May 17, 2007 - Armada Hoffler is pulling out of the convention center hotel business -- again.

Slightly more than two months after withdrawing a proposal to build a headquarters hotel for the Virginia Beach Convention Center, the Beach-based development firm has dropped plans to build a similar hotel in Wilmington, a city of roughly 97,000 residents on North Carolina's Cap e Fear Coast.

In a letter to Wilmington's city manager last week, a company executive said the plan to build a full-service "Marriott Quality" hotel is "not financially feasible for us."

The four-sentence memo ended the troubled relationship between Armada Hoffler and Wilmington city leaders.

The two sides agreed in 2005 that the city would build a $52 million convention center and turn its operations over to Armada Hoffler. The firm would run the center and build an adjacent, full-service hotel.

Wilmington leaders viewed the agreement as a way to cap costs at construction expenses because Armada Hoffler agreed to assume operating risks and profits.

Local hoteliers sued, alleging the city was handing publicly funded property to a private firm. The case was settled when Wilmington officials agreed to have separate firms run the convention center and the hotel. The city would cover operating losses at the center.

Armada Hoffler still agreed to develop the hotel and was to be paid $2.2 million in fees.

That changed last week with a letter from Anthony Nero, president of Armada Hoffler Development Co., a subsidiary of Armada Hoffler.

Nero wrote that after Wilmington officials wouldn't accept "several alternative concepts," the plan no longer made fiscal sense. Nero added that rising construction costs and "the constraints which were put in place as a result of the lawsuit are the primary reasons."

Nero's letter didn't identify any alternative concepts. A company spokeswoman said he couldn't be reached for further comment.

Malissa Talbert, a Wilmington spokeswoman, said the only alternative concept the company pitched to the city was going from a Marriott to a SpringHill Suites. City officials saw that as a downgrade, Talbert said.

"It's not full service," she added.

Wilmington's City Council voted Tuesday to get out of its agreement with Armada Hoffler. Talbert said the city doesn't want to say it is "terminating" the contract because Nero never used that term in his letter.

If the city breaks the contract, it may be liable for another $165,000 in pre-development fees. If Armada Hoffler breaks the deal, Talbert said, the company forfeits that payment. Armada Hoffler has been paid $315,000 in fees.

"We are disappointed in Armada Hoffler's decision," Mayor Bill Saffo said in a prepared statement, "but we have promised our citizens a high-quality, full-service hotel, and we won't compromise on that quality."

-- Reach Richard Quinn at (757) 222-5119 or [email protected].

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Copyright (c) 2007, The Virginian-Pilot, Norfolk, Va.

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