Union-owned insurer will finance Hyatt

Angelos is expecting construction to start later this year

30-year mortgage at 8%

Unionization required at new Hyatt as well as at existing Regency

Hotels

March 04, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

A Washington life insurance company founded by a labor organization agreed yesterday to finance the 850-room downtown hotel of attorney Peter G. Angelos and Hyatt Hotels Corp.

Union Labor Life Insurance Co.'s decision to back the $175 million Grand Hyatt across from the Baltimore Convention Center all but assures the city of a second new downtown hotel.

A $134 million Wyndham International hotel is under construction east of the Inner Harbor. Six other downtown hotels -- including the Grand Hyatt -- are in the planning stages.

"My goal is to get the financing done because, without a new hotel to go with it, the convention center will never reach its potential, and as a consequence the economic benefits the convention center promises won't be realized," said Angelos, who has represented several unions throughout his legal career.

Angelos, the majority owner of the Orioles, expects construction on the 22-story Grand Hyatt to begin later this year.

But before work can begin, Angelos and Hyatt must finalize details, including a "payment in lieu of taxes" (PILOT) agreement with the city that will give the hotel millions of dollars in tax breaks over the next quarter century.

Concluding the agreement is expected to be a formality, because the city has said it would provide tax breaks for the Grand Hyatt, which also is to be built on city-owned land.

Angelos and other hotel developers contend that the financial incentives are necessary to bridge the gap between cost of development and the amount that can be charged in room rates.

Under terms of the Union Labor Life financing, the Angelos-Hyatt team's 30-year mortgage will carry an average 8 percent interest rate, sources said. Angelos and Hyatt have committed to invest at least $25 million each in the project.

Angelos' meeting with representatives of Union Labor Life was described as "productive and positive" by John Rodgers, a spokesman for the insurer. "And now, they're working toward final resolution of a few details."

The financing had been essentially in place for months, but Hyatt officials objected to a Union Labor Life stipulation that employees of both the Grand Hyatt and the existing Hyatt Regency be unionized.

Hyatt officials agreed to the stipulation after traditional sources of financing became unavailable, the result of Wall Street fears of an economic slowdown and over whether too many hotels were built during a recent construction frenzy.

"The biggest difference between a union hotel vs. a nonunion hotel isn't the salary and benefits costs, as most people think, but it's the issue of cross-utilization of staff," said Michael Mahoney, director of hospitality and leisure consulting at PricewaterhouseCoopers.

"In a union hotel, rules prevent management from getting a painter to do a carpenter's work and vice versa."

Created by AFL

Making a loan with an organized labor string attached is nothing new for Union Labor Life, which was created by the American Federation of Labor 74 years ago after its members were denied life insurance.

Late last year, the company acquired an interest in and is financing the development of the 1,087-acre Playa Vista community in Los Angeles, on the condition that it will be built entirely by organized labor.

The project, which will take 15 years to complete, will employ more than 100,000 construction workers.

"When we make a first mortgage, it's with the understanding that at the very least the construction work will be done with organized labor," Rodgers said.

Union Labor Life has more than $1 billion in outstanding mortgages, he added. In all, the company has $2.5 billion in assets and manages more than $6 billion in union pension funds.

`Legitimate convention city'

"This will make Baltimore a truly legitimate convention city," Angelos said.

"It will make secure the many millions of dollars invested by the state in the convention center expansion, and ensure that in the future Baltimore will be able to offer the finest convention and hotel facilities, which will be as good or better than anywhere in the country.

"With the blending of the Hyatt Regency and Grand Hyatt there will be more than 1,300 rooms available, enough to attract major conventions," he added.

Pub Date: 3/04/99

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