Financing for new Hyatt convention hotel in downtown Kansas City nears approval

A new downtown convention hotel deal got the green light Wednesday, setting the stage for final approval Thursday.

The City Council’s Planning, Zoning and Economic Development Committee voted 4-0 to recommend tax incentives and other public financing to help make the 800-room Hyatt hotel project a reality.

The full council’s endorsement is expected Thursday as nine of its members prepare to leave office after spending years trying to get this signature downtown development done.

The project has drawn some opposition. In fact, a national critic of the convention arms race came to Kansas City to speak against the project Wednesday night.

But Councilman John Sharp said building the first-class, 21st century convention hotel is crucial to restoring Kansas City’s status as a major national convention destination. He said the project will finally help Kansas City take full advantage of its convention center, downtown entertainment district, arena and other amenities.

“We have a vibrant downtown,” Sharp said. “This is the one missing piece of the puzzle.”

In May, developers unveiled a plan for an 800-room Hyatt, including a tower and parking garage, that would be built on the square block bordered by Wyandotte Street, Baltimore Avenue, 16th Street and Truman Road, immediately east of the Bartle Hall ballroom and northeast across 16th Street from the Kauffman Center for the Performing Arts.

“We consider it the perfect location,” said development attorney Mike Burke, part of the hotel development team.

He also said this is the right plan because it doesn’t rely on general taxpayer dollars and doesn’t require the city to guarantee the debt.

Supporters hope construction can begin by May 2016 and the hotel would open in mid-2018, creating about 400 hospitality jobs with an annual $20 million payroll.

The development is expected to cost about $311 million, including the $4.5 million value of the land that the city would contribute for the project.

Under the proposed plan, the city would also contribute $35 million in cash, which would be bonded over 25 years and would actually cost about $2 million per year in convention and tourism taxes.

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.

Burke has also said that time is of the essence to complete the financing and lock in favorable construction costs and interest rates.

The idea of a downtown convention headquarters hotel has been studied for 20 years. Advocates say it is needed to regain some of the major conventions that Kansas City has lost over the years and to make full use of Bartle Hall’s $144 million expansion in 1994, as well as the $146 million new ballroom in 2007.

No one spoke out against the project at Wednesday’s committee meeting.

But critics argue the new hotel is an expensive boondoggle that may cannibalize existing hotel business. They say there’s no guarantee Kansas City will increase its convention activity because many other cities have already expanded their convention centers and hotel properties.

That’s a specific warning from Heywood Sanders, a University of Texas at San Antonio professor and long-time critic of expensive public subsidies to build ever-more convention facilities and hotels, who spoke Wednesday night at the downtown public library. Sanders’ book is titled “Convention Center Follies: Politics, Power and Public Investment in American Cities.”

The deal has also drawn significant opposition from some local catering companies that currently have lucrative contracts to serve the Bartle Hall ballroom. The financing calls for the Hyatt to have an exclusive catering contract, and local companies resent losing that business.

They also argue that if catering revenues don’t meet a consultant’s projections as part of the financial deal, it could potentially require Kansas City taxpayers to make up the difference from the general fund.

But City Manager Troy Schulte told council members that the city has done everything it can to prevent that from happening. Private investors bear the risk if the hotel underperforms, he said, and any shortfall in the city’s required contribution would be covered by available convention and tourism taxes.

“We think we’ve protected the general fund,” Schulte said, contrasting this deal to the city’s guarantee of the debt on the downtown Power & Light entertainment district, which costs the city millions of dollars per year.

Councilman Jim Glover noted that if the hotel does well, it could also alleviate some of the Power and Light District debt, since tourists and conventioneers from the hotel may well spend their dollars at the district’s restaurants and bars.

This story was originally published July 22, 2015 at 6:05 PM with the headline "Financing for new Hyatt convention hotel in downtown Kansas City nears approval."