As the City of Carmel celebrated Hotel Carmichael’s final beam being placed June 12, elected officials were being asked to transfer $85,000 from the city’s general fund to cover closing costs and other payments for a project that has some officials concerned about a potentially rising price tag. Others view fluctuating constructions costs as a normal and expected part of the building process.
The Carmel City Council is to vote June 17 on an ordinance that would move $85,000 between accounts. Carmel Redevelopment Commission Director Henry Mestetsky described the transfer as a one-time adjustment, as the city will make one less bond payment than originally estimated.
“When the bonds actually sold in 2019, the payback included only 17 repayment periods (so each payment is higher) and the closing costs were slightly higher than the estimate,” Mestetsky stated in an email. “This is a one-time adjustment that allocates the right amount for the 2019 repayment. It’s not out of the ordinary.”
The council approved the sale of $18 million in bonds to fund the project in late 2017, and at the time the city was negotiating with banks for a city-backed loan to cover an additional $22 million, bringing the project cost to $40 million. When the city closed on the $25.5 million loan in April, it brought the total funding for the project up to $43.5 million.
Mestetsky said the $40 million figure was an early estimate.
“As is the case for most construction projects – whether it be a new building or a road project – those early estimates often change. In this case, the early estimate was made before the architects really started their work,” Mestetsky said. “Now, nearly three years later, we know more about the various costs and so we are making sure we have enough financed to ensure this hotel is built to the architectural standards of our other magnificent buildings – and that the materials used will be sustainable, beautiful and long-lasting. We also have factored in normal increases in materials and labor which all development are seeing.”
Hotel revenues will be used to repay the $25.5 million loan. Once the loan is paid off, the City of Carmel and Pedcor will split revenues.
Hotel Carmichael will be part of Marriott’s Autograph Collection and long has been a key component in Mayor Jim Brainard’s vision for City Center. After failing to find a private developer to build a hotel on the site, the city entered into a partnership with developer Pedcor Cos. to make it happen.
Brainard confirmed that the Trump administration’s tariffs and other factors have led to some higher than expected costs for Hotel Carmichael. He said the city has several options to cover rising costs for the project if it were to become necessary.
“We go back to the city council. We can borrow more money. We can find money in other sources. There are options out there for us,” he said. “That often happens in projects, because you’re working three or four years out in advance. No one can predict the future. Some things go down, others go up. Most go up, it seems like.”
Mestetsky said the tariffs haven’t been a “major factor.”
“We have certainly seen the price of materials fluctuate (mostly increase) as contractors deal with what they perceive as tariff-related costs,” he said. “Most increases in material and labor costs in the market are the result of a nationwide building boom.”
Mestetsky said the CRC would advance funds to cover costs that exceed financing if needed and repay them from hotel revenues. He said his team is looking for opportunities for cost savings.
City Council President Jeff Worrell, who voted in favor of bonds for the project, said he’s asked for a new pro forma to take an updated look at hotel cost and revenue projections.
“My due diligence on supporting this project was based on $40 million,” he said. “I’m relying on the mayor, staff, professional consultants to make sure that they’re effectively managing the situation, looking for solutions and looking for ways to control those costs.”
City Councilor Tony Green was one of two council members to vote against funding the hotel, saying at the time it seemed too “risky.” Now that the project is under way he wants to see it succeed, but he still has concerns about it.
“I’d like to see the hotel continue within its cost, because there’s likely a benefit from a hotel downtown,” Green said. “(The question) is just who bears the risk?”