The Harbor Light Newspaper recently published an article providing readers with an update on the Hotel Janelle project in downtown Harbor Springs. It is being compared to the Petoskey Pointe project, and many locals are upset over the ugly hole in the ground where the condominium hotel was supposed to be developed. The developer, Rob Mossburg of the Cottage Company, tries to defuse this comparison by highlighting the differences between Petoskey Pointe and the Hotel Janelle, and also offers some insight into the project and his personal opinion of the real estate market. It's an interesting read, so I pasted it below to preserve the article just in case the link goes dead! From the Harbor Light Newspaper:
Link to original article: http://www.harborlightnews.com/atf.php?sid=8186¤t_edition=2009-07-01
What's Next? Hotel developer offers update on status of downtown project
The downtown, Main Street hotel project by local developer The Cottage Company has been on hold since last summer. The current economic downturn has had a significant impact on its progress.
Rob Mossburg, Cottage Company owner, offered an update on the project's status in the following written interview with this newspaper.
-Charles O'Neill, Editor
What is the current status of the Hotel Janelle project?
I'm sure it is not a huge surprise to anyone but market conditions have essentially put a de facto hold on the project. In addition, our financing commitment is set to expire shortly and our loan on the property has matured. Accordingly, we are in negotiations with our bank and looking for potential partners to help us carry on with the project. It is likely that a reset of the capital structure and improved national economic conditions will need to take place to enable the project to move forward.
This is a real disappointment, especially since we were days away from breaking ground. However, I'm hopeful that our lenders will be accommodating, that I can locate a partner, and that we'll be ready to go again when the economy improves.
Will you make changes to the project if you go back to the city?
At the moment, we are not contemplating any future changes to the project. The concept of real estate ownership with luxury hotel services is a strong one. The Hotel Janelle's period-inspired architecture was developed over time with public input and its regulatory approvals were certainly well debated. That said, I suppose it depends on how long it takes for the market to return and, of course, whether the City is inclined to grant an extension of our existing approvals.
What is your outlook for the Harbor Springs area real estate market and the overall economy in this area and of the state?
I have mixed feelings. On one hand, my personal belief is that the national commercial real estate shoe has yet to fall. The significant decrease in consumer spending is catching up to retailers and most companies are contracting, which translates into massive renegotiations of commercial office and retail leases and the closing of stores, both of which means lower real estate values. Coupled with this is billions of dollars in commercial debt coming due over the next few years with no obvious sources of new capital for it's refinancing. All this means 2010 could be another difficult year.
On the residential side, sub prime mortgages have gotten most of the attention but prime loans are next if the economy remains depressed. I have a particular concern about vacation home loans in a protracted downturn, which obviously has a direct impact on us here in northern Michigan.
I think many of us are feeling as if the proverbial green shoots are sprouting which is good for the public buyer psyche. The question in my mind is how quickly these shoots will grow given the possible backdrop of poor commercial real estate conditions.
On the other hand, Harbor Springs boasts significant advantages over other marketsboth locally and nationally. Our robust values, stringent development guidelines, and finite inventory of waterfront, water view, and downtown property, provides high barriers to entry and actually regulates growth-creating pent-up demand and preventing sharp swings in value. Also, our purchasers increasingly come from markets outside the Midwest and tend to use less leverage overall, so they can better weather a storm like this one.
On the demand side, I can't imagine a scenario whereby the desire for clean air and water, open spaces, natural beauty, generational memories, and the quintessential small town atmosphere we offer will not continue.
Given the stalled development in Petoskey and its rather dramatic eyesore of a hole, are concerned about comparison's to your project?
A comparison to Petoskey Pointe is to be expected. After all, they both represent highly visible, un-built projects. The difference here is that we had a financed, totally private project that, absent delays from the lawsuit or the financial world collapsing, would now be enjoying its first guests. I'd also like to think that folks recognize that our communication with the community has always been totally open and transparent.
How is rest of The Cottage Company business holding up?
It's no secret that the new home building business is slow, and we are no exception. Several new client homes planned for construction this year have simply been put on hold and we have ample capacity. The bright spot for us is our interior design business, which executes national as well as local engagements.
Are you considering folding the hotel and doing something else?
Again, I suppose we would have to consider all options at some point but the advantages to the community of the Hotel Janelle as planned are extraordinary. In fact, I prepared a white paper for our state government officials in an attempt to capture some of the stimulus funds. In it, it was estimated that over a 39-year accounting life that this green, "shovel ready" project generated over $100 million in economic impact, including over $7 million for our local school system, over $2 million for the City of Harbor Springs, and $400,000 for senior related servicesfrom supporting Bay Bluffs to ambulatory care. It would be the largest tax generator in the city at around $440,00 per year in real estate taxes alone, not to mention the 50 full and part time and 140 construction jobs that would result. So no, these financial benefits, and my intuitive sense of the aesthetic and other ripple benefits for our community, will keep me focused on doing everything I can to make the hotel a reality.
What are potential customers looking for these days?
Depending on the source, it is said that national lodging revenues are off by as much as 50%. Imagine what that does to a business! So yes, travelers are looking for deals. What they are really saying, however, is they are looking for value, and value exits at all price points, including ultra luxury properties. As beautiful and luxurious as the Hotel Janelle will be, to be successful, a strong value proposition must exist and the service execution must be flawless.
"I can't imagine a scenario whereby the desire for clean air and water, open spaces, natural beauty, generational memories, and the quintessential small town atmosphere we offer will not continue."
The Cottage Company
This is part of the July 1, 2009 online edition of Harbor Light Newspaper.
Jared Hammond, Realtor
Coldwell Banker Harbor Springs