City would pay $85 million for Omni hotel in proposed deal

By Steve Lackmeyer

The Oklahoman

 

Ten months of negotiations with Omni are wrapped up and the Oklahoma City Council is set to consider an agreement for a $235.5 million, 600-room convention hotel that will require $85.4 million in public assistance.

 

The 45-year agreement, to be presented Tuesday, also would prohibit the use of tax increment financing and other city assistance for any other hotels downtown with the exception of First National Center. For the entirety of the agreement, the Omni would be the city's official and only “convention center hotel.”

 

Cathy O'Connor, president of The Alliance for the Economic Development of Oklahoma City, led negotiations for the deal that must be approved by the city council, the Oklahoma City Urban Renewal Authority and the Oklahoma City Economic Development Trust.

 

“Oklahoma City, unlike other cities, including Dallas, will not own the hotel, operate it or assume the risks for the operation or the construction,” O'Connor said. “I believe that's the best thing about this. They're bringing $150.1 million to the table. We don't have to worry about the complications of financing that, or how their bankers are going to look at the project. Omni as a corporation has committed to the project.”

 

The deal isn't without likely opposition, the most vocal being Councilman Ed Shadid, who has repeatedly questioned the future viability of conventions and whether a hotel is a good use of public resources.

 

How will OKC pay for it?

 

The public financing proposal being advanced by O'Connor does not involve any tax increases, but would instead draw from a recently approved property, hotel and sales tax increment financing district, proceeds from lease and mortgage payments paid back to the city from the public assistance provided development of the Skirvin and Bass Pro Shops, and a potential long-term ground lease for the Omni.

 

The agreement calls for financing through a bond issue to be paid from revenues from three existing downtown tax increment financing districts, including the most recent one that includes ad valorem taxes to be generated by the BOK Park Plaza tower nearing completion at 499 W Sheridan Ave.

 

The hotel itself would pay $200,000 a year for 25 years commencing the fifth year after completion. Other hotel revenues will include minimum annual tax payments of $1.4 million for 30 years.

 

The deal also follows previous approaches taken by the city that allows for greater participation in profits if the hotel performs better than expected. For 25 years after the fifth year of occupancy, Omni would be required to pay the city's economic development trust 10 percent of net operating income in excess of $20 million with a cap of $15 million on any such payments.

 

Omni demands

 

Omni, meanwhile, is requiring the city to commence construction on the convention center, adjoining park, garage and streetcar system before a closing date is set. Construction is well underway on the streetcar system and work began last month on Scissortail Park.

 

Design work is nearing final stages for the convention center. But arrangements for the garage have yet to be resolved.

 

The city has acquired all the property necessary for the convention center and the hotel, but has yet to conclude a deal to acquire the garage site, which is now home to the OGE Energy Corp. data center. Funding for the garage also has yet to be settled after a request to use $10 million of MAPS 3 funding for the proposed 865-space, $37 million garage was put on hold in November.

 

“We have to make a decision about the garage very soon — by the end of this summer,” O'Connor said. “Omni will probably be a minor user compared to the convention center, arena and park. It's meant to be multiuse.”

 

O'Connor added the deal to provide 450 of the parking spaces to Omni will not be free.

 

“Omni will pay for those spaces at a negotiated market rate, O'Connor said. “There is no such thing as free parking in this agreement.”

 

The deal also would force an end to booking larger conferences at the existing Cox Convention Center, built in 1970, within one year after the opening of the Omni. Any redevelopment of the site would be prohibited from including a hotel for 10 years after the Omni opening, and no hotels with more than 200 rooms on the site for 20 years.

 

Omni also would retain a right of first negotiation to develop any hotel on the Cox site.

 

Hotel details

 

When Omni was chosen for the development, considerations included the financial strength of the company to move ahead with the deal without relying on whether it can obtain development financing. The hotel is required to meet the AAA four-diamond rating with three to five restaurants and retail at the ground floor.

 

Tentative plans include a sports bar to face the future Oklahoma City Boulevard across from the Chesapeake Energy Arena, a coffee shop and upscale full service restaurant. The city also gets a room block agreement that gives the Convention and Visitors Bureau a better chance at competing for larger conferences and visitor tourism.

 

Timing is woven into much of the agreement.

 

Convention center construction is set to start in 2018 with an opening in 2020. The north half of the park tied to the agreement and the streetcar system also are set to be completed by 2020.

 

If any condition is not satisfied within one year of the agreement or if the city wrongly refuses to close, Omni has the right to terminate. The city would then have to reimburse Omni up to $1.25 million for out-of-pocket expenses (design, engineering, site preparation).

 

“It will take about a year to meet all the conditions needed for closing,” O'Connor said. “The goal is to coincide the opening of the hotel with the opening of the convention and garage.”

 

How we got here

 

The Omni deal comes a decade after the need for a convention hotel was first presented by Larry Nichols at an annual Greater Oklahoma City Chamber gathering. The hotel wasn't discussed much during the 2009 MAPS 3 campaign but in the ensuing years various experts advised any deal would require at least $50 million in public assistance.

 

The $85.4 million subsidy does not include the potential cost of bond financing, which has yet to be determined.

 

The deal is structured differently from other developments cited by critics, including the 757-room Baltimore Hilton, a $300 million city-owned development that opened in 2008. The hotel has lost millions against forecasts the hotel would earn $21 million annual profit.

 

The deal is with Omni OKC LLC., an Oklahoma limited liability company owned by Omni Hotels Corporation. The agreement calls for Omni to rebuild and reopen if it is ever damaged or destroyed.

 

“We're getting a guarantee from Omni, the parent company, not Omni, the LLC,” O'Connor said. “If they walk away after closing, we can exercise the guarantee; we can require assignment of the construction contracts to the Oklahoma City Urban Renewal Authority so the city could complete the project. And then we would seek damages against Omni for the construction of completing the project.”

 

Michael Carrier, president of the Oklahoma City Convention and Visitor Bureau, said he is eager to add the Omni to the city's pitch for future convention and tourism.

 

"A quality full-service hotel is a necessity in the positioning of any successful convention center as evidenced by the increased business Dallas, Denver and the new Nashville facility have enjoyed," Carrier said. "The Omni brand is widely known and appreciated in the convention industry and represents the quality we know will not only complement the new center but will add greatly to the marketing efforts we are already making in the solicitation of new business."