NO-SELL HOTEL

Ex-Mayor Vincent Schoemehl swings a headache ball at the city's convention-center-hotel deal -- and misses

You run a major Midwestern city. You've been working for two-and-half years on plans to build a new convention-center hotel downtown. Then you get a call from a local businessman who tells you he's figured out a way to build a hotel that will cost less than yours, open sooner and use less public money.

If you're Mayor Clarence Harmon, you call a press conference, denounce the rogue and describe his proposal as a "bunch of crap." And if you're Aldermanic President Francis Slay, you accuse the guy -- who didn't even bother calling you -- of trying to wreck the city's credibility.

That is, of course, what happened in St. Louis last week.

Of Vincent Schoemehl (above), John Ferrara, CVC chairman and president of the Pasta House Co., says, "His favorite saying (as mayor) was, he can sell the sizzle and somebody else can sell the steak. This is a case of a whole lot of sizzle and very little steak."
Jennifer Silverberg
Of Vincent Schoemehl (above), John Ferrara, CVC chairman and president of the Pasta House Co., says, "His favorite saying (as mayor) was, he can sell the sizzle and somebody else can sell the steak. This is a case of a whole lot of sizzle and very little steak."
Aldermanic President Francis Slay: "An alternative proposal, if we even stop to consider it, could further delay a process that's already taken too long and in the end could jeopardize the hotel deal altogether, which would be a disaster for downtown and the city of St. Louis."
Jennifer Silverberg
Aldermanic President Francis Slay: "An alternative proposal, if we even stop to consider it, could further delay a process that's already taken too long and in the end could jeopardize the hotel deal altogether, which would be a disaster for downtown and the city of St. Louis."

Given that the local businessman is former three-term Mayor Vincent Schoemehl Jr., perhaps Harmon and Slay should be forgiven their fits of pique. After all, Schoemehl's proposal would mean dismantling the complex $242 million-plus deal they struck for their own convention-center-hotel project. It doesn't help that Schoemehl won't discount speculation that he'll be a candidate for mayor in 2001, along with Harmon and Slay.

If Schoemehl's goal was to sell his alternative proposal to politicians who count, he failed. If his intent was to raise questions about the viability of the current hotel project, that's a different story. The heated response to Schoemehl's proposal betrays a fear that the city's deal is vulnerable.

With underwriters working on a prospectus for the first series of hotel bonds, Deputy Mayor Michael Jones says Schoemehl and the investors he's representing want to damage the city's deal. "I don't think their motives were the highest on this," says Jones. "If you just looked at the timing, even if you thought what we're doing was a bad idea, you should have said, "Damn, man -- I should have come up with that a year ago.' You would not wait until this moment to create this kind of confusion. Their motives are less than honorable."

The city picked New Orleans-based Historic Restoration Inc. to build a convention-center hotel in December 1997. The company's proposal was one with broad appeal, because it addressed the needs of the local convention boosters and the goals of preservationists. HRI's proposal calls for renovating and reopening the derelict Gateway and Lennox hotels on Washington Avenue and building a tower immediately east of the Gateway. In total, the company will add 1,081 rooms to the downtown market, all within a stone's throw of America's Center, the city's underused convention facility. Marriott Corp. will operate the hotel, which is scheduled to open in August 2002; the state is financing the construction of an adjoining parking garage at Ninth Street and Washington Avenue.

But the project -- the biggest ever undertaken by HRI -- was slow getting out of the gate as the city and developer struggled to sell the deal to potential lenders. GMAC Commercial Mortgage, which HRI identified in 1997 as its primary mortgage lender, backed out in 1998, and it wasn't until last June that a financing agreement was inked by the city and announced with fanfare by Harmon ("The Big Fix," RFT, Nov. 10). Even then, it turned out the money for the heavily subsidized project wasn't nailed down -- and the city had to seek bigger federal loans and a larger slice of the empowerment-zone bonding authority. The actual deal is expected to close this summer; construction of the hotel is expected after the closing.

The agreement signed in June and approved by the Board of Aldermen is complicated, but the bottom line is that more than $108 million of the project -- about 45 percent of the estimated cost -- comes from state and federal loans, tax credits and direct subsidies. There's little equity investment in the deal, although two of Harmon's campaign fundraisers, businessmen Clifton Gates and Eric Bachelor, will each own 5 percent of the hotel. City taxpayers are on the hook for about $74 million, including future tax revenues from the hotel, which will be used to pay off tax-increment-financing bonds. The sources of financing have been moving targets; for example, the AFL-CIO Building Investment Trust originally agreed to buy $30 million in bonds but has since pared its commitment to half that amount. That forced the city last month to ask to increase the amount -- to $98 million from $77 million -- of empowerment-zone bonds for the project, which are tax-exempt and designed to assist distressed areas, including East St. Louis, Wellston and Lemay.

The changes and delays have continued to feed skepticism about the project. "All the details of the HRI plan have been played so close to the vest that I'm not sure that anybody beyond a real narrow circle really knows what it is," says local hotel-industry consultant Gary Andreas, whose firm -- Tellatin, Louis, Andreas & Short -- did market research for Schoemehl's group. "I would be very suspect that it's as close as they've described it."

Schoemehl says uncertainty about the status of the HRI project was one of the reasons he began exploring other hotel proposals in late summer last year. The former mayor says he was looking for a hotel plan that could do several things -- complement the current wave of investment in the Washington Avenue area, put future conventioneers nearer to Laclede's Landing and, most important, salvage the anemic St. Louis Centre, the struggling downtown mall built with taxpayer help during Schoemehl's first term.

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