City to take over financing of $510M hotel at Pan Am Plaza

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The Hogsett administration is taking over the financing of Kite Realty Group Trust’s redevelopment of Pan Am Plaza, with plans to spend at least $510 million—and likely more—to build a 40-story hotel tower on the site starting this summer.

City officials said the move was necessary to save the project after Indianapolis-based Kite told the city it couldn’t secure suitable financing for the 814-room Signia by Hilton hotel planned for the southwest corner of the plaza, delaying construction that was expected to start earlier this year. The change means the city will own the hotel and associated meeting space, although Kite will stay on as the project’s developer.

The Signia is part of a larger redevelopment of the Pan Am block—which sits south of Georgia Street, between Illinois Street and Capitol Avenue—that is to include a $200 million expansion of the Indiana Convention Center, which the city is also financing. In all, the city now plans to invest at least $710 million in a project that is intended to bolster the number and size of conventions Indianapolis can host—as well as retain some $2 billion in existing convention business over the next decade.

City officials said rising interest rates and a tightening commercial lending market meant Kite couldn’t obtain the financing for the project under terms it considered reasonable. Since March 2022, there have been 10 increases to the Federal Reserve’s key interest rate, most recently on Wednesday.

Kite did not respond to several questions from IBJ about its decision to step back from the financial piece of the project, including what interest rate it could have secured for it. Instead, in a statement from a spokesman, Kite said it would “continue to work closely with the city.”

But Scarlett Andrews, Mayor Joe Hogsett’s deputy mayor for development, said Kite approached the city and the Capital Improvement Board earlier this year to express concerns about financing.

“We had an honest conversation together about, ‘Can we do this as a publicly-financed, publicly-owned project?’” Andrews told IBJ this week. “We [concluded] we’re in a position, especially because of our consistently strong credit ratings, that we can seek out lower interest rates through tax-exempt financing.”

Under the new deal, Kite will still develop the site, with Indianapolis-based AECOM Hunt as the general contractor, but Kite will no longer have a financial or ownership stake in the project once it’s completed. The city will own the property and expects to hire an asset manager to oversee the building, while Hilton will manage the hotel and its event spaces, much like it does for the Kite-developed Conrad Indianapolis luxury downtown hotel.

City officials said the project won’t require tax increases. Instead, revenue generated by the hotel will be used to pay off the project’s debt. City officials believe that’s possible, Andrews said, because the hotel will be city owned and therefore won’t need to generate a profit, meaning the proceeds can be used to pay the bonds.

A street-level view of the planned Signia from the corner of Illinois and Georgia streets, looking southwest. (Rendering courtesy of Ratio and Kite Realty Group Trust)

A bigger price tag

The city takes over the project with prices on the rise.

The city first announced in late 2018 that it had selected Kite from among three bids to build two hotels at Pan Am Plaza and develop the city-funded convention center expansion. At the time, the convention center expansion was expected to cost $120 million; Kite didn’t release cost estimates then for the two hotels.

In July 2020, in the midst of the pandemic, the city announced it had reached a deal with Kite to delay the projects by up to two years, until late 2022—a move intended to give downtown’s hospitality industry time to recover from the drop in visitors and Kite time to find financing for the first hotel, which it said then would cost $300 million. The deal did not include city subsidies or incentives for the hotel project. Officials also said they would delay construction on the second hotel.

Today, the Signia is expected to cost at least $510 million. And city officials say the price is likely to increase more as construction costs continue to rise. As a result, they will ask the City-County Council to authorize up to $625 million in bonds for the project. That would create a $115 million buffer to account for both ancillary spending associated with the financing as well as potential increases to interest rates and construction costs.

That resolution is set to have its first reading in front of the council on Tuesday.

Andy Mallon, executive director of the CIB, which operates the Indiana Convention Center, said while he expects the cost to increase by the time financing is finalized and work gets underway, the city will “only borrow what we need to borrow and not a penny more.”

City officials have already authorized the CIB to spend $200 million for the convention center part of the project. That includes $125 million in tax-increment financing that was expected to cover the original price of the project, plus $50 million from the Capital Improvement Board and $25 million from the city’s Metropolitan Development Commission, approved last year to address rising construction prices.

“While the rates are higher than they were two or three years ago, [tax-exempt bonds are] still a great benefit” and make the project possible, Mallon said. “Our ability to switch from market-rate interest rates to the tax-exempt rates is how we’re going to get this across the finish line. With public ownership, you remove the profit motive, and specifically with tax-exempt financing, profit motive isn’t allowed. All the revenue goes to operations and then goes to the benefit of the bondholders and that is the case ,and that will be the case as we get through this.”

Sarah Riordan, executive director and general counsel for the Indianapolis Bond Bank, said the structure of the deal is different than what Indianapolis has done to pay off projects in the past. Typically, the city uses single-site tax-increment financing or larger multi-site TIF districts. A TIF district captures property taxes paid in the district to be used to pay for projects within its boundaries.

The city has also used professional sports development areas—which capture not only property tax revenue but also income taxes and sales tax revenue—as a tool for development in the downtown area. The planned Eleven Park at the Diamond Chain site is expected to rely on a PSDA for a portion of its funding.

For the Pan Am project, the city is borrowing against future revenue generated by the hotel, projections for which are still being finalized. That revenue would include all money brought in by the property through commercial operations, from room nights to meals to laundry service. While a portion of that revenue would be used to maintain the property and pay for its management, the remainder would be used to repay the bonds.

Because the hotel would be owned by the city, it won’t be on the Marion County property tax rolls. However, the property would still be subject to sales tax and the hotel employees would still pay income taxes for their work at the property.

‘Failure was not an option’

Visit Indy officials say the Pan Am project will allow Indianapolis to retain more than $2 billion in major conventions over the next decade, including the annual National FFA meeting and FDIC International events.

It is also expected to drive more than $570 million in economic impact by allowing the city to host two major conventions at the same time, bringing in new groups that have dismissed Indianapolis in the past because of a lack of space or scheduling conflicts with other conventions.

“We’re ecstatic, we’re relieved, we’re happy that this is moving forward, because it’s a big deal as we look to grow the tourism industry,” said Chris Gahl, executive vice president of Visit Indy.

To date, Visit Indy has spent about $500,000 advertising the project to meeting planners across the country, including at 10 convention industry-focused trade shows. The organization expects the expansion to give it the ability to host 82% of North America’s 250 largest trade shows.

“The main challenge for this team was that failure was not an option for this project,” said Dan Parker, the mayor’s of chief of staff. “And if you think about what we’re doing here, we’re betting on ourselves, and we’re betting on [Visit Indy] being able to fill this and grow our convention business.”

Parker said pulling away from the project or reducing its scale would have been the equivalent of “giving up on our convention industry.”

The city declined to make Mayor Joe Hogsett available to talk about the project, referring questions to his deputy mayors.

Indianapolis isn’t the first city to explore a model under which it wholly finances and owns a hotel. The $500 million Signia by Hilton in Atlanta, set to open in early 2024, is being financed by the Georgia World Congress Center Authority using a similar mechanism. That authority also operates Atlanta’s convention center.

And in Fort Lauderdale, Florida, nearly $400 million in bonds have been approved for a Omni Hotel that will be connected to that city’s convention center.

“This may be new for Indianapolis, but it’s not new across the country,” Parker said. “So, if we want to play in the big leagues, we’ve got to put our chips in the middle of the table and go for it. And that’s what we’ve done.”

Bryan McCarthy, Kite’s senior vice president for marking and communications, said in the statement to IBJ that the city is pursing a “proven municipally owned capital structure that has been utilized in major convention-hotel projects throughout the United States.”

Some changes

Despite increases in cost, the scope of the Indiana Convention Center expansion and the sky scraping hotel remain largely the same as when they were originally announced. The deal with Hilton remains in place. And the 143,500-square-foot convention center expansion will still consist of extensive pre-function space, a 50,000-square-foot ballroom and an enclosed skywalk connecting the expansion to the existing building across Capitol Avenue.

The second hotel, however, remains tabled, although some of the underground infrastructure that would be used for that portion of the project will be completed as part of the convention center and Signia construction. Under a deal struck in 2020 to appease other downtown hotel operators, the second hotel could only be developed if the Signia has two consecutive years of 72% occupancy or higher in its first five years in operation.

If those conditions are met and city officials believe downtown can support another hotel, Kite will have first crack at developing the second site. But for now there’s no expectation the hotel will be put on a fast-track.

“We’re going to be ready for it … but it has to be at the right time, and we’re not doing it right now,” Mallon said. “There are provisions [for it], and we would we would love to have Kite as our developer of the second hotel … when it works. We’ll have conversations over the next 20 years about when is the right time for the second hotel.”

The Signia hotel project is expected to create more than 400 jobs with a $14 per-hour minimum wage, as well as at least 2,500 construction jobs over the next three years.

Preliminary site work under the plaza is expected to begin this month, using money that has already been authorized for the convention center expansion portion of the project. The City-County Council is expected to vote on a resolution approving bonds for the project in June.

A ceremonial groundbreaking is set for this summer, with the project expected to be completed in summer 2026.

Indianapolis-based Ratio is the architectural firm on the project.

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42 thoughts on “City to take over financing of $510M hotel at Pan Am Plaza

  1. Good. I’ve predicted this outcome in the comments on the Pan Am stories for at least 2 years. Kite was never going to get this done. Sometimes you’ve just got to take matters into your own hands and make a move.

  2. Kite was toast the moment they delayed due to COVID. At that time money was basically free but they flinched. Had they pressed forward the hotel would be nearly finished with the money borrowed at ultra low rates and occupancy levels returning to normal. Whoops.

    1. I do not think that is ever going to materialize in this city…at least not in the next 4-5 years….at a minimum.

    1. Agree! Glad to see the city step up and do something bold. It had to happen.

  3. This smokescreen is amazing. It might be one thing if Kite was renting the City’s bonding authority to provide the debt needed for this project … (the City’s current muni interest rate is undoubtedly lower than the best commercial debt cost even at Fed Funds = .5%) But NO. Even with the city providing debt, Kite wouldn’t put equity into the deal. Why? Because it can’t pass a market test.
    Conclusion: Joe Hogsett is now smarter than the market. He’s buying all of us a hotel.
    Oh — and by the way, Joe, here’s how markets work ….. except for the handful of conventions we need rooms for, your hotel will be sitting empty …. Oh wait, no it won’t! Since your cost of capital will be the lowest in the market (since it’s 100% debt at public rates) your hotel can underprice rooms to stay full, shifting the disaster to the other downtown hotels. Your view: screw them; they are just rich private sector people. Welcome to the Peoples Republic of Indianapolis.
    It’s one thing to finance unique city assets like stadiums and convention facilities. It is very much different to go into competition with the local business community.
    Amazing hubris. And terrible public policy.

    1. Sounds about right.

      About the one thing we can hope for is that, since Indianapolis has only partially squandered its downtown to criminality (unlike other Midwest cities), there’s still some semblance of legitimacy to hosting events at the Convention Center. And it may be easier to pinch from cities like Chicago (the smaller ones), Minneapolis, or Louisville given how lawless things are there.

      But that’s a mighty risky venture. There’s always the possibility that some orgs with long-term commitments to ICVB (like FFA) may violate if things get too dodgy downtown, or that they could easily renegotiate and host their event at series of hotels in the burbs. Or, even worse, political winds could shift so that our “root causes” prosecutors decide we should folllow the illustrious examples of Minneapolis, Chicago, etc and then we become just as lawless downtown. Which would inevitably prompt an exodus of events at ICVB.

      In some of the cities hardest hit with the mindvirus, multiple hotels have gone into insolvency in just the last 2 years. Not saying that will happen here, but if hotels get built without abiding by shifting market trends (and the hospitality industry definitely has its ear to the ground), we could see the same situation through oversupply.

    2. Would love for indianapolis to have downtown even a quarter as vibrant as Chicago or Minneapolis (Louisville is step behind Indy IMO). I think Lauren had not been to either of these cities in recent history other than in the world of fox news, Newsmax, right wing propaganda. Was in Chicago (in real life) last weekend and minneapolis month prior. At no time did I feel unsafe in their downtowns, nor that they were lawless. In fact, they are bustling, more so than indianapolis. Indianapolis needs to be bold in ensuring projects like this occur, but unsure if this is manner to do so (vs opening other bids for hotel in private sector). I hope this works out, and can understand that not making move to ensure this occurs is a “losing hand” within the poker narrative from administration.

    3. Jacob M.
      Downtown Indy used to ha e a vibrant party scene downtown. So sad that
      has disappeared. If you’re going to have a thriving convention business you
      better have a vibrant downtown nightlife scene also.

      Otherwise the convention people will only want to get the hell out of downtown
      Indianapolis as soon as possible. And probably won’t want to come back.

      There are strategies that can be implemented to fill the vacancies on
      1). The Circle
      2). South Illinois
      3). South Meridian.
      It’s not brain surgery.

    4. Drove down Virginia Avenue tonight. I get it was First Friday but it was pretty hopping. Mass Ave has also been busy when I’ve been out there in the past.

      Is it possible the party has moved elsewhere?

      Downtown is in for a rough couple years … they’re flat aren’t enough office workers, and without them you lose restaurants. I don’t know how that cycle gets resolved until (or if) enough commercial office space converts to residential.

    5. Completely agree with Jacob M. Indy will soon get back to its previous level of vibrance and surpass that.

    6. Michael G.
      Cincinnati, Milwaukee, Columbus, and Nashville have already surpassed us
      in downtown redevelopment. Louisville is nipping on our heals.

      Indianapolis must be aggressive and not be afraid to think outside the box.

      One thing that Indianapolis must reconsider is our financial relationship
      with the Colts. We are subsidizing the Colts far to much. We can’t afford it.
      That’s money that we need to maintain our downtown infrastructure.

    7. I’ve been going to Cincinnati for decades. For a very long time, they were a city that fled back to the suburbs at 5pm and downtown was as dead as a doorknob.

      Yes, they have the Banks. I wouldn’t call that “surpassing” anything in Indianapolis. It’s three blocks outside the baseball stadium. They’re trying to catch up… and they’re spending a lot of taxpayer money to do it.

      One more thing – you complain about the money spent on the Colts yet praise Cincinnati, which even for a privately financed stadium is spending $200 million of taxpayer money. And if you don’t think the Bengals are looking for a new stadium while they have Joe Burrow (like the colts did with Peyton Manning) with an eye to getting what the Titans and Bills just got, you’re crazy.

      Keith, you complain that everyone is surpassing Indianapolis but can’t explain how, then complain about what is done. The reality is everything has risk… Indianapolis could have well ended up with a big empty football stadium and looked like fools. Offer detailed, substantial ideas and stop playing buzzword bingo.

    8. No buzzword bingo.

      I’m also well aware of the economic development and revitalization efforts in
      Cincinnati such as Over The Rhine, The Banks, a new quest fir a stadium, and an expanded convention center.

      Also well aware of the specific development and revitalization efforts in Louisville, Nashville, Columbus, and other cities.

      Agreed that we don’t want an empty football stadium.
      But I take issue with Jim Irsey taking all the revenue from
      non football events also. We need that revenue for downtown maintenance.
      Jim Irsey said he needs to be in the middle of the pack revenue wise.
      The middle of the pack is Minpls./St. Paul. A population of around 3.7 million.
      Much larger than Indy.
      It’s like living in an expensive neighborhood can’t afford furniture
      for our house.

      Agreed that all decisions have risk that need to be assessed thoroughly.
      Cost / benefit analysis.
      Especially major public / private investment projects.

      But Indianapolis still needs to be bold and we need to think outside the box.

    9. So, your idea is to renegotiate with the Colts, who have all the leverage and a valid lease for another few years. And, oh yeah, an owner who spent the last year acting just as erratic as his old man.

      “Bold strategy, Cotton. let’s see if it pays off for him.”

      Oh yeah, you hit me with “be bold” and “think outside the box” and still don’t have anything substantial to add other than “Indy needs to do something!”

      Hogsett tries to further expand the Convention Center and redevelop Pan Am Plaza (which is a dump) … and it’s nothing but complaints.

      I mean, I’ve got lots of other ideas but I can guarantee they’d go nowhere.

      Setup a long term plan to tear out the Inner Loop (have to expand 465 first) and turn the reclaimed land into new development around the city. Alternately, if you can’t overcome the INDOT industrial complex, bury the South Split and plan on doing the same with the North Split.

      Reconnect the downtown canal to the canal that runs to Broad Ripple. Make this an amenity. Work with private businesses to make the area more resident friendly.

      Tell Statehouse Republicans you will push to pass the measly $25 million dollar wheel tax they complain that Marion County doesn’t have … the minute that the state fixes the road funding formula so they stop robbing Marion County. Cross the aisle and work with Democrats who have tried to do fix the formula. Continue to work with mayors in the donut counties. And oh yeah. tell Aaron Freeman and Jack Sandlin and Mike Young that they should run for mayor if they want to run Indianapolis. Until then, go fix the road funding and pound sand.

      Work to bring back downtown restaurants. Lower the parking fees in Circle City Mall – they were $3, now they’re $7. Subsidize rents for the first few years of rents for new restaurants with businesses paying more each year until they can pay full rent themselves.

      Try the same deal for a downtown Target. (This era may have passed.)

      Finish the low barrier shelter. Purchase apartment buildings around the city to serve as transitory housing. Get the homeless into these buildings and off the streets.

    10. Ok, so what’s the alternative? I see you making a case for why this project is bad for the private sector but how does the city hold on to its major conventions we already have let alone attract new ones? Convention organizers already made it clear that the only way they will stay or new ones come, is if this project is built. The other hoteliers know this and didn’t come with with an alternative plan of their own. All I’ve read is complaining about this will hurt the private sector but nobody is talking about the BILLIONS the city would lose if they didn’t act. At the end of the day, the city has to do what’s in its best interest. Marriott and the other BIG hoteliers has 1000’s of hotels in markets all over the world. This Pan Am plaza project isn’t a deal breaking when there’s so many other major hotels in other cities that im sure Whit Lodge isn’t debating about. So why stunt the growth here in INDY? If this deal doesn’t happen, then the other hotels will suffer right with the city with lost of conventions. Now what kind of business sense does that make?

    1. Pffffffft! All the same criticism when the JW Mariott was proposed then built. That project treamdously helped Indy’s convention business. You’ve lost your credibility, Aaron Renn. Move on to other cities to criticize, which you seem to thrive up.

  4. Do other commercial real estate projects that aren’t penciling due to financing get the same treatment? Cronyism at its worst. If it doesn’t pencil it shouldn’t happen.

  5. Interesting. Seems Kite couldn’t get the financing at the rates needed,

    Now! Will the project be as tall and grand as the original designs??
    Or will it be scaled down as projects usually are in this city.

    1. Sounds like no plan to downsize or descale the original proposal. Actually the proposed project is taller than what was originally proposed.

  6. On further review, this article is 100% the position of the backers of the project. The IBJ did not interview any other hotel operators downtown, nor did they seek out anyone critical of the project for comment, nor did they provide any critical analysis.

    1. What’s happened to you Aaron Renn? Used to enjoy your column. But you seem to have been consumed by the negative vibes of clearly elderly indy residents (aka CURMUDGEONS). You’ve lost your MOJO, big time. Very disappointed in you.

  7. This will end up as an albatross around the neck of Indianapolis. When a government entity enters an activity that is the domain of the private sector, it almost never ends well. When it happens because the private sector player(s) are not willing to participate, that should be a HUGE red flag.

  8. What terrible job by Kite, way to drop the ball. It would have been interesting to see the city give other firms a crack at while dropping kite.

  9. The city will build it and ultimately sell it to a private group for about 1/2 of what it cost the tax payers to build and operate it.
    I am all for the city having a vibrant convention business but if the market says its not the right time to move forward then maybe its best to just slow down and wait for the market conditions to improve before the city and more importantly the tax payers to be on the hook for the project.

  10. Why the preponderance of negative comments here? Most Hoosiers are sickeningly provincial and out of touch with the world. How many of you commentators have even ventured outside of IN? This project will help protect and build Indy’s convention business, one of the strongest sectors in Indy’s economy. May even help Indy land another hosting gig for a Superbowl.

  11. The haters (usually conservative Hoosiers), I guess want Indy to go backwards to the NAPTOWN era of the 70s. Cities like Nashville, TN will prosper, and so Indy should too!

    1. I’m a conservative, I want Indianapolis ( especially downtown )
      to thrive and grow.
      Indianapolis needs to think outside the box as well as traditionally.

      Indianapolis needs to be aggressive and think boldly with a vision.
      We need local business leaders, the mayor, and our chamber leadership to
      all work together for a greater good. A true bold vision for a thriving city.

      We need a liaison from the mayors office to work with local businesses
      Very closely to understand their needs for growing here in Indianapolis.

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