Hotel developer floats more ideas

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Company asks city for grace period, TIF for convention center plan

The developer of a proposed convention center and hotel near Apogee Stadium continues to press for more “public participation” in the project, according to a briefing Denton city leaders received this past week.

During a workshop session last week, Assistant City Manager Jon Fortune told the City Council that O’Reilly Hospitality Management has asked for a three-year grace period before being required to guarantee the city’s bond repayment. O’Reilly also has asked that the city form a tax-increment finance district for the project, so that some of the school and county property taxes on the hotel could be used to pay the city’s bonds for the convention center.

In addition, officials at the Denton Central Appraisal District confirmed this week that O’Reilly has asked whether a portion of the hotel could be made tax-exempt, since some of it may be dedicated for use by the University of North Texas hospitality students.

O’Reilly came to the city in 2012 with an unsolicited proposal to build a hotel and convention center on the UNT campus, where the former Radisson hotel building was razed in 2010. The three parties signed a nonbinding, preliminary agreement that would have O’Reilly building and owning the hotel, building the convention center for the city and leasing it back to operate it, and UNT leasing the land to the two.

The deal came after another developer, John Q. Hammons Hotels & Resorts, stopped working on the project in 2009 and eventually withdrew from it altogether.

The city staff has estimated the convention center would cost $25 million to build. The city would issue certificates of obligation to pay for it, cobbling together tax revenue — property, sales and hotel occupancy — from both the hotel and convention center as the city’s pledge to repay the bonds.

In that preliminary agreement, city officials had O’Reilly pledging to cover any shortage. In other words, any year that the tax revenue was insufficient to repay the $25 million, the city would bill O’Reilly for the difference as “rent.”

In this latest round of talks, O’Reilly asked not to be billed for the first three years of the hotel’s operation.

Fortune told the City Council that he believed the current balance of hotel occupancy funds — about $700,000 — could bridge the city through that “grace period” during which O’Reilly wouldn’t be guaranteeing the bonds.

That caused some concern among council members, regarding whether other community groups that depend on hotel tax money would be shorted. But Fortune assured them during Tuesday’s meeting that the city planned for the surplus, funding community groups but also anticipating the need to let some money accumulate for a convention center deal.

The city has estimated that its annual debt service for the bonds could be between $1.7 million and $2 million.

O’Reilly has also told the city’s negotiators that it may not be able to build without the tax-increment finance district, which would capture even more property taxes — city and school taxes — for the convention center bond payment, Fortune said.

The Denton school board was briefed by O’Reilly and city officials in December, but the school district has not committed to the project. State law greatly restricts the ability of a school district to contribute to a tax-increment finance district. If the school were to agree to the deal, it could pledge only the part of its property tax that goes to debt service without penalty.

Fortune told the City Council that they have not approached county officials yet.

Even though O’Reilly estimates the hotel and restaurant would cost about $60 million to build, the city expects the property would be assessed at between $30 million and $45 million, Fortune said.

Because UNT owns the land, all of the new value likely would be available to the tax-finance district. The city would contribute 100 percent of its property tax collections, Fortune said in an interview this past week. But the school district and county, if they chose to contribute, would be at some fraction of what they would collect.

A convention center was added to the city’s wish list in the mid-1990s as part of the “Vision for Denton” project and became a City Council goal for Denton in 2001.

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881. Her e-mail address is pheinkel-wolfe@dentonrc.com .


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