Developers of the Downtown Memphis Hilton Hotel project were granted a one-year closing extension from the Memphis Center City Revenue Finance Corp. board Tuesday, Oct. 9.
The board of the Downtown Memphis Commission initially approved a 20-year payment-in-lieu-of-taxes (PILOT) program for RPD Hotels LLC’s development of the Hilton at Linden Avenue and Fourth Street in September 2010. At that time, the project involved the construction of a new hotel that included 300 rooms and a development cost of $69 million.
RPD Hotels came back to the CCRFC board in September 2011 asking for a one-year extension. Since that time, the group has taken some costs out of the project by reducing the room count to 275. It is also still working on securing financing, said Bridget Chisholm, managing member of RPD Hotels.
“Hotels have been difficult to finance,” Chisholm said. “We have tried every innovative financing strategy from recovery (zone) facility bonds to just general permanent financing.”
That right-sizing removed a story of the hotel and about $2 million out of the project’s development cost. Chisholm said it will also improve the Hilton’s operating performance from an occupancy rate standpoint.
The overall meeting space, at 25,000 square feet, is still at a 300-room count in order to retain the same operational experience. That includes an 8,000-square-foot ballroom.
“The Westin (Memphis Beale Street hotel) doesn’t have as much meeting space,” she said.
RPD Hotels is pursuing a “straight construction loan” of $42 million, which is scheduled to close by the end of the year, and “layering in the EB-5 on the equity side.” EB-5 financing takes nine to 12 months to do, and RPD Hotels started the initial screening a couple of months ago, Chisholm said.
“EB-5 financing has been the vehicle for many hotels to bring institutional equity to the table through allowing foreign investors to invest in the projects, obtain a green card,” Chisholm said. “The legislation was reauthorized recently on Sept. 5, 2012, through 2015, so we don’t have the issue of it expiring like we did with recovery facility bonds.”
The group that RPD Hotels is working with is an approved Hilton vendor from Miami. Chisholm said having a “strong flag” like Hilton that’s globally recognized has helped with both the EB-5 piece as well as resonating with potential South American and Asian investors.
“You have a lot of private investors on the debt side who have come together with groups and they are making debt investments in large projects like this to get a stable return,” Chisholm said. “It’s sort of like Anheuser-Busch, it’s like a steady brand people recognize. You might not get a 25 percent return, but in this market, you can get a steady, low, double-digit return.”
The total project is $67.7 million and includes $41.6 million of taxable revenue bonds issued by the Industrial Development Board, $19.8 million in private and owner equity, and $500,000 in contributions from the city of Memphis for infrastructure work.
RPD Hotels expects to complete the permitting and begin site work by March. Construction will last about 19 months, with a 2015 completion.
Meanwhile, the CCRFC also approved the sale of condominium unit No. 106 at 95 S. Main St., where Local Gastropub is located.
The buyer is TGOD LLC, owned by investor and orthopedic surgeon Patrick Toy. The seller is 95 S. Main LLC, of which Cameron Taylor and Lee Patton are managing members. Chris Garland of Garland Co. Real Estate is handling the sale.
The PILOT lease of the entire property at 95 S. Main stays in effect until 2017; the transaction is simply a change in ownership of the condo unit.