Jan. 20–VIRGINIA BEACH
Bruce Thompson, the developer of The Cavalier Hotel project, is asking for more public money. This time, it's to build a beachfront hotel on the oceanside of the property.
If approved, it would be the second time the Cavalier project has benefited from the Tourism Development Financing Program, also known as gap financing.
In 2014, The Cavalier got the green light to receive $18 million, or 12.4 percent of $145 million. That was the estimated eligible capital cost of the project, which includes the historic hotel on the hill that is being restored, and the Beach Resort, a 300-room Marriott hotel across Atlantic Avenue.
A year earlier, the City Council granted a first round of incentives for the project totaling $18 million to help preserve The Cavalier. Those include:
$8.2 million in a performance-based economic development incentive grant;
$2.37 million for a green space easement over the lawn and entrance drive;
$2.5 million to rebuild Cavalier Drive, a public street;
$5 million rebated from taxes collected on the increased value of the hotel properties.
Recently, Cavalier Associates LLC decided not to build a timeshare tower on the south end of the beachfront property.
Instead, the company is planning another hotel, an Embassy Suites.
But that's going to mean more money.
On Thursday, Thompson, a partner in the project, would not divulge how much is needed to close the "gap" on an Embassy Suites. He said the costs are still being analyzed and that the hotel would fill a void in the resort area.
"It will allow us to attract larger meeting and conference groups by substantially expanding our meeting and conference space, attracting a whole new market at the Oceanfront," he said.
Thompson is applying for a program that compensates for the financial shortfalls in tourism development projects. Three partners — the city, developer and the state — contribute to a gap financing debt service. The developer owns the debt, while the city and state contribute quarterly payments based on future sales tax revenue from the project.
In 2010, Thompson chaired a tourism subcommittee of then-Gov. Bob McDonnell's Commission on Economic Development and Job Creation.
The subcommittee recommended establishing the financing program to help developers close deals on large tourism projects, The Pilot reported.
The General Assembly approved it in 2011.
Among the criteria for eligibility, the project must create jobs and fill a tourism void. Those that have qualified for gap financing include Hyatt Place Hotel in Fredericksburg, City Center at Oyster Point in Newport News, and two projects Thompson is in charge of developing, The Main — Hilton Hotel in Norfolk and The Cavalier.
Thompson has said he was encouraged to bring a hotel designed for conferences to the Oceanfront because The Main, a conference center hotel set to open this spring, is attracting national and international meeting groups.
He also had reservations about a timeshare on the Cavalier property because Gold Key — PHR Resorts & Hotels, which is managing the project, sold its timeshare company in 2015. Thompson, who is CEO of Gold Key, wouldn't have control over the development, he told resort leaders earlier this month.
The Cavalier's costs continue to grow. It stands to be a $350 million investment upon completion, unparalleled in terms of hotel development costs at the Oceanfront. In comparison, Town Center, which is comprised of hotels, apartments and entertainment venues, is a $550 million public and private investment.
City Council members learned about the gap financing proposal Tuesday. Councilman Jim Wood said the gap is less than the $18 million requested for other aspects of the project but would not confirm the amount.
Thompson is also seeking city money to reroute a portion of Atlantic Avenue for the Cavalier project. The city would pay an estimated $2.5 million to create turn lanes and install traffic signals. Thompson, a partner in Cavalier Associates, has said the redesign would alleviate traffic congestion when all the hotels on the Cavalier property are open. The City Council has not yet voted on the proposal.
Council members will be busy over the next several weeks on Cavalier-related issues, including making a decision on whether a 150-room Embassy Suites fills a tourism void in the resort area.
While the Oceanfront already has many hotels that can accommodate meeting groups with 100-200 guests, larger conferences look to simplify logistics by booking as few hotels as possible, said Tiffany Russell, a spokeswoman for the city's Convention & Visitors Bureau.
Virginia Beach recently hosted an event with 3,400 attendees reserving rooms in 16 hotels. When the same gathering was held in Baltimore, it used seven hotels, Russell said.
Wood, who serves as a council liaison to The Cavalier, plans to take a cautious approach when considering more city support for the project.
"I think gap financing is a useful tool, but the devil is in the details," Wood said.
Last year, some hotel owners raised red flags about a possible tax incentive for the Hyatt House under construction on 27th Street. The Virginia Beach Hotel Association issued a statement opposing the funding plan, stating that the hotel did not fill a tourism void.
In May, the developers of the $80 million Hyatt House project, which includes Pro Hall of Famer Bruce Smith, deferred their application.
This week, Councilwoman Rosemary Wilson said the Embassy Suites on the Cavalier grounds could be a contender for the incentive program.
"It's going to fill a void for conventions of a particular size that we have not been able to attract," she said. "I think there's a lot of merit to it."
