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HomeMy WebLinkAboutContract 30886 CITY SECRETARY CONTRACT NO. July 27, 2004 OMNI HOTELS TERM SHEET FORT WORTH CONVENTION CENTER HEADQUARTERS HOTEL FORT WORTH, TEXAS The following is an outline of the basic terms and conditions under which Omni Hotels Corporation, acting through a wholly owned subsidiary ("Omni"), would fund, develop, build, flag and operate the proposed Convention Center Headquarters Hotel to be located in Fort Worth, Texas. As used herein, the term "City" will refer to either the City of Fort Worth or any corporation that may be created to act on behalf of the City. I. The Hotel/Ground Lease The contemplated project consists of a three-star/four-diamond standard, luxury convention center hotel with the highest quality materials and finishes, and otherwise in accordance with plans and specifications approved by the City and Omni in accordance with all of the standards set forth below, which will include, among other things, the following components: approximately 600 rentable guest rooms; at least two full service restaurants; a lobby bar; approximately forty eight thousand (48,000) square feet of dedicated meeting space; an exercise facility; a valet parking service utilizing off-site parking spaces in the Garage, as defined in Section Il; and other supporting facilities commensurate with a full-service convention-oriented hotel (the "Hotel"). The Hotel will be Texas-themed and the Garage will include street level retail. The actual hotel dimensions, placement, and program design are subject to finalization by the City and Omni. City will have the right of prior written approval as to Hotel's design and specifications, which approval shall not be unreasonably withheld. Omni anticipates that the total project cost, excluding land, developer's fees and financing costs will be approximately $90 million and Omni agrees to spend a minimum of $55 million on hard construction costs for the Hotel. The City will own the land underneath the Hotel and will ground-lease it to Omni for a term of ninety-nine (99) years with an annual rent equal to its fair market value from time to time (although City will return to Omni pursuant to an agreement authorized by Section 380.001 of the Texas Local Government Code (a "380 Agreement") all rent in excess of$10,000 a year during the first ten (10) years after the Hotel opens). The City, at the City's expense, will be responsible for the relocation of the AT&T trunk line underneath any portion of the Hotel site and the Parking Garage site addressed in Section II hereof. Omni will accept the land in its "as-is" condition after relocation of the AT&T trunk line (subject to Omni's right to perform due diligence), but City shall reimburse Omni its actual, third-party costs to make the land "pad-ready" via a Community Facilities Agreement (the "CFA"), up to a maximum of$300,000. The CFA will include a definition of the work necessary to make the land "pad-ready." • ',j :.S 01.5 '.t: July 27, 2004 The Ground Lease will give Omni a one-time option beginning on the tenth anniversary date of the Hotel's opening and ending one (1) year thereafter to purchase the land at its then fair market value (although City will return to Omni pursuant to a 380 Agreement that portion of the sales price in excess of$1,000,000). During the same period of time, the City shall also have the right to "put" the land to Omni for its then fair market value (although the City will return to Omni pursuant to a 380 Agreement that portion of the "put" price in excess of $1,000,000). The Ground Lease shall be cross-defaulted with the 380 Agreement(s), the Room Block Agreement (hereinafter defined) and the Tax Abatement Agreement (hereinafter defined) II. Operating Standards If the City believes that the Hotel has ceased to be operated at a three- star/four diamond standard at any time during which the 380 Agreement(s) and/or the Tax Abatement Agreement are in effect, the City may deliver written notice of its opinion to Omni. If Omni agrees with the City's opinion, Omni shall have one (1) year to bring the Hotel up to three-star/four diamond standards. If Omni disagrees with the City's opinion, the City may submit the matter to arbitration pursuant to a procedure to be negotiated by the parties in the definitive agreement. If the arbitrator rules in favor of the City, Omni shall have one (1)year from the arbitrator's ruling to bring the Hotel up to three-star/four diamond standards. Once Omni believes that the Hotel has resumed operating at three-star/four diamond standards, Omni will notify the City in writing. If the City disagrees with Omni's position, the City may submit the matter to arbitration. If the arbitrator rules in favor of the City (or if Omni fails to notify the City [after the City has requested such notification in writing] that it believes the Hotel has resumed operating at three- star/four diamond standards within the one-year cure period), then (i) future funds to be paid under a 380 Agreement will be the property of the City, with the understanding that once the parties agree or an arbitrator rules that the Hotel has subsequently resumed operating at three-star/four diamond standards, the City will resume making payments under a 380 Agreement as they become due in the future; and (ii) tax abatements under the Tax Abatement Agreement will cease, with the understanding that once the parties agree or an arbitrator rules that the Hotel has subsequently resumed operating at three-star/four diamond standards, the abatements will resume as they become due in the future. If both the 380 Agreement(s) and the Tax Abatement Agreement have expired prior to the 25`h anniversary of the Hotel's opening, and Omni (or any successor) fails to operate at the three-star/four diamond standard (with the same notice and cure and dispute resolution procedures as provided above), then the City will be entitled to monetary damages from Omni (or any successor), as determined by an arbitrator, in an amount and a manner to be negotiated and set forth in the definitive agreement for the time period that such operating standard is not met. After the 25`h anniversary of the Hotel's opening this operating standard and the damages provision above shall remain in place so long as (i) the Convention Center is operated and maintained at a -2- t July 27, 2004 level to support a four diamond/three star hotel, and (ii) the City of Fort Worth continues to be a desirable convention and business destination that makes it economically feasible to operate the Hotel at the four diamond/three star standard. III. Parking Garage A parking garage having approximately 400 spaces for use by the Hotel will be constructed on land owned by the City adjacent to the Hotel (the "Hotel Garage"). Immediately adjacent to and, at the City's option, connecting to and on top of the Hotel Garage will be constructed a garage containing approximately 600 spaces (or more if the City, in its sole discretion, determines that additional spaces are needed) (the "City Garage"). Omni will construct and the City will pay for the construction of and have final approval on the design, structure and cost of the Hotel Garage and the City Garage. City funds equal to the cost of both the Hotel Garage and the City Garage will be segregated into a separate City account. The City will allow Omni to draw down from that fund as payments become due in accordance with a procedure negotiated by the parties and set forth in the definitive agreement. Because the Hotel Garage and the City Garage will be property of the City during construction, Omni shall be required to comply with the competitive bidding requirements to which the City is subject pursuant to Chapter 252 of the Texas Local Government Code and to provide and cause to be provided payment and performance bonds that comply with the requirements of Chapter 2253 of the Texas Government Code as a project cost paid by the City. Once (i) both the Hotel Garage and the City Garage have been completed and are ready for use and (ii) Omni has delivered reasonably satisfactory evidence to the City that Omni has expended at least $55 million in hard costs toward the construction of the Hotel and the Hotel completion guaranty required by Section X below is in place, the City will sell the Hotel Garage to Omni at its then fair market value (although the City will return to Omni a sum equal to that amount pursuant to a 380 Agreement). After such conveyance, Omni shall be the exclusive operator of the Hotel Garage and the City shall be the exclusive operator of the City Garage. The instrument conveying the Hotel Garage to Omni shall provide for the City to retain the air rights above the Hotel Garage for construction or expansion of the City Garage. IV. Branding and Name The Hotel will be branded as the Omni Fort Worth Hotel. V. FF&E Reserve Omni shall set aside in book entry form three and one-half percent (3.5%) of the Hotel's revenues for replacements of FF&E and necessary maintenance and repair. The reinvestment of the FF&E Reserve shall be calculated over the life cycle of the assets to be replaced (and such reinvestment shall be guaranteed by Omni or, at City's reasonable discretion, Omni Hotels Corporation). Omni shall provide an -3- July 27, 2004 annual report to the City of the status of the FF&E Reserve. The FF&E Reserve will be utilized by Omni from time to time in a commercially reasonable manner, and in any event as necessary to operate the Hotel at all times at a three-star/four-diamond standard. VI. Room Block Agreement Omni acknowledges that the Fort Worth Convention Center is located adjacent to the Hotel and will be a significant source of Hotel business. Omni and City will enter into a Room Block Agreement for a 99-year term in accordance with provisions and a rate structure to be agreed to by Omni and City as part of the definitive agreement. Omni and City acknowledge that business opportunities may arise that do not comply with the above guidelines. The Room Block Agreement shall provide for a mechanism to allow for reasonable deviation from the above guidelines to accommodate the business needs of the Hotel and the Fort Worth Convention Center. The Room Block Agreement shall also contain a provision allowing changes over time based on industry standards. The specific provisions will be mutually agreed upon in the Room Block Agreement, which will survive a sale by the City of the land to Omni or a sale of the Hotel and/or the land by Omni to any other entity. The Room Block Agreement shall be cross-defaulted with the 380 Agreement(s), the Ground Lease and the Tax Abatement Agreement. As part of the definitive agreement, the parties shall negotiate the procedures and remedies that will apply if there is a breach of the Room Block Agreement after the 380 Agreement(s), the Ground Lease and the Tax Abatement Agreement have expired. VII. Restrictive Covenant Omni will not without the prior written consent of the City be permitted to directly or indirectly own, manage, market or otherwise participate in any Omni hotel within a five (5) mile radius of the Fort Worth Convention Center. There shall be a covenant that the Hotel be maintained and operated as a first class hotel so long as the Fort Worth Convention Center is similarly operated. Omni may not sell the Hotel to a third party until after three (3) years following the initial opening of the Hotel. VIII. Convention Center Catering Contract Subject to the fourth bullet point below, there shall be a catering contract between Omni and the City with regard to the exclusive right of Omni to provide catering services to the Convention Center. The catering contract will provide, among other terms to be mutually agreed on by the parties,the following: • The term of the contract will run for 10 years following the opening of the Hotel, provided City shall have the right to terminate the contract at any time if City determines, in its reasonable, good faith judgment, and following written notice to Omni and 60 days without -4- July 27, 2004 cure, that the food and/or service provided by Omni is not of a standard normally provided by a three-star/four-diamond luxury convention center hotel's catering department. • For all events held at the Convention Center for which Omni or any affiliate provides food, beverages, concessions or services, Omni shall remit to City or its designee(i) 20% of all catering and related charges (net of taxes) billed by Omni, and (ii) 36% of all concessions, alcohol sales and service charges (net of taxes) billed by Omni. • Omni shall not move any event scheduled at the Convention Center to the Hotel. If the event planner moves a scheduled event from the Convention Center to the Hotel, Omni shall honor the remittance schedule set out in the preceding paragraph. • City shall have the right to allow other caterers to serve the Convention Center from time to time under certain special circumstances to be more fully set out in the contract. IX. Pre-Marketing Omni shall agree to fund expenses for pre-marketing the Hotel (including construction of a model room and location of pre-opening sales offices within the Convention Center in space provided by the Convention Center at no cost) and shall prepare a pre-marketing strategy in coordination with the City and the Fort Worth Convention Center management. X. Construction Milestones/Escrow Agreement/Completion Bond The Hotel shall be built substantially in accordance with the plans and specifications approved by the City. Omni Hotels Corporation shall provide a completion guaranty to the City that is reasonably acceptable to the City and protects the City from liability pursuant to operation of Section 2253.027 of the Texas Government Code. The construction shall meet the following schedule, subject to certain force majeure events and Omni's right to cure: Event Date Engage Architect and Design Team 60 days from execution of Final Documents Final Plans and Specifications 360 days from execution of Final Documents Commencement of Construction 450 days from execution of Final Documents Certificate of Occupancy 1110 days from execution of Final Documents XI. Section 380 Agreement(s) City and Omni will enter into a 380 Agreement or Agreements which shall -5- � ��? July 27, 2004 provide for payment to Omni by the City annual grants for ten (10) full calendar years (or if the parties deem appropriate, nine (9) full calendar years and two (2) partial calendar years) beginning in the year in which the Hotel opens for business (payable within thirty (30) days of the date the City receives the funds with an annual true up on June 1 of each year) and in an amount equal to: A) 100% of the City's legally available portion of the Hotel Occupancy Tax ("HOT") (currently all of such HOT at 9% rate) generated by the Hotel and received by the City in the previous calendar year. B) 100% of the legally available sales tax revenues that the City collected directly from Hotel operations (excluding the Garage) (currently '/2 of such tax at 2% rate, e.g. a 1% tax) in the previous calendar year. C) 100% of the state HOT generated at the hotel and collected by the State of Texas and refunded to the City in the previous calendar year by operation of Texas Tax Code, § 351.102. D) 100% of the state sales/use taxes generated at the hotel and collected by the State of Texas and refunded to the City in the previous calendar year by operation of Texas Tax Code. E) City will waive all development and construction-related permit fees and impact fees for the Hotel, except those fees that the City cannot legally waive, which, based on negotiations up to the current point, are expected to be limited to water and sewer impact fees. F) Notwithstanding the above, if the amounts paid to Omni pursuant to Sections XI.A and XI.B (City HOT and City sales tax measurements) plus the value of the City real and personal property tax abatements, as further addressed in Section XI, equal $ 37,000,000 before the end of the 10-year terms, the City's obligation to pay the amounts outlined in Sections X.A and X.B under the 380 Agreement shall cease and the tax abatement agreement outlined in Section XI shall terminate, with the understanding that, pursuant to the 380 Agreement, the City shall continue to pay Omni the amounts outlined in Sections XI.0 and XI.D (State HOT and State sales tax measurements) through expiration of the 380 Agreement. G) The 380 Agreement(s) will specify the standards of quality, operation and maintenance of the Hotel, its size and nature, and hiring and spending goals (i.e., Omni will agree to spend a certain percentage of construction dollars and on-going operational expenses with locally based contractors and local M/WBE contractors, and to hire a certain percentage of Fort Worth residents, including Central City residents, for Hotel jobs). July 27, 2004 Regardless of the amount of any incentive package provided by the City, the City will offer Omni the following assistance: a) The City will nominate the Hotel project to the Governor's office as an enterprise project and represents that the City has not previously filled its six such designations for the applicable period; and b) The City will facilitate communications with Tarrant County with regard to potential ad valorem property tax abatement from the County. Notwithstanding anything to the contrary contained above in this Section XI, the following provisions shall apply: (i) Subject to (iii) below, in the event that the City either does not receive state HOT and/or state sales/use taxes, as outlined in XI.0 and/or XI.D, during the 10-year period in which the City is obligated under a 380 Agreement to pay grants measured by City HOT and sales/use tax receipts, as outlined in XI.A and XI.B, then the 380 Agreement shall be extended and the City shall make additional grant payments to Omni during the extended period equal to 25% of the amounts that Omni would have received from state HOT and/or state sales/use taxes. The City's source of funds during the extended period shall be limited to City HOT, sales/use tax, personal property tax, and real property tax received from the Hotel. (ii) In the event that the rates of the City HOT and/or sales/use tax rates are reduced by a change in state law during the 10-year period in which the City is obligated under a 380 Agreement to pay grants measured by City HOT and sales/use tax receipts, as outlined in XI.A and XI.B, then the 380 Agreement shall be extended and the City shall make additional grant payments to Omni during the extended period equal to the amounts Omni would have received had there been no tax rate decrease. (iii) The City's obligation to pay Omni additional grants during the extended period of a 380 Agreement due to a change in applicable law as outlined in (i) and (ii) above will be offset to the extent that a change in applicable law causes any of the rates of the taxes set forth in XI.A, XI.B, XI.0 and XI.D to be higher than they were as of the date of execution of the 380 Agreement. Any such payments in (i) through (iii) above shall accrue interest at 14% per annum compound annually from the date it would have been payable through the date it is actually paid. The 380 Agreement(s) will be cross-defaulted with the Tax, .. ^r��.^ - Abatement Agreement, the Room Block Agreement and the Ground Lease. I July 27, 2004 XII. Tax Abatement Agreement City will abate 100% of ad valorem real property taxes on the Hotel for a period of ten (10) years beginning in the first full calendar year following the date of the Hotel's opening. The Tax Abatement Agreement will be subject to the City's Tax Abatement Policy, as required by Chapter 312 of the Texas Tax Code, and shall be cross-defaulted with the 380 Agreement(s), the Room Block Agreement and the Ground Lease. XIII. General Omni may not assign its rights under the documents contemplated herein for at least three (3) years following the date that the Hotel opens for business, and any assignment thereafter shall be subject to the assignee/transferee's agreeing in writing to be bound by all of Omni's obligations set forth in this Term Sheet and subsequently in the definitive agreement. A legal opinion or opinions shall be provided that the City has the authority to enter into the various agreements contemplated by this transaction and the extent to which such agreements are enforceable. As soon as this term sheet is executed, the parties shall enter into a confidentiality agreement, providing that each party keep confidential any information furnished by the other party, subject to any information that the City is required to release pursuant to the Texas Open Records Act. If any information that is confidential is requested by a third party for release by the City, the City shall notify Omni and will file an objection with the Texas Attorney General's Office and follow all legally available procedures to contest the request with the Texas Attorney General's Office. If the Attorney General rules that the City must release information that the City and Omni consider confidential, the City will cooperate with Omni if Omni wishes to contest the ruling. This term sheet is an expression of the current intent of the parties but is not legally binding upon either of them. The parties shall not be legally bound unless or until definitive documents envisioned in this term sheet agreed and executed by both parties. Acknowledged and agreed to this rr `� _day of N d -�-' 92004. CITY OF FORT WORTH: —O O �5}� •n n U �,� — a :",;`a i� U➢➢ ��.Liao July 27, 2004 By: zco CitVNla gej� ATTEST: By: City Secretary�N APPROVED AS TO FORM: City Attorney 61-1-lt C CT--lHqc) cf-5-0� Acknowledged and agreed to this Day of Voueo-\ 2004. OMNI HOTELS CORPORATION: By:_ E C -9- City of Fort Worth, Texas Mayor and Council Communication COUNCIL ACTION: Approved on 8/5/2004 CONTINUED FROM A PREVIOUS WEEK DATE: Tuesday, July 27, 2004 LOG NAME: 120MNITERM REFERENCE NO.: G-14440 SUBJECT: Approve and Authorize Execution of Term Sheet with Omni Hotels Corporation Outlining Basic Terms and Conditions for Development of a Convention Center Headquarters Hotel RECOMMENDATION: It is recommended that the City Council: 1. Approve the basic terms and conditions set forth in the attached Term Sheet relating to the development of a Convention Center headquarters hotel and adjacent parking garage by Omni Hotels Corporation; and 2. Authorize the City Manager to execute the attached Term Sheet; and 3. Authorize the City Manager to negotiate definitive documents with Omni Hotels Corporation relating to the development of a Convention Center headquarters hotel and an adjacent parking garage that incorporate the terms and conditions set forth in the attached Term Sheet. DISCUSSION: City staff has been involved in negotiations with Omni Hotels Corporation (Omni) for development of a Convention Center headquarters hotel and an adjacent parking garage since November 2003. The basic business and deal points relating to this project are contained in the attached Term Sheet. This Term Sheet is not binding on either party, but is intended to serve as the primary outline for preparation of definitive, binding documents between the parties relating to this project. Omni will finance and construct a luxury, Texas-themed Convention Center headquarters hotel (the Hotel) consisting of approximately 600 guest rooms, at least two full service restaurants, a lobby bar, approximately 48,000 square feet of dedicated meeting space, an exercise facility, a valet parking service and other supporting facilities commensurate with a full-service Convention Center headquarters hotel. Omni will also construct, at the City's expense, two parking garages, one with approximately 400 spaces (the Hotel Garage) and one with at least 600 spaces (the City Garage) (collectively, the Garages). The Hotel will be located on two City-owned blocks directly to the west of the Houston Street side of the Convention Center (the Hotel Site). The Garages will be located on one City-owned block directly to the north of the Hotel Site and will contain retail space on the ground level. Upon completion, the Hotel Garage will be conveyed by the City to Omni for Hotel use. The City Garage will be reserved for use as determined by the City. The cost of the Hotel is expected to be approximately $90 million, and Omni has committed to spend at least $55 million in hard construction costs. The cost of the Garages is expected to be $12.5 million. Omni will meet with the City's M/WBE Office and the Minority and Women Business Enterprise Advisory Logname: 120MNITERM Page 1 of 3 Committee to establish goals and commitments for the use of Fort Worth M/WBE companies in the construction of the Hotel and Garage. The City will be responsible for the relocation of an AT&T trunk line underneath the Hotel Site and will pay up to $300,000 to make the Hotel Site pad ready. Following completion of the Hotel, the City will lease the Hotel Site to Omni for a term of 99 years. However, Omni will have an option to purchase the Hotel Site, and the City will have the right to put the Hotel Site to Omni, after the tenth year of operations. The Hotel will be operated at not less than a 3-star/4-diamond standard for at least 25 years. The City's remedy against Omni for failure to adhere to this operating standard will be addressed in definitive documents between the parties. In addition, Omni will enter into a Room Block Agreement with the City for a term of 99 years pursuant to which the City may reserve blocks of rooms in advance and at a set price for users of the Convention Center. Omni will be granted a contract that allows Omni the right to provide generally exclusive catering services at the Convention Center under terms and conditions to be negotiated by the parties. In return for the public benefits that the City expects to receive, as a result of having a first class hotel directly across from the Convention Center, including the benefits to the City's overall economy from increased convention bookings, the City will enter into a 10-year Tax Abatement Agreement pursuant to which the City will abate 100% of Omni's real property taxes on the Hotel Site. In addition to the Tax Abatement Agreement, the City will enter into an Economic Development Program Agreement, authorized by Chapter 380 of the Texas Local Government Code, pursuant to which the City will make annual grants to Omni in amounts equal to the following: (1) 100% of the City's hotel occupancy tax revenues collected from the Hotel each year for a period of 10 years; (2) 100% of the City's 1% sales tax revenues collected from the Hotel Site each year for a period of 10 years; (3) 100% of the State's hotel occupancy tax revenue collected from the Hotel and refunded to the City by operation of the Texas Tax Code each year for a period of 10 years; (4) 100% of the State's sales/use tax collected on the Hotel Site and refunded to the City by operation of the Texas Tax Code each year for a period of 10 years; (5) 100% waiver of development and construction-related permit fees. The portion of the aggregate grants measured by the City's hotel occupancy tax and sales tax revenues will be capped at $37 million gross. In addition, rent under the City's lease of the Hotel Site will be $10,000 per year and any purchase of the Hotel by Omni will be at a cost of $1 million. The difference between these sums and the then-applicable market rate will be deemed to be additional grants pursuant to the Economic Development Program Agreement. The amount of the tax abatement and grant payments will be reduced if Omni's commitments to make a set amount of construction and annual service/supply expenditures with Fort Worth companies and Fort Worth M/WBE Companies are not met and if specific commitments to employ Fort Worth and Central City residents are not met. In the event that the State of Texas does not refund the City the State's portion of the hotel occupancy tax and/or sales tax for any reason, including a change in State law, the City will pay Omni additional grants equal to 25% of the aggregate amount of the State's benefits from available City sources after the 10-year initial period of the Economic Development Program Agreement has expired. Furthermore, if the City's hotel occupancy or sales tax rates decrease, the City will pay the difference between the rates (plus 14% annual interest) from available City sources after the 10-year initial period of the Economic Development Program Agreement has expired. In addition, the City will nominate the Hotel to the Governor's office for designation as an enterprise project and will facilitate communications with Tarrant County with respect to a County tax abatement on the project. FISCAL INFORMATION/CERTIFICATION: The Finance Director certifies that approval and exectuion of the attached Term Sheet will not have any Logname: 12OMNITERM Page 2 of 3 immediate effect on City Funds. TO Fund/Account/Centers FROM Fund/Account/Centers Submitted for City Manager's Office by: Joe Paniagua (6191) Originating Department Head: Peter Vaky (7601) Additional Information Contact: Peter Vaky (7601) Logname: 12OMNITERM Page 3 of 3