By Robert E. Field, Investor Builder and Publisher, May 22, 2012
NewsLanc.com has published a book length series telling the sordid story of how the downtown Lancaster Convention Center and Marriott Hotel came about. There is a link on the home page of its web site. So I will confine my remarks this morning to the future of the misbegotten projects.
If after meeting debt service obligations there are not sufficient funds for proper operating of the convention center, the project will end up in bankruptcy court where matters will be sorted out and justice will be undertaken. If the court requests an investigation of the projects origins due to the loss of tens of millions of tax payers’ money through grants and guarantees, the state attorney general will conduct one.
Without funds to properly promote and operate the Convention Center and especially if it closes, the Marriott Hotel faces huge losses. Penn Square Partners, a single purpose limited partnership in which the two major partners share no liability, would likely terminate its lease with RACL. The City of Lancaster through RACL would own the property and be responsible for over $40 million in bond debt. However, along the way, the insolvency will likely go before a bankruptcy court and more equitable arrangements made.
When I last appeared before this honorable board, I said I could offer no solutions. Since then I have studied and reflected on the matter.
My advice is to do nothing. Let matters take their natural course. Penn Square Partners, Limited Partnership reportedly invested some $10 million in the Marriott. Either Penn Square Partners will subsidize Convention Center losses until it is financially viable or suffer the consequences of the loss of their investments in the Marriott Hotel and further harm to the partners’ reputations.
Nevertheless, if you feel duty bound to consider any intervention, do not pay heed to so called studies which are not subject to professional standards and tend to be white washes. First order an MAI appraisals of both the Convention Center and the Marriott Hotel. It is the best $75,000 you could spend on this matter. If Penn Square Partners won’t cooperate by providing financial data, then you have done all you can do and your path should be that of ‘benign neglect.’
It is not uncommon for hotels such as the Marriott in weak markets to be valued at 35 cent on the dollar. The same applies to a convention center. If the MAI study indicates that debt far exceeds value and thus prospects, no new tax levied by county or city will prove sufficient. It will be but one of many future installments with ‘good money going after bad’. I understand the county’s potential risk is currently $20 million dollars, but even if the county subsidizes the project its exposure will remain $20 million dollars.
There would be a difficult few years as things work their way through a bankruptcy procedure, as was the case with the ill-conceived Pennsylvania Academy of Music, but when all is said and debt set at a manageable level, the entire Convention Center project will finally be viable and the hotel may even be on the real estate tax rolls…where it belongs.
THIS IS THE BEST SUGGESTION THAT HAS BEEN OFFERRED.
I would add that the net of the $7.5 million paid by RACL for the building PLUS all of the contracts paid to High, and its many subsidiaires, before and during construction, make their $10 million “investment” into the furniture insignificant…they will have no net losses to eat even when they walk.
3 wags of the tail to Robert…..excellent suggestion (with abundant justification!!) for the Commissioners to DO NOTHING and let the chips fall where they may….squarely in PSP laps, right where they belong.