EdCone.com

I don't get the wounded feelings over the downtown hotel project expressed by Allen Johnson here and, again, in this morning's print paper.

Sure, some people hated the idea because this is Greensboro and they hate everything, and others mistook the bond strategy for public funding.

But the heart of the matter has always been that the owners of a big event space need a hotel to make their property work, and there was no serious indication that GSO could come close to supporting a big new hotel, and so the property owners couldn't raise the money even with a huge recovery-bond assist.

I'd love to see a successful new downtown hotel, and I have no problem with the local daily applauding bold ventures.

But I can do simple arithmetic, and this project has never come close to adding up. Numbers ain't "snide comments," and the big paper should know the difference.

Established hotelier questions proposed Fed-greased downtown hotel project...

It sounds familiar, but Skip Alston's name is missing.

Randall Kaplan on the future of the downtown hotel: "If the legislation is not extended for the recovery bonds, we will look at other ways of developing the project."

Full text of Kaplan's statement:

We continue to believe a hotel will be successful in combination with the Elm Street Center, would be great for downtown, and will create much needed jobs. As I have always said, getting the financing and negotiating the right deal is the most difficult part of any big project like this. At present the bond markets are in a bit of a shake out. We do not think we can get the deal done by year end but continue to work on the financing. If the legislation is not extended for the recovery bonds, we will look at other ways of developing the project.

The viability of the downtown hotel project was not much of an issue for the various governmental bodies that kept kicking the can down the road, but it seems to be a consideration for the bond market.

The logic that was supposed make the issue fly was that the junk would be sprinkled on top of a huge bond portfolios, way up on the high-risk tip of the pyramid, and that rich investors would get a big enough effective return on the tax-free bonds to make the risk palatable. 

So far, no deal, and only an extension of the program by the lame-duck Congress can keep that particular version of the dream alive.

Way deep in a Rhino article (as yet unposted) about NC Senate candidate Jeff Hyde and a botched raffle to benefit his campaign comes this: "But what is disturbing about the situation is Hyde's reaction to a difficult situation, which was to cover it up and refuse to release information."

Curious omission in this week's paper: Nothing about the sacking of ABC boss Katie Alley.

Not yet online: a report on the downtown hotel project, which has yet to file paperwork to appear before the LGC as the last meeting before deadline approaches.

More on the Steve Arnold Full Employment Act of 2010.

And a sorry front-pager on library filters that, a few details aside, could have been mailed in by Trudy Wade directly after Danny Thompson's original, over-the-top presentation on the subject.

Steve Miller, senior vice president for development for Wyndham Hotels and Resorts [...]  said Wyndham would not only manage the new hotel but would invest up to $1.5 million in the project and make it the Wyndham Greensboro, a corporate stamp given to only 100 hotels worldwide.

Miller said he knows questions about the hotel’s viability had been raised, but his company has vetted it and is ready to put its full weight behind it.

After months of fluff, some stronger stuff from the downtown hoteliers.

I wonder how/if the relationship between the GGO and Wyndham played a role in seeding this deal.

What an odd front-pager on Kay Chemical in this morning's print edition of the N&R (not online).

Written by a freelancer and running under the rubric "Business Spotlight," the A-1 feature reads like advertorial copy and lacks any semblance of a news hook or a third-party perspective. 

And there's no mention of an item of semi-relevance to actual news coverage -- that Kay was the family business run and then sold by downtown hotelier hopeful Randall Kaplan.

As with last month's failure by the N&R to recognize another prominent local businessman, it makes you wonder how much institutional memory and editorial muscle is left in the big building on East Market Street.

This morning's N&R article fails to ask some key questions about the logic behind the proposed downtown hotel.

We read about the business acumen of the developers, but those plaudits are all in service of their argument that the hotel will succeed. 

What if the developers are such good businessmen that they make out even if the hotel deal founders?

Might they have figured out a way to use the tax-free bond offering as the basis of a win-win for themselves?

How healthy is the business housed in the buildings they are pledging as equity, and how much are those buildings actually worth, and how much might the developers take out of the deal in cash?

"How much risk with new hotel?," asks the N&R front-page headline.

Might the answer be, for the developers, little or none?

UPDATE: A very informative post by Joe Killian about the bond authority meeting.

As reported here yesterday, the local bond authority has approved the downtown hotel project and sent it along to Raleigh.

I'm still not clear on what's changed, if anything, in terms of the underlying economics of the project, but the county board did not hold feasibility as its primary concern. The LGC is supposed to consider feasibility, but its standards have been relaxed.

Following the recent recession, banks have tightened their lending requirements. This tightening has, in turn, limited the number of projects meeting LGC’s financial feasibility standards. Our staff, as well as the staff of the TRAC, has received requests from legislators, bond lawyers, and economic developers to loosen the feasibility standards regarding the types of institutions that can purchase the facility bonds in a private placement...

The new, new hotel plan is a curious thing. Where's the parking? How does the valuation of Elm Street Center compare to the old new plan? How much of the tax-advantaged funding ends up as cash in developers' pockets?

Another poser is this: what's really changed enough to get this thing approved?

The answer may lie less with the new, new plan itself, and more with the rules of the Local Government Commission. The passage above comes from this document (PDF), which suggests "a 'trial' implementation of these lowered credit requirements" for facilities projects; the suggestion was approved at a subsequent meeting.

UPDATE, per a question in the comments: If you open things up to buyers of junky debt, you can approve junky debt.

When the dust settles on the downtown hotel deal, how much cash will the principles put in their pockets?

Seems like a fair question, given the request for public help in the form of a tax-free bond issue.

Also:

Chairman Melvin "Skip" Alston  was a broker on the hotel deal in its early stages. Although his work with the project has ended, Alston said he will recuse himself from further board discussion of the hotel to avoid a conflict of interest.

What does it mean for someone to have been a broker on a deal "in its early stages?" That's when brokers do their brokering, isn't it? We're talking about the same package of properties, then and now, so Alston still gets his brokerage fee, right? How much was that fee, anyway?

And speaking of conflicts of interest, does anyone still care about possible ramifications of Alston's backroom efforts to keep the deal alive, or is that just accepted as the way things work in Guilford County? 

Quaintance-Weaver statement on the downtown hotel news, via email:

Our concern has been around our governmental entities doing their jobs and considering projects that utilize stimulus package incentives against the intentions of the legislation. For instance, we expect that they employ a transparent and thorough process that includes third party feasibility studies, not just "back of the envelope" market studies. As citizens, we expect this sort of process.

Disclosure: I did some consulting work for Quaintance-Weaver this summer after Quaintance and his operations chief discussed a business idea with me; and I attended a party at Randall Kaplan's home last month. No intelligence reported here on this story has come from any of those individuals unless specifically stated.

As foreshadowed here last week, the new, new plan for a downtown hotel finally has arrived. If completed, it will fly the Wyndham flag. Details from Killian:

...10 stories and 180 rooms with a proposed budget of $38 million, including the $26 million in recovery zone bond financing, $8 million in new markets tax credits equity and the balance from owner equity, which would be a combination of cash, land contribution and a deferred developer fee.

I keep hearing rumors that the downtown hotel project is not dead. Latest is that the developers will be at the upcoming meeting of the Guilford County bond authority board...

An emailed statement from Mike Weaver and Dennis Quaintance:

We are dropping our lawsuit against the City Council and the County Commission because the time window has lapsed for that allocation of the ARRA Federal bonds. We remain committed to the notion that our elected officials have a responsibility to employ a thorough process when considering allocations such as these.

I keep hearing that the hotel project is still under way.

Not dead, just resting? Downtown hotel reportedly no longer seeking bonds from GSO allocation after missing a key deadline, will look to State instead...although how they do that is not entirely clear.

Sooner or later we'll see that new, new plan.

Not sure the N&R headline, "Stimulus projects mired in red tape," quite captures the essence of the article.

"Due diligence applied to stimulus projects" seems more accurate to me.

I'm an advocate of more government action to get people back to work -- I wish the feds had considered some sort of modern WPA for places like the counties along the NC/VA border -- but that doesn't mean fast-tracking or rubber-stamping every deal that comes along. 

Scrutiny of the GSO hotel project seems to have been healthy -- for the developers, who wisely retreated from a grandiose plan, and for the public, which gained a clearer sense of the city and county's politico-real estate complex.

Good to see the N&R catch up on the Deep Roots story, too.

And we would have gotten away with it if it wasn't for those darned kids and their dog!

"[A] charged political atmosphere that forced the bond authority to look more closely at the request than it normally would have, House said."

February 21:

Developer Randall Kaplan expects the new, new plan to be in place sometime around the beginning of March. "I'm optimistic that it will be viable, and we won't do it unless it is," he says.

Today, with the deadline less than a week away: "House said the investors are working hard to come up with a good plan for the hotel."

BizJournal (subs req) on the stimulus bond sweepstakes:

One project in the Triad does appear headed for approval. The Skin Surgery Center in Winston-Salem has asked for $5 million to build a surgical center...

...the project has secured a letter of credit from BB&T, and the bonds will allow them to finance the project at a lower interest rate than if they borrowed commercially from a bank.

Linder Ventures is still waiting to find out if its retail and hotel projects for Pyramids Village will qualify.  Not much about the Deep Roots relocation you didn't know already, and nothing about the Miller Loft project.

I was surprised that this morning's tick-tick-tick story on the downtown hotel project said nothing about the other bond candidates -- maybe I missed it while on spring break, but has the Deep Roots bond-fail made the big paper yet?

As first reported here yesterday, recovery zone bond financing for the Deep Roots Market relocation is looking like a no-go.

The developers had hoped that underwriting fees would be spread across all bond projects, but instead each project appears to be responsible for its own fees. Even with low-cost bonds, these fees make the effective rates too high for a smaller project.

Not sure where this leaves the other small downtown deal, the Miller Loft project on South Elm.

Deep Roots has not formally pulled the plug on bond financing, but it has stopped pursuing it actively, says developer Bob Isner. He hopes another option, new market tax credits, can still make a downtown Deep Roots a reality.

How did we get here? DRM manager Joel Landau says the bond program "is new, and it's complicated, and it's hard to get information about it."

Alert reader R:

Did any of the papers or the Journal report that the Deep Roots project won’t/can’t seek the bond funding?

Not that I've seen.

R says he hears from sources close to the project that Deep Roots does not qualify for the bonds, and wonders what's up with the Miller Furniture and downtown hotel projects.

Randall Kaplan told me on Valentine's Day that the new new hotel plan was forthcoming in two-three weeks. We're now past the vernal equinox, and nobody seems to have heard anything.

Oh, yeah, the giant empty lots at the south end of downtown that we were going to redevelop before getting seduced and dumped by Bridget Chisholm! 

If Greensboro fails to find a project for South Elm and Lee in an era when Washington is giving away cash the way Georgia Tech gives away the basketball, we suck.

Two upscale franchise hotels planned for Fayetteville are on hold, local officials announced this week...

..."There aren't any hotel projects getting letters of credit today," Bauer said. "No hotel project could in the current financial marketplace."

Thnx to alert reader JD for the pointer.

An alert reader with full access to the Construction Journal site found by Andrew M confirms that the proposed Crowne Plaza Hotel is indeed our downtown hotel.

Throw in the potential debt implosion of a big chunk of High Point, and it's been a pretty newsy day around here.

Alert reader Andrew M points to this page, advertising a $47 million Crowne Plaza Hotel new construction project in Greensboro.

Yes, the zip code is off -- but as AM says, what else could it be but the downtown job?

Taking an expansive definition of "shovel ready," the City kicks the can down the road to the local bond board and the state LGC (and maybe the courts, although maybe not).

County attorney Mark Payne, perhaps the only person outside the hotel group to  understand the approval process in real time, will move to dismiss the QW lawsuit.

A couple of morsels in this Rhino recap of the hotel saga: Uncle Miltie tells Yost, "It's not going to be a luxury hotel. And it will be smaller."

And: "Guilford County Attorney Mark Payne said it's his guess that the state deadline will be moved back."

A nugget of news toward the end of this N&R placeholder on the hotel story: "City Council was not asked to consider building a parking deck for the hotel...City staff members said they haven’t heard from the hotel developers in weeks."

Rumor has the new new plan at about 175 room @ roughly $170/night.

One allegedly knowledgeable source puts the odds of moving forward on the project at 50-50.

"In other news Tuesday, the City Council also put the brakes on a proposed new parking deck for the downtown area."

This means what for the hotel project?

Confused about the proposed downtown hotel project? That just shows you've been paying attention.

My newspaper column recaps the hotel situation to date. You can read the whole thing after the jump. 

Another column on the same topic, by A&T economics professor Lawrence Morse, starts out well enough, with arguments about income and wealth disparities and the benefits of economic stimulus. Nothing about the viability of this project, or the process that got us here, but, hey, he's feeling a different part of the elephant.

Then he derails: "Some people may be concerned because the neighborhood empowering itself is predominantly black."

Which people? Random assholes, which would be unfortunate but part of real life, or the people asking questions about the project and the process in public? Because if it's the latter, let's see some evidence, and then let's consider whether the questions themselves are worthwhile in any case.

Next Morse is on to race riots in Atlanta 104 years ago, fomented by incendiary newspaper coverage, which is supposedly similar in some way to N&R coverage of this story. So there you have it: question the project and the process, and you're the next thing to a lynch mob. 

Let me reiterate for Prof. Morse my support of economic stimulus, my anti-racist values, my respect for the the Ole Asheboro neighborhood group (I work in the neighborhood, fwiw), my interest in overcoming disparities in income and wealth, and my endorsement of a viable downtown hotel approved by a transparent process.

Now, Professor -- what about this project and this process?

If the hotel bonds clear the Guilford County bond authority, the next step would be the Local Government Commission in Raleigh. The approval rules there seem pretty strict, but a well-planned financing strategy could probably get even non-investment-grade bonds over the finish line.

Could that QW lawsuit derail it? I can't tell.

Here's what Heather Franco of the State Treasurer's office says: "In situations where there is a lawsuit, bond counsel would evaluate the suit before LGC staff recommended approval of debt. If counsel does not give a clean legal opinion to the debt before it is issued then there would not be a recommendation for approval until the issues are cleared up."

I asked Mike Weaver if his lawsuit was a way of running out the clock as deadlines approach for the hotel project.

He said that if he and Dennis Quaintance wanted to play Four Corners, they'd have asked for an injunction. He stressed that the suit is against the City and County, not the hotel developers.

So what would it take for them to drop the lawsuit?

They want the City and the County to re-open the approval discussion, Weaver said, and conduct it in a spirit of "mature deliberation, as part of a thoughtful, pragmatic, open process."

He says he wants local government to follow "best practices in making public decisions," and that the incomplete data on which approvals were made should be updated and discussed in light of the facts as we know now them.

Re-open and discuss thoroughly in light of current information -- even if that does not lead to rescinding approval --and the suit goes bye-bye?

"Yes."

An email sent from Rashad Young to Andy Scott on December 31, 2009, at 6:31 PM.

Subject: Hotel Project

On Monday, stop in and let's debrief on the hotel project and my Thursday evening conversation with Skip.

Have a Happy New Year.

RY

Joe's been reading that QW lawsuit, and he points to an interesting passage: "The acts and omissions of Mr. Alston violated N.C. Gen. Stat §§ 14-234, 159C-16, and other applicable law."

As noted previously, the suit could be a Four Corners maneuver to run out the clock as the bond-approval deadline approaches. And it could also be a way of politicking the Local Government Commission.

And maybe its implications are broader than that.

George Brumback, chairman of the Guilford County bond authority board, says his group is "stuck in the middle" of the hotel bond process.

The board was charged by the county commissioners with vetting the stimulus bonds before they can go on to the Local Government Commission in Raleigh. Yet these bonds do not meet the usual criteria for issues it considers.

The vague requirements of the legislation leave the board unsure of its fiduciary responsibilities in this case. 

Brumback says one clear intent of the legislation is to create jobs. "This hotel project is the only thing I've seen that meets the intent of the legislation, so we gave it a number one priority," he says.

Yet viability is also a core concern.

His best guess is that the bond authority board would approve a project that has its formal requirements in place, without getting very deep into any supporting case for viability.

So if the developers make it to the local board, they'll likely make it all the way to Raleigh.

Randall Kaplan says the HVS report that cast doubt on his plans for a proposed downtown hotel failed to take into account the particulars of his site, including its location and the existing conference and ballroom facilities the hotel would use.

Denver-based consultant Richard D. Williams acknowledges in the report that he has not visited the proposed site, and worked instead from his knowledge of the Greensboro market.

Kaplan's group is now working with HVS' Atlanta office and other experts to determine the right size for the hotel, and the right mix of retail space, restaurants and bars, etc.

A plan is still two to three weeks away. 

Until then, Kaplan says, people are debating without knowing the particulars.

I pointed out that the HVS report, quickie though it may be, showed occupancy rates that do not even come close to paying the bills.

"I'm optimistic that it will be viable, and we won't do it unless it is," he says.

I asked him if the lawsuit filed by rival hoteliers might be a strategy to run out the clock as the springtime deadline for financing approval nears. Kaplan declined to comment.

The program behind the tax-free bonds, he says,"is a way to incentivize people to do projects at a time when the economy is not good, particularly in these zones."

He estimated that the hotel would employ 100 people (after a construction project that would max out at about 400 jobs) and also invigorate the small businesses around it. 

Commenter Tim, an advocate for the downtown hotel project, writes:

[N]othing is set in stone for the project which means the number of rooms could change or we could see a lot more office/retail in this project than envisioned. Right now the developers are keeping quiet on the final plan.

That's one of the big problems, isn't it?

We're being asked to get behind an idea that we don't understand.

The plan used to obtain City approval is long gone -- the project isn't even in the same location anymore. The new location is an upgrade, but still, we are discussing a project that has not been vetted by Council (not that the befuddled Council got into the details the first time around...)

The newer plan discussed at the January council meeting has been dismissed as fantasy by the HVS report.

HVS has worked in the past for both Quaintance-Weaver and for the hotel developers. Randall Kaplan told Justin Catanoso, "they (HVS) are the experts in evaluating the marketplace."

The thing about the HVS report is that the numbers were not even close to being close to adding up.

So when do we see the new plan?

How big will the hotel be? How much will it cost to build? How much of the $30 million raised with tax-free bonds will go to the developers for fees and cashing out of equity, and who vets the valuations on the properties put up as equity?

Another commenter writes that the QW legal action seems likely to bring about yet another third-party feasibility study.

The clock is ticking on this funding package, and extended legal action could run out the clock.

Which might not be an unintended consequence.

"Today our attorneys filed a legal action to obtain a declaratory judgment that would invalidate the City Councils’ and the Board of Commissioners’ recent allocation of Federal stimulus package funding."

Weaver and Quaintance take off the gloves.

Quaintance just told me on the phone, "Greensboro deserves something better in terms of process."

Andy Scott tells Jordan Green that he expects tough scrutiny of any proposed hotel bond issue by the Local Government Commission.

Not everyone agrees about the level of vetting for what seems to be a sweetheart deal for the developers:

"The financing package is so good they don't have any risk," said Joe Varipapa, general manager at Comfort Suites Airport and president of the Guilford County Hotel/Motel Association. "I think it will be built, and I think it will be a mistake."

Cheerleaders for the project argue that the developers wouldn't do it if it didn't make financial sense.

The question is, does it make sense for anyone but the developers?

Jordan asks if viability matters in the hotel project discussion -- to bankers, and to the public. 

On the off chance that the details are important, Bob runs down a list of issues.

The developers, meanwhile, do not want details of their plan made public, and are issuing lawyer-threats to keep us in the dark.

Jordan reads a Jan 12 email from Dennis Quaintance to Andy Scott that fleshes out a revelation published here six days earlier: "Quaintance was interested in putting a smaller hotel downtown, but the City brushed him off because he didn't have a plan in place by mid-December."

The competitive aspect is pretty well  understood.

The questions about the proposed hotel's viability remain open.

The question of who vets the $12.5 million valuation on properties put up as equity in the hotel deal remains open -- at least, I have not seen an answer.

To the extent that the public has an interest in a bond offering made possible by public entities, the valuation is worthy of public scrutiny.

An office building that seems to have last sold for $237,000 in 2003 will bring its owners $1 million in cash -- a fairly remarkable return amidst the smoking ruins of the CRE market.

Is that the kind of stimulus we're aiming for?

Are there other cash-out opportunities associated with equity stakes in this project? If so, who gets them, and how much are they worth?

In my newspaper column, celebrating the Civil Rights museum and pondering the overdue demise of "the post-civil rights era, pre-civil rights museum ways" of racial politics.

You can read the whole thing after the jump.

Last year, one of my favorite columns: "The pole stars were Christ and Gandhi. Closer to home, Martin Luther King Jr. was showing how the strategy could work."

Eight days ago, I asked about the hotel deal, "Who vets that $12.5 million valuation on the property put up as equity?"

I'm still looking for an answer to that question.

People who know about downtown real estate keep telling me that $12.5 million looks like a whole lot of money for that property.

Mike Weaver says in the Rhino that the tax value of Elm Street Center is $5.5 million, adding, "I don't know of any properties that have sold for nearly three times tax value. They can pay more for the property than it is worth because it is not their money. It's other people's money."

The equity figure would seem important in setting Skip Alston's payday as a broker.

The deal includes $30 million from the bonds.

Subtract the $1 million the Kaplan group wants for its office building (which I'm told last sold for a few hundred thousand dollars -- this is not verified information see valuations here and discussion in comments below -- thnx to Roch and alert emailer J for info). Take out whatever portion of Chisholm's $2 million fee that she gets up front, and perhaps also Alston's fee, and whatever other costs are associated with this big project. 

How much will it cost to actually build the hotel? If that number is less than $30 million minus non-construction costs, what happens to the rest of the bond money?

One other issue generating buzz: will the hotel get a sweetheart deal on parking spaces in the proposed city deck? That possibility is irritating other downtown business owners.

UPDATE: N&R recaps the news of the last ten days.

MORE: Biz Journal's Ivey says other projects face underwriting problems -- something that Chisholm seems to have worked out in advance.

Competing versions of what Skip Alston said in that infamous backroom conversation.

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?

Somebody buy those boys an internet, I thought while reading today's tepid coverage of the hotel story in the Rhino.

More than three years ago, I wrote: "I understand Willy Hammer's flinty-eyed view of the web: the Rhino will make a serious move online when someone shows them the money."

Still true, and they have made some online upgrades since then, but as a news organization the Rhino is eating dust on this one. 

And it's not just the blogs and the daily paper kicking up that trail, either -- Jordan Green of Yes! has demonstrated how the web lets a weekly lead the way on a developing story.

Skip Alston apologizes to three City Council members for perceived threats.

But the bell cannot be unrung. His message has been delivered.

This is fascinating:

Alston said he makes his living as a broker and feels he can't effectively represent clients if he can't speak to council members without worries of a conflict of interest.

"That really handicaps me as a developer," Alston said.

That's how its supposed to work, isn't it?

Your obligation as an elected official is to serve the people, not yourself, and that might come at some cost to you. If that cost is unacceptable, you should not be serving as an elected official.