Tag Archives: Pere Marquette

Who’s actually paying for the Caterpillar Sky Walk?

Remember in my last post, how I said Caterpillar had purchased the naming rights for $1 million? Well…

Under the “Purchase” section of the Naming Rights Agreement, one of the conditions that must be met for the deal to go through is this: “Pere Marquette Hotel Associates, L.P., a Kansas limited partnership shall have paid to Caterpillar the amount of One Million and 00/100 Dollars ($1,000,000.00).” Pere Marquette Hotel Associates, L.P., is the company that sold the Hotel Pere Marquette to developer Gary Matthews.

So here’s how this works: Peoria gives $29 million to Matthews. Matthews gives $7,384,000 to the Pere owners to purchase the property. Pere owners give $1 million to Cat. Cat gives $1 million back to Matthews for naming rights. That $1 million then must be used (as specified in the naming rights agreement) “to pay for non-qualified rehabilitation expenditures … related to the construction of the project.”

This raises a couple questions. First, was the selling price of the Pere artificially inflated in order to kick back a million dollars to the developer? Did that million really come not from Cat’s pocket, but from the taxpayers? And second, where is that money going? Do “non-qualified rehabilitation expenditures … related to the construction of the project” include the developer’s fee, for instance? Or if it’s reinvested in the project, does it count toward Matthews’ personal equity in the project?

Peoria to put retiree funds at risk for hotel

The City Council is voting on a revised redevelopment plan tonight for the undead Wonderful Development. This new plan not only gives the developer $29 million, but also loans him an additional $7 million because he couldn’t get all the private financing he needed.

So the question is, where is this $7 million coming from? I mean, did you know that the City had $7 million sitting around in a pot somewhere? Well, they do … in a retiree benefits fund. According to the council communication: “the City will provide the developer with a 25-year $7 million loan (the ‘Project Loan’) at 7% interest from the City’s Post Employment Benefits Reserve.”

The City is required to keep this Post Employment Benefits Reserve by an accounting regulation known as GASB 45. The idea is that the City should be socking away money now for the health benefits they are obligated to pay in the future to retirees. Of course, the City doesn’t fully fund the reserve. They can’t afford it. So they’re listing an increasingly large unfunded liability on their balance sheet each year.

Now, to make matters worse, they’re going to take what money they do have in reserve and loan it to Gary Matthews to build a hotel downtown — at no interest for the first two years or so, then at 7% interest after that. But here’s the kicker: this loan would be in the third position for repayment. In other words, if the project were to go bankrupt, the banks would get paid back first, then the owners of Big Al’s (who are loaning Matthews money as well), then the City. The City’s loan is subordinate to two other creditors, so the odds of the City getting paid back in the event of default are nil.

Of course, this is just the latest injustice regarding this deal. There still is going to be a $29 million gift to the developer, courtesy of your future tax money. This publicly-subsidized hotel will be competing with other private hotels downtown, giving it quite a competitive advantage. Meanwhile, our taxes (or “fees,” if it makes you feel better) are going up and the City is going deeper in debt, even as our city faces serious public safety issues and its infrastructure deteriorates.

Peoria, your tax dollars are being misused. Does anyone care? Anyone? If the Occupy Wall Street supporters really don’t like money being taken from the 99% and given to the 1%, they should be against this deal. If the Tea Party supporters really don’t like bigger government and support the free market, they should be against this deal. Where are they? Where are you? Rome is burning while you’re fiddling.ikoni

Wonderful Development still sitting on launching pad

At the request of come commenters, I’ve been trying to get information on what’s new with the Wonderful Development. As far as I can tell, nothing.

The City Council initially approved (by a 10-1 vote) an agreement in December 2008 with EM Properties to redevelop the Pere Marquette block, upgrading the Pere and building a pedestrian bridge across Fulton St. to the Civic Center. EM Properties couldn’t fulfill that agreement, so they came back in May 2010 requesting a new redevelopment agreement that was significantly different than the first one. The new agreement would have two hotels instead of one (i.e., they would still restore the Pere and make it a four-star Marriott, but would also build a separate Courtyard by Marriott on the block), and fewer rooms overall. They also requested $37 million instead of $39 million in bonds (i.e., taxpayer subsidy). At the time, the City reported on their Council Communication, “EM Properties has made modifications to their project and has now secured all necessary private financing.” The new redevelopment agreement was approved by a 7-4 vote.

The agreement required in section 3.3, “No later than ninety (90) days after the execution of this Agreement, the Redeveloper shall submit to the City the Design Concept Plan for the Project which Design Concept Plan shall contain the Exterior Architectural Appearance of the Project.” And in section 3.5, “No later than August 1, 2010, the Redeveloper shall submit to the City Schematic Drawings developed in connection with the design-build contract for the Project.” So, I asked the City, via a Freedom of Information Act request, when these documents were submitted.

Well, I didn’t find out exactly when they were submitted. All I received was a letter dated September 10, 2010, from the City’s Corporation Counsel Randy Ray to EM Properties, Ltd., that said:

This letter will confirm that your booklet entitled “Downtown Peoria Mariott Hotel Project — Hotel Site Plans” containing drawings dated May 3, 2010, satisfies the requirements of Section 3.5 of the Redevelopment Agreement between the City of Peoria and EM Properties, Ltd. concerning schematic drawings.

We would take this oportunity to remind you that in order to get a building permit for the Project, the Inspections Department will need professionally sealed construction documents.

Thank you for your cooperation in this matter.

In a follow-up phone call to Randy Ray, he stated that the booklet also included the Design Concept Plan and thus satisfied section 3.3 of the redevelopment agreement as well. However, section 3.4 of the agreement states, “The City shall within thirty (30) days from receipt approve or disapprove the Design Concept Plan.” And for the purposes of that section, the “City” means the City Council. Mr. Ray confirmed that the design concept plan has never come before the City Council, and said he will try to get it on the Council’s agenda in November. He thanked me for bringing it to his attention.

Meanwhile, you may recall that EM Properties was trying to get moral obligation financing through the Illinois Finance Authority to “finance a portion of the energy efficient upgrades of the 270-room historic Pere Marquette Hotel that will be renovated and converted to a Marriott and a ‘to be’ constructed 180-room Courtyard.” They had a big public hearing on it in March 2010. The last I heard about it was in May when the Journal Star reported, “EM Properties, the developer of the Marriott Hotel project, needs approval from the Illinois Finance Authority. The authority next meets June 8, and it’s unknown whether a request for a moral obligation bond supporting the hotel will be on the agenda.”

Well, it wasn’t on the agenda in June. In fact, it’s never again appeared on an IFA agenda. However, there are some related matters on the IFA slate. In August 2006, the current owners of the hotel, Pere Marquette Hotel Associates, L.P., entered into a participation loan with the IFA and National City Bank (now PNC). That loan should have been paid off March 31, 2010, but because of the pending sale to EM Properties, there was a request to extend the final maturity date until June 30. However, the sale didn’t close by then, so another extension was approved until September 30. The sale had not closed as of September 30 because a third extension was requested at the October 12 IFA meeting:

This is a third request by PNC Bank, and the Borrower, to extend the final maturity date beyond the originally scheduled March 31, 2010, maturity date in anticipation of the sale of the Hotel Pere` Marquette to EM Properties.

This request will provide an additional 120-day window for Pere` Marquette Hotel Associates, L.P. to close on the sale of the hotel property to EM Properties, LLC. Again, PNC and the other lenders expect this purchase to close by November 30, 2010.

Despite the expectation that the sale will close by the end of November, the extension goes through January 31, 2011.

I’m not sure what all this means, but I have to say these delays are awfully strange for a project that supposedly had “secured all necessary private financing” back in May.

Civic Center rates the No. 1 reason conventions skip Peoria

Why do organizations skip Peoria and choose other cities to host their conventions?

The reasons were revealed by Sami Qureshi on WTVP’s public affairs program “At Issue” Thursday night. He should know. He’s the Holiday Inn City Centre’s General Manager, President of the Heart of Illinois Hospitality Association, and Secretary/Treasurer of the Peoria Area Convention and Visitors Bureau. He’s talked to convention organizers and read the PACVB’s lost business surveys.

Based on those primary sources, Qureshi says the number one reason Peoria is bypassed is because of the Peoria Civic Center’s rate structure. The number two reason is limited air service. The main reason is not, he says, due to a lack of quality hotel rooms.

Gary Matthews, the hotel developer who hopes to turn the Pere Marquette into a Marriott and connect it to the Civic Center with the help of $37 million in municipal (i.e., taxpayer-backed) bonds, disagreed with Qureshi. Matthews said that Marriott officials told him the Peoria Civic Center’s rates are perfectly fine. Qureshi countered that he wasn’t stating his opinion, but is just repeating what actual organizers who actually said “no” to Peoria had told him.

Qureshi and Matthews were on “At Issue” along with Peoria Mayor Jim Ardis and Holiday Inn City Centre owner Bruce Kinseth to talk about the “Wonderful Development” and its ramifications. There was also a prerecorded clip of Mark Twain Hotel owner and former Peoria mayor Lowell “Bud” Grieves explaining his alternative proposal. The episode will be replayed Sunday at 4:30 p.m. on WTVP, channel 47.

Tough questions from IFA about hotel project

In January, hotel developer Gary Matthews appeared before the Illinois Finance Authority (IFA). According to their website, The IFA “is a self-financed, state authority principally engaged in issuing taxable and tax-exempt bonds, making loans, and investing capital for businesses, non-profit corporations, agriculture and local government units statewide.” The IFA is subject to the Open Meetings Act, so their agendas and minutes are public information.

The IFA’s proceedings give us a bit of insight into what lenders and other governmental bodies may think about the proposed downtown hotel project since hotels are really important for people travelling, and many places have hotels or even lodges for people to stay as you can find in the Borneo Eco Tours that offer the best nature surrounded lodges for people to stay. It looks like the concerns are more than just the economic downturn:

Director Meister also noted that the Hotel Pere Marquette project will not come before the Board this month, but the project’s developer, Mr. Gary Matthews, is in attendance at the Committee of the Whole Meeting to answer the Board’s questions. Mr. Durburg stated that he was aware of the Pere Marquette Hotel project and wanted to know if it would be appropriate to ask tough questions of the developer as a new Board Member. Dr. Herrin emphatically stated that it was not only appropriate but Mr. Durburg’s duty as a Board Member to ask tough questions of any project. Chairman Brandt explained to the Board that aside from lack of specificity on project costs, there is also a potential issue with the way this project could be perceived. The fee that the developer is requesting is large and is of concern.

Dr. Herrin agreed with Chairman Brandt regarding the fees. Dr. Herrin stated that he needed firm numbers from Mr. Matthews as to the exact project costs, and then the sources and uses. He wanted to emphasize that this would not be a conduit financing, but essentially a commercial loan to EM Properties.

Chairman Brandt clarified for the rest of the Board that if this project is approved as presented; it would allow the developer to take as much as $9 million in fees out of the project at the completion of construction. Mr. Durburg offered his assistance underwriting this project as he has experience in this field. He also asked if this project would result in other hotels in Peoria closing.

Chairman Brandt explained that the Hotel Pere Marquette is an important civic facility that acts as the main event venue for the area. The project is also part of a downtown redevelopment plan for Peoria. Chairman Brandt cautioned that the State of Illinois has a history with hotel developments that is not positive and the IFA must avoid any similar entanglements.

That was just introductory. Later in the meeting, they dealt at length with this project:

No. 4: EM Properties, LTD (Hotel Pere Marquette Project)
Request for the preliminary approval of the issuance of taxable bonds backed by the “additional security” of the moral obligation of the State of Illinois. The moral obligation financing will finance a portion of the energy efficient upgrades of the 270-room historic Pere Marquette Hotel that will be renovated and converted to a Marriott and a “to be” constructed 180-room Courtyard. The development is located in downtown Peoria on Main Street two blocks from the Caterpillar world headquarters. The developments adjacent and will be connected to the skywalk to the Peoria Civic Center. Proceeds will be used to acquire the land, rehabilitation of the Pere Marquette Hotel, construction of the 180-room Courtyard Hotel, construct the parking desk, pay costs of issuance and fund capitalized interest and bank fees.

Mr. Bill Claus, Funding Manager, introduced the Board to Mr. Gary Matthews, the project developer; and stated that Mr. Matthews attended the meeting to answer questions regarding his project. He clarified that the project had already been pulled from the agenda and would not be presented for approval this month.

Mr. Matthews stated that he understood the Board was concerned about the developer fees for his project. Mr. Matthews explained that the fee was only 9%, well within the industry average of 7 to 12%. He added that he would still be willing to compromise on the exact number or timing of the fees.

Mr. Durburg asked Mr. Matthews how he could reconcile the supply and demand in a small area such as Peoria, where most of the major economic agents (i.e. Caterpillar) are suffering from the economic downturn. Mr. Matthews responded that the nearby Embassy Suites hotel has had four rate increases in the recent past. He understands that that project is doing very well, despite the economy. Mr. Mathews stated his belief that older hotels are suffering in this economy while the newest hotels in any area are not. Mr. Matthews stated that Peoria is lacking new, quality hotel rooms. He believes that with Marriott’s 30 year management agreement, along with several other factors, this property will succeed.

Mr. McInerney asked what the “per key” value of the Embassy Suites was. Mr. Matthews responded it was between $170 and $180 “per key”. Mr. McInerney requested an explanation of why the Embassy Suites’ per key rate was lower than the Hotel Pere Marquette’s. Mr. Matthews explained that the Hotel Pere Marquette project also includes an elevated walkway to the Civic Center and a 500 car parking lot that the Embassy Suites does not have.

Mr. Durburg asked if the project was contemplating any sort of agreement with Caterpillar for rooms. Mr. Matthews stated that Marriott was not interested in that sort of arrangement as they want to remain flexible. Mr. Matthews is not concerned, as Caterpillar has a long history with the Pere Marquette given the fact that their international headquarters and training center are within a few blocks of the hotel.

Dr. Herrin added that St. Francis Hospital will be developing a new children’s hospital across the street from the proposed project. This is expected to be a premier children’s hospital with people traveling from far away to receive treatment. This may be positive for the Hotel Pere Marquette. Mr. Matthews pointed out that this project was structured by Marriott based on its analysis of the market. This project includes the Hotel Pere Marquette as a full service property and the yet-to-be-built Courtyard by Marriott property will be special service.

Mr. Durburg asked if the first mortgage on this property will be non-recourse. Mr. Matthews responded that it was recourse debt to him, personally. Mr. Durburg then asked if Mr. Matthews had prepared a pro forma for occupancy over the first few years. Mr. Matthews responded that he could not off the top of his head, but that he believed that Marriott had prepared and submitted that report. He believed Marriott projected 73% occupancy for the Courtyard and Pere Marquette in the first few years. The breakeven point for the project is 50% occupancy for the Pere Marquette and 53% for the Courtyard by Marriott Hotel. This data is based on three different feasibility studies that were conducted.

Dr. Herrin asked if the IFA had all of these studies. Mr. Matthews responded that he believed the IFA did. He added that Marriott disagreed with one of the studies that suggested both hotels be full service. Mr. Claus added that the IFA will need an “as built” study as well. Mr. Durburg then asked what the occupancy rate at the Embassy Suites was. Mr. Matthews stated that December was not a good month for the Embassy Suites, but that other than that occupancy has been high. Embassy Suites has projected that January through February will be rough as well but that occupancy will pick up in March with March Madness. It is currently at about 45%.

Mr. Durburg pointed out that to break even, the project must have 50% occupancy and the projections are for 73% occupancy. He asked how Mr. Matthews could account for that.

Mr. Matthews stated that the project will have other sources of revenue including shops, restaurants and the parking deck. Mr. Durburg asked if there would be a need for the additional parking. Mr. Matthews explained the site lay out and adjacent businesses on a large scale map of the proposed development, clarifying the need for additional parking.

Mr. Durburg then asked if Mr. Matthews will be competing with the Embassy Suites hotel. Mr. Matthews responded affirmatively.

Dr. Herrin stated that he would like Mr. Matthews to prepare a finalized total project cost, including acquisition and renovation, as well as a list of the pledged financials. The IFA can then determine if it is possible or appropriate for the IFA to fill any gaps in total financing.

Mr. Matthews explained that the City of Peoria will not close on the funds they have pledged until a guaranteed construction cost agreement has been reached with a contractor. This cannot be completed until the design for the project is completed, which is still in process.

Mr. Durburg asked who currently owns the Hotel Pere Marquette. Mr. Matthews responded that it was a long established partnership. Dr. Herrin asked if Mr. Matthews would be able to break down and identify the actual costs of the project. Mr. Matthews stated he would be able to in two to three weeks.

Chairman Brandt stated that the State of Illinois has not had a positive experience with hotels in the past, which could create problems for this deal. He added that while that alone is not a reason to forgo this project, it is an excellent reason to proceed with great caution. Chairman Brandt stated that the other primary concern for the Board is the lack of certainty on numbers. The IFA will need a final project cost before we can proceed any further.

Large developer fees, “lack of certainty on numbers,” extremely high occupancy rate projections — these are the kinds of questions the IFA had for the developer. Nobody called it a “wonderful development,” incidentally. My guess is that other lenders had the same kinds of questions.

The next IFA board meeting is Tuesday, March 9, 3 p.m., at (are you ready?) the Pere Marquette Hotel in Peoria. The agenda hasn’t been posted yet.

Where’s the outrage?

We’re all enjoying the calm before the storm. We’ve heard the warnings — the city council is going to have to make some deep cuts in order to close the $10-12 million budget gap. They’re trying to plug the gap without raising taxes. That means the cuts will have to be made “with a chainsaw, not a scalpel,” and will be “bloody,” to quote the mayor and another council member.

Yet, at the same time, the council had absolutely no trouble raising taxes to collect $40 million for a private developer. Think about that — they raised the sales tax (granted, for an area restricted to downtown — the so-called “Hospitality Improvement Zone”). They will collect money from that sales tax, and they will hand it over to Gary Matthews, a private citizen and developer, so he can build a huge hotel addition to the Pere Marquette. Matthews will, in turn, give the lion’s share of that money to Al Zuccarini for the properties he owns on the block shared by the Pere.

So, at the same time that the council is talking about cutting police officers, eliminating raises for employees, cutting back on code enforcement and road maintenance, and other draconian cuts in public services, they’re giving $40 million to Gary Matthews for a private development. At the same time the council is unwilling to even consider raising taxes for public services, they had no problem raising taxes to benefit a private development. In fact, they approved that deal with nary any discussion and absolutely no public input!

The council wants concessions from everyone — except in the area of developer welfare. The one area that primarily benefits only a handful of people gets a free pass, while those areas that affect everyone in the city get the axe.

And my question is: Where’s the outrage? Do Peorians really not care? Do they think this is good public policy? Do they really think that we’re spending too much on public services and not enough on developer favors? Or are they uninformed? Do they not know this is happening? Or have they given up? Have they become jaded and numb to fiscal irresponsibility coming out of City Hall?

If this hotel deal were a good business decision, the developer would have already gotten his private financing lined up and started construction. But he hasn’t. He can’t get private financing. And you know what that means? I guarantee you it means this: He’ll be back to the city asking for more money in one form or another. Count on it.

Maybe that will be enough to wake up Peorians and cajole them into expressing outrage to their city council members. Then again, maybe not.

“Wonderful development” revealed

The much-ballyhooed “wonderful development” we’ve been hearing about — a new/expanded Pere Marquette hotel — has been revealed to the public, complete with pictures, in today’s paper:

Here are the specs:

  • 14-stories
  • $102 million project
  • Developed by EM Properties
  • $39.3 million of public financing “that would be financed through bonds and repaid through new revenues the project would generate” over 23 years; represents approx. 40% of total project cost
  • Full-service hotel
  • 489 rooms
  • Additional meeting, convention and banquet space
  • Under Marriott Hotel flag
  • 500-vehicle parking deck
  • Sky-bridge connects hotel to Civic Center

This project is, of course, a done deal. It’s been hammered out in the back room for weeks if not months and more than enough council members are on board now. So it’s sure to pass at the Dec. 15 meeting.

My thoughts: It’s predominantly glass and steel, which has all the charm and appeal of GEM Terrace and One Technology Plaza. The front of it is concave for no apparent reason. But the rest of it does front the street, which is good. And the parking garage includes street-level retail, which is great. On the other hand, there is a completely unnecessary sky-bridge which will mar Fulton Street for generations. This design is light years ahead of the proposed riverfront museum (thank goodness for that!), but I still think it could have been better, especially in building materials.

Hotel plans still shrouded in mystery

It’s the worst-kept secret in Peoria. Despite not getting anyone to speak on the record, information about the proposed hotel on the Pere Marquette block has been leaking like a sieve to the Journal Star and bloggers. Unfortunately, since we don’t have any official word, we don’t know how much of that information is accurate.

There’s something else we don’t know: what public incentives will be requested for this project. According to Billy Dennis’s source, “Public financing accounted for roughly 40 percent of the cost of building [East Peoria’s] Embassy Suites,” and “Project investors are hoping to secure a similar percentage of public financing for this project through a tax increment financing project agreement.” An ancillary issue is the request to move Big Al’s, with their “grandfathered” status and adult use and liquor licenses, presumably to 414 Hamilton Blvd.

And, of course, there is a sense of urgency for this project. According to the Journal Star, this whole project “could go before the City Council for consideration on Nov. 25.” That’s in two weeks. And, according to Billy Dennis’s source, any delays “would kill the $100 million project.”

Oh yes, the project has been estimated to be $100 million. So, going back to the earlier rumor that approximately forty percent of that would be “public financing…through a tax increment financing project agreement,” we’re talking about $40 million in public incentives. I’m not sure how a TIF is going to provide that amount of financing (consider that the proposed museum is in a TIF, is a similarly-sized development, and would arguably be built by now if they could get $40 million out of their TIF). I also don’t know how the city could afford to give $40 million to a private developer when the budget is already in a deficit.

I’m not sure about a lot of things, because when you get down to brass tacks, the citizens don’t really know anything about this project. We’re being told by many bloggers that this is the greatest project for downtown since the civic center (how do they know that?) and that the city should move heaven and earth to make it happen or else. Or else? Or else no small number of detrimental things will happen: the civic center will fail, downtown hotels will lose occupancy, Caterpillar won’t use Peoria’s hotels anymore, tax revenues will go down, downtown will deteriorate, no one will want to develop in downtown Peoria ever again because it’s so hard to do business here, etc., ad nauseum, ad infinitum.

Peoria is evidently on the precipice of oblivion and this hotel deal is its only savior. And that deal itself is tenuously held together — either the developers get everything for which they ask when they ask for it, or the deal’s off. No negotiation, no public input. They make the decisions and take your tax money, and you better thank them for it.

The Journal Star got it right:

We appreciate that negotiations like these can be sensitive and there’s a lot of financial risk involved and not all of that can or should be played out in a public hearing. Nonetheless, there is one overriding principle at work here: If you want the public’s support and especially the public’s money, the public needs to know a little something about the business government is doing on its behalf.

Right now, the public is in the dark. And this huge project might come before the council by Thanksgiving? Sorry, but that can’t be.