Completed in May 2023, the Hyatt Regency Conroe and Convention Center has since struggled to meet its original financial projections. Though they maintain that the city’s overall finances remain solid, city officials said that the hotel’s rising debt, reserve drawdowns and recent bond rating downgrades are putting a strain on Conroe’s long-term financial outlook.
City leaders are now weighing whether to keep the hotel and manage the debt or explore a sale that could shift risk to a private owner.
The background
The Conroe Local Government Corp., which is run by the city, owns the hotel facilities and is the project’s borrower. The city owns the land and the convention center.
The CLGC financed the hotel through three separate lien revenue bonds, with the first and second liens repaid from hotel and city-facility revenue. The third lien revenue bond—used alongside other support and certificates of obligations to pay for the convention center, parking garage and public spaces—is backed by the Conroe Industrial Development Corp.’s sales-tax support if hotel revenue falls short, Conroe Chief Financial Officer Ariel Khann Gibbs said.
The bond debt totals around $77.1 million in principal across the three bonds—about $28.7 million, about $27.2 million and about $21.2 million, respectively.
Initially, a market study from CBRE, a firm that provides commercial real estate services, estimated the hotel could gross about $7.1 million by fiscal year 2026. The latest budget now puts that figure closer to $1.9 million, per city documents. City documents and consultant reports also project that the hotel won’t generate surplus revenue until around 2050, leaving public entities, such as the city, responsible for covering debt payments in the meantime.
Those financial pressures are now driving a debate over whether the city should keep the hotel or pursue a sale.
Construction on the hotel began in October 2021. The first guaranteed maximum price placed the construction cost at about $69.2 million; however, by completion, the total cost rose to nearly $108.6 million, Gibbs said. The project reached substantial completion in April 2023, and, in the days before opening the following month, the city transferred a $5.1 million cash infusion from its general fund reserves to help the project’s finances. Roughly $2.45 million of that support remains to be spent.
Since April 2022, the CLGC has made interest payments on the bonds each April and October, with principal payments on the first and second liens starting Oct. 1, 2025. The third-lien bonds are set to begin principal payments in 2028 and run through 2051.
Council member Howard Wood, who joined the council in 2022, said the size and structure of the debt have shaped how he views economic development projects.
“I had to learn a whole lot about hotel financing in a short amount of time,” he said. “The big lesson? Cities shouldn’t gamble with taxpayer money. That’s not our job.”
Here’s a look at the key milestones that have shaped the Hyatt Regency Conroe project and its financial path.
Managing the impact
City leaders are now weighing what comes next for the Hyatt Regency Conroe as the project’s debt and performance continue to strain its finances. On Oct. 23, the Conroe City Council and CLGC board held a meeting to review options, including the possibility of a sale.
Ahead of that meeting, commercial real estate firm Jones Lang LaSalle delivered an updated market valuation. JLL representatives concluded the hotel’s net value range was between $22.5 million and $23.8 million, assuming it remains branded and managed by Hyatt. That valuation is less than 25% of the roughly $108.6 million it cost to build.
Meanwhile, the CLGC’s credit rating has been downgraded multiple times since the hotel opened. S&P Global Ratings first downgraded the hotel bonds in February 2024, followed by additional downgrades in June and again in October, according to S&P. The hotel’s first-lien bonds were originally rated “BB+” in 2021 and now hold a “B” rating, while the second-lien bonds have fallen from a “BB” to “CCC-.”
In a report released in October, S&P lowered the CLGC’s second-lien bonds to “CCC-,” projecting a default on that lien’s April 2026 payment absent a significant improvement in performance or outside support. Analysts reported the hotel had drawn on its second-lien debt service reserve to make payments and estimated about $115,000 would remain after the Oct. 1, 2025, payment.
The second-lien reserve was originally funded at about $2.15 million, and S&P estimated the April 1, 2026, interest payment at roughly $632,956—far more than the $115,000 projected to remain in the reserve, which is why analysts warned of a likely default.
In the same October report, S&P affirmed a “B” rating on the first-lien bonds but kept a negative outlook, citing thin cash-flow coverage and the risk that the hotel’s revenue would land lower than originally expected.
The CLGC—established in 2019 under state law—is made up of Conroe City Council members. The public nonprofit was created specifically to develop and operate the hotel facilities.
To build the hotel, the CLGC issued the three layers of hotel revenue bonds. As of late 2025, outstanding principal balances across the three liens total about $28.2 million, $26.6 million and $21.2 million.
To cover shortfalls, the CLGC set up debt service reserve funds. The first-lien reserve was initially funded at about $2.83 million and, after required additions and investment earnings, held about $3.1 million as of November, even after roughly $196,000 in draws. The second-lien reserve was funded at about $2.15 million, and—after additions and investment earnings—draws of about $2.26 million bring it to about $145,000. The CIDC reports it has paid about $2.73 million toward the third-lien interest obligations.
City and CIDC leaders said the Hyatt project has narrowed their room to take on other priorities.
“The hotel and convention center project has impacted the city’s overall financial flexibility. It was a major endeavor and investment,” Gibbs said.
Even so, Conroe continues to move forward with other major investments. Excluding the hotel and convention center, the city and CIDC currently have one large project that is also funded through debt: the new Oscar Johnson Jr. Enrichment and Recreation Center at about $35 million, Gibbs said. They also continue to issue debt for various infrastructure projects through the capital improvement program.
Bond rating changes for the CLGC have not directly altered the city’s own credit ratings, but staff said downgrades can make it harder and more expensive for the CLGC to borrow for future projects by reducing investor confidence.
City officials also point to Proposition O, a charter amendment approved by voters Nov. 4, which now requires future councils to seek voter approval before issuing certain large amounts of debt. They said that change, along with a more conservative approach since 2022, is intended to prevent similar situations.
Wood said the experience has reinforced his belief that Conroe should focus on core services. He also said the new voter-approved debt charter amendment gives residents more say before future councils take on large projects—though he believes there is still room to strengthen those safeguards.
What they’re saying
From October 2024 through August 2025, the Hyatt reported 50.7% occupancy and an average daily rate of $162, compared with original expectations of above 60% occupancy and higher rates ranging from $203-$233.
Despite the financial pressures related to the hotel, city officials say Conroe’s overall finances remain solid, pointing to a strong general fund balance and positive net income.
“The financial condition of the city remains strong, despite the ongoing hotel debt and the bad financial decisions from the previous administration and council,” Gibbs said.
During Conroe City Council’s Nov. 13 meeting, city staff said the city has around $70 million in its general reserve fund, and the city spends roughly $465,000 per day, as previously reported.
Notable quote
“My heart is for the things a city should do well: police, fire, roads, water, sewer. Not high-risk business ventures.” —Howard Wood, Conroe City Council member
The options
During the Oct. 23 meeting, council members and CLGC board members began weighing what to do with the hotel. The options generally fall into two categories: sell the hotel or keep it and manage through decades of debt.
City staff said no decisions have been made. Any move to sell, refinance or restructure the hotel debt would need approval from City Council, the CLGC board and the CIDC board. City officials also have not yet outlined how sale proceeds would be applied to the outstanding debt should the hotel be sold.
If Conroe keeps the hotel, the CLGC will continue making debt payments each April and October using net operating revenues, reserve funds and, when necessary, CIDC support for the third lien, Gibbs said.
In an email, city officials said they’re “committed to resolving the hotel with the best financial outcome we can obtain.”
Wood said he is open to a sale if it can reduce that burden.
“If selling gets taxpayers out from under this debt and puts the risk back where it belongs—on private business—then yes, I’d be open to it,” he said.
Under the hotel’s financing documents, the CLGC hired a hotel consultant in October 2023 to recommend ways to improve profitability. S&P analysts said in their October 2025 report that they expect to revise their forecast once they review that report and the hotel’s FY 2026-27 budget.
In the meantime, the CLGC will continue to monitor occupancy, rates, operating costs and reserve levels ahead of debt payments in April and October, Gibbs said. Whether the city ultimately chooses a sale, a restructuring or continued ownership, leaders said any path will need to balance long-term financial recovery with rebuilding public trust.
“People deserve straight answers. Trust grows when we tell the truth—even when the truth is uncomfortable,” Wood said. “We rebuild trust by owning the mistake, learning from it, and making better choices moving forward.”
Conroe City Council also discussed and approved the hotel’s FY 2025-26 operating and capital budget at its Dec. 11 meeting. City staff said projected income available for debt service was about $1.787 million, compared to the total $4.372 million in payments across the three liens for FY 2025-26, leaving a $2.584 million shortfall.
