Mar. 30, 2008 - -- City officials plan to sell the former Radisson Hotel next month to a Williamsburg company for $7.74 million, ending Hampton's short stint as hotelier.

But what happened to talk last year of a $12.3 million deal to sell the waterfront hotel, and what's the impact on taxpayers?

The answer depends on who gives it.

Some who are familiar with negotiations last year -- but will not talk on the record -- say the city will squander taxpayer money by signing a contract for $4.56 million less than the price that was offered last year -- and agreeing to pay all sorts of additional costs, including legal fees, hotel operating losses, a Realtor's commission and payments to companies that did business with the hotel under the previous owners.

But city staff say last year's contract would have required the city of Hampton to take its share of the sales price only after $2 million was paid to local companies that did business with the hotel and after hundreds of thousands of dollars went into an escrow account to cover interest payments on the mortgage through June 2008.

The public-private arrangement between the city and the hotel began as part of a downtown revitalization plan in the 1980s, when Hampton agreed to spend $16.699 million to buy land for a new hotel, improve the site, offer a loan to the hotel owners, build a parking garage and to buy land for and build a visitors center.

The $16.699 million included a $3.477 million loan from the city to the hotel owners and a federal grant for $1.596 million that was to be paid to the city as a loan.

Dating to at least 1994, the city has had a running financial battle with the owners, including several periods in which the city threatened foreclosure.

Here's an account of the falling out that led to the city seizing the hotel:

October 2006 Hotel owners Jack H. Shiver and J. Edward "Buddy" Watson III, of Olde Hampton Hotel Associates and HHA Ltd., say they will not be able to make payments on a mortgage loan. As a result, a group of bondholders who financed the loan will withdraw money from a city-funded $1 million line of credit that was set up to cover the hotel owners as a condition of refinancing the hotel's debt to the city.

Shiver and Watson also ask the city for $2.5 million to pay for improvements so they can keep flying the Radisson chain flag. City officials learned later that Radisson Hotels International had ended the franchise in June. Hoping to get out of the hotel business altogether, the City Council and Hampton's Redevelopment and Housing Authority tell City Manager Jesse Wallace to take over ownership of the Radisson and sell it as soon as possible.

December 2006 The bondholders withdraw $65,400 from the city-funded line of credit.

February 2007 The city starts foreclosure proceedings on the hotel, but Shiver and Watson announce they have a buyer willing to pay $12.3 million -- $10.9 million in cash and $1.4 million in an interest-free note payable after five years.

They sign a contract on Feb. 23 with Rajesh S. "Raj" Randeria of Norfolk-based Aniesh Corp. However, bondholders and city officials must agree to the contract.

Aniesh management planned to close on the hotel on April 30, according to a letter of commitment they sent to the city. Along with the letter, the buyer sent proof that Aniesh had been approved by Bank of the Commonwealth for a $10 million loan and a $1.4 million line of credit. There was also an explanation of how the rest would be funded.

Bondholders prefer the sale and tell the city to stop foreclosure. At the time, bondholders are owed $6.2 million on the original mortgage loan. Because they hold the first lien, they control the future of the property. That also means they get paid first when the hotel is sold.

The city has the second, third and fourth liens: one for a city loan, one for a federal grant and another for a city-funded line of credit to cover mortgage payments. Hotel owners owe the city $7.69 million.

Even if the sale goes through, there won't be enough money to pay off the city after bondholders get $6.2 million of the $12.3 million sales price.

March 1, 2007 Mayor Ross A. Kearney II calls a special council meeting to discuss the hotel. Councilmen Joe Spencer and Paige V. Washington Jr. are unable to attend. Kearney, Vice Mayor Randy Gilliland and council members Angela Lee Leary, Charles N. Sapp and Rhet Tignor attend. Paul Campsen, an attorney hired by the city, explains the problem.

March to May 2007 City staff and hotel owners apparently disagree about terms of the sale and how much the city will receive.

A source familiar with the negotiations said city officials were ready to agree to the contract up until Hampton filed a lawsuit against the hotel owners in May.

City officials say the hotel owners demanded that Hampton pay $2.09 million to local vendors who did business with the former Radisson, including $816,000 in management fees to Shiver and Watson. Although the contract does not say the city is required to pay vendors and management fees, the hotel owners were prepared to back out of the sale if the city didn't agree, said City Attorney Cynthia Hudson.

In April 2007, an attorney for Shiver and Watson wrote to the city saying they are willing to accept nothing for management fees. City staff maintain that the management fees were a sticking point all along.

Hudson, the city attorney, said there was mention of dropping management fees at one point in the negotiations, but there still would have been about $1.2 million taken from the city's payment to pay vendors.

According to the contract, Hampton would have received $4.7 million in cash and a $1.4 million interest-free promissory note paid by the buyer after five years. There's disagreement about whether the owner would pay the note after five years, and the real worth, or present value, of it, ranging from $312,436 to $1.1 million.

There are differing views about whether the city would be responsible for interest payments if the hotel were sold.

Assistant City Manager James A. "Pete" Peterson said the earliest the bond could be redeemed was July 1, 2008, which means the city would be held responsible for interest payments until then. Peterson says the interest payments are as follows: $201,825 on June 30, 2007; $186,875 on Dec. 31, 2007; and $186,875 on June 30, 2008. Additionally, the city would have to pay a redemption premium of $105,200, which is an amount added to the principal in order to redeem the bonds.

City staff say the contract did not guarantee the hotel would be operated under a recognized flag, or name, such as Crowne Plaza.

Aniesh Corp. had requested a franchise agreement with Crowne Plaza's parent company, InterContinental Hotels Group, according to a copy of the request. City staff say InterContinental Hotels Group estimated it would cost $3 million to bring the hotel up to standards to carry the company flag, an investment known as a product improvement plan. Randeria estimated spending $1.7 million.

May 2007 The $12.3 million contract falls through.

Hampton files a lawsuit alleging the hotel owners conspired to be paid a "ransom" of more than $816,000 "by threatening to kill the sale of the hotel and file bankruptcy."

An attorney for Shiver and Watson had written the city in April saying they would agree to accept nothing. It's not clear what happened in the month and a half between the time the letter was sent and the lawsuit was filed.

City staff say Hampton negotiated in good faith and filed the lawsuit seeking $3.33 million from Shiver and Watson only after the buyer pulled out. Others say the lawsuit was the reason the contract fell through, and that it was filed because the city was determined to foreclose on the property.

July 1, 2007

Another $527,441 is withdrawn from the city-funded line of credit to pay the mortgage loan to the bondholders.

Oct. 1, 2007

The city's lawsuit is settled out of court, and Hampton takes ownership of the hotel, assuming about $16 million in liabilities, including $8.36 million owed to the city as of September 2007. The amount owed to the city increased because of interest on loans, the additional $527,441 on the line of credit and interest on money borrowed on the line of credit to pay the mortgage.

As part of the settlement, city officials agree to put $300,000 into an escrow account to pay unsecured creditors of the hotel, including local vendors. None of that money goes to Shiver or Watson.

December 2007/ January 2008

The city puts out a request for proposals from anyone interested in buying the hotel, which has been called Hampton Marina Hotel since losing the Radisson flag. There are eight offers, all lower than the February offer of $12.3 million, including one from Aniesh.

February to March 2008

One year after the $12.3 million offer was made, the Hampton Economic Development Corp., a city subsidiary that operates the hotel, announces an agreement to sell the 172-room hotel, including a 297-space parking garage, to MHI Hospitality Corp. for $7.742 million. The bondholders will receive a final payment of $5.75 million.

The city will receive $1.992 million before accounting for the expenses the city incurred while owning the hotel and trying to foreclose on it earlier. After those expenses, the city expects to receive $919,650.

MHI Chief Operating Officer David Folsom said the company bought at an attractive price and that the market has completely changed since a year ago. However, the city's Realtor, David Mumford of the Mumford Co., said in a January news release that measurements of hotel values in 2007 "were ahead of prior year levels for the 5th consecutive year and we expect values to be flat to slightly up in 2008."

A city news release says MHI's offer "represented the greatest total investment in the hotel among the final bidders with a renovation commitment of $5 million." They also say, "MHI was able to secure the Crowne Plaza designation, the best franchise alternative available and a significant improvement over the previous Radisson flag."

The sale is pending approval by the city, MHI and the bondholders, which is expected this spring.

By the numbers

$8.36 million amount owed to the city by the previous hotel owners as of September, shortly before the city settled a lawsuit against them.

$919,650 amount the city expects to receive from selling the hotel after taking out operating expenses, legal fees, Realtor's commission and payment of the mortgage loan.

$12.3 million offer for the hotel in February 2007, according to a contract signed by the previous owners and prospective buyer, Aniesh Corp. of Norfolk.

$7.74 million offer for the hotel that the city agreed to in February.

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