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Olathe, Kansas Deal with John Q Hammons Includes 100% Property Tax Abatement
 and the Revenue it Generates from the Transient-Guest Tax for 20 Years
By Jack Weinstein, The Olathe News, Kan.McClatchy-Tribune Regional News

Jun. 20, 2008 --It seems cliche to say this is another watershed moment to change the economic landscape of Olathe.

But city leaders believe it is.

City councilmembers on Tuesday approved an agreement with hotelier John Q. Hammons to build a 315-suite hotel with an adjacent 80,000-square-foot conference center in the Corporate Ridge Office Park at Kansas Highway 10 and Ridgeview Road.

Dave Mashburn, a project manager for John Q. Hammons Hotels and Resorts, said the 11-story Embassy Suites will have an atrium-style interior, sports bar, Internet cafe and gift shop. A pool and fitness center also would be at the hotel.

The project will be Hammons' fourth in the Kansas City area. The other hotels are near Kansas City International Airport in Kansas City, Mo. The hotel magnate has built 204 hotels, which include 4.5 million square feet of meeting space since his first project in 1958. Hammons' reputation as one of the country's elite hoteliers is what Olathe hopes will help draw other corporations to the area. That only would make Tim McKee's job as the Olathe Chamber of Commerce's vice president of economic development easier.

McKee already has met with companies looking to relocate or expand in Olathe after the hotel announcement. He said they've all cited the need for another full-service hotel (the other is the Holiday Inn near 151st Street and Interstate 35) to bring their operations to the city.

The impact the hotel will have on the K-10 corridor and Olathe is immeasurable, said Dave Harrison, vice president of Opus Northwest, the company selling more than 13 acres to Hammons.

In two and a half years, vacant farmland has been transformed into what Opus believes is the next location to capture the majority of the office and commercial market in the Kansas City area, Harrison said.

With already 600,000 square feet of office and commercial developments on more than 200 acres and an additional 1.2 million square feet in discussion, Harrison said the hotel's impact on the area will be huge.

"This project will exponentially raise the probability of attracting those corporate users, the capital that comes with them, the jobs, and it will exponentially have an impact on the probability of this whole corridor expanding sooner than later," Harrison said.

Desired by Olathe for the better part of a decade, the deal came together in the last year. The city requested proposals from developers, but Hammons offered Olathe what no other developer could -- a full-service hotel and conference center that placed no financial burden on the city or its residents.

Hammons will receive a 10-year, 100 percent property tax abatement and revenue it generates from the transient-guest tax for 20 years.

McKee said it's typical for cities to enter into ownership agreements with hotel developers. Overland Park did so with the convention center attached to its Sheraton Hotel, which opened in 2002, and a nonprofit established by the city owns the hotel. The hotel pays property taxes and generates sales and transient-guest tax revenue. That revenue pays for operations with reserves used for a majority of the debt service on the bonds issued to build the hotel and for future capital improvements. If the debt can't be covered by revenue, it's made up by a portion of transient-guest tax revenue from the city's 33 other hotels.

The convention center doesn't pay property taxes because the city owns it, but it generates an operating profit.

City spokesman Tim Danneberg said Olathe could have entered a similar deal as Overland Park, but the city then would have assumed the risk of operating losses and maintenance costs. Olathe didn't want any part of that, he said.

McKee said developers wanting the city to share ownership had held up hotel deals in Olathe for years.

"We're getting a deal beyond what we imagined with anyone else," he said. "We might get this level of hotel, but the city would have to fund or back it like Overland Park. But with Mr. Hammons, we don't have to do that."

This year, Overland Park will have to use transient-guest tax revenue to make up for $1 million in debt not covered by the hotel's revenue.

Overland Park City Manager John Nachbar said that the city would have preferred its hotel and convention center be owned privately, but that taking ownership was a concession it made to make the deal work. He said the hotel -- which will gross $835,000 less this year than last and has a $1.7 million budget shortfall -- isn't underperforming. The hotel market is off because of financial constraints placed on travelers, primarily those traveling for business, he said.

"Costs are increasing for every organization whether it's salaries, health insurance, fuel, utilities," he said. "The hotel has experienced increased costs, so when costs are increasing and revenues are flat, that creates financial disequilibrium, and that's what's going on."

Nachbar said the only risk in the deal involved losing some transient-guest tax revenue to cover debt like it's doing this year.

Olathe won't have that risk.

Transient-guest tax revenue generated by the other hotels is used for economic development and convention and visitors bureau purposes.

"The developer assumes all the risk. The city assumes no risk," Danneberg said. "There's no liability to the city or our taxpayers."

Mashburn said the company expects to break ground this fall on the more than $75 million hotel with completion anticipated in the spring of 2010.

That excited Lori Tinkler, chief operating officer for the National Board of Respiratory Care and Applied Measurement Professionals, who said the nonprofit certifier of respiratory therapists and its for-profit subsidiary have been begging the city for a full-service hotel since they moved to Corporate Ridge about a year and a half ago.

"We have a lot of clients that bring committees to our executive offices for meetings, and right now we've been having to put them up in Lenexa, Overland Park and Shawnee,"she said.

Tinkler said southern and western Johnson County is "severely lacking" in full-service hotels.

Terracon, another Corporate Ridge tenant, said finding hotel rooms and meeting space for some of its 3,000 employees who visit its corporate headquarters from 100 offices around the country can be a challenge.

"Having this facility nearby, both as a hotel as well as a conference center to host events, will be great," said David Gaboury, chief executive for the engineering consulting firm. "It will add a lot to the park."

McKee said he hoped this project would help lure back to Olathe larger events like the Olathe Medical Center Foundation's Gala and Garmin's annual shareholders meeting, which have moved to neighboring cities in recent years because of a lack of space.

Not only Corporate Ridge businesses are enthusiastic about the possibilities of a new hotel and conference center.

In recent years, larger corporate events for Garmin and Olathe Health Systems, two of Olathe's largest private employers, have ventured into other Johnson County cities.

"It would be our preference to keep these types of events in Olathe for the obvious reasons of supporting the community and that convenience it provides for those attending as well," medical center spokesman Mike Jensen said.

Garmin spokesman Ted Gartner said he couldn't say whether the company's annual shareholders meeting, which was recently in Overland Park, would return to Olathe.

He added that it was great to have new accommodations close to its headquarters for visitors.

"We're a global company," he said. "We have a number of people in on any given day, and it's great to have hotels that are very close by."

Local educational leaders even said they could benefit from the hotel and conference center.

Olathe school district Superintendent Pat All said the conference center could benefit the district by possibly hosting proms and graduation ceremonies.

Dan Richardson, chief executive for the Kansas State University campus at the Kansas Bioscience Park at College Boulevard and Valley Road, said one of his goals was to invite academics from all over the world to Olathe.

"We're pleased to see it happen," he said.

No one seemed more pleased Tuesday about the hotel announcement than Mayor Mike Copeland. He said the city had been looking for something to meet the needs of the community.

"Many other businesses in our community need more space, more capacity -- our community has grown," he said. "This is going to be a wonderful, wonderful addition to our community."

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To see more of The Olathe News or to subscribe to the newspaper, go to http://www.olathedailynews.com/.

Copyright (c) 2008, The Olathe News, Kan.

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