Make us your home page

Today’s top headlines delivered to you daily.

(View our Privacy Policy)

St. Petersburg took too much risk when setting up deal for stalled hotel, experts say

ST. PETERSBURG — Mayor Rick Baker and the City Council really wanted a new luxury hotel downtown.

When a swanky hotel chain stepped forward with an offer, they sold the developer a prime public lot downtown even though the company could not pay the city's asking price up front. City officials granted the company a $1.5 million IOU to close the deal.

Nearly three years later, Kessler Enterprise of Orlando has informed City Hall it might default on the loan. City officials blame the economy and have expressed confidence that the Grand Bohemian hotel will eventually get built.

But a half-dozen legal scholars and real estate lawyers who reviewed the deal at the request of the St. Petersburg Times concluded that the city did not include enough safeguards in the deal to protect taxpayer money or public property.

Their review found:

• City officials entered into the agreement with Grand Bohemian SP LTD, a small company Kessler created to develop its St. Petersburg project, a move that could limit the city's ability to recover its money if the local offshoot goes bust.

• City officials did not give the city any interest in the property, meaning the city could lose the land, the hotel and its money if the project fails.

• The city's one financial protection in the deal hinges on an uncertain term. The city requires Kessler to back up its loan with a letter of credit from a private borrower. Such letters, however, have limited terms, requiring Kessler to frequently renew the line during the span of its 20-year loan with the city.

"If they would have asked me if it was a good transaction, I would have said it was not," said Darryl C. Wilson, who teaches property law at Stetson University College of Law. "For me, it does not seem sensible for the city to deed a property free and clear based on a promise."

Bruce Grimes, the city's real estate director, said the loan agreement allows the city to seek the full debt in civil court.

The city did not ask to have an interest in the property to make it easier for Kessler to obtain a private loan to begin construction, he said.

"If you would have had a mortgage on the property, you would have been behind any construction loan they put on it," he said. "Functionally, it wouldn't have worked."

Not quite true, said Mark Fox, a real estate lawyer at Silver, Feldman, Bass and Brams in Tampa.

"I would really feel uncomfortable telling my client to accept a promissory note without a mortgage," he said. "You are the driver. Someone wants that property. You can command the terms."

The city should have known Kessler could not obtain a long-term letter of credit, leaving the deal susceptible to market fluctuations, Fox said.

"I see that as not looking forward," he said.

The original loan called for Kessler to pay the city 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 has 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.

City officials sent Kessler a notice this week that it would be in default if it could not obtain a new letter of credit or immediately repay the loan in full.

Kessler officials said they intend to continue with the project.

"There has been no default in payment or performance under the express terms of the note," Foltz Martin, an attorney for Kessler, responded in a letter Wednesday to City Hall.

The company said it will meet with Baker and Mayor-elect Bill Foster soon to discuss the deal.

However, it might be too late.

"The city didn't protect themselves," said Carlton Waterhouse, who teaches property law at Florida International University College of Law in Miami. "They didn't get an interest in the property. That would have been the best way to protect themselves."

Cristina Silva can be reached at (727) 893-8846 or

St. Petersburg took too much risk when setting up deal for stalled hotel, experts say 11/20/09 [Last modified: Friday, November 20, 2009 11:52pm]
Photo reprints | Article reprints

© 2017 Tampa Bay Times


Join the discussion: Click to view comments, add yours

  1. Bucs have chance to beat Vikings in their third stadium


    Here's a cool sign that the Bucs are getting up there as an NFL franchise: If Tampa Bay can win Sunday at U.S. Bank Stadium, it will mark the first time the Bucs have posted road wins against the same NFL opponent in three different stadiums.

    TIMES ARCHIVES (2012) | Bucs RB Doug Martin runs during Tampa Bay's 36-17 win at the Vikings in 2012, in what was then called Mall of America Field. If Tampa Bay wins Sunday, it will mark the first time they have road wins against the same NFL opponent in three different stadiums.
  2. Memorial for Snooty the manatee, postponed because of Irma, to be held Sunday


    A public memorial to celebrate the life of 69-year-old Snooty the manatee will be held at the South Florida Museum on Sunday from noon to 5 p.m.

    Snooty , the world's most celebrated manatee, begs for another slice of apple in his pool in the Parker Manatee Aquarium at the South Florida Museum in Bradenton in 2008. Snooty was 60 then. [Times 2008]
  3. Residents wade through a flooded road after the passing of Hurricane Maria, in Toa Baja, Puerto Rico, Friday, September 22, 2017. Because of the heavy rains brought by Maria, thousands of people were evacuated from Toa Baja after the municipal government opened the gates of the Rio La Plata Dam. [Associated Press]
  4. NFL commissioner, players' union angrily denounce Trump comments on national anthem


    SOMERSET, N.J. — The National Football League and its players' union on Saturday angrily denounced President Donald Trump for suggesting that owners fire players who kneel during the national …

    President Donald Trump walks off the stage after he speaks at campaign rally in support of Sen. Luther Strange, Friday, Sept. 22, 2017, in Huntsville, Ala. [Associated Press]
  5. New earthquake, magnitude 6.1, shakes jittery Mexico


    MEXICO CITY — A strong new earthquake shook Mexico on Saturday, causing new alarm in a country reeling from two still-more-powerful quakes this month that have killed nearly 400 people.

    Locals play pool at a venue in Mexico City's La Condesa neighborhood, Friday, Sept. 22, 2017, four days after the 7.1 earthquake. The upscale Mexico City neighborhood was one of the hardest hit, with more than a half-dozen collapsed buildings in the immediate vicinity. The few Condesa residents who ventured out Friday night said they were anxious for relief from an anguishing week. [Associated Press]