Despite an economy in recession, a new financial analysis paid for by CentrePointe's developers is optimistic about their prospects for selling 91 million-dollar-plus condominiums, leasing retail space and filling a luxury hotel when the downtown development opens in 2011.
About half of the condos, which have an average price of $1.2 million, are expected to be sold before construction begins, according to a marketing and economic-impact study performed by the C.H. Johnson Consulting firm of Chicago for developers Dudley and Woodford Webb.
The study, completed in December, focused on the financial feasibility of the entire CentrePointe project, including selling the condominiums, renting the hotel rooms and parking spaces, and finding tenants for the office, retail and restaurant spaces.
The Johnson report concludes that there is "strong market demand" for the development in the heart of downtown.
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Some financial analysts and local real estate experts, though, said they are skeptical of the analysis.
Rod Petrik, a lodging analyst with Stifel Nicolaus & Co., said that in the current economic climate, "all your demand drivers for hotels are negative," with consumers reluctant to spend money.
"Right now, lodging demand has fallen off the table," he said. Whether demand will rebound by 2011, when the CentrePointe hotel is scheduled to open, is difficult to predict, he said.
The 35-story tower to be built at 100 West Main Street would include a 250-room J.W. Marriott Hotel, 91 condos above the hotel, 33,000 square feet of Class A office space, an 8,800-square-foot specialty restaurant, 14,000 square feet of retail space, a 6,000-square-foot entertainment venue and a 580-space parking garage.
Construction cost for CentrePointe is $282.5 million, a figure that includes demolition of the 14 buildings that were on the site, construction, finishing interior spaces and furnishing hotel rooms and common areas. That will put the building in move-in condition, Dudley Webb said.
He said the financial assessment of CentrePointe took into account dire economic conditions in the nation, but he said Lexington has been protected from the worst of the downturn because of its broad-based economy.
"We have a diversified economy, everything from state government to being the medical, educational, cultural center for the eastern half of the state, to a base of diverse companies. We've been insulated from the worst of it," he said.
Based on his experience with recessions in the 1980s and 1990s, Webb said, he expects the economy to be on the rebound by 2011, the projected date for opening the hotel and condos.
C.H. Johnson Consulting, which performed the financial analysis, has done work in the Lexington market before, including a financial analysis for a proposed hotel project at the Kentucky Horse Park that was eventually canceled by the state. Johnson is also conducting an economic study for a possible new downtown arena in Lexington.
Webb said the CentrePointe building will appear to be completed at the time of the Alltech FEI World Equestrian Games in 2010 because the contractor has been directed to have the exterior finished.
Webb said it was unlikely the hotel or condos would be ready for occupancy at that time.
"I'm hoping the restaurant and retail spaces around the perimeter will be open. That's what we're aiming for," he said.
Few million-dollar sales
To Lexington real estate agent Jim McKeighen, who specializes in selling downtown properties, the prospect of selling 91 million-dollar condos looks daunting. "Those figures seem very optimistic to me. There is no track record for that kind of investment in Lexington."
However, McKeighen said, "I certainly hope if they build the condos, they sell quickly. That would speak well of our market."
Figures from the Lexington-Bluegrass Association of Realtors showed 31 million-dollar residential properties on the market at the end of 2008, said McKeighen, who sells for Turf Town Properties.
For all of 2008, there were 10 sales of residential property for more than $1 million, he said.
C. Patrick Scholes, lodging analyst with the Arlington, Va.-based Friedman, Billings, Ramsey & Co., said the project might benefit from its projected 2011 opening date.
"They will be opening a hotel in 2011 with not a lot of new competition opening up. That's in their favor," he said.
The developers are fortunate to have secured their financing, he said. "And they're fortunate they're not opening today."
Webb said the completion of the project is 30 months out and a typical recession "won't last more than a year."
Financing for the CentrePointe project is coming from a silent partner who has asked to remain anonymous.
"They don't want to be harassed," Webb said.
Webb said that Marriott corporate headquarters has received negative mail about CentrePointe, and his investors "don't want to be harassed that way."
Ten days ago, Webb was in Europe with other members of his development team to give investors an update on the project and the latest financial analysis.
He said they remained committed to the project.
The Webbs had a similar two-day meeting in December in Bethesda, Md., with Marriott representatives. The purpose was "to get them to sign off on the project, which they did," Webb said.
Webb said the nature of the project's financing will allow it to proceed even though the economy has turned sour.
"Under ordinary circumstances, you wouldn't build this project at a time like this. But by virtue of it being an all-equity deal, that changes everything. Gives you the patience to ride it out," he said.
Work should start soon
Webb said Monday that he expects excavation work to start on the site in the "next couple weeks, I hope."
Work was held up for seven months, Webb said, because Preserve Lexington, a historic-preservation group, sought a temporary restraining order to prevent the razing of the 14 historic buildings on the CentrePointe site.
"We didn't want to undertake work till we had a clean slate and we were sure we could go," he said. "We really turned the engineers and architects loose for the first time the first of the year."
They are working on detailed drawings that identify weight-bearing walls, garage columns, foundation footers and elevator locations.
No condos have been sold yet, Webb said. "We didn't want to do anything until the appeal process ran its course."
Developers are waiting for lane-closure permits from the city and state so they can close lanes on West Main and Vine streets during construction, Webb said.
With that approval, concrete barriers topped with cyclone fencing will be placed around the CentrePointe block, creating space for an entrance to the construction site and for two tower cranes on the Main Street side.
Excavation for the foundation and parking garage will take "three months to go down, three months to come back out," Webb said.