‘Feasibility period’ would follow if city, UNT give approval
The Denton City Council could vote as soon as Dec. 10 on a developer’s agreement that would eventually bring a new convention center and full-service hotel to the city.
Months of talks over the proposed public-private partnership are expected to go into high gear in the next few weeks, with the University of North Texas Board of Regents expected to vote on its part of the agreement Dec. 5.
It’s a deal that has been years in the making.
About five years ago, city leaders were in talks with an experienced, respected hospitality developer for a new hotel and convention center, but those talks eventually died with the economic downturn. Then early last year, Springfield, Mo.-based O’Reilly Hospitality Management made an unsolicited proposal to the city and the university to revive the project. City leaders have worked for many years to bring a convention center to the city because the Denton Convention and Visitors Bureau has seen the city lose convention business for its lack of facilities.
If all parties approve the agreement in the next few weeks, O’Reilly Hospitality Management, its investors, the city and UNT would enter into a brief “feasibility period” before construction of a 318-room hotel and 100,000-square-foot convention center near Apogee Stadium would begin.
Council members went over the latest round of talks in a workshop session last week. The city, as well as the developer and the university, have at least two chances to put the brakes on the deal during the feasibility period over the next six months or so, according to Assistant City Manager Jon Fortune.
During the first few months of the feasibility period, the city would spend a maximum of $200,000 on the convention center design. After the design goes out for a guaranteed maximum contract price, the City Council can evaluate what comes back and decide whether to proceed, Fortune said. About that same time, the city also expects to see documents, such as franchise agreements and financing, that show the developer and investors can deliver on the project.
Council member Joey Hawkins asked again whether the source of the developer’s financing will be kept confidential, and Fortune said it would. But Fortune also said that, based on the many conversations he’s had, he believed that it wouldn’t be 100 percent bank financing, and that some of the O’Reilly family money was being invested.
The O’Reilly family name is perhaps best known for the national chain of auto parts stores.
The next opportunity Denton has to exit the deal is when it comes time to issue the debt to build the convention center, which is expected to cost the city $25 million. Fortune said that if interest rates are too high, the City Council would be able to pull out or delay the project.
But, if all the elements come together, the city will issue bonds and construction would begin as soon as next year. The city would not begin repaying the bonds until the year the convention center opens, and it would use hotel, property and sales tax revenue from the project to do so. The bond repayment is expected to be about $2 million annually. By the fourth year of operations, if the tax revenue doesn’t reach $2 million that year or any subsequent year, the city would be able to charge O’Reilly rent to help make the bond payment.
However, the city has agreed to two other concessions in relation to that agreement to charge rent to make up the gap. For each year that there is a gap, the city will appropriate $100,000 in other hotel tax funds before billing O’Reilly. The city has also agreed to set up a tax-increment finance district and asked Denton ISD and Denton County to also contribute some of their property tax money to help repay the bonds.
Some residents criticize the plan to repay the bonds, saying it’s too risky. The Denton market was overbuilt when several hotels opened in 2010 and room rates and revenue for the franchises remained low, particularly compared to hotels in other cities. The city’s financing plan assumes the convention center hotel will be 75 percent full, or more, with room revenue that is far above the average for the rest of the city.
Resident David Zoltner attended the council’s workshop session Tuesday and came away still skeptical. The city cannot issue revenue bonds for the project and must issue certificates of obligation, which are ultimately guaranteed by the taxpayers, to fund the convention center.
“That tells you the whole story right there,” Zoltner said.
The city expects it would finish paying for the convention center financing after 25 years. In the 26th year, the city would begin paying the university $175,000 annually for its lease on the land. And in the 70th year of the agreement, the building would revert to UNT, Fortune told the council.
The agreement stipulates that O’Reilly cannot transfer the hotel to a tax-exempt entity, but council member Dalton Gregory asked that the agreement also limit the amount of hotel space O’Reilly can request be tax-exempt.
Because UNT is expected to hold some classes in the hotel, O’Reilly has begun talks with the Denton Central Appraisal District about making some portion of the hotel exempt from property taxes, Fortune has said.
PEGGY HEINKEL-WOLFE can be reached at 940-566-6881 and via Twitter at @phwolfeDRC.