By Sam Levin
By Sam Levin
By Sam Levin
By Jessica Lussenhop
By Sam Levin
By Timothy Lane
By Sam Levin
By Dennis Brown
There may have been another factor in GMAC's rebuff, though. The giant mortgage lender backed out of the project within weeks of receiving a market study prepared for it by Boston-based Pinnacle Advisory Group, a leading hotel consultant. "They actually did a feasibility analysis and an appraisal that GMAC was going to use in their underwriting process, and shortly thereafter they (GMAC) made a quick about-face," says Gary Andreas, a hotel-industry consultant with St. Louis-based Tellatin, Louis, Andreas & Short Inc. "I'm sure it wasn't their sole basis for changing their mind, but it was probably one of several contributing factors." A GMAC spokesman did not return calls; Pinnacle principal partner Dan Hanrahan declined comment.
GMAC's decision to withdraw left a major gap in the financing -- one filled, at least temporarily, by Mercantile Bank, which agreed in late 1998 to take the lead in putting the mortgage together. Credit for the bank's move went to bank chairman John Dubinsky and Tom Reeves, a Mercantile senior vice president who served on Harmon's hotel-selection committee.
"We saw this as such an important project for St. Louis, and we were involved obviously heavily as far as the redevelopment efforts on a number of projects down on Washington Avenue. So we saw this as a cornerstone to really continue that," Reeves recounts. "We stepped in and offered to use our experience to structure a consortium of banks or put together a consortium of banks to step in for the first mortgage and the construction financing."
Mercantile invited NationsBank (now Bank of America) into the deal but continued to seek other sources of financing. "We all agreed, if we can make this deal better and stronger as we go -- that's a good thing," Reeves says. "And we've since gotten more creative and used more economic development tools that have become available, including the empowerment zone (bonds)." Mercantile, the last big bank headquartered in St. Louis, was acquired earlier this year by Firstar Corp. in a $10.6 billion deal; Reeves recently left the bank to head Downtown Now, the umbrella organization that links the city's most influential political and business interests.
Although Mercantile and Bank of America continue to play key roles in the hotel project -- providing construction financing, marketing bonds and buying some tax credits -- the bulk of the financing for the $242.2 million project is a rich stew of direct public subsidies, tax credits, taxable and tax-exempt bonds and TIF bonds.
Asked why the banks aren't involved in the long-term mortgage financing of the hotel, Reeves says, "Hotel financing, in general, is a unique type of lending. It's good business, but you really have to understand what you're doing. It's difficult for out-of-town banks to come into a market and really understand the market itself. Hotel financing is a specialty because it's an operating business, and you have to understand not only the market but the operations themselves. We saw this, quite frankly, as a project that needed to be done locally, so we had control of the destiny of this hotel in St. Louis, instead of Wall Street."
As it turned out, though bankers and underwriters still control the destiny of the project, much of the financing has fallen on government agencies and taxpayers.
· The biggest single chunk of funding -- $77 million -- is expected to come from the sale to private investors of tax-exempt empowerment-zone bonds, which are expected to go to market in early 2000. To qualify for the bonds, the hotel must "use its best efforts" to employ about 210 workers who live in the empowerment-zone area, which includes depressed areas of St. Louis, Lemay, Wellston and East St. Louis.
· Two additional series of bonds, expected to generate $40 million, will be issued by the city's Land Clearance for Redevelopment Authority. Unions, thanks to the deal brokered by Kelley, will be buying $30 million of the bonds.
· Nearly $34 million for the project will come from the proposed sale of federal and state tax credits, including a substantial purchase by Housing Horizons LLC, an affiliate of papermaker Kimberly-Clark Corp.
· The Missouri Development Finance Board has agreed to issue $16.5 million in bonds to pay for the parking garage destined to take the place of the Herkert & Meisel building.
· The agreement signed June 22 by Harmon, Slay and city Comptroller Darlene Green commits the city of St. Louis to providing more than $74 million for the hotel project -- but four months after the mayor announced the deal, the city still hasn't nailed down the sources of the funds. According to the agreement, the city would borrow $22 million from the U.S. Department of Housing and Urban Development (HUD) and issue tax-increment-financing (TIF) bonds to raise about $36 million. The agreement did not identify where the city was getting the remaining $16.7 million it pledged to the deal.
But Jones says the agreement was just a starting point -- and the city has the option of finding the least expensive way of raising its share of the project cost. Current plans have the city borrowing as much as $50 million from HUD under a program that allows cities to borrow against future community-development block-grant funds. Jones says the city still plans to rely on taxes generated by the hotel to repay the city's loans rather than use general-revenue dollars or block grants, which are used to support programs for the poor.
Find everything you're looking for in your city
Find the best happy hour deals in your city
Get today's exclusive deals at savings of anywhere from 50-90%
Check out the hottest list of places and things to do around your city