Starwood has still not arranged all its financing for the project, but according to Dean Stratouly, development chairman of the Massachusetts Convention Center Authority, "they are optimistic that they can get financing." FleetBoston Financial Corp. offered to provide a loan of $150 million, and Starwood "is in the process of structuring the balance on its own," Stratouly tells Globest.com.
A tighter financial market and the notorious difficulty developers typically have in funding hotels led both sides to make financial concessions. Starwood gave up $30 million in a combination of management and development fees while the MCCA agreed to reduce its rental income to $421 million over 50 years, which, emphasizes Gloria Larson, chairwoman of the MCCA, is still higher than runner-up Marriot International's bid. In addition, infrastructure costs will be shared, with the MCCA considering picking up parking and utilities costs as well as costs relating to the central plaza and the connection tunnels between the center and the hotel.
The sticking point, though, was the tax abatements Starwood was seeking under Section 121A of state law. The city would not provide Starwood with any tax relief under that statute and at one point the company said it would not go forward without receiving some help from the city. But according to Stratouly, "the city was able to demonstrate how tax assessment would work and those projections resulted in significant tax savings over what was being projected by Starwood."
Adds Larson, "They are still at the low end of optimal in terms of rate of return but they want to do this."
What is also significant for the MCCA are the room blocks Starwood has agreed to provide to the convention center for convention attendees at below market rate. "That is very important to us," Larson tells Globest.com. "And they are willing to provide us with more rooms than Marriott." Starwood has also agreed to coordinate its opening to coincide with the convention center.
But perhaps most important, those involved in this deal are hoping that the project spurs other stalled projects to move ahead, most specifically those on the South Boston waterfront. A number of the developments there have gotten caught up in issues over planning and the MCCA believes these projects are important for the success of its own project.
"All these projects are related," says Stratouly. "It's the shopping center theory of development. One store does not do well on its own, but if you get a whole group of stores, it's a symbiotic relationship in which they provide each other with infrastructure and support."
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