Old City Hall redevelopment hinges on public funding

An ambitious plan to convert the crumbling, 105-year-old former City Hall into a boutique hotel with a public art gallery has already cleared the first hurdle: a big splashy announcement last week with lots of sizzle.

Now comes the sales job.

Indianapolis officials have to convince the public that the $55 million redevelopment project is worth millions of dollars in public incentives.

The pitch started Wednesday, with an hourlong presentation to the Metropolitan Development Commission, involving a slide show, a video and impassioned presentations by city and company representatives.

The developer, 21c Museum Hotels LLC of Louisville, Ky., plans to invest $29 million to fix up the old, mostly vacant building, which has crumbling plaster, broken elevators, water damage and an obsolete heating system.

As part of the redevelopment, 21c also will erect a 10-story hotel, with 150 rooms, in a parking lot just north of the old City Hall, near the corner of Alabama and Ohio streets. The two buildings will be connected on the first floor, and hotel visitors will enter and exit through the old City Hall's grand rotunda. The buildings also would be filled with public art galleries and gathering spaces.

But the company wants a basketful of government help: a $11.3 million federal loan, $4 million in federal historic tax credits and $9.1 million in city-backed loans over 20 years.

The last part would require the city to pay about $645,000 a year for the first two years from the city's Downtown tax increment financing to cover issuance cost and debt service. After construction is complete, plans call for the company to repay all of the city funds.

The city would continue to own the old City Hall building and lease it for $1 a year to 21c Museum Hotels.

Adam Thies, director of the Indianapolis Department of Metropolitan Development, said 21c typically seeks a wide assortment of public financing. He said the incentives requested for this project are in the middle of the pack, compared to several other locations.

"I didn't want to be taken for a ride," Thies told the commission.

He said the project is the best option for the old building. He described it as a drain on the city, costing up to $100,000 a year to operate. Repairs would cost the city about $13 million.

Founded in 2006, 21c operates three boutique hotels in Louisville, Cincinnati and Bentonville, Ark. It plans to open two others this year in Durham, N.C. and Lexington, Ky.

Doug Heinrich, chief development officer for 21c, played up the company's track record in turning historic, under-used buildings into hotels and galleries, filled with art and public meeting spaces. He said the project could create about 150 to 200 permanent hospitality jobs.

"Every town has a chain of hotels," Heinrich said. "We're different. We're unique."

The loan will require approval from Metropolitan Development Commission and City-County Council. The matter could come before the commission for a vote later this month.

Call Star reporter John Russell at (317) 444-6283 and follow him on Twitter @johnrussell99.