A wiser city is ready to move ahead with Wichita hotel

09/11/2011 12:00 AM

09/11/2011 10:47 AM

The first project proposed under new rules to protect the taxpayers' investment in downtown goes before the city council Tuesday: A 117-room, $30 million hotel on the southeast corner of Douglas and Broadway.

The Douglas Place project includes a broad array of proposed city bonding and economic development incentives, enough to finance almost all of the project.

But City Manager Robert Layton says he's happy with the agreement negotiated with Douglas Place developers Paul Coury, Dave Burk and Dave Wells.

That agreement places limits on the developers' ability to protest and attempt to lower their property taxes.

"We've taken several safeguards based on the city's development experience over the last few years, as well as the advice from Goody Clancy and their business partners based on their experience," Layton said.

"We think we're set to encourage downtown development in a way that provides protection to the taxpayer."

In so many words, the city has learned from its economic development mistakes of the past.

"I think we've learned a lot over the last couple of years about overexposure and trying to minimize our risk," said Layton, who became Wichita's city manager in 2009.

"That's what we got from the downtown plan and the consultants who are well-equipped in how to guide cities. I see this as a good test case for the Goody Clancy plan."

Goody Clancy was hired in 2009 to come up with a master plan for downtown. The consultants urged the city to limit its financial participation in downtown projects and spend public money primarily on infrastructure such as parking garages.

Coury said his development team has put several million dollars in equity into the Douglas Place project. He declined to give the exact dollar figure.

Here's a look at the bonding and the city protections built into the development agreement:

* Tax increment financing and capital improvement program funding for a 250- to 300-space public parking garage and urban park, not to exceed $7.57 million.

"We believe we have nothing at risk here," Layton said.

"In the development agreement, we've negotiated coverage for this project to ensure that there's sufficient revenue in the TIF to pay the debt supporting the retirement of the TIF bonds.

"If there's a deficit, they have agreed to make up the difference to make sure we're whole."

And the garage itself will be a tangible asset belonging to the city, with a variety of potential public uses, Layton said.

For the $7.57 million the city will get a parking garage that can be used by the public and serve existing businesses and future projects, the city manager said.

* Special assessment financing for facade improvements and lead-based paint/asbestos remediation, $1.5 million.

"On the facade improvements, even if the project goes south, we're in the first position for repayment," Layton said.

"And it's set for three phases with each closed before the next phase, assuring the work is assessed against the property."

* Industrial revenue bond financing and a sales tax exemption on renovation construction costs and furniture, fixtures and equipment, not to exceed $22 million.

The city issues industrial revenue bonds, but doesn't put its credit on the line behind them. That risk falls to those who buy the bonds.

The sales tax exemption money presumably goes into assets that could be sold if the project fails.

* Reimbursement of 75 percent of the hotel guest tax generated by the hotel, for 15 years, and a pay-as-you-go pass-through of a 2 percent community improvement district sales tax, the latter estimated to generate $60,000 annually in revenue through its 22-year life.

"The CID and guest tax do go into help assist them with the financing of the project," Layton said. "It's not a debt, though, and both only get paid if the project moves forward. If they cease, the city has no obligation to the developer.

In addition, there's a new development on the property tax front: A negotiated agreement that will limit the Douglas Place developers' ability to protest their property taxes.

Layton and Dave Burk, one of the Douglas Place developers, said the agreement protects the city's investment and strengthens revenue growth in the tax increment financing district from the boutique hotel's valuation.

The appeals issue grew out of a 2010 controversy when The Eagle reported that Burk represented himself as an agent of the city — without the city's knowledge or consent — to cut his taxes on publicly owned property he leases in the Old Town Cinema Plaza.

"We're fully protected on our debt and they can only protest their valuation when the capitalization rate for the project exceeds the average rate for boutiques as determined by a third-party nationally recognized hotel appraisal firm," Layton said.

Capitalization rates are the ratio between the net operating income of an asset and its cost.

"They shouldn't lose their right to protest their valuation under the law, but we are partnering and the whole existence of the TIF is to encourage redevelopment and so the taxing jurisdiction can benefit," Layton said.

Council member Michael O'Donnell said last week that he is going to need to see how much of their own money developers are putting into the project.

Without that number, O'Donnell said he's not comfortable that the city isn't repeating past economic development mistakes.

"I haven't seen any equity," O'Donnell said. "Between the CID and the TIF, the facade improvements and the city coming in with the local improvements, we don't know what we're putting in this deal.

"If they (developers) don't have a substantial amount in the game, then we're putting ourselves in the same position that we're in with the Real Development guys right now."

City officials are weighing continued involvement with financially strapped Real Development, downtown's largest private holder of office and residential space

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