Cost likely growing to build Kansas City luxury hotel. How much? Developer can’t say

When developers first broached the idea in 2018 to build a five-star hotel near the Kauffman Center for the Performing Arts, they said the 145-room hotel would cost $63.5 million to build.

Earlier this week, when the same developers re-submitted documents outlining the plan to an agency that oversees a tax break program, the price was the same: $63.5 million.

The world has changed in many ways between 2018 and 2021, and one of them is that construction prices have jumped precipitously.

The producer price index for construction materials has increased 26 percent since the luxury hotel first became public, according to data from the Federal Reserve Bank in St. Louis.

Eric Hotze, a developer behind what’s called Hotel Bravo, acknowledges it has probably become more expensive to build his project. He just can’t say how much.

“I haven’t really gotten in-depth with the whole complex pro forma to figure it out,” Holtze said this week. “But I would guess the overall total amount is going to go up. I wouldn’t have any idea to be able to tell you. Certainly nothing to publish.”

Hotze has been touring City Hall to rally support for Hotel Bravo. Planned for a vacant, grassy lot at 16th and Wyandotte streets, its backers say it would give Kansas City its only five-star hotel.

He needs political support for Hotel Bravo, which seeks public subsidies. The idea of handing taxpayer resources to a hotel that few can afford to enjoy has given heartburn to some members of the city council in the past.

In Hotel Bravo’s case, public subsidies are harder to come by than most projects that come before the city council. It needs nine votes out of 13 possible on the Kansas City Council.

That’s because the Tax Increment Financing Commission, which makes recommendations on whether to grant certain tax breaks, in 2019 voted against the project receiving public benefits.

Tax increment financing (TIF) allows a developer to capture taxes that a development project generates when it starts doing business — primarily new sales taxes and increases in property values — to pay for construction costs.

Hotel Bravo’s current plan would require some $47 million in future taxes to pay off $20 million in bonds, plus interest and financing costs, used to help finance the initial construction of the hotel. The city is not providing any up-front money for Hotel Bravo, nor is it guaranteeing any of the bond debt. The rest of the hotel’s financing would come from investor equity and a mortgage.

Holtze said he’s not asking for more TIF. He also said any increase in the price to build the hotel isn’t necessarily a cost he can pass on to the consumer. Hotel Bravo anticipates charging an average of $240 a night.

“They have other alternative hotels they can stay in,” Holtze said. “They have the choice of whether or not to come to Kansas City at all. We have to stay within market parameters.”

Projects seeking incentives have to meet what’s referred to as a “but-for” test, which is to say: Would the project happen but for the use of incentives?

Eric Bunch, a Kansas City Council member whose 4th District includes downtown, said increased costs could affect that but-for test.

“The but-for test is always dependent on construction costs,” he said.

Bunch was asked if he supported Hotel Bravo getting incentives.

“The thing would have to change substantially for me to support it,” he said. “I don’t see the developer is going to budge on it.”

Kevin O’Neill, a 1st District council member, said he hasn’t made a decision.

“I’m leaning against it,” O’Neill said, adding later, “I’m just not convinced it’s something the city needs.”

Andrea Bough, a 6th District council member, said, “I’m not in a position right now to support it.”

Kansas City Mayor Quinton Lucas said, “They have a lot of work to do” to get his support.

“I would like to hear more on coming down on incentive numbers,” he said. “Or no incentives at all.”

“We’re still talking,” Kansas City Council member Katheryn Shields said when asked if she’s made a decision on the project.

Holtze acknowledged that the project has become riskier for investors.

“When I get the TIF I’ve applied for, then I have to sit down and go through all these numbers and figure out is my budget going to withstand this or not,” Hotze said.

He said additional sources of construction money are being considered, such as Property Assessed Clean Energy (PACE) financing. PACE loans are intended help property owners pay for energy-efficient features on their homes or commercial buildings. The loans are paid off over time through assessments placed on the property.

Hotel Bravo is tentatively scheduled to go before a city council committee for a hearing later this month.