May 27, 2004 - The hotel in downtown Providence proposed last fall by GTECH Holdings Corp. and Marsella Development Corp. is dead.

The $43-million, 193-room hotel was to be built about a block from a new headquarters building that GTECH is planning at the corner of Memorial Boulevard and Francis Street. But Ron Marsella, an established downtown developer, could not secure long-term financing for the hotel project and became concerned that there are already too many hotels proposed for the area.

"It's not going forward at this point. It's an official termination of the project," Marsella said during a phone interview from his boat in North Carolina.

Marsella recently voiced his concerns to GTECH, which was to finance part of the project. The lottery giant agreed with his assessment, and Marsella told state officials that the project wasn't going forward, said Michael McMahon, executive director of the Rhode Island Economic Development Corporation. Marsella also sent Providence Mayor David N. Cicilline a letter withdrawing the hotel proposal, said Robert Vincent, a spokesman for GTECH.

"It's a great project and a great location, and we'd consider it again if Ron came back and said things have changed," Vincent said. "But it's not his impression that market demand and interest rates are going to change in the longer term or near term."

GTECH, which declined to disclose how much it had planned to invest in the hotel, was interested in backing the project because the company books about 7,000 hotel rooms a year for out-of-state customers and employees.

Last year, in return for a 20-year-contract to run Rhode Island's lottery, GTECH agreed to build a new corporate headquarters in Providence. In addition to moving from West Greenwich to Providence, GTECH said it would support the construction of a new hotel downtown. State legislation and the company's master contract with the lottery requires GTECH to build the corporate office building on a key parcel in the Capital Center District, across Francis Street from Providence Place mall. The company, however, made only an oral pledge to support the hotel proposal.

Marsella, known as the "father" of the Capital Center District, was quietly working on a hotel and garage project last year before deciding to partner with GTECH. He owns the proposed site for the hotel, which is now a parking lot adjacent to the Courtyard by Marriott hotel and the plaza for the Capital Grille. Marsella developed the Courtyard by Marriott hotel and the nearby headquarters for Citizens Financial Group.

After Marsella and GTECH signed an agreement last September to build the all-suites hotel, plans moved forward quickly. In October, a subcommittee of the Capital Center Commission saw a preliminary design for the hotel.

And in November, the Economic Development Corporation agreed to fast-track all permitting review for the hotel.

"We thought it was a sure thing with an absolute go-forward," said Leslie Gardner, chairwoman of the Capital Center Commission, which oversees development in the district surrounding the State House. But when the developer did not come back before the panel, the commission became concerned, said Gardner.

Although Marsella had no trouble securing a short-term construction loan to get the project started, he wasn't able to get a long-term mortgage for the project, he said. The recent rise in interest rates increased the risk of moving forward without a long-term loan. Economic Development Corporation executives tried to put Marsella in touch with their contacts at financial institutions, but McMahon said it wasn't enough.

"This is a tough market for hotels, so we struck out on that," McMahon said.

Also, the number of hotel projects proposed in Providence and other parts of the state raised concerns that there would be too many rooms and not enough guests, said Marsella. Sage Hospitality Resources is turning the Masonic Temple, just southwest of the State House, into a luxury hotel with 250 rooms. Vincent Mesolella Jr. has proposed a hotel of indeterminate size across Sabin Street from the Rhode Island Convention Center. And a boutique hotel is being built just blocks away.

"In the past eight or nine months there are projects that have already commenced or ones we think are credible" in Providence and surrounding areas, said Marsella. "These will create historical increases in supply that the market will not support."

Despite the demise of Marsella's project, GTECH would still like to invest in a downtown hotel, Vincent said.

"GTECH remains committed to considering projects consistent with our economic goals," he said. "It really comes down to an economic decision."

Such ventures, he said,must "provide superior returns for our investment."

Vincent added that the elimination of Marsella's project will not affect GTECH's ability to lodge guests and out-of-town employees. The company plans to break ground this fall on the corporate headquarters, which is expected to be finished in the fall of 2006.

"The room-nights are going to be there whether we invest in one of these hotels or not," said Vincent. "Our employees will be there, our guests will be there."

Marsella added that while it was his decision to stop the project, it doesn't mean the land will remain a parking lot.

"I will develop that site," he said. "It's just a question of when."

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