September  04, 2010 - --Convention Center hotel developer Garfield Traub unveiled a new financing proposal this week the company says would eliminate the need for Rio Nuevo to pay for the $190 million hotel.

The hotel would instead be funded with bonds sold to a single private investor -- a real estate investment trust or REIT. The shift doesn't take the city out of the funding equation, however. The debt would still need to be fully guaranteed by taxpayers.

Details of the financing plan are still sketchy, and it is unclear how exactly the REIT would finance the transaction, other than it would be a "private placement offering" that wouldn't be a public bond sale.

Instead of it being funded through the public bond market, the REIT would buy all the bonds.

The real estate investment trust is from Chicago, and the REIT would finance the new hotel, the Tucson Convention Center expansion, and a new parking garage in the area, a total package of $230 million.

The hotel would be financed with Build America Bonds, a type of bond that carries a lower interest rate because a portion of the interest is rebated by the federal government. That's why Garfield Traub says the deal needs to be done by the end of the year, when terms offered for Build America Bonds will change and the federal rebate would drop.

Information presented to the new Rio Nuevo board by Garfield Traub said some advantages are that the bonds don't have to be rated by rating agencies, there would be less required reserve funds, and there would be a significant reduction in the cost to issue the bonds.

One of the reasons for the lower cost of issuance is the bonds don't have to meet all of the public disclosure requirements mandated by the Securities and Exchange Commission for publicly sold bonds.

Stephen Moffett, president of hospitality at Garfield Traub, declined to comment on the specifics of the deal, saying he is still negotiating with the city. However, he did provide the three-page PowerPoint presented to the Rio Nuevo board this week.

Silvia Amparano, deputy city fiance director, said Rio Nuevo would have to lease the property and give or sell the hotel plans to the city, meaning it would be up to just the city to decide whether to approve the financing. Currently, both Rio Nuevo and the city need to approve the financing.

Benefits of the new proposal, according to Garfield Traub's presentation to the Rio Nuevo board, include simplification of the planning and approval process and freeing up of Rio Nuevo funds for use on other projects.

For city taxpayers not much would change, because they would have to guarantee the whole deal, just as would be required if Rio Nuevo funded the project. Amparano said the financing could not be completed otherwise, something Garfield Traub also acknowledges.

Rio Nuevo board member Scott Egan, who has been a hotel critic, said he would be happy to get the hotel off Rio Nuevo's plate. "I'm not convinced at this time that the hotel is something the Rio Nuevo district should invest in," Egan said.

Egan said the Rio Nuevo board was surprised by the new financing proposal this week.

He said Moffett told the board the private placement bond sale was an option a long time ago, but Moffett said he didn't want to bring it up because he didn't want to confuse the Rio Nuevo board.

If city taxpayers still have to guarantee the bonds, City Councilman Steve Kozachik said there's nothing different about the new deal. He said it doesn't make sense to do the hotel until the demand is there.

He said he'd be "wholly unimpressed" if Rio Nuevo pushes the whole deal onto the city, but said it's about getting four votes on the council to secure the hotel.

Councilwoman Regina Romero said she hadn't seen details of the new proposal, but reiterated her stance the hotel can't put city taxpayers at risk. She's open to the hotel if Garfield Traub can prove it won't.

Mayor Bob Walkup, the strongest backer of the convention hotel, said he hadn't seen the new financing plan, but said the city must ensure its general fund is secured and that a quality management company will run the hotel.

Contact reporter Rob O'Dell at 573-4346 or [email protected]

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