Hotel Money On Table Next Week
The luncheon meeting on Tuesday will be the second time that members of Blue Bridge Ventures, a local real estate development firm, and Hines Interests LP of Houston publicly address commissioners about entering into a binding option on a buy-sell agreement for City Hall and the Government Center parking ramp.
Their first meeting took place on July 9. Since then, the developers and City Manager Kurt Kimball have met numerous times trying to iron out a deal that would relocate the city’s headquarters to another downtown site without using tax dollars to subsidize the move, not increase the operational cost for the city and provide the city with a fair return on the ramp.
The developers want to raze City Hall to make room on the plaza for their 24-story convention center hotel, which could be operated by Marriott, but keep the underground parking ramp intact for hotel guests. Calder Plaza is located directly across Monroe Avenue from the new DeVos Place convention facility that is under construction.
The cost of the project to move City Hall remains unknown due to the number of variables discussed at the closed-door sessions that have been held. But if prime downtown real estate, which City Hall certainly occupies, is worth somewhere between $75 and $150 a square foot as real estate experts have told the Business Journal, then the nine-story building with 82,500 square feet should be worth from $6.2 million to $12.4 million.
Using an average of that square-foot price range, $112.50, City Hall would be worth $9.3 million on the market.
That price, of course, doesn’t include the cost of relocating city staff and administrators to, say, the Steketee’s building on Monroe Center, a 105,000-square-foot empty department store that was on the market three years ago for $1.35 million. Nor does the price include the cost to renovate a new location for the city’s use. Nor does it take into consideration how badly the developers want the site.
Then there is the parking ramp. The ramp could exchange hands in a couple of ways: for parking or for cash. The latter could result in the developers paying the city the revenue it would lose from operating the ramp for a number of years, while the former could require the developers to pay the city a replacement fee for each space in the ramp.
This year the city expected that the ramp would have revenue of $745,800. Expenses were expected to be $339,965 for operations and $181,228 for maintenance, for a total of $521,193, leaving the city with a margin of $224,607. Revenue projections for the ramp rise to $864,587 for fiscal year 2007, while operations and maintenance expenses total $604,206 — giving the city a projected profit of $260,381.
So the developers may have to give the city about $250,000 a year for an agreed upon number of years for the ramp if the deal is for cash.
Replacing the parking would be more costly for the developers. If the city demands this method of payment, the developers could pay out about $16,330 to replace each space the city loses. The ramp has 900 spaces and a cost for replacing it is $14.7 million.
That per-space cost is an average of what the city paid for each space in the Ottawa Fulton ramp, $15,360, and what it is paying for each space in the new Monroe Center 2 ramp being built, $17,300. Those figures don’t include the costs for land.
So which is it, parking or cash? It probably depends on the city’s most pressing need and where it would be relocated should a deal be struck.
“It seems to me when you look at a deal like this, you have to ask yourself what is more important to the city, parking or cash? When you ask that question I think you have to assume that they’re not the same,” said recently retired Parking Services Director Ted Perez.
“Is the parking in an approximate location important to you? If it is important to you, then you have to ask yourself if you can replicate it. Then I think the purchase for cash becomes important because you have to have cash to do that,” he said.
Kimball told the Business Journal a few weeks ago that semi-retired City Fiscal Services Director Robert White has been crunching the numbers on the ramp throughout the talks with developers.
“He has been particularly focused on the revenue stream currently feeding our general fund from that source. And if we were to sell the ramp in addition to the building, as it is proposed, how is that made up? Separate and apart from that, how is it going to work in terms of public parking for the convention facility and the likes?” he said.
“That is one of the thornier issues that we are yet wrestling with,” added Kimball.
Still to be revealed is how much it will cost the developers to build the hotel and to move Kent County’s administrative offices, also located on the plaza, to a new location.
If the hotel has 400 rooms, which is the design that was unveiled in July, the price tag should be more than $50 million. But it should cost the developers less to relocate the county than the city, as the county building is smaller than City Hall and the county doesn’t have a monetary interest in the parking ramp.
Another question is how will the developers finance a project that could approach close to $100 million should they emerge with a binding option on a buy-sell? That, too, isn’t known, but one possibility may have them sell bonds to buyers looking for a secured investment.