|
HUD loan program benefits hotels
By Andrea Estes, Globe Staff, 12/8/2003
The federal Department of Housing and Urban Development
says its Community Development Block Grant loan guarantee program
is "one of the most potent and important" tools it can
give cities to jump-start "distressed areas" where private
investors are loath to go.
Boston, however, has found another use for the program:
luxury hotels.
Three big hotel deals announced recently by the
city -- in tony Back Bay, the North End's waterfront, and in South
Boston near the new convention center -- are being financed with
$40 million backed by Boston's HUD community development funds.
The Mandarin Oriental Hotel is being billed as the
finest hotel Boston has ever seen, set in the "sophisticated
panache" of the Back Bay. The Regent Boston Hotel on Battery
Wharf is being described as a "spectacular" five-star
experience in a parklike setting, with beautiful harbor views and
"every conceivable amenity." The third is a 790-room Westin
Hotel designed to accommodate convention guests near the South Boston
Waterfront.
City development officials said the deals are consistent
with HUD's intent of doing projects that "renew entire neighborhoods"
because the hotels will provide tax revenue for the city and jobs
for low- and moderate-income people. Some neighborhood activists
and city councilors, however, think the money would be better used
in poorer parts of the city, rather than for service jobs in well-to-do
areas.
"To see our [Community Development Block Grant]
money being used to strengthen the position of the wealthy in our
city should be a matter of great concern to those who believe in
economic justice," said Boston City Councilor Chuck Turner,
who represents Roxbury.
The City Council passed the measure without discussion
and without a hearing when it came up for a vote in March. Several
councilors said they did not fully comprehend the implications of
the measure.
Councilor at Large Maura Hennigan, the sole "no"
vote, said: "I felt very uncomfortable taking a vote on a matter
that would be allowing wealthy developers to benefit from windfall
gap financing at the expense of local neighborhood development initiatives."
Under the program, called Section 108, HUD issues
bonds in the city's name. The city then loans the money to the developers.
Three developers were selected out of seven who applied: Joseph
Fallon, Robin Brown, and Harold Theran.
Fallon, a longtime friend of Mayor Thomas M. Menino,
is developing the Westin Hotel in South Boston. Brown and partners
Julian Cohen and Stephen Weiner are building the Mandarin Oriental
Hotel in front of the Prudential Center. Theran is developing the
Regent Boston, overlooking Boston Harbor at the end of Hanover Street
in the North End.
The Mandarin and the Regent will also offer condominium
residences. At the Regent, condo prices will start at $700,000 for
an 800-square-foot unit with no view, according to Theran. The Mandarin
condos will start at $2 million.
The city will provide partial financing for the
projects, which have been stalled because conventional lenders have
balked at financing hotels since the Sept. 11, 2001, terrorist attacks.
The developers will pay hefty interest on the loan
-- 12 percent -- which city officials say is another reason the
deal is good for the city. If a developer should default on the
loan, however, the city's $28.5 million in annual Community Development
Block Grants -- grants that are used for such programs as the city's
Fair Housing Commission and housing for people with AIDS -- could
be jeopardized.
The city would be responsible for the loan payments
the hotel developers should have made. The money would be deducted
from the city's Community Development Block Grant allotment for
the next year, unless the city tried to recoup its investment by
foreclosing on the hotel. That would place the city in the awkward
position of being a hotel developer/operator.
"If it came to that, the city wouldn't be in
a position to manage or run [the hotel]," said Samuel Tyler,
president of the Boston Municipal Research Bureau, stressing that
a default is unlikely. "The city would have to try to sell
it, or contract it out to experts -- the city doesn't have the capacity
to run a hotel. It's not a business they should be in."
City officials downplayed the risk and said the
loans are a good investment in the city's future. "Our whole
focus is to generate jobs and additional construction," said
Mark Maloney, director of the Boston Redevelopment Authority. He
added that, as a condition of loan approval, the hotel operators
must agree to hire a fixed number of low- and moderate-income applicants.
The hotel developers are required to pledge one job for every $35,000
in money loaned.
The Mandarin Oriental, for example, must generate
429 jobs for the $15 million loan it will receive.
Susan Ellsbree, spokeswoman for BRA, said the projects
create "economic opportunity for Boston -- jobs and tax revenue
and housing."
Whether the developer receiving the city loans is
wealthy is irrelevant, she said.
Although the hotel occupancy rate is now 71 percent,
tourism officials say that if the new convention center is to be
successful, the city needs more hotel rooms.
Should the convention center fail, said Hennigan,
the extra hotel rooms will strain the entire industry. "If
the convention center is a bust," she said, "you'll have
all these hotels which will further burden the existing hotels,
which are struggling as it is."
Neither Brown nor Fallon could be reached for comment.
Theran said the city will be handsomely rewarded for helping him
and Brown build hotel-condo complexes.
"Mandarin and Regent have other elements that
dwarf the hotel -- residential and retail and, in my case, a parking
element," he said. "They get many more construction jobs
and many more permanent jobs, and much more in taxes. In two or
three years, we'll bring in as much taxes as the amount of my loan,"
he said.
Risk of default, he said, is minimal, in part because
the developers have already staked millions of their own money in
the projects. In a foreclosure, he said, the city would recover
its money before the equity investors.
HUD officials also defended use of the loans to
build hotels, saying it's been done here and elsewhere around the
country. The Seaport Hotel, developed by Edward C. Johnson III,
chairman of Fidelity Investments, was financed in part using such
loans.
The law that created block grants in 1974 allowed
HUD to provide money to for-profit businesses "when the assistance
is appropriate to carry out an economic development project that
creates or retains jobs for low- and moderate-income persons,"
said Cedric Kam, HUD economic development specialist.
According to Kam, the loan guarantee program has
also been used to finance more traditional projects such as the
development of a shopping center in Roxbury and a printing company
on a contaminated site in Savin Hill. "There have been a lot
of neighborhood projects developed with these funds," he said.
© Copyright 2003 Globe Newspaper Company.
|