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The Developers of  the Canceled Westin Hotel Project in Lexington, Kentucky
 Suing the State of Kentucky for Breach of Contract

By Linda B. Blackford, The Lexington Herald-Leader, Ky.McClatchy-Tribune Regional News

May 15, 2008 - The developers of a canceled hotel project at the Kentucky Horse Park have filed suit over the termination.

The Bluegrass Equine and Tourism Foundation and KHPWESLUX -- two groups that represent the developers of the project -- filed a complaint in Franklin Circuit Court alleging breach of contract by the Finance and Administration Cabinet, which brought the project to an end last month.

The complaint says the project was canceled arbitrarily, without any reference to the original lease agreement in which there was no deadline to sell the bonds, and therefore represents a breach of contract.

The original ground lease agreement was signed in July, 2007. But the group did not get the state's permission to float the bonds until Feb. 28. The next day, the cabinet's attorney sent a letter to the developers giving them an April 15 deadline to sell the $118 million in bonds.

When the bonds had not been sold by that date, the state canceled the deal. The complaint alleges that, because it was not included in the original lease agreement, the deadline is not valid.

The complaint asks for a judgment against the state, including reasonable costs and attorney fees.

Cabinet spokeswoman Jill Midkiff released a statement Wednesday saying that the deadline was set up to ensure the hotel was complete before the 2010 Alltech FEI World Equestrian Games. She denied any contention of a breach of contract.

"The Cabinet acted prudently and in the best interest of the Commonwealth at all times during this process," the statement said. "This project may be viable at another time. The Commonwealth will make that decision after the World Equestrian Games in 2010."

A hotel on the property has been in the Horse Park master plan since the 1980s.

The hotel's unique financing was the brainchild of Brad Burgess, one of the lead developers, and the Finance Cabinet. They came up with a plan to create a non-profit foundation, allowing the state to issue $118 million in tax-exempt bonds to build the luxury Westin hotel, spa and retail project.

In March 2007, Burgess created the Bluegrass Equine and Tourism Foundation. Two weeks later, he created KHPWESLUX LLC, a for-profit company. KHPWESLUX bid on and won the last state proposal, including a $5 million development fee on the deal.

Any profits after paying the debt service would be distributed to local equine and tourism groups, Burgess said.

Under the deal, the Kentucky Economic Development Finance Authority would have issued $118 million in two series of bonds.

The first series of $75.96 million in bonds was the responsibility of the developers, to be paid back by proceeds from the hotel. However, the state could have been held responsible for $42.17 million of the bonds. The deal also included a $39 million sales tax rebate on the retail operation.

The developers say that they were close to getting the bonds sold when the deadline passed.

"Overnight, we went from being an essential, important project, a project that had been described by former Gov. Fletcher as one of the reasons we got the World Equestrian Games, to a deadline, and then in April, it's no longer an essential project," said Doug Alexander, a spokesman for the developers.


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Copyright (c) 2008, The Lexington Herald-Leader, Ky.

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