Hotel Cant Match PO Taxes

January 3, 2003
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GRAND RAPIDS — Putting a 400-room hotel on the site of the U.S. Postal Service’s downtown processing plant would not generate the income-tax revenue that the postal employees pay the city every year.

Not even when the hotel’s real property and personal property tax bill is added into the equation. In fact, the income, real property and personal property taxes from the hotel won’t equal half the income tax revenue the city gets from the postal employees.

To reach that figure, an 800-room hotel would have to be built on the site — one that wouldn’t have a tax abatement and one that would yield a lot of personal property tax revenue.

The post office site at 225 Michigan St. NW has been cited as a possible location for a hotel that would cater to trade shows. The site is just north of DeVos Place, the convention center that is under construction.

According to a feasibility study done by HVS International for Gallium Group LLC, the real property and personal property tax revenue of the hotel the firm has proposed for Calder Plaza would be worth $809,000 to all the local taxing entities in its first year of business.

In the hotel’s second year, the tax bill rises to $859,000 and then rises again in the third year to $885,000. The taxes were figured for 2004, 2005 and 2006.

“We base our projections on comparable Marriott properties throughout the country of a similar size and a similar amount of meeting space. Then we projected our line items that way,” said Bethany Cronk of HVS International.

Cronk told the Business Journal that she worked closely with the city assessor’s office when she put the study together, and based the tax bill on assessments of the Amway Grand Plaza and the downtown Courtyard by Marriott hotel.

“From those, that is how I positioned the property,” she said. “We then took the millage rate that the assessor applies to commercial property.”

The summer millage rate is 39.2752 mills, while the winter rate is 5.3230. The total comes to 44.5982 mills for one calendar year.

“We applied the millage rate to the assessed level of land, building and personal property to come up with a tax forecast. We show that (figure) ramping up as the hotel opens, and that is based on how the assessor said they look at buildings as these are being constructed,” said Cronk.

“We applied inflationary growth to the millage levels because we don’t know what these will be, so we grow those with inflation. And the product of the two is the tax forecast.”

The forecast does not include any tax abatements.

Cronk also said she was familiar with the post office site on Michigan Street and felt that the real property tax bill for a comparable hotel there would be quite similar to one on Calder Plaza.

The Gallium Group is a partnership between Blue Bridge Ventures of Grand Rapids and Hines Interests LP of Houston. Blue Bridge President Jack Buchanan said the hotel would have about 350 employees and would pay the city about $75,000 in income tax revenue for the first year — if, of course, the project goes forward.

As for the hotel’s real property and personal property tax bill to the city, it would be about $146,500 for the first year. The city gets 8.0368 mills of the 44.5982 millage rate, or 18 percent of the hotel’s $809,000 real property and personal property tax revenue.

The city treasurer’s office confirmed that tax amount last week.

Add the two tax figures and the hotel would generate roughly $221,500 in tax revenue to the city in the first year. In contrast, the city receives about $526,000 in income tax revenue from the 835 U.S. Postal Service workers stationed downtown.

For a hotel to return the tax revenue the post office gives the city, Cronk felt the number of rooms would have to be near 800. But she said just doubling the rooms may not double the city’s tax receipts, unless other factors were brought into the equation on a per-room basis.

“If the 800-room hotel had five times the meeting space, we might bump up the improvements per room, (or) if it had a spa or if it added amenities that made its per-room assessment go up,” she said.

HVS International has a dozen full-service offices in seven countries and is a leading consultant in the hospitality business. Stephen Rushmore started the company in 1980. Cronk is based in the firm’s Boulder, Colo., office.

The feasibility report for the hotel on Calder Plaza was based on a 68 percent occupancy rate for the hotel and a room charge of $111 per night.

“It depends a lot on the convention center, with that expansion providing some demand. I think that is kind of a conservative estimate based on what is going on in the economy at the time that this was done. But I do think that it’s a viable hotel to run at 68 percent and a $111 rate,” said Cronk.

“But, it’s the investor on the feasibility end, on what the cost comes out to. That is what the key figure is.”           

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