Jun. 3, 2009--RALEIGH -- The credit crisis, and the Raleigh City Council, claimed another downtown revitalization project Tuesday.

Greg Hatem, a partner with Empire Properties, asked that his company be released from an agreement with the city to build a hotel near the city's new convention center downtown. The decision comes after efforts to obtain a loan for the project rubbed up against development deadlines imposed by the city.

"Asking the developer to agree to a schedule that was detached from the realities of the economy was, at best, flawed," Hatem told the council.

Tuesday's vote to scrap the Hatem deal marks the second time in four months that the City Council has terminated a contract with a local developer who missed city-imposed deadlines.

Empire Properties was chosen in 2007 to build offices, condominiums and hotel rooms on a city-owned lot near the new convention center. The project was to be called The Lafayette.

As part of the project, the city agreed to sell the land bordered by Salisbury, Lenoir and South streets to Empire for $1.44 million, assuming the developer could meet the city's deadlines.

Empire missed an April 2008 deadline to file revised plans, killing its contract with the city. But the City Council voted in July to give the developer more time, despite opposition from City Manager Russell Allen.

Empire again missed city-imposed deadlines in April that had required the company to close on the real estate and get building permit approval for the project. At Tuesday's meeting, Allen again recommended that the council terminate the contract with Empire.

Allen noted that no substantial work has been done on the site since late last year, and that Empire could give no specific timeframe for when the project might move forward.

Hatem said even economists and world leaders are unable to give a timeline for when the economic situation is going to turn around. He said the city's expectation that latest extension would be the final one given was flawed.

"This ambitious project is not possible at this time," he said.

The wait for hotels

The Lafayette was to be a crucial piece of the city's effort to attract events to the $221 million convention center. It was to include 22 stories of condos, offices and hotel rooms.

Raleigh's ability to attract events and free-spending conventioneers is governed by available hotel rooms. Of 850 planned, at least 500 have been delayed or canceled.

Loren Gold, executive vice president of the Greater Raleigh Convention and Visitors Bureau, said the demise of The Lafayette is disappointing but not surprising.

"Is it a situation where we would love to have more hotel rooms downtown? Absolutely," Gold said. "I would have loved to see Greg get that project off the ground ... but there will be other hotel opportunities."

As the economy has struggled, financing for projects like The Lafayette has dried up. Empire's plans began hitting snags in early 2008.

"The fundamentals of the Raleigh market are strong," Hatem said in March 2008. "I think the banking environment might be what's skittish. The national trend away from financing condominium projects is a reality."

The Lafayette is the latest Empire project to face delays: Last month, the Wake County Board of Commissioners voted to give Empire another 18 months to get the planned L Building out of the ground. That office project is to wrap around a new county parking deck at the corner of McDowell and Davie streets, but a lack of prospective tenants has kept lenders on the sidelines.

Empire's situation is not unique, and The Lafayette is the second downtown project to buckle this year under the weight of city deadlines and tight lenders.

The City Council voted in February to kill a plan by the Rey nolds Co. to build a 25-story condo- hotel-retail tower on a city-owned lot at Dawson and Hillsborough streets. Reynolds had been working on the project since 2001 and says it poured $2.5 million into the deal. But after several deadline extensions, the city pulled the plug on the project, which was to have 136 hotel rooms and 26 luxury condos.

On Tuesday, Hatem was praised by several City Council members after he read a statement that listed the numerous contributions his company has made to downtown. Empire has snapped up and renovated dozens of buildings, filling them with cafes, restaurants and bars, such as The Raleigh Times, The Duck & Dumpling and The Pit.

But it's clear City Council members took away different lessons from their dealings with Empire and Reynolds.

Lessons learned differ

"We really ought to try and stick to deadlines, and if they're not being met then to just move on more quickly," Mayor Charles Meeker said.

Councilman Philip Isley, on the other hand, said: "If anything, we have learned that arbitrary deadlines make it very hard on the development community. If we want to have good development in this city, you've got to have some flexibility with people."

Finding developers to replace Empire and Reynolds likely will take some time.

"I can't imagine anybody can pull it off," said David Reynolds, a partner at Reynolds Co. "I can not envision that anybody would have the ability. If they're not going to do it with all cash, they're not going to do it."

The site of the former Rey nolds project is slated to become a surface parking lot until somebody like that emerges.

[email protected] or 919-829-4548

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