A Christmas gift for Mr. Paterakis Wyndham Hotel: Taxpayers kept in the dark about windfall deal to build skyscraper.

December 14, 1997

THE CITY COUNCIL is about to make a big mistake. It seems willing tomorrow to approve two key bills related to the controversial Inner Harbor East Wyndham hotel, even though there is not yet a firm financing package detailing huge taxpayer subsidies for the $132.6 million project.

The approvals would enable John Paterakis and his partners to build a 430-foot hotel, the city's second tallest skyscraper, on land that has a 180-foot height limit. The action would amount to an early Christmas gift to the long-time political contributor to Mayor Kurt Schmoke and several members of the council.

With outside financing and tens of millions of dollars in taxpayers' money, Mr. Paterakis and three partners -- whose total cash outlay is only $6 million -- would reap a windfall. Within three months after the completion of the skyscraper south of Little Italy, they are contracted to sell 94 percent of their interest to the Patriot American real estate investment trust, a multi-billion-dollar operator of hotels and casinos in the United States and abroad. Three years later, they intend to sell the rest, ending any local or minority ownership in the hotel.

Mr. Paterakis' windfall would not be limited to quick profits from the Patriot American deal. With a 41-story hotel in the Inner Harbor East, the value of his adjoining land would skyrocket. So would the redevelopment value of several additional acres between the hotel and Broadway. Those parcels now house his local bakeries, the centerpiece of a family empire whose revenues top $100 million a year and which produces half of all buns used for McDonald's sandwiches in the U.S. They employ several hundred people in Baltimore alone.

Mr. Paterakis' stake in the deal is land valued at $11.5 million he bought at a fire sale in 1986. That land gives him a relatively risk-free 50 percent controlling interest in the hotel development partnership. The other partners are Stormont Trice Development Corp., of Atlanta, which has a $4 million equity investment (25 percent share); Armada/Hoffler Construction Co., of Chesapeake, Va. ($1.3 million investment, or 16 percent share) and H.J. Russell & Co., of Atlanta ($700,000, or 9 percent).

This information from developers' submissions, confirmed by a Paterakis official, has not before been made public. The developers and the Schmoke administration's economic development arm, the Baltimore Development Corp., have steadfastly refused to release it.

They have also refused to disclose exact financial arrangements concerning H.J. Russell, a family enterprise that is the nation's leading African-American construction firm. H.J. Russell's participation is little more than window dressing. After three years -- enough time to avoid two sets of closing costs -- that company, too, has agreed to sell its share to Patriot American, which will become the hotel's sole owner.

All this information is contained in developers' filings with the BDC. At least one of Mr. Paterakis' hotel rivals also has the data. But neither the City Council nor Baltimore taxpayers, who will be asked to help bankroll the hotel, have been given this information. Yet the council is about to saddle ordinary citizens with long-term obligations.

Because the Wyndham deal is being presented to the City Council piecemeal, no one knows yet how sizable the taxpayer subsidy will be or exactly how it will be structured. The Schmoke administration says it will have the financing package ready for the council in February.

Initially, various public subsidies were supposed to amount to more than $50 million of the hotel's $132.6 million price tag. But when City Council President Lawrence A. Bell III and Coucilman Martin O'Malley recently ruled out the use of $20 million in parking revenue bonds for the project, the Paterakis partners quickly indicated they could do without that money. No final decisions have been made, however.

Cities routinely subsidize convention hotels and other businesses. Taxpayer subsidies are an important economic development tool, which we have supported in many cases in the past. In fact, The Baltimore Sun is the beneficiary of city tax incentives, primarily enterprise zone credits, in connection with its modern printing plant in Port Covington.

What makes the proposed Inner Harbor East Wyndham different is that the developers receiving subsidies would almost immediately cash in their profits. Public aid for the hotel also promises to be unusually high. Philadelphia, for example, has made commitments for up to $100 million in aid to hotel builders. But that would subsidize the construction of at least six new hotels, with more than 2,000 rooms, most within an easy walk of the convention center.

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