Kansas City convention hotel proposal is put on fast track

Kansas City’s downtown convention hotel deal, unveiled just 10 days ago, finds itself already on the fast track at City Hall.

Getting their first look at the deal Wednesday, Kansas City Council members signaled their enthusiasm for moving quickly and possibly approving the hotel by July.

The Planning, Zoning and Economic Development Committee unanimously endorsed the outlines of the city’s financial partnership with private investors, and it goes to the full Council Thursday.

“We’re in a real race right now,” development attorney Mike Burke told the committee as he pushed for swift council action to keep moving forward with the project, which was just announced May 11.

Burke said the project needs to be approved as quickly as possible to lock in favorable interest rates and construction pricing.

Mayor Sly James also has said he wants the current council to approve the convention hotel before many of its members leave office Aug. 1.

Council approval of an agreement between the city and the Burke Swerdling development team will clarify how much money the city must put into the deal and allow investors to begin firming up their private financing for what would be a $302 million, 800-room Hyatt Hotel at 16th and Baltimore streets.

Details of that deal, unveiled Wednesday, show significant investments from both the city and the private sector.

City Manager Troy Schulte told the committee that Kansas City has spent more than three years negotiating for this project and turned aside other ideas that required too much city funding or a city guarantee of the project debt. Most cities that have built major convention hotels in recent years have had some type of city guarantee, but Kansas City already has a huge economic debt on its balance sheet and James was determined not to add to that.

This project doesn’t add to the city’s debt, and doesn’t take away money that would otherwise go for police, fire, code enforcement or other basic services.

“It’s a deal that the city can afford,” Schulte said.

But it will require a significant public investment, he said.

Among those elements:

▪ A $35 million cash contribution, which will actually cost about $2 million in convention and tourism taxes per year over a 25-year bond. The city has been spending that amount of money annually to retire debt on Kemper Arena, but that payment ends next year.

▪ City-owned land, valued at about $13 million, which covers about three-fourths of the hotel block. The developer must still acquire the rest from the American Hereford Association.

▪ Tax incentives valued at $80 million to $100 million over 30 years. The deal calls for capturing all new property, sales and earnings tax revenue generated by the hotel to help finance its development. Those incentives will be reviewed at a June 30 meeting.

▪ The hotel block would also collect and keep revenue from an additional 1-cent sales tax on the property.

Perhaps the most controversial element calls for Hyatt to have exclusive catering rights for 15 years for events in the Bartle Hall Grand Ballroom. According to the memorandum of understanding, the value of that deal was estimated at $2.4 million to $5.4 million per year for 15 years.

Currently, eight local catering companies have access to that Grand Ballroom business, and they would lose that capability once the hotel opened, possibly in 2018, Schulte said.

Although no one spoke against the hotel project at Wednesday’s committee meeting, some businesses are concerned about the loss of that local catering business.

Case Dorman, president of Jack Stack barbecue, said he and other local caterers have appreciated having the chance to provide Kansas City barbecue to conventioneers. Under the Hyatt deal, that would go away.

“Kansas City barbecue being synonymous with Kansas City, I’m not sure it makes a lot of sense to not have that as part of the offerings at the convention center,” he said.

Others have suggested that loss of the convention activity could put some small caterers out of business.

Overall, the memorandum of understanding estimates the private capital, including investment equity and “key money” from Hyatt, at about $138 million. It estimates concession revenues and tax incentives, plus the city’s cash contribution, at about $165 million.

Committee member Scott Taylor and others said the deal is a way to put Kansas City back on the map for major conventions.

“This opportunity is really excellent,” Taylor said, adding that the project has the chance to “elevate downtown.”

Bill Dietrich of the Downtown Council and others said that, after huge investments in Bartle Hall’s expansion, the Sprint Center, the Power & Light District, and the Kauffman Center, this is the final “piece of the puzzle” to making downtown competitive with peer convention cities.

But skeptics remain, even among those who are bullish on Kansas City.

Bill Lucas, president of Crown Center, was not at Wednesday’s meeting but has talked with Burke about the project.

“It’s exciting on the face of it. It’s a nice addition to downtown,” he said.

But Lucas knows well the challenges that downtown hotels face.

He calculated that VisitKC, the city’s convention and visitors association, would have to book an additional 200,000 room nights per year, on top of 300,000 room nights now, to make the new hotel successful while keeping the other hotels at current occupancy levels.

And he pointed out that a hotel may not be the last piece of the puzzle because Kansas City must continue making improvements to its airport and other amenities to market itself as a major convention town.

“Potentially it could be good, but it’s not the only thing you do,” he said.

This story was originally published May 20, 2015 at 6:14 PM with the headline "Kansas City convention hotel proposal is put on fast track."