Stillwater OKs tax breaks for 2 hotels

Midnight Real Estate plans to build a hotel on North Main Street in downtown Stillwater between Images of the Past and Johnny’s TV.

Developers of two downtown Stillwater hotels — one planned and one existing — have reached deals with the city of Stillwater for tax breaks to aid construction projects.

The city agreed Sept. 5 to provide Tax Increment Financing money for “The Crosby,” a planned $13 million hotel on North Main Street, and for a Water Street Inn expansion project.

While the council approved funds for The Crosby unanimously, the Water Street Inn agreement was more controversial. It received approval in a 3-2 vote.

TIF funds seek to encourage development or redevelopment by using the extra tax dollars generated by property improvements to help pay for some costs of development, such as bringing substandard buildings up to code.

The Crosby’s developer, Midnight Real Estate LLC, will receive $982,800 in TIF money to help offset the cost of building a two-story parking ramp, instead of a surface parking lot.

The planned 64-room boutique hotel will be at 232 Main St. N., between Images of the Past and Johnny’s TV. The existing one-story office building on the site, formerly Associated Eye Care, will be demolished. A cafe and a full-service restaurant are included in the project.

Parking has been an issue of particular concern for the city council ever since soil quality caused the developer to abandon its original plan of building a parking ramp.

In March, the city council approved the project with a requirement to provide sufficient parking on site.

The final agreement with the city calls for the developer to purchase a city parking lot on Mulberry Street and build a two-story, 105-stall ramp. The loss of public spaces will be offset by allowing public parking on the upper level of the ramp.

Under the agreement, the city will not make any up-front payments to the developer. The developer will only receive funds after completion of the project on a “pay-as-you-go” basis. That means funds given to the developer will only come from the extra property taxes collected due to the increase in the property’s value. The city expects it to take up to five-and-a-half years for the developer to receive the full amount of TIF funds in the agreement.

A development agreement for a Water Street Inn expansion project was more controversial. The council ultimately agreed to provide $1.37 million toward the project, on a pay-as-you-go basis (no up-front money).

In 2014, the city approved plans for the hotel to add an 80-foot clock tower on the north end of the building, along with a rooftop patio and 20 additional rooms.

Owner Chuck Dougherty hopes to begin construction this fall and open the addition next summer.

However, Dougherty is still working out final plans after discovering he won’t be able to add basement space due to problems related to the floodplain. He asked the planning commission for an additional variance to accommodate his changes, but the commission denied the request, which will now come to the city council for review at a later date.

Councilmember Tom Weidner said he couldn’t support the project, because of the city’s history with the site and the uncertainty still surrounding the project.

“I just don’t think the city taxpayers need to bankroll this again,” Weidner said, referring to the fact that the city had provided TIF money in the ‘90s to help create the hotel.

He also said that when the hotel was originally constructed, the plans changed partway through because it cost more than expected. With the current project, he said, there’s already indications that the plans will change.

In addition, the city doesn’t yet have a value from the county assessor to know what the assessed value of the finished project will be. Estimates from the developer put the final value around $6.7 million, up from roughly $2.5 million today.

“So we have plans that are going to change and an unknown value,” Weidner said.

Mayor Ted Kozlowski, however, said he thinks the agreement has enough protections for the city built in.

“I see a lot of assurance,” he said. “Basically the only way we release funds is if we see the improvement and we see additional tax dollars coming into the city.”

Councilmember Dave Junker supported the agreement because of the potential for improvements and increased tax value for a prime piece of real estate downtown.

Dougherty pointed out that the first time he received TIF money, the project was done in response to a desire by the city council at the time to see a hotel developed on the site. He also said that when he made changes to the plans, they were approved by city staff.

In the end, the council approved the agreement for TIF funds. Council members Weidner and Mike Polehna dissented.

Proposed changes to the approved design plans are expected to come before the council at a later date.

Contact Jonathan Young at [email protected]