News Analysis: Will Omni deal return more profits to Louisville - WDRB 41 Louisville News

News Analysis: Will Omni deal return more profits to Louisville than 4th Street Live?

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LOUISVILLE, Ky. (WDRB) - If the new Omni hotel in downtown Louisville is solidly profitable, Omni will share some of the proceeds with Metro government through "profit participation payments," according to the broad terms of a $261 million deal that was announced last week.

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It's only fair that, after issuing $104 million in debt to help pay for construction of the 600-room hotel, Metro government should receive a small share if it's a resounding success, said Steve Rowland, Mayor Greg Fischer's chief financial officer.

At the same time, Fischer and Rowland say the new Omni proposal is different from another profit-sharing arrangement that hasn't gone so well for Metro government – the one at 4th Street Live.

As The Courier-Journal reported in 2012, Cordish Co. – the owner / operator of 4th Street Live – was supposed to pay the city percentages of 4th Street Live's annual "net operating profit" and "modified net operating profit."

But under the convoluted definitions of those terms in the 2001 development agreement for 4th Street Live, Cordish has not shown any profits and thus, has not paid the city any profit sharing, the newspaper showed.

The situation hasn't changed since that October 2012 report. Cordish's most recent annual statements to Metro government, obtained by WDRB, said the company owed no profit-sharing payments to the city in fiscal year 2011 and 2012.

But the Omni hotel is "a different kind of product" than the downtown bar/restaurant district, Fischer told WDRB on Tuesday.

"You've got a one-unit product, being a hotel, versus the multiple tenants and activities that go on at 4th Street Live," he said. "It's much more controllable. It's much more understandable when it comes from one entity."

Rowland, Fischer's CFO, said Omni and 4th Street Live are "two different deals" and with the new agreement, Metro government stands "a reasonable chance" of getting some profit payments.

The Omni deal is not final yet, but the broad terms are outlined in a letter of intent obtained by WDRB:

Beginning in the hotel's fourth year of operation, Omni is to pay Metro government 10 percent of the hotel's "adjusted net operating income in excess of $14 million."

That means the hotel would need to turn a $14 million profit before Metro government would get a share.

"There is a reasonable chance that, sometime during the 30 years, that (amount of profit) will be hit," Rowland said Tuesday.

Asked whether the city has seen any projections of Omni's profitability, Rowland said the $14 million was "a negotiated number" that represents "a reasonable return on investment" for Omni.

"If you look at the deals the Fischer administration has negotiated -- when public dollars are invested in a project, if that project is deemed to be very successful, the mayor believes we should get a return," Rowland said.

Cordish is also part of the Omni deal as the developer of an upscale apartment- retail complex connected to the new hotel. But, the profit-sharing provision does not apply to Cordish's portion of the project.

There is no definition of "adjusted net operating income" in the letter of intent, and WDRB is still seeking clarity from city officials on the exact meaning of the term.

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