Developer Burned By $2.8M Fire

With five finished hotels, three under construction and two more planned, Gary Brandon of Springdale wasn’t prepared for what happened on the night of Feb. 3.

“It was about five after 9,” he said. “I had just sat down to watch ‘CSI: Miami.’ Then my office manager called to say the Residence Inn was on fire.”

Brandon and his wife Sherri drove to the site of the four-story, 88-room Marriott Residence Inn that was under construction at Rogers’ Scottsdale Center.

High winds had whipped up a “firestorm” that was sucking debris into the vortex of flames, said Rogers Fire Chief Wes Lewis. The entire 65,513-SF building was destroyed in less than an hour.

“When something’s in the construction stage with that volume of fire, there’s no way anybody can extinguish a fire like that,” Lewis said.

“By the time I got there, it was 9:45, and it was already on the ground,” Brandon said. “We looked at it and just kind of went brain dead. We didn’t know what to think about it.”

It was the largest fire in Northwest Arkansas in decades and the biggest in Rogers since a fire destroyed the Sears department store and another downtown building in the late 1970s.

There were no injuries in the fire that leveled the empty Residence Inn. Chief Lewis said firefighters responded immediately and were able to save three nearby restaurants: the Dixie Cafe, Johnny Carino’s and On the Border.

Lewis said it may take months to determine the cause of the fire.

Brandon, developer and co-owner Residence Inn, said he plans to rebuild the hotel at the same location as soon as details are worked out with the insurance company and the lot is cleared of debris.

“It’s such a great location,” he said. “I can’t say I’ve got a better location than that anywhere.”

Brandon and his partners own Marriott hotels in Springdale, Rogers, Lawton, Okla., Wichita, Kan. and Olathe, Kan. They have Marriotts under construction in Fort Smith and Texarkana, Texas, and plan to build hotels in Columbia, Mo., and Pocaletto, Idaho, before the end of the year.

Rogers Arson Problem

For the past five years, Rogers has been plagued by an arsonist (or arsonists) who has burned 10-15 vacant buildings. But Lewis said he doesn’t believe that person set fire to the Residence Inn.

“This fire doesn’t really fit into that,” he said. “It would be pretty doubtful. Generally, [the arsonist has been burning] unoccupied structures in a dilapidated state.”

The hotel was at its most vulnerable stage of construction as far as fire is concerned. The plywood walls were up, but the fire-resistant drywall wasn’t.

“They’ve had unoccupied, vacant homes burned,” Kevin McDonald, Springdale’s battalion chief and fire marshal, said referring to Rogers. “It could be somebody stepping up the game a little bit … If it was an act of arson, the arsonist attacked that building at just the right time.”

“We have to go into any investigation with an open mind and eliminate all natural causes before we investigate arson,” Lewis said.

“We’ve got three hotels going up in Springdale with wood-frame construction, and I’m already nervous,” McDonald said.

McDonald said he may require the project managers to keep security guards at the hotel construction sites at night to prevent arson or spot an accidental fire early.

Builder’s risk

Brandon said the total hotel project was valued at $6.67 million as a finished product, and that amount included $980,000 for the 2.25-acre parcel of land.

Brandon said RRI LLC had borrowed about $1.9 million to begin construction and had about $1 million in equity in the project. RRI consists of Brandon, Craig Smith of Rogers and Dewey Weaver Jr. of Monroe, La. Gary Brandon Enterprises Inc. of Springdale was the general contractor for the hotel project.

On Feb. 11, RRI filed a claim for $2.8 million with Walker Brothers Insurance of Springdale, a broker that handled RRI’s builder’s risk policy.

Mike Luttrell, Brandon’s agent at Walker Brothers, said he told the underwriter, Cincinnati Insurance Co. of Ohio, that the cost would likely be between $3 million and $3.5 million, so he was glad to hear Brandon’s claim was for a little less than that.

Luttrell said Brandon’s assistant called him the night of the fire to tell him about the disaster.

“I spent the rest of the night tossing and turning,” Luttrell said. “How did this happen?”

Luttrell said it was difficult to find an underwriter for the hotel in mid-2002. They weren’t inclined to insure a wood-frame, four-story building with a total value of more than $6 million. Potential underwriters were primarily concerned about wind, though, not fire.

“It was kind of tough to just get the coverage in the first place,” Luttrell said. “You would have thought I was inflicting a plague on any underwriter I called.”

In November 2001, Luttrell received about nine quotes from companies wanting to underwrite RRI’s builder’s risk policy on the three-story Fairfield Inn & Suites in Rogers, which is also in Scottsdale Center. But the effects of Sept. 11, 2001, had not yet set in.

By mid-2002, only three companies offered to underwrite the four-story Residence Inn in Rogers. And the rates were twice as high as they had been for the Fairfield Inn.

Walking a Fine Line

As an insurance broker, Luttrell said he is walking a fine line to try to keep his client and the underwriter happy. An agent with Cincinnati Insurance tried to calm Luttrell down by telling him, “We spread this risk out over a thousand builders’ risk policies.” The insurance companies don’t like it, but a disaster like this is bound to happen from time to time.

“You can make enemies after something like this,” Luttrell said. “We don’t pay the claims, so we don’t have the expense there. We’re a commission-driven business.”

Because of the Residence Inn fire, Luttrell said he believes he now has “the dubious distinction of writing the largest loss in the history of our agency.” And the Residence Inn fire may affect commercial insurance rates statewide.

“When we go back to the marketplace for a wood-frame hotel, what’s it going to be like?” he asked. “It wouldn’t shock me if there were some changes.”

Through the boom times of the 1990s, Luttrell said, insurance companies made money on their investments while they lost money by providing insurance coverage.

“Well, the worm has turned,” he said, referring to the effect of terrorism on the insurance industry.

“The underwriting of anything has gotten a lot tighter,” Luttrell said. “They review any risk very closely.”

Interest Costs

“If my insurance company does what it’s supposed to do, we should break even,” Brandon said.

But Brandon is referring only to the cost of the project, not extemporaneous costs.

“The insurance money will go to pay the existing debt off, the construction loan,” Brandon said. “Then we’ll start over … We’re sitting here paying interest on a few million bucks, and I don’t think anybody’s going to pay me back for that.”

Construction of the Residence Inn began in October and was scheduled to be completed sometime between June and September. The frame of the building was up. The roof was finished on Feb. 3, and most of the windows were in place.

Now, the building is nothing more that a pile of charred rubble.

“It’s hard to believe there was a four-story building here two weeks ago,” Brandon said as he walked around the site on Feb. 11. He bent down from time to time to pick up a stray nail from the street and throw it back onto his lot.

Some 30 subcontractors who were working on the hotel shifted their crews to other projects. Brandon said he didn’t know how many people were working at the site on a daily basis, but there are several construction projects in the area to keep the crews employed. Brandon sent John Kraft, the project coordinator for the Rogers Residence Inn, to Fort Smith to work on the construction of a Residence Inn he has there.

Brandon said the Rogers Residence Inn had a sprinkler system but no water or electricity at the time of the fire. The sprinklers were scheduled to be inspected on Feb. 4. There were also a dozen fire extinguishers throughout the building.

Brandon said there was no welding going on in the building the day of the fire, and plumbers were working on the other end of the building from where investigators believe the fire started.

Brandon said the Rogers fire and police departments should be commended for the job they did to extinguish the fire and keep everyone safe in the city’s largest shopping and restaurant complex. He said police and fire officials watched the site 24 hours a day for two days after the fire.

“It could have been a lot worse,” Brandon said. “No. 1: No one was hurt.”