March 19--Rio Nuevo has been asked to provide the final piece of financing necessary to pull off a $22 million downtown hotel.

The 135-room, six-story hotel would be the centerpiece of developer Scott Stiteler's ambitious plan to create a downtown entertainment district around the intersection of Fifth Avenue and Congress Street.

Stiteler, manager of Tucson Urban LLC, asked the Rio Nuevo board last Tuesday to kick in $2.5 million to cover the funding gap left after $15 million in conventional loans and about $5 million in private money are factored into hotel financing.

Stiteler presented the request as a $2.5 million loan at 4 percent interest. But he wants most of the money used to repay the loan to be taken from taxes that would otherwise be owed to Rio Nuevo rather than from hotel profits.

According to repayment documents, Stiteler anticipates owing Rio Nuevo $388,476 from the sales/bed tax in the first year the hotel is in operation. He wants to apply half of that amount, $194,237, toward the interest and the principal on his loan.

That repayment pattern repeats until 2024, when there will be $974,230 left on the loan. Rio Nuevo's authorization expires in 2025.

Even with tax money going toward the loan, Stiteler still anticipates Rio Nuevo will net $3.3 million over 10 years from the hotel.

Board members were receptive to the idea that would finally bring a hotel downtown, but they wanted more time to consider the legal implications, such as whether giving money to the project would violate state law.

"I think I'm ready (to move forward)," said board member Mark Irvin, who said he needed a bit more time to study the issue.

The board voted to table the issue Monday and work with Stiteler and the board legal team. The board hopes to have an answer within the next 30 days.

Stiteler turned to Rio Nuevo after he came to an impasse with the city over some federal Housing and Urban Development loans.

The city wasn't clear on how to proceed with the loans after six months of discussions with Stiteler. He said he didn't want his project bogged down for months, or possibly years, while the city debated the next steps, so he decided to stop seeking the approximately $8 million in federal loans altogether.

Stiteler is also still seeking an eight-year property tax exemption from the city.

Stiteler said there are many roadblocks involved with putting up a hotel, and developers need the general assistance. He stressed that private money would still be taking the biggest risk in the deal, and in the end Tucsonans would win out with a revitalized downtown.

Other Rio Nuevo News

Rio Nuevo Chief Financial Officer Bill Allen informed the board that the district hadn't paid its sales taxes since August 2011. The district was required to pay 2.5 percent on the taxable rent it receives from its various properties. But it failed to do so to the tune of $96,000 in back taxes. The district owes the city $77,000 and the state $19,000. Allen said the money doesn't include interest or penalties. The board voted to have Allen negotiate with the city to see if there's any way the city could waive the penalties, interest or even the back taxes.

Chairman Fletcher McCusker said that's all in the past, and now the staff and procedures are in place to prevent this sort of thing from happening again.

Contact reporter Darren DaRonco at 573-4243 or ddaronco@azstarnet.com. On Twitter @DarrenDaRonco.

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