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Grand Bohemian hotel project in St. Petersburg could face loan default

ST. PETERSBURG — Downtown's long delayed Grand Bohemian hotel project stumbled again this week when city officials announced the developer could no longer honor the terms of its $1.5 million loan.

But unlike in the past, when the city has accommodated numerous requests for delays and changes, city officials took a hard stance: City Council agreed to advise Kessler Enterprise of Orlando that it must comply or its loan would be in default.

The city provided the line of credit in 2004 on the promise that the luxury chain would build a 4-star hotel tower on First Avenue N between Second and Third streets. The prime downtown lot remains vacant.

City officials said the default notice might enable the developer to obtain a loan from another creditor and use that money to continue payments to the city.

The default notice should not kill the project, city officials assured council members during the public meeting.

"They have a lot of investment in making this property ready to go," said Bruce Grimes, the city's real estate director. "I don't think our action will stop them from moving forward."

However, the default also won't guarantee the city a return on its loan, city attorney John Wolfe stressed.

The original loan called for Kessler to pay the city in 36 monthly installments of $6,250 starting in September 2007. The rest of the loan and interest would be paid off starting in September 2010 with monthly payments of $9,899 over 20 years. Kessler also had to maintain a letter of credit with a private creditor to ensure the city would receive the payments.

Kessler had been making steady payments, but advised the city last month it could not renew its current letter of credit when it expires at the end of the year. Kessler offered to keep making payments without the letter of credit.

"This is the best alternative that we can propose in the current financial environment," wrote Day Dantzler, Kessler's chief financial officer, in an October letter to the city. "We remain committed to the project and look forward to commencing construction once the financial and demand markets rebound."

City officials also discovered Kessler had gotten itself into more debt after it mortgaged the property as security for $6 million. Kessler did not tell the city of the mortgage, which prevents the city from substituting the loan with a mortgage on the property.

Mayor Rick Baker, who has fiercely advocated for the project, remained optimistic about the hotel.

"I'm hopeful that someday it will still happen," he said. "The good part of this is at some point the economy will turn."

The Grand Bohemian project has a long, troubled history.

The City Council agreed to sell the prime downtown parcel formerly occupied by the Florida International Museum to Progress Energy for $5 million in 2004. As part of the deal, developers promised a Grand Bohemian would open along the eastern corner of the site in August 2007. Progress Energy was awarded the bid even though three other companies offered to pay more.

Kessler Enterprises promised a luxury hotel tower, complete with an extensive art gallery, an elite Bosendorfer piano bar, an upscale Boheme restaurant, a spa and 62 condos ranging from the $700,000s to more than $2 million.

The project never took off.

Earlier this year, after council members complained about the unsightly, vacant lot, Kessler hired workers to plant shrubbery and oak and palm trees along the lot's borders. Kessler also removed several torn signs advertising the proposed hotel and repaired the fence.

Still, council member Wengay Newton questioned the developer's commitment Monday.

"There is nothing to stop them from walking off and leaving us with what we have now, a lot with trees around it," he said.

Cristina Silva can be reached at (727) 893-8846 or csilva@sptimes.com.

Time line

A look back on the Grand Bohemian project

October 2004: The City Council agrees to sell a prime downtown parcel formerly occupied by the Florida International Museum to Progress Energy for $5 million. As part of the deal, developers promise to build a luxury hotel along the eastern corner of the site in August 2007.

December 2004: Progress Energy and its development partner, Kessler Enterprise, agree to pay the city $3.5 million at closing for the property. They agree to pay the remaining $1.5 million through a six-year loan with a 5 percent interest rate.

May 2005: Orlando hotel developer Richard Kessler presents his design for the Grand Bohemian hotel complex, a 205-room luxury hotel topped with 82 condos ranging from the $700,000s to more than $2 million.

July 2006: Kessler modifies development plans for the 28-story tower to include 260 hotel rooms, an increase of 50 percent, and nearly twice as much event and meeting space. The number of residential condos, priced from $500,000 to $5 million for penthouse suites, is cut from 82 to 52.

August 2007: Kessler wires $1.8 million to City Hall to complete the purchase of the half-block next to the new Progress Energy headquarters. The company vows to start construction by December 2007.

December 2007: Kessler reduces number of condos from 52 to 22.

August 2008: Kessler tells City Hall the project will no longer include condominiums. A grand opening is pushed back to early 2010.

February 2009: Kessler Enterprise tells City Hall it can't meet its April 30 deadline to start construction and asks to push back the groundbreaking to September 2012.

November 2009: City Council agrees to send Kessler a notice advising the developer that it has to comply with the terms of the city's loan or it will be in default.

Grand Bohemian hotel project in St. Petersburg could face loan default 11/17/09 [Last modified: Monday, November 7, 2011 5:08pm]

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