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Downtown Marriott Hotel Project "Developer's Fee"
Raising Eyebrows in Peoria, Illinois

By John Sharp, Journal Star, Peoria, Ill.McClatchy-Tribune Regional News

Feb. 24, 2010--PEORIA -- Developer Gary Matthews could make $6.5 million for developing the Downtown Marriott Hotel project, according to information supplied by the Illinois Finance Authority.

That amount concerns board members of the authority who believe it is too much for a developer to receive for a hotel project during one of the toughest times in the industry.

According to information provided to the authority, Matthews requests $9 million in a "developer's fee," considerably more than the $3.5 million in equity he will put into the project.

"The developer fee caused all of our eyes to grow a little bit wider," Bill Brandt, chairman of the Illinois Finance Authority, said Tuesday. "Several of us consider it to be a time when the state is suffering and people are losing their jobs ... I give a lot of points (to Matthews) to put together a deal and to be in the right place, but maybe some of this money should be left in the kitty for a while."

Matthews did not submit a detailed accounting for how the fee will be paid to him. Brandt said he believes a portion would come from taxpayer-backed tax-increment financing (TIF) bonds, which the City Council approved in 2008 to support the project.

However, Peoria city attorney Randy Ray said Tuesday the developer's fee would not be a TIF-eligible expense and would not be paid out until the project is completed.

Bill Claus, funding manager with the Illinois Finance Authority, said the authority asked Matthews to provide a more detailed analysis of the fee.

"The juxtaposition between the developer's equity and the developer's fee was indeed noted by a few (authority) members," Bill Brandt, chairman of the authority, said on Tuesday.

Brandt was referring to a Jan. 12 meeting at which Matthews requested authority support for $7.8 million in a state moral obligation bond to outfit the structure with energy-efficient features.

The authority has not approved the state bond, although it could be discussed when the group meets in Peoria at the Hotel Pere Marquette on March 9. Brandt, however, said he doesn't believe it will be reconsidered until the April meeting.

The City Council could reassess the Marriott Hotel project in the months to come, because the overall scope of the development appears to be scaling back. According to City Manager Scott Moore on Monday, the number of hotel rooms is dropping by 89, and the city's TIF obligation to the project is going down from $39.4 million to $37 million.

Moore said he is awaiting more information from Matthews this week. Matthews could not be reached for comment on Tuesday.

At-large City Councilman Ryan Spain said he believes the numbers Matthews provided to the authority will be changed, including the developer's fee, which represents 10 percent of the overall project costs or 1 percent more than the maximum 9 percent allowed through the city's original development agreement with EM Properties.

Spain said he wouldn't speculate about what new fee Matthews might propose.

"I would expect the developer's fees to change significantly more than the reduction you see in the size of the project," Spain said, referring to the potential reduction of the project from a $102 million development to $90 million.

Also on Tuesday, another Downtown hotel owner came forward to criticize the Marriott project.

Bruce Kinseth, whose Iowa-based company owns the Holiday Inn City Centre and operates 46 other hotels nationally, said "it's just crazy" for anyone to build a hotel project during the current economic climate, which is seeing financial troubles of large and newer hotels near O'Hare International Airport, among other places.

He also was critical of Matthews' fee, saying it "doesn't take a brain surgeon" to see that he will financially benefit from the deal.

"I'd put in ($3.5 million) and net $6 million and give it to the lender ... wouldn't you do that deal?" Kinseth said. "Who wouldn't do that?"

Kinseth's comments come one day after Mark Twain Hotel owner and former Peoria Mayor Bud Grieves said the timing was poor for the construction of the Marriott Hotel. Matthews said on Monday that he disagreed, saying it was the right time to proceed.

John Sharp can be reached at 686-3282 or jsharp@pjstar.com.

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Copyright (c) 2010, Journal Star, Peoria, Ill.

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