MEDCO lends $6 million to finish resort

Money will furnish Hyatt being built in Cambridge

Aug. 29 opening planned

Md. agency comes to rescue

Snags have caused 3 delays since December

May 14, 2002|By June Arney | June Arney,SUN STAFF

The state will lend $6 million to the long-delayed Hyatt Regency Chesapeake Bay Resort project to buy furniture so that the 400-room hotel can open at the end of August, officials said yesterday.

The $74.4 million resort on the banks of the Choptank River in Cambridge is scheduled to open Aug. 29 after three earlier scheduled opening dates - Dec. 1, March 1 and June 1 - went by the wayside.

The $6 million loan to the Hyatt project will come from the Maryland Economic Development Assistance Authority and Fund, within the state's Department of Business and Economic Development.

FOR THE RECORD - A headline in yesterday's Business section misidentified the source of a loan to help pay for furniture for the Hyatt Regency Chesapeake Bay Resort. The $6 million loan comes from the Maryland Economic Development Assistance Authority and Fund within the state's Department of Business and Economic Development. The Sun regrets the error.

The state previously had agreed to a $5 million loan guarantee for furniture, fixtures and equipment, with a provision that the guarantee could be converted to a loan, said Jacqueline Lampell, a spokeswoman for the department.

The state recently added $1 million to that convertible loan guarantee to ensure that the project would be completed and because of the significant contribution Hyatt is making, she said.

"Originally, it was to be a loan guarantee," said Hans F. Mayer, executive director of the Maryland Economic Development Corp., the quasi-public nonprofit agency that owns the hotel. "At this point, the cash was needed."

Early in the project, the resort's three partners had agreed to evenly split the approximately $16 million cost of furniture, fixtures and equipment if two financing arrangements fell through.

One arrangement was to finance the purchase through bonds from the Maryland Industrial Development Financing Authority. The other was through the backing of a private insurance company.

Those options fell through when the bonds could not be sold in the economic slump and the insurance company went into receivership.

One of the resort's three partners, Clark Enterprises Inc. of Bethesda, chose not to pay its share of the cost of the furnishings, Mayer said.

Another partner, Hyatt Hotels and Resorts of Chicago, agreed to pay $6.3 million, while the third partner, Quadrangle Development Corp. of Washington, was willing to pay $3.94 million, he said.

Clark officials said yesterday that they were never obligated to pay for the furnishings.

"It's important to note that this was an investment option to Clark Enterprises," said Robert J. Flanagan, the company's executive vice president.

"The governing documents dictated that participation was not mandatory. After a careful analysis and review, Clark Enterprises decided not to pursue this particular investment option. We greatly look forward to the completion of this project and the opening of the resort."

Mayer countered that the investment was optional until the first two options fell through.

"Once all that failed, it would have been expected that they would have participated," Mayer said. "Any of the three was the stopgap. There was certainly no intention that we'd go through three options and have no furniture."

The project hit a major snag in March when Clark Construction Group Inc., the resort's general contractor and a subsidiary of Clark Enterprises, filed papers in Dorchester County Circuit Court to obtain a mechanic's lien, claiming it was owed an additional $20 million in cost overruns.

Officials at Maryland Economic Development Corp., known as MEDCO, countered that Clark had signed a maximum price contract of $70.8 million, with change orders bringing the approved cost to $74.4 million.

The dispute has left subcontractors unpaid and furniture for the resort undelivered.

Matters related to the subcontractors and the construction contract remain unresolved, officials said yesterday. A hearing on the mechanic's lien was postponed pending negotiations. No new date has been set.

"Clark Construction and its subcontractors, which are still owed payment by the owner, are working toward the planned opening date," R. Steven Holt, senior vice president and general counsel for Clark Construction, said in a statement yesterday.

"We look forward to completion of the project, which will provide enormous economic benefit and employment opportunities to the community and the state of Maryland. However, issues regarding the increased cost of the project and additional compensation owed to the companies that worked on this project have not yet been resolved, and negotiations are ongoing."

Quadrangle officials did not return telephone calls yesterday.

Quadrangle and the other partners were able to ensure that bonds used to finance the project would be tax-exempt. This was done by placing official ownership with the nonprofit MEDCO and by situating the resort in a tax-favored enterprise zone.

The partners paid the state $5 million for the property of the former Eastern Shore Hospital Center, then leased the resort and golf course portion of the property back to MEDCO.

The remainder of the property is still owned by the three partners. Private homes are to be built there.

The six-story luxury resort, part of a $150 million project, will have three pools, a health spa and a wildlife refuge.

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