The project requires tax abatement and substantial tax incentives to be viable, according to the plan. The total public contribution adds up to more than $160 million, or more than 50 percent of the cost.
The developers’ application says financing would also include $52 million in private equity, including $8.5 million from Hyatt, and $95 million in private debt.
The $311 million project costs add up this way:
▪ $218 million for construction.
▪ $32 million for design and professional services and soft costs.
▪ $13 million for land acquisition, including the city’s $4.5 million contribution.
▪ $38 million for financing and project management.
▪ Nearly $10 million in developer fees.
The hotel has been on a fast-track for city approval since it was first publicly unveiled less than 12 weeks ago. Mayor Sly James was anxious for the current council to vote on the project because a council with nine new members takes office Aug. 1.
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Since building the Vista Hotel in 1985, and then refashioning it into a Marriott Hotel after the Vista failed financially, and since expanding Bartle Hall (for which the city remains about $250 million in debt), Kansas City has seen its status drop as a convention city.
But the City Council will make another investment to attempt to reclaim a lofty status among convention cities. On Thursday, the council passed a roughly $165 million public-financing package for a $311 million, 800-room Hyatt convention hotel.
As we’ve noted before, the public-financing component for the hotel project is a far more reasonable package than previous proposals that sought upward of $100 million in city cash and municipally guaranteed debt.
The city has pledged $50 million from its convention and tourism tax, donated lucrative downtown property and strung together a pair of tax-increment financing plans that account for about half the cost of the project. The current proposal does not guarantee bonds, but could cover shortfalls in an exclusive catering contract with Hyatt, the hotel operator.
The bigger question on convention development in any city is whether there’s enough convention business to make the investment worthwhile.
No member of the City Council attended convention-hotel researcher Heywood Sanders’ appearance at the Kansas City Public Library on Wednesday night (three future members taking office August 1 — Katheryn Shields, Lee Barnes and Teresa Loar — were there).
Sanders, a professor at the University of Texas-San Antonio, cited evidence that convention demand has not kept even close pace with the growth of convention-hotel and exhibition-space supply.
“We’ve been building convention space in this country like crazy,” Sanders told about 200 attendees.
Sanders took particular aim at consultants whom cities hire prior to adding to hotel and convention stock. Consultants, according to Sanders’ research, often make projections of forthcoming convention business that don’t pan out.
One example: St. Louis thought it would have 800,000 room nights a year after 2004 in conjunction with its redevelopment of the Renaissance Grand across the street from its convention center. In reality, St. Louis fetched between 400,000 and 500,000 room nights each year after 2004.
A $98 million bond issue helped finance the $200 million-plus project. The hotel would go into foreclosure in 2009, later to sell for $32 million.
Sanders citied other cities, including Chicago and Atlanta, where convention expansions were not met with upticks in convention business.
Closer to home, Sanders says Kansas City has experienced steady declines in convention business since 2001, when the city experienced about 450,000 meeting room nights. During a stretch that included the expansion of Bartle Hall, Kansas City managed 300,000 room nights in 2014, according to Sanders.
Kansas City’s latest hotel-development team, headed publicly by real-estate lawyer Mike Burke, will now go into the private finance markets to fill in the rest of the hotel project’s financing.
If it all works out, Burke and his partners will make $9.6 million in development fees.
KCBiz Journals article here