Proposal calls for May 2023 construction start, $100 million lawsuit dismissal
By Eric Valentine
Unsightly is never a good descriptor for a resort town’s main entrance. Yet, for years, the southern entrance to Ketchum has been pockmarked with a stalled, less-than-three-acre hotel project for which funding never came.
By June 30, this could all change. That’s when equity funding for Hotel Harriman will be available, so long as the developer and the City of Ketchum can reach a settlement agreement and put their legal differences aside.
But first … The City of Ketchum is seeking public comment on a proposed draft settlement agreement with Harriman Hotel, LLC, the owner of the proposed Harriman Hotel, located at 300 River Street East, at the corner of Main Street. The company has secured an investor who is prepared to bring the remaining capital necessary to construct and complete the project that has un-graced the resort town’s entrance for years.
A special City Council meeting has been scheduled on Thursday, June 23, at 4 p.m. The meeting will be held at Ketchum City Hall.
City Council is seeking public comment on a settlement agreement that would reinstate the 2008 project approvals with the 2016 clarifications. The settlement agreement would also require the developer to return to the Planning and Zoning Commission to apply for amendments to those approvals to modify the project. This process would include public testimony.
City staff has not made a recommendation to approve or deny the settlement agreement. City Council requested a special meeting to allow the public to review the settlement agreement and provide comments prior to their consideration. A decision could be made by Council at the June 23 meeting. If approved, the settlement agreement would lead to an amicable resolution of Harriman Hotel’s claims against the city.
A Blank Check
A new financing arrangement has been entered into between the Harriman Hotel, LLC, and entities controlled by Andrew Blank. Blank and his father, Jerry, have long-term family ties to the cities of Ketchum and Sun Valley, and a history of investing in similar types of hotel projects. Blank’s business background and financial capabilities have been investigated by city staff and the city attorney, who have found that the Blank family is a viable financial partner in the project. They would assume management control of the project and have the financial capability and experience to move the project to completion.
If the draft settlement agreement is approved, the city would reinstate the 2008 entitlements and assign the project entitlements to a new company, funded and controlled by the Blank family.
Harriman Hotel, LLC, asserts that the effects of the COVID-19 pandemic and its economic impacts be construed as force majeure considerations to extend the timeframe to cure the breach. Force majeure would allow an extraordinary event or circumstance beyond its control to release the owner from a contractual obligation.
Proposed changes to the project have been introduced by Mr. Blank that would require the new company to go through a full process of approvals by the Ketchum Planning and Zoning Commission. If the Commission denied the changes, the project could still move forward with the reinstatement of the 2008 entitlements.
The settlement agreement requires timely commencement of construction no later than May 1, 2023, or five months after issuance of the building permit. The new company would also be required to replace the previous bond for site restoration with an irrevocable letter of credit (LOC). The LOC provides a simpler option for the city to claim and secure site restoration if a future breach occurred. An improved aesthetic design for the construction screening must be agreed upon between the new company and the city and installed within 60 days of an approval of the agreement.
Lastly, the settlement agreement would release all claims alleged against the city in Harriman Hotel, LLC’s threatened $100 million claim.
Public testimony will first be heard by in-person attendees at the June 23, 2022 meeting, followed by testimony from online attendees. The city also accepts public comment via email at participate@ketchumidaho.org. Overflow seating will be provided in City Hall meeting rooms where the meeting can be followed online.
A Hole Lot Of History
The Harriman Hotel project was initially approved in 2008. It was known first as Hotel Ketchum, later changed to the Auberge Resort Sun Valley, and subsequently to the Harriman Hotel. Approvals included a Conditional Use Permit/Planned Unit Development, Design Review Permit and Development Agreement.
The hotel included a total room count of 79 condominium and hotel keys within a square-foot maximum of 149,325. The height of the project is seven stories (103 feet) from the lowest grade and four stories (58 feet) on River Street. Including the observatory, the height at River Street is 75 feet.
Waivers were approved to allow the hotel on a site less than three acres, which is the minimum lot size required for hotels; reduce the required building stepbacks and setbacks; increase the permitted floor -rea ratio; increase the permitted building height; and extend the timeframe within which the project had to commence construction.
Since 2008, several amendments, including extensions, were approved by City Council. The most recent extension was a 2018 Development Agreement amendment, which included a condition requiring proof of construction financing for the project and a site restoration bond.
By November 2020, the city deemed Harriman Hotel, LLC, in breach of the 2018 Development Agreement for failure to provide proof of project financing. A 60-day cure period was initiated to meet the financing terms of the Agreement. In January 2022, the city voided the development agreement and any associated permits for the project due to the failure of Harriman Hotel, LLC, to achieve a cure.
The city then sought to secure the site restoration bond to remediate the excavated site. The insurance company that issued the bond has so far denied the city’s request for the bond. As a result of the breach determination, Harriman Hotel, LLC, filed a tort claim against the city for $100 million. A formal lawsuit has not been filed. Legal counsel for Harriman Hotel, LLC, has approached the city with a proposed settlement based on the reinstatement of the project’s original entitlements.
Key components of the proposed draft settlement agreement include:
• Financing arrangement and cure
• Force majeure consideration (i.e., a contract provision freeing all parties from obligation due to an extraordinary event, like a pandemic)
• Pursuit of project amendments
• Settlement of litigation and claims
• Site restoration
• Construction timing
• Aesthetic screening of the project property
The Legalese
At tinyurl.com/kdmd2ymh you can read the full, 10-page settlement agreement. It includes a 12-step project timeline with construction slated to begin May 2023.
The Public Hearing
A special City Council meeting has been scheduled on Thursday, June 23, at 4 p.m. The meeting will be held at Ketchum City Hall.