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 [email protected]