City Hammers Calder Hotel Proposal

December 1, 2003
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GRAND RAPIDS — Assistant City Manager Gregory Sundstrom told commissioners last week that it would cost the city $34 million to build its own new City Hall and operate it for 30 years.

Then Sundstrom said if commissioners let Gallium Group LLC build a new City Hall and the city leases the building from the developer for 30 years, it would cost the city $79.6 million.

“This is the weakness of their proposal. We can build a City Hall for $34 million,” he said. “How close did they get to zero? $79.6 million.”

Gallium wants to build a 400-room hotel on the plaza, which is across Monroe Avenue from the new convention center. But to accomplish that, Gallium has to move the city to a new downtown site at no additional cost to taxpayers.

“We’re not going away,” said Jack Buchanan, CEO of Blue Bridge Ventures of Grand Rapids, which has formed an investment partnership with Hines Interests LP of Houston to create Gallium Group LLC.

Sundstrom, who said he used figures from the developer’s proposal in the city’s analysis, also told commissioners that it would cost the city nearly $58 million to renovate the current City Hall and stay in it for 30 years; $51.6 million would go toward operational costs, while $6.4 million would go toward capital upgrades.

Looking at the 30-year deal strictly on a cash basis, Sundstrom said the city loses $54.3 million after it spends $142.7 million on lease payments and other costs over three decades, while only getting $88.4 million from payments, taxes and a new City Hall.

But he said Gallium makes $34.2 million from the transaction because the developer would sell the city’s lease agreement to a bank for $57 million and then spend $22.8 million to build a new City Hall.

“It seems to be a very large profit for one day’s work,” he said. “They don’t get to zero and they laden the city with risk.”

His figure was roughly $6 million higher than the number from Gallium, as Sundstrom said he didn’t discount the cost to current dollars. Gallium used a present-day value amount of 5.63 percent in its calculation.

City Manager Kurt Kimball said he was “troubled” by some of the comments made by a few city commissioners who may have suggested that his staff was less than honest in their analysis of the Gallium proposal.

Kimball said the city has conservatively spent $100,000 in time and money to evaluate the project and has told the commissioners twice before that it was a bad deal.

“I think we have proved, beyond a shadow of a doubt, that this is a bad deal,” he said.

Robert DeJong, a partner at Miller, Canfield, Paddock & Stone and spokesman for Gallium, disagreed with the city’s analysis of the developer’s proposal.

“It was replete with inaccurate information,” he said.

DeJong quickly listed roughly $27 million over just four line items that the city would get in the transaction that wasn’t in the city’s analysis. He added that the project was still alive and well.

“If we haven’t convinced commissioners of that by now,” said DeJong, “we’ll just have to continue to do that.”    

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