4B Sales Tax Corporation Minutes - 12/07/2016MINUTES OF THE
WICHITA FALLS 4B SALES TAX CORPORATION (4BSTC)
December 7, 2016
PRESENT:
Tony Fidelie, President
§ Members
Glenn Barham, Vice -President
§
Rick Hatcher, Secretary -Treasurer
§
Dave Clark
§
Darron Leiker
§
Michael Mills
§
Derik Schneider
§
Stephen Samellana, Mayor § Mayor and City Council
Brian Hooker, Councilor, District 3, Mayor Pro Tem §
Jim Dockery, Deputy City Manager § City Staff
R. Kinley Hegglund, Jr., City Attorney §
Jack Murphy, Director, Parks and Recreation §
Linda Merrill, Recording Secretary §
Colin McDonald § Gatehouse Capital
Brian Hoffman, General Manager § MPEC (Spectra)
1. Call to Order
Tony Fidelie called the meeting to order at 9:30 a.m.
2. Approval of Minutes (September 26, 2016)
Rick Hatcher moved, seconded by Dave Clark, for annroval of the minutes as amended.
The motion carried 7-0.
Jim Dockery discussed the 4B Board's financial picture. The fiscal year 2015-16 just
closed, with total revenues finished at $4,235,000, compared to the adopted budget of
$4,221,000. The sales tax receives slightly exceeded the budgeted figure.
Total expenditures were $4,240,000; this amount was virtually identical to revenues less
expenditures. The Board spent only $4,700 of its reserves. It began and ended the year with $3.8
million in cash. There is a reserve for encumbrances of $757,000 for previous commitments, so
at the end of the fiscal year there was $3.1 million in unreserved funds.
The Board adopted a budget of $4,067,000 in revenues; thus far, it has budgeted
$3,153,000 in expenditures. It has $914,000 of available revenues to be appropriated without
using reserves, leaving an unreserved fund balance of $4 million. There are items on today's
agenda that, if approved, would change that bottom line.
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WFEDC — Minutes of December 7, 2016 2
3. Discussion and possible action on a 120 -day Extension Agreement with Gatehouse
Capital in the Maximum Amount of $309,000 for Professional Services related to
development of a full-service hotel and conference center
Jim Dockery reminded the Board of the project's history. MPEC has long had difficulty
gaining conventions that expect an adjacent full-service conference hotel. The City hired PKF
Consulting (now CBRE Consulting) in June 2015 to perform a market study to determine
whether such a hotel would be profitable. The study showed a need for a full-service conference
hotel, so the next step was to consider proposals.
Only Gatehouse Capital submitted a proposal, which envisioned a 200 -room hotel, with
16,000 square feet of conference center space. The total project cost was $43 million; including a
$26 million investment by Gatehouse, $12 million in City incentives, and $5 million in private
equity. The conference center would be publicly owned and privately operated. Gatehouse would
require rebated taxes for 10 years. The City was reticent to move forward with this package, and
hired Gatehouse for 90 days to develop a more affordable pricing/financing conceptual plan.
Gatehouse has partnered with BOKA Powell, architects; UEB Builders, and Aimbridge
Hospitality.
Mr. Dockery introduced Colin McDonald of Gatehouse Capital. Mr. McDonald thanked
the Board for the opportunity. Gatehouse took the original PKF/CBRE study and drilled down to
make sure of a specific brand. They approached Marriott, Starwood and Hilton. Hilton was
interested only in bringing its Doubletree brand.
They asked PKF/CBRE to update their market rates. Gatehouse scaled down the overall
hotel. The recent contract with Spectra Management gave hoteliers/developers more confidence
in what MPEC can offer to an adjacent hotel. It would be the only full service hotel in Wichita
Falls. That does not guarantee success, but data does suggest there is a market for such a hotel.
They were conservative on the pricing, to ensure it was benchmarked as the price leader
but consistent with hotels in the marketplace.
'Stated Year Dollars, rounded to the nearest dollar
Gatehouse Capital creates true partnerships with cities in these types of endeavors,
sharing the risks and returns. The City would provide a series of incentives, while Gatehouse
would bear the lion's share of the financing through a senior loan. The city would acquire a
mezzanine loan through a bond, and lend that to the developer to fund balance the capital stack.
Estimated Performance
Proposed Hotel and Conference
Center
Annual
Average
Net Operating
Year
Occupancy
Daily Rate'
Income
2019"
65%
5145
$1,715,000
2020
69°%
5148
$1,965,000
2021
7296
5152
52,162,000
2022
72%
$157
$2,240,000
2023
72%
5161
$2,282,000
'Stated Year Dollars, rounded to the nearest dollar
Gatehouse Capital creates true partnerships with cities in these types of endeavors,
sharing the risks and returns. The City would provide a series of incentives, while Gatehouse
would bear the lion's share of the financing through a senior loan. The city would acquire a
mezzanine loan through a bond, and lend that to the developer to fund balance the capital stack.
WFEDC — Minutes of December 7, 2016
INITIAL CAPITAL STACK
LTC
$
City Grants & Incentives
1.4%
$405,000
Land
0.7%
W0,000
City Permits & Fees
0.2%
$50,000
Construction Sales Tax
0.3%
$75,000
Rebate on City/ County Property'rix
03%
$80,000
City lritedrn Funding
$750,000
Senior Loan:
65.0%
$18,665,005
Mezzanine Loan
33.6%
$9,645,388
TOTAL PROJECT COST 100.0% $28,715,393
The structure of the project puts 65% of the loan responsibility on Gatehouse, and 35%
on the City. Interest on the City's mezzanine loan would be paid in priority after the senior loan
out of cash flow from the hotel operations. After the senior note is paid, there is more than
sufficient debt service coverage reserved. Then income distribution would be shared 50150. If the
hotel were ever sold, the City would receive 65% of the proceeds.
Mr. McDonald said that if all goes well and the 72% occupancy rate is reached, there
should be a $5.5 to $6 million surplus over the interest payments and principal payment on the
mezzanine loan that would be returned to the 4B fund. That would reduce the cost of the
conference center to $1.2 to $1.3 million in overall economics, which is a far more cost justified
approach than building it without;a partner.
He showed conceptual drawings of the six -story, 150 -room hotel. The hotel would be
owned by Gatehouse, the conference center would be owned by the City, and both spaces would
be managed by Aimbridge Hospitality. There is a ballroom, 12,000 sq. ft. of conference space, a
dining room, bar, fitness room, and an indoor/outdoor pool. Mr. McDonald said he is seeking
approval to go to the next step and obtain schematic drawings, and a budget from UEB for which
it will provide a guaranteed maximum price contract.
Mr. Dockery summarized the project as being a 150 -room full-service hotel, providing
12,000 square feet of conference center space. Within that space, a ballroom would provide
seating for up to 880 guests.
The cost of the project is $28.7 million; Gatch use Capital would take out a senior loan
from local banks at $18.7 million. The City would grant the land, waive permit fees, and rebate
construction, sales, and property taxes, all estimated at a cost of $405,000.
The 4B Board would issue a 20 -year revenue bond of $9.6 million and loan it to
Gatehouse Capital for construction of the hotel. That is the 35% investment the City would make
on the construction. That loan would be repaid through operation of the hotel. That annual debt
service is estimated to be around $740,000.
There is also a "4B pre -development funding" cost. As part of the total $28.7 million,
$750,000 in pre -development costs has to be spent before bonds are issued.
WFEDC — Minutes of December 7, 2016 4
The total estimated cost for the conference center is $7.1 million. The City would issue
bonds, with 4B paying the annual debt service estimated at $520,000. The 413's current debt
service will be reduced by $350,000 in 2019, as the 15 -year debt service for the public safety
communication system will be retired. That savings could be applied to this debt.
Among the incentives Gatehouse has requested is the rebate of 100% of the hotel/motel
occupancy taxes for 10 years. The City agreed to this, provided it would earn no less than it
would otherwise. Gatehouse would also receive 100% rebate on 4B sales taxes for 10 years. In
addition, it is seeking 10 years of City and County property taxes rebated.
The 4B has to consider whether to recommend the expenditure of $309,000 for another
120 days with Gatehouse Capital. That sum would be part of the $28 million. These costs pay
Gatehouse Capital's fees, and pay BOKA Powell to continue the design. There is a fee
associated with getting the Hilton franchise, and that has to be in process before the bond
proceeds are in place. Several agreements need to be reviewed between Gatehouse Capital and
the City. He noted this project can still be stopped at any time, however.
After the 120 days, the 4B Board would be asked to consider authorizing the remaining
portion of the $750,000. Assuming the process continues, financing would be secured around
April 2017, construction would take about 15 months, with the hotel opening in the fall of 2018.
Tony Fidelie thanked Mr. Dockery and Mr. McDonald for their in-depth presentation.
This is an important project for the City. Mr. McDonald said it is for Gatehouse Capital, as well.
Michael Mills asked what assumptions are made in the pro forma to meet the occupancy
and revenue projections. Mr. McDonald said that PKF did a base line when it reviewed existing
hotel demands. They also interviewed MPEC staff, the Chamber, MSU, and SAFB to develop a
market research base demand for the facility, and what that conference facility would drive in
aggregate bedroom demand. It was a build-up of the current market and what the potential
market should be as a result of this facility. It gave them a view of the entire market.
Mr. Leiker added that they did not want an optimistic view. Both parties agree that these
are conservative numbers. Mr. McDonald agreed; there is no stretching to make it work.
4. Discussion and possible action to grant a maximum amount of $53,800 as partial
funding of the City's Falls Bridge and Bypass Trail Project
Jack Murphy said this was for partial funding to replace the current bridge at the base of
the Falls and to construct a by-pass trail. Bids were solicited for the project and the lowest bid
was higher than estimated. Although additional funds have been found to be put toward this
project, there is still a shortfall of $53,800. The grant of the $53,800 by the 4B Board would
permit the award of the contract for this project to Tommy Duke Construction in the amount of
$361,879.
The existing 7 -foot wide wood bridge is to be replaced with a 14 -foot wide steel bridge
with a concrete deck. Since 1987, the current bridge has required five replacements of costly
planks and railing. Due to its width and the fact it is set at an angle, City vehicles cannot traverse
WFEDC — Minutes of December 7, 2016
it. The bridge is not safe when crowded with pedestrians and bicyclists. Its surface becomes slick
when wet and has been the cause of injuries.
The existing Circle Trail section east of the Falls was built before the Americans with
Disabilities Act (ADA), and is not ADA compliant due to its steep grade. The trail is only 8 feet
wide; under the bridge it is only 5 feet wide. The new trail would be 10 feet wide, and 12 feet
wide along the retaining wall. It would merge with the Trail by the Health District. Rip rap
would be placed under the bridge for erosion protection and beautification.
Darren Leiker moved for approval of this expenditure as listed in the agenda. Seconded
by Michael Mills, the motion carried, 7-0.
Mr. Dockery introduced Brian Hoffman, General Manager of Spectra for MPEC. He is
the primary contact for managing the facility's day-to-day operations. He is interested in hearing
about the hotel project. Mr. Hoffinan said Spectra manages over 170 properties throughout North
America, Canada and Europe. This hotel project would greatly enhance MPEC's opportunities to
book larger venues and bring tourists to Wichita Falls.
5. Executive Session
Mr. Fidelie adjourned the meeting into executive session at 9:47 a.m. pursuant to TEXAS
GOVERNMENT CODE section 551.087. He announced the meeting back into regular session at
10:44 a.m. The subjects posted in the Notice of Meeting were deliberated, and no votes or further
action was taken on these items in executive session.
Mr. Leiker moved that the 4B Board approve the 120 -day extension agreement with
Gatehouse Capital in the maximum amount of $309,000 for professional services related to
development of a full-service hotel and conference center as presented. The motion was
seconded by Dave Clark. Mr. Leiker said he is excited to continue the partnership, and this move
takes the next step to get everyone comfortable with the project. It does not commit to building
the hotel. There will be another meeting in 120 days or so to discuss the second phase, at which
time it will be necessary to make some final decisions. The motion carried, 6-0. (Michael Mills
left the meeting during the executive session.) Tony Fidelie said he would like to see the opening
of the hotel moved up to the first of August, so that it is open for the Hotter'n Hell even at the
end of the month.
6. Adjourn.
The meeting adjourned at 10:45 a.m.
Guy A. "To " Fidelie, Jr., President