Widely overlooked in the hotel hoopla (and obscured behind the Biz Journal paywall) is Steve Ivey's article about the bonds that would finance the project: "[I]nvestors are likely to have a healthy appetite for the tax-exempt notes," Ivey reports. Institutions assembling big bond portfolios will include some risky stuff in the mix.

If there's a market, there will be a seller. And that would seem to meet the state's threshold for approval.

So if the developers can find a way to finesse the HVS report -- another document too-much ignored amidst the noise -- it looks like we're going to get a new hotel downtown. 

Bridget Chisholm knows how to work the system. She got her plan for a plan into the machine on deadline, outfoxing some smart local hoteliers in the process.

She partnered with local businessmen who will use bond money to goose an ailing investment and take cash out in the bargain. She gets paid. Skip Alston gets paid.

Who laughs last?

UPDATE: I forgot another masterstroke by Chisholm: she purchased local political clout by giving an equity stake in the as-yet-unbuilt project to a neighborhood group that represents a neighborhood in which the building will not be built. Will the Ole Asheboro group be able to take cash out of the deal, too?

Comments

[Sedge]

Exactly, Bridget Chisholm will get paid up front regardless of whether the project is truly viable and regardless of how it does in the long run. Has their been much focus on how her first project in Memphis is doing? There's no definite date on when it will open, and yet she's moving on to Greensboro and Fayetteville. Working the system is exactly what she's doing, and she's smart enough to find others who like to work it as well.

[Ed Cone]

Actually, it's been reported that Chishom will take "only a small portion" of her $2 million fee up front, and get the rest in equity.

How small a portion is unknown to the public, as are the terms of her equity participation.

[Preston Earle]

The teaser for the linked article says:

"Fred Baggett, an attorney with Smith Moore Leatherwood, said the bonds also require a letter of credit from a lender should a project not generate enough revenue to repay bondholders.

“It’s not free money; the borrower, the bank and the bondholders themselves are at risk,” Baggett said. “But the local government won’t be.”
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If a bank issues a "letter of credit" and then the hotel defaults on the bonds, who ends up holding the (empty) bag? What do the bondholders lose--missed interest payments only? Do they get their principal back from the guaranteeing bank, such that it's the bank that loses?

The confusion in my mind is that since these funds seem to be a part of some federal stimulus grant, the full value of the project is somehow being underwritten by the federal government. Folks who are being called "investors" really have no stake in the project except their, for lack of a better term, "sweat equity" of putting the project together. They get their up-front fees and some equity ownership perhaps to be cashed-in later, but they have no other risk.

Am I mis-understanding the process?

[Spag]

I think I made the same point as Preston a few days ago about the impact on taxpayers when banks make risky loans such as may be the case with this hotel. We are experiencing that now, and that's what TARP was largely about.

[John Wrenn]

I had the same question about the participation by a neighborhood association in a for profit deal. How the hell does that work? I would have figured most neighborhood associations are not structured to deal with an investment profit, or loss for that matter. How in the world would the members of the association take money out or would they just have to use it for common improvements. The Olde Asheboro Neighborhood Assoc. isn't Alaska or an indian reservation.

[Tim]

Bridget has been smart about the whole process, whether you argee with what shes doing or not. Including the neighborhood helps build public support as well. Its a unique partnership and I do think its a good idea. If the neighborhood can get money from the private sector, that means less money will be needed from the city for community projects. My guess is that this hotel will get built. Whether its successful or not, time will tell.

[Sedge]

Tim - you need to take a look at today's News and Record and the HVS report on why this project is far from economically feasible. Greensboro's hotel industry has been ravaged by the economic downturn and not only would this hotel have to compete with Proximity, O'Henry and Marriott, but the Doubletree as well. This report was commissioned by the city and withheld from city council members when they voted in December. It was only released when Weaver and Quaintance made their public records request. Randall Kaplan and Elm Street Center investors simply want to unload that property because the Empire Room is losing money left and right, and office vacancy rates are high. Here's an idea -how about they donate the Empire Room property to UNCG for their School of Pharmacy and use these recovery bonds to improve public education? A law school and pharmacy school downtown - now that would be impressive.

[Andrew]

Sedge,

Don't try to confuse Tim with facts and details. It doesn't matter that the Empire Room's tax value is only 4 million but they are going to sell it to the project for 12 million. It doesn't matter that they have tried to sell it for 2 or 3 million and have had no takers. It doesn't matter that the HVS report says it is unlikely this hotel will be able to service its debt and will go out of business and in the process hurt several other companies in town.

[Ed Cone]

One clarification, Sedge -- the HVS report was not completed before the December vote, it was completed just prior to the January meeting and was not shared with Council til after that meeting.

I asked at this blog more than a week ago: "Who vets that $12.5 million valuation on the property put up as equity?" Still wondering.

[Roch101]

Is there any information about the money put into the Empire Room property since it was purchased in 2002 for less than 1.4M?

[Sedge]

I stand corrected - thanks Ed.