City helps fund hotel

Paterakis getting $5 million as grant, $5 million at 2%

Inner Harbor East

Neither Wyndham nor Patriot American is mentioned

Lodging

July 15, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

The city Board of Estimates gave a development group led by businessman John Paterakis Sr. $10 million yesterday for the construction of a hotel east of the Inner Harbor, despite questions about financing and other critical components of the 750-room project.

The action marked a sweeping change from the agreement the city made with Paterakis' H&S Properties Development Co. two years ago. That contract stipulated that the Inner Harbor East hotel carry the Wyndham International Inc. flag and be financed by a Dallas hotelier.

It is unclear whether Dallas-based Patriot American Hospitality Inc. or Wyndham will be involved with the $117 million hotel.

The board's action yesterday amends the July 1997 development agreement. Instead of receiving traditional construction financing, Paterakis will receive the $10 million in exchange for an "absolute, unconditional and irrevocable personal guaranty of repayment."

"Certain changes in the hotel financing require that the procedures be modified under which the city will disburse these funds," Baltimore Development Corp., the city's economic development agency, wrote to the Board of Estimates.

Half of the $10 million will be in the form of a grant, and the other $5 million will be in the form of a 25-year loan with a 2 percent interest rate.

Neither Patriot American nor Wyndham is mentioned in any of the documents submitted to the Board of Estimates.

M. J. "Jay" Brodie, president of the city's economic development agency, said the change was necessary and will ensure that construction of the hotel proceeds.

"Our point of view is that the city is taking no greater risk than before," said Brodie, adding that he reviewed Paterakis' personal financial statements to determine his economic viability.

"If there are problems down the road, there are remedies in place. There still may be a Wyndham or a Patriot American involved, but at this point we just don't know. We're confident that at the end of the day there will either be a Wyndham or a Patriot American or an acceptable substitute."

The amendment states that if Paterakis "abandons construction of the hotel for more than 60 days, the city has the right to call for repayment of all outstanding city funds and to collect from the developer."

Wyndham officials did not return telephone calls seeking comment.

The planned 31-story hotel is one of nine planned for downtown but the only one under construction.

City officials have said that a lack of high-quality hotel rooms has stymied business at the Baltimore Convention Center and threatens the long-term success of a recent $151 million expansion there.

Because of Patriot's troubles and because of three lawsuits protesting the hotel, Paterakis has been personally financing construction since work began in November.

Paterakis has spent more than $17 million on constructing the hotel, BDC documents say.

"There are not many developers that would fund such a project without all the pieces being nailed down," said Michael Beatty, an H&S Properties vice president. "But John has the ability, and he's committed to the project, and he's comfortable enough that all the pieces will fall into place."

The city's initial development agreement states that Paterakis was to obtain a construction loan before the release of the $10 million, but the lawsuits have blocked a NationsBank commitment to finance the project.

Critics of the project criticized the board's action.

"They shouldn't transfer the $10 million, because the whole premise under which the grant and loan were made doesn't exist," said John C. Murphy, an attorney representing Waterfront Coalition of Baltimore Inc., a confederation of East Baltimore neighborhood groups behind the lawsuits that is opposed to the hotel.

"They're giving the money to an individual," he said. "I don't think the city would have entered into such an agreement if they had known that two years ago. A hotel like this needs a national chain with it to succeed.

"The development agreement stated the hotel's financing was to be assured, because Patriot American was putting up more than $70 million."

The Maryland Court of Special Appeals, the state's highest court, is to hear appeals involving two of the three outstanding cases beginning July 22.

One of the cases involves a Baltimore circuit judge's decision to strike down $75 million in tax benefits for the project that would be provided through a "payment in lieu of taxes" program.

The other appeal, protesting amendments to the master development plan for the 20-acre Inner Harbor East, is being sought by the Waterfront Coalition.

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