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Court Puts D.C. Hotel Back in Play

WASHINGTON — The District of Columbia’s convention center hotel project, which has been delayed for years, may finally be getting closer to financing, with a possible $250 million bond sale later this spring following a favorable court ruling last week, district officials said.

Separately, district Mayor Adrian M. Fenty on Thursday released a fiscal 2011 budget overview that addresses an estimated $523 million revenue gap and includes $637.3 million of borrowing.

The Washington Convention Center Authority’s chief financial officer, Henry Mosley, last week said the bond transaction — likely to include Build America Bonds and the district’s first issuance of recovery zone bonds — could be brought to the market in the next 60 to 75 days.

District officials are meeting this week with the underwriting team to dust off the $537 million financing plan for the 1,174-room Marriott Marquis to be built across from the convention center, he said. The city council approved the financing deal last July.

“We’re revving up the engine now to get back on track,” Mosley said, adding that construction could begin in June.

The financing package, as it was approved last July, includes a public-private partnership that was needed to keep the district from breaching its 12% debt-to-expenditures cap.

Two companies, Quadrangle Development Corp. and Capstone Development LLC, will contribute $331 million of shareholder equity. The package also would include $161 million of tax-increment financing plus $45 million from the convention authority’s reserves.

Quadrangle will oversee construction and Marriott International Inc. will operate the hotel.

The underwriting team remains intact, Mosley said, and will be led by Goldman, Sachs & Co., with Siebert Brandford Shank & Co., Morgan Stanley, Bank of America Merrill Lynch, and Loop Capital Markets LLC as co-managing underwriters.

The district could include some refunding bonds, increasing the deal’s size to $250 million, said Marcy Edwards, senior financial policy adviser to the district’s chief financial officer, Natwar M. Gandhi.

The authority has $480 million of debt outstanding and is rated A2 by Moody’s Investors Service and A by Standard & Poor’s and Fitch Ratings.

Last week, a District of Columbia Superior Court judge ruled in favor of the district, the authority, and Marriott, ending a legal battle that had delayed financing since September.

JBG Properties Inc. and Wardman Investor LLC had sued last year over Marriott’s selection for the hotel.

They still could appeal the ruling or settle out of court, officials said.

The hotel’s financing has languished for at least three years amid delays.

Zoning concerns hindered the project at first, then in 2008 UBS Securities LLC, one of the underwriters, withdrew from the municipal market.

Prior to the current financing plans, district officials had considered issuing up to $750 million of bonds for the hotel construction, but Gandhi did not endorse that plan because it would have put the district over its debt cap.

Since July, the district’s revenues have been revised lower, but district officials said the project has appropriated funds and does not need further legislative action.

 The district last month issued $708.3 million of income-tax secured revenue bonds, including refunding bonds to keep its debt load under the cap.

The debt restructuring will help the district save $97 million in fiscal 2010, officials said.

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