An hour before dozens of Richmonders packed the aisles of City Council chambers to sound off on a Shockoe Bottom ballpark last week, a small number of city officials and council members sat quietly, receiving an update on the much-anticipated Miller & Rhoads hotel. The news wasn't so good.
The banking community isn't so bullish on downtown Richmond, explained Michael T. Laing, managing officer of ECI Development Services, which is developing the hotel. ECI is owned by Chicago developer Gary A. Beller.
To build the hotel, ECI tried borrowing from local banks. No go. It went to national lenders. Nothing. Apparently, the economic aftershocks of 9/11 are still reverberating. Low convention-center traffic across the street — particularly from out-of-towners who stay in hotels — isn't helping.
Without a lender, the plans to convert the former Miller & Rhoads department store on Broad Street into an upscale, 329-room hotel are scuttled. Already, the project is more than eight months behind schedule.
"We have accepted reality a bit," Laing told City Council's finance committee. "The market is telling us that today in Richmond, 330 rooms is not financeable."
As the debate over a Bottom ballpark development heats up, the Miller & Rhoads project serves as a cautionary tale to city officials considering another taxpayer-funded development deal.
The Richmond Braves and their partner, Global Development Services, are promising to spend $250 million for a residential, office and retail community to go with a new ballpark — for a combined $330 million project. The Miller & Rhoads developer made a similar, albeit much smaller, $70 million promise.
In terms of scale, the projects are worlds apart. But their ties to public buildings and the issuance of tax-free bonds are quite similar. They're each private ventures that are necessary pieces to publicly financed projects. The hotel helps the convention center; the Shockoe Bottom village would go with the ballpark.
The private dollars for Miller & Rhoads have yet to materialize, raising the ire of some city officials and businessmen.
"I'm concerned about whether or not Gary Beller has the financial backing that he originally represented when he originally proposed his project to the city," said Beverley W. "Booty" Armstrong, co-owner of the Jefferson Hotel and vice chairman of CCA Industries. Armstrong is a key member of Richmond Renaissance, the public-private group that helped lure Beller to Richmond.
The financing package ECI shopped to local banks last year appeared to include little private equity, according to one local real-estate investor familiar with the details. Most of the money Beller brought to the deal came from historic tax credits, this investor said. In later versions of the loan request, Beller's group added some private equity.
Doug Roth, Richmond area executive for BB&T Corp., says his bank received a proposal from Beller's group six months ago. It included "considerable" private equity, Roth said, but not nearly enough to secure the loan. The hotel market wasn't strong enough. "It's not the hotel industry, it's more the urban hotel," he said. "You have to be extremely conservative on that kind of project."
Until last week, ECI had never publicly warned city officials that the deal was in trouble. Beller insisted that with the financial might of his partners, he could do it — even after 9/11 rocked the hotel industry. And he told city officials in late 2001 that the economy wouldn't adversely impact his partners' plans to purchase the Marriott Hotel.
To date, neither has occurred.
Concerns about Beller's financial wherewithal first surfaced in spring 2002, when Cranston, R.I.-based The Procaccianti Group purchased a controlling stake in the bankrupt Marriott for $10.4 million. Beller said he was simply outbid. But those with knowledge of hotel financing say Procaccianti got a bargain, perhaps indicating a lack of financial interest or resources from ECI.
Beller didn't return Style Weekly's calls for comment. After the council committee meeting, Laing also declined to be interviewed. "I have absolutely nothing else to say," he said emphatically.
Laing did tell the council committee that ECI was searching for a partner, "someone with stronger financial backing," to help carry out the Miller & Rhoads hotel. And ECI is reducing the number of hotel rooms from 329 to about 200, with the rest being rented as apartments or sold as condos. With any luck, Laing said, that deal could be in place within the next four or five months. "The last thing" ECI would do is ask the city for a public subsidy, he said.
"ECI has committed to get it done, and to date they have continued to meet their commitment," said William Harrell, the city's interim chief administrative officer and vice chairman of the Broad Street Community Development Authority.
Some observers say that the real lesson of the Miller & Rhoads hotel project lies in how the city failed to contractually tie Beller to it. Further, it's an indictment of the circular logic often used to justify economic development.
The Broad Street CDA, which hired Beller to complete $66.7 million in infrastructure improvements downtown, largely exists to clean up Broad Street to bolster the $170 million convention center. A critical part of the deal to hire Beller, in turn, hinged on his promise to renovate Miller & Rhoads into a hotel. The hotel is critical to the convention center, officials say, because the city needs more hotel rooms on Broad to attract larger conventions.
But Beller's hotel wasn't tied to his contract with the CDA.
Across the country, "downtown hotels are enormously, inherently risky as investments, particularly where they are tied to things like convention centers," said Heywood T. Sanders, a public administration professor at the University of Texas at San Antonio who authored a study on the impact of convention hotels for Government Finance Review in June.
No one should be shocked that developers aren't interested in risking their own wallets, he said. They're looking to make money. "They are not seeking to do the city a favor," Sanders said, "nor are the potential lenders who are ultimately responsible to their boards and their stockholders likely to make investments that are inherently risky." S