How Carmel plans to pay for $40 million luxury hotel

CARMEL – The Carmel City Council is considering a partnership with Pedcor to finance a $40 million full-service, luxury hotel at City Center.

Under terms of the proposal the council's finance committee discussed Tuesday, the city and Pedcor, the Carmel-based company behind the City Center development, would form a public-private entity that would own the hotel.

That entity would take out a $25 million loan to pay the majority of the cost. The city anticipates hotel revenues will cover the loan payments with enough money left for a surplus.

The reality, though, is that city money would cover shortfalls if projections fall short. There's precedent for that in Carmel. The initial revenue estimates for The Center for the Performing Arts were off; when the center opened, it required millions more in tax money per year for operations than anticipated. 

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Under the terms of the hotel deal, the city would use $15 million of a proposed $101 million bond package to pay the remainder of the hotel's cost, up from a $10 million estimate when the proposal was announced in July. Property taxes collected from the hotel through a tax-increment financing district, plus hotel revenue, would pay back the bonds. If revenue falls short, the bonds are backed by general city property taxes. 

The city and Pedcor would hire a group to operate the hotel, potentially Coury Hospitality, the Oklahoma-based consultant the Carmel Redevelopment Commission hired in May for $20,000 a month to oversee development. 

Coury is working as Carmel's representative in negotiations to develop the Marriott brand Autograph Collection series hotel. Each hotel in the series has its own name, branding and design. There are 140 in the United States, many in large cities such as New York, Phoenix and San Diego. 

Owner Paul Coury told council members there is too much risk for the private market to solely fund a full-service, luxury hotel in a city the size of Carmel away from a regional commercial corridor such as U.S. 31. The five-story hotel would be built directly east of the Center for the Performing Arts in the L-shaped open space at City Center and its parking garage. 

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Still, Coury thinks the hotel will succeed at City Center if the city financially backs it. He anticipates 65 percent occupancy at an average of $192 per room in its first year in 2019, rising to 77 percent occupancy at an average $250 per night in 2028. That's less than half what such a hotel could charge in a large market, consultants told the committee. 

The $40 million price tag includes $27 million for construction, $3 million to pay Pedcor for land and infrastructure costs, $2.8 million for various consultants, $300,000 for a licensing fee for a Marriott brand and the remainder for legal, contingency and other fees.

The committee will discuss the hotel deal again, as well as the city's proposal to pay $5 million toward an antique carousel, at 5:30 p.m. Aug. 28. The carousel and hotel are part of $101 million in bonds the mayor wants the City Council to approve. It also includes money for roundabouts, paths, roadwork and land acquisition.

The soonest the full council would vote is Sept. 18.

Residents have formed a petition against funding the carousel and hotel and packed a council meeting Aug. 7 to protest. Some residents also have signed a petition started by a Carmel Redevelopment Commission member in favor of funding the carousel and hotel. 

If approved, the hotel would begin construction in the third quarter of 2018 and open in the third quarter of 2019. 

Despite the fact the council has not approved the hotel, the Carmel Redevelopment Commission is moving forward quickly to pay consultants to design the hotel. 

In addition to paying Coury, the commission has agreed to pay MMGY Global $89,500 to develop branding for the hotel. The commission on Wednesday will consider another $460,000 to pay for interior design proposal from Hirsch Bedner Associates.

Carmel Redevelopment Director Corrie Meyer said the consulting contracts, paid out monthly, could be canceled if necessary. 

Call IndyStar reporter Chris Sikich at (317) 444-6036. Follow him on Twitter: @ChrisSikich and at facebook.com/chris.sikich.