MANKATO — Requested tax subsidies for a proposed downtown Marriott hotel have jumped strikingly — to $2.5 million — since the project was first brought to the Mankato City Council last month.
In December, the city’s proposed contribution was portrayed as $312,000 plus the unspecified cost of replacing lost parking in the Cherry Street ramp, which is the site of the planned 117-room hotel.
Now, developer Gordon Awsumb is seeking a tax abatement that would involve the city forgoing $1.3 million in property taxes over 20 years, essentially refunding those future tax bills to Awsumb and his partners to cover the high costs associated with the construction site. And Awsumb will ask Blue Earth County to agree to dedicate another $1.2 million in future property taxes toward replacement of the lost parking in downtown Mankato.
The increased assistance stems from rising estimates of the cost of building a hotel into and above an existing parking ramp compared to the cost of construction on vacant land, according to a letter from Awsumb to City Manager Pat Hentges. The SpringHill Suites by Marriott at the corner of Cherry and Front streets would cost $14.2 million to construct and furnish, compared to $13.3 million on a more conventional site.
“In the attached analysis, Brennan Construction identified the cost difference between building a hotel on raw dirt versus building in a downtown site with the parking ramp existing,” he wrote. “Those costs total $913,861.”
The new proposal by Awsumb and his partners would recover most of those extra costs by avoiding paying $1.29 million in city property taxes over 20 years. Accounting for inflation, the present value of those tax savings is calculated at $805,000.
In December, it was suggested that a portion of the new tax revenue generated by the hotel could be dedicated toward construction of a walkway between the hotel and the civic center — estimated to cost $312,000. The rest of the additional property taxes paid to the city would have been targeted at replacing some of the dozens of parking stalls that would no longer be available to the public in the Cherry Street Ramp.
With Awsumb now proposing that all of the city tax dollars be targeted at hotel construction costs, Blue Earth County will be asked to help alleviate concerns about lost public parking in downtown Mankato. For that to happen, the County Board would need to approve a tax abatement that would designate its share of the new taxes being paid by the hotel — projected at $1.23 million over 20 years, with a present value of $762,000 — for construction of new parking spaces downtown.
Hentges noted that the subsidies don’t involve existing tax dollars — only the potential tax revenue that would come into existence if the hotel is built.
“In this particular case, it’s paying zero taxes right now,” he said of the municipal parking ramp.
The tax abatement proposal differs in a couple of ways from traditional tax-increment financing. TIF subsidies encompass virtually all of the additional property taxes generated by a development project, including those paid to the city, county and the school district. Nonetheless, TIF projects require only the city’s approval.
“Some of the TIF stuff the city does, we just have to live with it,” County Board Chair Vance Stuehrenberg said, contrasting that with the Marriott tax abatement proposal. “That one there, we have some say.”
As for his opinion of the idea, Stuehrenberg said only that he will listen to Awsumb’s proposal with an open mind.
“I need to get some more information before I can say, ‘Yeah, that’s a good idea’ or ‘No, it’s not a good idea,’” he said. “... I don’t want to make any decisions until I have all the information.”
Along with requiring the county’s approval, the tax abatement plan would tie up future taxes for at least five years longer than is typically the case with Mankato TIF subsidies. Unlike TIF, the abatement would allow Mankato Area Public Schools to collect its taxes from the new hotel from the moment construction is completed.
The new proposal appears to make it less likely that Awsumb, the longtime owner of Mankato Place until he sold it last year, will meet his goal of getting approval for the project in February.
“It won’t get to the county before then,” Hentges said.
And it appears the project is unlikely to include the $311,000 walkway — climate-controlled between the hotel and Mankato Place and open-air from the opposite end of Mankato Place to the Mayo Clinic Health System Event Center.
“I think Gordon is starting to recognize that would be nice, but it’s not as critical,” Hentges said.
The city is also awaiting an appraisal of the city-owned parking ramp — which the developers will need to purchase. And an analysis is still being completed by Walker Parking Consultants regarding the potential shortage of parking stalls downtown if the hotel is built.
Hentges would not say if he will recommend the council reject the Marriott proposal if the county is unwilling to approve the abatement aimed at creating new parking spaces in the city center.
“We’re waiting for the Walker study, and I wouldn’t speculate at this point in time,” he said.
Complicating the council’s decision is the prospect of two other downtown hotels.
Realtor and businessman John Kietzer is pursuing a 62-room boutique hotel, with first-floor banquet rooms and a restaurant, in the century-old Landmark Center at the corner of Main and Second streets.
In addition, the historic post office building on Second Street has been sold to a yet-to-be-identified buyer, and a hotel is one potential use of part of that nearly 62,000-square-foot building, which is just 250 feet from the proposed Marriott.
Those projects would likely involve requests for traditional TIF subsidies if they move forward.
“They’re all going to stand on their own merits and all have their own challenges,” Hentges said.
But the existence of two or three prospective hotel projects indicates Mankato’s downtown is short of lodging space, and national hotel chains are eager to join the marketplace, according to Hentges, who predicts at least one new hotel will be completed in the next two years.
“I think you have a justifiable need and you have franchises — as I’ve seen with these other proposals — that have a strong interest in putting their flag on these hotels,” he said.