Development

Proposed convention hotel in downtown Kansas City is on the clock

svockrodt@kcstar.com

Mayor Sly James formally announced the development of an 800-room hotel May 11, 2015, at the Kansas City Convention Center's Grand Ballroom. But now, the City Council wants proof that the developers are making progress on the delayed project.
Mayor Sly James formally announced the development of an 800-room hotel May 11, 2015, at the Kansas City Convention Center's Grand Ballroom. But now, the City Council wants proof that the developers are making progress on the delayed project. kmyers@kcstar.com

The developers of a proposed downtown Kansas City convention hotel have until Dec. 20 to show City Hall that they’re making enough progress toward getting started on the 800-room project.

The Kansas City Council met on Tuesday to discuss possible ramifications if the city lets an agreement with the developers expire in three weeks.

The discussion, which was held behind closed doors because legal mattes were discussed, came after Kansas City Councilwoman Teresa Loar asked for an update during a regularly scheduled council work session about the progress of the behind-schedule Hyatt hotel.

“I’m very skeptical of this project with this development group,” Loar said at the work session, which is a meeting held in City Manager Troy Schulte’s office in which the agendas for upcoming council committee meetings are discussed.

Mike Burke, a Kansas City attorney who represents KC Hotel Developers, was not at Tuesday’s council discussion. But he said afterward that the convention hotel developers are making significant progress and will be able to demonstrate that by Dec. 20, a deadline baked into a development agreement struck earlier this year.

“We’re in full design mode and are getting our financing lined up,” Burke said. “We’ve already invested millions and are moving ahead towards a closing, a financial closing in March or April. We’re shooting for March, and a groundbreaking thereafter.”

KC Hotel Developers also includes New York financier Steve Rattner and Denver hotel developer Tim O’Byrne.

In May 2015, the group announced plans to build a long-awaited $311 million convention hotel near the Kansas City Convention Center. It was originally supposed to open in 2018, but various factors have delayed even the start of construction.

Schulte said that if the development team could show they have a commitment for a first mortgage, that would probably suffice to keep the project moving.

The decision to grant the extension rests on Schulte’s shoulders, but he said he would seek the advice and consent of the council.

“If I’ve got nine people saying cut the deal, I’ll probably cut the deal,” Schulte said.

Schulte added that he’s received assurances that KC Hotel Developers has made progress, which he has confirmed independently. But he couldn’t state on Tuesday whether he would approve an extension for the hotel project.

Burke and his team have welcomed national banks to Kansas City and plan to bring more in the coming weeks to explore the possibility of committing to a mortgage.

But the onus on getting the deal together doesn’t rest solely on the developers.

“One of the problems is the city has not done their part,” Burke said. “They have not cleared the property. There’s still a lien against that. We can’t close as long as there is a lien.”

Kansas City owns three-quarters of a block along Truman Road between Baltimore and Wyandotte streets where the convention hotel would be built. The city pledged that property, along with a West Bottoms parking lot, as collateral as part of a bond financing arrangement for Bartle Hall’s expansion.

The city insured those bonds through a company called Ambac, which went bankrupt in 2010 in the aftermath of the 2008 financial crisis.

Kansas City is trying to unwind that complicated arrangement by offering up another piece of city-owned property to clear the lien. One property being proposed is the Municipal Service Center, a public works building at 5300 Municipal Ave.

Schulte said the city can get that worked out by next spring, in time for a planned financing closing by the developers in either March or April.

Even so, Burke and his partners still have to acquire the northwest portion of the development site, which is owned by the American Hereford Association. Burke said the association is in the process of identifying an alternate location for its business, and he expects that closing to occur soon.

If the city backs out of the deal, Schulte said the city would have to pay $250,000 in damages and might also face a lawsuit from the developers.

Some council members were skeptical of the project and its lack of progress so far.

Kansas City has committed $35 million to the project through a bond being paid off with tourism tax dollars over 25 years.

The city has also approved two different tax increment financing plans, which capture new taxes generated by the hotel to pay off eligible project costs. The developers also have sales tax exemptions for construction-related materials until the hotel stabilizes.

“We’ve had several deadlines come and go,” Loar said. “That $35 million we’ve got committed, softly committed I guess, goes against our bond rating. If we’re asking our taxpayers for a tax increase by issuing bonds in April, I certainly want to make sure every dime that’s spent down here is spent with scrutiny and spent correctly and done right.”

Others suggested that Loar, a leading critic of the plan, has an ulterior motive to her opposition. They said she has her own group that is pushing to either manage, build or operate a convention hotel.

“No, that’s not true,” Loar said.

Instead, she suggested having somebody look over the development team’s work.

“I don’t want to trust the developer to control all the finances of the project when the city is a major stakeholder,” Loar said after Tuesday’s meeting. “Yes, I would want the city to hire their own people to make sure that the money is being spent like it should be and things are being done as they should be.”

The city, however, did not agree to guarantee the debt on the project if it underperformed.

It appears that the majority of the council still supports the convention hotel project, though this council is not as solidly behind the project as its predecessor, some of whose members left office in 2015.

Scott Wagner, mayor pro tem and chairman of the finance committee who is in his second term in office, expressed frustration about Tuesday’s closed session and the second-guessing of the project before the city meets its obligations and the developers are given a full opportunity to pull it together.

“If we don’t make good on our promises,” he said, “it calls into question who would ever want to do business with Kansas City.”

Steve Vockrodt: 816-234-4277, @st_vockrodt

Lynn Horsley: 816-226-2058, @LynnHorsley

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