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Extended Stay’s Not-So-Extended Stay in S.C.

In announcing earlier this year that Extended Stay Hotels would move its corporate headquarters from Spartanburg to Charlotte, N.C. Gov. Beverly Perdue’s office said the hotel chain was eligible for incentives worth up to about $5 million.

As it turns out, North Carolina taxpayers might be getting off cheap compared to their Palmetto State counterparts.

A review by The Nerve of a state incentives agreement with Extended Stay found that nearly $8 million in incentives was offered to the hotel chain after it announced in 2001 that it was relocating its headquarters from Fort Lauderdale, Fla., to Spartanburg.

Most of that amount went toward a parking garage that the city of Spartanburg built for Extended Stay employees, which was located next to the company’s new headquarters building, records show.

The total taxpayer cost likely is higher, as the hotel chain was offered a 20-year, 45-percent credit on local property taxes, according to a development agreement with the city.

Extended Stay’s tenure in its Spartanburg headquarters lasted less than nine years. About 50 jobs in Spartanburg would be impacted with the move to Charlotte, according to an April 1 story in the Spartanburg Herald-Journal.

In relocating from Florida, Extended Stay planned to invest about $14 million in a new, four-story, approximate 100,000-square-foot office building in downtown Spartanburg, according to a state grant application provided this month by the S.C. Department of Commerce to The Nerve under the state Freedom of Information Act.

Based on that investment amount and the projected taxpayer tab, the company would have received more than 50 cents in incentives for every dollar it planned to invest in its headquarters building.

Extended Stay, which was founded in 1995 and now has about 700 hotels in the United State and Canada, has faced financial troubles in recent years, according to other media reports. The company was sold twice before filing for bankruptcy in 2009 and emerged last year from bankruptcy  under new ownership.

Spartanburg City Manager Ed Memmott defended the South Carolina incentives when contacted last week by The Nerve.

“I think it was a reasonable investment given all the parameters of the transaction,” he said. “Ultimately, time will tell.”

The city’s development agreement with Extended Stay, which Memmott provided to The Nerve under the Freedom of Information Act, doesn’t specify any “clawbacks,” or penalties, if the company left Spartanburg. Memmott didn’t respond to The Nerve’s questions about clawbacks.

Extended Stay also won’t have to repay any state incentives for leaving South Carolina, under the terms of the state agreement. Still, a Commerce official defended the deal after The Nerve last week attempted to contact Commerce Secretary Bobby Hitt.

“The Extended Stay headquarters project was exactly the type of national headquarters project that our state hopes to attract and retain,” Karen Manning, Commerce’s chief attorney, said in a written response.

“Even though the headquarters has recently moved to Charlotte,” Manning continued, “the public benefits from the more than 200 jobs that were created by the project at the time as well as from the public infrastructure that exists today as a benefit to downtown Spartanburg make the state’s investment worthwhile even in the absence of a clawback.”

Manning said the project preceded a 2005 state requirement that companies “benefitting directly or indirectly” from grants from the S.C. Coordinating Council for Economic Development sign performance agreements. She said those agreements now “contain clawback provisions.”

Contacted last week by The Nerve, Extended Stay spokeswoman Jennifer Kearney didn’t have much to say about the incentives offered n 2001, saying only in a written response, “2001 was four ownership groups ago, and none from the team at that time is with the company today.”

Lure of Incentives

When Extended Stay America announced in May 2001 that the hotel chain was relocating its corporate headquarters from Fort Lauderdale to Spartanburg, the projected cost of the move to S.C. taxpayers wasn’t publicly revealed. The city of Spartanburg formally began seeking state incentives for the move as early as June 2001, according to records reviewed by The Nerve.

“Our company has had a very positive and prosperous experience in South Florida, and we are most grateful to the employees here who have contributed so much to our success,” Extended Stay co-founder George Dean Johnson said in a prepared statement at the time. “Since our company was founded in Spartanburg, we are familiar with the quality of the workforce and look forward to building a strong team led by our current employees.”

Besides co-founding the hotel chain, Johnson, a former practicing attorney and an S.C. lawmaker from 1969-75, also co-founded the Advance America payday lending company in 1997, which located its headquarters across the street from the Extended Stay building in downtown Spartanburg, according to a 2003 story about Johnson in The State newspaper.

Johnson was quoted in an April 1 story in the Spartanburg Herald-Journal as saying he didn’t know why Extended Stay’s current leadership decided to move the hotel chain’s headquarters from Spartanburg to Charlotte.

In a written statement on March 30, N.C. Gov. Perdue’s office said Extended Stay plans to create 170 jobs over the next three years and invest $3.6 million with the relocation to Charlotte. The average annual wage will be $83,580 – $32,000 higher than the average annual wage in Mecklenburg County where Charlotte is located, according to the statement.

Between 150 and 170 employees had worked at the Spartanburg site at the time of Perdue’s announcement; the relocation was expected to be completed by Aug. 1, though it was not known how much support staff would remain behind, according to the April 1 Herald-Journal story.

Perdue’s office in its statement said Extended Stay could receive up to $4.7 million from the state of North Carolina through a job development investment grant, which would be equal to 75 percent of state income withholding taxes “derived from the creation of new jobs for each of the 12 years in which the company meets annual performance targets.”

The governor’s office noted that the grant is awarded for projects “which would not be undertaken in North Carolina without the grant.”

$7.8M Incentive Package

Extended Stay also had received plenty of taxpayer help from South Carolina when it opened its Spartanburg headquarters in May 2003.

Of the $7.8 million in projected taxpayer costs, most of that – about $6.6 million – was designated for the construction of an approximate 550-space parking garage next to the new headquarters building, according to a budget projection included with a state grant application from the city of Spartanburg.

The purpose of the remaining $1.2 million in projected incentives wasn’t specified in the documents provided to The Nerve.

Following is a breakdown of the sources of the public funding, according to the documents provided by Commerce:


  • $6.9 million – city of Spartanburg;

  • $600,000 – set-aside grant from the state Coordinating Council for Economic Development, made up of the heads of state agencies involved in economic development, including Commerce, to the city of Spartanburg to help offset the garage construction costs; and

  • $300,000 – combined funding from the city and county of Spartanburg


The total development cost of the garage was $6.4 million, according to Memmott. The development agreement called for the city to landscape the area around the garage and also to provide a “periodic public safety presence in and around” the garage during the work week.

 

Memmott said the city of Spartanburg provided two grants totaling $760,000 to the Spartanburg Development Corp. (SDC), a nonprofit organization that, according to Memmott, “facilitates economic and community development projects in conjunction with the city. “ The SDC in turn provided a $760,000 “relocation” grant to Extended Stay, he said.

Although he acknowledged that the construction of Extended Stay’s headquarters was “certainly a catalyst” for the parking garage project, Memmott said the city had “long sought development of what is now the ESA (Extended Stay America)/Magnolia Street garage site.”

“The Magnolia Street garage is the most convenient garage parking for Spartan Centre (an adjacent office building) and Morgan Square (the city’s historic downtown area),” he said.  “The facility supports multiple users and businesses in our downtown.”

The development agreement allowed Extended Stay to lease 175 parking spaces in the garage from the city, though Memmott said those fees didn’t cover the cost of the construction of the garage.

Facing the Future

As for the future of the Extended Stay headquarters building, Memmott said it’s not empty, noting that two legal firms remain in the building. He said he was confident that new tenants will be found to replace Extended Stay, describing the headquarters as a “first-class office building.”

“We fully expect that building to be occupied,” Memmott said.

According to the city’s 2001 state grant application for the parking garage project, the relocation of Extended Stay to Spartanburg would “stimulate significant downtown redevelopment and secondary job creation as retail shops and restaurants open to meet the needs of ESA (Extended Stay America) employees.”

Memmott and other supporters of the project contend that has happened. But the city of 37,000 is facing tough economic challenges these days.

The 2001 state grant application, citing 1990 U.S. Census figures, noted that the city’s poverty rate then was 17.1 percent; and that the U.S. Department of Housing and Urban Development had designated downtown Spartanburg as a blight area.

The city continues to contend with a high poverty rate. According to the data collection website, city-data.com, as of 2009, 27.8 percent of Spartanburg residents had incomes below the poverty level, compared to a 17.1 percent rate for the entire state.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.

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