ST. ALBANS CITY — A deal has been signed for an $8 million, 84-room hotel to be built on Lake Street that could be open as soon as August 2016.
Monday night the city council signed a purchase and sale agreement with PeakCM, a developer located in Winooski.
The city and hotel developers plan a formal press conference next week to officially announce the agreement.
In a first move of its kind for the municipality, St. Albans City will invest up to $1 million in the commercial project. The funds are part of the $2.5 million the city received for the sale of the Federal Street property on which the new state office building is located.
“It’s an investment,” said city manager Dominic Cloud. “It will come back to us.”
St. Albans City officials for several years have discussed development of a hotel at 43 Lake St., a vacant lot directly in front of the new parking garage’s south facing wall.
Under the terms of the agreement, the city’s investment will not exceed PeakCM’s commitment and the city is to be paid back before the developer receives returns on its investment. Further details of the investment, such as the payback schedule, have not been finalized.
PeakCM agrees the hotel will be a national chain. Negotiations are underway with American Resort Management for a Hampton Inn. Hampton Inn is owned by Hilton Worldwide and is the largest hotel franchise in the U.S. with about 2,000 properties.
Once complete, the new hotel will be assessed using the city’s usual taxation procedures, but under the terms of the agreement, the hotel will be valued at no less than $7 million.
PeakCM, owned by Jerry Davis, has been involved in multiple construction projects at Jay Peak Resort and Burke Mountain. “They’re very experienced in construction,” said David White of White + Burke, consultants who have assisted the city with the negotiations for the downtown renovations.
White said the deal was extraordinary in three ways. The equity investment in the project may be a first for St. Albans, but it is routine in other parts of the country, according to White. “The deal itself is very standard. What’s extraordinary is the city has the funds to do this,” he said.
The second extraordinary thing is the public support for downtown renovations. White noted the large margins by which the public has voted in favor of the downtown projects including streetscaping and the construction of the new state office building and municipal parking garage.
A new hotel hasn’t been built in a downtown location outside of Burlington in Vermont in decades, according to White. “The fact that you’re attracting a hotel to downtown St. Albans is extraordinary,” he said.
“Hotels are not inclined to locate off of the interstate in downtowns,” said Cloud. In order to attract a hotel, the city needed to “create… an irresistible package of investments to overcome market pressures elsewhere.”
In this case that package consisted of a lot to be sold for $1, structured parking in the garage, and the $1 million investment. The lot was the former site of the Moose Lodge, which was purchased by the city for $225,000 in December 2012 with tax increment-financing funds.
Under the purchase and sale agreement, Peak CM will have non-exclusive rights to 105 parking spaces in the municipal parking garage at a cost of $450 per space, per year. The city may raise those rates as costs rise, but not more than five percent per year, the agreement states.
The city is also obligated to complete the extension of the Main Street streetscape design down Lake Street in conjunction with the hotel construction and to do the needed brownfields cleanup of the site.
Before building the new municipal parking garage, the city asked voters to approve $16 million in tax increment financing debt for the downtown core projects. Tax increment financing bonds are repaid with proceeds from the tax increment-financing district, not the city’s general fund.
The city has only used $14.5 million of those funds and will be asking voters on Town Meeting Day to give the city explicit permission to use the unspent $1.5 million on streetscape improvements for Lake and North Main streets and on the brownfields cleanup for 43 Lake St.
The schedule for the hotel project is ambitious, with an aim toward starting construction this August and opening the doors in August 2016. “We believe it is achievable if there are no major hiccups along the way,” said White.
If the project is not ready for construction this summer, then construction will begin in April 2016 with an opening date of April 2017.
The city requested proposals for a national hotel chain last summer. Peak CM was one of two companies that responded, according to city manager Dominic Cloud. “The developer and the operator came to us having already had conversations with national franchises,” he said of PeakCM’s proposal.
The other proposal was more ambitious and would have involved more parcels of land not currently owned by the city. “It was bird in the hand versus a bird and a half in the bush,” said Cloud.
The city previously commissioned a study Pinnacle Advisory Group, a firm providing consulting services for the hospitality industry.
That study concluded an 80- to 90-room nationally branded hotel in St. Albans would have a 70 percent occupancy rate with room rates of just over $100 per night. The projected revenue from such a hotel was $2.3 million annually.
Pinnacle also recommended the hotel have 1,500- to 2,000 square feet of meeting space, a pool and a fitness room.