Incentives draw hotel to commercial development off SH 130

Pflugerville city officials approved an incentive package in mid-May with a development team that could be worth up to $22.9 million over 30 years in an effort to secure the development of a Courtyard Marriott hotel and conference center.

The hotel will be located on the southwestern corner of the intersection of Pecan Street and SH 130 in 130 Commerce Center, a new mixed-use commercial development now under construction.

Construction on the hotel is expected to begin before 2015 and finish in the spring or summer of 2016.

The incentive package is unlikely to reach its full value because a major portion of the incentives are expected to come from tax rebates from other hotels that do not yet exist.

The incentive package and location of the hotel show city officials and investors expect the area along SH 130 to flourish, said Paul Barham, CEO of Harrell Hospitality Group, the future operator of the hotel and one of three partners developing the project.

"There is a lot of development that is planned along that corridor," Barham said of SH 130 near Pflugerville. "The city determined that it needed to have a full-service hotel and some meeting and conference space to meet the needs of the community as it grew."

The incentive package will offset the cost of operating the conference center, Barham said. Conference centers often do not make much money, he said.

The anticipated 142-room hotel will cost more than $20 million and have at least 20,000 square feet of conference space, enough for a 1,000-person reception. The hotel will also feature a full-service restaurant, fitness center, bar and pool, according to a presentation by developers.

"The city's incentives will pay toward the mortgage, the furnishing, the building, the upkeep and the potential expansion of that conference center. It's not funds that are going to go in our pocket," Barham said. "From a hotel perspective, it is still very much a green-field site."

According to the contract, the city will rebate all of the Courtyard group's hotel occupancy taxes for 30 years. In addition, part of the occupancy taxes of the next four hotels built in the city will go to the Marriott. Pflugerville will take 75 percent of the next four hotels' occupancy taxes and pay that amount to the Courtyard group for one decade starting the year each new hotel begins operation.

The incoming Best Western Plus hotel slated to open in mid-2015 in 130 Commerce Center will count as one of those four hotels.

All hotel occupancy tax incentives end in 30 years and are cumulatively capped at $625,000 per year. Floyd Akers, executive director of the Pflugerville Community Development Corp., said it would be nearly impossible for the financial incentives to reach that amount with only these two hotels opening in the near future.

If the new Marriott performs to the same level of similarly sized hotels in neighboring cities, it is unlikely to surpass the annual $625,000 cap.

A 113-room Round Rock Courtyard Marriott posted $2.45 million in taxable receipts in 2013, according to data from the Texas Comptroller's office. Its occupancy tax in Pflugerville would have been 7 percent of that amount, or about $171,500.

The 69-room Round Rock Best Western Executive Inn, which is smaller than the Best Western planned for Pflugerville, posted $1.12 million in taxable receipts in 2013, according to the Texas Comptroller. The Pflugerville Courtyard's cut of those receipts would have been about $59,000 that year.

Amy Madison, assistant executive director of the PCDC, said the hotel occupancy tax incentives make sense given that conferences at the Courtyard could attract more people than the hotel would be able to accommodate. The other hotels would benefit from overflow customers, she said.

The city of Pflugerville has also agreed to rebate all the hotel's property taxes for 15 years. The city will also rebate half the sales tax paid by the hotel every year for 30 years up to $55,000 per fiscal year and waive all city-mandated building and utility connection fees, according to the city's contract.

Pflugerville assistant city manager Trey Fletcher said the waived connection fees could be worth between $75,000 and $100,000. The figure is not exact because the city has not yet received site and building plan applications.

Though Pflugerville city officials and business interests said they are excited about the deal, Doug Sutton, executive vice president of hotel consulting firm Source Strategies Inc., said conference centers might not be worth the incentives that some cities offer to bring them to town.

Conference centers often do not make enough money to offset the subsidies they are offered, Sutton said.

"It's something the city wants as an asset, but you just have to understand that it's an asset that comes at a cost," Sutton said. "There is going to be a subsidization there—a sticker price every year—that comes out of someone's pocket."

Madison said Pflugerville will see the benefit of a major conference center without assuming any financial risk or paying an upfront cost. In addition, more people will come to the city to spend money.

"It's the first-of-its-kind conference center in Pflugerville," Madison said.