Meet the CEO
Texas Monthly, July 2004 — by Katy Vine
The restaurant mogul has invested $150 million to help change the face of Galveston. Now critics warn that he wants to turn the island into Atlantic City.
On a clear and sunny afternoon this past April, restaurant tycoon Tilman Fertitta was peering out the window of his helicopter, holding a toothpick between his teeth that pointed toward Galveston like a divining rod. Far below, the 32-mile-long, 2-mile-wide island stretched out before him, and he had an unobstructed view of the architectural legacies of some of the town's most powerful benefactors. To the west sat the Moody Gardens entertainment complex, which includes three giant, mirrored pyramids that dominate the landscape like an Egyptian monument. Directly beneath him was the late 1800's-era Strand district, meticulously restored in the seventies and eighties through millions of dollars of investment by George Mitchell. And on the south side of the strip, just before the Gulf, sat Fertitta's own contribution: a forty-foot-high rock volcano that erupts nightly on the half hour.
The chopper descended onto the lush green yard of the San Luis hotel, part of Fertitta's luxury resort. As the boss exited, a black Lincoln pulled up to meet him, but Fertitta dismissed the driver with a wave. "That's all right!" he shouted above the rotor's clamor. "I'm going to walk!" Dressed in a red polo shirt and faded jeans, his appearance was casual, but nearby employees snapped to attention nonetheless. They are used to these visits; Fertitta surprises them every few weeks, hoping to get an unvarnished look at his operations. His critiques can be so precise that some longtime workers say he can detect a burned-out light bulb before his helicopter touches down.
His inspection began at the Amazon-themed Rainforest Café, and Fertitta hadn't even reached the front door before he identified a problem. "What's with this color?" he asked, pointing to a sign on the outdoor gazebo. "Blue? This should be green; the blue looks like dog crap." Then he wound his way through the jam-packed retail store at the restaurant's entrance, stopping at a stack of T-shirts. "Why are these T-shirts so expensive?" he asked. "Would you pay for that? Where is the medium-sized T-shirt? All the extra-larges are on top." Finally, Fertitta climbed aboard the café's water ride, which takes passengers down a misty, dark tunnel where fake boa constrictors, monkeys, and other rain forest critters lurk and jerk mechanically from the cavern walls. As the ride took off, Fertitta became bothered by its instructional voiceover, and he shouted his displeasure above the sounds of chattering chimpanzees. "Can't we get an American accent for this recording instead of the British version?" he asked an employee." We tried that, Tilman, but it sounded stupid," the man shouted back.
"Oh," Fertitta said a little crestfallen. "Well, could you at least turn it up, then?"
Tilman Fertitta, 46 is the chairman, president, and CEO of Landry's Restaurants Inc., which operates more than three hundred restaurants nationwide — including Joe's Crab Shack, Landry's Seafood House, and the Rainforest Café — out of its Houston headquarters. In that city, Fertitta is one of many big fish, but here in his native Galveston, he might as well carry a trident. He owns half a mile of the strip, from First to Sixty-first Street. He is also the owner of Fertitta Hospitality, which runs the city's new $30 million convention center along with the upscale San Luis Resort, Spa, and Conference center. In the past few years he has bought so much land on the Island that he makes headlines when he chooses not to buy a property. All told, he's invested $150 million here, an influx of cash that some say is responsible for sparking the economic boom now taking place in Galveston, a city that as recently as six years ago had few development prospects and was nearly bankrupt.
But among other residents, who are used to seeing a slower pace to the city's growth — or no growth at all — there is grumbling that Fertitta's role in developing the Island has gotten too big. They worry aloud that his legion of properties is turning Galveston into "Fertittaville," a fear that was only heightened two months ago, when Mayor Roger "Bo" Quiroga proposed changing the name of Fifty-seventh Street to Tilman Fertitta Boulevard. Of even larger concern is what they perceive to be Fertitta's long-term vision. This spring, when Fertitta backed a proposal during special legislative session to bring video gambling to Texas, there was speculation that he hoped to turn it into a Gulf Coast version of Atlantic City.
The debate over Fertitta's influence was fresh in resident's minds in May, when a record voter turnout was expected for the mayoral election. The race featured two former city council members: Native Lyda Ann Thomas, a member of the powerful Kempner family, represented the conservative-growth old guard; New Jersey-born Johnny Smecca represented those in favor of aggressive, Fertitta-style development. On record, Fertitta never endorsed either candidate, but it wasn't difficult to guess whose ticket he'd punch if he were eligible to vote. "I'll tell you exactly how it is, okay?" he said in his Houston office shortly before our ride in the chopper. "If you want new businesses so you don't have to drive to the mainland, you elect Johnny Smecca. If you like it the way it is — and decide you need no more building — you elect Lyda Ann Thomas. And that's for the people of Galveston to choose.
A few days before Fertitta's helicopter drop-in, I joined a couple of locals seated at a small table a E Street Gallery and Coffee Haus, on Postoffice Street. One of them, Ladislav, was a Czech mason; the other, Nathan, was the owner of the Galveston Wedding Chapel. When I asked them to share their thoughts on Fertitta, it wasn't long before the pair had addressed the three basic complaints I would hear repeatedly:
"Mr. Fertitta has come here and put up all these restaurant," Ladislav said , "and suddenly his income go up, up. It crazy. How it get like that?" (Translation: We've seen fast growth before — with Enron.)
"He put Fuddruckers on the Strand," Nathan said. "He's making it look like the west side of Houston." (Translation: He's tacky, and he's turning the Island into a generic tourist town.)
"If anything happens to him," Nathan said, "we're done for." (Translation: He has singular control of the Island.)
It's this last complaint that resonates the most around here. One former mayor, who declined the be identified for this story, referred to the city's historic relationship with its wealthiest residents as a "plantation mentality." Indeed, for more than one hundred years, power on the Island has belonged almost exclusively to members of three families: the Moodys, Kempners, and Sealys, who made their money in cotton and banking, among other ventures, in the late 1800's. All three families established foundations, which since 1957, when Attorney General Will Wilson shut gambling down and effectively eliminated the Island's biggest revenue stream, have often kept the city afloat, giving millions of dollars to charities and funding medical research and historical restoration.
Since gambling disappeared, Galveston's main industries have been tourism and the hospital. The University of Texas Medical Branch doesn't pay any local taxes. And Moody Gardens, the town's most famous attraction, which includes a hotel and, until recently, the only major convention center, pays no ad valorem taxes. With no stable middle class and little in the way of new industry or large-scale development, the city has often struggled to come up with a solid revenue source. By the late nineties, when Mayor Quiroga was elected, the city had a $1.8 million shortfall.
Tilman Fertitta has no relation the Island's three big families. Born in Galveston, he left the city in 1974 for Houston, where he opened his first Landry's while her was in his early twenties. In 1984, after amassing a small fortune, he began buying up land along the seawall of his old hometown. He saw the unrealized potential of tourism on the Island, and in addition to growing his restaurant empire, he wanted to build the city a new convention center. But he knew that any future center would have to compete with Moody Gardens, which had a huge advantage thanks to its tax-exempt status. So in 1996 Fertitta made a move long chronicled in Island lore. Asked to speak at an event at the Moody Convention Center, he stormed up to the microphone and directly attacked the Moody Foundation. He said its tax arrangement was scaring off viable competitors, including himself, and that it was the reason for Galveston's stagnant growth. The audience gave him a standing ovation.
Five years later, in 2001, Fertitta won over enough people around town, including Mayor Quiroga, to push for a special election on increasing the local hotel tax from 13 cents to 15 cents on the dollar. The plan would create funds for the city to build a Fertitta-run convention center to compete with the Moody's and promised to create more jobs on the Island. Galveston voters overwhelmingly approved. "That election was not just on the convention center, okay?" Fertitta told me. "More people turned out for that election than for any mayor's race. That was a vote for change in Galveston."
Indeed, since then, change has been taking place at a rapid clip. The city has lured four lucrative cruise lines to dock in its port. UTMB has received a $110 million grant to create a Galveston National Biocontainment Laboratory. The developer Centex is looking to build a half-a-billion dollar project, including new homes, townhouses, and condos. "There hasn't been this level of investment on Galveston Island since the rebuilding after the 1900 storm," said Jeff Sjostrom, the president of the Galveston Economic Development Partnership. As Quiroga saw his term limit coming to an end, Galveston boasted a $6 million surplus.
On a Sunday morning in April, about seventy Galveston business leaders met for their weekly breakfast at Fish Tales, a Fertitta-owned restaurant on the seawall. UTMB president John Stobo was there, as was outgoing mayor Quiroga, among others. While casually dressed men and women sipped coffee out of white cups and pushed their eggs around small china plates, a microphone was passed from table to table. The floor was open, but conversation centered primarily on economic development. Every time someone brought up a viable property and its potential as an investment opportunity, the same joke was repeated. "Somebody call Tilman," and attendee would mutter. This would be followed by muffled laughter.
The suggestions weren't entirely in jest. Though Fertitta is not the only person investing in town these days, his aggressiveness can sometimes make it appear that way. Fertitta's convention center completed in April, is surrounded by Fertitta-owned hotels and Fertitta-owned restaurants, creating a symbiotic environment in which the all Fertitta-owned entities can feed off one another. He recently bought the nearby Flagship Hotel, and he says he wants to build an amusement park out on the Flagship's pier, complete with a Ferris wheel and roller coaster. He's had his eye on a golf course, and he says he wants to turn piers nineteen and twenty into a yacht club. All of a sudden, Fertitta's grip on Galveston's tourism rivals — some might say surpasses — the hold that Moody Gardens once enjoyed.
If the Moody Family is upset by Fertitta's power grab, its members are quiet about it publicly. (The foundation declined to comment for this story.) According to the Galveston County Daily News, however, at a city council workshop this spring, Irwin "Buddy" Herz Sr., the Moody family's attorney, aired grievances against Fertitta and the city, claiming that the city was trying to sell property to the restaurateur that had been promised to a church. "How many people are going to stomped on in the name of economic development?" he asked. "I've seen deals cut in the past — "Steve Greenberg, the director of governmental affairs for Landry's Restaurants Inc., cut him off. "you've been part of them," he said.
Fertitta's growing obstacle these days is public opinion. In the past, any local opposition to his plans was outweighed by his ability to bring in new jobs. But his detractors started gaining footing when Fertitta backed video gambling at the special session. They say gambling will bring corruption, and some even point to Fertitta's family history as a warning sign: During the forties and fifties, his great-uncle Anthony Fertitta and his great-great-uncles Sam and Rosario Maceo worked together in the Balinese Room, the most notorious gambling tavern in the state. Asked about his own gambling aspirations, Fertitta said people were blowing them out of proportion. But he didn't deny that he supported some level of gambling on the Island. After all, he explained, how would it be fair for the horse-racing tracks — or the failing greyhound track in nearby LaMarque — to get slot machines and not Galveston? "I'll tell you." He said. "I used to think it wasn't coming. These days I think it is inevitable. Will it be two years, five years, ten years? You're going to be pulling a slot machine in Galveston, Texas, while we are still breathing. I can promise you that."
By Election Day, May 15, the divide among residents was visible downtown, where campaign signs littered the streets. That night, each candidate hosted a party for supporters. Thomas held hers at a VFW hall on Twenty-fourth Street, where the old guard converged to watch the results in the bingo parlor. They ate hot dogs and chips and drank keg beer out of plastic cups. "The direction the city is going in is just sad," one partygoer told me, summing up the mood inside. "We have been labeled anti-development. But we are for growth. I don't want a wall of hotels just like Miami Beach. We have to maintain ambience."
Meanwhile, down at Mario's Seawall, the Italian restaurant owned by Smecca's family, a predominately middle-aged crowd had gathered. Men wearing baseball caps and women holding small children waited anxiously while the drank beer on tap and wine from the downstairs bar. "The biggest obstacle we're having to overcome is money. Lyda Ann Thomas has a lot of it, and she's using it," one woman explained, making the case that the election was about the haves and the have-nots. "Does Lyda Ann know how hard it is to scratch out a living and get from point A to point B?"
Neither candidate would be able to claim victory that night. Around nine-thirty an election official announced that there'd been a machine jam and that ballot counting would have to be postponed until a repairman could be called. (Word even got out that a mysterious "lost box" had appeared, causing concern on both sides that the fix was in.) Shortly after, Smecca began thanking his supporters and saying good-bye. Before he left, I asked him if he thought it would be a long night. "No, no," he said. I don't know that there's too much to worry about." By ten-thirty the next morning, however, the results were finally in: Thomas had crushed Smecca by thirty percentage points.
A week later, Tilman Fertitta was plotting his next move. "I have to be careful here." He explained. "let me think." Then, after a long pause, he made his pitch to the new regime. "Galveston didn't elect a pro-economic-development mayor and council. But I think they're all very smart people, and they see the right direction that Galveston needs to go in by being progressive. I think Galveston will be all right — if they make the right decisions." The election capped an unusually bad week for Fertitta. A few days earlier, slot machines had been rejected in the special session and Quiroga pulled the proposed street-name change due to lack of support in the neighborhood. Any plans for Fertittaville — real or imagined — would have to be put on hold.