The Carmel City Council’s finance committee on May 12 held the first of three meetings to review why the cost to build Hotel Carmichael came in 46 percent higher than the estimate presented in mid-2017.
The council approved $40 million for the project, a 122-room boutique hotel in Marriott’s Autograph Collection, in 2017, but in January the city revealed that the final cost will be closer to $58 million.
At the May 12 meeting, the committee reviewed the cost estimate process.
Carmel Redevelopment Commission Director Henry Mestetsky said the CRC was in a tough spot in 2017 attempting to determine how much to spend to consult professionals to refine the estimate before knowing if the controversial project would be approved by the city council.
“We can get a better judgment of what something costs if you want us to spend 10 times more than what the CRC spent toward something like this, if we’re building something we know is going to be built, let’s do it if it’s unclear,” Mestetsky said. “What if the CRC spent $400,000 to guess at something like this and then the council voted it down?”
Mestetsky, who became CRC director after the council approved the hotel funding, said the CRC used two primary consultants to create the estimate: Coury Hospitality, which specializes in hospitality management, and Shiel Sexton, the hotel’s construction manager.
Kevin Hunt, president and chief operating officer of Shiel Sexton, said his company was asked to come up with an estimate for construction costs using little more than the number of rooms and square footage of the hotel. He said they used the company’s recently-completed Ironworks Hotel project as a baseline.
After the council approved the $28.5 million construction estimate, Mestetsky and the CRC’s consultants said several factors led to construction costs increasing, such as a trade war with China, tariffs and labor shortages.
Mestetsky said the cost of the hotel increased 10 to 15 percent when Mayor Jim Brainard directed the project to be publicly bid to increase transparency. Public bidding is more expensive because the process requires bidders to be bonded. The bond acts as an insurance policy to keep the project on track if a contractor goes out of business or faces a major difficulty.
Paul Coury, chief executive officer of Coury Hospitality, said another factor that may have added to the cost increase is that Marriott officials set higher standards for Hotel Carmichael than some of the other hotels in the Autograph collection.
“The bar had to be somewhat higher than an average Autograph for Marriott to even approve this site,” Coury said. “We had a lot of pushback from Marriott, because they didn’t think Carmel was a size of city that could handle an Autograph. I think when they came here and saw it they were very impressed.”
He said Marriott wanted Hotel Carmichael to be “one of the top Autographs,” but he said it is difficult to quantify how much the higher standards affected the final cost of the hotel.
Striving to be among the best contributed to an increase in the building’s footprint.
“We looked at an average room. It didn’t feel special, so I said, ‘Can we kick this wall out so we can get a sofa in the room?’” Coury said. “That may have added 7,000 square feet, but it was important to the design and the ultimate room value.”
The committee will discuss bidding of the project at 6 p.m. May 13. At 6 p.m. May 14, the committee will discuss steps taken by the CRC to cover the increased cost of the hotel.
Hotel Carmichael, in Carmel City Center, was set to open in early May. The opening date has been delayed to at least Aug. 1 because of the COVID-19 pandemic.