In The News

How One Firm Helped Navigate A Dozen Texas Hotel Deal Changes

May 8, 2017

A massive 600-room, four-brand hotel project near the Dallas Cowboys stadium has required more than a dozen contract amendments due to a number of financing, branding and zoning complications, Munsch Hardt Kopf & Harr PC's Phill Geheb, who represents developer NewcrestImage, told Law360 in a recent interview. Geheb has helped NewcrestImage navigate a host of issues in bringing the hotel portion of the 242-acre, $1.8 billion Frisco Station mixed-used development to groundbreaking earlier this year, including complications arising due to different lenders providing capital for different portions of the project.
And Geheb, who works out of Munsch Hardt's Dallas office, has also had to help NewcrestImage tackle myriad issues related to branding, which have been particularly tricky since the project is planning to have four brands — and one of the brands is relatively new, with standards still evolving.
The $1.8 billion Frisco Station project is the largest of the projects in the so-called $5 billion Frisco mile, and Frisco Station is next to the Ford Center at the Star, the headquarters of the Dallas Cowboys.
Munsch Hardt got involved in the project two years ago, when NewcrestImage in May of 2015 started formulating its vision for the project.
"Our client, NewcrestImage — Mike Patel is the CEO — gave me a call and said, 'Hey, we have a really big project for the company. It's a massive hotel campus that we want to do in Frisco," Geheb said. "I looked at the contract. It was incredibly broad."
NewcrestImage was eyeing the opportunity grab the hotel piece of Frisco Station, given that a trio of developers working on the rest of Frisco Station had limited experience with hotel development, Geheb said.
Those three firms — VanTrust Real Estate, Hillwood Properties and the Rudman Partnership — had planned to develop the entire project, including a more modest hotel, but ultimately decided to sell the hotel portion to NewcrestImage, which is where Geheb came into the picture.
"They had planned $1.5 billion development. The issue was that none of the three family offices had ... [substantial] hotel experience," Geheb said. "Initially, they envisioned it as a 250-key, limited-service hotel. What NewcrestImage envisioned was a large-scale hotel campus with 600 rooms and four brands on 4.5 acres."
Geheb said almost immediately after the plan was hatched, NewcrestImage had to start securing approvals from Marriott and Hilton, two of the brands slated to be part of the project.
That was the start of a process that took more than a year to complete, and ultimately involved two contracts — an original one and a restated one — and a total of 15 amendments.
"The number of amendments reflects the evolving nature of the project from initial conception in May 2015, a significant redesign of the project in summer 2016, and acquisition in November 2016," Geheb said.
"The majority of the amendments involved the delivery of Marriott and Hilton approvals in early 2016 and ensuring that the vision of the project matched the vision for Frisco Station and development schedule for delivery of the other elements of Frisco Station," he added.
For example, the hotel portion has to be integrated with the other various retail and multifamily portions of the larger Frisco Station development.
The project is slated to have 5.5 million square feet of office space, 500,000 square feet of space suitable for medical offices and health and wellness centers, more than 2,000 residences, and 55,000 square feet of dining, shopping and entertainment space.
The office space will be divided into three sections: 3 million square feet of high-rise space in the Towers at Frisco Station; 1 million square feet at the Campus at Frisco Station; and 1.5 million square feet of creative office space.
The first phase of the hotel project will be a 300-room dual-branded AC and Residence Inn by Marriott as well as a 680-space parking garage, and phase 2 is expected to close late this year and construction will start early in 2018.
In addition to the two Marriott brands, the hotel is slated to have a Canopy by Hilton and is eyeing Hyatt Place as the fourth piece of the hotel, Geheb said.
Of course, a project of this stature comes with its share of challenges, one of which was laying the necessary groundwork for the various hotel brands. Each of the four brands required its owns set of applications.
But another of the early obstacles was planning the hotel project around an overall plan for the development that was still in its early stages.
The other developers at Frisco Station, Geheb said, had not completed the "horizontal framework" at the site, meaning roads and utilities were not yet done, and he had to help his client sort out matter like which party would pay for which roads and which utilities.
"Being an early developer within the site required more attention to the on-site and off-site development issues than a typical transaction," he said. "There were several points where the deal could have died but NewcrestImage and Frisco Station Partners worked in a real collaboration to compromise and work through the development challenges to bring the project to fruition."
Then the project need capital, so Geheb got to work securing the necessary financing for the project. That, though, came with its own set of challenges, since there are, for example, different lenders for the hotel and the garage.
"If the garage doesn't get built then the hotel has a problem. It the hotel doesn't get built, then the garage has a problem," he said. "How do you structure the relationship ... to give each lender some comfort and control? That was actually the trickiest part of closing the financing."
And another challenge was that the AC brand is a fairly new one for Marriott.
Geheb said, though, that the most challenging part of the process was dealing with economic development initiatives. His law firm worked with the city of Frisco to try to secure sales tax abatements or property tax abatements.
But Frisco had earlier made commitments to the property, and felt it couldn't offer more public funding, and thus hours of work has all gone for naught.
NewcrestImage has found an equity partner — an Orlando hotel developer who wants to get into the DFW market, Geheb said.
And the company scored a $66.5 million construction loan from Southside Bank and Bank 7, which Muhsch Hardt also helped negotiate.
Geheb said over the coming years, he plans to stay involved with the project, and help out on various construction and development matters, as well as matters ranging from hotel management agreements to even signage.
"You're seeing a lot of this," he said, of hotels that have multiple brands. "Each one of the brands caters to a different hotel guest and user. Each one of them has a different price point."

By: Andrew McIntyre