Developer Gary Matthews has written a letter to the Mayor and City Council asking them not to cancel the redevelopment agreement:
Matthews Letter 09-02-2011The gist of the letter is that Matthews felt he had provided everything to the City that was requested, and that as a result of certain meetings he was led to believe he was meeting the terms of the redevelopment agreement to the City’s satisfaction. The December 31, 2010, deadline stipulated in the redevelopment agreement remains unaddressed and unacknowledged. He concludes:
I know and understand we are all suffering from some “hotel fatigue.” I apologize for adding to that fatigue but I feel it is necessary that you have accurate information. Yes, it has been a long, arduous journey, but we are on the cusp of what can be a very historic project. The budget has gone through many transitions as obstacles were confronted (e.g., the inability to secure new market tax credits for a hotel project in a middle sized city) but again and again, with cooperation from lenders (agreeing to better terms), sellers (agreeing to assist with financing), tax credit investors (agreeing to higher purchase prices) and us agreeing to defer the developer’s fee, new options were created to make the project successful. Also, as you know, the State of Illinois adopted a pilot State Historic Rehabilitation Tax Credit program specifically for this project. Failure to close when we are so close will result in the loss of these credits and a missed opportunity for the City.
This project is a transformative and catalytic project for the Peoria region. Its construction will not only create jobs, but help also revitalize the downtown and surrounding Peoria areas by encouraging and influencing development resulting in a positive community and economic impact.
Pretty good sales pitch, except here we are over two and half years after we first heard it and the project has yet to start. Keep in mind that the first redevelopment agreement from December 2008 was never fulfilled. In May 2010, when the latest agreement was made, Matthews told the council that he would be drawing on the $37 million grant from the city “immediately in 2010,” something he could only do subsequent to closing on the properties. He further said that work on the Pere Marquette would begin “immediately after closing.” He also assured the Council at that time that he had all his financing in place. Now it’s September 2011, and the Council receives a letter with more promises and assurances that everything is in place and ready to start. I’m beginning to see a pattern.
Matthews stands to make $9 million from this deal, and he has already racked up no small amount of money on attorney’s fees, architect fees, marketing, etc. It’s very important to him that this deal go through. But he has consistently missed deadlines and shown an inability to get the project started. His apologists blame this failure on the economy. But I have news for you: the economy isn’t getting any better.
The City is doing the right thing by cutting its losses on this project. Even if they have to pay Matthews a settlement to help defray some of his expenses (I would suggest only those expenses incurred from the December 31 deadline to the present), they would be money ahead.икони
The Developer fee is way too much. I wish that once again someone would ask him why that didn’t change in proportion to the size of the project. Wonder if he would still respond like a smart-ass? This guy seems sleazy. It’s also bothersome that only a few weeks ago he was paying off a past-due note. The city should demand a recent credit report on him before they waste another breath.
The roughly 9% development fee is pretty typical. It has not changed. The project was originally at approx $102 mil and is still there.
Doesn’t he actually own the Pere Marquette and would also own of the new addition? Is it common to charge a development fee on your own building?
D150 Observer — On what do you base your assertion that the development fee is “pretty typical”? Similarly, on what do you base your assertion that the project still costs $102M? In the letter I posted, Matthews disputes the City’s claim that total project costs are $96.5 million, but doesn’t give a final figure. Do you have access to some additional information that hasn’t been made public?
The date of December 31, 2010 still rings funny to me, If that date was missed the agreement should have ended long ago. But someone was kicking the can down the road , if the December 31, 2010 date was shrugged off then why hold anyone to it now? And what happened August 31, 2011 that change everything? Still smells funny.
CJ, $102 million is the number the developer has most recently presented.
My experience with development tells me 9% is fairly typical.
The fact the city has not held Matthews to the deadlines does not help its case.
Bob, the two buildings you mentioned are not owned by Matthews at this time. They will ultimately be owned by lenders.
I have seen development fees ranging from 6-12% depending on the complexity and risk of the project. This is an extremely complex project with substantial risk to all parties involved.
I think at this time Matthews has publically said the fee will not go up but can come down if the project is under budget. I suspect the redevelopment agreement specifies that. Just a guess.
My guess is that the city will cancel the redev. agreement and Matthews will sue if the attorney says he has a good case. My wild ass prediction is he will not sue. Again, just speculation.
Interesting letter; I just read it all and it mentions something about the developer fee being deferred. what does this mean?
The deal is done. The plug has been pulled. I’m sure the Council will “ratify” this demise. Matthews doesn’t have a leg to stand on. If he chooses to sue he will get his head handed to him and his ability to do business in Peoria will be inhibited. He needs to go away and regain his credibility.
Developer fees are significant and that is why developers want to build wherever they can and a guaranteed future revenue from a government body is a worthwhile commodity. Developers are very very self-intersted as you’d expect them to be. pagtem: I am guessing the ‘deferred’ means paid after construction or it is operational or X many years after. The promise of payment to me is a sellable commodity, so willingness to accept deferred payment IMHO is not a big deal – just my laymen opinion because they can still cash out for a fee before the payment is due.
Yeah, as I recall, Matthews agreed to take his fee upon completion of the hotel rather than as the hotel was being built. Just my recollection.
Well then if the fee isn’t being paid until after construction, the city isn’t paying any of it, right? I would also assume that if the hotel isn’t successful then the fee wouldn’t be paid, correct?
Let me understand this perfectly.
Gary Matthews is NOT bringing the Mariott to the city.
Gary Matthews is NOT building the Mariott here.
Yet Matthews is getting 9 percent. Why? No one can explain why this … middleman is getting 9 percent.
The fee is scheduled to be paid pro-rata as the hotel is being built. Near as I can tell, the fee is being deferred until after it is completed. The fee has nothing to do with the hotel’s success.
The fee is part of the cost of the hotel. The city is financing about 37% of the cost of the hotel, so I guess you can say it is paying 37% of the development fee.
Billy, you don’t understand. Matthews is the developer and the guy that in theory will make the project happen. Without the developer, no hotel.
Who cares what Matthews, Ardis, Urich, or anyone on the Council has to say about this proposed development, one way or another?
The only one any of us should care about hearing from is Pat Sullivan, of course.
Being in the construction/development industry (when there was one…) typical developer fee for a project of this magnitude was in the 12-15% range. 9% is fair whether the public commentators like it or not. The issue is the $37 mm public bonding.
Mayor/city council is trying to save face by hiring Urich as the hit man to “squash the project” so they can get re-elected. Matthews does have a legal case (if he chooses to pursue and with the dollars he has spent and Marriott backing, I am sure he will as would any developer in his position). Unfortunately, because of the stupidity of the city council to approve a 37 mm bond – they have no choice but to play hardball. I am sure Matthews would have got going a long time ago IF FINANCING WAS AVAILABLE. Has anyone turned on the TV lately to see there is absolutely nothing going on in the construction industry because of financing? Matthews isn’t gaining anything by not adhering to deadlines which cannot be met – he is losing money to keep it dragging on.
The city is getting an education on development while the end result will probably be no new hotel, Pere will go bankrupt, no new jobs, and no incentive to ever do business in or with the city of Peoria (i.e. – can you say goodbye to any interest in the warehouse district folks?).
So Marriott cannot communicate directly with Big Al’s? I say again: Matthews is a stinking middleman, a tick, a parasite on the ass of this deal.
Billy. Marriott is not a (the) developer. They are a franchiser looking for developers to build their product nationwide and worldwide. That is how it works. Developers get paid fees to develop. That is how they get paid. Big Al’s is a local business willing to invest a small amount to see a project happen and get a return for his risk. His business is strippers, not development.
You all here under estimate the power of the dark side of the force,…er…..I mean the City Council.
Em: Ha ha … thanks for the chuckle!
Where is the antipundit?
teachingrocks—he deleted his blog 🙁
D150 Observer says, “Without the developer, no hotel.” I would add, in the case of Gary Matthews, With the developer, no hotel! 🙂
I’m sorry, but with all due respect to my expert anonymous commenters, I’m not buying the 9% developer fee as being either reasonable or typical. You’ll need to cite some authoritative source on that one. If we’re only dealing with anecdotal evidence, I’ll be happy to share several hotel projects where the developer fee was only in the three to five percent range. I’d also point out that the Illinois Finance Authority found the 9% fee to be high.
my favorite line: From Ptowntrainwreck: “…can you say goodbye to any interest in the warehouse district folks?…”
What interest? The only interest in the warehouse district seems to be from the city council with our wallets. What private business??
Why, from Pat Sullivan, of course, Emtronics.
And when you get right down to it, it appears that his interest is the only interest that matters to the City Council.
Let’s see if we can move out used office furniture businesses, and get Pat’s Cafe and Bagel Shoppe there. And, if we can do it on the public dime, by forcing that used office furniture business to close because of the construction going on for a year, so much the better. Plus, Pat will be able to buy up a few of those warehouses a lot cheaper if the businesses in them are forced to close, you know. The best part is that it will all start on the public’s dime.
This whole concept stinks a lot worse than the Gary Matthews one. At least THAT one is above board, for the most part. This Warehouse District/ 4 lanes to 2 lanes/ European turnabout / Peorians will now pay for all of the maintenance on Washington St. / plan is sinister and underhanded. And the Council just follows along like lapdogs while Shepherd Pat drops doggy treats on the path.
CJ, this is America. You don’t have to “buy” anything on the Marriott project. Believe what you want, we were just bringing you a dose of realism on the development fee for a project of this magnitude and complexity.
Marriott would never talk to Big Als. Marriott is simply a management company that runs hotels. Marriott does not own hotels. Again, Marriott does not own hotels. They simply manage what developers build.
pagetm: The developer I believe is paid so long as they are faithful to the contract. Profitability or otherwise being a success for downtown I doubt are requirements. Everyone paying into the project is paying the developer fees. The city has big percentage stake using bonds that must be repaid by taxpayers, so indirectly we the city are paying a lot of the developer’s fees so long as the contract is executed successfully. Execution of the construction contract doesn’t require profitability, or even operational success of being able to book a certain number of guests by the hotel.
A lot of good comments here. However, I can’t forget the ‘bait and switch’ used by the developer and his supporters on council to get this project rushed through, namely going from the modern glass screened hotel which would have been the first modern looking building downtown with architectural significance, to the current ‘big box’ motel. That right there was a total show stopper for me.
By having this monsterous project die, the abused and worn out local taxpayers win.
I love the smoke and mirrors. Urich getting blamed for the heavy…who has been conspicoulsy absent from all the newspaper drama…the number 1 person behind this bad deal to begin with….yet practically knocked people over to jump in front of a reporter to sign this project’s praises…..
Lots of good thoughts here, but the bottom line is the project is Kaput! Now let’s see if we, as taxpayers, can get SMG to start doing their job and start getting competitive with the other venues in the area. Hotels and restaurants and other amenities are fine, but without the draw of conventions and other events to the Civic Center, they will stand empty and unused and eventually take us down the same path we are pursuing. Our facility is much better than the Embassy Suites or the Bloomington venue, yet we are constantly being outbid for the events and conventions the Civic Center was built to house. If we were getting the events we need here in Peoria, the Pere would be so booked it would have plenty of money to improve its facilities and not at the public’s expense. We currently have the Pere, the Marriot, and several other facilities that could provide rooms for conventioneers and distant guests for events like Reba, events that are currently going to other cities. It is time we call SMG on the carpet concerning their lack of willingness to get competitive with our Civic Center.
Well said, Fred. SMG has consistently dropped the ball. I’ve known people who have suggested viable and profitable events to bring to the PCC that have been turned down because SMG management decided they would not do well here. They must do better.
Matthews doesn’t BUILD anything… he takes a shitload of money, skims off the majority for himself and then uses the rest to hire others to do the development.