Sep. 19, 2007 - DOWNTOWN ST. PAUL -- Daunted by sluggish condominium sales, developers of St. Paul's swanky Penfield project are hoping to get a move on construction by bringing a suite hotel into the mix.

Developers aim to build Hyatt Place hotel rooms into their planned 33-story glass-and-steel tower, which would transform the block of the old Public Safety Building. The Penfield would be the first residential high-rise building to alter the downtown skyline in about 20 years.

Talk of the hotel -- as well as plans for a ground-floor grocery -- is still in the early stages, said developer Peter Brown of Alatus Partners. The possible changes shouldn't signal the development is in danger, he added.

"We love the project and the location and we're very committed, but we've got to make some adjustments to reflect the realities of the marketplace," Brown said.

After months of working with neighbors on the Penfield's design, developers began selling units about a year ago, just as a condo glut started to delay projects across the metro.

Sales for the Penfield condos flattened over the winter but picked up this summer, Brown said. Still, they weren't enough to start construction this fall as planned. Brown hopes construction will begin in the spring. The sales office did not reach its Aug. 31 goal to sign purchase agreements for 60 percent of the units, according to a letter Brown sent to buyers last week.

Many will be watching the Penfield to see whether an upscale condo project can succeed in downtown St. Paul. The West Side Flats housing development across the Mississippi River is on hold; the Bridges of St. Paul mega-project was defeated by the City Council earlier this month.

One notable exception, the Farmers Market Flats, recently celebrated a groundbreaking. That Lowertown project boasts a niche charm as well as moderate price points.

The Penfield has secured about 100 reservations, some of which are under hard contracts, Brown said. Many interested buyers are empty-nesters looking to downsize and move into an urban environment.

Rod Halvorson, who chairs the downtown neighborhood group CapitolRiver Council, said he's inclined to favor the hotel concept -- especially if it helps the Penfield get built. Halvorson had been concerned about the Penfield's future because of the current market challenges, but he thinks the hotel idea might bring it some momentum.

City Council Member Dave Thune agreed.

"I think it's a different niche," said Thune, who represents downtown. "Even though sales have been slow, this group of developers is especially creative. I see the hotel as a plus; it gives additional amenities for the building."

One of Brown's partners is Bob Lux, who helped shepherd the construction of the high-end Carlyle and Grant Park condo towers in Minneapolis.

Brown said the Penfield would have space for about 120 to 200 hotel rooms. The number of condo units would be reduced from 313 to 200 or fewer.

"The goal is to keep it tall," Brown said.

Condo residents likely would have access to some hotel services, such as room service and housekeeping, he said. Condo-hotel hybrid concepts have debuted in the Twin Cities, including the Westin Edina Galleria Residences and the Ivy Hotel and Residence in Minneapolis.

Hyatt Place is a "select service" hotel that caters primarily to business travelers. A Hyatt spokeswoman in Chicago said she couldn't confirm or deny the company's interest in the St. Paul condo project.

As of last year, prices for the Penfield began around $190,000, with top-floor penthouses topping $1 million.

In 2005, the city tentatively signed off on the Penfield proposal and up to $9.6 million in public financing for the project. Brown said his group hopes to take future plans to the community council and the Housing and Redevelopment Authority this fall.

Cecile Bedor, director of planning and economic development for St. Paul, said she thinks the hotel concept would help the developers break ground sooner, as well as bring more people to downtown. She expects the city would have to re-examine the financing package, but she supports the idea.

"We don't think the project ever needed to be saved," Bedor said. "It's a way to move it forward and add a new dynamic to it, and make it an even better project."

Laura Yuen can be reached at [email protected] or 651-228-5498.

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