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District Government Announces Approval of Major Hotel Deal through Tax Increment Financing

Monday, March 13, 2000

District Government Announces Approval of Major Hotel Deal through Tax Increment Financing

WASHINGTON, DC - The District of Columbia Government's Office of the Chief Financial Officer (OCFO) and the Office of Planning and Economic Development approved an application by the Portals Hotel Site, LLC to utilize tax increment financing (TIF) to construct a Mandarin Hotel in the District. This agreement marks the second of such deals in the District. "Tax increment financing is a technique that other jurisdictions have used to pump life into urban centers. The District is just beginning to see the power of tax-increment financing to jumpstart the redevelopment of many of our forgotten neighborhoods - a process that has taken more than 20 years to get off the ground," said Mayor Anthony A. Williams on the Mandarin Hotel Project. "This site has been off the real estate tax rolls for some time, and now will be bringing in new tax revenues and jobs to the city. The construction and operations of this hotel will provide new and significant economic opportunity for our citizens and small and local businesses." Mayor Williams also said.

The Mandarin Hotel will be located at 1330 Maryland Avenue, in the southeast quadrant of 14th Street and Maryland Ave, SW. The site consists of approximately 96,360 square feet of land and is part of the Portals complex, which was formerly part of the SW urban renewal area project. With an expected completion date of early 2002, the Mandarin Hotel will be a first class, full service, 400-room hotel with approximately 33,000 square feet of associated meeting and banquet space; two restaurants; and a health spa with a fitness center totaling approximately 10,000 square feet. The Mandarin Hotel will also house 6,500 square feet of retail space and an approximate 90,000 square foot parking garage.

In a legislative session held Tuesday, March 7, 2000, the District's City Council approved the issuance of TIF bonds to finance $29 million of the hotel's construction costs. The total project cost is an estimated $121 million. $31.5 million in equity investment is to be provided by Portals Hotel Site, LLC, and the remaining $60.5 million will come from bank financing.

The gross amount of TIF bonds to be issued for this project, including reserve funds and capitalized interest, is estimated at $39 million. The debt service on the bonds is payable from portions of the incremental sales taxes and real property taxes generated by the TIF project. "Based on the financial analysis of the Mandarin Hotel Project, the deal is financially feasible and its proposed total anticipated benefits to the District exceed the total costs anticipated to be incurred by the District," said Dr. William Hall, Deputy Chief Financial Officer for the OCFO's Office of Finance and Treasury.

The Mandarin Hotel Provides Opportunities for District Residents and Businesses
The Mandarin will create jobs for District residents, offering approximately 500 construction jobs over a two-year period and full-time, ongoing employment for approximately 500 District residents. Under its agreement with the District Government, the Portals Hotel Site, LLC will also create a training program to ensure that residents can meet the high standards of employment for a luxury hotel. Contracting opportunities for companies registered in the District as local, small, and disadvantaged business enterprises will also be available, awarding these companies approximately $38 million in contracts. The developers are also required to award 35 percent of all project operating cost contracts to these companies from start up to five years after receiving a certificate of occupancy.

The Mandarin Hotel as the Gateway to the District
The Mandarin Hotel Project will be located at the foot of the 14th Street Bridge, a gateway from Virginia to the District. Developers also are required to refurbish a railroad bridge over Maine Avenue and construct a staircase from the elevated, railroad-bridge to the sidewalk on the West Side of Maine Avenue. This will allow public access to the southwest waterfront and will enhance activity and further development at the waterfront. The Mandarin will also complete the hotel portion of the Portals development, which mandates that the site must house a luxury hotel. The Portals complex was to be developed as a large-scale, mixed use, 4-phase project.

To date, approximately one million square feet of office space has been built and houses several federal agencies. "This Project is a beneficial economic development investment for the city. It creates an attractive gateway to the city; it provides public access to the southwest waterfront; and it creates significant employment and business opportunities for our residents and small businesses," said Eric Price, Deputy Mayor for Planning and Economic Development.

What is TIF?
Tax Increment Financing bonds, also known as TIF bonds, are government revenue bonds used to finance development and redevelopment within one or more Priority Development Areas. $300 million has been allocated for the District's TIF program, with the first TIF project having been approved in February for the Gallery Place Project, which was provided with a gross TIF amount of approximately $64 million. The District has now awarded an estimated $103 million in TIF financing with the approval of the Mandarin Hotel. The Gallery Place TIF bonds are expected to be sold sometime next month and the Mandarin Hotel TIF bonds will be sold sometime in May.

"The TIF program continues to boost economic development in the District and we are excited to be a part of that growth," says Chief Financial Officer, Ms. Valerie Holt. The Mandarin Hotel Project's net fiscal impact on the District over the first five-year period of operations has been projected as a positive $7.7 million.