Financing issues delay IUP hotel plans
November 17, 2013 2:00 AM

With a year having passed since IUP announced that its troubled hotel project was back on track, there still is no development deal to speak of, and it seems as if the project has stalled again.

But the university and the developer have assured the community they are making progress, albeit more slowly than they had hoped.

“We are moving forward on the KCAC hotel project,” said Daniel Bandar, one of the three partners developing the hotel. “We had several moving parts to address which caused many delays.”

He added that there may be details to share in a couple of weeks.

IUP President Michael Driscoll also said as much in a statement to the Gazette.

“IUP continues to work with the developers, DHD Hospitality. Obtaining a complete financing package is taking longer than any of us had originally expected, but progress is being made and we remain quite hopeful that we will be successful.”

The university has been trying to build an upscale hotel next door to the Kovalchick Convention and Athletic Complex for at least five years now. Officials have said the hotel is a necessary complement to the KCAC, especially to its convention center business. Without it, they say, the KCAC’s ability to book trade shows, conferences and special events is impaired because an on-site hotel is often a prerequisite for consideration as a venue.

But for one reason or another, the university hasn’t been able to move the project beyond the planning stage.

Officials were optimistic when they announced on Oct. 31, 2012, that the university was awarding the development rights to DHD Hospitality. Although there was still much work ahead, the hope was to start construction this past spring, officials said.

Then in July, Driscoll told Indiana County Chamber of Commerce members that DHD had selected a regional bank to finance the hotel’s construction and that the bank was concluding its 90-day due diligence.

“The hotel developer and his team have expressed their confidence and optimism that the loan approval process is expected to be completed by mid- to late August. This favorable action would enable the project to move forward with very little delay,” Driscoll told the chamber.

Although Driscoll didn’t identify the bank, IUP had previously indicated to prospective developers that First Commonwealth Bank, S&T Bank, PNC and Indiana First Bank were at least willing to explore financing the deal.

But regardless of which bank DHD was working with, nothing seems to have come of it.

And Driscoll and Bandar declined to provide any insight beyond what they said in their statements to the Gazette.

The hotel is to sit on a 3.3-acre site off Pratt Drive in White Township. DHD will own and operate the hotel; IUP won’t have an ownership stake in it.

However, the university will serve as a landlord, leasing the ground on which the hotel will sit to DHD. In return, DHD will pay IUP a base rent, plus a negotiated percentage of revenues.

Although the university won’t have an ownership position in the hotel, it has an inherent interest in seeing it succeed, partly because of its relationship to the KCAC. But also because IUP spent $600,000 to acquire the land from the state and will spend another $300,000 to $500,000 to prepare the site for construction.

But before construction can begin, DHD has to get its financing lined up.

That it so far hasn’t been able to obtain a loan is partly due to issues relating to the collateral that would back it and questions over whose credit interests come first in the event the hotel fails, according to state Sen. Don White, R-Indiana.

“They haven’t been able to come up with a workable solution,” White said.

White said he is eager to see a hotel constructed and has been closely following the project’s progress.

In real estate deals, the property being developed is usually the thing put up to secure the development loan. But in this case, the land is owned by the state. And IUP cannot subordinate its ownership interest in the land, it told prospective developers in information it provided to them.

However, it said it would be willing to negotiate on making its interests in the ground lease secondary to the interests of the primary lenders, should the hotel go bust.

In general, lenders have been more willing to finance hospitality projects than they were a few years ago, according to Dan Puntil, president of the Pittsburgh chapter of commercial real estate development association NAIOP and a senior vice president at Grandbridge Real Estate Capital. He also is the father of an IUP sophomore and therefore is familiar with Indiana and the hotel’s proposed location.

Puntil said that whereas credit for such projects wasn’t being extended during the recession, lending institutions have, over the last three years, begun to look favorably upon those projects. That’s especially so for those in the Marcellus shale play, where demand for rooms is off the charts, he said.

“Many of the lending institutions have embraced the hospitality sector, believing that it is fully recovered from the downturn in the economy,” he said. “Lenders have said that market has rebounded and that certainly there is evidence to show that it’s gaining a lot of momentum.”

Puntil also said out-of-town developers — DHD’s partners are from Massachusetts — sometimes have added difficulty in obtaining local financing because the lenders don’t have a relationship with the developer and are out of its sphere of influence.

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