Changes for Covington Hotel, Scholar House Developments
Two high-profile Covington developments have yet to secure their full financing and were the subject of discussion at Tuesday night's city commission meeting.
The developers of The Hotel Covington worked out a new purchase agreement for acquiring the former City Hall which will be transformed into a more than $25 million boutique hotel while the developers of a planned Scholar House set to be constructed inside the former Lincoln Grant School building made an error on their application for tax credits which may push that development back to 2015.
Some on the commission expressed continued optimism in regards to the hotel.
"The message is this is proceeding very nicely as I understand it with equity investors and the financing structure," said City Commissioner Chuck Eilerman. "If New Market Tax Credits were delayed, we have a high level of confidence they will be approved."
A possible delay in the New Market Tax Credits (NMTC) could have been brought on by the fact that Salyers Group and Aparium Hospitality Group, developers of the hotel, were not yet owners of the former City Hall at 638 Madison Avenue, commonly known as the Coppins Building.
The original hotel deal, announced in October 2012, called for a purchase price of $3 million to be paid out to the City of Covington over twenty years. One part of that agreement included the possibility that not one cent of that $3 million would be paid until the end of the twenty years.
On Tuesday, the city commission voted to sell the Coppins Building for $1 million. The new deal includes provisions that the developers would pay $25,000 and then pay the rest at closing, following sixty days of what Assistant City Manager Larisa Sims called a "due diligence period". During that time, the City and the developers are expected to come to terms on a development agreement and other issues such as parking in the city-owned Center City Parking Garage.
The cash up front, instead of waiting twenty years, was an attractive option to City Commissioner Steve Frank who said that the amounts were similar in the long run and that it's better to have the money now.
"If you've got a million today and invest it at six percent, you have $3 million (twenty years later)," Frank said. "Basically, you just skip the step and get the money up front."
Additionally, the cost of maintaining the Coppins Building is a strain on the City, which moved its operations to a Salyers-owned building on Pike Street where it now rents. "It's very expensive to insure a vacant building, so that's something we would have to continue to pay for as long as we own the building, so this provides us an out for that," Sims said.
However, if the hotel deal proves to be impossible, the developers can decide within the sixty days to back out, though closing is not contingent upon securing full financing. That would leave the City as renters on Pike Street and owners of a large, vacant office building on Madison Avenue. Most on the commission and in city administration do not see that scenario playing out.
Commissioners Michelle Williams and Mildred Rains, however, expressed concern.
"We don't maintain city property anyway, so I don't see what the benefit was," Williams said.
"You'll generate tax dollars," said attorney Jim Parsons, who was charged with explaining the complexity of the deal on Tuesday. "This property has been off the tax rolls since the city owned it." The City moved into the Coppins Building in 1990.
Rains questioned the price. "Why is it that when the development was first discussed it was going to be a sale price of $3 million, and now it's $1 million?," Rains asked. "(Kenton County Property Valuation Administrator) says it's worth over $4 million."
"There is no relation between fair market value and PVA," Parsons said. "The reason a million was negotiated is the fact that the city was agreeing to a deferment over twenty years over possible repayment. There was a possibility you would get nothing until year twenty."
Williams and Rains abstained from voting on the new deal while Eilerman, Frank, and Mayor Sherry Carran voted in favor. "I'm glad we're at this point where we're moving forward," the mayor said.
Parsons also said that the hotel project is a good target for New Market Tax Credits in 2014 because Kentucky did not receive many in 2013. It could be April, could be June, could be longer, however, till anyone knows, he said. Once financing is complete, the City may consider a $3 million loan to the developers.
That loan would be issued in form of bonds, paid back through revenue generated by the hotel, similar to what the City of Covington provided for Gateway Community & Technical College last year.
City Commission candidate Michael Brosmore addressed the commission to question the possibility of a loan, arguing that the Salyers Group already owes the City money for unrelated projects. Since the Coppins Building was declared surplus property at Tuesday's meeting in order to sell it to the Salyers, Brosmore also questioned whether that move was done in order to prevent others from bidding on it.
Assistant City Manager and City Solicitor Frank Warnock said there had been no discussion to that effect.
Eilerman, a real estate agent professionally, said that the building was appraised at $650,000. "I don't think there's a great demand for that building," Eilerman said.
Meanwhile, the Scholar Project announced late last year for the former Lincoln Grant School building has also run into a possible delay. Developers of that project, which would transform the building into residential use for families with adults seeking to complete an education, made an error on the application for low income tax credits.
Prompted by a question from Commissioner Williams, Assistant City Manager Sims said the City was notified on Monday that there were deficiencies in the application. "We are going to be evaluating them to see if we can reevaluate them," Sims said, adding that the error may force the project to wait until low income tax credits are awarded in 2015.
Commissioner Frank said the error was related to a lack of signatures from State Senator Chris McDaniel and State Representative Arnold Simpson, a new requirement this year that the developers overlooked.
Warnock said the developers and the City are working to remedy the situation.
Written by Michael Monks, editor & publisher of The River City News
Photo: Coppins Building/RCN file