The Unified Government Commission unanimously approved a bond issue refunding on Thursday, May 16, that will go toward renovating the Hilton Garden Inn in downtown Kansas City, Kan.
Dave MacGillivray, chairman of Springsted, reported that the bond issue would save the UG about $325,000.
A restructuring extended the bond issue for five years, resulting in a reduction of annual debt payments of about $1 million a year through 2018, according to UG information. Also, the hotel temporary note was refinanced, and an additional $2 million was authorized for hotel upgrades.
McGillivray explained that the bond sale, which was authorized by the commission in April, would have an effect on investor relations and the UG’s credit rating.
Standard and Poor has rated the UG at AA, which is considered good. Should it fall to the A rating, it would cost the UG a lot in interest costs, he explained.
Last year, Moody’s had rated the UG as AA3 negative outlook, which meant that if the financial picture, including reserves, did not change that the rating could drop to A. The UG reversed the negative trend in 2011, he said, and created a surplus in 2012. After the rating service evaluates the latest UG audit, it could return the UG to an AA rating without a negative outlook, he believes.
Commissioner Hal Walker asked about the commission being locked into the sale on May 16. Mayor Mark Holland said the UG Commission authorized the bond sale on April 4, after the general election, but before the four new commissioners took office.
Walker asked if any money was being made on the downtown hotel.
Lew Levin, UG chief financial officer, said the UG receives transient guest revenue tax from the hotel, as well as sales tax revenues. The hotel runs the day-to-day operations of the Reardon Convention Center, which formerly cost the UG $250,000 a year, Levin said.
The UG pays debt service on the cost of constructing the hotel, he said. The UG is building equity in the hotel, he said.
After questions from Walker, UG Administrator Dennis Hays said the hotel was a “break-even property.” The UG is not making money on it, but the hotel is an anchor downtown, he said.
Holland said that while the present UG Commission may not have approved the same financial package as the past commission made 10 years ago to build the downtown hotel, nevertheless the hotel is a legacy that the present commission has inherited. The questions about the refinancing were addressed earlier in standing committee meetings, he said, and the committee recommended to go ahead with the refunding.
The 10-year anniversary of the hotel is part of what started the refunding process, as the hotel chain wanted to renovate it at the 10-year point, according to UG officials.
Commissioner Ann Murguia said she was told by UG officials recently that the UG is losing about $50,000 a year on the hotel. She talked about how there might be some other funding priorities in the northeast area, such as a new grocery store, and discussed finding a private investor to take over the UG’s role.
Holland said some of the hotel loss is due to the Environmental Protection Agency moving its offices from about a block away from the Hilton Garden Inn, to Lenexa, Kan., last year, resulting in fewer hotel room stays.
“Filling the EPA building is a major priority,” he said.
However, officials believe the hotel in downtown Kansas City, Kan., has similar room occupancy as hotels in downtown Kansas City, Mo.
When the downtown Kansas City, Kan., hotel was built, it was part of a downtown renovation project including the BPU building and a new parking garage, Holland said. Currently, downtown has hit a little stalling point and needs to get jump-started, he said.
Commissioner Brian McKiernan said while the hotel has not become the linchpin that the UG thought it could be 10 years ago, at the same time, he did not want anything to happen to the new transit center nearby and he wanted the Hilton brand to remain downtown.
Commissioner Gayle Townsend asked about looking at an “end game” for the hotel. Some commission members raised questions about the future of the UG’s relationship with the downtown Hilton Garden Inn, and they decided to discuss an “end plan” for it at a later date.
Holland said a good time to discuss this more could be in a few weeks when a community improvement district for the hotel is on the agenda. A CID would levy an additional tax on those who use the hotel.