Developer George Hawthorne envisions remodeling the Pensacola Grand Hotel into an upscale establishment worthy of its name.
Background: The 15-story Grand Hotel is the tallest building in Pensacola. The hotel was built around the Louisville & Nashville Passenger Depot and Express Office, which was constructed in 1912 and is listed on the National Register of Historic Places.
- The Grand opened in 1984 and closed after Hurricane Sally damaged the structure in 2020. The City issued a repair permit after the hurricane damage, but the permit expired without inspections being completed.
The Plan
Hawthorne established 32501 Development Partners SPE, LLC, and he proposes to acquire, renovate, equip and furnish a 210-room full-service hotel in the 15-story Grand Hotel tower. Other project proposals include rehabilitating the adjacent 1912 Louisville & Nashville Railroad Station into a 14,000-square-foot food hall and creating co-working space.
Hawthorne said the project would eliminate blight and preserve two historically significant structures.
- “There’s not one full-service hotel downtown,” he said. “This will be the only full-service hotel that will have a nice food and beverage lounge. This will probably be the market leader in the high-end business market in Pensacola.”
Just one problem. The City is balking at his financing proposal.
Hawthorne estimates the project will cost about $48 million. His request is for the City’s Community Redevelopment Agency (CRA) to issue tax-exempt industrial development bonds for up to $45 million and loan the proceeds to the company to finance a portion of the costs.
Government agencies issue industrial development bonds to finance projects for private companies. The bonds provide companies with low-interest, long-term financing for acquiring land, construction, equipment, and other costs. Hawthorne estimates the bond would save his company about $2-3 million per year over 30 years. The company is responsible for repaying the debt, not the government agency.
Does It Pencil?
Yet, there seems to be some confusion over who is on the hook for the $45 million. Pensacola Mayor D.C. Reeves said the CRA uses a firm to analyze deals, and its findings counter what Hawthorne is telling him.
“I would generally say that the deal proposed to us at this point doesn’t really pencil for the city,” Reeves said. “It’s a pretty significant lift. More than the lion’s share of funding coming from the City, that wasn’t really the type of level of help that we were prescribing. We were kind of the secondary help, not the primary.”
Reeves continued, “We haven’t ruled anything out; it’s not a procurement, it’s not our building. So nothing stops this group or any other group from coming and saying, ‘Hey, we’ve sharpened our pencil, or we’re going to look at it in a different way.’ So I guess my answer is really no movement at this point because we haven’t seen something yet that we can participate in that I can defend to the taxpayer.”
Analysis
WT Partnership analyzed the deal for the City. Its key takeaways included:
- The overall concept does appear to address a major City redevelopment objective by converting a vacant hotel property into various uses with positive economic, community and political outcomes. The City does need to confirm if all of the proposed elements do indeed meet the vision for the City when it comes to this property.
- While there is a good amount of detail in the submitted documents, why has the developer gone to these lengths before knowing what the City might think of such a proposal for public funds? Normally, development proposals start as narratives or highly conceptual plans. For example, why submit a draft bond resolution at the initial project review stage?
- While there could be demand for the hotel, retail and co-working office uses, the developer should supply a market study to verify and validate this demand. This is important because these elements underpin a request for public funds.
- There is enough other revenue and expenditure data underpinning the request for public funds that the City should independently assess via its financial advisor to verify methodologies, inputs, and metrics used in the calculations.
- The developer would appear to lack a successful track record of completing projects of this size, scale, and complexity. It is recommended to request a list of projects (proposed, planned, under construction, and completed) from the Developer to better gauge their ability to complete the proposed project. If the Developer is going to rely on other expertise from other partners, those should be identified at this time as well.
- While there is sound reasoning and data to initially support advancing the project for further assessment and analytics, there is certainly not enough financial detail to advance the request for public funding contributions.
Hawthorne said his company checks the first box, went the extra mile to move the project ahead with other development tasks, and conducted a market study that provides analytic data.
He took umbrage with “appear to lack a successful track record of completing projects of this size, scale, and complexity.”
- Hawthorne said the developer is a special-project entity led by an experienced management team with over 30 years of commercial development experience and over $200 million in Gulf Coast development projects by similarly structured special-project entities.
Hawthorne spelled out his issues with the WT Partnership analysis in response to a letter sent by Erica Grancagnolo, director of economic development for the City. In the letter, Grancagnolo said he originally requested a $33.46 million multi-program package in July and then changed the request to a $45 million bond inducement in October. She concluded the letter by stating, “The City does not support this request.”
“Just because we can do something doesn’t mean we should do something,” Grancagnolo said. “Forty-five million dollars of a $48 million project is not typically how a City would run an incentive program. Incentives should be thought of as the icing on the cake to move a project forward.”
Hawthorne said his request changed after $13 million in other incentives were no longer available. He explained to City officials that the bonds would be payable solely from loan repayments, revenues, collateral, and other funds furnished by the company and “shall never constitute a debt, liability or obligation of the CRA, the City of Pensacola, Escambia County, the state of Florida or any political subdivision.”
“The risk is on us. He doesn’t understand what we’re asking,” Hawthorne said of Reeves. “He thinks they’re putting in money. They’re not putting in a penny.”
Is the Door Closed?
The developer would like an opportunity to sit down with the City and discuss his proposal. He sees it as a catalyst for redeveloping the area around the Pensacola Bay Center.
Grancagnolo confirmed the City is communicating with the owner of the hotel, Holi Corp., about its future. The goal for the City is to develop an incentive package to attract new ownership for a redevelopment of the hotel that aligns with renovations to the neighboring Bay Center.
“I’ve been with the City for almost three years and there has been a good amount of interest,” Grancagnolo said. “Obviously, nothing has moved forward yet, but I think we’ll ultimately get there.”
She continued, “We have to make sure we move forward with the right developer who has a history of success with these same types of projects.”