Padre's owner pays off $1.8M city loan; would Bakersfield do it again?

Jan. 8—Cash flow trouble hit just as the overhaul of the Padre Hotel was finishing up in 2009, with several million dollars of its owners' money on the line and an $8.1 million construction loan covering a year's worth of redevelopment work.

The project fell $1.8 million short of the money needed to outfit what was supposed to be the nicest boutique hotel in the San Joaquin Valley. Tapped out with private lenders, the owners turned to the city of Bakersfield, which quickly identified a federal loan program for redevelopment projects that would help prevent slums or blight.

After early struggles subsequent to the city loan, the final payment was made Aug. 12 of last year. Brett Miller, head of the Padre's San Diego original redevelopment team and now owner of the property, expressed his gratitude to the city for stepping up when the owners "could not get enough loans to finish it."

"Had they not helped us with that loan, the Padre would not have happened," Miller said.

Renovation of the 1927 hotel is by all accounts a success that has brought a new class of customers to the streets of downtown. Observers say its success paved the way for what is now a growing, prospering part of town.

Ward 2 City Councilman Andrae Gonzales, who represents much of downtown, said by email the city was right to take financial risk on the Padre — that it has become a huge success and anchor for the area, employing more than 160 people and spurring creation of nearby restaurants and small businesses.

Gonzales recommended the city offer more loans or other financial assistance to businesses that help revitalize downtown.

"Obviously, we want the free market to do what it does without government intervention," he wrote. "But there are times where it makes sense for the city to provide financial support, either through loans or grants, to help close gaps and make redevelopment projects happen."

Questions were raised, when the loan was first made, about whether the city was picking winners by choosing to subsidize one business over others. Some of that sentiment remains.

Downtown restaurateur Shawna Haddad Byers said the Padre loan was "probably a good call" but that it feels like big fish — projects backed by deep-pocketed investors — still get fed more than the "thousands of little fish (that) don't get fed as often as the big fish."

Not that she's dissatisfied with the Padre's performance: It, more than any other business, got people walking downtown, she said.

"That was the thing. The professional people, your middle-upper class going out for cocktails or whatever," Haddad Byers said.

Another consideration was the city's financial risk.

The position of Bakersfield's then-economic development director, Donna Kunz, was that the Padre was a good bet — and that if not, the city could work with the other lender on the project to sell the property and recover the public investment.

Kunz noted at the time the city could have granted the money to the developer but that the City Council chose to make the $1.8 million a loan.

Problems came to light less than a year after the city took out the loan at 3 percent interest — less than half what the city estimated a private lender would charge — with the U.S. Department of Housing and Urban Development's Community Development Block Grant program.

The Padre's owners told city staff in April 2010, two months after the hotel's grand reopening, that the business was having trouble making an upcoming $230,000 principal and interest payment.

Revenue had fallen short because of delays in opening to the public, the owners told the city, even as it emphasized bookings were picking up and sales were coming along. Miller told The Californian at the time the hotel could have made the payment but that it would have put the hotel in "real financial jeopardy."

The council agreed to a loan restructuring that increased the city's financial exposure to 12 years from seven, and it forfeited about $30,000 per year that was supposed to cover the city's loan administration costs.

The Padre's owners continued to have trouble down the road. In 2010, a Pasadena bank declared the hotel in default of its construction loan. Not until 2012 was an agreement reached for new financing that essentially gave the hotel more time to pay off its debt.

City assistance might have otherwise come from Bakersfield's now-defunct downtown redevelopment area, except the Padre happened to stand outside the project's boundaries. That made it ineligible for financial support like tax-increment financing.

Bakersfield had made similar use of HUD money 16 years earlier when the city partnered with the former Holiday Inn on Truxtun Avenue. It helped the hotel get a $3 million federal grant that allowed construction to move forward after a period of inactivity.

Councilman Gonzales noted similar kinds of financial assistance for downtown revitalization comes through the city's Economic Opportunity Area, a reboot of the former redevelopment agency that also uses tax-increment financing to attract private investment to downtown and Old Town Kern. He mentioned facade improvements as one opportunity available.

"I have had the opportunity to work with hundreds of business and property owners not just in downtown but also MLK Blvd, Old Town Kern and the Niles and Monterey Corridor to figure out how to improve their properties and spur growth," Gonzales wrote.

He noted the city has set aside $3.6 million for working with private enterprise to redevelop vacant properties downtown that present a chronic nuisance, and money has been identified to incentivize in-fill housing in the area.

Downtown's busiest developer, high-end apartment builder Sage Equities, said the Padre refocused investors on the area's potential and changed perceptions of Bakersfield itself, engaging with locals and out-of-towners alike.

What's more, the Padre fostered a lively, 24-hour downtown.

"Before The Padre, there was a perception that a high-end lifestyle-driven business could not succeed downtown. All of that has changed," Sage Managing Partner Anna Smith said by email.

Haddad Byers said she has no problem with local government returning taxpayer dollars to those who pay them. But she'd like to see the money spent on downtown drainage problems she said has created puddles 4 inches deep in places. Plus, if there are opportunities for business incentives, she said she'd like to hear more about them.

"Just pass on the information a little bit," she said. "Give the little guy a fighting chance."