Financing problems stall Inner Harbor hotel plans; Three years later, four of five projects still on drawing board


Life is a marathon, not a sprint, as the saying goes. The same could be said for Baltimore's efforts to develop new hotels downtown.

Of the five major hotels that have been proposed to add more than 2,500 rooms, only one -- the city-backed, $134 million Wyndham Inner Harbor East Hotel -- has begun construction.

The other four projects, stalled by lack of financing or other hurdles, remain on the drawing board. That lack of progress means that the planned Westin Hotel and Grand Hyatt, as well as hotels at Baltimore City Community College and One Light Street, will likely fail to meet their projected completion dates.

Despite optimism stemming from continued demand to add rooms to serve the publicly financed, $151 million expansion of the Baltimore Convention Center, concern is setting in with the realization that some of the hotels could fail to go forward.

"My concern is that we are missing convention bookings because of the hotel delays," said Carroll R. Armstrong, president and chief executive officer of the Baltimore Area Convention and Visitors Association. "We've got to get moving, because we are missing the opportunity.

"I believe these projects will reach fruition," Armstrong said. "Obviously, the ideal time to build a new hotel has passed us by, but I'm optimistic. I have to be."

Three years after talk began of developing a major new hotel downtown, others, too, remain cautiously optimistic.

"I think ours will get built, I just can't predict the timing," said Harvey Schulweis, head of the New York real estate company working to develop a $124 million Westin Hotel at 300 E. Pratt St.

'A deal that makes sense'

"I'm a professional real estate developer. I have a style of doing things, and that style tells me and others tell me not to go ahead right now because of the way the capital markets are reacting to financing new projects," Schulweis said. "I have to do a deal that makes sense. It all has to do with money at this point."

The reluctance of capital market lenders to fund new hotels has also stymied attorney Peter G. Angelos' efforts to proceed with an 850-room Grand Hyatt Hotel on city-owned land across from the convention center.

Neither Angelos nor his representatives returned telephone calls seeking comment on the progress of their plans, but sources say a financing package from a labor union pension fund is likely to be announced by the end of this week.

Angelos' group, which plans to market and jointly operate its $150 million hotel with the Hyatt Regency downtown, has until the end of February to present final plans to Baltimore Development Corp., the city's economic development agency.

The Wyndham, a 750-room hotel being developed by baking magnate John Paterakis Sr.'s H&S; Properties Development Co. and a team from Atlanta and Dallas, is not immune to the financing crunch.

Crews from Armada/Hoffler Construction Co. continue to dig 8-foot-wide holes into the ground, pour concrete and prepare to hoist mammoth cranes at the building site, but a judge's ruling in November invalidating about $75 million in tax breaks threatens the planned 31-story hotel.

To combat Baltimore Circuit Judge Richard T. Rombro's decision on the hotel's payment in lieu of taxes (PILOT) -- a program that allows developers to negotiate property taxes with local governments -- city officials and Wyndham's developers are appealing to the Maryland Court of Appeals, the state's highest court.

The city and the developers also are working to amend PILOT law through legislation in the General Assembly which would allow the Wyndham tax breaks, said M. J. "Jay" Brodie, president of the Baltimore Development Corp.

Under a city ordinance stemming from a state law, PILOTs in Baltimore can be enacted only if they involve city-owned property, and only then for low-income and other housing projects.

'We've taken a risk'

"If we don't get the PILOT, the project simply cannot go forward," said Michael Beatty, an H&S; Properties vice president, while surveying the Wyndham construction site last week. "We've taken a risk by continuing construction in the wake of the PILOT being struck down, but we're confident. The city has an obligation to give us a subsidy under our agreement, and we are working together to make that happen."

At the building site, steel rebar that will hold the Wyndham's concrete columns together sprout from the ground like corn, and final foundation holes are being dug. Elevator shafts are beginning to take shape.

More than 500 truckloads of concrete have filled in about 60 of the 158 giant holes that will become the foundation of the hotel. Plumbers and electricians will begin to arrive this week, raising the number of workers at the site from 45 to 70.

Column steel will arrive in two weeks. Next month, cranes from Germany will follow to begin the hotel's long crawl to the sky.

"We're starting to have fun here now," said Alan Hunt, an Armada/Hoffler site manager. "This is the real McCoy."

One Light Street

But PILOT troubles are unresolved, and the Wyndham is not the only project affected by the financial uncertainty.

J. J. Clarke Enterprises Inc. plans to include a 267-room Embassy Suites hotel in its $120 million One Light Street project also have been dampened.

"Judge Rombro's decision stopped all the trains," said company president Joe Clarke. "[Embassy Suites] doesn't want to wait forever to get open, and it takes two years to get a project like this built. I think eventually all of the hotels that are proposed will get built. It just may take longer than the three to four years everyone initially projected."

Clarke predicts guests will be sleeping at Embassy Suites and admiring the views from One Light Street's 35 floors by Christmas 2001.

A different vision

Perhaps the only hotel project that doesn't seem affected by the lack of financing or other hurdles is the one on a Pratt Street tract owned by Baltimore City Community College.

Developers of the 278-room, thus-far-unbranded hotel contend that its relatively inexpensive room rate and location across from the National Aquarium and Power Plant will make it a cinch to finance.

"Our vision is totally different than other projects being proposed," said Samuel M. Switzenbaum, president of Switzenbaum Realty Capital, a Philadelphia company. "They are building very large, very fine, convention hotels. But that's not our business. We build smaller, family oriented projects where the rooms are less expensive.

"We want our hotel filled seven days a week, not just when conventions are in town," Switzenbaum added. "As such, our capital needs are different."

Switzenbaum believes the hotel, part of a Kravco Co. plan to develop $90 million worth of retail and office space, hotel rooms and parking decks on the BCCC site, will break ground later this year. Kravco is a Philadelphia-area shopping center developer.

Schulweis wants to break ground for the Westin at the former News American site on Pratt Street. Whether he can depends largely on the Wyndham's progress, whether H&S; Properties can secure a PILOT and on the development team's ability to surmount hurdles.

"There's no question that Paterakis' decision to go forward has impacted our project and Angelos' project, because it has influenced the capital markets' approach to Baltimore," said Schulweis, who unlike Paterakis or Angelos has pledged to develop his 28-story hotel without public subsidies. "I'd like to go ahead, but I have to think about what kind of deal I can structure."

Fortunately for Schulweis, he will probably have lots of time. The hotel race has turned out to be a marathon, with miles to go.

Pub Date: 2/01/99

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