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What Went Wrong with the $102 million Downtown
Marriott Hotel Project in Peoria, Illinois?

By John Sharp, Journal Star, Peoria, Ill.McClatchy-Tribune Regional News

Sept. 03, 2011--PEORIA -- The developer of the $102 million Downtown Marriott Hotel project claims to have satisfied all the conditions of the redevelopment agreement with the city to move forward.

But a letter hand-delivered to developer Gary Matthews on Wednesday shows that the city has several concerns about the lack of information provided in a financing document, as well as questions about shortcomings from the project's forecasts.

That position didn't change on Friday.

"Probably the most succinct statement I would make is our letter to Mr. Matthews speaks for itself in terms of our position," City Manager Patrick Urich said.

A statement released Friday by Alicia Ruemelin, spokeswoman for EM Properties, the East Peoria-based developer of the Marriott Hotel project, claims to "have provided sufficient evidence of financing."

It adds, "We plan to confirm the financing we currently have and further solidify our submissions to the City Council within the next week. We share the city of Peoria's urgency for a real estate closing and look forward to one this fall to bring this great project to fruition."

The statement comes two days after Matthews received a letter from Mayor Jim Ardis and Urich indicating the city was canceling the redevelopment agreement. The City Council will officially vote on the cancellation Sept. 13.

The agreement was being nullified, according to Urich, largely because of repeated missed deadlines by Matthews and a failure to adequately show the proper financing was in place, among other things, including a lack of disclosure of banks financing the project.

The list of failings were included in Urich's letter. They include:

â–ºQuestions about a letter from National Real Estate Advisors -- a real estate trust and the senior lender of the project -- dated Aug. 17 and submitted to the city setting forth conditions of financing.

According to that letter, a client of National's was willing to make a commitment of up to $12 million out of a total construction loan of $30 million. The remaining $18 million would come from "financial institutions," but the names were not disclosed to the city.

"The National letter is simply not a financing commitment for $30 million and nothing close to what the city could prudently accept as evidence of financing for such amount," Urich wrote.

â–ºThe National letter also indicates that a loan application needed to be prepared and submitted requiring Matthews to pay a $50,000 application fee and $150,000 initial deposit upon execution of the application. None of that has happened, according to Urich.

â–ºA June 29 submission to the city indicated that the project's overall cost was $96.6 million, down from $102 million. The redevelopment agreement assures that the city's investment be no more than 36.1 percent of the project costs, meaning that only $34.8 million would be required from taxpayers. This, according to Urich's letter, leaves a "shortfall of $2 million."

â–ºRevisions to the redevelopment agreement were issued to the city Aug. 24 and Monday increasing the total costs from $96.6 million to $102.8 million. The City Council, according to Urich, would need to vote on these revisions.

â–ºAn Aug. 24 forecast of funds indicates that Matthews, "contrary to previous expectations," is not getting federal or state new market tax credits. The total tax credit equity is estimated at $15 million, which is $2.5 million short of what was required.

â–ºThe $15 million tax credit equity might be overstated by more than $1.5 million, according to Urich. He said an anticipated $6.4 million in federal historic tax credits is at least $800,000 less than the number produced in the forecasts. State tax credits also come up short by about $750,000 from those in the original forecasts.

â–ºMatthews also indicates that "adjacent landowners" may be providing financing, but that the city is not aware of any details. Big Al's owner Al Zuccarini has indicated he was willing to offer financial assistance.

John Sharp can be reached at 686-3282 or jsharp@pjstar.com. Follow him on Twitter @JohnSharp99.

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(c)2011 the Journal Star (Peoria, Ill.)

Visit the Journal Star (Peoria, Ill.) at www.PJStar.com

Distributed by MCT Information Services NASDAQ:MATW,



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