BRADENTON, Fla. — Nashville has approved a pre-development agreement with a private partner to finance and build an 800-room hotel across the street from Music City Center, a new convention center under construction near downtown.
The hotel, expected to cost $250 million or more, would be financed by Omni Nashville LLC, a subsidiary of TRT Holdings Inc. and owner of Omni Hotels Management Corp.
The full-service hotel would be built on a 2,417-acre site and open within months of the new convention center in 2013. It also would be tied in with the adjacent Country Music Hall of Fame and Museum.
In return, Omni would receive at least half the cost of its investment back through incentives from the consolidated Metropolitan Government of Nashville and Davidson County and various agencies participating in the complex agreement.
The incentives include $25 million that may be financed with bonds secured by tax-increment financing to reimburse Omni for buying land and doing some infrastructure work, according to documents summarizing the pre-development agreement that was approved last week.
Nashville would pay Omni $103 million in annual “economic development” payments over 20 years. The payments would be funded from excess tourism tax revenues collected from the project and additionally secured by a backup pledge of non-tax revenues from Nashville’s general fund.
Omni also would receive an abatement of 62.5% of the property taxes assessed on the project by Metro Nashville’s assessor of property, which is estimated to be worth $2.7 million a year.
To qualify for the tax abatement, Omni would lease the project from the Industrial Development Board of the Metropolitan Government of Nashville and Davidson County and would also receive an option to purchase the hotel from the IDB for $10 at any time.
Nashville expects the hotel, for which there was no developer when the convention center was financed with $623 million of bonds earlier this year, to bring in millions of dollars a year in additional revenues that will strengthen coverage on the outstanding debt. A majority of the bonds benefited from a non-tax backup pledge of revenues from the Metro general fund, if necessary.
“Revenues to pay for the convention center debt will significantly increase as a result of the proposed 800-room Omni Hotel,” said finance director Rich Riebeling. “We believe the Music City Center can be successful without a headquarters hotel, but clearly its operating results will be enhanced with the addition of the Omni hotel.”
Final details of the hotel agreement are to be negotiated by the end of the month and presented later this fall to the Nashville City Council, which must sign off on the plan.
While Councilwoman Emily Evans agreed that the hotel is the best chance that the convention center has to be successful, she said she is concerned about higher revenue projections as a result of the hotel and the backup pledge from the general revenue fund.
“The risk to the general fund and what to do in those years where we might have to dip in and pay out of the general fund is certainly a concern,” said Evans, a former municipal bond underwriter who has questioned consultants’ projections for the convention center. “We already have warnings from the rating agencies about limited flexibility.”
“At the end of the day, the Omni will have a $250 million hotel at half price. It’s a good deal for them,” she said. “We have to ask if it’s going to enhance the convention center enough to make up what it will cost us.”
Nashville Mayor Karl Dean said the project represents a significant job and economic development generator.
“We broke ground on our new downtown convention center earlier this year,” Dean said in a statement. “The headquarters hotel completes the picture for Music City Center and dramatically enhances our ability to market it and reach our goals for growing Nashville’s tourism industry.”
The pre-development agreement requires the developer to include 20% minimum minority participation and another 20% local business participation in construction contracts, hire at least 250 out of 300 jobs to operate the hotel from the Nashville Metropolitan Statistical Area, and spend at least $100,000 annually with businesses in the local MSA and another $50,000 with minority-owned businesses.
By Sept. 30, the developer has agreed to prepare a conceptual design and development budget, including a detailed funding agreement negotiated with Nashville.
If the deal falls though, Nashville would reimburse Omni approximately $1 million.
Rating agencies are expected to get details about the project in routine reviews, according to Reibeling.
In early August, Moody’s Investors Service removed Nashville’s Aa1 general obligation bond rating from watch list for possible downgrade, affirmed the rating, and maintained a negative outlook because of revenue constraints and the general fund backup pledge supporting the convention center debt.
Moody’s spokesman John Cline said the agency is aware of the convention center hotel proposal, but not in sufficient detail to offer a comment.
Fitch Ratings downgraded Nashville’s $1.6 billion of outstanding GOs to AA-minus from AA this spring to reflect “the potential additional fiscal strains of the debt-financed convention center upon an already-pressured general fund beset by slim reserve levels, significant long-term liabilities, and constrained revenue-raising ability.”
Standard & Poor’s assigns a AA rating to the GOs.
The Convention Center Authority of the Metropolitan Government of Nashville and Davidson County in April sold a series of bonds secured by various tourism taxes to finance the construction of a 1.2-million-square-foot convention center near downtown.
Officials said the new facility, replacing an existing 465,000-square-foot convention center, will enable the city to capture a bigger share of the market.
The convention center deal included $51.7 million of tax-exempt Series 2010A-1 revenue bonds, $152.4 million of taxable Series A-2 Build America Bonds, and $419 million of taxable Series B subordinate BABs additionally secured with the general fund pledge.
The Series B bonds priced to yield 4.86% in 2016, 6.21% in 2025, and 6.73% in 2043.
The bonds were assigned an A-plus by Fitch, an A2 by Moody’s, and A by Standard & Poor’s.