Portsmouth council frets as hotel misses building date

PORTSMOUTH

Bulldozers and excavators stood idle last week on the downtown site where a new Holiday Inn Express was supposed to be built by now. Work preparing the site for the hotel has slowed considerably, and the City Council has been asking why.

More than 90 percent of the site work has been completed, but construction of the hotel itself has yet to begin.

Council members say they still support the $13 million project but have asked the city's Economic Development Authority, which is overseeing it, to make sure the terms of the contract for the land sale are met.

"We've got to make this happen, but we don't want the city to lose money on the deal, either," Councilwoman Elizabeth Psimas said.

The city should already be collecting tax revenue from the project, she added.

On May 1, the Economic Development Authority sent a letter to Old Towne Hospitality LLC, the company developing the 120-room, full-service hotel, billing the company $10,000 for each month that the project remains unfinished.

Developer Jay Barot has asked for more time.

The hotelier said in a phone interview Thursday that he knows the $10,000 fee is part of the agreement he signed with the development authority. The company bought the nearly 4 acres next to the on and off ramp to Interstate 264 from the authority in February 2008.

Construction of the hotel was supposed to be finished April 30. Barot asked for a waiver as he works with the city, his attorneys and lenders to line up financing. He's already invested more than $1 million of his own money in site work.

"It's unfortunate, the economy we're in," said Steven Lynch, Portsmouth's economic development director. "None of us could have predicted it two years ago."

City leaders have supported building a hotel on the site, in part to replace the Holiday Inn on Crawford Parkway that closed last year.

"It's a project that we're all excited to have, and it's a project that we need in the city," Lynch said.

Councilman Doug Smith said he'd still like to see the Holiday Inn or a comparable hotel on the site. It's an important piece of land at a gateway to the city that could be part of revitalizing that corridor, he said.

"We just want to make sure we get what we bargained for," Smith said.

Old Towne Hospitality had planned to use $11 million in federal enterprise bonds and $2 million in tax credits to help finance the project.

The original intent was to line up the financing on or before Dec. 31, according to an e-mail that Lynch sent to City Manager Kenneth Chandler on March 12. The Virginian-Pilot obtained the correspondence through a Freedom of Information Act request.

Barot's advisers told him to cancel the transaction because of a lack of investor interest in the bonds, according to the e-mail.

The city sent out a news release on April 21 stating the City Council's concerns over the land sale.

"With EDA's action taken to sell the property completed, concerns have arisen as to the developer's ability to obtain or maintain the required financing package in today's economic market," the statement said.

Council members called upon the Economic Development Authority in April to "vigorously evaluate the key requirements and deadlines." Barot responded by asking for more time to seek financing.

That includes $13 million in New Markets tax credits from Southside Development Enterprises LLC, which is part of the Portsmouth Redevelopment and Housing Authority.

Private investors can buy the credits, which in turn provide capital for projects in low-income communities.

"We are continuously working on various options and hope to achieve our goal in a short time," Barot said.

Kathy Warren, director of development for the Portsmouth housing authority, said Old Towne Hospitality needs a firm commitment for the rest of the project's financing by June 17 to qualify for the allocation of credits.

That's the deadline for Southside Development Enterprises to close on the credits, Warren said.

Lynch said the city is working with Barot to line up financing by the deadline. Otherwise, they will seek other funding options.

The contract allows the Economic Development Authority to repurchase the land at the original sales price.

Jen McCaffery, (757) 446-2627, jen.mccaffery@pilotonline.com