The cost of renovating the historic Willard Hotel has soared to $105 million, twice the estimated cost when the long-delayed project was first authorized by the Pennsylvania Avenue Development Corp. (PADC) in December 1978.
Developer Oliver T. Carr Jr., who took charge of the foundering project in October, revealed the latest cost estimate yesterday after the PADC approved changes in the project's lease agreement and design that had been sought by Carr's newly formed partnership.
Much of the increased cost was due to inflation, Carr said. The project was stalled for nearly three years because the original developer, Florida businessman Stuart Golding, was unable to arrange financing.
Carr said a consortium of six banks, headed by Riggs National Bank, will provide a five-year construction loan for the project. The loan will carry a floating interest rate of 1 1/2 points above the prime rate, which yesterday was 15 3/4 percent. The project will now include an office building, but Carr declined to predict when the development will be completed.
Carr also acknowledged that he has been forced to put off arranging permanent financing for the project for a year or two. The Equitable Life Assurance Society of the United States, which has backed many of Carr's earlier ventures, rejected his request for long-term financing for the Willard, citing inflation and uncertainties in the economy.
Carr said that other lending institutions subsequently offered to provide the long-term loan, but their terms were unacceptable.
"If the money markets are high, it makes no sense . . . to commit yourself for 30 years," Carr said. "We don't believe it's the appropriate time for permanent financing."
Many financial institutions, reluctant to get locked into long-term loans in times of high inflation, are demanding an equity interest in projects they finance as well as a percentage of the project's net income, according to Robert E. Pickeral, a Riggs senior vice president.
The original plan, which failed to attract investors, called for construction of 600 luxury hotel rooms and about 40,000 square feet of retail space, on the northwest corner of 14th Street and Pennsylvania Avenue NW.
Golding and his partner, the Fairmont Hotel Corp. of San Francisco, reluctantly turned to Carr for help in salvaging the project when PADC threatened them with the loss of their exclusive rights to the project. PADC is the federal agency that oversees development on the avenue.
The cost of the Willard rehabilitation has steadily increased from an estimated $50 million in 1979 to about $90 million early this year and now to $105 million. Carr long has insisted that the project could not pay for itself unless commercial office space was added to supplement the project's revenues.
The new plan unveiled yesterday would reduce the size of the hotel to 400 rooms, while adding 210,000 square feet of office space and 40,000 square feet of stores and shops. The office and retail space would be built on vacant land between the Willard and the Hotel Washington, which is on the same block
The exterior of the office building will mirror the Willard's Beaux Arts architecture. The New York architectural firm of Hardy, Holzman and Pfeiffer, which did the original plans for Golding, was retained to do the new design.
Carr's group, the Willard Associates, yesterday presented PADC with a check for $334,017 to cover past-due rent and taxes on the property, owned by PADC.
Under the revised lease agreement unanimously approved by PADC, Willard Associates will pay $800,000 a year in rent during the construction period. The rent will jump to a minimum of $1.2 million a year after the hotel and office complex are opened for business.