Carmel’s proposed City Center hotel expected to cost $38 million

The proposed high-end hotel at Carmel’s City Center could cost $38 million to develop and would be partially owned by the city.

Carmel officials are trying to bring an Autograph Collection by Marriott hotel to the city’s core that would have 100 to 120 rooms and be expected to achieve at least a 4.5-star rating on a 5-star scale.

Marriott launched Autograph in 2010 and has more than 65 U.S. and 50 international locations, but none are in Indiana. Each hotel in the collection is distinctive, with its own name, design and thematic elements.

The Carmel hotel would be built between the Monon Trail and Veterans Way, just south of City Center Drive.

The Carmel Redevelopment Commission has already hired a hotel branding and management consultant to help with the preliminary work, but until Monday night, few details were known about the cost, financing or proposed ownership structure.

According to a project summary Mayor Jim Brainard presented to Carmel City Council members, the estimated budget is $38 million—the city would use $15 million from proposed bonds, and a Pedcor Cos. affiliate would obtain a $23 million construction loan to pay for the rest.

Brainard has proposed $101 million in new bonds—$76 million backed by local income taxes and $25 million backed by tax increment financing district funds—for a variety of economic development and infrastructure projects. The hotel funding would come from both bonds.

To secure the construction loan, there would be a mortgage on the hotel site, and that mortgage would be backed by the CRC and the Carmel Building Corporation.

The CRC would oversee the development, design and construction of the hotel, but Pedcor—the developer for City Center—would have approval rights on the exterior architectural features.

The CRC would obtain a franchise agreement for an Autograph hotel and find a Marriott-approved operator to hire to run the hotel.

The city and Pedcor would have joint ownership in the hotel and share the revenue from it.

According to Brainard’s summary, operating revenue will cover the hotel’s expenses and mortgage loan payments. Any revenue beyond that would first go to the CRC or CBC for any mortgage payments that were made, plus 6 percent interest, and then would fund a $7 million loan payment reserve.

After the reserve fund reaches $7 million, the CRC would receive two-thirds of the revenue and Pedcor would receive one-third.

That structure would be in place for 20 years.

During his presentation to the City Council, Brainard stressed that securing the hotel is vital to attracting corporate headquarters to the city. He said hotels such as Hampton Inns or Courtyard by Marriotts aren’t prestigious or unique enough, which is why Carmel is pursuing the Autograph Collection.

“To be able to attract those corporate headquarters, we need that level of hotel,” Brainard said.

He compared the ownership structure to the city of Indianapolis having ownership stake in the Conrad Indianapolis and JW Marriott.

Indianapolis invested $25 million in construction of the Conrad, which opened in 2006, and it started seeing returns in 2010. Since then, the city has received nearly $1.2 million.

It has yet not received any returns from the JW Marriott, which opened in 2011. For that $450 million project, which included a campus of hotels with the 1,005-room JW being the flagship, the city kicked in $59.5 million.

Brainard said Carmel has been trying to attract a high-quality hotel to City Center for 20 years but has not been successful.

“A hotel developer would look at the site and put up an inexpensive hotel,” Brainard said. “That's our concern.”

He estimated the hotel will generate a 4 percent to 5 percent return on investment, which works for the city, but wouldn’t be enough for private developers or investors.

“So I think it makes sense for the city to be the investor,” Brainard said. “We feel this is the best way to proceed.”

The council’s finance committee is expected to discuss the hotel project at a meeting Thursday.