Maryland Stadium Authority consultant says City underestimated costs of downtown hotel complex by $39m — hotel to cost $121m not $82m v2

Maryland Stadium Authority’s cost consultant told the City of Frederick back in January that its $82 million estimate for the cost of the Downtown Hotel and Conference Center was $39 million or 32 percent too low. The state agency to which the City is looking for loans to fund a major part of the project commissioned a detailed costing by a building cost specialist estimating the total cost of the hotel project as approved by the Mayor and Board last December at nearly $121 million or 47% more than the City’s estimate of $82 million. The report was produced by Forella Group LLC, construction consultants & advisors based in Fairfax Virginia. (see http://www.forellagroup.com )

City officials have never mentioned the existence of the Forella report, let alone released it. We first heard about it in a meeting with officials of the Maryland Stadium Authority in their offices near Camden Yards in Baltimore in April. We made a Public Information Act request and recently received our copy from  Cynthia Hahn, Assistant State Attorney General.

The Mayor and Board of Aldermen voted December 3 last year to approve a hotel and conference center core project costing $63.72m (million) and so-called Project Enhancements of $18.75m for a total of $82.47m. At that time the Hotel proper was costed at $44.12m to be paid for by the developer Plamondon. The conference center, the land, roads, utilities and some on-site parking summed to $19.6m of “public costs,”  bringing total cost to $63.7m, say $64m. Adding to that $15.50m of Parking Deck 6  and $3.25m of other “project enhancement” had it summed to a grand total of $82m (rounded.)  The private/public split then was $44m private, $38m public (state, county, city.)

This was already a huge inflation in costs.

Back in 2013 the project was described as costing “about $45 million” with a public (taxpayer) funding commitment needed of $10m to $12m. Right there you had an 80% cost increase with the public sector contribution up threefold.

Since the Forella report City officials have quietly made changes to the project. Parking Deck #6 which comprised $15.5m of the Project Enhancement has been dropped from the Hotel & Conference Center project, eliminating 650 parking spaces. Since 350 parking spaces are still needed at the hotel it saves only about $6m. So as of early this year the project was $76m rather than $82m by the City’s costing. But by the Forella Group costing it is still over $100m.

Thinking of the infamous Boston tunnel project a decade back this City hotel project is shaping up as our own Little Big Dig.

The Forella report, 68 pages is detailed and thorough.

Main points:

— assumes 2015 ‘prevailing wages’ are paid by contractors, no project labor agreements

— criticizes the Plamondon costing as omitting special foundation work (micro-piles, geo-piers, sheeting) necessary on account of the high water table,

— special foundations are costed at $4.55m which they say “represents some risk”

— notes that the developer materials are ambiguous about whether the Trolley Building will be demolished back to the street facade or repurposed, and says a marketable building will be very expensive

— predicts continued inflation of building costs due to tradesman shortages unless there’s an economic recession

— reports the City was unable to determine if primary utilities require supplementing, assumed they are adequate

— omitted internal telecom, security electronics

— economies include no backup electric power generator

— hazardous materials removal costed at $110,820

— “Raze Tannery” to cost $21,264 — that’s the splendid square smokestack and two story historic buildings of the Birely Tannery, the last remnant of Frederick’s leading manufacturing industry in the 19th century

— ’soft costs’ of the project are estimated at nearly $14m, that term covers various consulting fees for lawyers, financial advisors, lobbyists, engineers, architects, inspections, permitting, historic preservationists, archeologists but omitting City staff costs (for example five years of City DED chief Richard Griffin’s salary, benefits and expenses devoted to the project probably come close to $1 million.)

— public offsite improvements (streets, utility mains, sidewalks, landscaping, Carroll Creek Park interface) were not estimated separately, so City estimates are used

The report treats the conference center as integral with the hotel, so does not separate hotel costs from conference center costs.

Among the major categories of escalations in cost in the Forella Group estimate as compared to the 2015 City estimate were:

—  the Trolley Building rehab which went from $1.06 million to $4.41m, a more than 4-fold increase

— 650 space Parking Deck #6 went from $14.95m to $27.73m, a 1.85-fold increase

— the main building hotel, conference center and onsite parking construction cost went from $40.92m to $62.57m, a 53 percent increase

— the main building complex plus Trolley Building and offsite improvements (excluding Parking Deck 6) went from $43.53m to $68.40m, a 57% increase

— all the construction cost went from $58.48m to $96.14m, 64.4% up

— non-construction costs (land purchase, consultants, architects etc)  at around $25m hardly changed because Forella Group made no attempt to recalculate them, accepting City estimates

Following receipt of the Forella report Maryland Stadium Authority Authority’s Gary McGuigan, senior VP capital projects officer conferred February 11 with the City’s downtown hotel chief Richard Griffin on what they called a “Scope Reduction Effort.” Again news of this was kept very tight.

The aim was to keep the public sector contribution to $31 million (remember it has already blown out from $10m to $12m as late as 2014. From the Stadium Authority’s standpoint the aim is to prevent an escalation in the state’s exposure. A state grant of $1 million engineered in a tricky bypass of the legislature’s authorization process does have a requirement that state support be minimized relative to city and county support.

Subsequently to the Forella report Griffin quietly dropped Parking Deck 6 from the project, substituting about 350 onsite parking spaces for the 650 spaces lost. Land purchase was also dropped from the tables. His aim was also to get more money out of Plamondon in order to maintain a private sector commitment of 60%. Internal documents lay out a 60/40 allocation of many joint costs.

In May Griffin issued a revised single-sheet or ‘two-pager’ summary of the project which said Plamondon would be responsible for $53m of the cost of the project. This was not described as an increase, or change. However the number used previously was $44.1m, so the $53m represented a 20.1% increase in Plamondon’s costs, and a step in the direction of the Forella numbers. (seereport  here May 14)

If the public sector contribution is kept to $31m, then as a $84m project the costs are split (63/37) within the 40% ceiling agreed. The Forella report’s last page shows the “Scope Reduction Effort” agreed between Richard Griffin and the MSA’s Gary McGuigan in a telephone conference (called a ‘telecon’) on February 11. It’s bottom line for $31 million says: “Amount to be included in Frederick/MSA Bill.” That’s a reference to HB1474 sponsored by Frederick County Delegates Carol Krimm and Karen Lewis Young and the sister bill in the Senate sponsored by Sen Ron Young that aimed to get $19.8m loans from the state. Those bills were defeated in the House Appropriations and in the Senate Finance Committee with opposition to funding the hotel of a majority of Frederick County delegates. But as part of a last minute reconciliation process new bills (HB151, SB191) were passed late March also attempting to meet the MSA requirements of a $31m limit on overall public sector support.

The “Cost of Work Estimate” from the MSA agreed with the City’s Richard Griffin shows that the $31m of state and local funding would be spent:

— $1.07m as 40% of sitework

— $3.82m for 100% of the parking under the hotel/conference center called ‘Below Grade Parking’

— $0.76m as 40% of the cost of restoring the shell of the Trolley Building

— $8.28m for 100% of the conference center

— $1.5m or 40% of furnishings, fittings and equipment

— $5.75m or 100% of above-ground parking deck onsite

— $1.43m or 100% of off-site improvements

— $1.76m or 40% of the cost of Trolley Building work

That’s $24.36m ‘hard costs’ borne by the public sector.

In addition state and local government would cover $6.64m of ‘soft costs.’ Trouble is the report finds other ‘soft costs’ that can’t be accommodated within the agreed budget. Based to the Forella report, and the MSA-suggested $31m limit there’s no money for the City to buy the land for the hotel complex, and there’s still $2.02m of soft costs unfunded. These were supposed to be part of the “Scope Reduction Effort” agreement between MSA and the City’s Richard Griffin following the Forella Report.

Dropping Parking Deck 6 in favor of onsite parking at the hotel site adds complications:

— located right next to the County Board of Education Building this was thrown into the hotel project to get County officials support for the hotel. They have less reason to support it with the Deck 6 site left as inadequate surface parking for County employees

— more parking on the hotel site is likely expensive and requires the extensive redesign of the new buildings

— the onsite parking will be managed by the hotel for the exclusive use of hotel/conference center guests

Let’s sum up the runaway inflation: Back in 2013 the project was $45m but with 350 parking spaces. Scale that up to 650 to include Parking Deck 6 by adding $6m gets you $51m. If the Forella Group costing is correct that project will in fact cost nearly $121m to build. That’s a 2.37 fold increase in three years. Those three years have seen some real inflation in costs due mainly to shortages of tradesmen, and higher wages for skilled building workers.  Building costs have been rising about 4.5%/year. (Turner Building Cost Index, www.turnerconstruction.com/cost-index ) In current prices the $51m of 2013 probably represents 15% more or as much as $59m in 2016 prices. Still compare the City-costed $59m with Forella Group’s $121m, suggesting the City’s 2013 $-numbers were about half the likely cost. That’s a huge error.

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P Samuel 2016.06.22

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