Fresno Mayor Ashley Swearengin and City Council President Lee Brand are headed for a fight over the fate of the nearly century-old Hotel Fresno building.
She wants to spend taxpayer money on what she calls a risk-free project that will spark downtown.
He thinks she is pushing taxpayers into a disaster.
Swearengin's administration on Thursday will ask the City Council to approve a loan of nearly $860,000 in City Hall-controlled federal housing money to help jump-start the rehabilitation of the Hotel Fresno.
Swearengin said the money is key to efforts by Southern California-based developers to turn the seven-story building into a $16.5 million mixed-use project that would have 72 apartments and retail on the ground floor.
The Hotel Fresno -- at 1263 Broadway Plaza, one block west of Fulton Mall -- has been vacant for years, but served in its heyday such luminaries as boxing champion Joe Louis and was once a center for Fresno's social swirl.
Swearengin, who is staking her political reputation on downtown revitalization, is pushing hard for the loan. She said downtown can't thrive with something as ugly and useless as a worn-out Hotel Fresno building stuck in the middle.
"This is a significant project for downtown," Swearengin said Monday at a Bee editorial board meeting. "It says downtown is headed in the right direction. ... It's kind of difficult to even make the case that there is risk" to it.
But that is what Brand is doing. Brand, who has mayoral ambitions himself, built a reputation at City Hall by crafting legislation that is supposed to prevent public-investment bombs such as Granite Park and the Fresno Metropolitan Museum.
Brand said the Hotel Fresno loan documents are based on faulty revenue and cost estimates, which almost inevitably will lead to a failed project. He said it makes no difference that the city's shrinking general fund, which goes largely to public safety, is not on the hook.
"It's all taxpayer dollars," Brand said Monday afternoon. "We can't set aside our common sense just because something sounds good."
Jake Kojikian, one of the project's managing partners, said he and his partners are confident that the project pencils out.
"People like our project," Kojikian said. Tenants "will pay what we are asking."
Swearengin and Brand acknowledge they are analyzing the project from opposite directions.
Mayor: Project a no-brainer
Swearengin views the risk as being in the front end: Can the project get the necessary financing with no threat to the general fund?
Swearengin on Monday said the answer is yes. She said the developers have committed nearly $2.7 million of their own money. The council in March already approved the $1.9 million long-term loan from the Redevelopment Agency, money designed to fight blight and create affordable housing. She said the chances for an $11.1 million loan through a federal Department of Housing and Urban Development program look good.
The final piece in the $16.5 million package is about $860,000 in federal housing funds, Swearengin said. She said this money can be used only for affordable housing. If the city doesn't commit the money by the end of September, it must be returned to the federal government.
Swearengin said the city's money won't be spent until the developers have secured the HUD loan and their money is in the bank. If the developers fail in any of these steps, she said, the city gets its $860,000 back.
With the financing all but assured and the threat to City Hall's treasury all but eliminated, Swearengin said, the only thing left to do is await the dramatic change to a key part of Fresno's skyline.
When it comes to rehabilitating historic buildings, Swearengin said, Hotel Fresno's developers -- led by Romi Baghgegian and Kojikian -- clearly have game. She said they already have turned downtown's old Hotel Virginia on Kern Street into a successful remodeled office complex. She said they are almost done with turning the old Mayflower Hotel on the southern edge of downtown's Mural District into the Mayflower Lofts.
Looking at the bigger picture, Swearengin said, the prospect of a remodeled Hotel Fresno can only add to downtown revitalization efforts. Her Downtown Neighborhoods Community Plan was unveiled last week, and her plan for the Fulton Mall area is slated to be released in a few weeks. To have renters and shoppers creating a scene at Hotel Fresno reminiscent of a bygone era can only bring vigor to downtown, she said.
And if the developers go belly- up? No worry, Swearengin said.
"We'll be looking at a building that has $16.5 million in it as opposed to the home for pigeons that it is right now," Swearengin said. "The community benefits from the improvements and the lender has to find another property owner."
Brand: Too much risk
Brand said he doesn't doubt that the developers, with sufficient political muscle, can secure the loans and spend millions on the shell that is Hotel Fresno.
Brand said the danger to taxpayers is at the back end, after all the hoopla has died. He said the money is being loaned or insured at taxpayer expense based on faulty assumptions about market conditions in a deep recession.
Brand, who has 30 years of experience at developing or managing residential properties, said the Hotel Fresno developers are too optimistic with their projected rents. He said they're also underestimating their operational costs.
The result, Brand said, is a project unlikely to generate the revenue to meet its debts.
He shakes his head when contemplating whether $16.5 million is really enough to transform the Hotel Fresno building into a gleaming residential/retail complex.
"It could be a money pit," Brand says.
Brand asks: Then what? Who steps in with the extra money to finish a partially completed high-rise in the heart of downtown? How long before that help arrives?
"I'm all for downtown revitalization," he said. But, he added, a Hotel Fresno project gone sour "will just be more proof for all the critics of downtown. They'll point to this and say, 'We told you so.' "