Wilmington Commits to a $1 Million Letter of Credit for Riverfront Hotel
Posted on 05/18/2012 10:56 am
Declaring once again that a new hotel on the Wilmington Riverfront will produce benefits for Wilmington and all of Delaware, Mayor Baker today reaffirmed the City’s support for the project. The Mayor said Wilmington is committing to a $1 million letter of credit to assist the hotel project in achieving full bank financing. The Mayor said the letter of credit is not a grant; but rather a type of loan guarantee that encumbers City funds for five years. The funds will eventually become unencumbered, and the City will make the money available for other economic development projects.
The Mayor said the letter of credit will come from the City’s Economic Development Strategic Fund and does not affect the City’s annual Operating Budget, which funds daily government programs, services and personnel. Mayor Baker noted that the money is from a fund that was supported by the Administration and approved by City Council in 2008. He added that if the City had decided not to use the money from the strategic fund to support the hotel, it is not as though the money could have helped to reduce the City’s operating budget deficit for FY 2013. The Mayor said one is not connected to the other. Yet, said Mayor Baker, when the City does tap this fund for its intended use, which is to support economic development projects, the City creates future annual revenues to fund government services or help to close future budget deficits.
The Mayor said the riverfront hotel project is projected to produce approximately $850,000 in new revenue for Wilmington over the next three years in wage tax and permits fees.
“A riverfront hotel will be another great addition to Wilmington’s rise in recent years as a regional destination for residential living and business development supported by an ever-expanding array of restaurants and entertainment venues,” said the Mayor. “Wilmington is the commerce capital of the State. What’s good for Wilmington is good for all Delawareans. Wilmington is proud to support another project that will produce immediate construction jobs, full-time jobs and new City revenue, while creating new tourism opportunities and improving our City’s and State’s image as first class destinations.”
Mayor Baker said the City and the Buccini Pollin Group (BPG), as the developers of the hotel project, have reached an agreement whereby BPG will forfeit either all or a portion of its annual property tax abatement to repay the City should any portion of the letter or credit be drawn upon. The Mayor said it was important that the City have a priority right to recover from the hotel’s ownership group any City dollars that are accessed because of a default. While the Mayor said no one involved in this hotel project is anticipating that the City’s letter of credit will be accessed due to the hotel loan going into default, the Mayor said it was still imperative that protections for the City be built into the agreement.
“Whenever the City supports any type of project—new housing, new businesses, new entertainment venues—it’s a bit of a risk. On the other hand, if government didn’t take a risk—especially in this tough economic period in order to generate millions of dollars in private investment, new City revenue, new jobs, and new opportunities for families and businesses—then nothing would ever get done. I don’t believe in sitting on my hands and waiting for Wilmington to prosper. If we can help move that prosperity along for our City, it’s better for all of us.”
Mayor Baker said the City’s support for hotel projects is not new. Wilmington has provided loan guarantees in the past for two other City hotels—the former Radisson Hotel on King Street, which is today the Doubletree Hotel, and the Courtyard by Marriot on West Street. The Marriot property at 1102 West Street was converted to a Marriott in the 1990s using City assistance that included a $500,000 letter of credit that was released in 1996 and a $100,000 loan that was repaid to the City in 1993. The hotel property at 700 North King Street was constructed as a Radisson Hotel by the Wilmington Hotel Venture in 1978 using a $1.6 million Urban Development Action Grant (UDAG) for a second mortgage.