Board approves Hyatt management deal, airport bonds and hotel financing after debate over market impact

The Board of Supervisors voted on Dec. 1, 2015 to approve a hotel management agreement with Hyatt Corporation for a new on-airport hotel at San Francisco International Airport and to authorize related bond financing.

Supervisors approved three related items together: a resolution to award the hotel management and cash-management agreements to Hyatt (item 14), a resolution to approve issuance of up to $243,000,000 in San Francisco Airport Commission capital plan bonds and up to $225,000,000 in specialty facility bonds to finance the hotel (item 15), and an ordinance to appropriate approximately $473,000,000 of proceeds and other financing sources for hotel development (item 16). Supervisor Mark Farrell was recused from the vote.

The measures passed on a roll call after discussion of market competition concerns. The final tally recorded ten votes in favor and no recorded opposition among the remaining supervisors: President London Breed, Supervisor Campos, Supervisor Christensen, Supervisor Cohen, Supervisor Kim, Supervisor Mar, Supervisor Tang, Supervisor Wiener, Supervisor Yi and Supervisor Avalos voted "aye." The board accepted the airport's procurement and financing plan and passed the ordinance on first reading.

Airport director John Martin and board members spent substantial time addressing whether a nearby Hyatt Regency in Burlingame would undercut the airport hotel. Martin said the airport negotiated contractual protections to ensure the airport property commands a significant premium in average room rate.

"The bottom line, the report is meaningless because it ignores the fact that we negotiated a 35% room rate differential between the Burlingame property and the airport property. If we don't receive at least 35% more on average per room night, Hyatt loses our management contract," Martin told supervisors during the hearing.

Martin described verification steps and monitoring: the airport obtains annual certification from Hyatt's auditor on the average room rate at the off‑airport property and said county tax records could be checked for gross revenues. He also testified the Burlingame Hyatt had been rated AAA three-diamond since 2007/2008 and that Hyatt had told airport staff it did not intend to upgrade that property to a four-diamond rating during the contract term, though he said AAA ratings are issued by AAA, not by hotel operators.

Supporters of the deal, including Supervisor Mar, said the airport went to significant lengths to negotiate protections and that the selection process considered major operators and the property's potential premium for on-airport convenience. Some supervisors expressed ongoing concerns about marketing claims and urged the airport to enforce terms.

Key contract and financing details (as presented to the board): - Management agreement: award and related cash‑management/lockbox agreement to Hyatt Corporation for a 10-year term to commence after hotel opening; airport director and staff recommended approval. - Compensation and financing: airport staff estimated management compensation "not to exceed approximately $20,000,000" and asked the board to approve bond issuances (capital plan and specialty facility bonds) in the amounts described above to finance hotel construction. - Appropriation: ordinance to appropriate approximately $473,000,000 in bond proceeds and other financing sources to develop the hotel at SFO (placed on controller reserve pending receipt of indebtedness and other financing).

Why it mattered: The votes authorize construction and long-term management of a new, high-end hotel on airport property and create the financing structure anticipated to fund construction. The board focused on market impacts and protections to the airport's revenue stream rather than rejecting the operator selection.

Action outcomes (board-recorded): items 14, 15 and 16 were adopted on the same roll call (Supervisor Farrell recused); the resolutions and ordinance passed on first reading with ten "ayes."