Cosmo Duo Upbeat Despite Delays

If John Nock and Richard Alexander sound like they see the world through rose-colored glass, it’s because they do.

Just walk into the renovated Fulbright Building, also known as the former Fayetteville Public Library, and you’ll see the translucent red panes accenting the glass-encased offices of Nock Investments and Alexander Merry-Ship & Alt Real Estate.

Nock and Alexander – and their ambitious $45 million, 22-story Renaissance Tower project that has yet to get off the ground in downtown Fayetteville – have been the focus of plenty of pessimism lately. But they remain doggedly upbeat while negative news permeates the local and national economy.

“The one thing you can accuse us of is being optimists,” Nock said. “But we’re not going to change that. We don’t have the answers on when everything will be done, but we’re committed to them.”

Alexander is bluntly positive, if that makes sense.

“It will be built when it gets built, it’s going to cost what it’s going to cost and it’s going to take as long as it takes,” he said, summing up his simple philosophy of development nurtured over years of successful renovation projects that have benefited Fayetteville such as the Fulbright Building, the Inn at Carnall Hall and the UARK Bowl.

“I can’t be distracted by what’s out there,” Alexander said of the rumors and “doom and gloomers.”

“I can’t be concerned about if people think we’ll do it or won’t do it.”

The delays at the Renaissance site, originally scheduled for completion last September, are well documented as the project has virtually doubled in scope and cost since it was first proposed in 2005, but the pair suffered another setback May 9 when ANB Financial NA was taken over by the Federal Deposit Insurance Corp.

ANB financed the purchase and renovation budget of the hotel on East Avenue, formerly the Radisson Inn, to the tune of $18.4 million. When the FDIC shut down the bank, work at the 15-story hotel was stopped cold with the exterior paint job unfinished and six floors of room remodels nearing completion.

Only a week earlier the pair hired Mimi Minton, national sales manager for 10 years at the Peabody Hotel in Little Rock, as director of sales at the Cosmopolitan.

On the eve of the 2008 football season, the hotel has just 98 rooms available out of 217. Room revenue was off 11.2 percent in 2007 after renovations began following football season, and is down 35 percent year-over-year in the first five months of fiscal 2008, which began in December.

The pair is currently working on a recapitalization plan, and a re-financed loan will likely exceed the original note from ANB. Combined with the estimated price of the Renaissance, the duo need more than $60 million in financing to complete the two projects while the country is experiencing the tightest credit market since the immediate aftermath of the Sept. 11 terrorist attacks.

While no one doubts their sincerity when they express their determination to eventually complete the Renaissance, observers of financial markets rightly wonder if Nock and Alexander have the ability to secure financing in the current market.

“If we were pessimists, the answer would be no,” Alexander said. “But we’re developers, so we are optimists by nature.”

Nock jumped in on the perils of succumbing to negative thinking.

“It can become a self-fulfilling prophecy,” he said.

Alexander continued, “Now we’re dealing with the credit crunch, gas prices, Iran, who the hell knows? You’re always dealing with something. This project was not planned around a credit crunch.

“It will be built when the credit crunch is finished.”

Perception v. Reputation

The pair understand the public hand-wringing over the lack of progress on the Renaissance, but they are also frustrated with the lack of weight given to the projects they have completed. Nock, Alexander and their various partners have finished $67.5 million in projects with another $105 million under way, including the Lofts at Underwood Plaza (but excluding the Renaissance).

Three of Northwest Arkansas’ most prominent developers – Ben Israel, Brandon Barber and Tom Terminella – have been embroiled in legal and financial conflicts that have dominated business news for the past 18 months.

Nock and Alexander maintain it is unfair to lump the idle Renaissance site with other troubled projects or companies.

“If someone tells me something about Richard, I’m going to compare it to what I know about Richard,” Nock said. “We don’t have a reputation of not doing projects. If it costs more, we still get it done. We don’t walk away from projects.

“It’s human nature to be pessimistic, but we are not going anywhere.”

Cynicism got a boost recently when the 200-foot crane that once symbolized hope for a dynamic addition to the skyline was taken down after two years of inaction.

The pair said the installation of the crane was premature but done on the advice of their contractor.

The fixed crane wouldn’t have been needed until steel reached the fifth or sixth floor, but in the bustling commercial construction days of 2006, getting a crane of that size on site was much more difficult.

“We’ll wait until we absolutely need one now,” Nock said. “We can get one here in a couple weeks. It would be easy to say, ‘If I knew what I know today, yes, we would have done it differently.’

“But isn’t that true of everything?”

Damages Done

The duo have also fielded questions lately on what happens in September after they make the 12th and final payment to the City of Fayetteville for liquidated damages required by their contract that created the first Tax Increment Financing District in Arkansas.

The city issued $3.5 million in bonds to fund the purchase and demolition of the land before selling it to Nock and Alexander.

The use of tax dollars in the project is just another reason why the public outcry over the lack of progress has been more pronounced.

The TIF bonds are retired by the increase in property tax revenue created in the surrounding area by replacing blight like the former Mountain Inn with a first-class hotel like the Renaissance.

City Attorney Kit Williams said the bonds will be retired much sooner than the 25-year schedule even without the Renaissance being built because property appreciation outpaces the amount property taxes can legally increase each year.

The TIF district encompassing downtown Fayetteville includes 10 percent of all the city’s appraised property, and new construction like the Lofts or the Metro District condo project, owned by Nock and Hank Broyles, provide additional revenue.

The developers agreed to pay Fayetteville just more than $25,000 per month if the project wasn’t complete by September 2007 to make up for the estimated tax revenue the Renaissance would have generated.

Ten payments have been made, and combined with the $300,000 they paid the city for the land, the cost of the crane and the foundation and utility work that has already been done, Nock and Alexander have already sunk around $1 million into the site.

They maintain their obligations under the contract will be fulfilled after the final payment, but Williams differs.

“There are no more liquidated damages in the contract, but in my opinion, that doesn’t mean there are no damages,” Williams said. “Liquidated damages clauses are usually put into contracts so the parties can agree what the damages would be so you don’t have to go to court. It is always the option of the breached party whether to go with liquidated damages or do something else.

“With no more contractual damages, any other damages would have to be proven in court and awarded by a jury. That’s an option the City Council could have.”

Williams, though, said that would be counterproductive and is not a course he is going to advocate.

“What I would recommend is to not file suit,” Williams said. “We want this project to happen. Litigation between the city and the developers would be very detrimental for any finance issues they have.

“I don’t think the city wants to do that.”

Williams said he will recommend some site improvements, either with some landscaping or screening.

Nock said they have considered those options and will work to find a solution, but safety issues would have to be considered as screening on that corner could block line-of-sight for drivers at the intersection.

Adding some grass would be superficial at this point, Nock said.

“We are working on this every day with our finance team,” he said. “Our lenders from all around the country and even some international players are looking at our project for a couple reasons: Fayetteville is a great town. Our demographics for the MSA are incredible.

“None of those underlying conditions have changed. That’s why we’re still investing heavily in the area.”