Lexington housing advocates, others express concern about tax dollars going to 21c Museum Hotel

bmusgrave@herald-leader.comJune 4, 2014 

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Affordable housing advocates and others are raising 11th-hour objections over funding for the 21c Museum Hotel in downtown Lexington.

Advocates and some in the hospitality industry plan to attend Thursday night's Urban County Council meeting to raise concerns over final approval of a $6 million U.S. Department of Housing and Urban Development loan to the 21c Museum Hotel developers. Housing advocates are concerned that if $6 million of a possible pool of $10 million in HUD loans goes to the luxury hotel project, there would be only $4 million left for affordable housing projects.

Some in the hospitality industry are concerned that too many tax dollars are going into a project that could hurt other hotels and restaurants.

But Craig Greenberg, president of 21c, said if the city council does not give final approval to the project on Thursday, it will not only kill the hotel, museum, restaurant and bar but could hurt future development in downtown Lexington.

"If the city council changes its mind after already having approved this package, not only will it kill this project that has already started construction but it will also send a terrible message to anyone thinking about developing a project in Lexington," Greenberg said. "We have already invested over $6 million. The city has already convened public hearings and has already approved aspects of it dating back to 2012."

In November 2012, the city passed an ordinance that approved the loan and the public-private partnership.

Construction on the project started Tuesday. The First National Building at West Main and North Upper streets will become an 88-room boutique hotel with a restaurant and bar and a 8,500-square-foot museum and gallery space. The group has award-winning hotels in several cities, including Louisville and Cincinnati. Lexington will be its fifth hotel. The complex is scheduled to open in late 2015.

David Christiansen, executive director of the Central Kentucky Housing and Homeless Initiative, said he has objected to the Section 108 loans being used for the project during the city's previous public hearings, dating back to 2012.

Those previous objections fell on deaf ears, Christiansen said.

But things have also changed since 2012, he said.

A recent report on affordable housing showed that the city needed $35 million annually to address the housing crunch in Lexington.

"At this point, we do have some energy targeted to affordable housing," Christiansen said. The council recently approved $3.5 million for affordable housing and homeless programs. But now only $4 million of a potential pool of $10 million could be used to jumpstart more affordable housing units in Lexington, he said.

Under the 108 program, the 21c developers will repay the $6 million loan. The project qualified for a 108 HUD loan because it is expected to create 125 jobs, the majority of which will go to low-income people. If the developers can't make the payments, the city's community development block grant money from HUD could be used to repay the loan.

Jeff Fugate, president of the Lexington Downtown Development Authority, said although 108 HUD money can be used for affordable housing projects, it's rare. Affordable housing programs try to decrease the cost of construction or rehabilitation. But the HUD 108 program is a loan, not a grant. It has to be repaid. When cities use the 108 HUD money for affordable housing projects, they typically use community development block grant money to repay the loan, Fugate said.

To get the 108 HUD loan, the group also had to show that it had capital to back the loan, Fugate said. Many nonprofit affordable housing builders may not be able to meet the rigorous 108 loan standards.

But Lee Greer, president of Greer Companies, said he's concerned that so much taxpayer money is going into the project. The Greer Companies own several hotel properties in the southeast.

"I think we need to slow down and let's be sure about what these numbers mean," Greer said. "It's a $43 million project. Do we have evidence of the construction costs of this project certified by other engineers and architects?"

According to a breakdown of costs provided to the Urban County Council last month, the $43 million includes $27.7 million in "hard" construction costs, about $4 million in soft or other costs and a $900,000 development fee. None of that money goes to 21c, said Stephanie Greene, a 21c spokeswoman. It includes other costs involved with managing the project during construction The breakdown also included $1.5 million in contingency funds. It's not clear what will happen to those contingency funds if they are not used.

In addition to the $6 million HUD loan, the city is giving a $1 million loan. Other parts of the financing include $15.7 million in state and federal tax credits, $18 million in two construction loans and $2.7 million in equity from 21c Museum Hotels.

Greenberg said Tuesday that the group will get some money up front from state and federal tax credits but will have to use a bridge loan that will use the tax credits to pay off the loan.

Greenberg said Wednesday that the price of remodeling the three downtown buildings was considerable. The project cost rose from $39 million to $43 million because of unforeseen infrastructure problems in the historic buildings.

Greenberg has also said that 21c has agreed to give the HUD loan a higher priority for repayment should the project fall apart.

Because 21c Museum Hotels are unique, instead of hurting competing hotels, they help the overall tourism market, Greenberg said.

"We are complementary to the market," Greenberg said. "We also create new demand for hotel rooms. We attract a lot of new business."

The project does have support from other areas of the community. Malcolm Ratchford, the executive director of the Community Action Council, wrote a letter recently supporting the project. Ratchford said in the June 4 letter that the project could create a "ripple effect" across the business community that will help low and moderate income people.

Beth Musgrave: (859)231-3205. Twitter:@HLCityhall

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