The cost to build an expansion to the Landers Center could exceed the county’s ability to pay for it due to expected inflation in construction costs and additional capital improvement needs.
DeSoto County Board of Supervisors approved $35 million to finance the expansion at the Landers Center last November that would include a 70,000 square foot convention center, 200 room luxury hotel and free standing restaurant.
The Board of Supervisors heard an update this week from DeSoto Convention and Visitors Bureau board members about the project’s status that could push costs upward to $60 million.
CVB Board Chairman Michael Hatcher said Hilton has approved the site for a new proto-type Embassy Suites hotel, but they are waiting on developer Bruce Patel to submit the paperwork to Mississippi Business Finance Corporation to get tax incentives.
“We received word that Hilton did approve our site, but their incentives have to be agreed to,” Hatcher said. “They are expecting some ad valorum tax exemptions. But until they have a request from the developer, they don’t have anything to act on.”
The 7-story hotel will have 200 rooms, a resort style pool with a lazy river feature, and a 10,000 square foot restaurant that will not be connected to the hotel. The hotel will have to meet the design standard guidelines of Southaven because it is in a special entertainment district.
“All of those expenses are not on the DCCVB,” Hatcher said. “Those are all on the hotel and what he does.”
Hatcher did caution the board that construction costs are likely to increase due to inflation in the 19 to 22 percent range and that the $35 million bond might not be enough to cover the costs.
“It is going to be a challenge to produce and deliver it especially now due to the concerns we now all have of inflation and the increasing cost of construction,” Hatcher said.
Hatcher also informed the board that there may be some additional costs related to the heating and cooling system. The existing chiller-boiler system is 22 year-old and needs to be replaced. The CVB has spent $1.1 million over the last three years to keep it operating but the system will need to be replaced.
They have hired a consultant to do a study to determine whether the project should have two separate chiller-boiler systems or one.
“We’re going to have to do it anyway as part of either project,” Hatcher said. “We will get all those numbers and put them side-by-side.”
Supervisor Michael Lee asked if replacing the chiller-boiler was included in the $35 million the county approved.
“Is there already money built in for the existing and is there already money built in for the new one to offset the existing?” Lee asked.
Hatcher said the CVB had already budgeted $3 million of its own money for the chiller-boiler at the existing facility.
The CVB has $23 million in cash and has committed $8 million overall to the project’s cost.
“We were going to use some of our resources and put that on a 30 year bond,” Hatcher said. “We have a capital expenditure budget that we put together. We were going to spend some of that."
Supervisor Mark Gardner said while he understands inflation will likely make the cost for the project go up, the county can’t afford to borrow more than $42 million.
“I was aware there were more expenses, but not that magnitude,” Gardner said. “I was thinking it might be a $40 million building. I heard numbers like $67 million and $68 million and that you were going to borrow additional money.”
Gardner asked attorney Steve Pittman how much the county can afford to spend.
“We talked about your comfort level covering the debt service with this somewhere around $35 million,” Gardner said. “Just with inflation, using 20 percent, $35 million becomes $42 million. By the time you study the air conditioner, by the time Mr. Patel makes the commitment is ready to sign on the line, we could be months down the road and it could be $35 million construction costs might be $50 million. That’s what scares us.”
Gardner said the county’s two percent tourism tax generated $914,000 in 2019 then dropped to $638,000 in May 2020 due to COVID, but has rebounded to $1.13 million in May 2021. He said this month the tax is expected to generate $1.23 million.
“So we are seeing that number grow back,” Gardner said.
Pittman said the county would have a cushion of $1.8 million if it borrows $42 million and $2.5 million on a $35 million bond.
“For me, based on the numbers and fluctuations that COVID taught us and downturns in the economy teaches us, you need at least a $2 million cushion,” Pittman said. “Anything below $2 million makes me nervous and should make the board nervous.”
Gardner said while he is still committed to building the expansion, the escalating costs are alarming.
“I wish we could break ground now,” Gardner said. “But I don’t want to overcommit to pay for this.”
Supervisor Lee Caldwell agreed and said the CVB may have to trim some costs off their wish list.
“Let’s hammer out some numbers and see what we can get and know what our limit is because we can’t go beyond what we feel comfortable with our taxpayers,” Caldwell said. “I think having true numbers will help our board. We are a little hesitant what the need might be. And we are concerned because we do have a threshold and a number we really shouldn’t go above.”