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Conference center developers’ numbers shift focus to quality

Council pleased with ability to compare proposals

Members of the Jefferson City Council say one potential conference center developer finally has provided necessary numbers to enable the city to compare proposals, but more questions are lingering.

Last week, the Ehrhardt Hospitality Group submitted specific numbers on their proposal at the request of the council, which had given the developer one week to answer questions about how much private funding would be included and what tax incentives were being requested.

But though council members say what was submitted was adequate for moving forward and they were pleased to see more specific figures, the city still is looking for answers on a number of other questions.

“I’m sure there’s going to be some lingering questions,” said 4th Ward Councilman Carlos Graham. “I think there’s still a lot more questions that need to be answered.”

Fifth Ward Councilman Larry Henry said most of what still needs to be discussed are minor details and though he wished the Ehrhardts’ numbers had been provided sooner, he’s glad to finally have the information needed to compare the two proposals.

Interim City Administrator Drew Hilpert is collecting questions from council members on both conference center proposals. Hilpert said, so far, the questions have focused on the following topics:

• The quality of the conference center proposed;

• The anticipated long-term feasibility and economic impact of both proposals;

• The kitchen facilities of both sites;

• The functionality of the space provided;

• Traffic issues pertaining to both sites;

• The marketing of both sites;

• How downtown will address the flood plain issues;

• How a conference center in the Capital Mall would impact retail space;

• Expected impact of economic incentives;

• Ability to structure the conference center based on what economic incentives are eventually agreed upon; and

• Impact on city sales tax revenues.

The Ehrhardt Group provided numbers showing they would construct a $15.5 million hotel through their own financing without any city funds. The conference center portion of the project then would be funded entirely from the city’s lodging tax funds, which is estimated to provide $9 million, though the Ehrhardts noted they believe the lodging tax may raise more funds to be used on the project.

The Ehrhardts have indicated they would be flexible on any tax incentives, but are looking at some combination of a local tax increment financing district, community improvement district and transportation development district.

Graham said one of his biggest concerns is what will be the size of any tax incentive district on the downtown location and how large the area will have to be to capture the needed revenue, a concern also expressed by 1st Ward Councilman Rick Prather.

Second Ward Councilman Shawn Schulte, who did not return calls for comment, expressed some concern about an operating loss at the conference center proposed by the Ehrhardts in an email to council members Tuesday. In his email, Schulte asked about the projected annual operating loss of the conference center and if the Ehrhardts would be responsible for the loss.

“I thought at one point a proposed TIF on the hotel would pay for the loss,” Schulte wrote.

Graham echoed that sentiment in an interview Friday, saying the council needs to know how the Ehrhardts will make up any operating loss at the conference center.

Graham also expressed concern about a potential operating agreement with Capitol Plaza Hotel. The Ehrhardt proposal includes a hotel and conference center on the lot next to the Capitol Plaza Hotel on West McCarty Street, and the developer had mentioned a potential agreement with Capitol Plaza for use of extra meeting space.

Graham said that leaves some confusion about whether the Ehrhardts are looking at potentially not building a new hotel and using an operating agreement for use of rooms at Capitol Plaza.

“Is this going to be a brand new (hotel) that they’re talking about or are they going to flip and say, ‘OK, we’re going to do something with Capitol Plaza now,’” Graham said.

Second Ward Councilman J. Rick Mihalevich said one of his questions also focuses on a potential agreement with Capitol Plaza Hotel.

“Their plan included use of leveraging the Capitol Plaza Hotel space,” Mihalevich said. “How would they do that, what is their plan to do that without a contractual obligation, which they can’t get at this point?”

Mihalevich also questioned what the developer’s plan would be to mitigate concerns about the downtown site being located in a flood plain.

Graham noted some concerns with the Ehrhardts’ request for a city-operated and maintained parking structure, which is estimated to cost about $7 million, plus another $180,000 per year to operate.

Public Works Director Matt Morasch has said the city has about $3.5 million in the parking fund reserved for construction of a new garage. Morasch and Hilpert have also expressed concerns about the garage being located on West McCarty Street, saying the site is not seen as a high demand area and is too far away from the downtown to be in demand for parking.

Graham said if the city’s attraction is the downtown area or the Capitol, then a parking garage on West McCarty Street is not ideal for visitors.

“I can’t see us constructing a big parking garage on that end of town,” Graham said. “I don’t see who it would be benefiting other than the hotel and the state employees.”

Prather said one of his main questions revolves around the parking garage, because he wants to make sure the parking fund stays profitable and unburdened.

“We need to find out, basically, how to do that,” Prather said. “Are (conference attendees or hotel guests) going to be paying for spots?”

Third Ward Councilman Bob Scrivner said, with what the Ehrhardts have provided, the question has shifted to what type of conference center does the city need. The Ehrhardts propose building a $9.1 million conference center, but the Farmers propose an $18 million conference center and, Scrivner said, the city needs to figure out if one is unnecessarily lavish or if one is too barren.

“Now the question becomes, what does an $18 million conference center look like and what does a $9 million conference center look like,” Scrivner said. “The devil’s always in the details … We sort of aren’t over the hump yet.”

Third Ward Councilman Ken Hussey said the questions the council is still seeking answers to are focusing more on the quality of what is being proposed, which is difficult to answer so early in the negotiation process.

Documents:

To find the best and final proposals submitted to the City Council, see:

Farmer Holding Company plan at www.newstribune.com/capitalmallsite

Ehrhardt Hospitality Group plan at www.newstribune.com/downtownsite

Conference center background

In mid-November, the City Council voted 6-4 to move conference center proposals from both Jefferson City-based Farmer Holding Co. and Hannibal-based Ehrhardt Hospitality Group forward into the contract negotiation phase. There is no timeline for completing the next phase, with interim City Administrator Drew Hilpert saying it could take from two months to two years before contracts are ready to be presented.

The developers’ proposals

Farmer Holding Co. has proposed a $36 million hotel and conference center at the Capital Mall, while Ehrhardt Hospitality has proposed a $24.6 million hotel and conference center at the West McCarty Street site, which is owned by the state.

The Ehrhardt Groups’ total cost does not include an estimated $2 million for land acquisition, which is expected to be paid by the city, or an estimated $7 million for a city built and operated parking garage.

The potential funding gaps

The funding gap for Farmer Holding Co. is $27 million, which the developer has proposed closing by using $11.4 million in private investments, $10.6 million in tax increment financing funds and roughly $5 million in sales tax proceeds from a community improvement district.

In a work session Dec. 9, the council voted unanimously to direct Hilpert to get specific numbers from the Ehrhardts by Dec. 17. The needed information included the total cost of the project, how much the developer will invest in the project, the funding gap for the project and what incentives the developer is requesting to fill that gap. The funding gap is the difference between the total price tag on a proposal and the city’s $9 million contribution.

The Ehrhardt Group provided numbers showing they would construct a $15.5 million hotel through their own financing without any city funds. The conference center portion of the project then would be funded entirely from the city’s lodging tax funds, which is estimated to provide $9 million, though the Ehrhardts noted they believe the lodging tax may raise more funds to be used on the project.

The Ehrhardts have indicated they would be flexible on any tax incentives, but are looking at some combination of a local tax increment financing district, community improvement district and transportation development district.

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