Ritz hotel project funding is reported

3 companies in Europe reportedly agree to $190 million bond deal

July 02, 2002|By Meredith Cohn | Meredith Cohn,SUN STAFF

The five-star Ritz-Carlton proposed on Baltimore's waterfront more than three years ago has broken more construction dates than ground, but its developer said yesterday that he will soon have $190 million needed to build the hotel and condominium project.

The project is more than a year behind its original schedule and is on its third developer. But Edward V. Giannasca II, who officially took over the Ritz in recent months, said a deal has been reached with three private European companies that will fund the project through sale of bonds. The terms were not disclosed.

If the deal closes, it would put Giannasca in an elite group nationally: The Baltimore Ritz would be among the nation's first large hotel projects financed since the terrorist attacks Sept. 11 dampened travel and stamped out lending for hotels, industry analysts said.

"The Ritz-Carlton Inner Harbor, Baltimore project has overcome numerous challenges since its conception," said Giannasca, president and chief executive of Giannasca Development Companies LLC, in a statement to The Sun.

"This further confirms my continued commitment to the city and marks a new generation of opportunity for Baltimore's famed Inner Harbor."

Giannasca was not available for further comment.

The 225-room hotel and 97-unit condo project on Key Highway, billed as Baltimore's most luxurious and modern waterfront accommodations, was envisioned by land speculator Stuart C. "Neil" Fisher in 1999. But Fisher stepped aside as the developer in January 2000 after news surfaced that he had no apparent assets, was refusing to pay a fraud judgment and some of his past developments ended in lawsuits and bankruptcies.

Fisher handed the project off to New York-based L.I. Square Corp., which hired Giannasca as its local president. L.I. Square backed out after September, and Giannasca stayed on to head the project.

He has faced several hurdles, including complaints from neighbors about the Ritz's size and design. Several people affiliated with the project have had unrelated legal entanglements. And there are still two open lawsuits against the Ritz developers for unpaid bills.

But most neighbors and city officials now say they support the project. Securing financing had remained the largest obstacle.

Hotels are heavily dependent on the economy and business travelers to fill their rooms each night, and finance industry professionals say money had been drying up - especially for big and expensive luxury hotels - even before the Sept. 11 attacks. They have expressed skepticism for months that any hotel project would attract lenders.

"If it happens, it would be one of the first approved post-Sept. 11," said Warren Marr, an industry consultant for PricewaterhouseCoopers LLP. "The luxury segment has been the hardest hit."

Marr said he was not familiar with the European lenders but said it was not uncommon for a consortium of local or foreign companies to be formed to pay for such an expensive hotel. Insurance companies, which could ultimately buy the bonds, often finance real estate because they have large sums of cash on hand that they need to invest.

Rod Petrik, a managing director and hotel analyst for Legg Mason Wood Walker Inc., who also was not familiar with the companies, added that the three lenders have likely done business together before and likely specialized in lending for hotels or higher risk projects. He said he could not comment on the deal because the terms were not disclosed.

But he said the markets are loosening the purse strings some, and the condos - priced from $450,000 to $3 million - would help the local project.

"Things are looking better today than a year ago," Petrik said. "The home sales market is still really strong, and those condos will help pay down the debt so the lenders are not as exposed."

The lenders could not be reached for comment, but Giannasca said through a spokesman that three companies in the lending group had worked together before to finance real estate projects.

The Burley Group, an English bond broker that specializes in placing bonds with insurance companies, assembled the group, Giannasca said. London-based Crestwell Financial, working with Burley, is the lead lender, he said.

Radios Assurance Scandinavia AB, a Swedish company, will indemnify the lender, according to Giannasca. The loan guarantee would make the lenders feel more comfortable because Radios would pay if the borrower defaulted, he said.

Giannasca said that the deal is expected to close early this month. The loan is for construction, but unlike traditional loans, it will have a term of up to 10 years, he said. Typically, construction loans are good only for a few years until the real estate projects are up and running and then another, permanent lender steps in. Giannasca will eventually need to find a permanent mortgage.

When the construction cash comes, Giannasca said, a separate deal will close on the Key Highway land once used as a Bethlehem Steel propeller yard.

That land is owned by Richard Swirnow of HarborView Properties Development Co.; Lupert-Adler, a Philadelphia-based venture capital company; and the Johns Hopkins University.

Johns Hopkins spokesman Dennis O'Shea said the deal had not closed, and he could not comment on it. But, he said, "News that it's going forward is good news for the city and for the city's economy."

The city has no direct financial stake in the project.

Giannasca said he will write checks to the two former developers, once the lenders' money is in hand. Fisher, the original developer who had held an option to buy the land, is to be paid an undisclosed sum. L.I. Square, the second developer, will also receive a fee and reimbursement for costs, including construction of a condo model and office operations.

As for the Ritz-Carlton Hotel Co., the name having been the key to landing potential condo owners, a spokeswoman for the company said she could not comment. The agreement to manage and lend its name is not final.

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