DAYTONA BEACH — The troubled Daytona Grande hotel project – which has had construction deadlines extended several times, switched contractors twice and built a westward valet lane on the one-way eastbound Oakridge Boulevard – has run into another snag.
Protogroup, the Russian family-run Palm Coast company behind the project, has burned through its construction loan for the 28-story, 455-room hotel before work has been completed on the venture.
“Protogroup now finds itself in the place of needing to close the construction financing loan and to obtain permanent financing in order to avoid bankruptcy and maintain ownership and operation of the convention hotel property,” Deputy City Manager Jim Morris wrote last week in a memo to City Manager Deric Feacher.
The history of Protogroup: Protogroup timeline: How this Daytona project went from land buy to (potential) bankruptcy
Catch up on past coverage: Gryffin Construction out, as $192 million Protogroup project deadline looms in Daytona
Read more: How many are staying at Daytona Grande, the newly opened Protogroup hotel?
Related story: Daytona Protogroup hotel deadline extended yet again; pandemic partly responsible
A measure city commissioners are slated to vote on at their meeting tonight could remedy the situation and help the company regain its financial footing.
How Protogroup found itself in dire straits
An agreement with the city government obligated Protogroup to restore the intersection in front of the new hotel at State Road A1A and Oakridge Boulevard after new water and sewer lines were installed underneath that crossing.
Those new and enlarged water and sewer systems needed to service the 28-story hotel are in place now, but the intersection has a new dip in elevation and is covered with a mix of makeshift asphalt patches and colored pavers. The battered sidewalks around the intersection have also yet to be redone.
“It’s a mess,” Morris said in an interview this week. “Aesthetically it’s unacceptable. It’s not what we want in front of a premier hotel. And we don’t want the intersection to fail in a few years.”
A proposed deal with the city could help Protogroup pay for the delayed intersection work. City commissioners are slated to vote on the deal at their meeting tonight, a deal that would funnel part of a water and sewer fee reimbursement the city was going to give Protogroup to the intersection construction costs.
Protogroup has agreed to a portion of the water and sewer fee reimbursement being channeled into the intersection work to avoid losing the $100 million hotel. The company’s vice president, Alexey Lysich, has signed the deal.
The Daytona Grande opened in June under a temporary certificate of occupancy. Protogroup won’t be able to secure its permanent loan for the hotel construction until it receives a permanent certificate of occupancy. But under the agreement Protogroup signed onto, the city won’t grant the permanent certificate of occupancy until the intersection restoration is complete.
The company runs the risk of defaulting on the construction loan if it doesn’t finish the project on time, obtain the permanent certificate of occupancy and secure permanent financing. The permanent financer wants to know that a business license has been issued and that a permanent certificate of occupancy saying the building is safe is in place, Morris said.
The city’s deal with Protogroup
The city had agreed to give Protogrou
p up to $1.1 million for extending new underground city water and sewer lines from Halifax Avenue to A1A, an upgrade that expanded the city’s utility system. The money was to be a repayment of water and sewer impact fees from Protogroup to address the impact of the hotel project on the city’s utility systems.
The deal city commissioners will be asked to vote on tonight calls for diverting $283,829 of that $1.1 million to the intersection work.
Mayor Derrick Henry said he’ll probably vote yes on the deal.
“I don’t see this as much of a risk to the city,” Henry said.
The idea is for the Florida Department of Transportation to take over the intersection restoration, as happened when the westbound valet lane on Oakridge Boulevard next to the hotel’s parking garage had to be removed.
The DOT has said it’s willing to work with the city on the project, and the city has the money available to make the repairs, Morris said. He’s not sure when work could begin.
“City staff, while mindful of a $100 million investment made by Protogroup, also recognizes the need to restore the SR-AlA/Oakridge intersection to the appropriate aesthetics and levels of safety afforded by a proper construction, repair and operation of the intersection,” Morris said in his memo.
The new lines sit 15-20 feet underground, so it’s important that the beachside’s sandy soil above the pipes is properly compacted and topped off with a sturdy concrete base in the area of the intersection that was disturbed, Morris said.
In addition to the beachside intersection’s repair, resurfacing and re-pavement with colored concrete, Protogroup is also obligated to complete remodeling of the Oakridge beach ramp and sidewalks.
But Lysich has said the construction loan it obtained to build the hotel has been exhausted and Protogroup has no other funds available to repair the intersection or complete the sidewalks and new landscaping around the beach ramp.
So before the city releases any of the remaining money from the $1.1 million in water and sewer fee reimbursements, Protogroup will have to provide the city a performance bond for the required sidewalk improvements, Morris said. A performance bond is typically issued by a bank or other financial institution and guarantees the fulfillment of a contract.
Lysich was reached by phone Tuesday morning, but after a News-Journal reporter explained why she was contacting him the call abruptly ended. Lysich did not return an immediate followup phone call.
‘We just want to get it done right’
The hotel is part of a $192 million twin tower hotel condominium project that’s been in the works for nearly a decade.
Excavation work for the two towers began in March 2017, with an initial projected completion date of summer 2019 for the 28-story south tower. The taller 32-story north tower, which would be the tallest building in Volusia County, was originally slated for completion in 2020.
The city has agreed to several extensions. The current deadline for completion of the south tower is March 18, 2022. The north tower, which has only had foundation work done so far, faces a construction completion deadline of March 16, 2024.
The city will receive large annual property tax payments from the new hotel, and is grateful for the addition to the oceanfront. The city isn’t attempting to sanction Protogroup for the intersection problems, Morris said.
“We just want to get it done right,” he said.
Paul Zimmerman, a former contractor and lifelong Daytona Beach resident, said the city could have prevented some of the problems with the twin tower project if it had required a performance bond before issuing a building permit.
Zimmerman, who lives on the beachside and has been watching construction, thinks city commissioners should send the deal up for a vote tonight back to the city manager to devise something that gives the city more leverage on the rest of the project.
Zimmerman is worried now about the north tower’s future.
“If they don’t have enough money for sidewalks, how will they pay for the north tower?” he asked. “We came out of the gate wrong and we’re paying for it. The city was desperate to make a deal happen.”
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