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EDT Convention Hotel rendering

Developer selected for Jackson convention hotel has crucial tests ahead

By TED CARTER

Marietta, Ga., real estate development firm Engineering Design Technologies has emerged as preferred developer for a convention center hotel but its proposal is entering a critical phase that previous hotel proposals have failed to survive.

In recent years proposals from Dallas’s Transcontinental Realty International and Tampa’s Robinson Callen died after the Jackson Redevelopment Authority made them the top choices for developing the hotel.

Transcontinental Realty’s proposal got as far as the City Council, where it failed to get an affirmative vote. More recently, Robinson Callen negotiated a deal with former Mayor Harvey Johnson in his last months as mayor. The Tampa hotel development company received a JRA endorsement of a development arrangement that unraveled after the late Mayor Chowke Lumumba insisted a new request for proposals be issued.

In addition to Robinson Callen, the Lumumba-era RFP brought a response from Texas hotel developer Journeyman Austin. Not long afterward, the mayor and city council decided against pursuing a hotel development deal with either proposer.

The hotel development issue stayed dormant until spring of 2014, when Mayor Tony Yarber directed the JRA to seek new proposals.

Rick Skelton, a Marietta-based senior vice president of business development for Engineering Design Technologies, said last week his team is “thrilled” to be selected but has not commented further.

Likewise, EDT competitor Red Leaf Development of Herndon, Va., is not commenting publicly. A representative said the development team will speak after it reviews the JRA’s entire hotel selection file for which it is making an open records request.

The selection of EDT’s $75.5 million proposal for a 304-room Marriott International hotel came at the Feb. 24 meeting of the JRA.

EDT and its local team, Mississippi Developers LLC, beat out Red Leaf and local partner Advanced Technology Building Solutions. JRA commissioners made the selection after a several-month review of the proposals by an evaluation team that included three JRA members and representatives of the Jackson Convention Complex and Jackson Convention & Visitors Bureau.

JRA member Rodric Donaldson, chair of the JRA’s Projects Committee, a panel that reviewed and endorsed the hotel evaluation committee selection, said last week EDT presented a stronger across-the-board proposal.

EDT won in the experience and financial stability categories, Donaldson said in an interview after the JRA’s board’s acceptance of his committee’s selection.

EDT also proposed a more attractive level of minority and local contracting than did Red Leaf, according to Donaldson.

Red Leaf proposed building an $83.6 million, 302-room hotel with a 1,000-space garage with either Sheraton or Crowne Plaza as the hotel flag. The proposal included a covered crosswalk from the hotel’s Pascagoula Street location to the convention complex.

Engineering Design Technologies did not make a crosswalk part of its proposal; further, it gave the option of either covered or surface parking for the 300 spaces it would provide.

Donaldson said the JRA hopes to get commitments from EDT for a crosswalk and covered parking during negotiations over a final development agreement.

EDT’s proposes 236,070 square feet of hotel space, of which 15,555 square feet would be function space, including a 7,000-square-foot grand ballroom and 3,000-square-foot junior ballroom.

Also included is a 120-seat restaurant and a bar and lounge with 60 seats.

It proposed two options for positioning the hotel on the JRA-owned land across from the convention complex.  One option is to build along Pascagoula Street and the other is to place the front of the hotel facing Farish Street.

EDT has agreed to cover the $7.3 million cost of the 14 or so acres on Pascagoula Street on which the hotel is to be built. The $7.3 million would go to repay money the U.S. Department of Housing and Urban Development provided for purchase of the parcels across from the convention complex. The money also would cover the cost the city incurred in buying the property back from TCI, the Dallas hotel developer which acquired the property at no charge during the administration of the late Mayor Frank Melton.

EDT would put up $41.3 million of borrowed money and obtain a city/JRA-backed loan of $11.3 million. The project would also require $11.3 million in tax increment financing. This money would come from increases in tax collections created by improvements in the tax increment financing district. Apportionment of the revenue would be based on tax money collected above a pre-development millage rate.

The hotel could also get a tourism tax rebate of 80 percent of sales taxes the hotel generates over a 15-year period. The rebate would end once it covers 30 percent of development costs.

EDT also plans to use $3.7 million in New Market Tax Credits and to invest $7.5 million of its own money, or about 10 percent of the project’s cost.

JRA Commissioner Jennifer Johnson apparently was unaware the board would not be holding a separate vote on the RFP candidates and voted to accept a package of proposals from the JRA’s Projects Committee. The committee’s proposals were routine business except for the hotel developer selection.

JRA Chairman McKinley Alexander refused to let Johnson change her vote but did let her insert comments into the record stating her opposition to the EDT selection.

“I had anticipated, as other commissioners did, that the vote to proceed with EDT would be a separate vote,” Johnson said in an email to the Mississippi Business Journal.

Her objections focus mainly on EDT’s funding plans.  Johnson said having more time to gain answers on the financing may have led her to join in backing the EDT selection.

“EDT’s capital stack includes $11.3M ‘JRA/City Loan’ and their CEO sent a letter saying that EDT is not requesting any money from any government entity in Mississippi.  They have not explained this discrepancy in writing,” Johnson wrote.

EDT is also counting on getting $3.8 million in New Market Tax Credits. “They have not shown any evidence that they are in the pipeline for these tax credits, and the timing would put them at July 2017 for a federal award. So this impacts their timing of when they can actually get started,” said Johnson, a Lumumba appointee who served as JRA chair until losing the seat to Alexander last summer.

“At the very least there is a $15 million hole in their funds sourcing that we know from the start,” Johnson said. “It seemed reasonable to me to continue due diligence and seek written clarification. The project was already six months past the announcement date. A few more days/weeks would not hurt.”

Also of concern, she said, is EDT’s lack of experience in doing a project the size of a convention center hotel.

“EDT has not shown that they have done a project that is similar in cost or purpose,” Johnson said.  “They offered us two senior housing projects, a municipal office building, and a police headquarters, and a VA outpatient clinic.  The highest budget of these projects was $41M; the others were significantly lower budget projects.”

Competitor Red Leaf built a pair of Marriott properties in Columbus, a Courtyard and Fairfield Inn. It also built the Magnolia Bluffs Casino and Hotel in Natchez.

Johnson said she is also troubled by a copyright infringement protest Red Leaf made against EDT. Her fellow commissioner acknowledged receipt of the protest but declined to discuss it.

“I took it seriously,” Johnson said of the claim EDT’s RFP response included information lifted from the Jackson convention hotel project proposed by Austin Journeyman.

The allegedly pirated material included “confidential financial modeling, proprietary development concepts and trade secrets” belonging to Red Leaf local partner Advanced Technology Building Solutions, Jackson attorney Herb Irvin said in the protest filed with the JRA board.

“We have proof that this information was unlawfully plagiarized by EDT and misrepresented as its work product in its proposal,” Irvin said.

Johnson, an attorney, said her fear is that the JRA is about to get mired in a lawsuit. “A consequence could be that litigation could begin by Red Leaf against EDT with a request for an injunction to prevent EDT from proceeding until Red Leaf’s claim is fully litigated,” she said.

“JRA could be pulled into the litigation to the tune of hundreds of thousands of dollars in legal fees. Litigation could cause a significant delay in the hotel project.”

The best hope, according to Johnson, is that EDT and Red Leaf settle the claims out of court.

A lengthy delay in getting a convention hotel built could create an opportunity for Hertz Investment Group, downtown’s most dominant landlord. Hertz has said it is considering conversion of the City Centre office towers at 200 S. Lamar St. into a convention hotel. The south tower is 12 floors and the north tower 10; together, they cover 266,700 square feet. A 518-space garage serves both of them.

Meanwhile, as EDT’s proposal awaits its fate, work is under way on a 204-room Westin hotel nearby on Tombigbee Street, a $60 million project that includes $30 million of financing backed by the JRA and Hinds County.

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