Flash forward four years from the date the project opened for business and Schouten says the City is now starting to reap financial benefits from the deal. Schouten writes:
The privately held company that developed and owns the 23-story project has made three payments totaling $85,680 this year to the Metropolitan Development Commission . . .The next question I have, which is not addressed in Schouten's story, is where the money Kite's development is paying to the city is going? "Bonds the city sold to fund its portion of the Conrad are backed by revenue from two parking garages: the Circle Block garage next door to the hotel and the World Wonders garage at Circle Centre," Schouten writes. Presumably, the revenues from the parking garages have been sufficient to cover the bond debt to date. Normally, the property taxes, which he says total $461,000, would be distributed among the various taxing districts (i.e., the schools, library, city, township, etc.). Because the hotel is in a downtown TIF district, those proceeds go to the TIF district. Those tax payments will only escalate in coming years as the 10-year tax abatement is phased out. Incidentally, Kite owns one of those luxury condos and is personally enjoying the benefit of the 10-year tax abatement on his condo, in addition to his $100 million project.
The city received the most recent payment of $4,080 in October after payments of $44,800 in June and $36,800 in July, said Deron Kintner, executive director of the Indianapolis Public Improvement Bond Bank.
The project agreement gives the city a share of any dividends, proceeds from financing, or distributions from a sale of the hotel. The recent payments fall into the category of dividends from the hotel’s operation . . .
If the 2010 payments indeed represent an 8-percent share of dividends, Conrad’s owners—a partnership of Kite Realty Group Trust veterans Al Kite, John Kite and Tom McGowan—would have earned more than $1 million so far this year from the hotel.
The Conrad project also is due to pay about $461,000 in property taxes in 2010, records show, as its tax liability phases in over a 10-year abatement period. The non-residential portion of the project is assessed for tax purposes at $68 million.
Schouten says the project is performing much better than it did when it first opened. Average occupancy at the upscale hotel was just 50% (well below average occupancy rates for other downtown hotels) and the original restaurant, which has since been replaced by the Capitol Grille, did not fare so well. Based on the dividend being paid to the City, Schouten estimates Kite's investment returned a profit of more than $1 million this year. How do we know those are the true numbers? Schouten says the City commissions the accounting firm of Katz Sapper & Miller to audit the developer's books to determine whether payments are due to the City. Audit reports for 2007 and 2008 determined no payments were due to the City according to Schouten. The City is awaiting a report for 2009 he says.
So we now have another revenue-generating pot of money that is totally off the books so far as the City-County Council is concerned when it comes to establishing the City's annual budget. I would hearken back to the point I've repeatedly made concerning the City's claim it has no other choice than to privatize the City's parking meter assets in order to generate sufficient revenues to modernize the parking meter asset with an electronic parking meter system. There is plenty of money flowing into the City and these TIF districts to be invested in the parking meter asset. Mayor Ballard would rather keep that money off the books and use it as a slush fund when a political insider who enriches his campaign coffers comes along and asks for an "investment" in his or her private development. I don't think any other city in America operates to pick winners and losers in the realm of real estate development in their cities quite the way the City of Indianapolis operates.
I'm left wondering about Simon's downtown corporate headquarters into which the City invested a similar amount of money and handed over to Simon Property Group a city-owned parking garage its employees get to use for free. Is it beginning to pay dividends? If so, how much? And what pet project will those dividends be used to fund? It's pretty safe to assume it will not be used for mass transit, the parks, libraries or any other basic city services.