Gorman & Co. CEO Gary Gorman is committed to turning the Ziock (Amerock) Building into a downtown high-rise hotel but says the project could be met with obstacles.
It could see its first snag if Gorman is unable to receive River Edge historic tax credits. The credits have been a point of discussion since the hotel was approved last year. That is because to receive them in the amount of up to $12.5 million, Gorman must complete the job by Dec. 31, 2016. The developer is also relying on federal credits of around $10 million. Both would offset the project’s $67 million construction cost.
When companies like Gorman, which isn’t in the business of holding large pieces of real estate like the vacant Ziock Building, miss such offsets, they often cut their losses and move on. That was the case earlier this year when Frantz Community Investors pulled out of its agreement to redevelop the Rockford Watch Factory into upscale apartments near the upcoming downtown Sportscore complex.
Gorman already has $1 million into the hotel project–including $250,000 for the building– and construction hasn’t even started. That begs the question whether it would be willing to spend more in light of uncertain tax subsidies. Gary Gorman say it would.
“The tax credits are based on dollars expended in a calendar year,” Gorman, CEO, said. “Even if the state doesn’t extend the credits and we only spend 90 percent, we’d still get the credit on what we spent.”
Gorman, who redeveloped Milwaukee’s famous Pabst Brewery building on the once-blighted north side, admitted the loss of tax credits would be anything but favorable.
“It would be an obstacle,” he said. “But, it’s not a deal killer. We are committed to this and I am excited for Rockford.”
Gorman also hopes to raise $25 million from Chinese investors through the EB-5 program, administered by the United States Citizenship and Immigration Services (USCIS). Under EB-5, participants must invest at least $500,000 in projects that create jobs and stimulate the economy. In turn, they are granted work and study visas.
“The investors want to come here to work or send their children to American colleges,” said Rachel Snethen, Gorman’s EB-5 director.
Gorman raised $10 million in EB-5 financing for the Pabst project.
The program has been so popular there’s now a 14- to 16- month backlog in applications.
“Investors complete an I-526 (a petition by entrepreneurs to immigrate to the United States) through the USCIS. They then have to be interviewed and approved to come to the United States by the Department of Homeland Security,” Snethen said. “Funds are not released until after that has occurred.”
As of now, no applications have been approved for the Ziock project. Investors were cautious as Gorman didn’t own the building until Wednesday.
The market is fickle for good reason, Snethen said.
“Families often invest everything they have–their entire net worth–just so they can come here or give their children the best education,” said Snethen. “And this is money they can’t ever get back if the projects don’t work out. There’s a lot of risk, so they’re very careful.”
Gorman plans to seek a bridge loan to create capital until EB-5 is available. If for some reason it is not, the company has an out–a put option that would sell the building back to the city for $1.
“(A put option) is not unheard of on projects like this where there are a lot of complexities,” Gorman said.
Remedial work like demolition and asbestos removal are scheduled to begin in coming days. Construction is expected by September.
The Embassy Suites hotel and conference center will also come with approximately $20 million in infrastructure improvements, including rerouted streets and downtown parking facilities. Those will be funded largely by Rockford’s motor fuel tax.
Source : rockfordadvocate
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