CHICAGO — A Kansas City, Mo., task force picked Piper Jaffray & Co. over three other finalists to help develop a financing plan as the city weighs whether to pursue construction of a $300 million hotel to support its downtown convention center.
The convention center hotel steering committee — made up of representatives of the City Council, public, and the city’s finance team — interviewed Piper, Citi, Bank of America Merrill Lynch, and Oppenheimer & Co. earlier this month. The four finalists were chosen from firms that submitted proposals and the selection of Piper, following the interviews, was ratified by the committee at a meeting this week.
“Piper was recommended as having the best overall qualifications,” said Kansas City acting Treasurer Tammy Queen. “It was based on the firm’s experience with similar projects, its dedicated hotel finance group and the qualifications of the individuals in the group, the firm’s originality in its proposal and its ability to underwrite the bonds.”
Piper offered potential plans that ranged from a strong reliance on city credit support to limited liability. The city’s credit has come under pressure in part because of its increased debt load due to its support for a series of downtown development projects that included a convention center expansion, a new arena, and a new entertainment district.
Fitch Ratings downgraded Kansas City’s $300 million of GOs to AA and its $1.2 billion of special obligation, appropriation-backed bonds to A-plus. Moody’s Investors Service downgraded the GOs to A1 and other debt to A2 earlier this month. Standard & Poor’s rates the city’s GOs AA.
Fitch attributed its downgrade to a financial weakening in the general fund, heightened economic stress, the debt load, variable-rate exposure, and swap exposure.
Convention center hotels have proven successful in some cities but have been risky ventures in others. Bondholders took ownership of the St. Louis convention center hotel complex last year after the obligated group defaulted on $98 million of bonds.
The hotel complex received public subsidies but the bonds that were issued through the local development agency were backed solely by hotel revenues.
Piper will now work with the city and a consultant — Convention Center Hotel Advisors — picked by the steering committee last November to come up with a capital structure and plan of finance, according to Queen. A plan is due by mid-May when the committee would then vote on whether to recommend that the City Council pursue the project.
“The project is still in the very preliminary stages,” Queen said.
A 2007 feasibility study showed that the city needed an additional 2,000 hotel rooms in order to support convention business and compete for larger conventions and meetings. Supporters of a new hotel are pushing for a 1,000-room facility.
Opponents have said new rooms are not needed because of the current level of room vacancies downtown, but supporters counter that convention business and tourism is expected to pick up later this year and next year and that it would take several years to build the new hotel. In 2009, the hotel occupancy rate in Kansas City was 52.3%.