The 11/17/23
$200,000,000 Memo

The $200M Memo of a “Solid Win”: 📝

*Edits made by Chris Schroeder, CEO of SI Resorts, are preserved in red text.

Memo To: Mayor & Members of Council
RE: SI Hotel & Conference Center Project

This document is designed to be complimentary to one that is being issued by the Law Department.

Staff has been working intensely with representatives of the Sports Illustrated Resorts (SI) team over the past few months. There are studies/analyses in process that will yield more data on the full ramifications of implementing this deal. However, recognizing the need to provide as much context, and transparency as possible we are communicating on the framework we do have, which should be sufficient in capturing a transaction that is favorable to the City. We believe the completion of the studies will only enhance rather than detract from the transaction before us. To date we have not seen anything that is unlike the things you would need to address in any large economic development deal. Part of the challenge, however, is we are working through the transaction absent some tools that many cites take for granted. As with any business deal we are compelled to look at the totality of the opportunity, leveraging as many elements as possible that support City interests.

This transaction is centered around a City of Ann Arbor owned parcel that sits within the boundaries of Ashley, William, and Liberty Streets. It is commonly referred to as the Kline lot. Today it serves as a surface parking lot, containing 140 spaces, and is managed by the Downtown Development Authority. Like other parking facilities it was impacted by the pandemic, but presently generates approximately $620,000 annually. The proposed agreement would be a land lease arrangement between the City of Ann Arbor and the project owner. It would pay the City $930,000 annually in rent with built in escalators at 5 year intervals.

The Project:

The Project will consist of a 205 key hotel that is expected to grade out to a 4.5/5 star property. The Project will include a parking garage with 375+ spaces. Current discussions involve having the garage begin below ground, and it is possible the parking number will go up. It is anticipated that it will be managed by the Downtown Development Authority under a separate fee for service agreement. The parking garage will contain a number of EV charging stations consistent with City of Ann Arbor sustainability interests. The hotel portion of The Project will include 60,000 square feet of space that will serve as a conference center. Nearly 50,000 square feet of this space is expected to be contiguous. The presence of this space fulfills a long-held need of the community.

Destination Ann Arbor has reported that they have received over 8,200 RFPs this year alone from states in the Midwest seeking 50,000 – 70,000 square feet of meeting space. This segment of business represents $5B in potential revenue. In response to inquiries I have made to them, they indicate that the amount of space being proposed here would enable the community to compete for business with groups of around 2500 persons. With the hotel topping out at 205 rooms it stands to reason that the successful booking of conferences in that range will financially benefit other area hotels and restaurants, not just the SI property. There are still many organizations that make their sight decisions 3-6 years in advance. Therefore, the marketing effort to these groups would be commenced once the project is confirmed and long before it’s actually built.

The Project calls for a pad to be constructed on top of the hotel. From there up to 105 market rate condominiums are to be constructed. This portion of construction is to be led by Travel + Leisure based in Orlando, Florida. Each of these units will be $1M+ properties.

Project Features:

• The Hotel is expected to be built to Gold LEED standards.

• The Hotel will be all electric with the exception of the commercial kitchens.

• The Hotel will contain a green roof of about 20,000 square feet.

• The SI team is working with City staff to determine a minimum spend with small, women owned, and minority businesses.

• The project owner has agreed to financially support programming at Ann Arbor Parks. The details of what that looks like will be ironed out with Parks officials and me.

• The Hotel will include a food court area likely on the first floor. They have committed to formulate relationships with local chefs who have not been able to launch their concepts inside of their own brick and mortar facility. These chefs would have micro food options in the court.

• The Hotel has agreed to engage local artists to help design some of the interior & exterior features.

The Project is being structured in a manner that enables the participation of the EDC. They are being asked to be the issuer of the revenue bonds that will enable the structure to be built. This arrangement poses no financial risk to the City of Ann Arbor and is consistent with what the EDC was established to do.

During my time here I have been completely transparent about the need for our downtown to be enhanced. I took that position based upon many years of working in this area. I do not believe that I am standing in a place that is inconsistent with the narrative about what we support for our city. We need to attract more people to Ann Arbor. We want to be a community that is attractive to a very diverse cadre of people. We need more people to consider doing business here. We want to densify our city and that includes downtown. Thriving downtowns are vibrant, and dynamic destinations exuding a sense of place.

I believe that a city like ours should have multiple options for full-service hotels (in downtown). We should have the ability to convene meetings around topics where we are exerting national caliber leadership. In order for Ann Arbor to better compete, we need to be in position to compete. The project helps us to do that.

Aside from the annual lease payment there is an assumption that the Assessor will deem this transactor is subject a taxable value evaluation. Given the hotel, conference center, and condos that should yield seven figures annually to the City. Consistent with the administrations’ position on leveraging transactions I contemplate requesting to fund the downtown safety teams that I have spoken about previously. I will also be seeking to take a portion of the revenue stream and bond it for purposes of supporting the development of a Housing Commission project. The term of the deal should make that possible.

There is a lot more work that necessary to complete this project. It is my recommendation that staff be allowed to do that work, and complete this deal. I have uncovered nothing to indicate that it would be anything other than a solid win for the City. In considering that the riverfront project is anticipating a 2026 completion, combined with a similar timeline from this project Ann Arbor would be looking at a major step forward.