MANKATO — The Blue Earth County Board was asked Tuesday to join with Mankato in forgoing property taxes for 20 years on a proposed $14.2 million downtown hotel.
The two local governments would surrender a combined $2.5 million in tax revenue generated by the new Marriott-brand hotel over two decades. In return, the 117-room hotel would bring benefits to Mankato Area Public Schools, to downtown Mankato and to the broader economy, developer Gordon Awsumb told the board.
“The school district would end up getting an extra $111,000 a year that they’re not getting now,” Awsumb said, adding that the hotel would also generate sales taxes, lodging taxes and more spending in restaurants, bars and retail stores. “The project, if it’s built, generates a lot more revenue for the community.”
Board Chairman Vance Stuehrenberg focused on the “if it’s built” question, wondering if the project might still move forward even if the county rejects the requested tax abatement.
“I’m going to be really blunt with you,” Stuehrenberg said before suggesting that Awsumb “kind of danced around” the question when it was asked last month at a Mankato City Council meeting.
“I probably danced around because I don’t know the answer,” said Awsumb, the longtime owner of the downtown Mankato Place mall before selling it last year.
The financing plan for the SpringHill Suites hotel includes “opportunity zone” tax benefits made available by the 2017 federal tax bill. Those tax advantages, which incentivize redevelopment in certain lower-income census tracts, are also available elsewhere in Mankato and elsewhere across the U.S., giving developers multiple options for their investments.
“There’s opportunity-zone development options all over the country, and I’m personally pursuing some,” he said.
A final decision on whether the Mankato hotel project proceeds, rather than one of the alternative investments, will depend on the projected profit margin, Awsumb said. And the tax abatements, if approved by the city and county, will enhance the profit margin for the project.
“It all comes down to — am I going to get a 4% return on the hotel project we’re risking $6 million on? ... Are we going to get 8% return? 10%?”
In other words, the abatements might be critical to the project moving forward.
When the project was first brought to the City Council in December, Awsumb suggested the only direct subsidy needed was the abatement of $1.3 million in property taxes paid to the city. Under that plan, additional property taxes generated by the hotel for the city would have been dedicated to covering the cost of a covered walkway connecting the hotel to the civic center complex and to replace some of the public parking that will be lost when the hotel is constructed within and above the city-owned parking ramp on Cherry Street.
The city also would have to sell the parking ramp for a nominal sum to Awsumb, who owns the land beneath the ramp and the “air rights” above it.
Awsumb said then a county tax abatement also could be requested to help pay for additional replacement parking in the city center.
By January, Awsumb had altered the request, saying a closer examination had been completed of the construction challenges of incorporating a hotel into an existing parking ramp. It showed that the entire city tax abatement would be required just to cover those added construction costs, leaving the county tax subsidy as the sole source of funding for the covered walkway and replacement parking.
The city has contracted with a parking consultant to study whether the hotel will leave downtown with a shortage of public parking. The Cherry Street parking ramp has 156 stalls, 35 of which will disappear if the hotel is constructed. In addition, dozens of the remaining stalls will be needed for hotel guests, depending on the time of the day and the hotel’s occupancy.
The five commissioners didn’t foreshadow how they might vote on the tax abatement, although Stuehrenberg wondered about a 10-year — rather than 20-year — expiration of the tax subsidy.
“How would that affect you?” Stuehrenberg asked. “Because this is something the county has never done before ... a 20-year abatement on a hotel.”
Matthew Mithun, one of Awsumb’s partners, said the developers could calculate the impact but said it mightmean the covered walkway would be slashed: “We think that’s a big enhancement (for downtown).”
The only alternative, if the county subsidy was cut in half, would be creating fewer stalls of new public parking downtown, Awsumb said.
“I think the more that can be devoted to long-term parking, the better,” he said.
City Manager Pat Hentges, Deputy City Manager Alison Zelms and city Community Development Director Paul Vogel all attended the session.
Hentges said the city and county would probably need to draft a joint development agreement if the dual tax abatements are going to happen, spelling out where the captured county property taxes will be directed. Before that happens, the parking study needs to be completed, and Awsumb needs to get approval of zoning-related requests from the city Planning Commission and the City Council.
The zoning questions should be settled by mid-March, Vogel said. Any development agreement could come to the County Board and the City Council in late March or April. Awsumb would like to see construction start soon thereafter.
“We’re ready to go,” he said. “We can get this thing under construction late this spring. We can open next spring.”