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Hotel checks back in: Downtown Northampton project gets financing

By Chad Cain

06/22/2009- Daily Hampshire Gazette

NORTHAMPTON - After months of discussions with bankers from the United States and abroad, the development group planning to build a 101-room Hilton Garden Inn hotel downtown has secured financing right in its own backyard.

Shardool Parmar, the president of Pioneer Valley Hotel Group, said his company received a financial commitment letter this week from Berkshire Bank of Pittsfield.

"I have spoken with dozens of brokers from financial institutions," Parmar told the City Council Thursday night. "It's hard to start a new construction project."

While environmental cleanup and other site work for the hotel behind Pulaski Park in the heart of downtown has been under way for some time, construction of the building itself could begin in earnest by the end of summer, said Parmar. That's almost two years after the Planning Board issued a site plan for the development, which got off to a rocky start and faced considerable opposition in the city over its design and siting at the end of the park.

Once construction begins, it is expected to take 12 to 18 months to complete. Work on an accompanying 279-space parking garage is not expected to begin at the same time as the hotel, but must be complete within three years, according to an agreement between the city and developers.

The Hilton would be the first new hotel project to get off the ground in western Massachusetts this year, Parmar said. The recession has halted as many as four regional projects in the last year, with banks less willing to take risks and requiring more up-front equity before they back a project.

The Ludlow-based Pioneer Valley Hotel Group, for example, is putting up 25 percent equity in the Northampton project. Six months ago, the figure was 50 percent, compared to just 10 percent prior to the economic downturn, Parmar said.

The city's financial woes this spring led some residents to question whether the city should have sold the property to Parmar's group for $1 in anticipation of future revenue that a hotel would generate. They said the city should have opted for an alternate proposal to build an office building on the Round House lot.

Mayor Clare Higgins believes a hotel is the right option and will bring in more money for the city in the long run. In a presentation before the council on Thursday, Wayne Feiden, director of the Office of Planning and Development, said that a hotel would generate $1.36 million over 10 years in property and occupancy taxes. Those figures, based on 2007 estimates, have the potential to go up, especially if the city opts to increase its hotel occupancy tax.

State legislators this week approved a budget that increases hotel and motel taxes. Cities and towns, which can already add a 4 percent surcharge to the state's 5.7 percent hotels tax, will be allowed to increase that surcharge to 6 percent.

When built, the hotel would be the second-largest taxpayer in the city behind Kollmorgen Electro-Optical's new building on Village Hill Northampton.

At Large City Councilor James M. Dostal said that another study comparing the money generated from a hotel and an office building showed that the hotel would bring in $1 million more to the city over a 20-year period.

"There was no question as to what should be built," he said.

Site issues

In a related development Thursday, Higgins said she will grant a request to extend a purchase-and-sale agreement with the developer for another six months, something she's had to do several times already because of delays caused by litigation, financing and environmental cleanup. The agreement was slated to expire June 30.

As for cleanup of the contaminated site, Parmar announced that the hotel group and Bay State Gas on Thursday signed off on a settlement agreement following an extensive environmental cleanup of the parking lot and underneath its accompanying Roundhouse building. The agreement shifts long-term ownership of the property and its associated environmental risk to the Pioneer Valley Hotel Group.

The cleanup has been a lengthy process fueled by more contamination than anticipated, said Feiden. Bay State Gas spent $6.4 million to remove 12,000 tons of coal tar-contaminated soil.

"The site ended up being a lot dirtier than assessments showed," Feiden said.

In addition to the money the gas company spent to clean up the site, Parmar said his company has already sunk $2.5 million in development costs even before it begins construction. That money has paid for utility relocation, removal of contaminated fill and bringing in replacement fill, and finishing up Bay State Gas's work, said Parmar.

"Please understand that the site itself is extremely difficult," said Parmar. "We have spent $750,000 of our own family money with no guarantee that it's ever going to go forward."

Litigation settled

In addition to the financing and cleanup, the Hilton project was delayed by several lawsuits filed against the developers and the city. Those lawsuits were settled out of court in the spring of 2008.

Settlement agreements include a payout by the city and the Pioneer Valley Hotel Group to the two plaintiffs, New South Street Limited Partnership and Robert G. Curran Jr. Curran, of Miami Beach, Fla., owns the Roundhouse building, which also abuts the proposed hotel.

The city and hotel development group made several other concessions, such as moving power lines that run through Pulaski Park underground, changing the building's design to make the view from the apartments more appealing, providing parking spaces for both the Roundhouse building and the apartment complex, and funding capital improvements to the apartment complex in exchange for a 20-year affordable-housing extension.

Should the New South Street owners decide to request the money for improvements to its apartment complex, it would come from the city's Community Block Development Grant funds, said Feiden. In accepting that money, New South Street owners would agree to maintain each of the complex's rental units as affordable housing for 20 years beyond the current agreement that expires in 2025.

The developer has also agreed to provide the apartment owners with parking passes to its hotel parking lot, and will offer free Internet service.

Other critics of the project questioned whether there is enough demand for a second hotel downtown.

Parmar said his group is not building the hotel to compete with other hotels. Rather, he hopes to collaborate with downtown organizations and other groups in efforts to attract more people to downtown. He notes that the hotel will have 4,000 square feet of conference space.

"If they do well, we do well," he said.

A 2005 study conducted by the city found that there is a shortage of units downtown, said Teri Anderson, the city's economic development coordinator. That study was conducted before plans for an extensive redevelopment of the Three-County Fairgrounds were laid out. That redevelopment is expected to bring many more people to the city.

Chad Cain can be reached at ccain@gazettenet.com.