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City of Tucson Has Been Offering Incentives to Hotel Developers for 25 Years;
No Takers So Far to Build a Posh Downtown Convention Hotel

By Rob O'Dell, The Arizona Daily Star, TucsonMcClatchy-Tribune Business News

Apr. 5, 2007 - Tucson is looking for a developer who can use the city's favorable financing to build a posh Downtown hotel. On Wednesday the City Council voted to give city staffers 30 days to come back with a plan to make it a reality.

The decision left two local developers who have recently pitched large hotel proposals wondering where they stand. In fact, both of those developers pitched their plans to the council on Wednesday, immediately before the council decided to go in a different direction.

All the proposals would be able to use the city's ultra-low tax-exempt financing and have one of the four top hotel chains in the country manage the property.

Earlier on Wednesday, developers Roger Karber and Tom Tracy pitched a $110 million expansion of the Hotel Arizona, using the city financing to remodel the current hotel, add a new 30-story tower to expand the hotel to more than 700 rooms and add a spa, retail stores, restaurants and convention/ballroom space to the aging hotel.

The total cost of the deal would be $20 million higher, Karber said, when you factor in the existing $20 million in debt currently on the Hotel Arizona.

The expansion would create the tallest building in Tucson by eight stories, Karber said, and would also allow Karber and hotel owner Humberto S. Lopez to build an eight-story mixed-use office and retail center at the corner of Broadway and Granada Avenue that would have the new modern streetcar run either through it or adjacent to it.

Tracy said the developers would take a standard development fee for developing the project. Tracy said development fees are typically 4 percent to 7 percent of the total construction cost, which is estimated to be about $110 million -- leaving the hotel developers between $4 million and $7.7 million for their services.

Karber originally said his company would build the hotel using the city's low-interest financing and using Rio Nuevo money to secure the debt, and then sell the hotel back to the city for $130 million.

However, later, Karber's lawyer and consultant Larry Hecker offered a different version of the proposal, which had the city buying the hotel prior to the renovations and expansion, which he said was needed to be eligible for low-cost tax-exempt financing. This is similar to a deal City Manager Mike Hein talked about doing before the council went in another direction.

Karber said that in the latter scenario, he and Lopez are asking for $25 million for the hotel. They would still get the millions in development fees and the opportunity to develop the corner of Broadway and Granada.

Either way, their hotel deal is on hold, as the council has voted to put out a request for proposals for hotel developers.

Also put on hold is Downtown landowner Allan Norville, who is pitching plans for an exhibit hall for the Tucson Gem & Mineral Show and a 250-room hotel, which falls far short of the city's goal of a 700-room hotel.

However, Norville can modify his proposal to meet city expectations after the Request For Proposal is released.

Wednesday's move also opens the door for other potential bidders, who could take advantage of potential low-cost city financing assistance and being able to build on city land.

The city has been offering similar incentives to hotel developers for at least 25 years, however, with no takers.

More news on the Downtown redevelopment is at go.azstarnet.com/rionuevo From the StarNet archives: Read an April 30, 2006, profile of Lopez by Star business reporter Joe Barrios here.

Within 30 days the city is expected to put out a request for proposals soliciting a Downtown hotel developer. Prospective bidders will be expected to build:

--What: A 700-room-minimum convention-quality hotel.

--Where: Within a very short walk of the existing Tucson Convention Center and a planned new Downtown arena.

--Cost: Expected to be between $80 million and $120 million.

--Where the money will come from: Loan guarantees from Rio Nuevo redevelopment money and other Rio Nuevo funds and tax-exempt low-interest bonds issued as a result of the city's involvement in the project.

--Contact reporter Rob O'Dell at 573-4240 or rodell@azstarnet.com.

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Copyright (c) 2007, The Arizona Daily Star, Tucson

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