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The Proposed 200 room Lafayette Tower at Raleigh's New
 Convention Center Tangled Up by the Credit Crunch
By Jack Hagel and David Bracken, The News & Observer, Raleigh, N.C.McClatchy-Tribune Regional News

July 1, 2008 - RALEIGH -- Missed deadlines could derail plans for a downtown tower that promised offices, condominiums and hotel rooms above the city's new convention center.

City Manager Russell Allen wants the City Council to reopen bidding to developers who would compete to build on a 0.51-acre city-owned lot bordered by Salisbury, Lenoir and South streets.

The move would nullify a contract with Raleigh developer Empire Properties, which in 2007 was approved to build the 22-story Lafayette tower.

The city agreed to sell the land to Empire for $1.44 million -- if the developer could meet development deadlines. But Empire missed an April deadline to file revised plans for the project. And Allen opposes granting the developer's request for further extensions. "He does not have financing and does not know when he can get it," Allen said.

If the City Council approves Allen's recommendation at its meeting today, it could begin soliciting bids. Empire would have to bid against other developers to win back the deal.

But Empire probably would walk away from the project instead, said Greg Hatem, Empire's managing partner. "I don't think the city understands how difficult it is to do a project like this without their support," he said. "If they view their responsibility to work this hard to pull this project, rather than helping expedite it, then it will never be done."

The Lafayette is a crucial piece in the city's effort to attract conventions to the $221 million convention center that it is building at McDowell and Lenoir streets.

The city's ability to attract bigger events -- and convention-goers -- is governed by the number of available hotel rooms. But of 850 rooms planned, about 500 have been delayed as lenders have instituted stricter lending standards.

Early last year, lenders willingly financed 85 percent of commercial projects. They took the risk on hotel projects that included condos, as personal travel soared and low mortgage rates made it easier for people to buy homes.

Now, discouraged by sluggish home sales and decreasing travel nationwide, financiers are asking developers to sell more condos on the front end or cover almost half the equity -- even in relatively healthy markets -- to reduce risk.

Skittish lenders were partly responsible when Empire, in March, halved the number of proposed condos to 20 and boosted the number of hotel rooms to 200.

Empire was to file revised plans with the city in April but never did, killing its contract with the city.

Cautious money might make it just as hard for other developers to get off the ground, Hatem said.

City officials are "naive if they think there are people who are lining up that can actually do this faster and better," he said. "The lending environment now is worse than it was in March. And it's considerably worse than it was in October, when we thought it was bad."

It's a rare setback for Empire, which has been credited with helping revive downtown Raleigh. The company is downtown's biggest landlord in properties owned. It has snapped up and renovated dozens of buildings, filling them with cafes, restaurants and bars.

The Lafayette would be Empire's second from-the-ground-up project. It is planning The L Building a few blocks northwest of The Lafayette.

The L Building, proposed at 133,000 square feet and expected to finish in 2009, was more palatable to lenders because demand for downtown offices is strong and the project doesn't include condos.

The Lafayette isn't the only project tangled by the credit crunch.

Reynolds Co. of Raleigh said in March that the difficult lending environment would force it to delay the start of a 25-story, condo-hotel tower at Dawson and Hillsborough streets.

The city, which had agreed to sell land to Reynolds, has extended the deadlines for that project several times over six years.

Allen says location gives the Reynolds project less urgency. "It's a critical project, but it's not right next to our convention center," he said. He added that Reynolds has bought the land associated with its project, and it has paid for the site to be cleared for development.

Some City Council members might cite the Reynolds project as a reason to give Empire more time.

There have been deadline extensions for Empire's project, but there "doesn't seem to have been much progress made," Mayor Charles Meeker said. Allen's "recommendation makes sense."

Reynolds could face the same fate as Empire if it doesn't meet its deadline to get financing by the end of the month.

The company is negotiating financing with Regions Bank of Birmingham, Ala., and is on schedule, partner David Reynolds said.

"We're making great progress," he said. "We're almost there."

jack.hagel@newsobserver.com or (919) 829-8917

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Copyright (c) 2008, The News & Observer, Raleigh, N.C.

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