You know something is going well when an industry built upon free breakfast bars and self-serve biscuits and gravy is flocking to your community. Yes, Lawrence is experiencing a hotel boom, and it appears to be continuing. I’ve learned plans are in the early stages for a new hotel to be built on the site of the old Ramada Inn near Sixth and Iowa streets.
Nav Patel, a principal with Kansas City-based Marquee Hospitality, has confirmed that his group has purchased the former Ramada Inn site at 2222 W. Sixth Street. If you don’t remember the Ramada, you evidently didn’t partake in my wedding buffet in 1999. (To clarify, the reception was at the TeePee Junction but we had Ramada truck the food in. Now do you remember?) Regardless, the site is just north and west of the Sixth and Iowa intersection, and more recently housed Rodeway Inn and a Howard Johnson.
Patel said plans haven’t yet been finalized, but he expects the new hotel to have 90 to 100 rooms. He said the group primarily is focusing on bringing either a Hilton or Marriott brand to the location.
“We want to put a nicer hotel in Lawrence,” Patel said. “We think there is good demand there. It is a good intersection. You make one turn and you go to the university, or you turn the other way and you go to downtown.”
Both Hilton and Marriott operate a variety of hotel brands that aren’t currently in Lawrence. Some of the more common ones are Hilton Garden, Homewood Suites by Hilton, Embassy Suites, Courtyard by Marriott, and Residence Inn by Marriott. And, don’t forget, Marriott operates the Ritz-Carlton chain and Hilton operates the Waldorf Astoria brand. Unless I have a cracker in hand, however, I’m not planning on putting on the Ritz anytime soon. The hotel brand I’ve heard mentioned with the site is a Fairfield Inn by Marriott, but there’s no confirmation with that.
Patel did confirm that his group has begun having conversations with City Hall about the project. He said he hopes to have plans submitted for the property in the next few months and to have construction underway by the middle of next year.
Marquee Hospitality operates about eight hotels, Patel said, with a couple in Kansas City and few in the Washington, D.C. area.
Lawrence has been an active place for hotel construction in recent years. First there was the The Oread hotel built near the KU campus, then the Marriott TownePlace at Ninth and New Hampshire, and then a Comfort Inn on McDonald Drive near the Kansas Turnpike. Most recently, the former Holiday Inn on McDonald Drive is undergoing a major renovation as it plans to become a DoubleTree by Hilton in the coming months.
One thing that will be interesting to watch with the former Ramada site is whether the new hotel seeks to have any conference space. Patel didn’t provide any details on that front, but he said several things that made it clear the firm is trying to gauge how much conference business can be had in Lawrence.
In other news and notes from around town:
• This one slipped under my radar, but The Oread hotel landed on a nice list last month. The hotel was ranked as the No. 22 best college hotel by the website College Rank, which provides information to students and parents on college choices. The Bluemont Hotel in Manhattan was ranked No. 11 on the list. The No. 1 college hotel is the Washington Duke Inn, which has three restaurants, an 18-hole golf course, a AAA four-diamond rating, but does have one drawback that seemingly can’t be overcome. It is at Duke University.
• Some readers have asked for an update on what the new construction is next to the Comfort Inn at McDonald Drive and Princeton Boulevard. As we have reported, that’s set to be a small warehouse complex. Plans filed in September showed four buildings on the site, ranging from about 17,000 square feet to 3,100 square feet. Lawrence-based architect Paul Werner previously told me that the space will accommodate, in part, some businesses that are part of Lawrence’s Fritzel construction entities, such as a cabinet shop, a rock business and other types of construction firms. I suspect some of the warehouse space also could be available for overflow storage for industrial firms that are in the area. It is always possible the plans have changed a bit, and if I hear anything new, I’ll let you know.
Sometimes you win in the court of law, but lose in the court of public opinion. Other times it is vice-versa. I can't help but think that thought is going through the minds of some City Hall leaders these days.
This $500,000 tax dispute between the city of Lawrence and the developers of The Oread hotel project seems likely to create some interesting legal wrangling. New documents released by the developer certainly have made that clearer. But if it turns into a lawsuit, it sure appears City Hall leaders have an interesting calculus to consider: It is important for the city to win the judgment of the court, but it is critical that it win the judgment of the public.
In other words, the city probably has more at risk in the court of public opinion than it does in the court of law.
As it stands now, the city’s biggest risk in the court of law is about $500,000. That’s approximately the amount of the tax dispute. But that amount creates no real risk to the city’s finances. The $500,000 in disputed taxes have never been budgeted. It is not like the city will have to cut funding for something if it doesn’t receive it. (To be clear, not all the money would go to the city. Some would go to the county, and a special 1 percent sales tax that is charged in the district would theoretically be rebated back to the consumers who paid it.)
But I think the stakes are much higher in the court of public opinion. As we reported, The Oread development team released a large number of documents recently describing its position in the dispute. It is easy to see in those documents some potentially successful legal arguments. It is more difficult to see anything that is going to change the public’s opinion that the developers are misusing a city incentive program.
If the city doesn’t do everything it can to impose some type of penalty on the development team, I think the City Commission risks losing large amounts of trust with the public. At least that’s what I hear from people who stop me on the street to talk about it. To make matters worse, trust levels aren’t that great currently, following the Rock Chalk Park controversy that the city had with Thomas Fritzel — the same Lawrence businessman at the center of The Oread development. There are other Fritzel/City Hall controversies that continue to weigh on the mind of residents. If the camel’s back hasn’t already broken, it seems like this will do it.
So, let’s take a closer look at the new set of documents released by the development group to see where future battles may be waged in this dispute:
• One of the documents produced by the development group is called “Setting the Record Straight: The Facts of Oread Redevelopment District.” Expect exception to be taken to some of these facts. There is at least one statement in that document that isn’t a fact. Statement No. 2 reads: "Oread Inn is owed approximately $11 million plus interest for improvements that, absent the Redevelopment Agreement, would have been paid and financed by the City. There is no dispute of this fact.” It certainly is not a fact that the city would have paid and financed all of these improvements if this deal hadn’t been reached. Indeed, the $11 million in improvements do include numerous pieces of public infrastructure — items such as streets, sidewalks and other such projects — that likely needed city attention whether The Oread project proceeded or not. But it is important to remember that the majority of the $11 million in improvements is for a privately owned parking garage that is beneath The Oread hotel. There was never a scenario where the city was going to pay for or finance that approximately $6 million private parking garage.
• $4.5 million may be an important number in all of this. That is approximately the amount of sales the development group once said were made inside The Oread’s special taxing district but is now saying were made outside the district. The development group made the change by amending the tax returns for Oread Wholesale. What did those sales involve? I’ve asked an attorney for the development group for more information about those sales, but did not receive any more details. What those sales involved go to the heart of the matter. City officials believe the development group was willfully inflating the sales of the special taxing district in order to get a larger sales tax rebate from the city. The fact that the development group has removed $4.5 million in sales from the district says that sales were improperly allocated to the district. The development group will strenuously argue otherwise. Attorneys with the group sent me a message stating the amended returns shouldn’t be read as a “determination” that sales were improperly made to the district. Instead, the amended returns were a voluntary effort to “compromise and cooperate with the city.” But if that line of logic stands, it raises other questions. Are sales tax returns meant to be an accurate depiction of sales activity, or does the state allow them to be changed to facilitate deals?
• There may be an argument brewing over what constitutes a warehouse. The terms of the special taxing district are pretty clear that one of the prohibited uses in the district is a warehouse. The city is contending that Oread Wholesale was operating a warehouse in the district, and thus the city has the legal authority to now void the special taxing district deal. Indeed, documents released by the development group confirm that Oread Wholesale has space within the hotel building where it stores and displays materials that it later sells. The attorneys have confirmed the location has handled sales of construction materials for projects throughout the Lawrence area and beyond. But the developers argue that is not a warehouse. The attorneys told me it is not a warehouse because “Oread Wholesale does not store property owned by third parties for a fee.” Instead, Oread Wholesale “stores its own inventory, pending the retail sale of such inventory.” Now, the bar exams I’ve passed are different than the ones attorneys are required to pass, so I’m no expert on the legal ins-and-outs of the definition of a warehouse. My qualifications mainly end at typing in the URL dictionary.com with a minimum of typos. Among the definitions of a warehouse on that site: “A building, or a part of one, in which wholesalers keep large stocks of merchandise, which they display and sell to retailers.”
• And finally, what would a dispute be without an alley. The alley behind The Varsity House, an apartment complex developed by a group led by Thomas Fritzel, will be debated. A good amount of the disputed sales taxes come from sales tax charged on construction materials for The Varsity House. The developers are contending those sales took place inside the special taxing district, even though there is agreement that The Varsity House project is not inside the special taxing district. Whether the sales are in or out adds up to a significant amount of money for the development group. If the sales are determined to be made outside the district, The Varsity House developers — which includes some of the key Oread developers — must pay the full amount of sales tax on construction materials, and they get none of it rebated back to them. But if the sales are made in the district, The Oread development group gets a rebate on the majority of the local sales taxes paid for the construction materials.
The argument that the development group is making is that most of the construction material sales for The Varsity House were delivered to the public alley that is behind The Varsity House, which is just down the block from The Oread hotel. That public alley is part of the special taxing district. Under state law, since the delivery was made there, that is where the sales tax must be charged, the development group argues. Thus, under the terms of the special taxing district, The Oread developers get a sales tax rebate.
But here is where it gets a little tricky to follow. When the construction materials arrived at the alley, they weren’t owned by Oread Wholesale. They were owned by whatever company Oread Wholesale ordered them from. Oread Wholesale would purchase the materials in the alley, and then store the materials in the alley before it sold them to the contractor for The Varsity House. “For deliveries to the alleyway, Oread Wholesale would retain ownership and possession of the construction materials when delivered,” a developer-commissioned report by the accounting firm BKD reads. The report goes on to say the products were later sold to DFC, the contractor building The Oread.
That raises a question: Does a wholesale company have to get any permission from the city to use a public alley as a storage facility for its business? I have little doubt that DFC had city permission to store construction materials in the alley, but whether Oread Wholesale had such permission may be a different matter. I asked the attorneys for The Oread group for any documents showing such permission had been granted, but I didn’t receive any.
The larger question, though, is one about intent. I covered the City Hall approval process for The Varsity House. Never did the developer mention that the project would be adding sales to the special taxing district. Why not? You could argue that would be a selling point for the project. The more sales that occur in the district, the quicker the $11 million cap is reached, and the quicker the city and county begin receiving the full amount of sales taxes from The Oread. One reason it was perhaps never mentioned is because it could be seen as a tax break for some members of The Varsity House development. (Remember, The Varsity House paid the full amount of sales tax due, but a good portion of it got rebated back to The Oread group, which also includes members of the The Varsity House group.) As someone covering the issue, I can tell you that it wasn’t likely that the City Commission was going to be in favor of giving The Varsity House project any such tax break.
The issue of whether the special taxing district is being used in the manner that was described when it was approved by the city is really at the heart of the matter for the public, I believe. Did the city approve one thing but actually get something else?
So, there are lots of issues to resolve, and I don’t have a good sense of how they will be resolved. It will be interesting to watch how long it takes to resolve them. One fact that gets overlooked is that the city has stopped making tax rebate payments to The Oread group. The Oread group has been counting on those tax rebates to pay for the $11 million worth of work that it financed at the project. Presumably, the development group is still obligated to make those debt payments even though the tax rebates aren’t currently being received. It would seem that a lawsuit with this many things to argue could be pretty lengthy, which could mean the tax rebates may be halted for quite some time. The city may be on the correct side of the leverage equation here.
I suspect that is just one of many calculations to come in this case.
More questions about Oread special taxing district; commissioner says city working to make sure ‘everyone pays their fair share of taxes’
I think we are getting closer to figuring out what the concerns are with the special taxing district at The Oread hotel. But I don’t think that means we are near the end of the questions about this project.
If you remember, we reported in November that the city had hired a Wichita accounting firm to complete a report on how the special taxing district — which has generated more than $2 million and counting for the development group that built the hotel — is operating. Then, last week we reported there were signs from City Hall that the auditing firm had found some concerning information, but no details have been publicly released.
If I’m reading the tea leaves correctly, city commissioners are going to again discuss the issue behind closed doors tonight. They have an executive session planned for their meeting this evening, and the general description of the session leads me to believe it is about The Oread issue. That session, I believe, should clear the way for the city to release the findings of the report in the coming days.
Since I last wrote about the topic last week, I have had a chance to talk with some more commissioners about the subject, and also to come up with some more questions.
Mayor Mike Amyx and I chatted Monday, and he stood by his decision to have a vote in October for an approximately $500,000 public incentive for The Eldridge Hotel expansion project. The Eldridge project and The Oread project have become linked because the two properties have a lot of cross ownership, and both are led by Lawrence businessman Thomas Fritzel. My theory is this: If the auditors find problems at The Oread taxing district that point back to Fritzel and his group, the public is going to be mad that the City Commission gave Fritzel and his group another round of public incentives just weeks before the results of this audit came out.
On Monday, Amyx said he felt allowing The Eldridge incentive request to proceed was the right thing to do.
“I didn’t give a lot of thought to that,” Amyx said of delaying The Eldridge vote. “They are completely different projects. I know there is a lot of cross ownership, but they are technically different owners.”
Not all commissioners are of that opinion. Commissioner Leslie Soden said she wishes the city would have waited until after the auditing firm had completed its work. Soden ended up voting against The Eldridge request.
“If delaying the vote was something I could have accomplished, I would have,” Soden said. “But it is the mayor’s prerogative of what to put on the agenda.”
Amyx noted that when The Eldridge vote came up in October there was a lot of discussion about how the City Commission needed to follow through on a promise that the previous commission had made to The Eldridge project. The previous commission had passed a resolution of intent to grant the approximately $500,000 sales tax exemption for the project. But because of the April elections, it fell to the new commission to actually approve the final paperwork on the incentive.
“We were receiving a lot of recommendations that we had to stand up to the commitments that were made,” Amyx said. “That decision was one of honoring a commitment made by the commission.”
The commission certainly did receive some comment from the public urging the city to approve the incentive on those grounds. But it is worth remembering an important fact: The public didn't know there was an audit underway.
I think that is one of the questions to be answered here: Why wasn’t the public made aware that an auditing firm had been hired to look into the issue?
Normally, when the city engages a contractor, the City Commission approves of it through an agenda item. That would cause us to see the agenda item, write about it and inform the public. But the city manager’s office has confirmed to me that the hiring of this audit firm was not the subject of an agenda item. The city manager has the authority to hire some firms to do work for the city, as long as the amount is below certain levels. The estimated cost of this audit is $15,000, which I think falls within the city manager’s purview to do without formal City Commission approval.
In talking with interim City Manager Diane Stoddard, she noted there are a lot of state-imposed confidentially requirements involved with examining sales tax reports of private businesses. But those confidentiality requirements don’t prevent the city from acknowledging that it has hired an auditor to review the district. The city did acknowledge that an auditor had been hired when the Journal-World asked the city about it in November. But the only reason we knew to ask was because we received an anonymous tip alerting us to the audit’s existence.
Perhaps the city handled this the way it did out of an abundance of caution. I can understand that the city wouldn’t want to embarrass a company by announcing it was conducting an audit without knowing whether the audit was actually going to find anything.
But, the issue of tax incentives has been a very important one to the public. It was a hot-button issue during the elections. I’m certain that there are members of the public who would have liked to have had that information when they gave public comment to commissioners on The Eldridge tax incentive request in October.
That brings me to my second question: How much information should the public be entitled to receive about businesses that are benefiting from a public tax incentive?
Here’s some background on this Oread issue: I called the city many months ago — before the audit was ordered — telling them that I had received a tip that a company called Oread Wholesale LC was using a business address of 1200 Oread Ave., which is the address for the hotel. I found that odd because Oread Wholesale appears to be a construction material wholesale company owned by Thomas Fritzel, and there doesn’t appear to be an active construction material wholesale company operating at 1200 Oread. But understanding special taxing districts, I knew it could be advantageous to list all the sales of Oread Wholesale as being made at 1200 Oread. That’s because Fritzel’s development group gets a large percentage of any sales taxes generated at 1200 Oread rebated back to it as part of the special taxing district. That could be problematic on a couple of fronts. Is that really the type of business the city intended to provide an incentive to? And, unless construction materials actually were changing hands at 1200 Oread, there probably would be some questions of whether the state’s sales tax laws are being followed. Normally, construction materials are delivered to a job site, which means sales tax should be charged at the location of the job site, not the location of the wholesale company.
So, I wanted to find out if there was anything to this tip I had received. I knew state law wasn’t going to let me see the actual sales tax reports filed by an individual business. That would give me access to private business information, such as how much the company is doing in sales. But I thought I might be able to see a list of all companies that are filing sales tax reports from that address. The city checked for me, and told me state law wouldn’t allow them to release that information either.
That creates an interesting situation. The public is providing an incentive worth millions of dollars to this project, but the public faces considerable difficulty in determining what businesses benefit from that public incentive. What harm would be created by the state releasing information about whether a business is filing a sales tax report from a specific location, particularly if the public has invested in that location through a public incentive?
The issue is more directly tied to state law than anything the city controls, but some city commissioners said they did think that businesses seeking incentives need to be ready to share more information with the public than they would otherwise.
“If you don’t want us in your business, don’t come asking for anything,” Commissioner Matthew Herbert said. “If you don’t ask for incentives, we will basically stay out of your hair. I think a company that asks for taxpayer subsidy needs to be prepared to be more transparent than an ordinary private company.”
Soden said she’s interested in exploring whether the city could create a requirement that any project receiving a public incentive is regularly required to file information listing what businesses are operating within the project. That way, the city would not find itself in a situation of thinking it was providing an incentive to benefit Business A, when in fact it was providing an incentive to benefit Business A, B and C.
“I’ve been frustrated by this issue for awhile,” Soden said.
If the city starts adding more requirements related to public incentives, that likely will create debate. There will be arguments that too many requirements will decrease the effectiveness of an incentive. If someone receives an incentive for a multitenant office building, for example, how much information are tenants of that building reasonably going to want to provide to City Hall?
Of course, the biggest question in all of this is: What did the auditing firm find? Amyx didn’t provide a specific timeline for the city to release the information, but said it will come out in a “timely fashion.” He said he's committed to making the findings public.
I don’t have any good insight into what the firm has found, other than sources have told me there are some significant findings. Whether those findings involve the development group, the city or something else, I don’t know. But Soden did make one comment that I found interesting.
“I want people to understand that the city has been working on this for awhile, and we are not trying to keep this hidden for any ugly reasons,” Soden said. “The city has always been on top of the issue, and has been working to make sure everybody pays their fair share of taxes.”
I don't know that he wears a cowboy hat, but there is a new fellow in town who plans to grab one of Lawrence's more famous bulls by the horns.
We're talking about Bullwinkles, the longtime Oread neighborhood bar near 14th and Tennessee streets. The establishment has new owners, and anybody who has driven by the building recently knows it is getting a complete renovation as well.
And the place is getting fancy . . . well, by Bullwinkles standards anyway. The bar now will have separate restrooms for both men and women. It didn't previously, and I've known a few people who have said an actual bull ride was more comfortable than those facilities.
But that and other items are changing at one of Lawrence's more longstanding college hang outs.
Joe Sorrentino and his wife, Jane, have bought the building, the business, and an adjacent apartment house. They've hired Lawrence-based Paul Werner Architects to revamp the properties.
"We don't want this corner looking like a run down dump," said Joe Sorrentino.
The renovations include the bathrooms, a new concrete patio, new landscaping, and a wrought iron-style fence to enclose the outdoor areas. The work also includes lifting the roof off the building to address a host of structural issues.
"The building is just so old," Sorrentino said. "There was quite a bit we needed to do to shore it up. We're doing this so it will last for another 100 years."
Sorrentino, an Overland Park businessman, is still boning up on the history of the location, but he thinks its use as a bar dates back to around 1918 or 1919. The Douglas County Appraiser's office lists the approximate construction of the building as 1900. There are also rumors that the site occasionally served as a speakeasy during the Prohibition era, but that may just be B.S. — which, as you might guess, is a common commodity in a place that goes by the moniker The Bull.
One thing that is certain is that Sorrentino plans to keep the Bullwinkles name. In fact, he's going old school with it. He found a man in Mission who has what is believed to be the original Bullwinkles sign. Sorrentino hasn't yet acquired the sign, but he's been able to copy the original logo from it — complete with the big set of moose horns. The site of that old bull moose may bring back memories for some KU alumni. (Well, they're probably foggy memories, at best.)
Sorrentino said he hopes the bar becomes more of an alumni hangout on game days and during other events. For years it almost exclusively has been a student hangout, and Sorrentino acknowledges it also has gained a reputation as an underage drinking spot. He said that likely will be the biggest change to the establishment.
He said he is doing away with the practice of hiring KU students to serve as doormen for the establishment, which he thinks will lead to stricter checking of I.D.s.
"The guys working the doors will be in their 30s and will have no relationship with KU at all," Sorrentino said. "I just don't want that type of business."
Sorrentino said plans call for the bar to be back in operation by the week of Aug. 22.