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ASU Convention Center Doubts Grow

7 min read

A Jonesboro convention center developer, citing increasing costs, now says he needs financial support from the Jonesboro Advertising & Promotion Commission to continue with his plans for a project on the Arkansas State University campus.

It’s the latest hitch in plans for two new convention centers in the city of about 70,000 people.

The other project, a $30 million Jonesboro Hyatt Place Hotel & Convention Center, started construction in the fall of 2016. But work at the site quickly came to a halt earlier this year when angry contractors and suppliers filed lawsuits alleging they weren’t being paid.

Construction hasn’t started on the $60.2 million project on an 11-acre site on the A-State campus. That development is supposed to include a 203-room Embassy Suites, a 40,000-SF convention center and a Houlihan’s restaurant and is being built by Tim O’Reilly, CEO of O’Reilly Hospitality Management LLC of Springfield, Missouri.

O’Reilly has asked the A&P Commission for a 10-year abatement on the city’s 3 percent tax on lodging and a $300,000 “marketing contribution” paid over three years, which “are all a necessity to moving this project forward,” O’Reilly said in a July 3 email to A&P Commission Chairman Jerry Morgan.

That A&P tax rebate would be worth $2.4 million over a 10-year period, according to a 10-year projection O’Reilly submitted to Morgan in July.

O’Reilly was scheduled to speak at the A&P Commission meeting Thursday, but did not attend. Morgan told the committee that O’Reilly had sent an email to him on Wednesday that said he was unable to gather the documents needed for a request for funding.

O’Reilly also said in the email that he has “a few things to work out” and is currently “reviewing the numbers and looking for grants, incentives and other funding sources,” Morgan said.

Morgan said that since O’Reilly was not in a position to make a request, there was “no reason to take action or have a discussion about the project.” The next A&P Commission meeting is tentatively set for the middle of October, but it might hold a special meeting to discuss the O’Reilly project.

O’Reilly had projected a $36 million construction price for the project. But the lowest bid came in at $41.5 million, O’Reilly wrote to Morgan in a July 29 email.

“I know all parties are working hard to bring this project to fruition in the face of the unfortunate climate of severe escalation in construction and development costs,” O’Reilly said in an email to Arkansas Business. He declined to comment further.

Meanwhile, as of last week, the lawsuits involving unpaid bills tied to Northern Arkansas Hotel & Convention Center LLC’s 165-room Hyatt Place project and 37,000-SF convention center across town remain pending in Craighead County Circuit Court.

Chris Keller, the CEO of Northern Arkansas Hotel & Convention Center, the developer of the Hyatt Place project, had said in an April 5 email to Morgan that its private equity partner had experienced a delay in providing funds. “We continue to work to bring construction back up to speed so that we can deliver the highest quality facility to the community of Jonesboro, as promised.”

The lawsuits, however, might be settled shortly, said Tony Wilcox, a Jonesboro attorney who is representing the general contractor, Construction Network Inc. CNI of Jonesboro said it has unpaid invoices totaling $1.5 million for the project. Wilcox said that Keller has agreed to pay the outstanding bills soon.

Once all the payments are made, then “everybody has agreed to start work,” which could be before the end of the year, he said.

“At this time, we have no reason to believe that there will be any failure to fulfill the payment obligations,” Wilcox said.

A&P’s Morgan said that he last spoke with Keller on July 12.

He said Keller said he was expecting to receive funding on the project by the end of August.

“There has been no correspondence since that phone call and I had not heard any update on [the] project or seen any indication that it will move forward any time soon,” Morgan said in an Aug. 16 email to Arkansas Business.

Calls and an email to Keller weren’t returned.

‘Substantial Benefit’
At the end of 2015, both projects looked promising.

“The Jonesboro Chamber of Commerce has indicated that this project would be a substantial economic benefit to the city and the state,” O’Reilly said in a Dec. 1, 2015, letter to the A&P Commission. “The hotel and convention center complex we are proposing will absolutely stimulate new business investment and growth in Jonesboro.”

In a January 2016 presentation to the commission, O’Reilly projected his Embassy Suites complex at A-State would generate an economic impact of $5.7 million in Jonesboro in its first year of operation and $12.9 million by its 10th year.

O’Reilly had asked for financial support from the A&P Commission, which collects a 3 percent tax from hotel guests.

O’Reilly had a problem, however. The Keller group also had a convention center development in the works at the time. It, too, wanted money from the A&P Commission.

The commission said it could support only one convention center project, and it chose Keller’s in March 2016, agreeing to provide $300,000 over three years for advertising and promotion. The Keller project also would receive a hotel tax abatement of up to $200,000 per year during the same period.

O’Reilly pushed ahead with his plans, even though he noted in March 2016 that “there is definitely not a market or opportunity to succeed for two convention centers in Jonesboro.”

In July 2016, O’Reilly said he had reached a franchise agreement with Hilton Worldwide Holdings Inc. to build the Embassy Suites Hotel and a convention center on the A-State campus. At that time, construction was supposed to have started in the third quarter of 2016. (O’Reilly said in a February 2016 letter to the A&P Commission that he had paid $80,000 in franchise fees for the Embassy Suites.)

Construction, however, didn’t begin for the O’Reilly group in 2016, as it did for the Keller group.

Keller’s Hyatt was projected to open in the spring of 2018, but financial problems surfaced early this year.

‘Serious Red Flags’
Construction work on the Hyatt project ceased earlier this year when the general contractor, Construction Network, and others said they weren’t getting paid.

That raised “serious red flags” with the A&P Commission, which threatened to pull its $300,000 funding for the project.

In a May 19 letter to the commission, Keller said he was returning $71,000 of the $75,000 he had already received from the A&P panel. Once the project is completed, Keller said, he will request the A&P money again.

“Based upon conversations with our architect, general contractor and lender, we anticipate that it is reasonable to project we will be ‘coming out of the ground’ within 120 days,” Keller said in the May letter.

O’Reilly’s project also hit snags.

“The design of these big projects just sometimes take longer than we would hope,” O’Reilly told Arkansas Business in April. At that time, he said the project was on schedule to be open before the start of the 2018 fall semester. Now that timeline is in jeopardy because he had said construction takes 14-15 months.

Even if O’Reilly receives the requested subsidies from the A&P Commission — including getting to keep the 3 percent local tax on every room — the project is expected to average 6.9 percent return on equity over 10 years, which O’Reilly said in an email to Morgan was “not extremely positive. … We are going to continue to try and increase that 6.9 percent by reducing expenses in several ways and investigating other incentives, but the A&P tax abatement over 10 years is a definite requirement for us to proceed.”

O’Reilly’s Jonesboro Hotel Partners LLC will lease space from A-State. No rent will be due for the first three years; then the university will collect $250,000 per year for years four through nine, plus up to 10 percent of revenue from its operation. For the 10th year and after, the rent will increase based on the Consumer Price Index.

The operation also won’t have to pay property tax on its buildings because they are on A-State’s property, O’Reilly said.

“There are no ‘sweetheart deals’ in this project, and no significant incentives that push it to some significant level of profitability,” O’Reilly said.

The project is the “most lightly incentivized convention center development deal that we have ever been a part of,” O’Reilly said in an email to A&P’s Morgan. “I don’t mean that in a negative manner but these things take a ‘team effort’ in order to realize the enormous public economic benefit that a convention center brings.”

— With reporting by Graycen Colbert Bigger

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