County keeping options open on hotel incentives

May. 06, 2013 @ 09:11 PM

County Commissioners didn’t close the door Monday on a business-incentive request from a hotel builder that’s targeting the former McPherson Hospital next to Trinity Park, despite County Manager Mike Ruffin’s advice.
They agreed they want more financial information about the $29.4 million project Concord Hospitality Enterprises Co. has proposed for the site, and will likely decide in June whether to grant the tax give-backs the company wants.
All told, Concord is seeking $2 million from the city and county governments. The company’s president of architecture and construction, Tim Osiecki, said city officials verbally have offered $1.2 million.
That leaves $755,000 for the county to pick up, Deputy County Manager Marqueta Welton said.
Ruffin is opposing the deal. During Monday’s work session he repeated arguments that the project isn’t close enough to the Durham Convention Center and isn’t saving enough of McPherson Hospital to make it worthwhile.
But after representatives of Preservation Durham, Downtown Durham Inc. and the Durham Convention Center Authority all voiced strong support for an incentives offer, Ruffin added a new argument.
He in essence said Concord had made too many costly design concessions to the Trinity Park Neighborhood Association, along the way abandoning the possibility of using off-the-shelf blueprints for the 143-room Residence Inn extended-stay hotel.
“The incentive is required largely due to exactions the Trinity Park neighborhood required to support the project,” Ruffin said, adding that he “is not sure it’s fair for the county or the city to reimburse” Concord for those costs.
Earlier in the discussion Osiecki had told commissioners an ordinary design would probably have cost the company about $25 million.
The present design, approved by the city/county Board of Adjustment, will produce a “spectacular-looking building that is cohesive with the neighborhood,” he said.
It saves about a third of the façade of McPherson Hospital, uses brick cladding for the hotel’s new walls and meets a local height limit by using structural systems that are “significantly different” from the normal design of a Residence Inn, landscape architect George Stanziale told the commissioners.
The exterior detailing includes windows and other features added with an eye toward designing “a building that didn’t replicate but at least recalled the architectural features of buildings downtown,” Stanziale said.
County Finance Director George Quick said the project should generate enough in property, sales and occupancy taxes for the county to recoup its contribution within five years, even were commissioners to offer the $1 million in subsidies county officials had been pondering.
He and other administrators also said the company asked for incentives so the project can meet the rate-of-return expectations of investors, despite the hotel’s likely construction costs.
Quick said his soundings of the industry suggest investors in hotel projects like this one want a return in the range of 15 percent to 20 percent.
Welton said Concord’s investors had been looking for 18 percent to 20 percent and without incentives would have to settle for 12 percent.
Quick said he thought the hotel would generate a 13.77 percent return for investors without incentives and 14.77 percent if the city and county contribute a combined $2 million.
All those figures are higher than the 10.6 percent an investor could presently earn by dumping his or her money into a blue-chip mutual fund like Fidelity Magellan. But real-estate investors typically demand more because of the risk involved in such projects.
Commissioners Wendy Jacobs and Ellen Reckhow initially indicated they could support offering $400,000. But they appeared to soften after Osiecki told them the project likely won’t get built without a $2 million combined offer from the city and county.
Jacobs noted that the site is currently generating about $21,000 a year in taxes for the two governments. Developed, it likely would generate about $136,000 a year, she said.
“Every year this site sits empty, we are losing potential property tax, she said.
Commissioner Michael Page, however, signaled that he shares Ruffin’s doubts about the hotel’s appeal to convention-center patrons.
“I’ve got mixed emotions on this project,” he said. “I see this really, because of the distance of it, being more of an asset to families that come to Duke [University] Hospital, more than to the convention center.”
But convention center board Chairman Patrick Byker countered Ruffin’s claim the hotel is outside convenient walking distance of the center. He noted that the city’s Bull City Connector would run right outside the hotel’s door.
Moreover, the convention center often sends business to a hotel out by Northgate Mall, “and certainly this location would be closer,” Byker said.