Peabody hotel lease up for LR decision tonight

The Little Rock Board of Directors and the Little Rock Advertising and Promotion Commission are set to vote today on finalizing a new lease that would turn the Peabody Little Rock into a Marriott.
The Little Rock Board of Directors and the Little Rock Advertising and Promotion Commission are set to vote today on finalizing a new lease that would turn the Peabody Little Rock into a Marriott.

— The Little Rock Board of Directors is set to vote tonight on the lease agreement to change the Peabody Little Rock hotel to a Marriott.

The agreement has been in the works since June, when Memphis-based Fairwood Capital LLC began the process to purchase the lease held by BG Excelsior Limited Partnership, an affiliate of the Peabody Hotel Group.

The Little Rock Advertising and Promotion Commission is also set to meet today to vote on the lease agreement, leaving Fairwood’s approval as the last step before the agreement is finalized.

City officials said the lease will likely be signed and executed by the end of January, if not sooner. The agreement would give Fairwood up to six months to operate the hotel as the Peabody while doing renovations to meet Marriott’s standards.

The city owns the hotel and adjacent property, including the adjoined Statehouse Convention Center, which is operated and maintained by the Little Rock Convention and Visitors Bureau.

The board approved a letter of intent to enter into a lease in December, although at least one board member had lingering questions about some of the details.

“I would think we would be able to get it approved, based on the concerns being answered,” said at-large City Director Gene Fortson, also a member of the Advertising and Promotion Commission.

“We need to move on this. I think being able to officially announce the rebranding and the signed agreement will take away some of the uncertainty the sales team has been facing while trying to book conventions and reservations.”

City Attorney Tom Carpenter said there are no significant changes in the 78-page lease agreement up before the board Tuesday, but the language has been rewritten to be more explicit about the details.

“Everything got spelled out a lot more completely,” he said. “None of the interests were ever different - it’s just how it was said may not have been how we meant to say it in the letter of intent.”

The new lease is proposed to last for 40 years, until the end of December 2052. Fairwood, which formed the separate FWH II Little Rock LLC to take over the hotel lease, will then have the option to renew that lease for two additional 25-year lease terms.

The group also has the option to approach the city board about rebranding the hotel every five years to an approved hotel brand, which would have to be a luxury, full-service hotel such as a Hilton, Marriott or the like.

Fairwood has consented as part of its franchise agreement with Marriott to do about $16 million in renovations to the building.

“I’m looking forward to getting it out of the way and done and getting everything in the hotel that needs updating updated,” Fortson said.

The rental price and the right of first refusal for a nearby property were the two sticking points during the letter of intent presentation to the city board in December. Both Carpenter and Fortson said the lease is more explicit in outlining how those portions of the lease will work.

Under the lease, the rent would increase incrementally starting at $85,000 annually for 2013; $90,000 for 2014; $95,000 for 2015; $105,000 for 2016; $120,000 for 2017; $135,000 for 2018; and $150,000 per year in 2019 through the end of the first lease term in 2052.

For the renewal terms, the lease states the rent would increase to $400,000 or 1 percent of the total annual profit if that number is greater than $400,000.

At-large City Director Dean Kumpuris pointed out in December that the current agreement with the Peabody group charges $375,000 annually and asked how the city planned to profit from the new agreement while cutting the rent so significantly.

The new lease now more explicitly outlines a change in the tax and tax-rebate structure for the hotel under the new agreement.

The city currently rebates 1.9 percent of the 2 percent hospitality tax charged on hotel stays and prepared foods back to the Peabody’s operators. The new agreement eliminates that rebate, allowing the city to keep the full 2 percent tax.

Advertising and Promotion Commission staff members said in December that the change has the potential to increase the city’s profits by about 52 percent over the next nine years if booking projections and actual stays match up.

Kumpuris, who did not return a phone call Monday,had also raised a concern about a part of the agreement that would give Fairwood or FWH the right of first refusal on property owned by the Little Rock Convention and Visitors Bureau that is across the street from the Statehouse Convention Center’s eastern end.

The concern was that the company would be allowed to take the property on right of first refusal regardless of what project was proposed for the property. Because land in the River Market district is scarce, Kumpuris said in December, it would be like giving away the last piece of property where a competing hotel could be built.

The lease would allow Fairwood to meet any offer made on the property to build a hotel or parking for an adjacent hotel project if one arises and if the bureau is interested in the offer.

The lease also outlines other areas of operation, including giving Fairwood exclusive catering rights for the convention center in exchange for 4 percent of the gross catering receipts through Sept. 30, 2015, when the percentage would increase to 5 percent.

The Peabody Little Rock, with 418 guest rooms, was the third Peabody hotel. Neither the flagship facility in Memphis nor the Peabody in Orlando, Fla., is affected by the company’s decision to shed its Little Rock location.

The Peabody Little Rock opened its doors in 2002 after taking over the lease from Arkansas’ Excelsior Hotel and conducting $40 million in renovations. The Excelsior started its lease with the city in 1980 and opened in 1982. Before then, the space had been occupied by an independent hotel, the Marion Hotel, since 1909.

The Peabody Little Rock would be Fairwood’s eighth property acquisition since it was formed in 2008, according to the company’s portfolio. The company also owns Hampton Inns, Embassy Suites and Hilton hotels in cities all over the South.

Front Section, Pages 1 on 01/22/2013

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