Aug. 11, 2009--The city's chances of getting its first business-class hotel went down Monday when a city panel rejected a $2.7 million loan request from the developer.

The developer said the $13.4 million project near Valley Parkway and Interstate 15 would be delayed indefinitely without the loan, but that construction could have begun this fall if the loan had been approved.

Councilman Dick Daniels said the 105-room hotel was a badly needed amenity in Escondido, but he said lending such a large sum of money would be too risky because the city could lose the entire loan if the project ran into financial problems before construction was complete.

"We're not secured if something unforeseen goes wrong," said Daniels, who sits on the council's economic development subcommittee with Mayor Lori Holt Pfeiler. "I'm all for stimulating the economy, but this falls flat with me."

Pfeiler suggested the proposal could be an opportunity to push a worthy project "over the top" with some extra financing, but she was not able to persuade Daniels.

"Sometimes, you have to wait for things to evolve more naturally," said Daniels, suggesting that the project would go forward when the economy and the hospitality industry recover from the recession.

To keep the project viable, Pfeiler and Daniels said they would support extending the deadline for the hotel to open from April 2010 to April 2013.

Without such an extension, the developer would lose more than $1 million in hotel-tax rebates included in a package of financial incentives the council approved in December 2007.

The agreement included a construction deadline to give the developer an incentive to quickly build the hotel, a Springhill Suites Marriott planned for high above Interstate 15 on La Terraza Boulevard.

Terry Jackson, a Burnham Real Estate vice president who represents the developer, told Pfeiler and Daniels that the recession has increased the equity required to get financing for hotel projects and that the $2.7 million would solve that problem.

He said another reason the money was needed was a downward shift in projected occupancy rates and room charges at the hotel, which is planned to include a pool, spa, outdoor recreation area, conference room and small gym.

Initial occupancy rates are now projected at 55 percent, compared with 65 percent when the project was approved. And the projected average room rate has dropped from $115 to $104.

Jackson conceded the loan was risky because the city would be second in line behind the primary lender if the project went "belly up." But he said the most likely outcome with the loan was the hotel opening in late 2010 and the city being repaid by 2013.

Jackson said the project has received all but one required approval from the city planning department, making it virtually "shovel ready."

Escondido has been trying to attract more hotels to diversify city revenue, which has come primarily from sales and property taxes.

But of the four major hotel projects proposed in the past three years, none is moving forward at this time.

A hotel planned as part of the Westfield North County mall renovation has been scrapped.

An extended-stay, 76-room Candlewood Suites hotel planned near Coco's and I-15 is on hold while the developer negotiates with In-N-Out Burger about possibly acquiring the site.

And a seven-story luxury Marriott planned for downtown is on hold because only two of the City Council's five members support roughly $12 million in city subsidies that the developer wants for the $60 million project.

Escondido now has 967 hotel rooms. If the Candlewood Suites and the two Marriotts are built, that number would increase to 1,344.

Call staff writer David Garrick at 760-740-5468.

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