Construction of the long-awaited 21c Museum Hotel in downtown Lexington will begin in June and be completed by the end of 2015, the developers said Tuesday.
Craig Greenberg, 21c president, told the Lexington-Fayette Urban County Council that construction documents are complete, with a building permit issued late last Friday.
"We will be open before the end of 2015," Greenberg said.
The project will cost more than $43 million, an increase of about $3 million over the original estimate, because of unforeseen infrastructure problems in the historic buildings.
"We're as excited as ever about this project and truly committed, because of the location, because of the building, and because of what is going on in downtown Lexington and for the opportunity to be a part and a catalyst for continued revitalization for downtown Lexington," Greenberg said. "Lexington is a challenging market; there's significant risk in this project. It is not the strongest of hotel markets at this time. But, still, we embrace this challenge and we're excited by the opportunity."
Already, $6.5 million has been spent on the project, including property acquisition, he said.
Greenberg said the project will be paid for in part by more than $24 million in loans secured by owners Steve Wilson and Laura Lee Brown, as well as Greenberg and the private 21c Museum Hotel company.
The loan package includes $6 million in federal Housing and Urban Development financing through the city, which the council has yet to finalize. In 2012, the council signed off on applying for the loan and HUD last month approved the loan for this project.
The loan likely will come up for final spending approval next month.
Although everyone on the council expressed support for the project, some members raised concerns about spending $6 million on an upscale hotel when the city has unmet needs, including for affordable housing.
The loan will come from a kind of HUD program that the city has never used before. To ease concerns that Lexington taxpayers would have to make good on the loan if problems arise, Greenberg said that his group has agreed to give the loan a higher priority for repayment, should the project fall apart.
Greenberg also said that collateral has been put up, along with personal guarantees from owners and himself, so that in a worst-case scenario the city loan would be paid off by foreclosure.
Without that $6 million, Greenberg said the project could not go forward.
"I'm confident the council is going to approve this at its next meeting," Greenberg said afterward. "The city is very well-protected in this loan and has a very strong collateral position."
Several council members expressed their support for the project, which will renovate a 100-year-old landmark building, Lexington's first skyscraper, designed by renowned architects McKim, Mead & White.
The First National Building at Main and Upper, next to the county's historic courthouse, will become an 88-room boutique hotel, with an upscale local-food-centric restaurant and bar as well as the 8,500 square feet of museum and gallery space in three adjacent buildings.
"We view ourselves as a true community cultural center," Greenberg said.
The acclaimed 21c hotels display modern art from the collection of Wilson and Brown as well as art on loan from other museums.
"What you're bringing to us is a tremendous opportunity," said councilman Bill Farmer. The hotel will bring contemporary art "to a city bereft of museum space," he said. "Thank you. ... This will remake that building and the city around it."
Vice Mayor Linda Gorton said she was very glad to hear construction would finally begin in June. "That's very exciting," she said. "You're open 24-7 to the public to come in and look at the art. We have nothing like that."
The tall, narrow building has proven "a lot more challenging" to design than 21c's other projects (this will be the fifth, with two more planned for Oklahoma City and Kansas City), Greenberg said.
Each floor will hold only six or seven hotel rooms, which will book for a projected average rate of $190 a night, he said.
One question remains: 21c has requested $2 million over 10 years to support the museum from the Lexington Convention and Visitors Bureau, which is funded by the "bed tax" on hotel rooms. Greenberg said it is unclear if that funding will be approved but the uncertainty will not hold up the construction.
"We are the eternal optimists," he said.
The entire hotel project will be funded by $2.7 million in 21c equity, $18 million in two construction loans, $15.6 million in federal and state tax credits, $6 million from the city's Section 108 HUD loan, and another $1 million loan from the city.
The tax incentives include a special $6 million tax break approved by the General Assembly in April.
The hotel's construction is estimated to create about 200 jobs to be paid at prevailing wage (a higher standard mandated by the HUD loan), and 125 permanent full-time jobs once built.
Greenberg said that the company has put over $250 million in historic rehabilitation projects through its hotels, all but one of which are in historic buildings.