Is city footing the bill for high-priced hotels?

08:01 AM CST on Wednesday, February 23, 2005

By Mark Greenblatt / 11 News

Click to watch video

HOUSTON -- Will Houston's poor end up paying for loans the city made to the rich?

KHOU-TV

The Defenders couldn't find a single payment that the Magnolia Hotel has ever made to the city of Houston.

If you or I didn't pay our home or car loans on time, we'd expect the bank to coming knocking and fast.

But 11 News discovered the City of Houston loaned some big bucks to some big businesses and they're not paying up. But guess who may end up footing the bill?

"It's a shame is what it is. It's a shame," says Alvin Byrd, a Houston community leader. "What frightens me is the perpetuation, and if they continue to do this. It's a travesty."

And what's he so upset about?

It starts with the Magnolia Hotel, downtown's self-proclaimed new standard for luxury complete with a lavish lobby, a beautiful billiards room, and rooms that can rent for $200 a night.

"Our mission is to revitalize downtown with beautiful new hotels," says the owner Steven Holtze.

He's a hotel tycoon.

"We have three: Denver, Dallas ...," he says.

But at the Houston location, it turns out he had some help -- a $9.5 million dollar loan backed by the city three years ago. The only problem? In all that time, the Magnolia hasn't paid a dime of it back, missing payment after payment even though Holtze says the hotel's making a profit.

"We actually had a pretty, real good year last year," says Holtze.

So, why not pay the loan?

"Well I don't want to get into all the details of exactly what the circumstances are," he says.

"It's a disgrace," says Annise Parker, Houston's city controller.

"No one appears to have been minding the store," she says.

And she says the city is sending a dangerous message to would-be borrowers.

"If you can get to the trough, you can stay there and we will never hold you accountable," she says.

Take the Crowne Plaza Hotel on Smith Street.

It received got a $5 million loan, but they haven't made a payment since the middle of 2003.

"The public ought to be very... enraged," says advocate John Henneberger. "For the city to negotiate a loan and have it go into default that quickly indicates that the city was at best, incompetent."

But this advocate for lower-income development says what's worse is "they've used the money, the only source of funds that exist to help the poor, in order to create a luxury hotel for the rich."

How? It turns out Houston put up grant money it uses for its poorest neighborhoods as collateral on both loans putting more than $14 million dollars at risk.

"If this hotel doesn't pay its money, then that comes out of the future money the city of Houston has to provide playgrounds, daycare centers, homeless shelters," says the advocate.

Which brings us back to Alvin Byrd of the Fifth Ward.

"That's $14 million that could be used to improve the quality of life in this neighborhood, instantly," says Byrd.

Money now in jeopardy he says could, "transform the entire community."

A community where nearly two-thirds of the residents live below the poverty line.

"It would be a travesty if we were to lose future dollars," says Byrd.

But the city's problems with bad loans don't end with luxury hotels. The Defenders discovered nearly $40 million dollars worth of loans, in default, that have to do with development. They were all issued by the Houston Department of Housing and Community Development. And some have been in default for longer than 10 years.

Meet the John Walsh, the man Houston's mayor asked to help straighten this mess out.

The Defenders couldn't find a single payment that the Magnolia Hotel has ever made to the city of Houston. When asked if that surprised him, Walsh said, "No. I can't vouch for the reason why it has taken so long for us to pursue the collection of these loans."

But Walsh says the city might not be able to collect.

"Then if we can't collect it, we'll just take our lumps and do the best we can."

But for Alvin Byrd that's not enough. When asked if the city should hold them accountable. Byrd says, "Absolutely. They would hold me accountable."

The general manager of the Crowne Plaza Hotel told 11 News they're not having money problems either, but said for now their lawyers have advised they don't have to pay the loan.

The City of Houston insists they do and also adds they intend to collect.