Jackson Mayor Harvey Johnson Jr. is clear about why he worked hard the last several months to broker a $96 million deal to get a convention headquarters hotel built.
It’s a rescue mission — pure and simple, according to Johnson, who said he fears the city’s not-yet 3-year-old Convention Complex will soon begin withering and the area around it will deteriorate into a swath of blight without a convention headquarters hotel and the urban revival it could spur.
He sees the stakes as high enough to have city taxpayers backstop the nearly $100 million in debt the hotel project entails. “What causes me unease is having a convention center of 300,000 square feet that is being under-used by 50 percent,” Johnson said in answering whether he is uneasy about putting the city’s general fund up as collateral in the hotel deal.
“If that area down there remains vacant, pretty soon we are going to start losing convention business there. So I’m comfortable we’re moving in the right direction.”
Johnson got a green light from the city council to issue $96 million in tax-exempt Gulf Opportunity Zone, or GO-Zone, bonds to pay for the 16-story, 309-room hotel. With GO-Zone set to expire at midnight Dec. 31, the city must move quickly to sell the bonds, according to the Mississippi Development Authority, which administers the bond money.
The City Council’s blessing of the GO-Zone bond sale followed many months of negotiations with publicly held real estate investment company Transcontinental Investors, or TCI, of Dallas on a 50-50 partnership. The city will sell the bonds but TCI is committing to cover half the debt for the first 10 years of the life of the bonds.
Johnson concedes he embarked on the rescue mission at a disadvantage, thanks to some puzzling moves by predecessor Frank Melton.
In a game of real-life Monopoly, Johnson entered play with TCI holding ownership of about five acres fronting the Convention Complex and situated between Pearl and Pascagoula streets. The city had sold the parcels to TCI in an earlier bid to create a partnership for a convention hotel. Now it’s paying $14.3 million to regain ownership of the approximately 7 acres on which to build the hotel and do the auxiliary development, according to terms of the partnership agreement.
“I would not have crafted it the way it is now,” said Johnson, who said he is unsure why the city let go of the key parcels other than thinking it had no other option if it wanted to get a hotel development partner.
But typically such development partnerships are done the other way around, with the public entity owning the land and the development partner doing the leasing. The buy-back of the land returns the deal to a more conventional footing, Johnson said.
“One of the drawbacks of this project all along” was that the development process was reversed, he said.
With the key parcels in the hands of TCI, the city could not entertain proposals from other developers.
Getting control of the property “is a major step,” Johnson added.
While he expects construction of the 243,000 square-foot hotel to begin in early 2012, having ownership of all of the adjoining parcels will enable to the city to move ahead with plans for a limited service hotel as well as shops, restaurants and apartments envisioned in the master plan for the area around the Convention Complex.
“Now that we have control of all of the property, we can put out a Request for Proposals” on the auxiliary development, the mayor said.
TCI had said earlier this summer it dropped any immediate plans for the auxiliary development. But with the city owning the land, it can move at its own speed without TCI, Johnson said.
“I don’t think we will need to wait 18 months or two years to decide what we want to do.”
The convention center hotel was to carry the Crowne Plaza Hotel flag but Johnson said the city and TCI are now pursuing other flag options as well.
The debt on the hotel is to be paid from hotel revenues. Through contributions from TCI, the project will start out with a $6 million reserve that is projected to grow to $20 million through the first 10 years of the hotel’s operation.
“We’re trying to make provisions to cover any shortfalls so neither the city nor TCI will have to backstop any shortfall,” the mayor said.
Johnson envisions the city getting out of the hotel business after 10 years, with either TCI buying out the city’s share or a new owner buying the entire property.