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Why New Castle County is spending $19.5 million to buy a hotel off I-95

Brandon Holveck
Delaware News Journal

New Castle County officials envision the Sheraton hotel off I-95 near New Castle serving as an emergency shelter during the COVID-19 pandemic and then transforming it long-term into a center for social services.

That's why the county bid $19.5 million in an auction Wednesday to acquire the property. The purchase will be made with part of the $322 million the county received from the federal CARES Act, designed to cover atypical expenditures to combat the pandemic.

In unanimously approving the county's bidding effort last week, some members of the County Council expressed apprehension. How will people experiencing homelessness get to the hotel? Where will the social services come from? How will they be provided?

But ultimately, county officials believe it was an opportunity they couldn't pass on with space in homeless shelters limited due to COVID-19 social distancing requirements and winter on the way. With a variety of services available at the site over time, officials say they will be able to take a holistic approach to "re-housing."

New Castle County won an auction to buy the Sheraton hotel on Airport Road near New Castle for $19.5 million.

PREVIOUS COVERAGE: New Castle County wants to buy Sheraton hotel, convert it to emergency homeless shelter

"This is a tremendous opportunity to rethink how we as governments, how we in the nonprofit sector approach homelessness and try to address homelessness issues," New Castle County Executive Matt Meyer said. "There's no doubt there's been a shortage of transitional housing."

The Sheraton, located on Airport Road just off Exit 5A on I-95, opened only nine years ago. It sat empty for years after it was found to have been built one-third larger than specified in its permits. The six-story, 192-room hotel was originally built for $25 million in 2000 and recently underwent a $6.4 million renovation.

It's unclear who the county bid against. Nikhil Chuchra, an associate with the company that posted the hotel for auction, said he can't reveal the bidding parties until the deal closes in the next 30 to 45 days. 

The price increased several times in the waning moments of Wednesday's auction. Meyer said the final price was $125,000 less than the appraisal the county received from a third party.

He declined to share whether the county had a walking away price. The County Council held a discussion on bidding strategy Tuesday in executive session, closed to the public.

How the county will pay for the services it hopes to provide at the hotel, which could include programs like addiction counseling, mental health counseling and educational tutoring, hasn't been "fleshed out," Meyer said.

Without providing specifics, he said his expectation is the services will be provided without a "sizable impact" on the county's operating budget. The earliest the emergency shelter will open is December, Meyer said.

New Castle County Executive Matt Meyer says the county plans to use $136 million from its CARES Act allocation to help fund six statewide programs that benefit county residents.

The purchase itself is being made with the county's one-time federal CARES Act grant, which is roughly equal to its yearly operating budget. Designed to account for budget gaps created by the pandemic in 2020, there are several restrictions on how the money can be used. It can't fund social services at the hotel in future years.

So far, the county has spent $23.35 million. Any money the county doesn't properly spend before Dec. 30 must be returned to the federal government. There is no indication similar stimulus money will be given to local jurisdictions next year.

Michael Smith, the county's chief financial officer, said at a finance committee meeting earlier this month the deadline is "one of the biggest issues we're running into right now."

Meyer is hopeful the deadline will be extended, arguing money should be carefully allocated and not rushed out ahead of an arbitrary date. He said the looming cut-off did not factor into the county's interest in purchasing the Sheraton.

"We're not intending to take any dramatic steps to push money out the door just to meet that December 30 deadline," Meyer said. "The one caveat is that may change as we get closer to December 30 if there is no extension. This is something that's needed urgently by the community, and that's what's driving the urgency more than any funding stipulations or legal requirements."

In May, the state asked for 85% of New Castle County's allocation ($275 million) arguing, in part, that the county would not be able to spend all of the money in time. State and county officials have both acknowledged the state's infrastructure is better suited to distribute the vast sums in a short period of time.

Smith and the county's finance team had been working with the state's Office of Management and Budget since June to figure out the county's proportionate share of the state's COVID-19-related expenses.

Two weeks ago, the county announced plans to give the state $136 million, roughly 42% of its CARES Act funding.

The money will go toward the unemployment insurance trust fund, the state's testing and contact tracing programs, an enhanced rent and utility program, emergency loans for hospitals and support for child care centers.

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Previously, the county announced commitments to contribute to statewide initiatives such as the DE Relief Grants program, which is providing $150 million to Delaware small businesses and nonprofits; and the Delaware Nonprofit Support Fund, which is covering $25 million of new costs spurred by COVID-19. It also made a $40 million investment in the Delaware Housing Assistance Program and partnered with the state on early testing.

On its own, the county earmarked $10 million for resources and services "to decrease healthcare inequities" caused by the pandemic and $6 million to support "hero pay" and other needs of first responders.

Grants created by the county support needs like distance learning, innovative COVID-19 responses and resources to combat food insecurity related to COVID-19.

The majority of the money spent by the county so far has gone toward the grants. The largest was a $4.4 million payment to the city of Wilmington. St. Francis Hospital has received $895,000, and ChristianaCare has received $718,300.

The county has also spent money on things like communication equipment ($1.7 million), medical and safety supplies ($692,229) and personal computers ($689,402).

The county does have some federal money available that is not tied to the Dec. 30 deadline. The federal Department of Housing and Urban Development announced in June it was granting New Castle County, Wilmington and the state a total of $4.2 million to assist with housing vouchers and homelessness relief.

The HUD money can be spent over the next six years, according to Carrie Casey, manager of the Division of Community and Housing.

Lt. Gov. Bethany Hall-Long gives out Narcan, the overdose-reversing medication, along with food and supplies at Hopes & Dreams Peer Resource Center, in Dover on Tuesday.  Social service agencies and outreach workers are coming together in an initiative combining service with the Department of Health and Social Services to identify and assist Delaware's most vulnerable population bringing supplies and services during the coronavirus outbreak.

'We've never worked so hard'

Since the beginning of the pandemic, government officials have used hotels and motels to house those who are either experiencing homelessness or have nowhere to distance from family members who have been exposed to COVID-19.

Renee Beaman, director of the Division of State Service Centers, said her team has placed about 1,500 people in New Castle County in emergency housing since March. That's 30% to 40% more than in a typical year, she said.

"We've never worked so hard than in the past seven months," Beaman said. "We're inundated but we're handling it well."

BACKGROUND: A Delaware hotel is helping house some of state's homeless residents amid coronavirus

As hotels reopen and libraries, day centers and other facilities remain restricted, space is starting to dwindle. The county expects an increased number of residents will face housing insecurity in the coming months.

A task force studying the impact of COVID-19 on vulnerable populations, recommended the county find more ways to provide emergency housing through partnerships with additional hotels or by purchasing vacant property that could be converted.

Those on the front lines have found hotels to be an effective place to isolate and quarantine vulnerable populations, while allowing workers to bring resources directly to a large group of people and learn more about their needs.

Rita Landgraf speaks at an atTAcK Addiction press conference at Legislative Hall in Dover.

"This is a public good, not only protecting this most vulnerable population, but in doing so, we protect all of us from the vulnerability of viral spread," said Rita Landgraf, a former secretary for the state health department who was brought back to lead outreach during the pandemic.

"In order to do prevention, we need this level of resource."

On varying scales and with varied results, states and municipalities across the country have launched programs to buy hotels and motels to convert to homeless shelters for use during the pandemic and beyond.

The largest is a statewide effort in California backed by about $800 million in CARES Act funding. Through Project Roomkey, which evolved into Project Homekey, the state has sheltered 22,203 people in temporary hotels and funded 5,076 new units, according to the Mercury News. California has an estimated homeless population of 150,000.

Casey said organizers of Project Roomkey told her one of the main issues they have encountered is people becoming too comfortable in temporary housing. She said an emphasis must be placed on working toward a permanent housing solution from day one.

The Sheraton site presents its own challenges. It's the only building between the highway and Nonesuch Creek, a tributary of the Christina River, and sits on a floodplain. The nearest bus stop is on Route 141, at least a quarter-mile away.

Councilman Jea Street voiced some concerns regarding the logistics of the county's plan to buy a hotel and convert it to a homeless shelter. He, and all of his colleagues on New Castle County Council, voted to approve the county's bidding effort Tuesday night.

"I don't know how you do this without being holistic in including a discussion about the cost of operations, including a discussion about the cost, where the services are going to come from and how they're going to be provided," Councilman Jea Street said.

When asked about the hotel auction at his Tuesday press briefing, Gov. John Carney said there is some concern about the location because there are no nonprofits near it that can assist in providing services.

"What is the long-term plan? I'd like to learn more about what that long-term plan actually is," Carney said. "But the idea of concern for homeless populations and what you do in a COVID situation is obviously one that was responded to aggressively."

Contact Brandon Holveck at bholveck@delawareonline.com. Follow him on Twitter @holveck_brandon.