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Developers of Two Minneapolis Hotel Projects Put Plans
 on Hold Citing Difficult Financing Conditions
By Susan Feyder, Star Tribune, MinneapolisMcClatchy-Tribune Regional News

Dec. 19, 2007 - The Uptown area, which earlier this year looked as if it would be getting two new hotels, might not be getting any.

Developers of two projects just a couple of blocks away from each other said this week they have put their plans to build hotels on hold. Both cited the more difficult financing conditions affecting commercial projects since the summer meltdown in the home lending market.

The hotels -- a 140-room Graves Hotel originally planned as part of the Mozaic mixed-use project and a 114-room boutique hotel to have been called the Hotel Uptown -- were the first planned for the Minneapolis neighborhood since the Hotel Carling closed more than 30 years ago.

"We have a number of financing options available to us, but everybody is very cautious. It's a lot more complicated now," developer Curt Gunsbury said.

He had hoped to begin work this month on the Hotel Uptown, a European-style boutique establishment on Holmes Avenue. Gunsbury said he expects to decide by January whether to proceed with a hotel or revise his plans.

Stuart Ackerberg, whose Ackerberg Group plans to develop the Mozaic with CAG Development, said a firm decision to eliminate the Graves has not been made. The hotel and a 72-unit condominium tower were to be built on the block bounded by Lagoon, Hennepin and Fremont avenues and the Midtown Greenway. He described as preliminary the plans recently presented to a neighborhood group that did not include the hotel. The revised plans increased the amount of office space and replaced the condos with apartments.

But Ackerberg conceded that lenders' reluctance to finance a project with condos -- a situation that prompted the redrawing of plans in a way that makes it difficult to include the hotel -- isn't likely to change soon.

"We plan to tell people who have put down deposits [on condos] by the end of the year if we're going to be able to proceed with condos," he said. "But it's a very challenging market, and I'm not optimistic."

Ben Graves, president of Graves Hotels Resorts, said his company always had an understanding with the Mozaic developers that the hotel might have to be eliminated from the project. "We have stood ready to move forward, but we also understand if there are things they need to do to protect their investment," he said.

Ackerberg said any revised plans for the Mozaic would have to be approved by neighborhood groups and the city. Construction probably couldn't begin until next summer. He said the hotel still could be built later on at a site about a block away that's now occupied by the Campiello restaurant. Ackerberg and CAG bought the parcel at Lake Street and Girard Avenue S. for about $3 million in 2005.

Ackerberg said conditions for building a hotel could improve if the area's retail market recovers. That includes Calhoun Square, which has lost several tenants this year and was sold to New York-based Blackrock. The new owners have said they plan to redevelop the retail complex but have not disclosed specific plans.

"There's been very little new [retail] activity," Ackerberg said. "Everybody's waiting to see what happens to Calhoun Square, if they can fill the retail space, if they develop some sort of housing. The area needs more of a daytime population."

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Copyright (c) 2007, Star Tribune, Minneapolis

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