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Could $538 in Unpaid Utilities Throw Wrench into Plans for $16.5
Million Redevelopment of California's Historic Hotel Fresno?

By George Hostetter, The Fresno Bee, Calif.McClatchy-Tribune Regional News

Jan. 20, 2012--Something as simple as an unpaid utilities bill may lead to the unraveling of dreams to renovate the Hotel Fresno and energize downtown revitalization efforts.

Owners of the dilapidated yet beloved building acknowledge that their proposed $16.5 million mixed-use project faces big financial hurdles, but promise success if City Hall will stop picking on them.

City Hall's most persistent critic of the project says the unpaid utilities bill may be small potatoes, but is telling proof of an underfunded developer who may end up sticking taxpayers with a half-finished white elephant.

This difference of opinion figures to set up another round Thursday in the numbers-crunching slugfest between Romi Baghgegian and Lee Brand.

"We feel like we're being pushed around," said Baghgegian, the Southern California-based managing member of Hotel Frezno LLC, owner of the empty building a block west of Fulton Mall. "Why? People love the Hotel Fresno. Everybody wants this project to succeed. We're willing to take the risk."

Baghgegian said he and his partners already invested nearly $3 million in the project.

Brand, who has lived most of his 62 years in Fresno and recalls the once-elegant hotel, doesn't dispute the building's appeal.

"I'm all for fixing the Hotel Fresno," Brand said. "But the taxpayers need to be protected. I think the project doesn't have enough money. Unless raise another $3 million or $4 million, I think it's dead."

Money problem No. 1

After nearly a year of City Hall debate involving millions of dollars, the latest controversy might seem a minor affair.

In mid-December, Baghgegian sent a one-page letter to Brand (then the council president) with an offer.

Hotel Frezno LLC is trying to land a $200,000 loan, Baghgegian wrote. The money would pay some of the upfront costs of applying for an $11.1 million loan to be guaranteed through a federal Department of Housing and Urban Development program.

The remainder of the $200,000 would, among other things, pay for $9,000 in unpaid property taxes and about $4,000 in unpaid city bills, Baghgegian wrote.

Among the debts, according to a title report included in Baghgegian's letter, is $538.30 for city utilities from last year.

His problem, Baghgegian wrote, is timing.

In May 2007, after a lengthy legal battle, the Hotel Fresno's previous owner and City Hall signed a deal that called for the owner to fix the building or tear it down. Two months later, Baghgegian and his partners bought the building and inherited the previous owner's obligations.

Baghgegian, in his letter, told Brand that this court-approved deal, with its many requirements, hurts his efforts to get the $200,000 loan. Without that loan, he can't pay the back taxes and city bills. Without paying off the taxes and bills, he can't get the $11.1 million HUD-guaranteed loan. Without the HUD-guaranteed loan, the Hotel Fresno project can't get going, Baghgegian wrote.

To resolve this dilemma, Baghgegian proposed that the City Council provide Hotel Frezno LLC with a letter voiding the court-approved deal "once the project commences."

Armed with such a promise, Baghgegian said Wednesday, he can get the ball rolling on Hotel Fresno's rebirth.

"This should be an easy thing to do," Baghgegian said of his request to Brand.

Brand disagrees for two reasons, and that's why he plans to put Baghgegian's request on Thursday's council agenda.

If the Hotel Fresno project fails and the building must be torn down, Brand said, the court-approved deal requires the owner to do the work at its expense.

If the city gives Baghgegian what he wants, Brand said, "we lose all our leverage" should the project fail.

But perhaps more important, Brand said, Baghgegian's struggle to pay seemingly routine bills suggests Hotel Frezno LLC lacks the deep pockets needed to tackle the rehabilitation of a 100-year-old potential money pit.

"This is the same kind of scenario as The Met building," Brand said, referring to the bungled renovation of the historic former Fresno Metropolitan Museum building that ended up costing taxpayers more than $15 million.

Enough with The Met comparisons, Baghgegian said.

"We've done two projects in downtown," he said, referring to the Hotel Virginia and Mayflower Lofts. "We've got a proven track record."

Money problem No. 2

But there's another track record that figures to complicate the council's review of Baghgegian's request.

Hotel Frezno LLC has an intricate financing package to turn Hotel Fresno into 72 apartments plus ground-floor commercial space.

Last March, the developer went to the City Council (sitting as the Redevelopment Agency board) to ask for a $1.9 million loan. Despite Brand's skepticism, the council approved the loan on a 4-3 vote. Larry Westerlund and Blong Xiong also voted no.

But in December, the state Supreme Court affirmed the Legislature's authority to kill California's approximately 400 redevelopment agencies. That decision means a state law dissolving the agencies goes into effect.

The law's motivation is money. Gov. Jerry Brown wants the redevelopment agencies' property tax proceeds to help fund things such as schools and public safety.

The City Council has until Feb. 1 to create a successor agency that will direct the complex task of dissolving the Fresno Redevelopment Agency. The law allows the RDA to fulfill its contractual obligations to developers.

Does Hotel Frezno LLC's $1.9 million loan meet that test?

Yes, said Council Member/RDA board Chairman Oliver Baines.

"I do believe it's an enforceable obligation," Baines said.

But in the wake of the state Supreme Court's decision, the City Council no longer has the final word on RDA matters. The law sets up an oversight board for each successor agency. This oversight board determines whether the successor agency is properly unwinding the redevelopment agency's obligations.

The oversight board will include educators and Fresno County appointees representing the organizations who gain if the Fresno Redevelopment Agency dies with lots of extra money and lose if the RDA spends every cent it can.

Passing judgment on the oversight board's decisions is a state finance board representing a Brown administration that also wants to maximize the revenue from the death of redevelopment agencies.

In this volatile political environment, what are the chances that a successor agency can hold onto $1.9 million long enough to loan it to the developer of a time-ravaged seven-story building who is having trouble getting a loan to pay his city utility bill?

"I think the project probably is in jeopardy," said Baines, who represents downtown. The $1.9 million loan, he said, "may raise eyebrows with the oversight board."

Baghgegian said he thinks the loan will be honored.

Money problem No. 3

But the unpaid property taxes and the shaky RDA loan aren't the end of Baghgegian's funding challenges. His plan also includes an $860,000 loan of city-controlled federal home funds. The City Council approved the loan on Sept. 29, but not before Brand (who has more than 30 years of local real estate experience as a developer and a property manager) made a convincing case that Hotel Frezno LLC's business plan was too optimistic on revenues and too cautious on expenses.

Brand persuaded the council to take the unusual step of refusing to dispense the cash from a loan it had just approved until Baghgegian returned with a new and satisfactory appraisal of the property and an updated business plan.

The vote was 5-2, with Brand and Clint Olivier voting no. Baghgegian must submit his updated plans to the council's Finance and Audit Committee, which is chaired by Brand. The committee will recommend to the council whether to hand over the $860,000.

Brand said the committee is still waiting for Baghgegian's new numbers. Baghgegian said he can't produce them until he gets the $200,000 loan to pay for another appraisal.

While Baghgegian and Brand circle each other yet again, the administration of Mayor Ashley Swearengin is taking a wait-and-see attitude. This is a significant change. For months, Swearengin and City Hall planners were among Baghgegian's most ardent supporters.

City Manager Mark Scott said he'd love to see a renovated Hotel Fresno. But before he offers a recommendation to the City Council on the request in Baghgegian's letter, Scott said, he wants to see Hotel Frezno LLC's updated business plan.

"So far," Scott said, "I haven't gotten anything."

The reporter can be reached at ghostetter@fresnobee.com or (559) 441-6272.

___

(c)2012 The Fresno Bee (Fresno, Calif.)

Visit The Fresno Bee (Fresno, Calif.) at www.fresnobee.com

Distributed by MCT Information Services



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