2002 #4 Four Tribes to Open Hotel

#4 Note from Native America - Tribes to Open DC Hotel

Four Tribes to Open Hotel in DC

Thanks to Francis Harjo and Wayne Johnson:

For Tribes, a Payoff

4 Communities Use Gaming Cash For D.C. Hotel

By Dana Hedgpeth

Washington Post Staff Writer

Thursday, August 22, 2002; Page E01

Four Native American tribes have broken ground on a $43 million hotel a few blocks from the site of the new National Museum of the American Indian in Southwest Washington, a rare collaboration by tribes on an off-reservation project.

The hotel, a Residence Inn by Marriott, will be the only tribally owned enterprise in Washington, according to Native American leaders and developers.

Under the deal, each of the four tribes put up $3 million in proceeds from gambling businesses on their reservations to help buy the property on E Street SW between Third and Fourth streets, once the site of the city's wax museum. They will own a 59 percent equity stake in the project. Two of the tribes are from California, the Viejas Band of Kumeyaay in San Diego and the San Manuel Band of Mission Indians, and two are from Wisconsin, the Forest County Potawatomi and Oneida Indian Nation.

Hospitality Partners, a Bethesda-based hotel-management company, will run the 233-suite inn for 10 years. Developers said the hotel will open in spring 2004 -- a few months before the Smithsonian's new Indian museum opens and on the heels of one of the worst travel slumps in history for the lodging industry.

The tribes hope to attract museum-goers to the hotel, where a more modern aspect of Indian life will be on display: business success underwritten by gambling dollars. While the museum's artifacts will exhibit the well-known history of Indian loss, the new hotel represents the gain of tribes in the 14 years since they were allowed to open casinos on their reservations.

Under the Indian Gaming Regulatory Act of 1988, the 200 tribes that have casinos must use the profits from their $13 billion-a-year casino industry to build much-needed facilities such as health-care, day-care and senior-citizen centers, schools, and roads on their reservations. Only after they've met those needs can they pay out any remaining profits to individual tribe members.

Tribes have invested in enterprises other than gaming in the past decade to make sure their assets are diversified.

The 15,000-member Oneida Nation, for example, has used the estimated $300 million in annual revenue from its casino and hotel in Green Bay, Wis., to invest in a bank, an apple orchard and cattle.

The 265 members of the San Manuel Band of Mission Indians put $20 million of their gambling profits into a water-bottling facility. And the Viejas built an outlet center across from their casino, making it one of the largest employers in San Diego County, with 2,500 employees. The tribe recently bought a local bank.

The 600-member Mashantucket Pequots run the world's largest casino, in Ledyard, Conn., pulling in more than $1 billion in annual revenue. Among other businesses they operate a discount mail-order prescription-drug business to other tribes and they own several off-reservation hotels and golf courses. The Salt River Pima-Maricopas of Arizona used casino earnings to put a landfill and commercial office buildings on their reservation and have bought a cement plant off their land.

But the D.C. hotel deal marking the collaboration between the four tribes and District-based Donohoe Development Co., a non-Indian company that has done projects in the metropolitan area since 1884, is an anomaly.

"I haven't heard of anything of this magnitude ever being done by four tribes together," said Joe Kalt, director of the Harvard Project on American Indian Economic Development. "They're obviously trying to assert their economic capabilities in the big time."

Besides the tribes' investments, about $8.5 million of the project will come from Donohoe, the Phillips Development Corp. -- which has owned the property on E Street for 25 years -- and a handful of local private investors. The rest will be financed through a loan.

The tribes say they hope to use Four Fires LLC, a Delaware-incorporated body created to give them oversight of the hotel's operation, for other business deals, possibly in manufacturing.

To be successful, the D.C. hotel will need to reach an occupancy rate of about 80 percent by its second year and charge at least $165 a night. Under that scenario it would earn about $5 million by its third year of operation, giving each tribe an equal stake of about $450,000 a year in profit, according to developers, investors and outside hotel consultants.

The lodging industry has ended two of its worst-performing years. The late 1990s and 2000 were the boom years for hotels with most benefiting from businesses travelers who were willing to pay high room rates. But a shaky economy, aggravated by the Sept. 11 terrorist attacks, has kept business travelers off the road and left the lodging industry struggling.

Analysts and hotel executives, who once predicted the downturn would last only a year after the attacks, now say a full recovery won't begin until late 2003 or early 2004.

Still, the project's developers and investors are optimistic.

The new museum is expected to draw an estimated 6 million visitors a year -- almost half as many as the popular National Air and Space Museum next door. Indian leaders and the hotel's developer said they want to try joint advertising and marketing with the museum.

James M. Earnest, executive vice president of Phillips, said he had tried to lure nearby federal agencies, including NASA, to the site on E Street but the deals never panned out. Because it was so close to the Mall, he said, he envisioned a hotel on it.

But after the terrorist attacks, attracting investors was a bit rough. Donohoe and Phillips had connections to friends, family and associates who wanted to put some money into the deal, but lenders were requiring more equity and Earnest was anxious to get something developed on the site.

In the fall, Donohoe hired Rick Hill, the former chairman of the Oneida Nation and of the National Indian Gaming Association, to serve as a go-between for the D.C. developers. Hill's job was to persuade tribes that were already running successful casinos and other businesses to invest their money in Donohoe's D.C. hotel deal. The theory: Spread the risk and spread the wealth.

Hill had six months to get every tribe to agree on how much of an ownership stake it wanted and get lawyers to draw up the paperwork. By mainstream standards it was a short turnaround, and in Indian country, where each tribe is a sovereign government and can at times act like a massive bureaucracy, it was harder.

"What's a fast track in the commercial world becomes warp speed in Indian country," said Frank Riolo, chief executive of Viejas Enterprises and president of the Borrego Springs Bank, in which the Viejas have a major ownership stake. "The nature of a developer is to push. They're like 'You've got to tell us today. We've got to get documents done.'

"The tribal nature is to talk about it and wait," Riolo said. "Indians' thought process is, you're better off not doing it than rushing into it and making a mistake. It's two completely opposite cultures."

Tribal leaders wanted to get to know the developers and understand what kinds of companies they ran before agreeing to invest in the hotel. They came to D.C. in February and March to see the site and talk about the deal.

The harder Donohoe and Earnest pushed, "the further the Indians pulled back," Riolo said of a March meeting between the two groups. "You could see the room spliting."

In the spring, Chris Bruch, a vice president at Donohoe, and Mike Dickens, president of Hospitality Partners, went to see a few of the tribe's operations. That also meant conducting business meetings the tribe's way. Having an Oneida say a prayer with an eagle feather before a meeting had not been the norm for Bruch and Dickens.

The meetings were followed by calls and letters asking and answering questions as each tribe went through customary layers of due diligence with economic development officials and lawyers, then put the deal before their members or councils for a vote.

The San Manuels committed up to $6 million in May. Two weeks later, the others agreed in a letter of intent to put in $3 million each, but each tribal government still had to approve it.

Earnest, who desperately wanted the deal, learned to wait patiently, holding off other investors who said they wanted to put $2.5 million into the equity.

"I wanted to do a deal with Indians at this site, near the museum," said Earnest, an avid collector of Indian artifacts. "I just wanted to do it."

A few snags popped up. The death of a Viejas elder postponed discussions of the deal by a week in late May. At an Oneida meeting in June, there wasn't a quorum to vote on it.

Hill began to nudge the remaining tribes to act quickly or risk being left out.

More than a month after the San Manuel vote, the Viejas also agreed to put up as much as $6 million, if needed, on the deal. The Potawatomis and the Oneidas followed with votes to put in $3 million each in the next week. By the beginning of July, the tribes had signed their letters of intent.

"In the white world, two months would be a short time to even do a deal of this size and get everyone to sign, but then to compound it with tribes doing something they'd never done before, it was amazing," said Mark A. Jarboe, the lead attorney on the deal at Dorsey & Whitney in Minneapolis, a firm that specializes in doing business with Native Americans.

Three days before the land was to be closed on, the $12 million from the tribes arrived in the bank accounts and the new entity -- Southwest Capitol Associates LLC -- paid $7 million to Phillips and its partners for the land and demolition began.

"They got a little nervous," Hill said of Earnest and the Donohoe partners last week after he talked to them about construction details on the phone. But, as an Oneida saying goes, Hill said, "we walked on our prayers and it all worked out."