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Suburban Durham, North Carolina Hotel Owners Considering Suing the
 City Over Proposed Downtown Hotel Deal Receiving Tax Incentives

By Ray Gronberg, The Herald-Sun, Durham, N.C.McClatchy-Tribune Regional News

October 14, 2010 - --DURHAM -- A trade group that opposes the city's $4.2 million pledge of business incentives to the proposed conversion of downtown's SunTrust tower into a luxury hotel wants officials to allow more scrutiny of the deal.

The group, the Hospitality Alliance of North Carolina, used a Public Records Law request before the City Council's Sept. 20 vote on the incentive package to obtain a number of the documents officials used in analyzing it.

But many had been heavily censored, redacted by city attorneys to remove information regarded as trade secrets of Greenfire Development, the Durham company that's behind the project.

Hospitality Alliance Director Jim Hobbs said Wednesday that his group has authorized its lawyers to push city officials to roll back many of the redactions, and will consider filing an open-records lawsuit if officials don't comply.

Hobbs said the group acted after seeing the heavy censorship of an outside review of the project's finances city officials had requested from Piper Jaffray, a Minneapolis-based investment firm.

The copy officials gave the Hospitality Alliance withheld information on the project's budget, financial reserves, projected revenues and expenses, and estimated rate of return. Also blocked out was Piper Jaffray's estimate of the hotel's long-term cash flows under several different funding scenarios.

Hobbs maintained that because the city bought and paid for the report, most of the information in it should be public.

"We want to know what the report says, and the public has a right to know what the report says," Hobbs said, arguing that incentive-seekers like Greenfire don't have the right to expect that any information they give local governments to help them evaluate an incentives request should remain closed, especially in city paid-for reports.

He added that the Hospitality Alliance is working with Brooks Pierce, a Raleigh-based law firm. A partner in the firm, litigation and media-law specialist Charles Marshall, is heading the team it's assigned to work on the matter.

City officials learned of the potential quarrel Tuesday, thanks to a blog posting by Reyn Bowman, former president of the Durham Convention & Visitors Bureau.

Bowman in the posting said he'd learned that the Hospitality Alliance "is now suing Durham" over the Greenfire deal. He criticized the group for representing the interests of a trio of Raleigh-based, suburban hotel owners worried the project might cannibalize their business.

In an interview with The Herald-Sun, Bowman said he'd learned the alliance had given his successor at the visitors bureau, Shelly Green, a "courtesy call" to warn her of its intentions.

Green and Hobbs confirmed that Hobbs had in fact placed the courtesy call. Their recollections of its substance differed a bit. Green said Hobbs had told her the group "will be filing a suit." Hobbs told The Herald-Sun he'd advised Green the alliance "had engaged attorneys to pursue documents."

Senior Assistant City Attorney Fred Lamar, who fielded the group's initial open-records request, said Wednesday he'd received "no written or oral communication from the Hospitality Alliance or its attorney of a pending lawsuit or plan to file a lawsuit," either to challenge the incentives deal or over its records request.

State law does allow public agencies to withhold information about incentives deals. But to qualify, the information withheld has to meet every part of a four-pronged test.

It has to meet the state's definition of a trade secret, be the property of a private person, have been furnished in the course of an incentives application and have been labeled confidential "at the time of its initial disclosure to the public agency."

The undated Piper Jaffray report labeled the incentives request the city "justified" because the $52.7 million project wouldn't offer up the kind of returns that would normally attract a complete private-sector finance package.

The conversion's "equity returns are below market and would be further impaired if less aggressive assumptions [than Greenfire's] were" used, Piper Jaffray Assistant Vice President Joshua Ormiston said.

Ormiston questioned whether the project would qualify for all $11 million in historic-preservation tax credits Greenfire wants to go after. He also said private-sector lenders typically would demand stronger reserves and an overall return in the 20 percent to 25 percent range.

He noted, however, there's nothing to "preclude the possibility" of hometown investors accepting below-market returns. Ormiston also said the project's tax benefits to the city "should be a primary consideration" in its evaluation of the request.

Officials expect the hotel to generate more than enough tax and parking revenue to offset the promise they've made Greenfire. And their offer is conditioned on the company delivering a finished, operational hotel by midsummer of 2013.

Greenfire also has a $1 million incentive request pending with the county government. County Manager Mike Ruffin, however, has yet to schedule a public hearing on the proposal. He said recently county officials are waiting on Greenfire to answer questions they have about the project.

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To see more of The Herald-Sun, or to subscribe to the newspaper, go to http://www.herald-sun.com.

Copyright (c) 2010, The Herald-Sun, Durham, N.C.

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