DURHAM - As City Manager Tom Bonfield had predicted, City Council members were generally receptive to a $5.7 million incentive for a Kentucky company that wants to turn the downtown Hill Building into a ritzy 125-room hotel.
After a short discussion Thursday, the council scheduled a public hearing on the deal for its Aug. 6 meeting.
Before getting any taxpayers’ money, 21c Museum Hotels of Louisville, Ky. would have to start reconstruction by June 30, 2013, and finish within two years.
To keep getting the money, in semi-annual installments, the company would also have to meet certain occupancy-tax and sales-tax collection targets over the next 20 years.
“If the project’s not there, the money’s not there,” Mayor Bill Bell said.
Besides luxurious rooms and a restaurant, 21c plans to incorporate a contemporary art museum, similar to that in its Louisville flagship and hotels being built in Cincinnati and Bentonville, Ark. Two Kentucky arts aficionados with deep pockets opened the Louisville hotel in 2006; since then it has received glowing reviews and a ranking among the world’s 10 Best Hotels by Condé Nast Traveler magazine.
“We’re not talking about a Motel 6 here, folks,” said Councilman Eugene Brown.
As projected, the city’s tax revenue from the hotel would more than cover the incentive’s cost, with a net gain of $3.7 million over the 20 years after factoring in anticipated inflation.
Bell said taxpayers also stand to benefit from simply having more hotel rooms downtown. In 2011, the city and county jointly spent $7 million to renovate the downtown Convention Center, which had been running annual deficits of more than $1 million.
“What drives demand for that convention center is going to be the number of hotel rooms downtown,” he said.
“We need downtown hotel rooms for a lot of reasons,” said Shelly Green, president of the Durham Convention and Visitors Bureau. Besides having attractions such as the Durham Performing Arts Center, she said, inner Durham is convenient to Duke University, the Research Triangle Park and other institutions that draw visitors.
Green also said Durham has the market to support a hotel with 21c’s room rates: from $195 a night in the first year, and going up year by year from there.
“Sometimes it’s hard for me to picture that, but the experts who have evaluated it say yes,” Bonfield said.
According to their websites, the lowest rate for a one-guest, one-night lodging on the same midweek night this fall at the 188-room Durham Marriott, adjoining the Convention Center, is $159; at the four-star 271-room Washington Duke Inn, $199; at the 90-room 21c in Louisville, $289.
Room rates in Durham, though, are still recovering from a 35-percent “plummet” after the 2008 economic collapse, Green said. By 2014, when 21c would open in Durham, projected rates should have recovered to the point that 21c is competitive, she said.
Anyway, whether the market will bear a 21c Museum Hotel in Durham is the company’s risk, not the city’s, Bonfield said.
The idea of turning the 1937 Hill Building, also called the CCB or SunTrust Building, has been current since 2006, when Greenfire Development of Durham bought it for $4.1 million. SunTrust Bank sold it rather than incur the cost of renovation to meet new fire codes.
Greenfire, though, has been unable to secure financing, and most of the building has stood vacant for more than six years.
Plans are for 21c to buy the building , with Greenfire remaining a minority partner. Construction is budgeted at $26 million and furnishings and equipment at $5 million – including $500,000 for a permanent art collection.