The fate of One Beale’s development now hangs in the balance.
The Memphis City Council decided on Thursday that it wants the city’s ratepayers to guarantee 100% of the debt that will be issued for the One Beale development. The debt, which is bonds, would be used to help build the Grand Hyatt – a 350-room hotel that will service the Renasant Convention Center.
But Memphis Mayor Jim Strickland said Thursday he would withhold approval for the city to back the bonds, throwing when the debt would actually be issued into limbo.
The city council therefore passed the resolution after more than two hours of debate, with the understanding that Chance Carlisle, the developer of the project, and the Strickland administration would continue to negotiate. The parties have coalesced throughout the meeting and can come up with another deal that involves something other than a 100% backstop.
The city council’s move on Thursday followed days of tension and an unusual clash between the Strickland administration, which tried to delay the bond backstop review, and developer Chance Carlisle, who had seemed get the votes for the backstop on Tuesday.
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“I too am sitting in your place should this fail,” Chance Carlisle said on Thursday. “I am very motivated for this hotel to succeed.”
After a contentious meeting on Tuesday, the vote was postponed until Thursday to allow city financial advisers to analyze the deal. Those financial advisers, PFM, told city council this week that it needed to analyze the deal further before committing the city’s trust and credit.
The city administration said Thursday that Strickland, which has yet to sign the bond guarantee after the council passed, would withhold its signature until Memphis knows what the debt guarantee will do to the bond rating. of the city and would meet with Tennessee State Comptroller Jason Mumpower.
The bonds will cost $178 million, including interest, over 30 years. The City of Memphis taxpayer is now responsible for all of that debt in the unlikely event of a default. The bonds, when sold, are expected to bring about $16 million to the reserve fund, reducing the city’s downside risk to about $162 million.
The voting went as follows:
Yes: J. Ford Canale, Frank Colvett, Cheyenne Johnson, Worth Morgan, Patrice Robinson, Jeff Warren and Jamita Swearengen.
No: Martavius Jones.
Withholding: Edmund Ford. Sr.
Chance Carlisle’s brother, Chase Carlisle, is a member of the city council. He did not attend Thursday’s meeting and did not vote on the draft.
The municipal administration is concerned
“It is our responsibility to look out for the best financial interests of the city as a whole,” Doug McGowen, the city’s chief operating officer, told city council Thursday.
Strickland sent City Council an email at 3:29 p.m. Thursday that expressed his concerns.
“I am certainly open to continuing the conversations and review of this important project and the role of the city…Currently, there is too much risk and too much uncertainty for the ratepayers of the city to go from l ‘before right now,” Strickland wrote.
He also attached a letter from the city’s financial advisor, PFM, which urged the city to study the hotel market and consider what debt support would do to the city’s credit rating and Memphis’ ability. fund other capital projects.
“We understand that the city has a number of capital projects in the planning stage. The use of the non-ad valorem revenue commitment for debt is limited. Any application of this commitment will reduce the capacity available for future plans,” PFM wrote.
The full letter from PFM can be seen here:
How the project plans to repay the bonds
The One Beale development, with its three planned or completed hotels, is part of a tourism development zone otherwise known as the TDZ. This TDZ allows the hotel to charge a special 5% tax on its rooms. It also allows it to capture most of the local sales tax revenue generated on the site – 2.25% out of 2.75%.
On-site restaurants also generate sales tax which is captured. This money is what will pay off the project bonds first.
The bonds will be issued by the Center City Revenue Finance Corporation, an affiliated board of the Downtown Memphis Commission. It would only be after these sources of revenue were exhausted that the city taxpayer would foot the bill to offset the debt service.
Over the past year, One Beale has already generated around $1 million in revenue that would help pay off the debt. With more restaurants opening soon, additional revenue should be generated before the Grand Hyatt opens.
Grand Hyatt is part of a long-term investment in a convention center
The reason for all the fuss Thursday is the city’s long-term investment in the convention industry. The city has spent over $200 million on renovating the Renasant Convention Center and has received several studies from consultants indicating that such an investment also required a new convention center hotel.
For years, the city negotiated with Loews Hotels, but that deal fell through this year. This prompted the city to agree to guarantee 50% of One Beale’s debt this spring.
However, volatility in the bond market meant that this 50% safety net was not enough to make the bonds investment grade, according to the developer and the city.
The future of the convention center was decided on Thursday evening.
“What would be our next step to ensure the survival of the Convention Center?” Johnson asked McGowen.
“Our convention center doesn’t go up and down on any particular hotel,” McGowen said. “I don’t want to diminish its importance but I don’t want to exaggerate…Our convention center is bouncing back…Will it reach its full potential?…It may not.
Samuel Hardiman covers Memphis city government and politics for The Commercial Appeal. He can be reached by email at firstname.lastname@example.org or followed on Twitter at @samhardiman.