Salt Lake City will loan up to $7 million to a developer at a reduced interest rate to help it build a new hotel incorporating the historic Union Pacific Station at The Gateway.
Members of the City Council, acting as the city’s Redevelopment Agency board, voted unanimously Tuesday to approve the loan to help construct a mid-rise, 225-room upscale hotel at the open-air shopping and entertainment center on the western edge of downtown.
Through a subsidiary called Athens Hotel Development, The Athens Group, a Phoenix-based developer of five-star luxury hotels and residential projects, wants to incorporate the historic train station into a new upscale $79.8 million boutique hotel. It would include an eight-story guestroom tower located west of the station, overlooking The Gateway’s Olympic Plaza.
City officials agreed to lend the cash at about 1.89% interest over 12 years, based in large part on the hotel’s perceived benefits to The Gateway and wider Rio Grande and Depot District neighborhoods. Current plans indicate the hotel would be completed and begin operations in 2022.
City leaders noted the hotel proposed at 18 North Rio Grande St. is designed to high standards for energy efficiency and sustainability; will bring new public amenities to the area; preserves, adapts and reuses historic Union Pacific Station; and is located near several TRAX lines.
The Union Pacific complex will include hotel rooms on both sites of the train station, along with several new ground floor restaurants and roughly 6,000 square feet of event spaces. The project’s design would also expand use of the station’s Grand Hall as a lobby and gathering place.
“This is exactly what an area like The Gateway needs,” said board member Erin Mendenhall, adding that it was “a fantastic way to see this historic structure light up and used in such a fun and creative way.”
The project is also expected to create 140 new permanent jobs, RDA analysts predict, and generate up to $58 million in additional taxes in its first 15 years of operation.
Rob McIver, chief financial officer for The Athens Group, thanked the RDA for approving the loan and called Union Pacific “a unique asset” the company was excited to redevelop.
RDA Chief Operating Officer Danny Walz acknowledged the loan amount was higher than typical for the agency, and said RDA staff would monitor the project to reduce the city’s lending risk.
“We will follow this project closely,” Walz said. The RDA’s collateral for the loan, he said, would be the hotel structure and other improvements the developer intends to make to the site.
RDA Project Manager Cara Lindsley said the developer requested the loan to fill a 9% gap in the project’s estimated $80 million in financing. That gap, according to city documents, was created by non-traditional costs of preserving and integrating the 110-year-old Union Pacific Station into the hotel.
The developer is also facing inflated labor costs, RDA analysts said, because of competition for workers from large public works projects such as the overhaul of Salt Lake City International Airport and construction the new Utah State Prison.
Under the current financing plan, the Athens Group would borrow $47.9 million for the project from traditional lenders; put in $24.9 million of its own equity; and borrow the additional $7 million from the RDA.
Interest on the RDA loan would not accrue during the two-year construction phase and payments wouldn’t start until the third year of the hotel’s operation, according to city documents. The loan would then be paid off over eight years.
Vestar, an Arizona-based company and owner of over 30 U.S. retail properties, purchased The Gateway shopping center in 2016 and is in the midst of a $100 million-plus overhaul of the site. It considers the hotel plan integral to bringing new life to the property.
Plans for the hotel won approval from both the city’s Historic Landmarks Commission and Planning Commission in November.