Lack of investors for tax credit to delay Southern Hotel project
By Jon Hawley
Thursday, August 10, 2017
Redevelopment of the Southern Hotel in Elizabeth City will start months later than expected — and that's the “best-case scenario,” the project’s developer says.
Bob Howsare, of SAGA Construction and Development, provided an update on the project in an interview Wednesday. SAGA, of Kill Devil Hills, has been working for more than two years to redevelop the Southern Hotel, located at the corner of Main and Road streets, into a new boutique hotel.
The project is a major undertaking. The four-story hotel is almost 150 years old, and its upper floors contain asbestos and need a lot of work. Apart from renovating the hotel, SAGA is also planning to renovate an adjacent property, the former Medical Building, to add rooms for its hotel project. All told, SAGA has estimated its project costs at $13 million.
SAGA has committed to invest $5 million in the project, and the company has secured $3 million in federal and state historic tax credits, plus a $500,000 Community Development Block Grant provided by the N.C. Department of Commerce that will be administered by the city of Elizabeth City.
However, SAGA hasn't been able to secure a major funding source for the project, specifically $3.9 million in New Market Tax Credits, Howsare said. According to the U.S. Department of the Treasury, New Market Tax Credits are offered to investors who invest in Community Development Entities, or CDEs, who in turn invest in businesses in low-income communities.
Unfortunately, SAGA hasn't been able to convince any CDEs to invest in the project, Howsare said. Those entities typically look for larger communities to invest in, and he said getting their funding is “very competitive.”
It's not impossible for the Southern Hotel to attract CDE investment, Howsare said, but “we internally have pretty much written them off.” SAGA is now reviewing how to fund the project without New Market Tax Credits, he said.
Asked if the project will still cost more than $12 million, Howsare said, “I just don't know.”
Howsare said the company is working to secure an N.C. Department of Commerce Building Reuse grant, but it's unclear how large that grant will be because funding is tied to job creation. SAGA had proposed creating 50 jobs at the Southern Hotel, but Howsare said it's possible the company won't hit that mark.
While the lack of New Market Tax Credits is a blow to the project, Howsare said the company remains optimistic. He noted he's told his partners that similar hotels are being developed without any grants or without an existing building to work with.
Even so, the “best-case scenario” for the Southern Hotel project has construction not starting until early next year, Howsare said. Once construction starts, it will take nine to 12 months to complete, he said.
Elizabeth City officials have strongly supported SAGA's project. Redeveloping the Southern Hotel would restore a major historic structure and potentially bring many more people and dollars downtown, they’ve said.
Apart from offering rooms for rent, the remodeled hotel would also include a conference center to provide an attractive venue for weddings and other events.