It's Your Money, But It's None Of Your Business

The IBJ has a disturbing story today about how the City of Indianapolis receives no formal financial reporting from the owners of the Conrad Hilton after the city plopped down $25 million, or a quarter of the total investment for the project. Even worse, the Peterson administration isn't the least bit concerned and says verbal reports it has been getting from the hotel's owners have been sufficient. The IBJ's Cory Schouten writes:

. . . . The city ponied up $25 million toward the $100 million Conrad project, yet has received no formal reports on performance since the hotel opened 18 months ago.

The city owns the equivalent of an 8-percent equity stake in the swanky hotel at the corner of Washington and Illinois streets. Yet the agreement does not require regular reports—a standard method of monitoring taxpayer investments in hotels . . .

Of the $25 million public investment in the Conrad, $3.75 million was added at the last minute as part of a so-called participation agreement that provides the equity stake. City officials say they believe the 23-story project is performing fine, based on anecdotal reports they’ve received from the hotel’s controlling owners, Circle Block Partners, a group led by the founders of Kite Realty Group Trust.

But the deal puts the onus on the city to seek performance and revenue data. For several months, IBJ has been asking city officials about the arrangement, which hospitality consultants say is unusual.

Peterson said the reviews by an independent accounting firm will ensure the city’s interests are protected. He said the reviews will produce tracking documents, but he could not say whether the city would consider them public records.

The city wanted to give the hotel a 15- to 18-month period to “stabilize” before conducting the review, as hotel investors typically don’t expect much of a return during the first few years. The process will be similar to audits of other properties in which the city has a stake, including a handful of downtown parking garages . . .

The city’s portion of funding for the Conrad comes from revenue from two parking garages, the Circle Block garage next door to the hotel and the World Wonders garage at Circle Centre, said Barbara Lawrence, executive director of the Indianapolis Public Improvement Bond Bank.

The agreement provides for a participation right, which is a step below an outright equity interest. The participation right entitles the city to a share of profits on financing, condemnation or distributions, said Tom McGowan, one of the hotel owners and the chief operating officer for Kite.

“I give credit to the city in coming up with a creative way they could participate in the long-term upside of the asset,” McGowan said. “I believe it to be a prudent model for the city to utilize.”

The contract gives the city the right to review the hotel’s books, as opposed to receiving regular reports, in part to prevent the release of specific information that could put the hotel at a competitive disadvantage, McGowan said.

Schouten's report notes that the city receives regular reports on Circle Centre Mall, a Simon-owned project which was financed with $187 million in taxpayer dollars. But still, the Peterson administration isn't the least bit concerned. "[Barb]Lawrence, of the Bond Bank, is not concerned." "She said the city is comfortable with the information it has received on the Conrad." “The Bond Bank has taken the approach that it’s a new product in the city and it needs to be established, given the opportunity to go through the full marketing cycle and becoming an established name and presence,” Lawrence said. “We talk on a regular basis; we share information about the market and about what’s going on at the property.” And Barb Lawrence is in way over her head. Nice lady, but she doesn't have the background and training to even be put in the position of making this decision for taxpayers.

Meanwhile, the IBJ reports elsewhere that the Peterson administration is letting the Market Square project languish to the frustration of developers interested in developing the prime location. What's apparent from the story is that Peterson knows the project will require a huge infusion of taxpayer dollars to make it go so he is waiting until after the election to use some more of your hard-earned taxpayer dollars to line the pockets of fat cat developers who make generous contributions to his campaign committee.