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Financing lined up for Hilton on former Campbell Shipyard site

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San Diego National Bank will lead a consortium of other partner banks to provide a $245 million loan for the development of a 1,200-room Hilton hotel on the Campbell Shipyard site next to the Convention Center.

"This is the single largest convention center hotel being built in the country right now, said Karen Weymann of the port's real estate department.

Sam Jeppson, San Diego National Bank executive vice president, said it is particularly significant that a development of this size would have a San Diego-based bank as its lead lender. Weymann likes the idea.

"It's very easy when you're working with a local bank," Weymann said.

Getting hotel financing can be extremely difficult. It took at least a year, perhaps more for Manchester Resorts to nail down financing for its second Hyatt Tower. Jeppson suggested it helps that his bank's parent is First Bank of Oak Park, a $13 billion holding company. San Diego National Bank has about $2.3 billion of its own assets and $236 million in stockholder equity.

Jeppson declined to reveal figures, but said his bank has financed such projects as the W Hotel in downtown San Diego, the Lodge at Torrey Pines in La Jolla and the Hilton Gaslamp. It also was a participating lender on the 512-room Omni Hotel attached to Petco Park. That hotel also took quite a while to finance.

"We've been active lenders on hotel projects for quite a while," said Jeppson, adding that his bank also funded the Montage Hotel in Laguna Beach.

Hilton San Diego Convention Center (HSDCC) and One Park Boulevard LLC (OPB) are the two developing entities.

HSDCC is a joint venture of Hilton, SanPort LLC (a Portman Holdings entity) and Phelps Program Management LLC (a Hensel Phelps entity). Hensel Phelps is acting both as a developer and a general contractor.

OPB is 40 percent owned by Hilton Hotels Corp. (NYSE: HLT) and 60 percent by East Harbor Properties (an entity of ING Clarion Partners).

On Tuesday the Port Commissioners approved a plan whereby the $245 million from SDNB and 11 other subsidiaries of First Bank of Oak Park (Illinois) will be combined with $40 million in equity from Hilton, $60 million from East Harbor Properties and about $3 million from HSDCC.

Jeppson said he expects the financing package will be completed by the end of the year.

For a time it appeared that CNL Hospitality, which holds an interest in the Hotel del Coronado, would be a part of the development team, but the firm backed away a few months ago after determining the project wouldn't be a good fit with its portfolio.

The estimated $348 million project has encountered more than a few bumps on the road to a formal groundbreaking, now expected during the first quarter of next year.

At one time Kipland Howard of Allegis Development looked like he might develop a Westin hotel on the property, but financing proved elusive.

Then Manchester Resorts, which has successfully developed thousands of rooms in the Hyatt and Marriott towers, failed to get the hotel erected on this site.

The site itself had many problems. Toxic compounds from decades of shipbuilding and repair permeated the property. By the time the port is done with the water cleanup, which won't be completed for another 15 months, it will have spent $4.5 million on the land side and $16 million on the water side to clean and cap the sediment.

These have not been the port's only expenses. At a cost of $26 million, the port also committed to and completed a new 2,000-space parking garage adjacent to the site. A total of 894 spaces are dedicated to the hotel.

To build that parking garage the port spent $6 million for additional remediation because of contamination from the shipyard.

Other major expenses include $2 million for Campbell Industries demolition, $1.5 million for road improvements, $1 million in 10th Avenue Marine Terminal reimbursements and assorted other less expensive items. All told, it will have cost the port $71.8 million to deliver the site.

"That's a lot of skin in the game," said Bruce Hollingsworth, port president.

Assuming Hilton is able to get its hotel by the end of 2008, Ernest Wooden Jr., Hilton senior vice president, said it should take two or three years for the hotel to reach stabilization. For this type of hotel next to a convention center, that means the high 70 percent range in terms of occupancy.

The hotel will have a $46 million rent subsidy spread over an 11-year period.

Ralph Pickett, a Hilton development manager, said this will be comparable with a hotel Hilton built next to a convention center in Houston, minus the waterfront that he says will make all the difference. Pickett said he will borrow technology that took the Houston hotel into the 21st century and bring it here.

"We will mimic many of those technological investments," Pickett said.

At stabilization the hotel is expected to generate $8.3 million in annual transient occupancy taxes, $4.95 million in property taxes and $2.8 million in annual sales tax.

The project is also expected to result in 350 construction jobs and will have 800 full-time employees.

Related Articles:

Port of San Diego awards $16 million Campbell Shipyard contract (July 12, 2005)

Port OKs Hilton bay front hotel plan (Nov. 30, 2004)


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