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Challenges in financing a major hotel are holding up the huge office-hotel project known as Menlo Gateway, developer David Bohannon said in a recent letter to the city of Menlo Park.
He said that “realistically the hotel is still probably a couple of years away from being able to obtain financing.”
The letter was written in advance of the Menlo Park Planning Commission meeting on Monday, Dec. 5, when the commission will review the Bohannon Development Company’s compliance with the city’s development agreement.
In 2010, the City Council and voters approved the 941,000-square-foot project, which would be built on two properties: 100 to 190 Independence Drive and 101 to 155 Constitution Drive.
In the Nov. 14 letter, Mr. Bohannon said that while economic conditions affecting the office and hotel components of the project are improving, “financing the hotel component in particular is likely to be a very challenging prospect in the near term.”
He said he is working with Marriott International and Leisure Sports Inc. and that they have “expressed a strong interest in developing a Renaissance Club Sport/Hotel,” which would have fitness and spa facilities in addition to hotel rooms.
He said he has met with several large prospects for the office space, but he has advised them “that because the office component cannot proceed without the hotel, and the timing of the hotel component remains problematic, we are not able to proceed with the office at this time.”
The Class A office market in the Menlo Park/Palo Alto area has “improved dramatically” in the past year, he said, with the vacancy rate declining from 14.2 percent to 7.8 percent and rents rising 24 percent.
The hotel market is rebounding strongly, too, he said. However, due to increased operating costs, “operating profits will not return to 2008 levels until 2013 or 2014.”
“Based on these factors,” he said, “industry experts do not anticipate construction of any major new hotel in the Bay Area for the next 24 to 30 months.”
Marriott’s interest in Menlo Gateway is due to the economic outlook for the Silicon Valley and, in particular, the Facebook move to its new campus at Willow Road and Bayfront Expressway.
Facebook, Mr. Bohannon said, is expected to “generate a significant part of the lodging demand” for the new hotel — about 14,000 room nights per year, about a quarter of the anticipated demand.
It is too bad that the City has dragged its feet with this project, delaying job opportunities,tax revenue as well as physical improvement to the area. The Bohannons’ have been a part of San Mateo County for generations and one only has to look at the quality of the shopping center to know that what they would build in Menlo Park.
Drive down El Camino and count the number of unoccupied buildings and vacant lots. It is a shame.
Lily = clueless
By reading this you’d think that the hotel couldn’t get financing, but the offices could. This is not the case. He can’t get financing for either.
A funny circumstance given Facebook as a new potential user of the hotel. Maybe FB won;t have such a positive influence after all.
I wonder what planet Lily is from — Maybe a member of the Bohannon family.
I have been awaiting Bohannon to come bck to the City as say, let us do the offices and worry about the hotel later. Present council is clueless, especially the give-a-way going on with the Facebook project.
I have awaiting comments from the public about the fact that El Caminio has turned into a parking lot much of the day.
El Camino Real is an eye sore and a tribute to the politics and planning so insiduously slowing progress and good decision making.
Shame on the City and shame on the politicians.
Mr. Bohannon’s project should be freed of the shackles of the hotel and allow immediate construction of office buildings to provide a vibrant economy and offices closer to our homes for employment.
Thanks for Mr. Bohannon’s determination to help our City achieve some modicum of success. No easy task.
Excuse me, from the beginning of the Bohannon project, it was known that hotels are riskier than office buildings but the hotel was the carrot Bohannon put in front of the city to allow the enormous office towers to get approved and exceed current zoning by tons. Bohannon chose this risk and now wants to get out of it. If the city agrees to renegotiate, there are a lot of other things that should be negotiated, too, that would benefit our community.
There are approved projects for nearly all of the empty lots on El Camino. Don’t blame anybody but the property owners for not moving forward. The city’s General Plan and the proposed specific plan are supposed to be for the long term, not to make every speculative opportunity profitable in the very short term.
“Thanks for Mr. Bohannon’s determination to help our City achieve some modicum of success. ”
Sorry, but Bohannon’s motivation isn’t to “help our city achieve some modicum of success.” His motivation is to make billions of dollars nothing more. He could care less about the city of Menlo Park. Part of the deal was that he put in a hotel. If he can’t do it, tough. He doesn’t get to rewrite what he agreed to. If he wants to renegotiate, then this time the city should actually get something out of the deal.
I agree with “patience”..Bohannon needs to held to his committment.
We will continue to see more vacancies on El Camino as well as Santa Cruz Avenue if we continue to allow chain stores to come in and compete with the local stores. Perfect example, allowing BevMo to come in when we already have Beltramos. The consumer may be saving
a few dollars but does their savings enhance or stabilize their town & community or does it drive out local ownership and the connectivity to one another as a town? What ever happened to the “raduis clauses” that towns used to enforce to protect it’s
business owners? Chain stores take away from a community on many more levels than they give back. They all belong in the shopping malls!
Developers want more for less. They want more square feet with less public benefit. They want more office space and less open space, more traffic and less livable cities. They want more more more money and could care less what it does to in Menlo Park. Unfortunately our current (idiotic) city council agrees with them. Pfftt.
I believe the agreement allows Bohannon up to 5 years to start the project. Wasn’t this done because there have been economic uncertainties? This is part of a cycle. No need to panic.
Patience:
you’re right there is no need to panic. So why is Bohannon trying to get out of what he agreed to, now, instead of five years from now?
Bohannon isn’t trying to get out of anything. It doesn’t say or even hint that he’s trying to renegotiate the development agreement. Everybody is so quick to attack the developer, but for what reason really? Silly people.
@Menlo Voter, I like your posts and agree with you on this one. The financing issue seems like a weak excuse. If the developer can’t get financing in this economy, they’ll never get financing.