The Indianapolis City-County Council moved a step closer to finalizing a city financial role in redeveloping two historic downtown Indianapolis buildings – one which would be converted to a luxury hotel.
On Monday night the council's Metropolitan and Economic Development Committee approved the plans to issue $16.7 million in bond anticipation notes. The city anticipates issuing about $17.5 million in developer-backed bonds to help finance the project.
The bonds now move to the council's development commission later this week for approval before going before a full council vote on Oct. 1.
Keystone Realty Group is seeking the money and the city’s partnership as part of a $141 million redevelopment plan for the Illinois Building at 17 West Market Street and the former AT&T building at 220 North Meridian Street.
The developer is seeking 80% of the tax increment that is going to be created by the project to be used to service the bonds for 25 years. The projects are both located in the consolidated downtown tax-increment financing district.
Angie Steeno, Senior Manager at accounting firm Crowe Horwath LLP, told the committee Monday said that unlike previous deals where the developer guarantee is removed once the long-term bond is issued, in this case the developer guarantee will remain for the life of the bond, as long as the consolidated TIF is providing support.
“There are a number of bond issues that are supported by consolidated TIF revenue already,” said Steeno. “Since this project was already located within the TIF boundary we wanted to add bells and whistles to make this look like a developer purchase bond you are used to seeing more recently, where if it was a standalone TIF it is easier to measure and that risk is only on that project,” she said.
“With the developer-backed bonds the revenue to pay the bonds comes directly from the property tax that the developer is paying," said Bart Brown, CFO for the City-County Council.
Council member Colleen Fanning, a Republican, said she believed the project was a “perfect example” of the benefit of developer-backed bonds. “This city has added many, many layers of risk mitigation,” Fanning said. “There’s really no risk to the taxpayer at all on this. I have every confidence in this.”
City-County Council member LaKeisha Jackson, a Democrat, said she supported the project. “This would garner us more visibility and more ambiance of looking good as a city,” Jackson said. “If we can work out the nuance of the complexities of the finances and if the city is not holding the bag, I think it would be a great deal.”
In return for its financing help, the city is getting a 5% equity stake in the Intercontinental Hotel, a similar arrangement to what it has at both the Conrad Hotel and the JW Marriott.
Indianapolis has an 8% stake in the Conrad and provided $25 million toward the $100 million development. The city provided $59.5 million toward the $450 million JW Marriott in 2008 in return for 25% of annual profits after the hotel reaches a certain profit margin.
Keystone told the Indianapolis Economic Development Commission on Aug. 22 that the hotel’s revenue should stabilize about four years after opening.
Keystone plans a 180-room Intercontinental Hotel in the Illinois Building and a mixed-use high rise office and residential building at the former AT&T office building. The building will include three new restaurants, a mix of residential and office units, as well as three floors of new parking available to the public.
Cost of the Intercontinental project is estimated at $61 million and at $80 million for the redevelopment of the former AT&T building.
The Illinois Building currently generates about $420,000 per year in tax revenue, primarily because of the 2016 additions of Giordano’s and Hyde Park Prime Steak House to the ground floor.
The former AT&T building generates about $120,000 per year for the city in tax revenue. When the improvements are finished, the city anticipates receiving an additional $341,000 in annual taxes from the buildings, even during the time that the developer is paying off the bonds.
