Council Approves Negotiations to Purchase Atrium Hotel Property
Hutchinson City Council agreed on Tuesday to authorize the city manager to negotiate with the out-of-state owner of the closed Atrium Hotel to purchase the property.
Councilman Jon Daveline’s motion directed City Manager Jeff Cantrell to report to council by June 1.
Before voting unanimously to continue, the board heard from the NJCAA president, chamber speaker, and acting Kansas State Fairgrounds director about the critical need for more hotels and facilities. convention spaces in Hutchinson.
The best way forward, Cantrell told the council, is for the city to own the property and find a partner to rebuild it, rather than negotiate with a third party to redevelop it.
And the city’s best chance of attracting a developer, he said, is to have a site ready to go.
Considering the costs
Cantrell has indicated a deal is close on a deal, but owner Joshua Joseph of Dallas said he won’t go down on the $1.6 million asking price. This is just below the current appraised value of the property; the land itself is valued at $1.1 million.
Read more: Addressing the Atrium: The Highs and Lows of the Hutch Hotel
“What we’ve found is that there’s not a lot of pricing flexibility,” Cantrell said. “He (Joseph) thinks he’s got the price down. He’s indicated that there’s been an increase in potential buyers approaching him for uses that aren’t the best and the best ( for the site).
The 215-room hotel and conference center at 1400 N. Lorraine St., which Joseph acquired in August 2014 after its bankruptcy, has been closed since December 2019.
Find out more: The Atrium hotel is closing its doors
Officials estimate it will cost between $800,000 and $1.5 million to demolish the hotel portion of the aging building to free up space for new developments. The wide range is based on unknowns that demolition may require, such as the potential reduction of asbestos.
The hotel was built in 1977 and expanded in 1980. The convention center was built for $3.9 million in 2005.
The plan is to use $878,000 in accrued guest tax dollars for the purchase and demolition.
Cantrell said general obligation bonds could be used for the project and then repaid with the tax, which is collected each time a local hotel room is rented, meaning no local property tax. would go into the project.
However, the city will likely need to raise the citywide hotel tax by an additional 1% to pay off long-term debt.
Hutchinson/Reno County Chamber of Commerce President Debra Teufel said at least 10 area towns that Hutchinson competes with for hotel space have a higher transient guest tax.
“Some are around 9%, some are 8% and some are in line with our 7%, so if we increased it by 1%, that would still keep us in line with the competition in Kansas and less than some,” said she declared.
The city could not use eminent domain to acquire the property and then transfer it for private development, City Attorney Paul Brown said in response to a question from council. It could only be for public use.
The city issued a request for proposals in 2018 for the redevelopment of the property, but interest was limited then and the situation has not improved due to the impact on hotels from COVID-19.
The chamber has had conversations with three developers over the past few weeks, Teufel said, “who may have a vested interest in bringing creativity and ideas to the table.”
These include a developer in New Mexico, another “who has built property in this community and is interested in doing it again,” Teufel said, “and the person who built the Garden Inn in Hays.”
Teufel cited the development in Manhattan as an example of how to do this. There, the city acquired land, and a Hilton Garden Inn with a 30,000 square foot convention center was built in 2011 using Star bonds. The facility has since added an additional 12,000 feet of convention space.
The land was sold at “low market value” for the hotel, and the city developed the convention site. They issued a debt of $5 million, to be repaid over 30 years using the transitional tourist tax. The tax, however, cannot be used to expand the hotel, only the convention space.
“It’s all within the incumbent’s on-site control,” she said. “You can get creative, but not until you have control of the site.”
Christopher Parker, president and CEO of the NJCAA in town for the annual basketball tournament, expressed support for the move.
Six tournament teams, Parker said, are to stay in hotels in Wichita. And it’s a year with attendance limited by COVID-19 restrictions.
“From my seat as president and CEO of the national organization, I think that’s critical,” Parker said. “I hate that our teams stay an hour away and don’t spend their money here in Hutchinson when the tournament is in Hutchinson.”
Parker also hinted at potential future opportunities for the city if it can get those extra rooms.
The tip of the iceberg
Berger also highlighted the impact of the current lack of hotels following the closure of the Atrium.
“The fair attracts between 300,000 and 350,000 visitors every year, but that’s just the tip of the iceberg,” he said. “Every year there are another 500 events at the fairgrounds.”
At the Kansas Beef Expo in December, some 200 hotel rooms were short for exhibitors and family, Berger said, and for the Kansas Junior Livestock Show, about 100 rooms.
During the state fair, Berger said, there are some 640 vendors on the grounds. “Most were from out of town and most couldn’t find a room in this community,” he said.
Exhibitors are adding to the demand, as are those who come for the grandstand exhibits, including more than 500 combined from Shawnee and Johnson counties last time they did a survey.
The state fair remains interested, Berger said, in developing a hotel on the southwest corner of the fairgrounds.
Councilwoman Jade Piros de Carvalho, who said she received a lot of public backlash over the idea, said she supported it as long as she returned to council for public comments before a vote on her purchase does not take place.