Lexington's Urban County Council on Tuesday approved a $1 million loan for 21c Museum Hotel as part of the financing package presented to the council by 21c president Craig Greenberg.
The loan, to be repaid over 10 years, will be used to hire low- to moderate-income workers, Greenberg said.
The money was left over from a federal Department of Housing and Urban Development grant originally given to Lexington Festival Market, across from Victorian Square.
Louisville philanthropists and art collectors Steve Wilson and his wife, Laura Lee Brown, who launched the first 21c hotel in Louisville in 2006, announced in April they had signed an agreement to buy the historic First National Bank Building, Lexington's first skyscraper.
Sale of the building at 167 West Main Street closed on Sept. 28 when 21c bought the building for $3.1 million from insurance executives Ben Buckley and his son Biff.
Overall, the $37 million project for the boutique hotel and art museum combines private financing, including a $14 million loan from Central Bank, federal historic and new-market tax credits, state tourism incentives and participation by the Lexington-Fayette Urban County Government.
Greenberg said financing the hotel project for Lexington is challenging because banks are not actively lending, hotels are not a favored asset, this is not a national hotel chain and projects in a medium-sized city like Lexington are more difficult to do than in a large metropolitan area.
The 21c is asking the city for a $6 million HUD Section 108 loan and to participate in $5.8 million of tax-increment financing.
Neither the Section 108 loan nor the TIF would put the city at risk if 21c should stop payment, Jeff Fugate, president of the Downtown Development Authority, said prior to the council's work session.
The Section 108 loan program was established to provide communities with a source of financing economic development projects. As collateral, the city pledges future Community Development Block Grant money it receives annually from HUD. Lexington gets $2 million a year in Community Block Grant money.
"The city is not pledging its general-fund money to make payments on the loan. It's pledging its CDBG money," Fugate said.
For the TIF, the city obligates only new tax money generated by the 21c. The city's portion would pledge 80 percent of new property tax and payroll-tax revenues for 20 years. TIF money can only be used for public infrastructure.
"The building is now generating very little in property taxes, very little in payroll taxes for the city," Fugate said. "When completed, it should be assessed at over $30 million. This will give a boost in both property taxes and payroll taxes."
Also, 80 percent of new state property taxes and 100 percent of new state sales-tax revenue from 21c would be pledged to the TIF.
"Again, if 21c goes out of business, the city has no TIF obligation. The city is not left holding the bag," Fugate said. "The hotel only gets money from us if there's new money generated by the project."
Council member Doug Martin said it was "very refreshing when owners look to partner with the city rather than to ask the city and the taxpayers to bear the risk of the project."
A public hearing is scheduled at 6 p.m. on Oct. 25 in council chambers on the TIF and the HUD 108 loan.
Beverly Fortune: (859) 231-3251. Twitter: @BFortune2010