Real estate developers contemplating four hotels downtown -- who were initially excluded from receiving financial subsidies by the city -- say they will apply to receive property tax breaks if a bill being considered in Annapolis becomes law.
Developers of hotels planned downtown at Light and Baltimore streets, at 300 E. Pratt St., on Key Highway across from the Inner Harbor, and at the Baltimore City Community College all say they would seek tax relief via "payments in lieu of taxes" (PILOTs) if Senate Bill 352 becomes law. The four hotels would contain about 1,400 rooms.
"It's become more and more apparent that even for us it would be very difficult if not impossible to get a 600-room hotel built downtown without public assistance," said Harvey Schulweis, president of Schulweis Realty Co., a New York firm that has proposed a $124 million Westin Hotel at 300 E. Pratt St.
The Senate bill would give the city the ability to grant millions of dollars in property tax breaks via PILOTs, which allow developers to negotiate the amount of taxes they pay to governments.
Schulweis' plan to request a PILOT for the Westin at the former News American site reverses his earlier statements that the 28-story project would be developed without financial incentives.
Schulweis, whose partner, ING Group, is one of the world's largest financial services firms with more than $400 billion in assets, said the change stems from underwriting requirements to obtain financing.
It is a sentiment echoed by several other prospective PILOT applicants and legislators.
"It comes down to simple arithmetic," said Sen. Barbara A. Hoffman, who chairs the Senate committee that will hold hearings next week on the Senate bill. "Development costs relate directly to how much you can charge per room night, and no one will finance a hotel if those costs are too high."
"I would definitely apply [for a PILOT]," said Neil Fisher, the Florida developer working to build a 250-room, $85 million Ritz-Carlton south of the
Inner Harbor. "If I spend $230,000 a room to develop a hotel and then am able to charge $205 per night, at an average 70 percent occupancy, the project would be bankrupt."
Fisher is banking that sales of 40 luxury condominium units included in the project will offset development costs and mitigate his need for a PILOT.
If the hotels seeking tax breaks are approved, it would increase to six the number of downtown hotels with permission to eliminate property taxes for as long as 25 years. The projects represent more than $500 million in taxable improvements.
Two other hospitality projects proposed for in and around downtown -- a $17 million Comfort Suites near Johns Hopkins Hospital and an estimated $14 million Residence by Marriott planned for Light and Redwood streets -- would be unable to apply for a PILOT because they will fail to meet the $20 million value criteria in the Senate bill.
"In the early years of a hotel's operation, it's not terribly profitable," said Michael Mahoney, director of hospitality and leisure consulting for PricewaterhouseCoopers, a leading accounting and consulting firm.
The city approved PILOTs for a 750-room Wyndham International hotel at Inner Harbor East and an 850-room Grand Hyatt that attorney Peter G. Angelos and the Chicago hotel chain are planning across from the Baltimore Convention Center.
The City Council was studying -- and was expected to approve -- a PILOT for a 267-room Embassy Suites hotel in a planned 35-story, $120 million skyscraper known as One Light Street, but a judge's ruling froze that consideration. That PILOT would let J. J. Clarke Enterprises Inc. pay property taxes of $145,000 for 10 years.
"We would be putting $120 million worth of taxable property on the rolls and generating $3 million a year in other taxes," said Joseph Clarke, Clarke Enterprises' president. "I think that's a fair deal."
City officials and other supporters of the bill contend that PILOTs are necessary to stimulate economic development. Opponents contend that the bill would weaken Baltimore's declining property tax base and the PILOT process would be open to political favoritism. A hearing on the bill is scheduled for Wednesday in Annapolis.
An existing law allowing PILOTs was struck down in November by a city circuit judge, after community groups filed lawsuits to block about $75 million in tax breaks the city pledged to the Wyndham International.
"We not only envision paying taxes, but paying much more in taxes than the property generates now, which is nothing, because the land is state-owned," said Wayne L. Snyder, chairman of Kravco Co., the Pennsylvania firm selected to develop a $90 million, mixed-use project on Baltimore City Community College land on Pratt Street.
Snyder estimates that the retail, office and parking project, which is slated to include a 278-room hotel, will pay in excess of $1 million in taxes annually.
Pub Date: 3/13/99