You have questions about the historic Baker Hotel and Spa renovation project? So did we.
Laird Fairchild, who with his project partner Chad Patton spent the past decade bringing it to the start of construction following Thursday's planned announcement, sat down with us for a 17-minute question-and-answer session Tuesday morning in the lobby of the nearly 90-year-old hotel, shuttered now for almost half of that time. Here is that session:
INDEX: Congratulations. Thursday this will all be yours.
LAIRD: Well, Thursday at about 12:30 p.m. hopefully, if all goes as planned.
INDEX: First we wanted to let you reflect on how you got started on this project.
LAIRD: I think I am just like anybody else who drove through town in Mineral Wells and saw this beautiful structure sitting here and started doing a little research, trying to figure out what it use to be. Obviously it was something of significance. What did this town use to be? So I did that first, I believe it was in 2003, so about 17 or 16 years ago. Ever since then I just slowly got more drawn in. One thing led to another.
About 11 years ago I decided, about when the financial downturn started happening, there wasn't a lot of other things going on in real estate. With my background I decided to take this opportunity to start playing and see what could be done with the future of the Baker Hotel.
I found that I wasn't alone, that there were other professionals, in other professions, that have just as much love for this town and this building who were willing to devote money and time and energy to figuring out what became one of the greatest puzzles in Texas history, and that is how to economically and viably recreate the Baker Hotel in Mineral Wells.
If you were among those who thought renovation of the long-closed, deteriorating and often vandalized Baker Hotel would never happen – one of the project's development leaders was admittedly right there with you at times.
INDEX: Please retell the story of how you would look at the Baker from west of town.
LAIRD: The Rhodes Ranch near the (Dempsey) heliport. I originally came to town to take in some of the activities at that lease. We have some deer stands up on the bluffs that overlook Mineral Wells. Of course at night, you can see all of downtown and there is that building staring at you when you are sitting in that deer stand for three or four hours. Your mind starts going crazy. It always seemed to be staring back at you.
I had just enough background knowledge in complex real estate deals to be dangerous and to look for ways to capitalize a renovation of this magnitude.
INDEX: Why were you so persistent about this project and getting it to this point?
LAIRD: This town and its folks would not let me drop it. I had no alternative but to continue. Not just me, I am speaking on behalf of the entire team. Nobody at any point had an option of giving up. We had too many people in this community, and too many people who love this building, that were really vesting a lot of their own time and energy in our success.
I didn't ever really know for sure how long it was going to take. I was pressed over and over again. The two difficult questions to answer were always when are you going to get started, and when are you going to be done? At a point in time I had to kind of default to, "It will get started sometime in the future. It will get done 36 months after that."
I think for the first I am able to say it is going to get started and and it is going to get started immediately. We are announcing two things on Thursday. We are announcing that we purchased the building, assuming everything goes through with the final details. We are also announcing that construction will commence immediately.
INDEX: Are you able to disclose the purchase price of the hotel property?
LAIRD: No I am not.
INDEX: Is the projected renovation cost still about $60 million-$62 million?
LAIRD: It is about $65 million.
INDEX: You mean the cost hasn't come down in recent years (sarcasm)?
LAIRD: No, unfortunately it has not (with a chuckle).
INDEX: Talk about the financing difficulties you and the team faced in putting the project together.
LAIRD: As I have said over and over again, you are taking a project that takes $65 million to renovate and ultimately banking on an asset value of about $40 million. That is a $25 million gap, plus you would like to have some profit in there for investors. So there is a gap. This is by far one of those most complicated capital stacks of any deal I have ever worked on as either a developer, and or financier. We have multiple layers of incentives coming in from the federal government, the state government and, of course, some from the local government as well.
Gov. (Greg) Abbott designated most of downtown Mineral Wells' census tract, including the census tract that we are sitting in here at the Baker, as an Opportunity Zone. The Opportunity Zone was a game changer for both this project and the city of Mineral Wells as a whole. Part of that Opportunity Zone investment attractiveness is that you can invest, and defer gains on gains you previously had and then get marked-up basis on the new investment, i.e. the Baker, and those gains are maximized if you hold the investment for at least 10 years.
We have a partnership and investment structure in place where there is high motivation to hold the hotel, post renovation, for at least 10 years.
New market tax credits and historic tax credits at both the federal and state level. The Opportunity Zone on the investor side, the 4B (sales tax economic development fund) the citizens passed and was announced several years back and of course the TIF as well.
INDEX: Is all the financing in place or is that still a work in progress?
LAIRD: We really have two phases. We are going to begin with our equity and that will get us through the first roughly 12-14 months, then we will have a second closing. We do have term sheets from everybody necessary. There is no reason to close in all the rest of the capital until much further down the road when the building has been abated, the walls have been renovated and cleaned up, and then it is much shorter investment pieces of the capital stack because then you are looking at about a 24-month renovation. Of course, we have consultants, we have experts that have secured term sheets for all aspects of the capital stack.
INDEX: What happened to EB-5 (the foreign investors program) that your team spent so much time and money on?
LAIRD: It's like everything else and one of the reasons it has taken 10 years. Every time we would go and seek capital from one of the government programs, especially the federal government programs, in order to round out the capital stack, there is a change in that program or an issue in Congress and that program shuts down temporarily. That's what happened to EB-5. I can't tell you the number of different government programs we have been working with over the last 10 years and they went away. New market tax credits, for example, went away for several years because the census tract suddenly didn't qualify for one reason or another. So that put a dent in our capital stack, if you will.
It's kind of like herding cats with trying to put this many government programs together to shore up that gap. EB-5 at one point looked like it was going to be the answer. We actually spent two years and a whole lot of money in securing approval from the federal government to make this a qualified project for EB-5 investors.
One of the problems is the entire program is in a state of flux due to fraud perpetrated by others in major cities and so Congress started discussing how to revamp that program. Unfortunately they haven't come together to agree on how that program needs to be revamped and the entire program has really shut down for the most part, particularly for projects that are disadvantaged like the Baker Hotel.
Until the EB-5 program is fixed and the rural projects get a distinction over the urban projects, rural projects are not going to get financed by EB-5. We do still have our approval and if the EB-5 and Congress gets its act together, if it ever gets fixed, we may tap into that in the future as longer-term financing. At this time there are no plans for us to utilize EB-5 for our capital stack.
Here is the projected performance of a redeveloped and reopened Baker Hotel done by PKF Consulting USA for Chad Patton and Laird Fairchild of …
INDEX: The business model as outlined in the original proforma, has that changed?
LAIRD: Nothing has changed in that regard whatsoever. We believe that the weekend leisure traveler, those that love the Baker, one of our 37,000 followers on Facebook, if we have just each of those show up once a year we are at our occupancy projections. That is just weekends. You add in weddings, special events and of course corporate trade and business meetings during the week, what better place than the Baker Hotel with its 22,000 square feet of multiple ballrooms, breakout space and conference rooms to really bring in a captive audience with your personnel and your business and your trade show to really show them a piece of Texas history and the many things to do in the countryside around Mineral Wells.
INDEX: This will be renovation as well as restoration, correct?
LAIRD: Absolutely. It requires us to restore everything possible to its original condition in order to secure approximately $20 million in tax credits from the federal and state governments.
INDEX: After Thursday's announcement, what can the public expect to start seeing?
LAIRD: Let's wait for the announcement.
INDEX: Are there recent updates on the local economic impact of the hotel, both during construction and once it opens?
LAIRD: I don't have a recent one. I have one that is a couple of years old that indicates the number of jobs during construction and the number of jobs post construction and during stabilization, in other words direct jobs created by the hotel, and then, of course, you have indirect jobs, jobs that are created out in the city that are needed, the additional laundromats and pizza parlors needed to serve the people.
During construction we will have more than 300 people at the peak of construction working on site. Post construction and stabilization, operating the hotel, we will have close to 100.
INDEX: For years, this town sat back waiting, hoping for the Baker Hotel project before beginning to start on any downtown improvements or renovations. That changed in the past year. People and investors stepped in and began renovating downtown ahead of the hotel. How did that help this project, or did it?
LAIRD: Immensely, immensely. You need to know some of those business leaders, one of those, Randy Nix, is now a partner with us on this endeavor and knowing his passion for this town and what he has already begun to accomplish downtown not only gave us, as partners, comfort that there is a bright future for a revitalized Mineral Wells, but it gave us a much easier road for capitalizing the rest of the capital stack.
Third-party investors, lenders, any bridge for financing – tax credits – they can now come into Mineral Wells and say, OK, it's already happening and the Baker hasn't even started yet. They made our job a lot easier. That was huge. Instead of having to wait two or three years for the rest of downtown to catch up, we like to be renovating in unison with the rest of the city.
INDEX: What would you like to say to the people of Mineral Wells, especially those who stood in support of this project over the years and stood by you guys through all of this.
LAIRD: I want to say to all people of Mineral Wells, whether you are a supporter or you are a naysayer – I know there are those as well, and I don't blame them. Hell, I was a naysayer for a period of time – I want to say thank you. If it were not for the people of Mineral Wells in pushing us, dragging us, calling us, emailing us, sometimes coming out in tears in the street begging us to make progress, I want to say thank you. Without the citizens of this town, and without the leadership that has worked tirelessly and has not given up on us, we are here today and Thursday will be a thank you to all of that.
INDEX: What do you think this town will be like in three, four or five years?
LAIRD: I think it will be vastly different. I love it today as it is, and I know some people would agree with that. But I think it can be more and I think that you are going to see more tourists, and those tourists are going to spend money here, and that is going to help the tax base and that is going to help with infrastructure, roads, medians, landscaping. It is going to be a bright future for Mineral Wells.