A major hotel project in Akron has become a victim of the COVID-19 pandemic, at least for now.
The planned $21 million hotel conversion of the Martin Center on the campus of the University of Akron lost its financing last year when its senior lender pulled out of the deal, and the project has yet to find a new lender willing to replace it, said Tom Chema, chairman of Cleveland's Gateway Group.
"We were trying to get to closing, and because of COVID they changed their mind. That was 11 months ago, and we've been struggling for 11 months to find another senior lender," said Chema, whose firm is partnered with Paran Management, also of Cleveland, to develop the property.
The project was supposed to be completed at the end of 2020 and expected to start holding events and renting rooms early this year. But now the developers are hoping just to start construction this year, hopefully in the spring.
The university also has a stake in the project moving forward, as Chema said the school is leasing the site to the developers and would own a minority stake in the hotel. A university spokeswoman referred questions to the developers.
"We only know what they tell us — that they are hoping to start construction late spring 2021. (Construction) should take about 13-15 months," university media relations specialist Lisa Craig said via email.
The project would breathe new life into a property the university has long controlled and that has sat unused in recent years.
The Martin Center opened in 1918 as a private club for faculty, alumni and other, mostly wealthy backers of the university. But, like many private clubs, Martin declined over the decades. It was taken over by the university's development foundation in 1978 and finally closed in 2013.
The proposed Martin House development would reinvent the site as a high-end boutique hotel. Plans call for the existing 35,000-square-foot facility to be built out with a restaurant, coffee shop, banquet hall, ballrooms and lobby, along with up to 13 rooms for guests. Another 60 rooms would be built in a 25,000-square-foot addition, according to the developers' plans.
But after thinking the project was in the clear, with its financing nearly finalized at the end of 2019, Chema said he's now virtually back to square one and looking for a new senior lender. He declined to say which bank had pulled out as the original senior lender.
Now, however, he's under more pressure than before.
"Sometime before the end of this year, we have to get started or we lose our tax credits," Chema said.
The project has $3.2 million in historic tax credits as part of its capital stack, with half coming from the state of Ohio and the other half coming from the federal government. Chema said the state's portion of those credits require the project to be started this year, otherwise developers will have to hope the credits are renewed or face losing them. The federal tax credits do not expire at the end of the year, he said.
Chema said he's particularly frustrated because he would like to do construction now so the hotel is open when the pandemic lifts and travelers return to the air and roads.
"We'd be able to take advantage of what I think everyone knows is increasing pent-up demand. … I really believe we are social creatures, and we want to come together," he said. "And the kinds of things I think our boutique hotel will appeal to aren't going away. People are still going to want to get married, they're still going to want to have big receptions, and they're still going to want to stay in hotels."
But, so far, he has not been able to find a lender who agrees or is willing to take a risk on the pandemic ending. Chema said he's been talking to banks, family wealth managers and other lenders in an effort to get the project back on track.
The project already has extended its agreement with the university, Chema said. He hopes to take control of the property in the spring to avoid asking for another extension.
"May is when we told the university we'd be in, so we'd have to extend it if we're not in there by then. But I'm confident we won't have to do that," he said.
Chema — always an optimist about the developments he works on; he got Cleveland's Gateway development done in the 1990s, after all — said Martin House needs "more vaccine and a little bit of confidence on the part of the financing sector that hospitality is coming back."
It's not the project itself, but the entire hospitality industry that has lenders pulled back, he said.
Chris Burnham, president of the Development Finance Authority of Summit County and no stranger to project financing, agrees.
"It's the industry," Burnham said.
It might be a while before lenders are comfortable putting out money for hotel projects again, Burnham said, because it's not a foregone conclusion that travel, especially business travel, will quickly bounce back. Lenders might want to see the rebound first and lend later.
"I think it's going to take time for business travel and other things to come back. That's just a reality. … That's not a knock against the project in any way. It's just an industry with challenges," Burnham said.
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Akron's Martin House hotel conversion on hold for now - Crain's Cleveland Business
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