Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 2, 1995 TAG: 9504030006
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: DAN CASEY AND SANDRA BROWN KELLY STAFF WRITERS
DATELINE: LENGTH: Long
When the Hotel Roanoke and Conference Center was conceived in 1990, it was to be a private venture, spearheaded by Virginia Tech, that could succeed on its own.
Since then, the $43 million project has withstood a national banking crisis, a plummeting hotel-construction market and the predictions of critics who said it couldn't work.
Its survival is a testament to years of efforts by elected and appointed officials, civic and business leaders, and Virginia Tech administrators - and to the deep pockets of taxpayers.
Slowly but surely over a three-year period, the project evolved from a private enterprise, in which a developer would risk his own capital, to one largely financed by the public.
The bottom line: Including bonds issued, loans guaranteed and land purchased, taxpayers from the city of Roanoke have gone from a zero financial stake in the hotel and conference center projects to wagering $22 million on their success.
If it works - as city officials strongly expect it will - the project will pay for itself through tax revenues, and everyone involved will come out looking like a hero. Essentially, Roanoke will have an economic development engine that cost almost nothing.
But if it doesn't, taxpayers may be on the hook in the form of property tax increases, city government spending cuts or delayed public works projects.
"I think the thing is going to succeed," said Councilman Jack Parrott, a contributor to the hotel project who was elected last year.
"But there's going to be a lot of money going down the tubes if it doesn't go. Taxpayers would be madder than hell ... and righteously."
By now, Roanoke taxpayers have $13 million invested in the Conference Center of Roanoke, which the city owns. Taxes it is expected to generate will pay off the general obligation bonds that financed the 90,000-square-foot facility.
The city also has guaranteed $6 million in federal loans that went into renovating the hotel. Those will be paid from profits the hotel is expected to generate in future years. If those profits don't materialize, the loan payments will be deducted from federal Community Development Block Grant money the city receives annually.
The city pumped another $3 million into the hotel project by buying adjacent parking lots and the land the conference center occupies from the Virginia Tech Real Estate Foundation. The real estate unit, which owns properties donated to Tech, in turn put that money into the hotel's renovation.
The foundation, which owns two-thirds of the hotel, has $4 million invested in it; one-third owner Renew Roanoke, which was formed to receive donations for the hotel's restoration, has $7 million; banks have $6.5 million in commercial loans to it; and Doubletree Hotels Corp., which will operate the hotel, kicked in a $1.3 million loan.
A bumpy road
How did taxpayers go from a zero direct investment in the Hotel Roanoke to one that amounts to $22 million?
The answer - which involves a crashing hotel industry, a banking crisis, a scrapped convention center and public yearning for a stately landmark: Very gradually.
What it amounts to is this: As the nation's financial markets and business climate shrank drastically, public sentiment for a revitalized Hotel Roanoke swelled. Hotel planners at Tech and in city government were squeezed between the two.
"There were a number of times when we could have stuffed our hands in our pockets and said, 'Well, this doesn't meet the financial projections,' and walked away," City Manager Bob Herbert said.
City officials always anticipated they would play some role in the project.
In the late 1980s, the city was considering erecting a $20 million to $25 million convention center somewhere near the hotel property. The hope was that it would draw enough conventioneers to keep the financially troubled hotel afloat and bring new business to the city's stagnant downtown.
The picture changed late in 1989 when the Hotel Roanoke's owner, Norfolk Southern Corp., shut it down and donated it to Virginia Tech.
By early 1990, Tech officials were talking publicly about operating the Hotel Roanoke as a stand-alone hotel and conference center, even if the city didn't move forward on plans for the convention center.
Raymond Smoot, Tech's vice president for business affairs, predicted at the time that the university would find an investor or hotel chain that would cover the renovation costs and recoup the investment by running the hotel. A city convention center would be nice but not necessary, Smoot said.
Tech officials understood that a hotel and conference center "would have to be able to succeed on its own," Herbert told City Council during a briefing Jan. 22, 1990.
By summer, however, the city scrapped plans for a convention center and decided to incorporate elements of that facility into an expanded conference center with Tech as a partner. Council committed $4 million to the project.
Tech, with an investment of $4 million, would be an equal partner. So, perhaps, would Roanoke County, if its Board of Supervisors tossed in another $4 million.
Planners hoped the public investment in an adjacent conference center would lure a developer into committing up to $30 million for hotel renovations.
But the county refused. Then the national savings and loan crisis began.
Formerly free-lending financial institutions began bleeding losses by the billions, jeopardizing millions of depositors' dollars with risky loans.
The federal government stepped in to make good on those deposits. But suddenly, wary federal regulators were second-guessing every large commercial loan.
"The real estate financing prospects were going more and more downhill," recalled Brian Wishneff, then city economic development chief and now director of the Hotel Roanoke Conference Center Commission. "Literally by the week and month [the loan picture] was getting worse and worse."
Tech officials, beset with growing budget demands and declining revenues, began saying they needed their $4 million for the hotel renovation project.
Over the next two years, the university withdrew its commitment to the conference center. Meanwhile, the city's commitment to the project was doubled to $8 million and ultimately more than tripled to $12.8 million.
"We finally got to the point where we said [to Virginia Tech], `We'll take the conference center, and you concentrate on lining up financing for the hotel,''' Wishneff said.
A delicate balance
But raising almost $30 million for the hotel project proved no easier.
Developers were having so many problems finding willing lenders that Tech abandoned a requirement that they arrange financing before submitting their proposals.
By spring 1991, Wishneff was publicly hinting that "the community" would have to play a role in financing the hotel renovation.
Planning problems stretched beyond financing. Many bidders proposed drastic changes in the old hotel's character.
Classic Properties of New Orleans, chosen in May 1991 as developer of the hotel, was fired less than a year later after it failed to make good on a promise to invest $2 million of its own money.
In March 1992, Henry Faison, developer of Valley View Mall and First Union Tower and one of the original bidders, stepped in and agreed to come up with a plan to do the project while preserving the hotel.
Meanwhile, the city won federal approval for a $6 million Department of Housing and Urban Development loan for the hotel project.
But even that and Faison's presence weren't enough to attract major financing. By the fall of 1992, a $10 million commitment from area banks hadn't materialized, and hotel planners were still $20 million short on financing.
City officials began talking about channeling $3 million more in city funding to the hotel project through the Redevelopment and Housing Authority.
Herbert says today that the intent was twofold. One, the city wanted to inject another vital chunk of financing to keep the project alive. At the same time, taxpayers were better off owning the land their conference center was built on, he said.
Still at least $17 million short on funding, in November 1992, Carilion Health System Chairman Thomas Robertson launched an ambitious effort to raise $5 million in six weeks. In the largest fund-raising blitz Roanoke had seen in 30 years, nearly 3,000 private citizens and businesses gave $7 million to Renew Roanoke.
The totals included a $2 million gift from Norfolk Southern and a $1 million gift from Carilion, which also added a $1 million loan.
With $6.5 million in bank loans that were procured in early 1993 and a $3 million scaling back of the hotel, the organizer had the money.
Today, the day before the hotel opens and takes guests, Herbert has a metaphor for the way planners felt during the financing saga:
"It's almost like a waiter with a huge tray of glasses full of water, and if he doesn't balance it delicately, all those glasses could go tumbling to the floor."
More taxpayer costs
The $22 million represents only the direct taxpayer investment in the hotel and conference center. City and state taxpayers have also sunk another $13 million into capital projects linked to the hotel.
A 390-foot-long pedestrian bridge that crosses the Norfolk Southern tracks and links the hotel with the First Union Tower parking garage will cost $6.8 million by the time it is finished this summer.
The Virginia Department of Transportation is paying almost $6.4 million of the project; city taxpayers' share is $456,000. The city may spend another $225,000 of taxpayers' money on a high-tech, audio and video security system for the bridge.
The Wells Avenue realignment cost another $5.8 million; the city's share was $776,000, including road work and elaborate landscaping, lighting and neighborhood signage.
Herbert said the Wells Avenue upgrade has been part of the city's long-range transportation plan for years and would have been done even without the hotel project.
And council last year appropriated $165,000 in taxpayer money for landscaping, curbs, sidewalks and lighting along the north side of Shenandoah Avenue between Jefferson Street and Williamson Road.
City taxpayers also have sunk at least $1.2 million into the project for administrative and promotional costs.
Those include donations of $580,000 to the Roanoke Valley Convention and Visitors Bureau specifically for conference center promotions. Among other things, the money has purchased advertising in hotel and conference industry publications.
"My worst nightmare was having this facility open and having no one coming to it," Herbert said.
He predicted the funding would help every hotel in the city, because the conference center will attract large groups that will spill over into other lodgings.
Council has appropriated another $546,000 for conference center commission operations since 1992, according to records in the city clerk's office.
Council also spent another $51,000 on a contract with Total Action Against Poverty to ensure that local and minority contractors participated in the project.
And city staff members in the grants compliance office have had to document wage and other information required on the hotel portion of the project weekly because it includes federal money.
No one has yet calculated those costs.
Memo: NOTE: Above