Profit sharing with city, payroll guarantee part of Omni deal
LOUISVILLE, Ky. (WDRB) – A new 600-room Omni hotel in downtown Louisville would share some of its profits with Metro government and guarantee at least $10.3 million in payroll a year – or pay the city any shortfall.
Those are among the details included in a letter of intent signed by Mayor Greg Fischer and executives of Omni and the Cordish Co., which announced plans last week to build a $261 million mixed-use development at the old Louisville Water Co. site.
But the Feb. 14 letter, obtained under the Kentucky Open Records Act, indicates that the development not only needs various government approvals, but also an Embassy Suites hotel agreeing to be part of a tax-increment financing district that would subsidize the Omni.
The project is contingent on five "municipal approvals," which include financing and design sign-offs from the Metro Council, the Kentucky Economic Development Finance Authority and the Parking Authority of River City, which would build a garage at the site.
In addition, the project needs participation in the tax-increment financing (TIF) district from Le Centre LLC, the group developing the Embassy Suites at Fourth Street and Muhammad Ali Boulevard.
The TIF district would include the Water Co. block bounded by Second, Liberty and Third streets and Muhammad Ali, and the Embassy Suites block to the west. The Starks Building and Louisville Gardens, which were part of the original district approved in 2007, would be removed, said Steve Rowland, the city's chief financial officer.
Eric Bachelor, the Embassy Suites' lead developer, said in an interview that his group is negotiating with the city to be part of the TIF for the Water Co. project, but he declined to elaborate.
"We are in discussions with the city about it," Bachelor said.
It wasn't immediately clear how the TIF tax revenue would be divvied up. Officials with the Al J. Schneider Co., a partner in the Embassy Suites, declined to comment.
Besides a new Omni, the old Water Co. block would be the site of 200 apartments, a grocery store and retail space developed by Cordish. In all, about half of the project's cost would be borne by city or state money.
The public contribution includes:
$104 million, including financing costs, in general obligation bonds backed by Metro government to raise $90.5 million for construction. While the city is on the hook for the bonds, a portion of state sales, property and withholding tax revenue generated at the project would pay off the debt.
$17 million – the purchase price of the Water Co. block, which Metro government will give the developers.
$17 million in bonds issued by PARC for a garage. Parking revenues would be returned to the city agency to pay off debt, director Tiffany Smith said.
The letter of intent isn't legally binding, but it forms the foundation of a development agreement to be negotiated among the city and the developers.
Omni has tentatively agreed to pay Metro government a 10 percent share of its annual net income from operations "in excess" of $14 million starting in the hotel's fourth year until the bonds are repaid.
"If they do well, then we want to share with that as a city," Fischer said in an interview.
Rowland said the profit-sharing agreement with Omni is not meant to provide protection if TIF revenues fall short – as has been the case in a tax-increment financing district for the KFC Yum! Center to the north.
But, he said, the city negotiated such a safeguard by having the hotel guarantee withholding taxes.
"Omni would be responsible for making up any shortage of that TIF revenue in the event that $10.3 million (in employee payroll) wasn't met," Rowland said. "We think that's a prudent protection."
Projections for the TIF district – and the city's estimated annual payments -- haven't been released.
Metro Council President Jim King said he hasn't seen the letter of intent or any forecasts of project revenues.
"I'm not confident of any profit-sharing agreement that I haven't seen," said King, a banker and accountant.
At the same time, he defended the amount of public money for the project, saying: "I don't know of any other hotels that are being built that can generate the tax revenues that this can generate."
Council member Cheri Bryant Hamilton said she wants more information on the deal.
"It's just a matter of what's fair and what's a good mix," she said. "So I just think we have to do a little diligence."
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