Project moving ahead

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City, developer work to iron out details on hotel and convention center

The latest round of talks between a Missouri development group and the city of Denton for a new convention center and hotel show the project scaling back but still moving ahead.

O’Reilly Hospitality Management has proposed another partner join a proposed public-private partnership that would fund, build and operate a full-service hotel and convention center on University of North Texas land near Apogee Stadium, according to Assistant City Manager Jon Fortune.

Fortune briefed the City Council on the talks during a workshop session Tuesday afternoon. The council took no action on the item, and is scheduled to hear another briefing on the issue Oct. 1.

The hotel, an Embassy Suites, and adjacent restaurant, a Hoolihan’s, would be funded and owned by O’Reilly Hotel Partners Denton. The funding partners would sublease the operations to O’Reilly Hospitality Management, which would also build and operate the convention center for the city.

O’Reilly has asked that the city consider not only a smaller hotel but a smaller convention center, Fortune said.

Initial talks were for a two-story convention center of more than 120,000 square feet.

Now, the group proposes the city agree to a one-story convention center of about 100,000 square feet.

In addition, O’Reilly has asked the city that it not be bound to a 12-story hotel if construction bids come back higher than expected. But O’Reilly assured the city that it would build, at minimum, a nine-story hotel.

Many representatives from the University of North Texas, the Denton Chamber of Commerce, Denton school district and Denton County were present for the briefing.

O’Reilly would pay for the hotel’s construction and the lease with UNT for the land. The city would issue about $25 million in certificates of obligation to pay for the convention center. The city would use the hotel, property and sales tax receipts from the convention center and hotel to pay back the bonds.

As much as 15 percent or more of the hotel could be tax-exempt because it would be dedicated for use by UNT hospitality students.

O’Reilly has also asked for tax concessions from other taxing entities. As a result, the city had told O’Reilly that the city was willing to set up a tax-increment finance district, which would create a way for the county and school district to make those concessions.

County Commissioner Hugh Coleman told the room he was still trying to wrap his head around the project. No other officials asked questions or made comments during the hourlong briefing.

Fortune said that the talks set up steps in the development process that include a “feasibility period.” The six-month window would see the city spend about $200,000 to design the convention center to 35 percent and set up the tax-increment finance district.

That $200,000 is expected to be paid from the city’s hotel occupancy tax fund, Fortune said.

At the end of the feasibility period, the city, UNT and the developer would be able to determine whether to continue.

“That minimizes our financial commitment before we go hard on the project,” Fortune said.

The City Council was concerned that the developer and UNT, in particular, didn’t have enough “skin in the game” during the feasibility period, but generally agreed the city staff could continue the talks.

One concession continues to loom, Fortune told the council, and that was a grace period for O’Reilly’s rent payments to the city.

Denton has negotiated with O’Reilly not to go in the red to make the bond payment, Fortune said. O’Reilly has agreed to make rent payments on the convention center that make up the difference between the tax revenues and the bond payment.

But O’Reilly has also asked that it not be asked to make that guarantee until the third year of operations, which means the city must make the estimated $2 million payment on its own for several years.

Building a convention center has long been a goal of the city and city leaders were in talks with a respected hospitality industry developer, John Q. Hammons, prior to the economic downturn.

After Hammons became ill, he pulled the plug on projects he had in the pipeline, including the project in Denton.

One member of his staff, Scott Tarwater, was hired by O’Reilly Hospitality Management in June 2011. The group subsequently made an unsolicited bid for the Denton project. Tarwater left the company in June.

Local hoteliers have been openly skeptical of the project, citing the city’s saturated market.

Charles Helms, whose company owns the Best Western, said Denton hotels currently have about 60 percent occupancy, which translates to an average daily rate for a room at about $60, Helms said in an e-mail Tuesday.

The best average daily rate in town is for one of his competitors, the Marriott Courtyard, which is still slightly less than $100, Helms said.

O’Reilly has told the city it expects 78 percent occupancy and to charge a room rate of $160 for the convention center hotel, Fortune said.

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881 and via Twitter at @phwolfeDRC.

IN OTHER ACTION

During its regular meeting Tuesday, the Denton City Council also:

  • Called for a public hearing for a tax abatement for Tetra Pak.
  • Approved an interlocal agreement with Corinth for technology services at an annual fee of $44,520 for server hosting, plus $80 per hour for professional services.
  • Approved contract with Networked Video Surveillance Camera System for $221,307 for a 170-camera network of city facilities.
  • Awarded three-year maintenance contract to Motorola Solutions Inc. for Denton Municipal Electric’s radio communications system for $96,000.
  • Approved a three-year contract with Floyd Smith Concrete for small road repairs for $10 million.
  • Authorized the acquisition of about 10.4 acres for the Denton Municipal Electric power line extension in northeastern Denton for $971,608.
  • Allocated $100,000 of federal housing funds to Denton Affordable Housing Corp., with $83,640 to be used for the purchase, rehabilitation and sale of single-family homes.
  • Transferred the Downtown Denton Transit Center to the Denton County Transportation Authority.

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