Financing woes imperil Des Plaines hotel projects
One of two hotel projects targeted for Mannheim Road near I-90 in Des Plaines is dead, while the other is on life support after a city committee this week recommended giving the developer more time to secure funding.
Oak Brook-based investor and developer The Harp Group Inc. has backed out of building two Marriott hotels on roughly four acres north of the Addams Tollway along Mannheim Road and Pratt Avenue. The lot is across the street from the 466-room Wyndham O'Hare in Rosemont, which closed Jan. 1.
"That project has come to a screeching halt since the credit market has closed for these types of projects," Des Plaines Director of Community and Economic Development Michael Conlan told city aldermen this week.
Meanwhile, construction on two Hyatt hotels on Mannheim just south of the I-90 tollway, which was expected to begin in April, won't happen for at least another year.
The city's community development committee recommended extending a conditional use permit for a preliminary planned unit development granted to HNI LLC to build the Hyatt hotels.
The city owns the roughly 5-acre site - home to Ace car rental and a former TraveLodge - which it has agreed to sell for $2.7 million to Chicago developer Harlem Irving Companies, HNI's parent group.
The proposal calls for building two hotels stacked on top of each other with a total of 313 rooms, and developing three outlots on the property for restaurant/retail uses.
Both the Harp and HNI hotel projects are within the city's Tax Increment Financing District No. 6, which was created in 2001 to spur redevelopment in the area north and east of Mannheim and Higgins roads. The district captures increased property tax revenue from development that normally would go to taxing bodies such as schools, which can be used to defray some of the costs of redeveloping the area.
The city borrowed $10.4 million to purchase land and for other redevelopment costs, which was to be repaid by the TIF as the area was redeveloped. Officials restructured the debt last fall because the district was projected to have a $3.2 million deficit by 2012. The refinancing pushes to 2013 those principal and interest payments that were due last year, and increases the total cost over the TIF district's lifetime to $15.2 million.
"We are paying the ($980,000) debt load on (this property) so this is incumbent upon us that we get that property developed," Conlan said. "At this point, there is no financing for the hotels, but there is more development activity for restaurants."
Conlan said while restaurant developers are interested in the site, it would not be wise to sell the outlots separately.
"We want to ensure the hotel development happens," he said. "We would be interested in the development of those outlots perhaps with a ground lease without letting (HNI) off the hook for the hotel development."
HNI has about $250,000 invested in architectural costs for the project.
Conlan said Harlem Irving Companies is diversified and its shopping centers are doing well, but the project is dependent on the hotel market coming back.
As for Harp Group, the city in 2007 approved the roughly $57 million twin-hotels project, but the developer let the approval expire in November.
"They haven't paid the taxes on (the Des Plaines site) this year," Conlan said. "The bank may wind up with this property. It will probably sit undeveloped for many years."
Harp Group Executive Vice President Tim Franzen did not return calls Wednesday requesting comment.
Harp Group's financial troubles have forced one of its hotels, the 556-room InterContinental Chicago O'Hare in Rosemont, into Chapter 11 bankruptcy.
And the developer nearly lost the Des Plaines property when Chicago-based New Century Bank filed a $7.5 million foreclosure suit against Harp Des Plaines LLC on Dec. 31, 2008, for failure to pay a 2006 loan and give a construction timeline. The bank later withdrew the complaint.
The city does not have any money invested in the project, officials said.