|By Jan Falstad, Billings Gazette,
Mont.McClatchy-Tribune Regional News
Aug. 14, 2011--For two years, two brothers, Chris and Mike Nelson, have been seeking a loan of up to $20 million to finish restoring the downtown Northern Hotel.
After investing $8.5 million of their own money, including $2.45 million to buy the 160-room hotel, Mike Nelson remains optimistic about landing a complex loan package with one of two national banks he wouldn't name.
"I can tell you we are closer than we've ever been. I said that 10 days ago, but we're closer now," he said. "But there are a lot of ins and outs to the financing package, so it moves pretty slowly."
Conventional commercial loans today can demand that the developers pony up as much as 40 percent of the project's cost as a down payment, a steep hurdle for any project.
The restoration plans got a boost Aug. 7 when the Billings City Council unanimously passed an ordinance calling the Northern Hotel restoration and a new parking garage along Montana Avenue urban renewal projects. That designation opens the door to using tax increment financing, as well as private funding.
"I think that was exciting. You've got to really applaud the city council for being as forward-looking as they are and standing by the Northern and the parking garage," Nelson said.
But the recent meltdown and partial recovery on Wall Street may have thrown new doubts into the city's ability to bond these projects.
"Obviously, a lot of people are taking money out of stocks. Are they going to reinvest it in bonds? Gosh, I really don't know," said assistant city manager Bruce McCandless.
Lay the money down
The city already has considerable financial skin in these projects.
In May, the city paid $810,000 to Zootist Hospitality LLC, the company the Nelson brothers set up for the Northern's restoration, to buy the hotel's parking garage along Montana Avenue.
As part of the deal, the Nelsons received a guarantee that the city would lease an equivalent number of parking spaces back to the Northern when the hotel is remodeled. The Northern owners are paying $4,322 for 187 parking spots that will cost the city about $20,000 each to build. The TIF district funding will make up the difference.
On the other end of the block, the city paid $1.6 million to Alley Cat Investments LLC to buy seven lots along Montana Avenue, including the existing Windsor Court office building on North 27th Street. Bill Honaker, owner of Walkers Grill, also owns Alley Cat Investments.
On Monday, Downtown Billings Partnership executive director Greg Krueger will present scaled-down plans for the new parking garage to the City Council.
Krueger declined to comment on the latest parking garage plans before the council meeting.
But DBP board chairman Matt Robertson said one option might be tearing down the Windsor Court building as a "placeholder and building a garage later."
Robertson said an option is building a parking garage in two phases starting at Windsor Court.
"Eventually tearing down the Northern garage and building there later, that makes the most sense to us," he said.
But McCandless said he is not in favor of tearing down anything until the building plans and bonding are assured.
"If the garage isn't built, we could sell the property later and it's worth more with a building on it," he said. "Why would we tear it down?"
Building on the east end of the block on seven lots would permit a garage about the size of the Park 2 garage which has 300 parking spaces on four floors, McCandless said.
City Councilman Vince Ruegemer, who had expressed concerns about the financial risks to the city, said he is less concerned now.
"We will build a parking garage where the old Chamber and Empire Bar was. If the Northern didn't get it done, that (existing) parking garage would stay with that hotel," he said.
The original garage proposal was linked to a convention center and would have cost $17 million to $18 million.
Now, due to less bonding authority and a glitch in TIF funding, the garage budget is around $10 million to $11 million, according to city finance director Pat Weber.
In June, there was a tax surprise and the garage funding almost disappeared.
The Montana Department of Revenue told the city it would get only half of the $1.9 million in taxes it expected from the downtown tax increment district.
But the Revenue Department made a math error that favored the city. That means Billings will receive $1.7 million from the TIF district after all. Another $110,000 is expected from tax protests and delinquencies.
McCandless said the city has to have a construction contract and the bonding ready to go at the same time.
"We're not going to sell bonds until we're ready to go," he said.
Bonding is getting harder. The city used to be able to sell bonds if it could pay the monthly payments plus 25 percent. Now it needs at least 70 percent above the monthly payment.
"It's huge. It really cuts into how much you can bond for," Weber said.
McCandless said he's eyeing the market volatility and the recent flip-flop in TIF collections.
"We have to be cautious. We have to be sure the revenue is there," he said.
Meanwhile, the Northern's interiors have been gutted and the hotel is framed from the 10th floor to the first.
The hotel industry has been in a down cycle for several years, but that headwind is ending, Nelson said.
"If we get financing, we'll be announcing it with a bullhorn from the roof," he said. "And we'll have people bumping into each other in here building the hotel as fast as possible."
Contact Jan Falstad at email@example.com or 406-657-1306.
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