Sep. 14, 2003 - Leaders at the Baltimore Development Corp. say they are nearly convinced that some version of public ownership and financing is needed to get an urgently needed convention headquarters hotel built for the city.

But others who don't work for the BDC -- including two former mayors -- have serious doubts about that approach, particularly when at least one potential developer is ready to invest considerable sums of private money in the project.

That apparent discordance on an important policy issue hasn't been debated in public because the BDC says the time isn't right. A likely developer for the hotel should be chosen first, said corporation President M.J. "Jay" Brodie.

Critics say the BDC is making private decisions on the $200 million hotel project that might prove costly to the public.

"I don't know why BDC wants to be in the hotel business," said former Mayor Kurt L. Schmoke, now dean of the Howard University School of Law. "I wouldn't. It's a tough business. I would prefer to have a privately developed facility with a commitment to do some kind of public good. I would not want the city government to be in the business of running a hotel."

In a letter sent to developers last month, BDC officials made their intentions clear: "After considerable discussion, BDC, on behalf of the city, is proposing to develop a convention center headquarters hotel under a 100 percent public ownership and public financing (tax-exempt bond financing) scenario. The city is prepared to make the bond financing feasible by offering credit enhancements."

A BDC advisory committee on the project is expected to meet behind closed doors this month to discuss financing options.

A senior BDC official said last week that no final decision on financing has been reached, but added that public financing seems most logical.

"You have to start from the premise that it is very, very, very difficult to get private financing," said Irene Van Sant, project analysis director for the BDC. "There is virtually no equity available for this type of project unless one wants to pay equity return of 25 percent or more. But, we haven't made any decision.

We're doing our analysis. It's premature for people to be worrying about it."

Still, as closed-door evaluations continue, city leaders with knowledge of development and financing issues express alarm.

"Public financing doesn't make any sense," said state Comptroller William Donald Schaefer, who served as Baltimore mayor and Maryland governor. "If the city owns it, there are no taxes. To have the city or state go into further debt doesn't make sense. If you have a private enterprise that would own it, that's the way to go."

Schaefer said he would not support a project that would call for the city or state to go into further debt. "I'm not interested in giving out bonds, if they have a private entrepreneur willing to do it," he said.

In addition to the public vs. private financing and ownership debate, Schaefer is troubled by other aspects of BDC's handling of the hotel proposals.

"It looks like they're directing who should build the hotel, and I don't think that's right," he said. "It doesn't look right. I think they should get an independent group to look at it. Maybe they should take the whole thing away from the BDC and have it privately reviewed."

Schaefer said he worries that BDC wields too much power over important decisions.

"I think O'Malley lets the BDC do what they want," he said. "I don't think he pulls them in enough. This is too important a decision."

BDC chief Brodie could not be reached for comment on the criticism.

On Sept. 5, three teams vying for the right to develop the hotel submitted to BDC their best and final offers for the project expected to rise on two vacant blocks just west of the Baltimore Convention Center and north of Oriole Park at Camden Yards.

The proposals come from teams headed by Robert L. Johnson, founder of Black Entertainment Television; Atlanta-based Portman Holdings LP teamed with Treyball Development Inc., a Beverly Hills, Calif.-based real estate company headed by actor Will Smith and his brother Harry; and a group of local developers.

The local team includes businessman Otis Warren; Willard Hackerman, head of Whiting-Turner Contracting Co., who controls the Sheraton Inner Harbor and a neighboring parking lot; and Baltimore architect Peter Fillat, who designed the Baltimore Marriott Waterfront hotel.

In addition, the local group has submitted an alternative proposal that would put the convention hotel on a parking lot on Conway Street just west of the Sheraton.

Although the TreyPort team has submitted a new development proposal under the public ownership plan, the team is still willing to privately finance either the original urban resort or a scaled-back version of it, if asked.

"Our team originally proposed to build a $250 million privately owned urban resort that included a movie production studio, wellness spa and signature restaurants," said Robert C. Hazard III, a spokesman for the TreyPort team.

"To make the project financially feasible, we asked the city to work with us on an economic support package. The plan we envisioned did not require the city to write us a check. Rather, it asked for the city to reinvest the taxes generated by the hotel back into the asset and to provide some form of capped backstop guarantee to protect mortgage holders in the unlikely event that the hotel missed its income projections by more than 30 percent.

"In exchange for that, we offered to commit a large percentage of our hotel rooms to the Baltimore Convention Center at convention-friendly rates to ensure that the convention and visitors association would never again lose a piece of business because Baltimore's hotel industry refused to cooperate with their efforts," he said.

While he declined to provide details of the support package, Hazard said he did not think the financial exposure to the city would have exceeded a $30 million cap. And the city's money would be tapped only after the owner's guarantees had been depleted, he said.

"We never discussed a financing plan in earnest with the city because the BDC asked us to go in a different direction," he said.

The Johnson group, which did not respond to repeated requests for comment in this article, also was reportedly ready to invest private funds in the project in its original proposal and wanted at least some ownership of it.

Public financing should be a last resort, because it takes public money that could be used for something else, said Robert C. Embry Jr., president of the Abell Foundation.

"Private is better than public financing," he said. "But the question is, is the private financing available."

Even as BDC contemplates how to get Baltimore's hotel built, trade publications promote Baltimore as a hot location for hotel and residential development, and some local developers believe the city is selling itself short.

"We're still operating as if we're glad anyone would be willing to do anything in this city," said Klaus Philipsen, co-chair of the urban design committee of the American Institute of Architects, Baltimore chapter.

David Hillman, chief executive of Southern Management Corp., based in Tysons Corner, Va., agreed: "They're coming from the mindset that you have to bribe people to come here. Instead, you need to tell them what you want and get out of the way."

Baltimore also has a long tradition of committing public money to projects -- a habit that some seem reluctant to change, he said.

BDC officials won't discuss financing details of any of the proposals. But they describe public ownership and financing as the standard model for new convention anchors in cities across the country.

Critics see large risks in that choice.

"It will cost a whole lot more," Hillman said. "It will get loaded up with a lot of political garbage, and it will probably fail. If the city wants to get into the hotel business, just go into the hotel business, don't put out proposals."

"I would call it abject stupidity," Hillman added. "If they get somebody with a big checkbook, and they don't sign them up, they're crazy. I would go out of business before I'd take government financing. It adds innumerable costs to a project.

Recently, City Council President Sheila Dixon and Councilwoman Catherine E. Pugh expressed surprise that the city was considering owning and publicly financing the project.

Hillman, the apartment developer, agreed that the decisions regarding the project "need to be in the hands of professionals. BDC should pick a developer, set a price and step aside," he said.

It's not just the financing that has some critics worried. They complain about BDC making pre-emptory decisions in private about the hotel's location and facilities.

Many in the tourism industry worry about building on the site just north of Camden Yards favored by BDC, which they view as a logical expansion site for the convention center.

"If we build on that open lot, it precludes any expansion for the convention center," said Mary Jo McCulloch, president of the Maryland Hotel and Motel Association and president of the Maryland Tourism Council. "It would seem that you would want to keep your options open."

McCulloch also worries about the city's stated interest in public ownership of the hotel.

"It concerns me that the city wants to be involved in hotel ownership, because it tends to make for a less even playing field," she said.

She liked the ideas for a film production studio and the opening of Eutaw Street to pedestrians with large screens that would highlight great moments in local sports and film.

Those features were among the signature elements that BDC officials told developers to strip from their final offers, effectively asking them to duplicate the Johnson proposal, down to the office space for Catholic Relief Services, which had threatened to leave the city.

"I think it would have been terrific," McCulloch said. "Anything we can do that's a quality product to increase the attractions in the Baltimore area is just one more way we can bring in more tourists and conventions."

Werner Kunz, managing director of the Harbor Court Hotel, said he favors the site near the Sheraton, although he is not familiar with details of the projects.

"The closer to the harbor you are, the better off you are for commanding a good rate," he said. "I think it would be dynamite."

But he questions BDC's request for a hotel of at least 750 rooms.

"A true headquarters hotel should be 1,000 rooms," he said. "A 750-room hotel is like the Marriott or the Wyndham. It's not big enough. I think they need to learn from Philadelphia, where they built that 1,200-room hotel next to the convention center, and D.C. wants to do it."

And he does not like the idea of the city owning the property.

"I don't know whether the city should be in the hotel business, period," he said. "I don't think it's a good idea. We would be in the same position as with the convention center, which loses money.

I don't think the taxpayers want to be covering the losses of a convention center hotel."

Peter M. Komar, general manager of the Holiday Inn Inner Harbor, said he thinks either location would work well, but he also is concerned about using up potential expansion space for the convention center.

"I would think at some point we'll be talking to the state again about a convention center expansion," he said. "I don't know if it will be in five years or in 10 years or when. It would be a shame to be landlocked and unable to expand."

Baltimore architect Janet Marie Smith, who might play a role in the development of an arena if the local development team is the one selected, said she favors the site near the Sheraton.

"I think it's a stroke of genius to look at an existing hotel site and expand that," she said.

Dennis M. Castleman, who heads the state's office of tourism, and Leslie R. Doggett, the president and chief executive of BACVA, are new to their jobs, and said they couldn't comment on the details of the projects.

"I would hope that we'll have a consultation with BACVA and the appropriate state agencies to see that we are consulted and our expertise used to help them pick the appropriate site," Castleman said. "Hopefully, whatever we do at the end of the day will increase tourism and conventions."

"I do not have enough information to make an informed decision," said Doggett, when asked what site she would favor. "However, I want what is best for Baltimore in terms of making the destination competitive and giving the city the greatest return on investment."

Local developers say decisions made now on the headquarters hotel will have lasting implications for tourism and convention business for decades.

"If it's done wrong, it's not going to be just the hotel that does badly," Hillman said. "It will have a negative impact on everything in the area."

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