Ed Cone says, "Ultimately the question is about the viability of the proposed project."
But how important is viability? Will the private banks do their due diligence before backing bonds for a hotel in a market that already has a high vacancy rate? Do public boards have a responsibility to vet these projects beyond what they've done and are doing? How to balance the risk of a "white elephant" against the stimulative gain of new jobs, even if they turn out to be temporary? Is the entire recovery zone facility bond program inducing the nation to build over capacity and beyond what the market demands? Questions for Greensboro and America....
Some discussion between Andy Scott and Dennis Quaintance on Jan. 11:
Scott: “The bottom line for the bonds is that they have to be either privately placed (to qualified investors — i.e. they are deemed sophisticated enough to evaluate the risk) or the bonds must be rated by one or more of the bond rated as investment grade by one of the bond rating agencies. For a private use bond to be rated as investment grade they must be guaranteed by a bond insurance fund or by a bank letter of credit. Either way the insurance fund or the bank must assume the risk and the project is subject to conventional underwriting by the guarantor. However, we all know that the insurance system and or the bank guarantee system can fail.”
Quaintance: “This is all a lot different than any of us though. It is interesting. I [SIC] now seems like… assuming they can sell the bonds… that they might be able to get a very high loan to loan value out of this without recourse. They might get it done. If it does get done, it will cause even more concern for me that we are creating yet another bubble, but… I’m not a czar. Is it as interesting to you as it is to me that it was understood differently than this?”