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Downtown Hotel: Checkout Time
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November 18, 2010
After a year's worth of clamor, controversy and uproar over a proposed controversial new hotel in downtown Greensboro, hotel backers have now notified the State of North Carolina that they won't be able to meet the Dec. 31, 2010 deadline to receive $26 million in a special bond allocation made available in the federal stimulus package. And the inability to meet that deadline might sound the death knell to the hotel project.
The hotel was to be on the corner of February One Place and South Elm Street, and which was to be paid for largely with special funding that was part of the federal stimulus package.
No taxpayer money would have been used to back the $26 million in bonds for the hotel – projects using stimulus package bonds must find private-sector backers willing to assume the risk. However, the bonds are made attractive by the fact that the issuer doesn't have to pay taxes on the interest earned and the lender can therefore charge a lower rate of interest to borrowers.
For the past year, backers of the hotel have pointed to the favorable financing as a major reason behind the financial feasibility of the hotel project. Early in the year, hotel proponents appeared outright angry at county officials who wanted to see some evidence of the financial viability of the project before sending it to Raleigh for consideration for the special funding.
Before any of the tax-free bonds are allocated, all projects must get approval of the NC Local Government Commission (LGC). However, after the Guilford County Board of Commissioners signed off on the project at their Thursday, Oct. 7, 2010, meeting, the hotel proponents have seemingly been having difficulties in moving forward.
Mary Nash Rusher, the bond counsel for Guilford County and a member of the Raleigh-based law firm Hunton & Williams, said this week that the complexities of the hotel deal had caused the group to request the right to hold onto their allocation until the end of the year so that, if the federal government extends the program – and if the hotel group is able to find private backers willing to invest in the bonds – the hotel project would be able to keep its place in line for the special financing.
The hotel group is clearly hoping the federal government will offer an extension into the new year, and that M.R. Beal & Company – a minority run investment firm based in New York – will be able to place the bonds with private investors. However, one official close to the project said she considered that unlikely, given the recent wins by Republicans. Also hurting those chances, she said, was the fact that the program has an "ugly word" attached to it, that word being "recovery."
Rusher said she had no idea whether or not there would be an extension of the program. Mark Poole, a financial analyst for the NC Department of Commerce who works closely with these types of projects, said he also didn't know if the federal government would extend the Dec. 31 deadline.
Rusher wrote a letter, dated Monday, Nov. 8, which asked that the project be able to keep its place in line for the money in case the federal government did extend the program. Her letter said the bond firm is attempting to find investors.
"However," her letter states, "given the need to secure the additional tax credit-equity financing as well as the placement of the debt for this transaction, the Company is not in a position to be on the agenda for the meeting of the Local Government Commission ("LGC") on December 7, 2010."
That's the last regularly scheduled meeting of the commission for 2010.
Rusher's letter continues: "The company remains hopeful that Congress will extend the authorization for Recovery Zone Facility Bonds at least through 2011 and is continuing to work with both equity investors and potential bond purchasers so that the financing can close in the first quarter of 2011 should the legislation be extended."
In the letter, addressed to the NC Tax Reform Allocation Committee, Rusher wrote that M.R. Beal & Co. "has been proceeding with the financing, and is working diligently" to find bond purchasers willing to risk their money on the success of the project.
A clerk at the LGC office in Raleigh said investors must submit an application 28 days ahead of a meeting in order to be placed on the LGC's agenda. She said the deadline had passed and the LGC's last regularly scheduled meeting is set for Tuesday, Dec. 7.
The hotel project has gone through numerous incarnations since it was announced late last year. The hotel has changed locations, downsized and has a different set of investors than it did when it was first presented. The hotel, if it ever does get built, would be a Wyndham.
Though the LGC has approved all of the projects that have made it before the commission this year, this project is attempting to use a type of financing different than all the other projects that have obtained the attractive stimulus loans. All of the others have shown the LGC a "letter of intent" from a bank or financial institution that states the institution intends to make a loan to the project. However, in this case, the hotel backers have M.R. Beale & Co. stating that the firm is attempting to find investors willing to buy bonds backing the project.
A representative of M.R. Beal & Co. said the firm wouldn't loan the money to the hotel group until it had placed the bonds with investors.
Tags: Guilford County
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