PICO RIVERA — In a race with other area cities to build a first-class hotel and convention center, the City Council has switched strategies for financing its eight-acre hotel, ballroom and shopping complex by scrapping plans to land federal loans for the $24.5-million project.
Ending the pursuit of federal money clears the way for the developer, Western Capital Industries Inc., to seek conventional financing from a private lender for the project. The Scottsdale, Ariz., firm told council members in recent weeks it could not live with the "plethora of restrictions" that accompany tax-exempt federal construction bonds.
In addition, Dick Stacy, general manager of Western Capital, said declining interest rates has lessened the need for federal involvement in the project.
Interest Rates Down
"Two years ago, when interest rates were anywhere from 16% to 20%, government loans were very attractive," Stacy said in a telephone interview. "At those rates, you could live with the paper work, the red tape.
"But today, lending institutions are offering money at 11% without any strings attached. It's an easy choice."
City Manager Dennis Courtemarche said the shift in financing directions is not a setback for the project. But he added that the city has not entered into a formal agreement with Western Capital, and any new financing package "will be closely reviewed" by council members.
"The council is still desirous (to build the hotel), and the developer seems confident he can pull it off," Courtemarche said. "As long as the two sides are willing, there is a good chance we can reach an agreement. But nothing is set in concrete."
If the council accepts Western Capital's plan, Stacy said ground breaking on the project could take place early next year.
Until this past week, the financing formula for the project included a $10-million industrial development bond, $10 million from the developer and $4.5 million from Pico Rivera's Redevelopment Agency for the purchase of the 7.85-acre site on the southeast corner of Rosemead and Washington boulevards.
By going through a conventional bank, Western Capital must now come up with about 80% of the project money.
"We are very, very confident that we can accomplish this within three to four months," Stacy predicted. "The project still has great potential."
To issue the federal bonds, the city had to first secure a $1.5-million Urban Development Action grant. Courtemarche said the city had applied twice unsuccessfully for the bond and was preparing a third application when Western Capital convinced the council it did not need the federal money.
To qualify for the bond money, Western Capital would have been required to put a $1.5-million "down payment" on the project before construction started. In addition, the firm's profit-taking during the hotel's first years of operation would have been limited.
Once the firm completes its new financing scheme, the council--which also serves as the Redevelopment Agency--will decide whether to push ahead with the development, Courtemarche said.
The Redevelopment Agency expects the hotel project to create about 300 jobs and generate nearly $500,000 annually--$189,717 from property taxes, $32,690 from sales taxes and $271,556 in hotel occupancy taxes.
The Club Caribeno Inn, as the project is called, would include three restaurants, a combined conference center and ballroom with a 500-person capacity, 7,552 square feet of retail space and parking for more than 360 vehicles.
Currently, there are two motels and two houses on the proposed site, which is bounded by Washington Boulevard, Danbridge Street, Rosemead Boulevard and the Northrop Corp. property.
To bolster sagging revenues, a number of cities in Southeast Los Angeles County, including Pico Rivera, are involved in hotel-convention center projects.
The eight-story, 200-room Whittier Hilton is half finished and should open early next year. Less than seven miles away is the 300-room Holiday Inn and Convention Center in La Mirada along the Santa Ana Freeway, and later this summer, a 200-room Downey Hilton on Firestone Boulevard will be completed. Norwalk is also considering a major hotel project.
"There's no question this is a very competitive market," Courtemarche said. "Everybody wants to build a hotel, so it's in the best interest of Pico Rivera to move as quickly as possible. That's one of the reasons we abandoned our efforts to secure federal dollars."