Carmel council members seek answers over hotel’s cost overruns

A double-barrel audit may be the next step in scrutinizing why Carmel’s boutique hotel project, The Hotel Carmichael, is about $20 million over its original budget.

Carmel’s City Council met Monday to hear its regularly scheduled update from the Carmel Redevelopment Commission. This month’s report focused largely on a disclosure made to some councilors on Thursday and to the public on Friday night that the high-end hotel under construction at Carmel’s City Center will cost $58.5 million by the time it opens in May, up from an estimate of about $38 million in mid-2017.

Henry Mestetsky, executive director for the CRC, said the commission has identified $15 million in patchwork funds from new mortgages, old bonds and its operating budget to cover the gap without turning to the taxpayer.

“In every one of those cases of additional CRC contribution, there is not a single dollar of risk to the taxpayer, on any one of those transactions,” Mestetsky said. “We don’t need to increase room rates by a single dollar.”

Nearly $12.5 million of the stop-gap measures will be reimbursed to the commission by way of the hotel’s profits, Mestetsky said.

Beyond the inflated budget, councilors expressed concerns about public awareness and transparency surrounding the disclosure. Carmel announced the budget situation in a press release Friday night after local media outlets, including IBJ, had been asking about rumored cost overruns on the project since mid-January.

Councilor Tony Green, representing Carmel’s Southwest District, said he tried and failed to find any public document that would’ve let council members know about the hotel’s ballooning costs.

“I know there are three or four people in here that don’t miss much, and they were radio silent for the last year-and-a-half on the hotel,” Green said. “You had an opportunity each and almost every council meeting here to say something. You gave the perception to all of the council members that we were staying on course. That’s the issue I have.”

Mestetsky said the commission knew in early 2019, after publicly bidding the project, that the city was facing a total cost of more than $55 million for the hotel.

In response to Green, who said some may see the lack of a timely announcement as the CRC going rogue, Mestetsky said the disclosure was intentionally delayed.

“We wanted that update to happen when we could say with 100% certainty that there would not be another dollar spent,” Mestetsky said.

Tim Hannon, a freshman at-large councilor, garnered early support for two independent audits. He proposed the first audit consider the project’s financial planning and execution, while the second focus on how the city announced the new total.

Though no formal action was taken, councilors suggested Hannon work with city legal employees to form an official resolution with recommendations. Mestetsky said he supported the idea of an audit.

“I go to bed at night with the redevelopment statute,” Mestetsky said, referencing his legal and finance background.  “I don’t want a conversation about auditing practices to have some sort of insinuation that a single move taken by the CRC in public or in private…[was] somehow not above-board.”

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.

11 thoughts on “Carmel council members seek answers over hotel’s cost overruns

  1. What Mestetsky is really saying is, “I hitched my wagon to Brainard and now that the council has expanded, I don’t want my career ruined for the fiscal malfeasance that I implicitly did on his behalf.”

  2. Could we have a full audit of the business and personal relationships between key people at Pedcor and Carmel’s elected officials while we’re at it?

  3. The article fails to mention that the 2nd mortgages on two city properties are two year interest only instruments that renew every two years. We can’t afford the debt. As Dr Hannon stated, it’s more troubling they had access to $12-15M with no oversight. He also pointed out the CRC report to Council still lists the budget at $41M, a material misrepresentation of the numbers.

    They knew about other overrun in 2018 but didn’t say anything. The mayor said everything was good when running for re-election in 2019. Same pattern as 2015 when he denied the 2016 19% tax increase and 2011 when the CRC needed a bailout in 2012 and 2007 when the Palladium ended up way over budget in 2008…

  4. Agree with the comments stated above, and the Friday night announcement is equally disturbing to me. The 24/7 nature of social media has changed the dynamic, but nonetheless the (old) conventional wisdom is if you want to bury news, release it Friday night. There are a lot of savvy people in Carmel leadership and someone should have said, “Doing this on Friday night makes us look bad. Very bad. Wait until Monday.” Too late now.

  5. Obvious that the project management side of the redev commission is not in control of a rather routine design and build project. This is not rocket science and any project, especially with a public partner, should be much closer to budget.

  6. I read elsewhere that they are blaming labor cost increases and tariffs for the cost overage. Assuming about 1 year of escalation, those factors could account for around $2M (or 5%) on a project of this size. $2M is only a tenth of the $20M overage. The fact the stakeholders think the public will buy that absurd excuse is laughable and embarrassing. The real cause is clearly mismanagement of the project by several entities, poor communication, design scope creep, bad estimating, and frankly other issues that the above comments allude to. Someone needs to be held accountable.

  7. The audits of the hotel financials should be the first of a Commission-wide audit to uncover how many other dollar-shuffling have covered up bad management of the Palladium, Christkindlmarkt, CarmelFest and the endless parade of amusements and distractions.

  8. The city council needs to hold Mr Mestetsky accountable for his conscious lack of reporting to them that lasted for over 12 monthly meetings. He needs to lose his job. Having managed similar projects of this cost, scope and complexity during many economic ups and downs in the private sector, a no confidence verdict would have been conferred to me by my superiors if I would not have communicated the budget numbers in real time. Standard operating procedure in any project update includes communicating cost alignment ( over or under budget) versus the baseline or originally agreed upon budget. It is interesting and suspect that the city council didn’t ask about project costs versus planned costs in the reported 12 monthly meeting updates. Maybe due to the potential political implications in an election year?

    1. Two of the Council members, Jeff Worrell and Woody Rider, served appointments to the CRC in 2018 and 2019 respectively as Council representatives. Jeff is back on the CRC now. They had to know. The Kabuki theater needs to stop and Dr Hannon is the person to do it

    2. And yes on the election year, same pattern every election for Jim Brainard. In 2015 he withheld an audit, 19% tax increase, and automatic yearly 3% utilities increase. 2011 he withheld the CRC insolvency that required a bailout. In 2007 I believe it was the Palladium being way over budget. There was also the hiding of Keystone shortfalls in there.

      Groundhog Day

{{ articles_remaining }}
Free {{ article_text }} Remaining
{{ articles_remaining }}
Free {{ article_text }} Remaining Article limit resets in {{ count_down }} days.