Application provides more details about CentrePointe's $25 million bond request

bmusgrave@herald-leader.comAugust 28, 2014 

Eblen_CentrePointe

After a final floor depth had been reached about 30 feet below surface grade, construction crews dig holes for footers at the CentrePointe development downtown in Lexington, Ky. Saturday May 31, 2014. Blasting and excavation has exposed 25 feet of solid limestone which was created over hundreds of millions of years of skeletal remains of marine life settled at the bottom of an ocean. The excavation at CentrPointe is for the underground parking structure.

DAVID STEPHENSON — Herald-Leader Buy Photo

The developer of CentrePointe wants the city to issue an estimated $25 million in bonds for a three-story underground parking garage, according to documents submitted to the city.

The developer has requested two different bonds — one for $17 million and a second for $8.2 million — for a total of a little more than $25.2 million.

The debt payments would be paid using state and local taxes generated from the project, according to the application that CentrePointe developer sent city officials on Monday. The debt payments would be about $1.7 million in 2015 and would fluctuate over the 18-year life of the bonds, according to the application.

The figures in the application, obtained by the Herald-Leader through an Open Records Act request, are estimates. The total bond amount and the amount of the debt payments will not be known until the bonds are sold.

Darby Turner, an attorney for CentrePointe developer The Webb Companies, said the application was for up to $30 million in bonds.

The Urban County Council will discuss CentrePointe's application in September. Turner said The Webb Companies would like to the bonds to be issued in October.

Plans for the CentrePointe project include a hotel, apartment building, office tower, and retail and restaurant space. The development has been controversial since 2008, after an entire block of historic buildings was razed. The CentrePointe site takes up the block bordered by Main, Vine, Upper and Limestone streets.

Jamie Emmons, chief of staff for Mayor Jim Gray, cautioned Wednesday that no decisions have been made. The city is spending a lot of time analyzing CentrePointe's application and the economic assumptions backing its proposal for city-issued bonds.

"We are trying to sort through the application and understand the facts surrounding the request," Emmons said. "No decisions have been made yet. We are trying to understand all of our options and all of the risks."

Turner said they have been in contact with the city to answer questions about the request.

Turner said CentrePointe's application would not require the city to pay any of the finance costs to issue the bonds. The city also would not be on the hook for debt payments if the project does not generate the tax revenue needed to pay off the debt.

"There is no cost to the city," Turner said. "All of the cost of the issuance are coming out of the bond itself. Even when the city issues its own bonds, the finance costs are rolled into the bonds."

The only thing the city has pledged is the taxes generated from the project itself, Turner said.

Construction started on the 700-space underground garage in late December. According to the application, $5.3 million has been spent on construction, design and other costs associated with the parking garage.

According to spreadsheets attached to the application, The Webb Companies spent $29.4 million on the project from roughly 2008 through June 30, 2014. That total includes legal, design, engineering and other fees and costs.

The packet also includes information on the amount of new tax revenue that will be generated when the hotel, apartment and office tower are completed.

The city and the state have approved the creation of a tax increment financing, or TIF, district for the project. TIF districts are created to capture taxes generated by a project to offset costs, mostly for infrastructure improvements. In the case of CentrePointe, tax increment financing could be used to pay for the underground parking garage.

Not all of the new tax revenue generated from the project could go toward debt payments. The city has pledged 80 percent of the projected new tax revenue for CentrePointe. According to tables included in the application, that means tax money would go into city coffers. In 2016, for example, the city would receive an estimated $124,122 in taxes from the project.

The school system, library and LexTran do not participate in the TIF district. That means the school district would receive all of its share of tax revenue from the project.

Consultants have estimated that new taxes generated by the project would fluctuate slightly but would average $2.5 million a year, according to information provided in the application.

The estimates on the tax revenue were done in 2008 and were updated recently, Turner said.

"They're estimates," he said. "But there is pretty good data on what the room rates are going to be and what type of taxes will be generated."

The application also says revenue from the parking garage could support $10 million in debt.

All of the economic assumptions are based on the entire project being completed. That's the main risk to the bond buyers, Turner said.

"They will want assurances that the project will be completed," he said.

It's advantageous to split the bonds into two series — $17 million and $8.2 million — to keep payments lower during the beginning of the project. TIF projects generate more money toward the end of their life, documents show.

Building an underground parking garage in the center of downtown is extremely costly, Turner said. The application puts the figure at $38 million.

Beth Musgrave: (859) 231-3205. Twitter:@HLCityhall.

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