HomeMy Public PortalAbout1999 - City Council Committee on Convention Center Proposals Report City Council Committee on
Convention Center Proposals
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April 19, 1999
INTRODUCTION
The Jefferson City Community has struggled with the idea of a convehtion center for many
years. This effort reached a turning point in mid-1998 when John Q. Hammons, the owner of the
Capital Plaza Hotel who resides in Springfield, Missouri, indicated to City officials that he would be
willing to contribute $7.5 million toward a public/private effort to construct a 36,000 square foot
convention center and a 600-car parking garage on the square block bordered by McCarty, Broadway,
Washington and Highway 50. The City's $3.5 million share of this $13 million project would derive
from a 3/8 4 sales tax which would require public approval through a referendum in 1999.
The advent of a City-Hammons partnership motivated two local developers to approach the
City Council and request consideration of their submitting convention center proposals. As a result,
the City distributed RFPs in November 1998 whereupon Hammons,dropped out of the process and
the two groups-the Capital Convention Center Group (CCCG) and Gordon and Groner Group (GG)
submitted proposals.
After public presentations from both of the development groups, the City Council appointed
a committee made up of four City Council members and two staff members to investigate the
proposals, interview the prospective developers and report back on their findings. The committee,
made up of Councilmen John Landwehr, Larry Vincent, Carol .Blaney, Charles Jackson and staff
members Rich Mays and Allen Garner met on the following dates:
January 27 - discussed the proposal evaluation process
February 3 - formulated questions for CCCG
February 10 - formulated questions for Gordon and Groner
February 17 - meeting with CCCG
February 24 - meeting with Gordon and Groner
March 3 - reviewed clarifications on proposals
March 17 - clarified CCCG tax increment financing proposal
March 31 - discussed content and organization of report to City Council
April 14 - final meeting to review report to City Council
Meetings with prospective developers took place with key parts of their proposals secured by
the committee in writing. Both groups have been enthusiastic and anxious to move forward toward
the critical point — selection of the successful proposer. What follows is a description of the two
proposals as well as a side-by-side comparison.
Report on Convention Center Proposals April 19, 1999 Page 2
Capital Convention Center Group Proposal
CCCG proposes to spend approximately $27.1 million to build a 36,000 square foot
convention center(which does not include a restaurant),a parking garage with 705 parking spaces and
a hotel with 222 rooms of various sizes and quality. Prost Builders would build the facility and JCR,
Inc. would manage it. CCCG would own and operate the entire complex throughout the duration.
Of the $27.1 million, $4,165,000 would come from the City sales tax, $4,300,000 through
a TIF bond issue and $18,679,000 secured through a bank loan. Debt service on the TIF bond issue
(presumably issued by the City at tax-exempt rates) would be paid off with the increased sales and
property taxes derived from the new privately-owned complex. CCCG would pay off their bank loan
over 20 years and the $4,165,000 in sales tax revenue would be collected by the City over 18
months at current rates of cb(lection.
The CCCG proposal calls for 235 additional parking spaces for the State of Missouri and
expansion capabilities for the convention center of 12,000 square feet. CCCG is offering about
$500,000 to the City (to be negotiated) for the property and to elevate the structure above 1993
flood levels and to relocate any utilities at their expense. The City and CCCG representatives have
discussed the possibility of enlarging the TIF district beyond the square block where the complex would
be constructed to include a part of the Wears Creek area and the riverfront or downtown. Finally,
CCCG will take on the financial risk associated with delivering an environmentally clean site to the
group.
Capital Convention Center Group Proposal
Uses of Funding Sources of Funding
Convention center $ 3,800,000 City sales tax 4,165,000
Hotel 15,136,000 Private financing $18,679,000
Parking structure 5,670,000 TIF 4,300,000
interest
Property acquisition 500,000
Design 1,438,000
Foundations
Construction Management 350,000
Infrastructure 600,000
Total $27,144,000 Total $27,144,000
Report on Convention Center Proposals April 19, 1999 Page 3
Tax Increment Financing
TIF is a funding mechanism which allows public bodies, such as the City of Jefferson, to make
improvements to a specific area and pay for those improvements over a certain period of time (usually
through a bond issue)with the additional sales and property taxes that are generated from that specific
area. The TIF district for this project would be the square block where the convention center, hotel
and parking structure are to be constructed. During the life of the TIF district, all taxing bodies receive
only their current level of property tax revenue which is frozen at present levels. All "incremental'
tax revenue is used to pay off the debt incurred for the improvements.
CCCG has proposed that $4.3 million in TIF bonds be sold and amortized over- 15 years
which, with appropriate coverage, would derive an annual debt service of approximately $690,000
per year. They further propose that the debt service be paid with:
I Additional property taxes derived from the complex $469,917
2. Additional state, county and city sales taxes generated on
food-and beverage sales, convention center meeting room
sales and parking lot rental $ 99,520
3. Utility taxes generated by the complex $ 9,898
4. Additional city sales taxes generated from hotel room use
and additional sales taxes on items 2 and 3 above $ 85,676
5. Additional county sales taxes on hotel rooms and item 2 above $ 28,559
Total $693,570
Should any surplus TIF revenues be generated above what is necessary to pay the $690,000
debt service on an annual basis, five alternatives have been discussed with CCCG as to distribution of
those proceeds.
A) Retire the bonds early - If excess TiF revenues can pay off the bonds in say 11 years vs.
15 years, all local taxing bodies could begin receiving the tax benefits of the complex four
years earlier than originally anticipated.
B) Other taxing bodies -Annual excess revenues can be allocated to local taxing bodies each
year to the extent the revenues exceed what is necessary to pay off the annual debt service.
C) Wears Creek or downtown - This alternative assumes an enlarged TIF district to include
other areas besides where the complex is located. Excess revenues could be applied to, for
example, cleaning up Wears Creek or infrastructure improvements for downtown.
Report on Convention Center Proposals April 19, 1999 Page 4
D) Convention center, parking structures - Annual excess revenues could be applied to
maintaining the complex.
E) City and county - Annual excess revenues could be applied toward reimbursing the City
and County for their "contributions" detailed above.
While TIF is:benefcial and an excellent example of true public-private partnerships,the concept
is complicated and difficult for many citizens to understand. Should CCCG be chosen as the
designated developer, effective public education will be important as the referendum date approaches.
Report on Convention Center Proposals April 19, 1999 Page 5
Gordon and Groner Original Proposal
GG.submitted the following proposal in response to the November 1998 RFP but has since
withdrawn it in favor or an amended proposal which follows on page 6. This description of the
original proposal is for comparative purposes only.
GG proposed to spend approximately $22 million to build a 44,500 square foot convention
center (which included a restaurant), a 200+ room hotel and an 825 car parking garage.
Approximately 235 of the 825 car parking structure would be dedicated to the.State of Missouri.
Contractors to build the complex and the operators of the convention center/hotel would be selected
at a Iater time.
One of GG's main objectives is to secure low cost financing - a goal facilitated by the City's
ability to issue tax free debt. Under this proposal, the City would issue tax free bonds for $5.5
million and pay off that debt with lease payments from the State of Missouri and the City's $3.5
million in sales tax. GG would secure the balance from their own resources and a bank and pay off
that debt over 20 years. However, GG indicated they would prefer to issue as much debt through
the City as possible. Whatever additional debt was issued through the City would have been repaid
by GG through lease payments equal to the City's debt service.
GG would own the hotel throughout while the City would own the parking garage and
convention center for 20 years. After 20 years, the convention center ownership would revert to
GG. At present rates of sales tax revenue, it would have taken the City 15 months to collect $3.5
million.
This GG proposal also allowed for expansion of a convention center, the hotel and parking
structure and also provided for access south across Highway 50 to the square block bordered by
Broadway, Washington, Elm and Highway 50. The proposal also called on the City to take the
financial risk associated with delivering an environmentally clean site to the group.
Gordon and Groner
Uses of Funding Sources of Funding
Hotel $ 20,500,000 Private financing $ 12,100,000
Convention center
Parking structure
Property acquisition 1,500,000 Owners cash and equity 4,400,000
City of Jefferson 3,500,000
1
State of Missouri (through City) 2,000,000
Total $ 221000,000 Total $ 22,000,000
Report on Convention Center Proposals April 19, 1999 Page 6
Gordon and Groner Modified Proposal
In their amended proposal, which was received by the committee on February 24, GG
proposes to spend approximately $28.5 million to build an 83,900 square foot convention center,
a 200 room hotel and an 850 car parking garage. Approximately 235 of the 825 car parking
structure would be dedicated to the State of Missouri. Contractors to build the complex and the
operators of the convention center and hotel would be selected at a later time.
The GG modified proposal amends their original. They now propose to add approximately
40,000 square feet to their convention center at an additional cost of just over $6.8 million. They
further propose that the funds necessary to build the additional space come from the City's sales tax.
As with their original proposal, one of GG's main objectives is to secure low cost financing -
a goal facilitated by the City's ability to issue tax free debt. Under their proposal, the City would issue
tax free bonds for $12.0 million and payoff that debt with lease payments from the State of Missouri
(totaling $2 million) and the City's sales tax in the amount of $10.0 million. GG would invest $4
million from their own resources and obtain $4,650,000 from a bank. GG proposes to pay off that
debt over 20 years. The remaining $7,850,000 would be financed through a city bond issue (part
of which would presumably be tax free) and would be repaid by GG through lease payments equal to
the City's debt service.
Uses Sources
Convention Center $10,303,000 City sales tax 10,000,000
Hotel 7,500,000 City financing (paid back by developer) 7,850,000
Parking 4,020,000 Bank financing 4,650,000
Interest $ 2,000,000 Developers equity $ 4,000,000
Property Acquisition 1,500,000 State of Missouri (parking) 2,000,000
Design 1,452,000
Foundations 1,375,000
Construction Management 350,000
Total $28,500,000 $28,500,000
3
Report on Convention Center Proposals April 19, 1999 Page 7
GG would own the hotel throughout while the City would own the parking garage and
convention center during the term of the $7.85 million debt (20 years). After 20 years, the
convention center and parking ownership would revert to GG. At present rates of sales tax revenue,
it would take the City 43 months to collect $10.0 million.
The GG proposal allows for expansion of the convention center, hotel and parking structure
and provides for access south across Highway 50 to the square block bordered by Broadway,
Washington, Elm and Highway 50. The proposal also calls on the City to take the financial risk
associated with delivering an environmentally clean site to the group.
Report on Convention Center Proposals April 19, 1999 Page 8
Proposal Comparisons
Request for Proposal Criteria
In the City's original Request for Proposals several criteria were listed for the City Council to
utilize when selecting a developer. An analysis of each of those criteria follows comparing the CCCG
proposal and the GG modified proposal.
. Financial Ability— Both developers depend on bank financing, although CCCG's bank loan
is four times that of GG. The difference in the amount of the bank loans is made up by GG's
equity contribution and a reliance on the City's ability to issue tax-free debt. The City's debt
would be paid back with lease payments to the City from GG. Both proposals include
statements from local banks indicating an interest in being involved in the project.
2. Developer Experience — Prost Builders, one of the principals with CCCG; has extensive
construction experience while Darrell Dunafon has been in real estate development for the last
two years following 23 years owning and operating eight Taco Bell franchises. The partners
with GG have owned, developed or managed two million square feet of various retail and
office properties in mid-Missouri for the last 30 years. Neither has previously developed a
convention center.
3. Commitment to Quality—Past experience by both developer groups as well as their personal
reputations bode_well for either's commitment to quality.
4. Long-term Economic Impact— Both proposals involve a vision for downtown Jefferson City
and its long-term future although only CCCG provided ten-year financial projections. Both
proposals will add significant increased tax revenues for all taxing bodies in the long run.
5. Appearance — Both proposals involve facilities that would add significant aesthetic
improvement to the area in question as well as downtown Jefferson City.
6. Economic Feasibility—The extent to which either proposal is financially feasible depends on
their ability to secure private financing. There is no evidence from the proposals that one
group is better capable than the other to secure a bank loan. Both proposals depend in part
on City financing and the City's ability to secure tax free debt. CCCG would require a TIF
bond issue of $4.3 million which would be repaid with incremental tax revenue. GG would
require a $7.85 million City bond issue for the convention center and parking structure with
the City's annual debt service paid back with lease payment_reimbursements from the
developer.
Report on Convention Center Proposals April 19, 1999 Page 9
7. Operating and Management Plans — The CCCG proposal describes how Ramada would
operate the facilities-through a management agreement between the two parties. They also
detail a marketing plan administered by the Ramada sales staff. GG has indicated they will seek
out operators and marketing people only after a development agreement is signed between
them and the City.
Other Criteria
In addition to those criteria set forth in the RFP, there are other important considerations
involving size, expansion opportunities and obligations required of the City of Jefferson. An analysis
of each of those criteria comparing the CCCG and GG modified proposals follows.
1. Size---The GG plan calls for facilities whose square footage dramatically exceeds that of which
CCCG has proposed.
2. Expansion—The expansion possibilities under both proposers plans adequately respond to the
parameters of the RFP. GG has a unique opportunity in the expansion area in that several
properties on the south side of Highway 50 are owned by the potential developers and
preliminary concepts to connect across the highway have been explored.
3. Citv's Investment—As outlined previously, the amount of money the City is being asked to
invest varies between the development groups. CCCG is looking for an investment of
$4,165,000. GG would ask that the City invest $10 million. Both of these amounts are to
be generated through a sales tax that must be approved by the voters.
4. Ownership Structure Impact— A significant difference between the two groups concept of
ownership has potentially great impact on the City's participation. CCCG proposes to own
and operate the entire complex from the outset and utilize a TIF mechanism to gain additional
tax deferrals. GG proposes that the City would own all parts of the facility except the hotel
from the beginning with a subsequent transfer 20 years down the road. This ownership
structure provides a tax abatement in the sense that City-owned property would not be taxable
and that portion of the project owned by the City would become taxable only after transfer
of ownership years after completion. The way these deals are structured will impact the
availability of bonding instruments, debt financing mechanisms and the exposure of the City
upon default or bankruptcy of any developer.
i
Report on Convention Center Proposals April 19, 1999 Page 10
S. City's Financing Risk— The City's risk in CCCG proposal is that a project that fails must be
remarketed to another interested group but the City's treasury is not placed at risk beyond the
initial sales tax contribution. Under the GG scenario the City would be an owner. The City
would have to issue debt in its name and a risk of default, depending on the nature of the
financing instruments, could come back to the City and place a burden on City resources
above the initial commitment.
Report on Convention Center Proposals April 19, 1999 Page i 1
CONVENTION CENTER PROPOSALS
Uses of Funding
Convention Center $ 3,800,000 $ 10,313,000 $ 20,500,000
Hotel 15,136,000 7,500,000
Parking Structure 5,670,000 41020,000
Interest 2,000,000
Property Acquisition 500,000 1,500,000 1,500,000
Design 1,438,000 11452,000
Foundations 1,375,000
Construction Management 350,000
Infrastructure 600,000
TOTAL $ 27,144,000 $ 28,510,000 $ 22,000,000
CONVENTION CENTER PROPOSALS
Sources of Funding
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City Sales Tax $ 4,165,000 $ 10,000,000
City Financing (paid back by 71850,000 $ 31500,000
developer)
Bank Financing 41650,000
Developer's Equity 41000,000 41400,000
State of Missouri (parking) 21000,000 21000,000
Private Financing 18,679,000 12,100,000
TIF 4,300,000 0
TOTAL $ 27,144,000 $ 28,500,000_ $ 22,000,000