By Kevin Collison
Drury Hotels has scrapped its plan to build a 242-room downtown hotel, saying the incentive package recommended by SB Friedman, a city consultant, would not provide what the firm believed was a “reasonable” return on its investment.
Drury had wanted to demolish the vacant Board of Education building at 1211 McGee and replace it with a 10-story, $50 million hotel and a 176-space garage.
“Unfortunately, despite Drury’s efforts, Friedman has stubbornly retained both its rosy revenue projections and its low return thresholds,” David Frantze, Drury’s local attorney, wrote in a letter to the Kansas City Economic Development Corp.
“As a result, Drury has determined that Friedman’s optimistic financial projections…create an unreasonable risk to Drury.”
In its letter, Drury also painted a pessimistic picture, at least for the near term, of the downtown hotel market.
There are a dozen hotel projects totaling more than 2,100 rooms that have been recently completed, under construction and proposed including the Loews Kansas City Convention Hotel scheduled to open in late April 2020.
Just last week, the 131-room Crossroads Hotel opened at 2101 Central.
“Drury believes that the project is financially risky, particularly given the projected doubling of downtown hotel room inventory over the next 24 months,” the letter stated.
“Drury antiquates that a substantial decline in revenue per available hotel room will take place over the next several years while the market absorbs this unprecedented growth in available rooms.”
Drury had been seeking tax incentives from the Tax Increment Financing Commission and wanted to establish the West Government District TIF Plan.
As part of its $8.7 million purchase agreement with the Kansas City School District for the vacant former Board of Education building, Drury had agreed to limit its property tax abatement request to 15 years: 75 percent for the first 10 years, 37.5 percent for the last five years.
SB Friedman however, recommended that property tax abatement be lowered further to 37.5 percent for the first 10 years and 18.8 percent for the following five years.
The developer also had requested reimbursing 50 percent of the incremental economic activity taxes (EATS) generated by the proposed hotel for 15 years, which include earnings and sales taxes, to help subsidize the project.
SB Friedman recommended a 25 percent EATS reimbursement during that period.
Drury also wanted a 100 percent reimbursement of a 1 percent community improvement district sales tax for 15 years and a sales tax exemption on construction materials. SB Friedman recommended both of those incentives be included.
After several months of negotiations, Drury decided to call it quits.
City economic development officials believe the hotel chain was asking not only for financial help to build its project, but to buffer it from the growingly competitive downtown hotel market as well.
“In light of all the new hotels coming on line, they were asking us to subsidize both the operational and construction cost of the project,” said Greg Flisram, EDC senior vice president of Re/Development.
“We didn’t feel we should subsidize the operations, that was the crux of it.”
Herb Wedemeier, senior vice president for Drury Southwest, praised the EDC staff and City Manager Troy Schulte for their work, but confirmed his company had decided to withdraw its proposal.
“We think it’s a great location, but for a variety of reasons felt it’s not the right project for us right now,” Wedemeier said.
“We think downtown Kansas City is a good market and we would love to be in downtown Kansas City.”
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