Convention Hotel, Part II: Expo Center struggles to find profit

Developers wanting to build a hotel in downtown Springfield after the economic climate improves might still have one possible sticking point: the agreements between John Q. Hammons and the city regarding the Expo Center. But even if the city wanted to terminate its operations agreement with Hammons for the Expo Center, based on its performance since 2004, it might be hard-pressed to find another taker. 

The Expo Center has had only two years, 2004 and 2008, in which revenue outpaced budget projections, and it was only those two years that the center realized net profits before taxes. In total, between 2004 and 2009, the center has realized a total net loss of $410,563 before taxes, according to an Expo Center profit and loss statement obtained by Springfield Business Journal through a Freedom of Information Act request.

The city of Springfield has the option to buy back the 1.7 acres adjacent to the Expo Center at 815 E. St. Louis St. from Hammons for $1 after Hammons missed an April 1 construction deadline and withdrew his plans May 4 to build an Embassy Suites Hotel.

Hammons drafted a letter May 24 responding to a May 13 letter from the city encouraging him to participate in upcoming request for proposal processes. He requested an extension to start construction on the project by July 1, 2011.

Phone calls to Hammons were referred to John Q. Hammons Hotels and Resorts attorney Justin Harris, who could not be reached by press time.

Two agreements
There are two agreements between the city and Hammons regarding the Expo Center: one covering the lease and another regarding operations.

“When the CVB is working to attract conventions or events and they work with hotels in terms of providing rooms and the Expo Center in terms of providing the facility and the services, it is an issue if you don’t have one operator of everything,” said Mary Lilly Smith, the city’s economic development director.

Hammons receives no money under the terms of the Expo Center operations agreement, but his company receives pay from operating revenues negotiated through third-party vendors. Also according to the agreement, the city isn’t obligated to reimburse Hammons for expenses in the services it provides. He is the sole operator of the Expo Center, with responsibility and control of the operation and management of the center. Hammons also is the center’s provider of food and beverages.

Terms of the agreement require Hammons “to obtain the most efficient operation of the Exposition Center as possible within the guidelines of the operating budget.”

The city maintains ownership of the Expo Center and has the right to break the lease agreement if its terms are not met.

The city’s portion of the remaining debt on the Expo Center at the start of fiscal 2010 is $19 million, according to Mary Mannix Decker, the city’s chief financial officer. Decker said the city makes annual debt payments of $1.2 million to $1.3 million.

Decker said revenue collected to make those payments comes from two sources: the Convention and Entertainment Commercial Improvement District and the Tax Increment Financing Commission in the district. A TIF is an additional tax paid on products and services in a specific area.

Within the CID, Decker said, exists sales tax and property tax components.

“All combined pay the debt of the Expo Center,” she said. “It has been successfully paid down. Within the CID, they have the ability to adjust the property tax component; if there’s a shortfall on the sales tax side, it can be adjusted on the property tax side.”

The operations agreement is in place through 2028, with the option of two five-year renewals.

Both contracts, dated Sept. 1, 2002, are between the city and Center City Development Corp. with Hammons as operator.

Compatibility concerns
Developers and city officials and both see the Expo Center agreements as possible deterrents to another developer taking on a convention hotel project.

“I guess I would agree that it is a stumbling point,” Smith said. “The Expo Center operating agreement requires that Mr. Hammons work in good faith with bringing in other events and things like that, but he also is the sole and exclusive provider of food and beverage.”

For at least one developer, the agreement, coupled with his experience during the last RFP process, makes the project unappealing.

“I think we’re probably better off working in other cities where we’re wanted,” said Rick Huffman, CEO of Branson-based HCW Development Co. LLC.

“We just weren’t treated fairly. Now, the city has, in our opinion, screwed it up by selling the parking garage. We don’t think it can be developed with the long-term management agreement on the expo hall and the parking garage being owned by another entity.”

Hammons purchased the 350,000-square-foot Jordan Valley Car Park in a $7 million package deal with the adjacent vacant land on Oct. 16, 2007, according to previous Springfield Business Journal coverage. The city built the 977-space, six-level garage for  $12 million in Sept. 19, 2003.

The original development agreement called for Hammons to begin construction on a 150-room hotel within 60 days of closing.

Other options?
Other developers besides Huffman, including one who offered a proposal in 2007, indicate that they either haven’t had time to investigate or simply aren’t interested.

“We have not had time to dig into it with the city,” said Cathy Baier, principal with Kansas City-based BC Development, a company that submitted a bid on the project in 2007.

The existing lease agreement, Baier said, would require further investigation before BC would commit to anything.

Locally, developer and attorney Tim O’Reilly, who is building Hilton Garden Inn in southeast Springfield, indicated little interest in building downtown.

“I don’t know enough about it and haven’t done any type of research as to the economic viability of that site,” O’Reilly said. “It’s a big cost in a difficult hotel environment.”[[In-content Ad]]