Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
A City-County Council committee on Monday night voted to advance a Hogsett administration proposal to foot the bill for a new convention center hotel in downtown Indianapolis.
The proposal calls for the city to assume ownership of the planned Signia by Hilton hotel on Pan Am Plaza. The hotel, which carries an estimated price tag of $510 million, would be constructed using proceeds from up to $625 million in municipal bonds, leveraged against revenue generated by the property rather than existing or new tax revenue.
The 40-story Signia is part of a larger redevelopment of the Pan Am block that is to include a $200 million expansion of the Indiana Convention Center.
The Metropolitan and Economic Development Committee voted 9-3 to advance the proposal following a nearly two-hour hearing on the matter, with Republican council members Paul Annee (District 23), Michael-Paul Hart (District 18) and Brian Mowery (District 25) voting against the measure. The council members who voted in favor were all Democrats.
Representatives for Indianapolis Mayor Joe Hogsett in their presentation to the committee on the funding proposal said a feasibility study conducted by New York-City based consultant LW Hospitality Advisors LLC is expected to be completed before a full City-County Council vote set for June 5.
LW Hospitality Advisors is the same firm that was commissioned in 2019 by hotel owners concerned about the Pan Am project and whether the then-proposed 1,400-room hotel project would hurt competition by lowering occupancy rates.
Minneapolis-based investment banking firm Piper Sandler Cos. is the finance team and underwriter working with the city on the debt structure for the project. Piper Sandler has been involved in dozens of publicly financed hotels since the early 2000s.
The financing structure would require a reserve equal to one-and-a-half years of typical debt-service costs in the event of a shortfall—such as one created by a pandemic or other event that would cause major losses to a hotel—as well as numerous other reserves meant to backstop any potential funding problems. The administration would be required to receive approval from City-County Council in order to tap into any debt reserves to cover shortfalls.
The city’s financing structure would also require that the projected net profit from the hotel would have to be at least 50% higher than its annual debt service, with any remaining revenue going toward paying back the 40-year bonds early.
Hilton Worldwide is expected to run the hotel, while Massachusetts-based CHA Integrated Solutions would manage the property and pay off debt on behalf of the city.
The city on Wednesday will also request authorization from the Metropolitan Development Commission to spend $54.3 million to acquire the 3.5-acre property at the southwest corner of Georgia and Illinois streets that makes up Pan Am Plaza in order to get control of the site from developer Kite Realty Group.
Kite recently told the city it couldn’t secure suitable financing to build the hotel, prompting the city in recent weeks to announce plans to take over the project. Kite will still be the developer, but won’t have an ownership stake in the completed hotel.
According to Visit Indy, both the convention center expansion and new hotel are needed to retain and attract conventions. The project would account for an average of $300 million more per year for the city’s economy, the tourism agency said.
“This is the next bold move to keep Indianapolis in the top tier of [convention] host cities,” Scarlett Andrews, deputy mayor for development, told council members. “Without this project, we do not get to stay in that conversation.”
Several members of the public, including Mario Rodriguez of the Indianapolis Airport Authority, Mandy Hazlett with National FFA, and multiple union representatives spoke in favor of the project.
In addition to a trio of City-County Council members expressing their skepticism for the project, a handful of residents and property owners also stated their opposition. They included hotelier Mike Wells, whose Carmel-based firm REI Real Estate operates the Downtown Indianapolis Marriott along with White Lodging, and Republican mayoral candidate Jefferson Shreve, who is running against Hogsett.
Shreve, who last week told IBJ he is opposed to the city’s new role in the project, said he believes the fact that Kite wasn’t able to secure favorable financing for the development should be a signal it is not a feasible endeavor.
“I think for as smart as we are,” he said, “the capital markets have a wisdom that is disciplining.”
Kite has not publicly shared what interest rates it would have been able to secure on the private market, nor did it share that information with city officials.
“I do not know what rates they were quoted. I don’t know any details about that,” said Sarah Riordan, who on Monday was named city controller after eight years as executive director of the Indianapolis Bond Bank. “But you can imagine that a private developer is going to have certain expectations of a return on its investment. But in terms of the specifics of the proposals they received from banks, I don’t know. They told us, ‘We can’t do this,’ and we took them at their word.”
Please enable JavaScript to view this content.
Big mistake. There’s a reason private enterprise didn’t justify it.
What none of us know: the combined debt load owed by Kite, which affects their ability to borrow anything, anywhere. They’re private. They don’t have to disclose that.
Government-backed bonds are much easier to peddle. The city is right to jump in here. It’s protecting three decades of downtown convention planning and construction. It merits very close scrutiny, but it’s worth the risk.
Disaster.
Why get in bed with developers who can’t qualify for private funding?
Isn’t this the same “unfair advantage”argument raised when the city financed the JW Marriott ?
No. The JW got the public part of its pub/priv partnership via a TIF. The hotel was built with priv equity cash + commercial debt. No comparison at all.
CMA
Correct
Which Circle Center-era hotel do you think will be the first to close as a result of this misguided initiative?
While I would love to see more tall buildings in the skyline, this is just dumb for the city to be involved with.
I thought WWII was fought to rid the world of fascism. I guess siding with the commies showed the true point …
One can only assume there will be plenty of jobs to be had for relatives and cronies of council members who voted for it.
They will have offers to sell it for way more once it’s built! Watch
Now our cities skyline will look competitive with other cities our size. Office towers are obsolete these days, so its either going to be apts or hotels. We want more conventions and want to keep the ones we have already! Indy is full of haters and conservatives when it comes to advancing, while Nashville and other cities move past us. We have an administration that wants Indianapolis to be a major competitor and not be a Naptown like in the 70s!
Apparently, the Retrumplican candidate for mayor is not willing to be bold.
The real wild card is the price being paid for the site. 3.5 acres at $54.3 million dollars. All for the hotel and related convention business retention, but $54.3 million for 3.5 acres is well above the appraised value and no indication if demo and site work is included. It would be interesting to learn what Kite bought the site for back in 2019-2020.