Nashville’s use of tax incentives is working

Tax IncentivesMayor Karl Dean has a history of using city tax incentives to lure or keep companies in Nashville, particularly by helping with real estate costs or taxes. Beneficiaries of these incentives have included a variety of companies, including Standard Candy Company, HCA, AmSurg and Oberto Sausage Company. The latest beneficiaries of the mayor’s tax incentives are developers planning full-service hotels in the SoBro district in anticipation of the lodging demand that will be created by the new Music City Center.

The two planned hotels are a Hyatt Regency and a Marriott Hotel. The Hyatt’s tax incentives would come through tax-increment financing, which allows the cost of infrastructure, assembly, demolition and development of the Hyatt site to be financed through future increases in property taxes that are generated by the Hyatt itself. The Marriott’s tax incentive is a property tax discount. Both incentives are valued at approximately $3 million each and are contingent on the developers finalizing private financing for the two projects. Typically, development tax incentives are quid pro quo, and the recent hotel incentives are no different — the hotels are being required to submit to agreements for room blocks with the city for attendees at Music City Center events and to adopt policies to make sure minority and women-owned subcontractors are used in construction.

Incentivizing hotel development near the Music City Center fills a substantial need for hotel capacity in that area. Although the new Omni Hotel is expected to open downtown in October, there is still an anticipated need for at least one more full-service hotel in that area. The opening of the Music City Center and the mayor’s announcements regarding the tax incentives for Hyatt and Marriott have sparked what some are calling a “hotel building boom.

It seems that the mayor’s office is eager to capitalize on the opening of the Music City Center and on Nashville’s recent popularity among leisure travelers by potentially continuing to increase its collection of hotel tax revenue, as it has done in each of the past four years. Provided incentives continue to be targeted, disciplined and prudent, they will remain a powerful tool to foster desirable commercial development and job creation. The ultimate goal in considering incentive deals should always be to “grow the pie,” remain competitive for investment dollars and make Nashville a more desirable place to live and do business.

Assuming that Nashville’s national popularity continues on the same trajectory in the near future, it seems that these hotel tax incentives may pay off as Nashville’s tourism and popularity as a convention destination increase.

This post was first published by the Nashville Business Journal on July 29, 2013.  To read more commercial real estate articles by Walt Burton at the Nashville Business Journal, click here>