The Carmel City Council finance committee on May 14 discussed mechanisms to cover the increased cost of Hotel Carmichael and how those decisions could affect Carmel Redevelopment Commission finances.
The 122-room boutique hotel, a partnership between the City of Carmel and developer Pedcor, was estimated to cost $40 million when the council approved funds for it in 2017, but earlier this year the city announced it would cost approximately $58 million. The finance committee held meetings on three consecutive days this week to review the cost gap and how it was covered.
The CRC covered the funding gap by mortgaging Monon Square and office space in the James Building, contributing $4.7 million from its operating budget and using $2 million in extra funds from a 2016 tax increment financing bond, steps all taken without council approval. Carmel Redevelopment Commission Director Henry Mestetsky said the council previously made it clear it would not approve more funds for the project, which is one reason he looked elsewhere to cover the gap.
Councilor Kevin “Woody” Rider said the council’s directive to not ask for more money did not mean they condoned the CRC seeking it elsewhere.
“We were looking for that ($40 million) to be the top price,” Rider said.
Councilor Sue Finkam, who chairs the committee, said she was concerned about how the measures to cover the cost will affect the CRC’s future redevelopment efforts. Hotel revenues will be used to repay the CRC $12.5 million of the additional funds it identified for the project, but it is expected to take several years.
Mestetsky said covering the hotel funding gap means the CRC will have less cash available in the near future, which could affect land acquisition efforts, but he said in the long run it will be worth the investment.
“We all agreed that to further our mission this was the right use of that money, and I can’t think of a better use for that $2 million today,” Mestetsky said. “I am certainly looking forward to the moment this hotel is operating and instead of Pedcor getting money the CRC is getting a lot of money back and we can go down our list of priority (for another project).”
The hotel needs to operate at 60 to 70 percent occupancy to cover its debt service, with additional revenues split between the CRC and Pedcor. But with the COVID-19 pandemic causing severe declines in travel and hotel stays, the future of the industry is unclear. Mestetsky said it’s too early to estimate how quickly the CRC will be repaid for covering the funding gap.
“Let’s all hope and pray by mid-next year our operation is at 60, 70, 80 percent occupancy, which is what (hotel management consultant Coury Hospitality) can deliver if the entire world is not in the middle of a pandemic,” Mestetsky said.
If hotel revenues are unable to cover its debt, the CRC will pay the difference. Future hotel profits would be used to repay the CRC with interest.