Archive for Saturday, February 9, 2008

New hotel plan not as risky for city

Consultant group says seven-story project would be financially feasible

February 9, 2008

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City consultant assesses Oread Inn proposal

A city consultant determines that it's reasonable for a controversial hotel project near the KU campus to receive public subsidies. Enlarge video

Concerned? Speak up

Opponents of the proposed Oread Inn project will have a forum at 10 a.m. today at the Lawrence Public Library, 707 Vt.

Individuals concerned about the design of the building and the use of public incentives are encouraged to attend. A representative of the developer also is expected to speak.

A city-hired consultant has determined that it is reasonable for a hotel project to be offered public subsidies.

The consulting firm also said the developers of the proposed Oread Inn project at 12th and Indiana streets are correct in contending that the hotel needs to be seven stories tall to be financially feasible.

City commissioners, though, will get the final say Tuesday night. Commissioners are scheduled to debate a variety of issues related to the project proposed to be built at the edge of the Kansas University campus. The $37 million project proposes 92 hotel rooms, 14 condominiums and an underground parking garage.

The project was getting a favorable review from key city staff members on Friday. A major reason why is a change in how the city is being asked to financially support the project.

Originally, the development team - which is made up of executives of Lawrence's Gene Fritzel Construction Co. - had asked the city to issue bonds for up to $11 million worth of parking and infrastructure work. Increased tax revenues generated by the project would be used to pay off the bonds, with the developers promising to cover any shortfall.

Now, developers say they will privately finance all $11 million worth of improvements. The city would then reimburse the development for the costs, as long as the increased property tax and sales tax revenue from the project is sufficient to do so.

"There was just this whole public perception and sentiment about what we were asking from the city, that it became a lot easier for us to just say forget the bonds," said David Longhurst, a member of the development team.

City Manager David Corliss said he thought the new proposal would be simpler for the city and more clear that the city was not accepting any financial risk with the project.

"It makes it more favorable for the city," Corliss said.

At Tuesday's meeting, commissioners will review a pair of reports prepared by Springsted, the financial consulting firm, to examine whether it was feasible to grant the use of tax increment financing and a transportation development district for the project. Both devices allow the city to direct new tax revenues created by the project to related infrastructure and parking work.

In short, the feasibility studies found that the project is expected to produce enough new tax revenue to pay for $5 million worth of the $11 million in parking and infrastructure improvements. The developer would have to use private money to pay for the remaining $6 million.

But the feasibility study also determined that the public incentives weren't necessary to make the project profitable. The study found that the internal rate of return for the project without the use of subsidies would be 5 percent to 10 percent per year for a 10-year period. With the public incentives, it would grow to 8 percent to 13 percent per year.

The authors of the report, though, said the subsidy could be justified because the 5 percent to 10 percent rate of return was below the average return expected for a hotel project. According to industry averages, the average rate of return is 9 percent to 14 percent.

City commissioners will have to decide whether they think boosting the rate of return on the project is a valid use of the incentives. Corliss said a case could be made that it would be a good use. He said that many of the $11 million in proposed improvements are not legally required as part of the hotel project. He said developers are willing to pay for a bulk of the infrastructure work - which includes the realignment of an intersection, improved sidewalks and additional street landscaping - because they believe it would improve the area surrounding the hotel.

The use of public subsidies, though, has drawn some public opposition.

"These type of subsidies were intended to go into areas of true poverty and high unemployment. Areas that no one wants to touch," said Dacia McCabe Maher, a Lawrence resident who has started a petition drive against the project. "That isn't the case here. This is a prime piece of real estate."

Historic preservationists have had concerns about the height of the project, and the city's Historic Resources Commission was unable to recommend its approval for that reason.

The feasibility study, though, found that reducing the size of the hotel to six stories would cause the annual internal rate of return to fall to 4 percent to 7 percent, which is well below the market average.

Comments

Godot 7 years, 6 months ago

"The authors of the report, though, said the subsidy could be justified because the 5 percent to 10 percent rate of return was below the average return expected for a hotel project. According to industry averages, the average rate of return is 9 percent to 14 percent."

"could" justify it?

No. The city does not owe this group of investors a subsidy to enhance the return on their investment. Most people would be delighted to earn 5% on their investments. Is the city ready to subsidize all of the savers who lend their money to the banks at 3% to 4% in the form of Certificates of Deposit so that they, too, get a 14% return on their money?

Godot 7 years, 6 months ago

Commendations should go to the development group for realizing that their bid to force the taxpayers to finance their project was an egregious error in judgment. But shame on them for asking in the first place.

This is no time to be giving the wealthiest of families in Lawrence a subsidy to enhance the return on what is expected to be a profitable venture.

http://economictimes.indiatimes.com/Markets/Global_Markets/US_recession_to_be_longer_than_usual_UMich_/articleshow/2768076.cms

Godot 7 years, 6 months ago

A pertinent excerpt from the economictimes link:

"The new report adds that a rising wealth gap will, even more than usual, lead to disproportionate pain for middle- and lower-income Americans. "Growing income inequality has insulated higher income groups to a greater extent than ever before," the report said. Yet the rich will not go unscathed, with the stock market's recent slide likely taking a bite out of many an investment portfolio."

ASBESTOS 7 years, 6 months ago

I am always curious about this:

"If a project is so needed and valuable, and canjustify it's own merit, why does it need public subsidies to make the project come about."

On the conservative side it is not "free market", and on the Liberal side it is money diverted to the private sector, which is a bane to Lileral folks. Why is it then, Politicians of either stripe slobber over themselves to "make these projects happen"? I believe it is the politicians vanitey, for they want to point at something and say they "helped make it happen" or it has their name on it.

I wish they would do that for infrastructure, say such as bridges, roads, a public hospital, water plant, ...

BUT A HOTEL????

Oracle_of_Rhode 7 years, 6 months ago

If this project was financially feasible it wouldn't require public subsidies.

rumor_man 7 years, 6 months ago

Give it a rest Cool. You're losing in my book and sounding a crybaby as well.

Yabut 7 years, 6 months ago

The City should not be involved in financing private enterprise. The "infrastructure" improvements are not necessary: all of those listed are for the benefit of the hotel (parking, street alignment to dump traffic right to the hotel's front door, street scaping to make it look more appealing, sidewalks).

nobody1793 7 years, 6 months ago

I would like to make a higher rate of return. Can the city give me subsidies too?

Marcy McGuffie 7 years, 6 months ago

Uh-oh, rumor_man is back. What's your plan of the day today? Because, quite frankly, it wasn't clear in the TIF 'tool' forum.

Seriously, does it get you all hot and bothered to sit on your butt behind a computer screen, harassing and calling names? Just because you don't like what someone has to say, doesn't mean you have to make personal attacks. This elementary playground mentality is tired...

Ah. Why bother? Children will be children.

WilburM 7 years, 6 months ago

Aside from bad architecture, a questionable process, and the entire mass/height/HRC issues, there is this:

"But the feasibility study also determined that the public incentives weren't necessary to make the project profitable."

Just when the city faces great infrastructure needs and no growth, we're going to subsidize a project that will be profitable. And there are certainly no guarantees that TIF funding will be produce adequate revenue.

This whole project is a loser -- aesthetically, financially, historically.

Scrap it, and start over, with something that we could be proud of, not this white elephant.

Ward 7 years, 6 months ago

If public monies are made available for this project, will the public get input on the aesthetics?

look at how it is proposed to terminate the end of Oread here http://www2.ljworld.com/photos/galler...

The building will have a HUGE BORING billboard on its face that reads

O R E A D

egad. there is little respect paid to the building's environs and general locale. Back to the drawing board!

The City will help to make this happen?

Michael Sizemore 7 years, 6 months ago

"Journalist calls for media vigilance - Accepting White award, Hersh cites need for critical press."

Maybe the LJWorld should heed his advice!

"..the hotel needs to be seven stories tall to be financially feasible"

"The feasibility study, though, found that reducing the size of the hotel to six stories would cause the annual internal rate of return to fall to 4 percent to 7 percent, which is well below the market average"

Folks these conclusions are spoon fed right out of the developer's proposal.

Maybe I'm just an ignorant hick that "don't know 'nothin 'bout the hotel biz", but isn't the profitability of a hotel based on number and rate of rooms? This hotel could easily maintain the same number of rooms AND reduce height.

The argument that it must be "X" number of stories is baseless and a fraudulent statement!

I realize the City is drooling over the potential tax revenues but really, please don't try to scam us with bogus "studies", and forced conclusions!

And shame on the LJW for not challenging such ridiculaous statement!

BigPrune 7 years, 6 months ago

When a major hotel like Hilton go into a community, they build their hotel on free ground. What kind of daily occupany rate is the developer expecting? This is key in knowing what they expect in order to determine their rate of return. What did the consulting firm determine the rate of occupancy to be, and where did they get the numbers in order to determine their occupancy?

Michael Sizemore 7 years, 6 months ago

"Historic preservationists have had concerns about the height of the project, and the city's Historic Resources Commission was unable to recommend its approval for that reason."

Nice spin - "unable to recommend its approval" doesn't that sound like, "gee, they really wanted to approve it, but were unable too..."

Not quite the same as saying, "The project was unanamously denied by the HRC."

Oracle_of_Rhode 7 years, 6 months ago

All that beige tile on the facade of this thing reminds me of a bathroom. That's the aesthetic of this huge, prominent project: bathroom.

BigPrune 7 years, 6 months ago

What kind of daily occupany rate is the developer expecting? This is key in knowing what they expect in order to determine their rate of return. What did the consulting firm determine the rate of occupancy to be, and where did they get the numbers in order to determine their occupancy, the Visitors Bureau (or whatever its called now)?

Dorothy Hoyt-Reed 7 years, 6 months ago

I have no problem with the design of the hotel. It looks like a nice building. My problem is, if it's such a great deal, why do the investors have their hands out wanting alms from the city? My street has not been resurfaced in more than 10 years. We asked (and it was approved) for some speed bumps to slow down the college students to keep our kids safe, but there's no money for that. I want my tax dollars going to something that I and my neighbors need. Not a luxury hotel we couldn't afford to stay at.

Fred Whitehead Jr. 7 years, 6 months ago

First line: A city-hired consultant has determined that it is reasonable for a hotel project to be offered public subsidies.

OF COURSE IT IS REASONABLE!!!!! THE CITY PAID THESE JERKS TO SAY THIS!!! IS EVERYONE DEAF, DUMB AND BLIND??

P.S. (Last sentence in "all caps", the jw site seems to reject statements made in "all caps"

LivedinLawrence4Life 7 years, 6 months ago

Lawrence needs more hotel and convention space. Lawrence loses convention dollars because many state associations have crossed Lawrence off of their rotation due to lack of hotel and convention space.

I have nothing to do with the project, yet I personally cannot wait until the Oread Inn is built. There are no tax dollars going into this project. The owners of this property will pay a ton of taxes. Based on current commercial property tax rates and the $37 Million estimated cost (it will go up), they will pay $1 Million a year in proprty tax. To put it another way, it would take nearly 500 homeowners paying property taxes to equal the taxes by this one Hotel. Commercial projects like this are exactly what Lawrence needs to help pay for schools, roads, etc. while keeping the taxes on our homes from going up.

Furthermore, hotels tend to collect money from out of state people, thus adding to the local economy. In the short term, the labor force who will be paid to build this project and in the longer-term, the sales taxes and hotel taxes generated from this project will have a positive economic multiplier effect in Lawrence. Those are all benefits to Lawrence if the Oread Inn succeeds. If it fails, then the developer who took the risk loses and someone else will take over the building while still paying taxes on it. My bet is that it will succeed!

If you don't want your property taxes to go up, you should support commercial projects like this!

Richard Heckler 7 years, 6 months ago

Lawrence may never be able to compete on the same level with KCMO/JOCO or Topeka for convention traffic anymore than it can for retail sales. Lawrence has always been a college town whereas Topeka and KCMO/JOCO metro have been building their markets for 100 years or more. Lawrence cannot play catch up. Some convention traffic certainly but citizens need to be realistic.

Where Lawrence can and should grow is things like more bike competition as cyclists from around the USA have been quoted as liking this area and they spend money. Additionally art fairs,music venues,keeping KU sports activities in Lawrence,Kansas etc etc. If citizens would get behind and promote this tourism type business Lawrence could increase revenue a good deal. Tourists are good because they come,have a good time,spend some money and then go home. In order to support tourism more sleeping space could be justified however not a lot of high dollar hotels. This hotel should be completely the responsibility of the investors....no matter how its' being said tax dollars are going back to the investors.

If tourism is the hot item of the day then this is how $ 88 million should be spent instead of building a sewage treatment plant for homebuilders. Invest in exisiting infrastructure instead of allowing it to go hell due to negligence. All of the items listed below would be important to the tourism trade:

*Repair streets and sidewalks in: Downtown Old west Lawrence Old East Lawrence Barker Brookcreek North Lawrence Oread

*Build a $17.5 million dollar library across the street from the New Hampshire parking garage(saves 10 million) and make use of a failed TIF project aka parking garage

*Convert the existing library building into a convention center which could save millions upon millions and protect taxpayers from another TIF project. When library shelves and office space is removed there is a huge space. Lawrence does not need an extravagant new building. Clean it up,do some remodel and landscape,landscape,landscape... we're set to go. Two large meeting spaces(one downstairs) and two existing smaller places in the current space. Dress up this existing structure and people will come.

*Provide development funding for a economic growth team in city hall. Apparently the Chamber of Commerce is not staffed accordingly. There is more transparency in City hall.

*Build the east Lawrence hike and bike trail

*Develop an exciting public transporation system accompanied with an appropriate maintenance facility.

Investing in existing infrastructure pays back and is good for business.

Richard Heckler 7 years, 6 months ago

As far as conventions go KCMO is doing a ton of restoration to downtown KCMO....all over dowtown. Harris Construction I notice is restoring the Midland Theatre. People come to Lawrence for KU and downtown.....let's not shoot ourselves in the foot by allowing downtown to slip away.

Marcy McGuffie 7 years, 6 months ago

LivedinLawrence4Life (Anonymous) says: Lawrence needs more hotel and convention space. Lawrence loses convention dollars because many state associations have crossed Lawrence off of their rotation due to lack of hotel and convention space.


Yes and no. The thing is, this is going to be a 92 room hotel. Will it be capable of holding small conferences? Sure. Will there be space available to accommodate major conventions? Not so much.


On a different note, Having just attended the Alliance meeting, I learned a lot of interesting things. While the developers have scaled back asking the city to finance improvements and offered to pay up front, they are still looking for breaks, that I don't see us benefiting from. They want reimbursed with the sales taxes created from their revenues generated, to help pay for the costs to "improve" the area, build a parking garage, etc. They claim it will help the area, but with the improvements they are paying for out of their own (really, the bank's) pockets, they expect the city to reimburse them. Why don't other businesses get this same break? The developers are asking for a HUGE tax break and if they don't get it, they won't build. The payoff doesn't seem that great to me. What's to stop other developers from coming in and being just as greedy? So much of the tax revenue that this hotel will generate, will be shuffled right back into the developers pockets (to pay for their "capitalistic" project).

And while I'll admittedly say that them backing off the bonds, incurs less risk for the City of Lawrence, I'm just not sure what we're really getting out of this. With the way the economy is tanking (and yes, it's tanking fast)...some of their projections, saying it will improve the local economy, just don't really fly.

Marcy McGuffie 7 years, 6 months ago

hawkperchedatriverfront (Anonymous) says: What is sad that those opposing it, don't live near it and are probably pi$$ed off that they are not living near something nice.


I can't speak for everyone, but I do think you are way overgeneralizing. Personally, I'm ticked off about where and how tax dollars are being spent in a time where budget crunching is necessary. The common person doesn't have much of a voice and we're all subjected to the City Commission's unilateral way of thinking and conducting business....and the chummy chum business deals being struck w/out adequate public input.

javier87 7 years, 6 months ago

They could just put another Walmart Supercenter there istead of the hotel?

Just joking. :)

not_dolph 7 years, 6 months ago

Ahhh...I see the thread monitor Ms. McGuffie is up and at 'em this moring. How are you today sweet heart?

Marcy McGuffie 7 years, 6 months ago

not_dolph -

Seriously, do you ever actually contribute anything meaningful to a debate? No, you just run around with your hard on for name calling and other childish antics, Mr. Anonymous. You bore me....therefore, you can chide me and others all you want, but I'm done taking the bait.

And for the record, I'm taken...so you can cut the "honey" and "sweet heart" crap.

I find it pathetic and somewhat entertaining how so many people get off on targeting and attacking others, because they're behind the computer screen. Is this how you roll in real life too?

Anyhoo, not_dolph...if you have any REAL questions or topics of debate for me regarding issues at hand, I'll be happy to answer. Otherwise, crawl back in that ugly little hole you've dug.

And if at the end of the day, you think the filth you spew has any lingering effect on me, well...shucks, that giggles me. Thanks for the laugh!

nrvana8775 7 years, 6 months ago

Is this part of a larger plan to price students out of the "ghetto" and build more scholarship halls?

I'm not really looking forward to the increase in rent prices, and eventual demolition of the buildings on 13th and Louisiana. Neighbor Dave owns four or five of the buildings on the block, and they have been for sale for the last couple of months, I wouldn't be surprised to see the University purchase the properties for future use.

not_dolph 7 years, 6 months ago

Well, I've accomplished everything I need to today... 'til I greet you again Marcy. Tootsie.

Marcy McGuffie 7 years, 6 months ago

max1 (Anonymous) says: During the 1994 legislative session, lawmakers passed SB 732, known as the Neighborhood Revitalization Act (NRA). The Act allows tax rebates for property owners who renovate or make improvements to their property.


That's fine and dandy. But, what benefit does the Oread neighborhood receive from building the ~$6 million parking garage that will benefit the hotel and not the general public? I have yet to be convinced that these improvements are anything but self-serving for the developers...

Marcy McGuffie 7 years, 6 months ago

Ah...I meant to add more to my last comment.

Isn't the purpose of the NRA to improve the neighborhood? I'm genuinely just trying to figure this out...

Marcy McGuffie 7 years, 6 months ago

its_getting_warmer (Anonymous) says: hawk, you still don't get it. city, county, school board don't receive any new money. All the tax money (beyond current amounts) goes back to Fritzels via TIF mechanism to pay for a private parking garage you will never drive in.


Word! Ditto, that!

Godot 7 years, 6 months ago

max1, good catch on the Delaware Commons/Minder thing.

Godot 7 years, 6 months ago

Someone wrote that the Fritzels say that if they don't get the tax break, they will abandon the project; this is after they bought a productive property and allowed it to become a blight. Isn't that called blackmail?

Godot 7 years, 6 months ago

Maybe the Fritzels are following Compton's lead with the Masonic Temple downtown.

Marcy McGuffie 7 years, 6 months ago

I'm still trying to figure out what pimps and prostitutes have do with the price of beans in China.

Richard Heckler 7 years, 6 months ago

Did the city pay for the consultant? The investors need to pick up the tab for the consultant not the taxpayer!

seriouscat 7 years, 6 months ago

Lawrence seems like a depressed town. Scaring away new businesses isn't going to help is it?

Granted, there are some valid concerns about this particular project, but so what? The risk is ultimately assumed by the business owners.

Currently the proposed area is litter strewn and like much of the rest of Lawrence appears well...depressed. A face lift and new property tax revenue is a good thing. If it doesn't happen, there will be no new property tax revenue, no improvement.

What is the likelihood that, if the Oread doesn't happen after all the time and money spent working with the city, someone else will come along and assume that risk again?

Isn't some improvement better than none at all? Isn't more property tax revenue and sales tax revenue better than none? Isn't fostering a trend toward more outside folks staying in, and spending their outside dollars in Lawrence something that Lawrence desperately needs?

People whined and moaned about all the money leaving town when the game moved to KCMO, taking sales tax dollars away from Lawrence. It doesn't look very promising that things are going to be reversed on that front and that the game will be coming back. This hotel will bring increased sales tax revenue, increased property tax revenue, and new jobs into Lawrence.

I'm not the biggest fan of public subsidies for private enterprise myself, but without this project the subsidies wouldn't exist because the additional revenue wouldn't exist!

Being flexible and business minded is what Lawrence residents need to do right now if they want things to improve for their town. Build that darn thing, watch and learn from what happens, and keep moving forward into the future.

seriouscat 7 years, 6 months ago

"The Fritzel's just know that this commission is a sucker for throwing away taxpayers money in the name of development."

"Not, with my tax dollars!"

I'm torn. I can see where you are coming from, but the thing is that it's money taken from the additional tax dollars that are generated by increasing the value of the property by building the hotel. Money that wouldn't be generated at all if the property and therefore property tax remains stagnant.

I will be perfectly honest with you. I haven't been in Lawrence for very long and therefore I was not here to witness how the mess aka the North Lawrence strip mall happened. But I can see that it's a mess and that other developments in recent years are too and have done nothing to help the city's residents.

However, I think this is different because A) it is inbuilding as opposed to sprawl B) since it is a hotel as opposed to retail, and will be mixed use, it is competing on an entirely different level; lots of people who currently stay in KCMO hotels and then drive into Lawrence for various events would stay there instead. If this wasn't true then no one would want to invest in it all.

I agree that it's frustrating that local governments across the nation have resorted to what is basically the extortion of the public in order to revitalize their communities. But it's become such a trend because it works. Does Lawrence want to be revitalized or not? Wishing the trend away and the wringing hands will not do the job.

I wish that Merrill's sensible ideas were more the reality than just ideas, but who is calling for any of this stuff besides Merrill? And what's the alternative? Do nothing or argue about economic policy indefinitely and allow Lawrence to slip further and further behind?

If you plumber, and other detractors were looking at this with a fresh pair of eyes that hadn't already witnessed other development projects tank, would you feel the same way?

Godot 7 years, 6 months ago

If the developers think they need a profit of 10% to 14%, rather than the 5% to 9% the study projects it will generate without taxpayer subsidies, they can simply raise the rates they charge at the hotel and increase the maintenance charges for the condo association. We are talking about upscale accomodations here, for pete's sake! It is for the elites! There will be no competition. The people who want to stay there will not let price be the deal breaker. They will not worry about paying an extra 5% for a hotel room or a condo. In fact, the higher the rate, the more attractive it will be, because it will be more likely to keep the lowly middle class riff raff out.

No private development that is expected to turn a 5 to 9 per cent profit without government subsidies deserves a TIF simply to guarantee a higher rate of return for the investors.

Godot 7 years, 6 months ago

Will the hotel be required to pay its staff a living wage as part of the deal?

Godot 7 years, 6 months ago

Regarding "sack the Hack:" and the other development friendly commissioners vs the no-growth/regressive commissioners of the past:

When the no-growthers pushed through favors for their friends (such as Delaware Commons) only one side (the private developers) even dared to raise a concern.

Now that the developer friends are in charge, and they are pushing forward favors for their friends, it is a given that the no-growthers/regressives will put up a fight. The difference is that the pro-growthers, such as myself, also raise holy h#ll because the favors and the tactics used are just as wrong as those given to the Minder people.

It is no more right to use tax dollars to favor friends of the liberals than it is to favor the friends of the right. Tax dollars should be used for an extremely limited purpose.

TIF for an exclusive hotel/condominium on "beach front property" in Lawrence is definitely not one of them.

davisnin 7 years, 6 months ago

Not surprising that no story about tonight's public hearing is on this site.

davisnin 7 years, 6 months ago

Maybe I can bump this back onto the front page...

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