Gateway (2000-now)

Early Gateway years (2000-mid 2005)

Residents who relocated to McKinney in the post-Gateway Take 1 years might not know that the Gateway Project is a saga that has been going on for over 16 years. Some might have heard about a failed hotel development. Some might have heard about the Gateway Project when the Sheraton or Emerson buildings opened. There’s so much more to the history of the Gateway Project, like bad decisions, lawsuits, eminent domain abuse, and costly settlements. 
In 2000, the MEDC bought 65 acres of land for the Bridge Street / Gateway Project (there would be 2 more land purchases of 17 and nearly 10 acres to total the now 92).

• $  9,925,447 MEDC purchase of 65 acres 
• $    123,410 MEDC paid Kimley Horn services   
• $    746,753 MEDC paid for Gateway road work 
• $      92,360 MEDC paid cleanup, maint, and brochures 
• $10,887,970 total 

During the five year wait for developers, the Gateway land sat vacant. Finally, in 2005, Hammons Development, Collin College, and O&S Holdings (OSH) were brought to the Gateway Project. A Dallas Morning News article from June, 2005 summed up the development and costs of this public-private partnership to the city:

The economic development corporation owns most of the land in question, across from Medical Center of McKinney. The corporation, Mr. Pitstick said, will donate property for the hotel and convention center. The city will also pick up most of the tab for construction of the 75,000-square-foot convention facility. A separate tax incentive package is in the works for the retail, office and residential development. For years, the economic development corporation has been paying off debt on the land with taxpayer funds, amounting to about $1.9 million this year alone. "The city of McKinney and the MEDC have been fantastic to work with. We're confident the project will happen," said Chris Shane, vice president of acquisitions for O&S Holdings. The venture at buildout could generate $1.84 billion in new money for the local economy over 10 years, according to a recent analysis. Over that time, it could create $154.4 million in tax revenue and add about 1,900 new jobs.

JDN Eminent Domain

This section is disgusting. This is where the Gateway project took a wrong turn and just kept going.

$  9,469,000 MEDC settlement paid to JDN for 10 acres of land
$     755,834 MEDC legal fees
$       72,602 City of McKinney legal fees for the eminent domain
$10,297,436 total

There were ongoing negotiations between the City, MEDC, and O&S Holdings as to details of the Gateway plans. In May of 2005, O&S presented two plans to the city and MEDC in a joint meeting. In plan 1, 17 extra acres was included, but the 10-acre JDN land was not included. Plan 2 included the extra 17 acres of land plus the 10-acre JDN land in case they could purchase it from the developer or if they decided to obtain the land by alternative means. They chose the plan with the 10 JDN acres and they were prepared to use alternative means to get it. JDN also happened to be competitors of O&S Holdings. JDN wanted to develop their land on their own, so they refused a purchase offer.
According to the city resolution presented in July of 2005, city staff concluded “…that the property is essential to the overall project and necessary for the health, safety, and welfare of citizens in, around, and accessing the Gateway site.” The city of McKinney decided to claim eminent domain action with an official sounding name, “McKinney Gateway Public Transportation and Parking Project.”

JDN did not go quietly. Read here 

JDN contended collusion, wrong acreage on court documents, low fair market value offer price, and finally they demanded a jury trial. The city did get the acreage wrong on the condemnation paperwork. The city filed a second amended petition to change the original acreage from 8.7898 to 9.8488 acres. In the meantime, in August 2006, the county court gave possession of the land to the city. In the course of discovery, MEDC’s legal counsel (also the city’s legal counsel) actually gave too many documents to JDN’s counsel and then demanded it all back. This required the court to decide the privilege of each and every extra document that McKinney’s legal representation accidently gave to the opposing side. This accident only prolonged the legal case and expenses.
It doesn’t end there.
The city’s questionable actions continued regarding the condemnation of JDN’s land. Even though McKinney was not legally given ownership of the land by the court until August of 2006, McKinney’s Planning and Zoning commission rezoned the entire Gateway land—which included the JDN land still tied up in a legal battle—to the new development standard desired for the Gateway Project in March, 2006. A representative of JDN was at the P&Z hearing protesting the change in zoning to the JDN land without the condemnation case being legally resolved. Mr. Houser represented the city at the P&Z meeting.

Some choice quotes from Mr. Houser, according to the linked article from the McKinney Courier-Gazette, include:

“There is a road that is going to be cutting through that parcel to get traffic through the gateway project, a gas line relocation and water utilities. The balance will be parking,” Houser said. “You couldn't build buildings on very much of it.”
“Because it's a conceptual site plan, it is obviously subject to change,” Houser said. “It is a good location for a restaurant, but I don't know if it will be there.”

After a five-year legal battle, JDN settled and sold the land to the MEDC for well over the $3,500,000 originally decided upon by an appointed county commission. Another interesting story: at the time the fair market value of the JDN land was decided at $3.5M, there was also some controversy. At that time, several appointed county commissioners who decided fair market value might have had ties to the MEDC, according to a November, 2007 article in the McKinney Courier-Gazette:

Mac Hendricks, who is also a Collin College board of trustee, was one of three original special commissioners who were appointed in the condemnation case by Judge Gregory Brewer, who is Hendricks’ son-in-law. Brewer has since recused himself from the case.
Hendricks, who is also a former MEDC director, asked that he be excused from participating as a special commissioner because Collin College owns property in the Bridge Street Town Centre site, according to the order appointing substitute special commissioner.
Hendricks felt the college might benefit from the condemnation of the property, according to substitute special commissioner order. Hendricks was replaced as a special commissioner by Susan Barnett on Oct. 4, 2005. The other special commissioners are Kris Beall and William Dowdy.

There was also a loan (or two loans) that O&S Holdings made to MEDC to purchase the Gateway land. Some documents suggest one was for the 10-acre, JND land and the other was for the 17 acres. This loan from a private company to the MEDC suggests that a private company paid a city to condemn the land of their competitor.

MEDC & O&S Partnership

In 2006, Hammonds Development bailed on developing a hotel and convention center for the Gateway Project. In 2007, a Master Development Agreement with O&S Holdings was approved. O&S Holdings President, Gary Safady and Vice President, Chris Shane put together McKinney Shores Properties, McKinney Shores Hotel Partners, and McKinney Shores Partners to develop the hotel, convention center, condos, and retail for the Gateway Project. 0&S Holdings began to have trouble attracting retail shortly after. This was also around the time Watter’s Creek was coming together in Allen. The Westin hotel construction stopped.

Here are excerpts to a Dallas Morning News article from 2008 that was reposted elsewhere: 

McKinney's long-awaited convention center and hotel project is over budget and behind schedule, and its developer says he needs an additional $5 million from the city or the project may not be completed… Developer Chris Shane recently told the City Council that construction costs have escalated and that because of the tumultuous economy, few banks are issuing loans. Mr. Shane says he needs the additional city funding to leverage a loan… The Community Development Corp. agreed to pay $16.2 million so the city can own the convention center. The McKinney Economic Development Corp., a separate entity, plans to spend $2 million on a parking garage and already has donated land to O&S and Collin College… Work began on the hotel, convention center and college in February, but the slowing economy has put off some construction. The spa and theater are on hold, and Mr. Shane said the market would not support all of the retail space that the development agreement requires him to build. "We can still build this thing in phases and have a good project," Mr. Shane said. "But we can't put in $15 million and have a subpar investment or lose money. We just can't swallow the whole thing."

The MEDC and McKinney began trying to get out of the Master Development Agreement (MDA) due to the lack of progress on benchmarks and requests for more money from O&S. McKinney Shores Hotel Partners (MSHP) filed for Chapter 11 in 2009. Beck, who partnered with McKinney Shores to construct the hotel, was listed as a creditor in the bankruptcy. MEDC sued MSHP claiming they did not abide by the MDA. MSP countersued MEDC, the City of McKinney, and two City Council members, Bill Cox and Thad Helsley. MSP claimed that the city councilmembers forced MSHP to “donate” $50,000 toward the construction of the veterans’ memorial park project the night before the groundbreaking of the Gateway Project. There was a check for $50,000 (see article link below for picture). They also alleged that the city spread a rumor about another general contractor getting the property and taking over the project which MSP said hurt their ability to raise financing. 

An article by Danny Gallagher of the McKinney Courier-Gazette referenced the JDN eminent domain case generally when he briefly mentioned, “MSP started work on the hotel project funneling more than $10 million in the development. The developer needed the city to acquire a piece of adjacent land attorneys described as "essential" to the development of the overall project. The company began growing concerned about the city's obligations.”

Neither the city of McKinney, the MEDC, nor O&S appeared to have the money necessary to build the Gateway without each other. The MEDC had to take out a bond to buy the original $10M Gateway land. The MEDC and O&S had to take out loans together. The city of McKinney needed part of the MEDC and O&S loan money so they could “take” the JDN land. The MEDC then had to take out another bond to pay off O&S.

In November of 2010, TBG Special Construction Projects (partly owned by the Beck Group who were listed as creditors during the MSP Chapter 11) bought the hotel property at auction for about $4.37 million. By the end of 2010, the MEDC, MCDC, McKinney, O&S, and their main creditor reached a settlement. Did MCDC have to take out a bond to pay TBG $6.1M?

Here is the total spent by the MEDC to end the O&S chapter:

$     217,006 MEDC Legal fees-in house
$     269,322 MEDC HC Beck payments, McKinney Shores related
$     289,748 MEDC Carrington legal fees
$     117,635 MEDC Liquidation study
$     540,439 MEDC 10-acre note pay off balance McKinney Shores
$  8,454,000 MEDC Hotel settlement O&S
$  4,951,000 MEDC 17-Acre note pay off McKinney Shores
$  6,100,000 MCDC purchase of hotel site from creditor of McKinney Shores

$ 20,939,150 total (without the costs paid by McKinney or MCDC for legal settlement, etc.)

There were other costs after these events, like land clean up and more consultants after 2010. The Sheraton (about $26M) and Emerson (about $6M in Gateway land given away) deals came several years later. There is still a lot of vacant land at Gateway.

If you include interest on bonds, Gateway Take 1 cost the city between $60,000,000 and $70,000,000.

For Gateway Take 2, another developer was found and dropped out in 2016. Currently, there is a Request for Proposals out.