Hotel plans dropped from Norfolk medical office project

NORFOLK

Citing the troubled economy, the developer of the proposed Fort Norfolk Plaza has dropped an extended-stay hotel from the project.

Dr. Keith Newby said Thursday he is in "close negotiations" with an investor to shore up financing for the project, which now will include a medical office building, a parking deck, a jazz club/restaurant and retail shops. He estimated the scaled-back project would cost $40 million to $50 million, down from about $85 million.

"Everybody was worried about the hotel because hotels are inherently riskier," Newby said.

The project had included a Hyatt Summerfield Suites extended-stay hotel that would have catered to people visiting the medical complex across Brambleton Avenue. That area includes Sentara Norfolk General Hospital, Sentara Heart Hospital, Eastern Virginia Medical School and Children's Hospital of The King's Daughters.

Newby, a Norfolk cardiologist, said he, too, was concerned about the hotel's viability, given other hotels being developed nearby, including a Residence Inn extended-stay hotel a mile away in downtown Norfolk.

The project is being subsidized by Norfolk, which wants to revitalize the surrounding riverfront area. Long known as Atlantic City, the area historically has been home to warehouses and other industry but is now underutilized.

City officials pledged to give about 2 acres of land, valued at roughly $2.5 million, to Newby for the project. Last year, the City Council approved a performance grant and loan package worth up to about $11.5 million for the project, but Newby said he expects it to be scaled back to reflect the loss of the hotel.

Roderick S. Woolard, Norfolk's economic development director, said the city is working with Newby to evaluate the changes to the project and what they might mean for the city's involvement.

Like many real estate projects lately, Fort Norfolk Plaza has seen its share of bumps. The project was supposed to be under construction by now, but financing from a key investor fell through earlier this year.

But Newby said the market for the heart of the project, the medical office building, is solid. He already has leases in place, including one with Sentara Medical Group, Sentara Healthcare's physicians group.

"We have a number of practices where leases are ending and we've outgrown our space," said Ray Williams, the medical group's vice president for operations. "This was perfect for us."

Williams said Newby and Sentara have been in close contact throughout the project's ups and downs and he considered the delays to be short-term. "We're not seriously concerned," he said.

The loss of the hotel means that the nine-story medical office building will no longer be built atop the parking deck, which will save a lot of money, Newby said. He said he hopes construction will begin by June.

Newby said the physicians and other staff will provide a built-in clientele for the project's retail shops and he hopes the jazz club/restaurant will become a destination.

"To help grow that area, that's the kind of thing I think you need," he said.

Nancy Young, (757) 446-2947, nancy.young@pilotonline.com