Conroe liens Hyatt developer over $2.5M profit dispute

**Conroe Files $2.5 Million Lien Against Hyatt Developer Over Unpaid Profits**

**CONROE, TX –** The City of Conroe has escalated its dispute with the developer of the Hyatt Regency Conroe Convention Center and Hotel, formally filing a statutory lien for $2.5 million against Garfield Public/Private LLC. The action, recorded May 22, 2024, with the Montgomery County Clerk, alleges that the city has not received its agreed-upon share of the hotel’s operating profits since the facility opened in early 2022.

The core of the conflict centers on a fundamental disagreement over how “net operating profits” are defined and calculated under the terms of a comprehensive development agreement that paved the way for the public-private partnership.

Under Section 4.5.3 of the agreement, the City of Conroe is due 50% of the hotel’s net operating profits annually, after debt service. This return was a crucial component of the deal for Conroe’s substantial financial commitment to the project, which included authorizing up to $28 million in public improvement bonds for essential site preparation, utilities infrastructure, and the construction of a shared parking garage adjacent to the convention center.

Conroe City Administrator Paul Virgadamo confirmed to this news organization that despite the hotel operating for over two years, not a single payment has been made to the city from these expected profits. “We made a significant investment, anticipating a return that would benefit our taxpayers,” Virgadamo stated. “To date, those anticipated direct profit shares have not materialized, which is why we’ve taken this necessary step.”

On the other side, developer Sam Garfield, CEO of Garfield Public/Private LLC, firmly maintains that there is simply no distributable profit to share yet. Garfield argues that his interpretation of “profit” must account for a wider spectrum of expenses, including substantial interest on the hotel’s long-term debt, depreciation of assets, and various other operating costs that significantly impact the bottom line. He also noted that he personally covered a $1.2 million debt service shortfall in 2023, underscoring the financial challenges the project has faced in its initial years.

“We are committed to the success of this project and to our partnership with the City of Conroe,” Garfield explained. “However, profit is not simply gross revenue minus a few line items. It must reflect the true financial health after all legitimate expenses, including significant debt servicing and capital recovery, are factored in. We are working within the parameters we understand to be accurate for such a large-scale hospitality venture.”

**A Multi-Million Dollar Public Investment**

The Hyatt Regency Conroe project, located adjacent to the Conroe North Houston Regional Airport, was envisioned as a catalyst for economic growth and a destination for conventions and tourism within Montgomery County. Beyond the $28 million in public improvement bonds, the city’s contributions also extended to an agreement to rebate 75% of sales tax and hotel occupancy tax (HOT) generated by the facility back to the developer for a period of 10 years, capped at $10 million. These rebates were intended to further support the project’s financial viability in its early stages.

Local officials initially lauded the development as a transformative project that would put Conroe on the map for regional events and business travel. The construction phase generated temporary jobs, and the opening of the hotel and convention center in early 2022 was met with optimism about increased tax revenues and visitor spending.

However, the current dispute highlights the inherent complexities and potential risks of public-private partnerships, particularly when financial performance falls short of initial projections or when interpretations of contractual language diverge. The lien filing is a legal mechanism that places a claim on the property, signaling the city’s intent to protect its financial interests. While not a direct demand for payment at this stage, it serves as a powerful indicator of the growing tension between the city and the developer.

City officials have indicated that they remain open to negotiations to resolve the definitional impasse and secure the city’s expected share of profits. However, if an amicable resolution cannot be reached, the dispute could potentially lead to more protracted legal proceedings.

For now, the Conroe community watches as its significant investment in the Hyatt Regency project faces a critical juncture, with the fundamental question of what constitutes “profit” at the heart of a multi-million dollar disagreement.