The developers of a luxury hotel and conference center at the Kentucky Horse Park claim the state improperly terminated the project contract and say they intend to prove it.
In a letter to Finance and Administration Cabinet officials, KHPWESLUX, LLC advised the state that the termination of the contract was improper.
"The partnership of KHPWESLUX and the Bluegrass Equine and Tourism Foundation has fulfilled every obligation under the contract," said Doug Alexander, spokesperson for the developers. "The state has only itself to blame for cancellation of this contract."
The project's developers said that an eight-month delay in providing approval to market bonds was unnecessary. The developers complain that they lost valuable time because of the state's delay, which delayed the project as the bond market worsened.
"If they are looking for a scapegoat, they need to look closer to home," said Alexander. "There is no default, and the partnership did not miss any required deadlines. Up to the point of termination, the developers were confident that the project would be truly outstanding and could be completed well in advance of the upcoming 2010 FEI World Equestrian Games."
Officials in the administration of former governor Ernie Fletcher entered into a contract with KHPWESLUX, LLC in July 2007. However, the developer was not provided approval to market bonds until February 28 of this year, after the subsequent change in administrations. The next day, state officials created an April 15 deadline that was not included in the original contract.
Jill Midkiff, spokeswoman for the Finance Cabinet, disputed the developers' claim that the deadline date was arbitrary. "When the administration came in, they reviewed the hotel project and thought it was a good project, even though the sub-prime market situation did pose some challenges. So we worked with the developer very hard to try to come up with a financing package that would include more state participation than previously had been envisioned. But at some point, we did have to set a deadline. That deadline came and went. We couldn't go past that deadline and risk the possibility of having an unfinished hotel with remnants of construction lying around while expecting international visitors for the World Equestrian Games."
Within the last month before the developers received the notice of termination, the bond market began to recover. KHPWESLUX had $42.5 million of the bonds committed to the total bond issue prior to April 15 and insist that additional investors were showing strong interest in the remaining bonds.
The state said the fact that the full financing package was not complete by the April 15 deadline was cause to terminate the contract "effective immediately." No default notice had been received. The developer's claim the state's attempt to unilaterally impose additional terms, then declare a default despite the fact that those additional terms were being met, is evidence that those terms were imposed solely in an effort to create an excuse to terminate the project.
"KHPWESLUX did everything it was required to do," said Alexander. "This hotel was on its way to becoming the missing piece that everyone agrees the Horse Park needs to become profitable."
An economic study cited by the developers estimates that the addition of a hotel and conference center complex at the Kentucky Horse Park would create approximately 800 new jobs; generate approximately $4.35 million per year in new tax revenue over the first 20 years; attract approximately $819 million in incremental trade and goods to Kentucky; and generate $526 million in net new spending over the life of the hotel.
"This action by the state was uncalled for," Alexander said. "Once taken, it was devastating to the opportunity to create the proposed or a similar project at the Horse Park in the near future."
Midkiff disagreed. "This project may be viable at another time. That will have to be revisited after the World Equestrian Games, but we can't risk having an unfinished hotel when the World Equestrian Games are here."