Price tag on downtown convention hotel rises to about $311 million

The projected cost of Kansas City’s proposed downtown convention hotel has increased to nearly $311 million, up about $9 million from an earlier estimate, according to documents filed with the Kansas City Tax Increment Financing Commission.

That increase is largely due to rising interest rates and a requirement for increased bond reserves, development attorney Mike Burke said Monday.

“That’s our big concern … interest rates,” Burke said, adding that rates have increased somewhat since the first of the year and are more volatile in recent weeks.

He explained that finance officials are also looking for more reserves on the bonds that will be needed for the project since the city is not guaranteeing the debt.

The new cost estimate is part of an application to the TIF Commission for tax incentives on the 800-room Hyatt hotel project. The commission will hear that application Tuesday, and if all goes as planned, will approve the request that day.

The matter then goes to the City Council, which Mayor Sly James has said he hopes will approve the convention hotel before many of the current council members leave office Aug. 1.

Many downtown civic leaders have hailed the proposal, especially since it doesn’t require the city to guarantee the debt.

But the plan has drawn some opposition, since it involves a hefty public investment of dollars. Some critics have indicated they plan to attend Tuesday’s meeting to voice their opposition.

“We still believe there are too many questions for the city to move ahead,” said Dan Coffey, who is collecting signatures for a petition initiative that would require the city to put the hotel plan to a public vote. Coffey’s group has not yet presented any petition signatures to the city for consideration.

Burke has urged the city to pass the TIF plan swiftly, because of the threat of rising interest rates and rising construction costs.

The city unveiled the long-awaited convention hotel plan in early May. It calls for a hotel tower and parking garage on the block bordered by Wyandotte Street, Baltimore Avenue, 16^th Street and Truman Road, just south of the downtown freeway loop. The city would provide that land to the development team.

Earlier estimates had placed the value of the redevelopment area at $13 million, but the value of the city land is estimated at $4.5 million. The developers also must acquire an office building owned by the American Hereford Association, which is estimated at $8.5 million.

Under the proposed plan, the city would also contribute $35 million in cash.

Some owners of existing hotels have questioned whether Kansas City can generate enough convention and tourism business for this new hotel to thrive along with existing hotels.

The plan predicts this new hotel could open in 2018, with an occupancy assumption of 58 percent in the first year, and ramping up to a stabilized occupancy of 66.5 percent by year 4.

It projects an initial average daily room rate of just under $154 in year 1, stabilizing to $181 in year 4.

“We examined hotel daily rates and occupancy statistics in the Kansas City area market, and the developers assumptions appear reasonable,” states a financial analysis from Springsted as part of the TIF plan.

“The developer indicated the assumptions for the operation of the facility are derived from information provided by their anticipated flag partner, who based their assumptions on their operations nationwide and within the local market,” Springsted said.

The project requires tax abatement and other tax incentives to be viable, according to the plan. It would rely on both statutory and a city supplemental TIF plus Super TIF, in which local and state taxes generated by the project would be used to reimburse eligible development costs. It estimates local TIF that can be redirected to the project at $47 million and Super TIF revenue for the project over 30 years at nearly $92 million.

A 1-cent sales tax, applied within the project boundaries, would generate approximately $127 million.

The application says financing would also include $95 million in private debt and $52 million in private equity.

A financial analysis of the proposed deal indicated a projected rate of return without the tax incentives at 2.4 percent. An unleveraged rate of return with 100 percent tax abatement for 10 years, plus TIF and Super TIF would be 12 percent, while the leveraged rate of return for investors with tax abatement, statutory TIF and city supplemental TIF is projected at 19.7 percent.

Burke said that rate of return “is appropriate given the risk involved.” The risk is higher for this project because the city is not guaranteeing the debt, which also would result in a lower interest rate.

The cost-benefit analysis calculates net benefits to the taxing jurisdictions over 30 years at $50 million for the city of Kansas City; $23 million for Jackson County; $2.4 million for the Kansas City Zoo; and $169 million for the state of Missouri.

But the project wouldn’t be a net gain for everyone. Under the analysis, the project would have a net fiscal cost of $1.2 million for Metropolitan Community Colleges; $4.7 million for the Kansas City Public Schools; $322,623 for the Mental Health Fund; and $779,095 for the Kansas City Public Library.

This story was originally published June 29, 2015 at 11:13 AM with the headline "Price tag on downtown convention hotel rises to about $311 million."