Tuesday, July 23, 2024

ILM hotel developers face financial difficulties, project delayed up to 18 months

ILM Airport Hotel Partners are planning to build a 150-room, 100-foot luxury hotel on Wilmington International Airport’s campus but have faced some delays due to financing. (Courtesy rendering)

WILMINGTON — Wilmington International Airport’s first hotel is shovel-ready but the New York developers have had to pump the brakes due to the financial turbulence of the economy.

READ MORE: NY developers to invest $40M in upscale hotel on ILM campus

ALSO: Airport hotel requests variance to build nearly three times taller than zoning regulation

ILM Airport Hotel Partners — made up of Andrew and Chip Weiss of AC Hotel Developers — are funding the $50-plus million project, originally estimated at $40 million, 75% through bonds and 25% through cash equity investment. Due to rising interest rates, the amount of revenue created from the bonds has decreased and the Weisses need more time to bridge the funding gap.

If they don’t have their finances in order by next fall, they could lose their property lease to build a six-story, 150-room hotel on ILM’s campus.

In April 2022, the Weisses announced their plan to construct a luxury hotel on ILM’s campus — a vision long in the making for the airport authority.

At the time, they intended for doors to open within two years but couldn’t have predicted the challenging market to come. To allow more time for the developers to sort out financing, the ILM Airport Authority approved Wednesday an 11-month extension to its due diligence period.

It’s the second amendment approved this year; the authority signed off on the first in April, the original due diligence deadline after ILM Airport Hotel Partners signed a lease with the airport one year prior.

By Oct. 6, 2024, the partners must show proof of financial closing documents or its 35-year ground lease agreement with ILM will be terminated.

“The problem, in a word, has been interest rates,” Chip Weiss told Port City Daily on a call Thursday. “That’s also the origin of the first extension, but it only got worse from there.”

According to UNCW associate professor and regional economist Mouhcine Guettabi, January 2021 to October 2023 saw the largest price increases at a faster rate than the country’s seen over the last decade.

“The Federal Reserve has been stuck with this problem,” Guettabi told Wilmington city council at a budget work session Nov. 17, “and they only have one lever to deal with inflation: that’s interest rates.”

According to the Federal Reserve, federal interest rates went from 0.33% in April 2022 when the Weisses signed their lease to 4.65% by April 2023, when they asked for the first extension.

“We’re working with a couple private equity firms who love the location just like we do,” he said. “We will get there. Everyone thinks we’ve seen the peak of interest rates.”

Chip explained the Secured Overnight Financing Rate, published daily by the Federal Reserve, is forecasting a downward trend in the coming months.

Guettabi said last month rates are beginning to stabilize after hitting 5.5% in July, where they’ve remained as of today. The Federal Reserve has a goal to reach 2%, Guettabi added. But national forecasts show rates are likely to be between 4% and 5% by December 2024.

Chip said his team has already put $2 million of its own money toward due diligence, including signing its ground lease for 4.7 acres on ILM’s campus, securing required building permits and obtaining a variance approval to have a maximum building height of 100 feet.

The 92,850-square-foot hotel will be built in the airport commerce district, which typically restricts height to 35 feet. The board of adjustment voted unanimously, but it’s pending Federal Aviation Administration approval.

The scope of the planned hotel has not changed: 150 rooms are planned, with 50 dedicated to extended stay units, separate living and bedroom spaces. Chip expects those rooms to be especially beneficial to the film industry, which often secures temporary residency for out-of-town cast and crew who are in town shooting projects locally.

The hotel layout calls for roughly 5,000 square feet of event space, co-working zones, a rooftop bar and a ground floor restaurant. Chip said they’ve struggled to find the right restaurant partner.

“We’re now looking beyond just local, but we want to stay regional,” he said.

One silver lining of the financing delay is more time to secure the right restaurateur. Chip doesn’t expect to finalize it until construction is roughly six months in. Once financing is in place, the goal is to break ground within 30 days and construction should take 18 to 20 months.

While construction is in process, Chip said he intends to move in furniture and equipment, so the hotel can open within one month of obtaining its certificate of occupancy.

“We got delayed a little bit, the forces have been against us and now the tide is shifting,” he said.

Designed by CMJW Architects, the hotel will embrace the airport aesthetics. For example, its rooftop bar will resemble an aircraft wing and rows of glass windows on the side of the structure will be made to look like ribbons. 

“We really don’t like to do these projects that fit the mold, even when using a well-known brand,” Chip said.

AC Hotel Developers has a long-term contract with IHG and ILM’s Crowne Plaza hotel will be its fifth IHG collaboration. It also marks the Weisses 43rd overall hotel — the majority located in their home base of New York.

As the franchiser of the project, IHG is still on board to see it through, Chip said: “We love the market; IHG loves the market. All we see is expansion. The airport is going beyond its own predictions.”

As of October, ILM was on track to see a record-breaking number of passengers over the same time in 2022. Last year ended with 448,111 total enplanements, and as of two months ago, ILM had already hit 557,731 enplanements among its five carriers: American, Delta, Untied, Avelo and Sun Country.

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