New Truman Hotel funding plan proposed

Proposal includes annexation of two Puri hotels outside of city

In this 2013 file photo, the sign in front of the now closed Truman Hotel in Jefferson City announces new management. The City Council rejected a TIF agreement for the hotel on Monday night.
In this 2013 file photo, the sign in front of the now closed Truman Hotel in Jefferson City announces new management. The City Council rejected a TIF agreement for the hotel on Monday night.

The Jefferson City TIF Commission will consider a new version of the proposed Tax Increment Financing (TIF) to redevelop the Truman Hotel property at its upcoming meeting - this time involving lodging tax benefits.

The new proposal would allow the Puri Group of Enterprises, which owns the former Truman Hotel & Conference Center property at 1510 Jefferson St., to reimburse up to $8.89 million in project costs partially through lodging tax. A TIF normally reimburses the developer's eligible costs through property or sales tax. In this new proposal, costs would first be reimbursed with 50 percent of the lodging tax generated at the property, with the remaining TIF-reimbursable costs covered through new property tax revenue.

Originally proposed with 100 percent of new property tax revenue going to reimburse the developer, the TIF's new terms would allow some new property tax that results from development to benefit local taxing entities - primarily Jefferson City Public Schools, Jefferson City and Cole County - during the TIF's 25-year lifespan.

City Attorney Drew Hilpert estimates the TIF funding will be about 60 percent lodging tax-driven and 40 percent property tax-driven, although those numbers will vary year by year.

The city also would replace the lodging tax revenue forfeited from the redeveloped property with a new source of lodging tax by annexing two Puri Group-owned hotels - Hampton Inn and Comfort Suites - currently just outside city limits in Apache Flats.

"When you compare this proposal to the original one, the city will actually receive more lodging tax than it would have because we're getting half of all the new lodging tax and 100 percent of these two other hotels'," Hilpert said.

He estimated the net benefit to the city over 25 years will be approximately $30.1 million.

This isn't the first time the city has discussed annexing the two hotels, which currently do not charge the 7 percent lodging tax that applies to hotel stays in city limits. The City Council passed a resolution in 2009 indicating its intent to annex the hotels, but it didn't move forward until 2012, when a vote to annex the hotels with the Meadows by the Club subdivision failed, according to previous News Tribune reports.

"It's a give-and-take situation. Although the lodging tax is being put in, we have agreed to annex our two hotels into the city that will more than offset the lodging tax contribution," said Vivek Puri, of the Puri Group. "When the city did what it did, we reciprocated in kind."

The city's decision to add the lodging tax benefit came as a result of the public school district's concerns about the TIF's original heavy property tax funding. Property tax revenue accounts for nearly half of Jefferson City Public Schools' budget, so the district stood to forfeit more than the other taxing entities with property tax as the primary funding mechanism.

This also isn't the first time the Puri Group has been involved in lodging tax discussions. Vivek Puri was one of several local hoteliers who opposed raising the lodging tax from 3 percent to 7 percent in 2011. The Puri Group also joined the citywide discussion in 2013 about building a large conference center, when the city was offering a $9 million contribution from lodging tax revenues, proposing to double the Truman Hotel's conference space to more than 40,000 square feet without an ongoing subsidy from the city. The City Council did not consider the Truman Hotel for the conference center site because the plan was not submitted during the original request for proposals. The council ultimately rejected both of the proposals considered.

The dedicated lodging tax is separate from sales tax charged on lodging costs, which cannot be attached to a TIF, according to a state statute that states TIFs must exclude "taxes imposed on sales or charges for sleeping rooms paid by transient guests of hotels and motels."

Hilpert said the state statute refers to sales tax and not the city's lodging tax.

"The ballot language that was passed said for a conference center or tourism purposes, and the statute allows for tourism purposes," he said. "That's why it's legal to do it, because a hotel and a conference space is certainly a tourism issue."

Opposition to the plan

Not everyone is on board with the Puri Group's plan to redevelop the Truman Hotel property using tax assistance.

A group of local hoteliers - including Trey Propes, director of operations for Ehrhardt Hotels, which submitted one of the two conference center proposals in 2013 - has distributed a letter to city officials detailing problems they see with the TIF proposal.

The letter is also signed by Mark Randolph, president of Premier Management Inc. and operator of Baymont Inn & Suites and Fairfield Inn & Suites; Scott Ehrhardt, owner of Ehrhardt Hotels; Rick Mata, general manager of Capitol Plaza Hotel; and Dale Gerstner, owner of Best Western Capital Plus Inn.

"Frankly, we believe that the numbers in the originally proposed budget are significantly inflated," the hoteliers state in the letter.

They contend overestimating the project budget could make it appear to pass the third-party "but-for" report, which determines whether the project could reasonably be completed without taxpayer assistance, when it may not truly need the subsidy.

For example, the TIF application lists a land acquisition cost of $4.25 million, while the Puri Group allegedly purchased the Truman Hotel in 2013 for $1,075,000.

However, Puri said, the real cost of the property was more than its purchase price.

"The $4.25 million is the amount of money that has been invested into that property since the time that we bought it - into renovations, money that's gone in, things that we've done to improve the facility, to keep it functioning properly," Puri said. "That's all money that has to be accounted for."

A second, revised but-for determination, dated June 3, adjusted the acquisition cost to $1.75 million - the county's currently estimated market value for the property - and independent firm Springsted again determined the project needed tax assistance to proceed.

The group of hoteliers also raised concerns about the project's overall per-room cost - a measure commonly used to quantify hotels' overall cost divided over each guest room.

Propes pointed to the May 2016 edition of trade magazine "Hotel Management," which lists the average cost of building a hotel in the Holiday Inn Hotels & Resorts franchise as between $93,324-$138,277 per room.

Propes and Randolph estimate per-room costs for the planned hotels are well over that range at $170,000 per room for the Holiday Inn & Suites (accompanied by a Cheerleader Grill and Pub restaurant) and $220,000 per room for the Courtyard by Marriott (to be built in conjunction with the existing meeting space renovation).

Puri disputes those numbers, as well, noting the 266-room project as a whole has a per-room cost of $168,139. His calculation accounted for hard and soft costs but not contingencies (10 percent of hard costs and 20 percent of soft costs), while the other hoteliers' account included all budgeted costs except for the land acquisition.

While that's still over the average costs listed, Puri added, the ranges are for construction costs only and do not include things like demolition, site preparation, building with steel and masonry rather than wood, and so forth.

"The trade magazines quote just the building costs, and they don't quote demolition. They don't quote also the removal of the debris of the foundation. They also talk about flat ground that's ready to build upon; there's no grading required, nothing," he said. "You add 20 percent to that in minimum during the demolition, and you will come up with exactly what we have.

"We have done ample research on this subject before putting the proposal together and with our 20-plus years of experience in constructing, developing and running the hotels, have put forth solid and accurate numbers."

Ultimately, the concerned hoteliers believe the Truman Hotel property, with its location and highway visibility, can be developed without tax assistance, a sentiment commercial real estate agent Darrel Gordon also echoed, saying, "That property is prime. You can talk to any realtor in town, and they will tell you for sure that this is prime property and doesn't need the gift of a TIF to make it go."

Puri has said since applying for the TIF in March the project will not happen without public funding assistance. And the city-commissioned revised but-for report determined the project budget fell within a range that would require financial assistance to complete.

"We've talked to the developers about it, and they will explain at the TIF Commission why their costs are what they are," Hilpert said. "We're satisfied with the explanation given to us by the Puris, and the Puris will make their own case."

The TIF Commission is expected to vote on the proposed Truman Hotel TIF at its meeting at 5:30 p.m. Thursday at City Hall. The Jefferson City Public Schools Board of Education also plans to discuss its position on the TIF at 7 a.m. Wednesday at 315 E. Dunklin St.

Background on the redevelopment plan

The Puri Group of Enterprises applied earlier this year for Tax Increment Financing (TIF) assistance to redevelop the former Truman Hotel & Conference Center property at 1510 Jefferson St.

The Puri Group purchased the property in July 2013 and closed the 233-room hotel permanently in November 2015.

The redevelopment plan includes building two new hotels, one featuring a restaurant, both connected to a renovated version of the existing 24,000-square-foot meeting space.

The first 18-month phase of construction would demolish the Truman's three outer buildings and replace them with a 121-room Holiday Inn & Suites, which would include a Cheerleader Pub and Grill restaurant.

After the Holiday Inn & Suites had been operational for a year, the second phase would begin - demolishing the main Truman Hotel building to replace it with a 131-room Courtyard by Marriott hotel. The second phase also would renovate the Truman's existing 24,000 square feet of conference space.

TIF allows developers to finance certain improvements in blighted areas using a portion of the additional sales and/or property tax revenue produced in the district that results from the development. A TIF remains active until all eligible costs are reimbursed or for a maximum of 23 years.

The proposed Truman Hotel TIF could last up to 25 years because its second phase of construction would begin two years into the TIF.

The Puri Group's most recent estimate, given at the May 9 school board meeting, is the project will generate $33.29 million in increased tax revenue for the city and county, as well as $62.8 million in hotel payroll, over 23 years.

Related documents:

Truman Hotel TIF Redevelopment Plan

Truman Hotel TIF Revised But-For Determination Report

Previous coverage:

Truman Hotel TIF decision delayed again, June 1, 2016

JCPS expects new TIF proposal, May 24, 2016

Developer meets with JCPS board to discuss TIF, May 10, 2016

Truman Hotel TIF meeting rescheduled, April 12, 2016

Schools historically have little power in TIF decisions, April 10, 2016

JCPS balks on proposed Truman Hotel TIF, April 6, 2016

Truman hotel seeking Tax Increment Financing for proposed developments, March 20, 2016

Truman Hotel closes, Dec. 4, 2015