City makes another payment to cover Bluffwalk

The developers of Lynchburg’s Bluffwalk Center could not come up with the cash for this summer’s payment on a federal loan, leaving the city to cover a $250,000 installment for the second time in two years.

The payment, due today, is tied to a $3.2 million federal loan. City Council guaranteed the loan from the U.S. Department of Housing and Urban Development in 2002, meaning the city has to make payments when the developers cannot.

The city sent in a payment of $254,686 on July 23 to ensure the funds would clear by the Aug. 1 deadline, said City Manager Kimball Payne.

Hal Craddock, Bluffwalk’s lead developer, said this week that the project will reimburse, with interest, the more than $500,000 the city has spent backing the loan. He predicted that the developers would not need city funds to make any more payments. He also said business is picking up at the hotel and conference center, which recently opened its second restaurant and has seen its occupancy rate grow past 70 percent.

Making the business successful “just has taken more time than we thought,” Craddock said.

“We’ll certainly make the February payment, and I believe we’ll be able to make all the rest,” he said.

Payne said the city is working on a document that would formalize the reimbursement intent of both parties — which is that Bluffwalk’s developers will repay the city for covering the loan payments this year and last year, plus interest, he said.

The timeline on the repayment is uncertain. Payne said it is due “when they have the money.”

“There’s no schedule here because I don’t have the ability to demand a schedule,” he said. The loan is subordinated to a loan from Wachovia, meaning the bank gets paid first.

Payne said the document is a “concept piece” not ready for release to the public.

Craddock said he got a copy Wednesday and sent it to the Bluffwalk partnership’s lawyer.

The company made all the payments on the HUD loan for three years without a problem. But its business plan called for the hotel to open in spring 2007 to provide revenue for that summer’s payment.

With the doors still not open last July, the city had to pay the bill.

For the Aug. 1 payment this year, Craddock tried unsuccessfully to convince Wachovia Securities to free up $1 million in historic tax credits. The federal government awarded those tax credits because the project revitalized two historic buildings.Last winter, the investment firm stopped releasing the tax credit money as a protection in case the complex failed and the IRS recalled the credits.

Craddock said his communication has been slow in that effort because with millions of dollars in bad mortgages nationwide, Wachovia has “bigger fish in the frying pan.”

Payne said it’s not even clear whether Wachovia is focusing on the Bluffwalk situation.

Bluffwalk’s inability to make this summer’s payment is “disappointing,” said vice-mayor Bert Dodson. “I thought there would be an opportunity for them to make at least a partial payment, but that did not occur.”

This year, the city set aside nearly $326,000 in Community Development Block Grant money to make the August payment and the $71,000 interest-only payment due in February.

That led to decreased allocations to other organizations, such as the Lynchburg Redevelopment and Housing Authority.

If the Bluffwalk developers make the February payment, the $71,000 could be distributed to other projects, said Mike Gillette, the city councilman who chairs the Community Development Advisory Committee.

He said the redistribution could happen fairly quickly.

Craddock said the city won’t have to make the next payment because of improvements in Bluffwalk’s business.

In June, the center’s second restaurant, the pizzeria and brewpub Waterstone, opened and is doing well. Stephan Parry, managing partner of the restaurant, said the business is “right on target.”

Also in June, the hotel passed 70 percent occupancy, compared to less than 40 percent in December.

Craddock said in previous interviews that the hotel needed about 60 percent occupancy to break even.

He said Wednesday that a full-time room salesperson has been hired, and he expects the hotel to reach 80 percent occupancy by the end of 2008.

City leaders are keeping an eye on the project’s financial success, though some want more information.

“I haven’t seen any financials lately, but I understand that they have cash flow coming in now, and they’re feeling better about how that’s going,” Payne said.

At-large City Councilman Scott Garrett and Ward III councilman Jeff Helgeson have asked for details on Bluffwalk’s plans to repay the city, and on the business’s financial situation.

“I’ve been trying to get a good sense of their financial picture,” Garrett said. “I’ve been asking for it, but I have not seen that level of understanding.”

Craddock said the business should have money for a partial repayment soon, which would be drawn from an investor he said is lined up to buy some of the corporation’s stock. That payment would be turned over to the city, he said.

It would not be a huge amount, he said, but “it’s a good-faith effort to tell the city we want to work on this.”

He would not specify the amount because of other competing creditors that might ask for payment, he said.

Dodson compared the current pain of paying to “buyer’s remorse,” but he still thinks the business will succeed in time.

“It’s going to take at least a couple of years to get on their feet,” he said. “It’s an unfortunate situation, but we have to work through the situation.”

It’s not all bad news at Bluffwalk. It’s new pizza restaurant, Waterstone, is doing brisk business, along with other parts of the center. Business has picked up enough, says the lead developer, that he predicts Bluffwalk will not need any more city money.
CHET WHITE/THE NEWS & ADVANCE