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Published: Friday, October 18, 2013, 12:01 a.m.

Everett likely to grant delay in hotel project

EVERETT -- The City Council is poised to grant a one-year extension to a downtown hotel project that's on the verge of missing an Oct. 31 deadline to start construction.
A formal vote scheduled Wednesday would, however, subject Seattle developer Touchstone Corp. to up to $150,000 in penalties for failing to meet the timeline. City leaders initiated the development proposal five years ago on city-owned land.
"I still think it's viable," Mayor Ray Stephanson said Wednesday, as he urged the council to extend the contract.
In the end, a 5-1 council majority agreed to have staff draft documents for the extension, which is scheduled to be finalized next week. The extension is to occur in three-month increments, with the developer able to avoid the full $150,000 penalty if it starts building sooner. If Touchstone is able to follow through, an eight-story Courtyard by Marriott could be standing on the southeast corner of Colby Avenue and Wall Street about three years from now.
Touchstone has been working on the project since Everett awarded a request for proposals in 2008. The city's goal was to stimulate development on a half-acre city lot used since the 1970s for parking city vehicles. In particular, city leaders wanted to boost business at Comcast Arena, about three blocks away.
Last winter, Touchstone took ownership of the property from the city and promised to meet finance and construction deadlines.
Rather than making the developer pay the property's estimated $1.6 million value, the city agreed to receive the right to use 48 spaces in the hotel's future parking garage.
Jim O'Hanlon, a Touchstone owner and vice president, informed the council on Oct. 9 that his company would be unable to start construction this month because of trouble lining up investors.
"We are confident we can get through it, but this is our last shot," O'Hanlon said Wednesday. "We will not be asking for another extension."
The company said a poor economy caused it to miss earlier targets for breaking ground in 2011 and 2012. This time around, O'Hanlon said it's being stalled by changes to a federal program being used to finance $20 million of the $27 million project.
The program, known as EB-5, grants foreign investors a path to U.S. citizenship if they invest $500,000 or more in a community with high unemployment.
"I'm sure that Touchstone would rather be sitting on a money-making hotel right now," Councilwoman Brenda Stonecipher said Wednesday, explaining why she believes the developer deserves more time.
Other than an extension, city council members had three other options to consider.
One was terminating the city's relationship with Touchstone. Under that scenario, the developer would forfeit $500,000 in earnest money the city has held in trust since the property sold last winter. The city would get the property back, but would have to start from scratch seeking out other companies interested in developing the property. Starting over also would push out any eventual project further than the year extension Touchstone is seeking.
Another option would be forcing Touchstone to buy the property outright for $1.6 million. By doing that, the city would have lost its right to parking spaces and would have been unable to take back the property if the hotel project continued to stall.
A final option was doing nothing.
Councilman Scott Murphy, the lone no vote on Wednesday, wanted city staff to draft two motions for a vote next week: one granting the extension and another ending the Touchstone contract.
"I'm concerned that Touchstone may not be able to follow through," Murphy said.
The city might miss a window of opportunity for a good project while waiting for Touchstone's project to materialize, he said. The city had not, in his mind, been adequately compensated for that lost economic opportunity.
Murphy also wanted assurance that Marriott still backed the project. O'Hanlon said Marriott does and promised to provide documentation.
Noah Haglund: 425-339-3465; nhaglund@heraldnet.com.
Everett hotel project -- proposed extension
•Touchstone Corp. can ask Everett for up to four three-month extensions
Touchstone must pay $25,000 for the first two extensions, and $50,000 for the next two
The penalties are non-refundable
The new construction deadline would be Oct. 31, 2014, with completion in the fall of 2016
If Touchstone misses the extended deadline, Everett may keep $500,000 in earnest money and get the property back
Story tags » GovernmentEverettConstruction & Property

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