Denton Mayor Chris Watts left room for City Council members to pull the plug on the convention center project, but they opted to keep it on life support for a little while longer.
Council members agreed during a work session Tuesday afternoon to direct the staff to continue planning for a scaled-down version of the facility in hopes that they can meet the budget.
Council member Greg Johnson, who is a real estate developer, called the latest figures “a $30 million bet on a tenant.”
“My sense is that, if this had come in at budget, we’d be marching right now,” Johnson said.
Instead, the city staff and the project architects, who work for O’Reilly Hospitality Management and its investment partners, have been trying to rework the project so that the building, its furnishings and its financing stay at $25 million. Construction bids came in much higher than expected this summer, sending the project partners scrambling. For several years, the city staff has been working with O’Reilly and its investors and the University of North Texas to build a full-service hotel and convention center on UNT land next to Apogee Stadium.
Assistant City Manager Jon Fortune told the council that O’Reilly CEO Tim O’Reilly still had the understanding that he and the investment partners were backing the city’s financing at $25 million.
The city plans to issue certificates of obligation to pay for the convention center’s construction. For years, city staff negotiating the deal have worked to make the convention center self-funded. The city would use its property, sales and hotel occupancy taxes to make an anticipated $2 million debt payment each year. Any shortage between the taxes and the payment would be covered by O’Reilly as a “rent” payment.
However, O’Reilly has asked that it not be obliged to cover that gap until the third year of operations.
To make that concession to O’Reilly, the city would likely roll the interest that accrues during the building’s construction, about $2.5 million, into the principal instead.
Under the master development agreement the city has with O’Reilly and UNT, Denton can pull the plug if the project shrinks too much.
However, council members didn’t flinch at the building that had lost two floors and about 29 percent of its overall square footage. They said they were comfortable, for now, that the latest iteration could accommodate a convention for 650 and a banquet for 1,800. The Denton Convention and Visitors Bureau staff said that, at that size, the center would still be large enough to attract many worthwhile events.
But, as of Tuesday, the total cost of the smaller convention center was hovering at $27 million and the architect told the council he didn’t have final numbers yet.
Johnson called the agreement between the partners complicated.
“But at this point we should be talking about the dollars,” Johnson said.
Both he and Watts said the council should begin to consider the possibility that the city may be going it alone. Neither the county nor the school district have given any public indication that they would contribute to the convention center, but the council agreed to take additional steps in forming a tax-increment finance district for them during the regular session Tuesday.
The developer can pull the plug on the deal if the school district and county decline to rebate some of the hotel’s property taxes through the finance district.
City staff is expected to go before the school district on Sept. 23 to ask for a final, formal decision on whether to approve the abatement. A similiar request of the county has not yet been scheduled.
PEGGY HEINKEL-WOLFE can be reached at 940-566-6881 and at @phwolfeDRC.
IN OTHER ACTION
During its regular meeting Tuesday, the Denton City Council also:
• Extended a moratorium on new natural gas drilling permits through Jan. 20.
• Confirmed the appointment of Robin Paulsgrove as the city’s new fire chief.
• Authorized an application to the Texas Historical Commission for a historical marker for City Hall West.
• Awarded three-year contracts for relief veterinary services at the Linda McNatt Animal Care and Adoption Center to RSVP Services Inc. for up to $700,000, for prepaid utility services from Exeleron Software for $1.1 million, for supplying utility breakers from ABB for $470,000 and for upgrades and maintenance to the city’s computer-based controls for the water system to Prime Controls for $175,000.
• Awarded construction contracts for water and wastewater improvements at the Pockrus Substation to Jagoe-Public Co. for $162,503 and for underground electric installation services to Barco Construction for $4.8 million.
• Approved distribution of council contingency funds, including $1,000 for school supplies distributed through the Martin Luther King Jr. Recreation Center; $735 for rest mats for Denton Christian Preschool; $738 for tables, chairs, canopies and umbrella bases for the Denton Community Market; and $800 for summer camp expenses for Young Life Denton.
• Agreed that the nine members of the city’s Economic Development Partnership Board will also serve as the board of directors for the tax-increment investment zones 2 (industrial park) and 3 (convention center)
