A decision this week by the city to sell the troubled Harrison's Pier V at the Inner Harbor has increased Baltimore's liability on the hotel, which already has cost taxpayers $10.25 million in unpaid government loans, and $1.2 million in unpaid taxes.
As part of the sale, the city has agreed to help finance the sale.
The city last year assumed ownership of Harrison's, the nautical-style hotel-restaurant, after a development firm defaulted on the city-backed loans. During the time investors ran the hotel, they also did not pay $1.2 million in property taxes.
To date, Harrison's has left the city with the largest loss of any failed project in Baltimore's downtown renaissance.
Mayor Kurt L. Schmoke yesterday defended the newest $2 million loan to new investors as the only way to salvage the project.
"It was the best deal in terms of product and it was the best financial deal for us," the mayor said.
Mr. Schmoke also noted that the original financing for constructing Harrison's was made by his predecessor, William Donald Schaefer. "Obviously it was a deal, we believe, was rushed in an attempt to develop the harbor. It hasn't worked out and we've been trying to make the best out of a bad situation."
The city's Board of Estimates agreed Wednesday in principle to sell the hotel to an investment group headed by developer Otis Warren Jr. for $5.5 million. As part of the arrangement, the city agreed to a $2 million loan for Pure Five Inc., Mr. Warren's group. In all, there were 14 other proposals.
City Council President Mary Pat Clarke, a member of the Board of Estimates, agreed with the decision. "I think [the buyers] have reportedly been through a very strenuous screening and bidding process. They will bring some energy and resources. We will see the final numbers before final approval is given.
"I feel strongly that we need to move [the hotel] into the private sector and back on the tax roll."
Comptroller Shirley Williams said she voted for the sale and mortgage because, "I was more concerned about having a viable project. It looks promising, but I'm waiting to see the final terms" of the mortgage agreement, before taking a final vote.
Barbara Bonnell, director of information for the Baltimore Development Corporation, which is negotiating with Mr. Warren's group on behalf of the city, said the city's involvement in the financing is crucial to the project.
"Given the nature of real estate financing at the moment, it would be hard for them to find a lender who would assume the entire burden," she said. "By the city's remaining a participant in financing, it should be easier for Pure Five to find a lender for the remaining $3.5 million."
Mr. Warren did not return a reporter's calls yesterday. His partners in Pure Five Inc. are Stop, Shop and Save owner Henry T. Banes, Watkins Security President James H. Watkins, and Walter W. Hill Jr., owner of ESC Technologies Inc.
G. Gregory Russell, who recently resigned as deputy director of the Maryland Port Administration had initially been a partner in the group, but he resigned, according to an earlier interview by Mr. Warren.
The heavily subsidized hotel was the last big "renaissance" project of the Schaefer administration. The city approved the deal in September 1986 two months before Mr. Schaefer was elected governor. The hotel, located east of the National Aquarium, opened in June 1989.
Eastern Shore entrepreneur Buddy Harrison and several partners built the $20 million hotel-restaurant on 1.2 acres of prime waterfront property. The restaurant resembles a lighthouse. The rooms were decorated with mahogany furniture and paintings by Eastern Shore artists.
The hotel was touted as a jewel for the Inner Harbor and the owners promised 15 percent of all profits to the city. But there were none.
Soon after opening, the owners began to fall behind in loan and tax payments. They later blamed poor business on nearby construction of the Christopher Columbus Center that made it difficult for tourists to find Harrison's.
Here's a list of financial transactions involving Harrison's Pier V dating to 1986:
* September 1986: City's Board of Estimates approves the deal for Eastern Shore entrepreneur Buddy Harrison and partners to build an Inner Harbor hotel and restaurant on 1.2 acres of prime waterfront property. The city grants the Harrison group $5 million in federal loans and guarantees another $6.6 million private loan.
* December 1987: Harrison's owners agree to pay the city 15 percent of profits from the hotel.
* June 1989: The hotel-restaurant opens -- with a restaurant shaped like a lighthouse, serving Eastern Shore cuisine.
* February 1992: Harrison's owners fall $1.3 million behind in loan and property tax payments.
* January 1994: City takes control of the hotel after Harrison's defaults on its loans. All totaled, the city loses $11.45 million in unpaid loans and taxes.
* April 1995: The Board of Estimates agrees to sell the hotel to real estate developer Otis Warren Jr. for $5.5 million and allows the Baltimore Development Corporation to negotiate a city-financed second mortgage for $2 million.