Hampton Inn development may go into default

Crosstown letdown
Firm cuts Roxbury project’s bond rating as revenues fall short
By Thomas Grillo | Monday, November 23, 2009 | http://www.bostonherald.com | Business & Markets

Crosstown Center, one of the Menino administration’s pet projects to enhance a gritty section of Roxbury, keeps getting bad reviews on its finances.

For the second time in a year, Moody’s Investors Service has downgraded the city’s $33.9 million bonds, giving a “negative” outlook for the hotel development.

Once heralded by the mayor as a way to jump-start construction around Boston Medical Center, Crosstown faces challenges ranging from booking rooms and filling retail spaces to saving money for hotel maintenance and improvements.

The $151 million project, bounded by Albany Street, Melnea Cass Boulevard, Massachusetts Avenue, and Hampden Street, features a 175-room Hampton Inn & Suites hotel, a nine-story, 225,000-square-foot office building, ground floor retail and parking for more than 1,000 cars.

In an October rating report on the hotel and garage portion of the project, Moody’s said the 10-story Hampton Inn, which opened in 2004, has room rental rates and revenues that have been consistently lower than originally forecast. It noted that, based on recent performance, the hotel is projecting insufficient cash to meet its debt service next year.

Moody’s noted the project has been drawing from reserve funds to make its senior debt payments and that “it is possible that the ($7.44 million) unrated subordinate bonds will experience a payment default.”

Marty Jones, president of Corcoran Jennison Cos., the project’s co-developer, did not return calls seeking comment. In May, the company’s Bayside Associates LP forfeited the Bayside Exposition Center in a foreclosure auction.

Kirk Sykes, a Crosstown co-developer, acknowledged that the project has failed to meet the financial projections that were the basis for the bonds that were issued by the Boston Industrial Development Financing Agency, an arm of the Boston Redevelopment Authority.

“I hope to someday turn a profit on this thing,” Sykes told the Herald. “These are challenging times, but I’m confident that we’ve got an attractive product at a good price and my bondholders are willing to work with us.”

Sykes declined to name the companies holding the bonds and said he doubts investors would force a foreclosure. “They see Crosstown as a successful, long-term venture to be in,” he said.

He noted that last year Rudi’s Resto Cafe & Bar took the space vacated by Ground Round Grill & Bar and the restaurant recently opened Verve Lounge. Other retailers include Dunkin’ Donuts, Enterprise Rent-A-Car and Halisi Day Spa & Salon.

While the office building is 100 percent occupied, Sykes acknowledged there’s 8,000 square feet of vacant retail space available at the hotel and two empty spaces totaling 22,000 square feet on the ground floor of the office building.

Mayor Thomas M. Menino and local leaders, including then-state Sen. Dianne Wilkerson, launched the Crosstown project in 1999. Three years later the city chipped in nearly $17 million in cash and land costs - to help get the stalled project going again.

The “gateway” location was aimed at revitalizing a so-called “brownfield” in Roxbury, and the hotel was hailed as the first black-owned national lodging franchise in town.

The project has had its share of setbacks, including early delays and the death of an ironworker who fell during the 2007 construction of the second phase of offices, which are now leased to Hub hospitals.

And last fall, Crosstown Center’s name came up in an FBI affidavit that laid out bribery charges against Wilkerson. She and Boston City Councilor Chuck Turner were indicted on charges of accepting cash bribes to help secure a liquor license for a nightclub called Deja Vu that was in the works for Crosstown Center. The pair pleaded not guilty in December to conspiracy and extortion charges.

Sykes disputed assertions by federal authorities that Crosstown Center was a potential site for the bar. “I never had any discussions with anyone about locating a Deja Vu here,” he said, adding that the nightclub was proposed for a space five blocks away.

Francesco Tocci, the Boston Redevelopment Authority’s deputy director for financial services, the agency that issued the bonds to spur development, said even if the hotel defaulted, taxpayers are not on the hook for financial losses.

“If it goes to foreclosure, the city has no monetary stake in this,” he said. “The bonds are purchased by investors on Wall Street.”
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