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Baker Hotel renovations hinge on foreign investments

The exterior of the Baker Hotel in Mineral Wells shows its former grandeur and a group of investors is working to raise the money to bring it back to life.
The exterior of the Baker Hotel in Mineral Wells shows its former grandeur and a group of investors is working to raise the money to bring it back to life. Star-Telegram

The Baker Hotel remains a glorious wreck.

Closed to guests since 1972, the shuttered hotel is rife with graffiti, debris and water damage.

Yet everywhere he turns, Southlake developer Laird Fairchild continues to see possibilities.

He sees the roof as the perfect spot for a wine bar, accompanied by a private nook for newlyweds to have a first drink or a meal.

The Cloud Room, the ballroom that overlooks Mineral Wells, would be restored to its original state, as would the lobby — complete with an old-time phone booth near the reception desk.

Fairchild, head of Baker Hotel Development Partners Llc., who has worked on reviving the hotel since 2007, remains confident that the $56 million renovation will happen — despite a steady barrage of financing roadblocks.

“I understand the cynics,” Fairchild said. “Believe me, I wouldn’t be here working on this for seven years if I didn’t think it could happen.”

The hotel first captured his imagination when he drove by it on the way to a nearby ranch where his family has a lease along the Brazos River. He has been working with a team of investors to turn the old hotel into a destination that will help revitalize downtown Mineral Wells, about an hour northwest of Fort Worth.

To bring the hotel back to life, the Baker group is tapping various sources, including funds from an economic development sales tax, state and federal historic tax credits, and private financing.

The largest and perhaps most important piece — $28 million — is slated to come from the EB-5 Immigrant Investor program, a growing but criticized mechanism that allows wealthy international investors to obtain U.S. visas by placing at least $500,000 in a U.S. business that creates or preserves at least 10 full-time jobs.

About 80 percent of EB-5 investors come from China, according to Invest in the USA, an industry trade group.

Though it’s been around for 25 years, the program is still relatively small: It is capped at 10,000 visas annually. Cities such as Dallas and Las Vegas have used it to finance new projects, from hotels to casinos. A 2012 study by Invest in the USA, which represents 260 EB-5 regional centers nationwide, said the program has added about $6.1 million to the Texas tax rolls.

EB-5 has even become an issue in the Fort Worth City Council race. One candidate is advocating that Fort Worth set up its own regional center similar to the one in Dallas.

While it’s popular as a financing tool, opponents of EB-5 say that it allows rich foreigners a preferential path through the immigration maze and that it is ripe for abuse and fraudulent business deals.

A congressional matter

The EB-5 Immigrant Investor Regional Center pilot program is scheduled to expire in September. There is legislation that would make the regional centers permanent, or Congress could renew them for a shorter term.

EB-5 regional centers are designated by U.S. Citizenship and Immigration Services as organizations that can sponsor capital projects involving EB-5 investors.

EB-5 has historically received bipartisan support, but the program recently attracted attention when a Homeland Security inspector general’s report said Alejandro Mayorkas, deputy director of Homeland Security, may have improperly influenced decisions involving EB-5 cases when he was director of Citizenship and Immigration Services.

The report said no laws were broken but criticized Mayorkas for creating “an appearance of favoritism and special access” when he intervened in cases involving prominent Democrats and the brother of former Secretary of State Hillary Clinton.

David North, a fellow with the Center for Immigration Studies, which advocates for low immigration rates, said loopholes make the program a magnet for abuse.

“This is not necessarily a good program or a bad program, but it has all sorts of vulnerabilities,” North said. “It is a source of inexpensive and undemanding capital.”

Peter Joseph, executive director of Invest in the USA, said he “absolutely” expects the program to be renewed. He said the trade group supports tighter safeguards to limit abuses.

“We’re very hopeful for reauthorization,” Joseph said. “We’ve been part of policy discussion for how it can be improved upon.”

The U.S. has about 650 EB-5 regional centers.

Invest in the USA’s members include around 260 regional centers that account for about 95 percent of EB-5 investment in the U.S., Joseph said. About 80 percent of the investment comes from China.

“Post-recession, there’s a bigger gap that needs to be filled and you need every tool in the toolbox,” Joseph said. “When it does work, the nature of the capital is low-cost, and it can help make the capital stacks make more sense. It is a patient capital, and it can really attract other sources of financing in these new capital markets.”

Though North has blogged about abuses in the program, he expects congressional support to continue.

“My suspicion is it will get renewed again,” North said.

Backing the Baker

With the Baker Hotel, the complicated financing is still a work in progress.

The Baker group needs to raise $2 million more before going forward with seeking EB-5 funding. Once financing is in place, it would take three years to do asbestos remediation and renovate the hotel.

Investors were originally working with Civitas Capital Group, which also manages the City of Dallas Regional Center, but have switched to Florida-based Pathways for EB-5 financing.

They haven’t formally signed an agreement with Pathways. Once they do, it will likely take about a year to get preapproval from U.S. Citizenship and Immigration Services.

“We took a couple of steps back on the EB-5 portion and had to go back to the drawing board,” said Chad Patton, one of Fairchild’s partners in the project. “We’re now working with a new group out of Florida that requires us to raise a little more equity.”

Mineral Wells remains firmly behind the project.

In May, nearly 96 percent of Mineral Wells voters approved using up to $4 million of the city’s 4B economic development sales tax for the project. The dollars won’t be spent unless the renovation goes forward.

“We would be issuing those bonds after all of the funding sources are secured and the project is underway,” City Manager Lance Howerton said. “If the project doesn’t make, the money isn’t spent. Those are the last dollars to go into the project.”

After the May vote, some hoped that the renovation would begin this year, but Mayor Mike Allen isn’t surprised the project is taking longer.

“It’s probably the best chance to get it done and probably the last,” Allen said. “I think the majority of people understand that it’s going to be a long, hard process.”

The city is also in the planning stages for a downtown redevelopment with the University of Texas at Arlington’s Institute of Urban Studies.

A colorful history

If the Baker eventually comes back to life, it wouldn’t be the first time Mineral Wells has been a magnet for tourists.

The city grew out of a claim that its spring waters cured a host of ailments.

The town had 400 mineral wells by 1920, when it was called “the South’s greatest health resort,” according to the Handbook of Texas.

In 1927, the 200-room Crazy Water Hotel opened its doors, and hotel magnate T.B. Baker would follow suit with the Baker in 1929. Unfortunately, because of the stock market crash, the timing couldn’t have been worse.

The Baker had mineral baths, an Olympic-size swimming pool and a rooftop nightclub known as the Cloud Room, where old-timers could recall hearing tunes drifting through the air at night.

“Back in those days, the Baker would probably rival anything in Las Vegas today,” former assistant manager Roy D. Walker said in a 1993 Star-Telegram article. “Big-name stars like Lawrence Welk, Sophie Tucker, the Dorsey Brothers. You couldn’t find a parking place for blocks.”

Mineral Wells would transform into a military town by World War II, and that continued through the Vietnam War. But the military’s presence would decline and Fort Wolters closed in 1975.

The hotel closed in 1963 but reopened two years later, only to have its last paying guest in 1972.

Popular with trespassers

As the Baker has decayed, its lore has seemed to multiply.

Numerous websites, Facebook pages and YouTube videos focus on the Baker, and many claim that it’s haunted. As the attention has grown, the city’s efforts to deter trespassers — from high school kids to curious photographers — have intensified.

On a visit last week, the old table-top counter in the ground floor coffee shop had been toppled. In a nearby hallway, an old Smithsonian magazine had been placed on a chair, apparently posed for a photograph. Nearby, a smudged menu from April 1966 was found amid the rubble.

“It’s a terrible issue for us,” said Allen, the mayor. “It’s something that kids — and some adults — want to do for some reason. And some want to come in to vandalize or remove items from the place.”

For skeptics who question whether a luxury hotel would thrive in Mineral Wells, officials point to the success of the Hotel Settles in Big Spring.

Built in 1930, the Settles shut its doors in 1980. In December 2012, it came back to life after Dallas businessman Brint Ryan, who grew up in Big Spring, restored the hotel. Ryan has since become a partner in the Baker project. La Corsha Hospitality Group helped redevelop the Settles and has signed on to do the same for the Baker.

Howerton, the city manager, visited the Settles last year and said the success in Big Spring shows the idea can work.

“Much of what they did is what is being proposed at the Baker,” Howerton said. “It was really interesting to see the same concepts at the Settles and how the Settles has become the social and cultural hub of the town, just as it was 50 years before. It was something beyond the typical cookie-cutter hotel experience.”

‘We believe in it’

Should the latest effort to revive the hotel not pan out, Mineral Wells would eventually face the unpleasant alternative of tearing down the iconic structure, which dominates the city’s skyline.

While the numbers aren’t firm, Howerton said some contractors have said it would cost $4 million to $6 million to do asbestos remediation and revive the structure — likely exceeding the city’s $4 million portion of the renovation.

“The hotel has become much more popular as time has passed,” Howerton said. “We think the renovation project is the appropriate way to go, and I think it’s certainly a path we should keep going down.”

Like Fairchild, Patton said the investors are pushing ahead and remain convinced that the project will happen.

“It’s taken on a life of its own, and we’re just driving it regardless of the complexity,” Patton said. “We’re going to keep grinding. We’re passionate about it. We believe in it.”

Bill Hanna, 817-390-7698

Twitter: @fwhanna

What is EB-5?

▪ Roughly half the funding for renovating the Baker Hotel is expected to come from the EB-5 visa program, one of five employment-based programs administered by the Homeland Security Department’s U.S. Citizenship and Immigration Services.

▪ In the EB-5 program, international investors can get visas by investing at least $500,000 in a U.S. business that creates or preserves at least 10 full-time jobs in a rural or high-unemployment area. The investor is not required to work for the business.

▪ A 2012 study commissioned by Invest in the USA, a trade association that backs the program, said Texas EB-5 projects have supported 1,467 jobs, contributed more than $109 million to the gross domestic product and brought $6.1 million in tax revenue to the state.

▪ One local project that used EB-5 funding for part of its financing has received accolades. The NYLO Dallas South Side hotel won the Dallas Business Journal’s Most Creative Financing Deal of the Year in 2013.

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