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Proposed Convention Hotel Deal Biggest in Oklahoma City History

The future convention center and proposed Omni hotel will overlook Scissortail Park, which is now under construction. [Image provided]

Gary Brooks thinks he is facing a complicated financing structure for redeveloping First National Center into a hotel, housing, retail and parking.

True, it’s a big deal with a price-tag of $230 million and involves a mix of tax credits and tax increment financing. But Brooks can take comfort in knowing his deal isn’t nearly as complicated and politically charged as what’s set to be debated Tuesday by the Oklahoma City Council members as they consider a financing agreement for a $235.5 million Omni convention hotel.

The two projects both draw from tax increment financing districts created last year by the city council as these requests already were being drafted and negotiated behind the scenes.

So far, the public assistance for First National has sailed through. It’s a historic landmark, beloved by the community, and most folks seem to understand it can’t be brought back to life without the city’s help.

The Omni deal, which will require a starting amount of $85.4 million with millions more in bond interest, won’t go down so easily. It’s seen as a handout of $85.4 million, but the finer details of the deal virtually guarantee the city will recoup $50 million or more through taxes and lease payments to be paid by Omni.

The convention business itself isn’t well understood or supported.

The idea is simple; get people from out of town to spend their money in Oklahoma City.

But unlike other public venues, convention centers are aimed more at visitors than locals. Restaurant and hotel operators appreciate the economic impact. Larger corporations like the option of hosting large conferences in their hometown. Locals don’t see this impact.

The Omni is tied to this disconnect, which goes back decades.

Consider first the age of the current Cox Convention Center, which is set to hit a half century when the new one opens in 2020. Before the opening of what was originally called Myriad Convention Center, the city had no real convention space. It had no arena.

The Myriad, debated for years, funded through bond issues ramrodded through by then-Mayor Jim Norick, sought to combine both an arena and meeting space. The arena served its purpose well through the 1990s.

The convention space was inadequate from the start. It took Norick’s son, Ron, getting elected to the same office and launching the revolutionary MAPS program to add ballroom and meeting space to allow the city to be at all competitive in competing for conventions.

That addition kept Oklahoma City in the game, but as the city has grown and thrived, the convention center’s continued inadequacy dogged our ability to compete with cities our size for conferences that generate millions in sales and hotel taxes for our community.

So as the adage goes, to make money, one has to spend money. And with MAPS 3 we are investing $288 million in a modern convention center that will adjoin a new Scissortail Park, downtown boulevard and streetcar.

The Omni would sit in the middle of all this, and proponents argue the 600-room hotel is urgently needed to ensure the convention center is a success. As the man in charge of selling Oklahoma City as a convention host, Michael Carrier is being asked to provide a dedicated room block in a headquarters hotel for at least 500 rooms as part of any deal for the new convention center.

The public may note the downtown has come a long way from the days when the Sheraton was the only surviving hotel. Bricktown alone is set to be home to 23 hotels. Hundreds of full service rooms can be found at the Hilton Skirvin, Sheraton, Renaissance, Colcord and 21c Museum Hotel.

But not one of those hotels top 400 rooms, and not one is set up to be a convention hotel with large ballroom and meeting room space. They are not adjacent to the new convention center.

So at this point we come down to a question of whether Oklahoma City wants to be in the convention business. It’s a city council policy decision, and with millions spent on site acquisition and design, that ship has pretty much sailed.

Credit Councilman Ed Shadid for financially backing visits by researchers who argue the convention business is not worth the public investment. Whether one agrees with this opposition or not, the discussion and airing of dissent is healthy.

Thanks to Shadid, our community was given a chance to hear arguments by Haywood Sanders, perhaps the most well-known critic of public investment in convention centers.

In those visits starting back in 2012, Sanders, a professor of public administration at the University of Texas at San Antonio and a veteran researcher on the convention industry, warned Oklahoma City is about to invest in an industry where the supply of meeting space had expanded by 35 percent since 2000 while attendance — demand for the space — dropped by 1.7 percent.

Carrier and consultants retained by the city respond the convention market remains strong. At the time Sanders made his report, the country was still recovering from the scariest economic downturn since the Great Depression.

The next part of this debate centers on why the city assistance is needed. If one is to conclude a headquarters hotel able to dedicate a 500-room block for large groups is critical to the convention center’s success, then the question is whether any company can or would fit the bill to make such a venue a reality.

Cities across the country have invested millions in convention hotels to secure these large room blocks, accepting that such venues are not self-supporting. The size, the expectations of luxury including multiple full-service restaurants, meeting room space and other amenities simply put these projects beyond the normal market conditions needed to justify the initial private investment.

The track record in other cities is varied. Some hotels have proved to be successful while others have failed spectacularly and ended up with cities being left holding the keys.

Omni is one of the better owner/operators, and the financial strength of the privately-run company is not disputed. The proposed deal, from what I can see, involves minimal risk for the city once the hotel is opened. The deal requires a $150.1 million investment by Omni, and the city would recover millions through lease payments and potential profit participation.

The deal does not involve any increase in taxes and largely involves a mix of tax increment financing and revenues from previous deals with the Skirvin Hilton and Bass Pro Shops.

The new argument emerging this week is whether this money could be better spent rescuing our public schools. It’s not a bad question to ask, but it also represents a fundamental misunderstanding of how schools hit crisis stage and how they are funded.

Let’s be clear: The funding situation with public schools is a state issue. Oklahoma City passed MAPS for Kids in 1999 to spend $700 million rebuilding local schools and has done more to help educators than any other community in the state.

The funds being proposed for the Omni are statutorily not set up to fund schools. Most of the funds are designated for economic development. Shadid is leading an effort to ask voters to create a local income tax for schools, which will be an interesting study in whether the city should assume such responsibility from the state.

The next question is a lingering debate over the nature of tax increment financing itself, which is based on the idea that by dedicating part or all of potential rising property taxes in an area back to these projects, our city can realize better economic growth.

In some cases, local schools end up in a better position to benefit from such growth because the revenues are not subject to being shared with other communities through funding formulas set by the state’s board of equalization. And the share in the Omni taxing district that goes directly to schools and other local taxing entities (county, libraries, CareerTech, City/County Health) is set at 75 percent — far higher than rates for the previous districts set up in Oklahoma City.

The fine line on all this is the use of tax increment financing can go too far. The argument for using tax increment financing for apartments and hotels is far weaker than it was when such investment was just getting started 20 years ago.

And that leads us to yet another consideration involving a moratorium of city financing for other hotels as requested by Omni. This deal, if approved, would only allow the use of tax increment financing and local assistance for the hotel planned at First National.

The 21c Museum Hotel is the only example of a hotel requiring public assistance in recent years. The construction of dozens of hotels throughout downtown without tax increment financing indicates the market is doing just fine. But could this deal jeopardize the potential redevelopment of the historic former Spaghetti Warehouse in Bricktown?

Design and planning is still underway, and a closing is set for next month. So the potential conversion of this landmark into a boutique hotel is still a work in progress. But the buyer, Sam Coury, and his broker, Don Hayes, both say they’re prepared to move forward without tax increment financing. But would the project be easier with such assistance? No doubt.

Beyond the Spaghetti Warehouse project, it’s difficult to imagine any other downtown hotel developer arguing with a straight face that they need the city’s help.

So with all that said, Tuesday is set to be not only the biggest public/private hotel deal in the city’s history, but also likely the last for a very long time.

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