The last-minute turbulence that threatened to upend the start of construction on a new 800-room convention hotel calmed on Wednesday, as developers and city officials responded to questions from three Kansas City council members seeking more details about the deal.
More than new data, Councilwomen Heather Hall, Teresa Loar and Katheryn Shields wanted the essentials of the $322 million venture brought into clearer focus: the sources of the money, the city’s risk as an investor, and how taxpayers were protected if the deal went bad.
At the end of the three-hour hearing before the council’s government and finance committee, they said the picture was, if not completely transparent, then clear enough.
“I think I’ve had most of my questions answered,” Shields said.
After what she thought was a less than complete briefing on the deal last week, she joined Hall and Loar in sponsoring an ordinance to freeze the city’s $35 million cash contribution to venture, led by Loews Hotels and two equity partners, until the transparency improved.
While the measure had no real prospect of passing the full council, its mere existence threw a scare into the development team, which is pressing to close the transaction before possible changes in the financial markets unravel the plan. Any sign of the reluctance on the city’s part could have threaten the closing, they said.
That drove city officials and developers back to the witness table Wednesday.
“We want to be and try to continue to be completely transparent and answer all of the questions of our partners on the City Council,” said New York financier Steven Rattner, one of the three equity investors.
The council members sought more assurances that the so-called “capital stack” — the mix of $60 million in private equity, $140 million in bank loans and $80 million bond sales funding the project — will be locked down before the city kicks in its $35 million, along with land valued at $7 million.
City finance director Randy Landes pledged that the money would remain in city coffers until all other elements are “proofed up.” He said the $60 million in private equity from Loews, Rattner and Denver hotel developer Tim O’Byrne has been independently verified on behalf of the city by Stifel Nicolaus, an investment banking firm.
Landes and Rattner cited the original 2015 agreement passed by the council providing that the city is not liable if the developers default on the $110 million construction loan expected to be provided by Wells Fargo.
Cost overruns will be covered by developers and the loan is supposed to be repaid with the hotel’s operating income. If the hotel is not completed or is unsuccessful, Loews, Rattner and O’Byrne are at risk.
Tensions still flared in the course of the hearing, which went deep into the weeds of real estate finance.
“We’re supposed to be on the road in the next day or two,” Rattner said toward the end of the session. He was referring to meetings with institutional investors to sell bonds.
Hall, frustrated by what she said was a lack of responsiveness, pushed back.
“We’re not the ones holding this project up,” she said. “We’re just wanting to get the data which we asked for eight months ago.”
To take the ordinance off the books, the sponsors agreed to a proposal by Mayor Pro Tem Scott Wagner, committee chair, to report it to the full council with a “do not pass” recommendation. The council is expected to vote it down at its Thursday legislative session.
“Until it is dealt with, you can’t really get to a closing because that cloud continues to sit,” said Wagner. “It suggests that the city will not abide by its agreement.”.
The council will also consider a resolution requiring hotel developers to release more information about the deal as it heads toward closing.