DALLAS -- After years of negotiation and political upheaval over financing a $150 million entertainment center, the city of Irving, Texas, is expected to approve $35 million of revenue bonds for the project.
The Irving City Council will vote Jan. 3 on ordinances authorizing a $25 million refunding of hotel occupancy tax debt and an issue of new bonds of up to $40 million for the entertainment center adjoining the city's new bond-financed convention center.
In addition to the entertainment center, the City Council is expected to approve a lease agreement with Mortensen Development Inc. for a 350-room hotel adjoining the convention and entertainment center.
The private hotel financing will include $55 million of senior loan, $16 million of private equity and $17 million of bonds issued through a conduit issuer to be repaid with hotel tax revenue. The city will own the land, while the developer will own and operate the hotel, according to the agreement.
The entertainment center, to be known as the Irving Music Factory, will be built through a public-private finance agreement with the ARK Group, a Charlotte, N.C., developer owned by Noah and Rick Lazes. ARK built a similar project in Charlotte.
First Southwest Co. managing director Randy Topal estimates the size of the city's bond issue for the entertainment center at $26.1 million, according to the city. However, the council will authorize an issue of up to $40 million. The deal could include $30 million of tax-exempt and $4.7 million of taxable bonds.
Citi is senior manager on the deal with Loop Capital Markets LLC and RBC Capital Markets as co-managers. It's expected in the next two weeks depending on market conditions.
A critical component of the deal was earning investment-grade ratings on the city's revenue bonds backed by hotel occupancy tax revenue. Standard & Poor's conferred BBB-plus ratings on the tax-supported bonds with a stable outlook.
"We believe that HOT revenues are inherently volatile given the elasticity of demand for travel and lodging during economic downturns," said S&P analyst Omar M Tabani. "HOT collections peaked in fiscal 2007 before declining by a total of 24% through fiscal 2010 due to the national economic downturn."
The deal comes after six years of negotiations with a previous developer that led to a lawsuit that was settled in September 2013. That cleared the way for the current deal with ARK.
One of the most ardent backers of the proposed entertainment center, former Mayor Herbert Gears, was voted out of office in a campaign that focused largely on the city's financing of the deal.
With population of 225,427, the Dallas suburb has about 12,000 hotel rooms. The average occupancy rate is currently 71%, up from 59% in 2010, according to S&P.
"The average daily room rate, which is a better indicator of revenue stability, has increased to roughly $91 from $84 in 2010," Tabani said.
