The developers proposing to build a $100 million hotel and conference center project in downtown Missoula have gotten approval from a city board for more time to secure financing.
On Tuesday at a special meeting, the Missoula Redevelopment Agency’s board unanimously approved a one-year deadline extension for the project, provided Hotel Fox Partners can prove within six months they’ve got investors on board.
The city has granted Hotel Fox Partners exclusive development rights to the Riverfront Triangle property, which sits on the banks of the Clark Fork River just west of the Orange Street Bridge. The developers are proposing to build a 10-story hotel and condominium building along with a 60,000-square-foot conference center, which would be the largest in western Montana.
“There’s been rumors flying around that things are getting smaller and so on,” explained Missoula Redevelopment Agency (MRA) assistant director Chris Behan. “They’re not. We’re trying to figure out how we can pay for everything and still maintain the vision.”
Jim McLeod of Hotel Fox Partners said the project suffered a setback when an experienced and well-respected project manager passed away recently. McLeod and Behan also said the developers are having trouble convincing private equity investors to finance a $100 million project in Montana when they’re more attracted to proven “hot” markets like Seattle, Portland, Denver and Los Angeles. One of the original investors apparently suffered a personal and financial setback "unrelated" to the project, they said.
“From a programming standpoint, everything is there, including the floor plans for the condominium units,” McLeod explained. “Developers are typically optimistic people and 18 months has gone by real fast but there has been movement."
He said his team is still pushing forward on the project, which would transform a long-vacant corner of prime real estate into one of the most ambitious infill projects in state history.
"From our standpoint, our team is committed to seeing this project completed," he continued. "We have weekly calls, sometimes twice weekly, and we’re fairly optimistic that within the next several months we’ll be able to start drawings.”
The city and the developers have entered into complex financial agreements to finance the project. The developers have agreed to purchase the city-owned portion of the land for $2.3 million, which will be paid for overtime with interest. Then, after the conference center is built, the city would use $16.5 million in Tax Increment Financing (TIF) revenue bonds to purchase the 60,000-square-foot conference center.
The debt on the bond would be paid back by the new property taxes generated by the project. The developers would then lease the conference center from the city for at least 25 years, with options to renew for another 20 years. Maintenance of the conference center would be the developer’s responsibility.
The city would also use $8.3 million in TIF to purchase the 405-space public parking garage, and that money would be paid back by parking revenue. The project would not raise any new taxes on Missoula citizens. However, since the project lies within an Urban Renewal District, all new property taxes generated by new development are diverted away from the city’s general fund and put back into the district for projects that benefit the public.
City leaders such as Mayor John Engen have endorsed the project as a way to attract out-of-town visitors and their spending. McLeod told the MRA board in the past that a market study showed the conference center could attract the equivalent of the Missoula Marathon crowd every month.
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“This is a project that is of great importance to the city,” Behan said.
The Missoula City Council’s administration and finance committee will consider approving the deadline extension on Wednesday morning during a 9:30 a.m. meeting, and then it would go to the full City Council at a Monday night meeting.
Under the land-use agreement approved in 2017, the developers and the city agreed to work cooperatively to construct a public plaza, trails, utilities, landscaping, sidewalks, street upgrades and other improvements to the site, which are expected to cost more than $5 million.
To try and attract investors, McLeod said his team has changed the financing model. Before, they were viewing the development as one project, but they’ve recently started presenting it as four distinct parts: a conference center, a hotel, residential condominiums and a parking structure. That way, investors who are used to one type of project can choose their involvement.
“Places like Seattle, Portland and Denver are a more known quantity,” Behan explained. “Equity investors are obviously risk-averse, so convincing them to invest that type of money in Missoula, Montana, is a learning curve that this will help. Hotel Fox has changed its financing model to split focus.”
The developers had been facing a May 22 deadline to submit design plans under a previous agreement with the city. Their deadline for obtaining permits for the design, along with submitting evidence of final equity and construction financing, is Nov. 22, 2019.
If the City Council approves an extension, the new deadlines would be May 22, 2020, and Nov. 22, 2020. However, McLeod and his team are also asking for the possibility of getting an additional six months if they can prove, within six months of Tuesday’s meeting, that they have investment partners lined up. McLeod explained that after 100% of the financing is secured, it will take the engineers and architects about six to nine months to complete the drawings for the site. That process costs millions of dollars, so they can’t start until the investors are lined up, he said.
Board member Natasha Jones, an attorney, said she recalled one instance in a courtroom where a judge explained that if he gave lawyers four months to complete a task, it would take four months, but if the judge gave them four days, it would take four days.
“Deadlines are both annoying and helpful,” she said. “I’m concerned about the idea of an automatic extension. Then it will take 18 months, potentially."
She said she believes the developers have made an educated decision to ask for the extension and that everyone is "driving towards" the same goal.
"I do think having some measurable goals and a report at six months (would be good)," she said. "There’s a lot of public interest in this project. It’s really important to the community and exciting. It’s a commendable effort by everybody but perhaps the reason there’s not people waiting in the wings to do something else is because the property is tied up in this process. We do owe it to the community to keep it on a timely track.”
After some discussion, McLeod agreed to come back to the board within six months and prove to them he has sufficient funding to move ahead with drawings.