The Downtown Investment Authority board agreed Dec. 15 to recommend a nearly $2.4 million grant for a Home2 Suites by Hilton hotel in Brooklyn, despite DIA’s staff position that the project is financially viable without city help.
The board’s 6-2 vote asks City Council to finalize the incentive for Kelco Brooklyn LLC’s estimated $16.16 million, 100-room hotel and restaurant at 600 Park St.
The tentative deal is a month after DIA CEO Lori Boyer and Director of Downtown Real Estate Development Steve Kelley agreed the project, which will redevelop an existing surface parking lot, could have merit.
Because the project did not qualify under DIA policy, they recommended the board deny the developer’s request for a Recapture Enhanced Value grant, a refund on property taxes.
The DIA’s resolution recommending the grant also revised the total project investment downward by $1.13 million from an estimated $17.3 million in November.
However, several board members determined that it warranted city money because the hotel flag is new to Brooklyn and the Downtown Development Review Board requested it add a ground-floor restaurant.
Boyer and Kelley negotiated the grant after they were directed by the board to return in December with a deal that would give the developer financial assistance to equal a REV grant.
If approved by Council, Kelco Brooklyn will receive the $2,385,220 grant in 10 annual payments of $238,522, according to the DIA term sheet.
Boyer said the template was the grant Council approved in October for Jacksonville Jaguars owner Shad Khan’s Four Seasons hotel.
The Homes2 Suites legislation must include a waiver of the city’s public investment policy, which does not include a dedicated incentive for hotels.
Kelco Management and Development Inc. and Corner Lot Development Group are the development partners.
DIA staff saw the involvement by Corner Lot executives Andy Allen and George Leone and Kelco’s hotel operating experience as integral to the Home2 Suite project’s success, Kelley said.
The DIA board included in its resolution that Kelco Brooklyn cannot sell the hotel for at least five years.
DIA staff worries the incentive could artificially inflate the hotel’s value as part of a sale.
Board members Bill Adams and David Ward voted against the deal.
Ward’s hesitation came from what he said was vague language that would allow the developers to reduce their ownership percentage before the five-year limit.
Attorney Steve Diebenow of Driver, McAfee, Hawthorne & Diebenow said that was not the developers’ intent.
Board member Todd Froats said a sale after construction should not matter.
“If they’re building it, if there’s a pioneer who’s going to do some development here, I don’t care who owns it a year from now,” Froats said.
“I really don’t. Because it is who’s going to buy it, I’m sure the Home2 Suites has to OK who buys it.”
Boyer said the sale restriction details can be refined in the final redevelopment agreement.
The DIA board considered tabling the deal for a third time to better work out those terms, but Diebenow said the development group wanted to secure its construction loan before the Federal Reserve’s expected move to raise interest rates in 2022.
For Adams, the project was not a full-service hotel comparable to a Four Seasons and he thought Kelco Brooklyn should have more risk tied to the grant.
“We’re talking about actually paying tax dollars rather than a foregoing collection of tax dollars, which is a pretty significant difference,” Adams said.
“If we’re giving money to these developers, then they should be the ones that stay on the line the entire period,” he said.
According to the Nov. 12 DIA staff report, a REV grant would have awarded a maximum payout of $3,014,233. Boyer said that is a projected refund based on what the DIA calculates as the estimated property value the hotel will add.
The payout could be less. With the fixed grant, Kelco Brooklyn will receive the payment regardless of the property’s value, she said.
“I don’t see an easy way to bake in the same amount of risk when you’re doing this as an economic development grant that you have in a traditional REV grant,” Boyer said.