The Land Clearance For Redevelopment Authority on Monday gave the thumbs-up to a development agreement with the principals behind an 800-room downtown Kansas City convention hotel, paving the way for an effort to secure private financing.
The authority voted unanimously to participate in the $311 million hotel project, where the agency will own the property at Truman Road and Baltimore Street and lease it back to KC Hotel Developers LLC.
Monday’s special meeting of the LCRA is one of the last substantive agreements that the hotel development team has to meet with public agencies. Now it’s up to the developers to obtain a mortgage loan, sell bonds and round out the rest of the project’s financing through private equity.
The hotel’s developers, whose lead private equity partners are Steven Rattner of JPE Enterprises in New York and Tim O’Byrne of Inland Pacific Companies in suburban Denver, say they have $51.7 million committed to the project, including $6.5 million from Hyatt, which will operate the hotel.
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They say that $174 million is the “working number” for the amount of bonds they expect to sell. Those bonds would be paid back through taxes generated by the project.
A convention hotel has been on City Hall’s wish list for years as a way to boost Kansas City’s status as a convention destination. A hotel plan eluded city leaders because various proposals involved too much taxpayer financing. KC Hotel Developers’ plan, while heavily subsidized directly by the city and through taxes generated by the project, involves no municipal guarantee of the project’s debts.
KC Hotel Developers originally planned to open the hotel in 2018, but various delays have pushed that timeline back to about September 2019.
In entering into the agreement, the LCRA agreed to exempt the developer from paying sales taxes on capital improvements made to the hotel for six years after it opens. That means the developers won’t have to pay sales taxes on projects like kitchen upgrades, speaker systems in meeting rooms and other items that depreciate for more than one year.
That is on top of a sales tax exemption on construction-related materials, which is a common inducement that Kansas City offers for certain developments. Less common is an agreement to continue exempting sales taxes on capital projects. KC Hotel Developers originally sought a 30-year exemption from sales taxes on capital projects, but city leaders weren’t keen on that request and pared it down to six years, which the hotel’s developers referred to as a “stabilization” period.
Another provision that LCRA agreed to was a $5 million limit on liquidated damages that it could seek from the hotel’s developers if they breached the terms of the development agreement. KC Hotel Developers initially sought a $2 million cap on such damages, but agreed to the $5 million figure after one of the LCRA commissioners brought up the idea of a $10 million limit.
In addition to securing private financing, KC Hotel Developers also has to purchase property owned by the American Hereford Association, which makes up about one-fourth of the block where the developers plan to build the city’s first convention hotel since 1985.
City Hall also has to clear a lien on the rest of that block, which Kansas City had pledged as collateral to a bond insurance company when it issued debt to expand Bartle Hall.
KC Hotel Developers also needs a final agreement on the guaranteed maximum price for the project with its contractor, JE Dunn. The development team said it hopes to close on financing by March.