancy rates have been languishing around the 60% range. The answer to this is to sell that Hotel and build another one to compete against it, in hopes that this second hotel will crate the uptick in convention business that the first hotel did not. Of course, eventually we will need three hotels to truly make us "world class" according to Keeling, who is nevertheless predicting that the consturction of the second hotel will bring in the convention business that some in the Houston Downtown Business District so earnestly desire.

Never mind that having two hotels is 33% less capacity than Keeling admits other "world class" destinations already have in place.

Waitaminnut...Keeling is glowingly praising a reality that's 33% lower than what he projects?


I direct your attention back to the definition of insanity.


It should be noted that this massive increase in City debt is being contemplated during a time that the City's debt service costs have increased by around $3 Million per MONTH as the auction market is collapsing.

Finally: It's stated in the article that, at a purchase price of $350 Million, the expected annual ROI would be between 10-15%. If the hotel was purchased last year for that number, and at a profit of $23.7 Million, the annual ROI for 2007 would have been 6.57%, roughly half of the annual ROI projections by Keeling. To meet the mid-point of Keeling's projections annual profit would need to increase to $45.5 Million for the hotel, a figure that seems overly optimistic considering the new competition that's going to be built on the other side of Discovery Green.