Agreement reached on development contract for downtown Mercantile hotel

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By Martin Kidston

An agreement between the city of Missoula and a team of developers looking to build a new downtown hotel requires the firm to post a $3 million surety bond as a guarantee that it will follow through with its project once it deconstructs the Mercantile.

Mercantile, LLC., must also require contractors to carry risk insurance to provide coverage against damage or loss to the pharmacy building – that portion of the Mercantile that will be incorporated into a new $30 million hotel proposed for the site.

Members of the Land Use and Planning Committee approved the agreement as amended on Wednesday after haggling over a number of issues within the contract, including the distribution of historical items and how to work the surety bond.

The agreement requires Mercantile, LLC., to post its surety bond with the city named as a beneficiary. It must also purchase builder’s risk insurance and a performance bond.

“We’re requiring the contractor to carry risk insurance, and the developer to post a ($3 million) surety bond,” said Ellen Buchanan, executive director of the Missoula Redevelopment Agency. “If the building is deconstructed and the developer has to walk away from the project for some reason, the city has a the ability to put that property back into some reasonable condition.”

Alan McCormick, an attorney representing Mercantile, LLC., said the developer Andy Holloran has agreed to the terms. While the committee initially considered asking the developer to post a surety bond representing 10 percent of the project’s total cost, it instead maintained the $3 million mark.

“Andy (Holloran) has agreed to the language with the $3 million,” McCormick said. “It would be helpful to us to know that number and build it into the financing. These bonds aren’t cheap.”

As amended, the agreement requires Mercantile, LLC., to exclude the pharmacy building from demolition. The pharmacy, or the Garden City Drug Building, represents the oldest portion of the structure, which was built over a number of phases starting in the 1800s.

Before the deconstruction permit is issued, the developer must submit the engineering methods it plans to use to ensure stabilization of the historic structure. The remainder of the Mercantile also must be deconstructed in a way that maximizes reuse of building materials.

Mercantile, LLC., intends to construct a five-story mixed use building on the site with the ground floor reserved for retail. The upper floors would incorporate a 150-room hotel bearing the Marriott brand.

While parking remains a concern for some, Ward 3 council member Emily Bentley, joined by several other committee members, said parking was best left to negotiations between the Missoula Parking Commission and the developer.

The city would review whatever arrangement is reached.

“The council made a conscious decision not to mandate parking downtown,” said Bentley, adding that the decision has been in place for years. “It should be left to the market to decide. We have a policy already in place. It was cost prohibitive to mandate downtown parking.”

McCormick said the developers are currently working with the Parking Commission to reach an agreement. The hotel already has space reserved in the new Park Place garage.

“I know parking is a concern both to you and the public,” said McCormick. “But you don’t do projects like this if you don’t think you have the parking solved.”

Laval Means, the city’s planning services manager, said the mayor could sign the agreement next week. The city would likely issue a partial deconstruction permit by the first of September.

Contact reporter Martin Kidston at info@missoulacurrent.com