Plans for much-anticipated Lake Minnetonka hotel in Excelsior withdrawn

After years of planning, a proposal for a much-anticipated Lake Minnetonka hotel has been nixed.

The developer withdrew his application this week for the 58-room boutique hotel in Excelsior — initially pegged as the first hotel on the Twin Cities' busiest lake in 50 years — saying in a letter to the city that construction costs were too high to go forward.

"I think it's a loss for the city," Mayor Mark Gaylord said Friday. "It would have returned the city to its historic roots."

The hotel, a controversial project from the start, nevertheless was part of Excelsior's push to capitalize on Lake Minnetonka's popularity.

For more than 15 years, developers have dreamed of resurrecting the era of grand hotels that once dotted the lake, drawing wealthy city residents beginning in the 1880s. At the era's peak, about 40 hotels were on the lake.

By the early 1900s, however, many of them had shut down either because of slow business or fires. The last was torn down in 1964.

In recent years, attempts to build a Lake Minnetonka hotel fizzled under financial constraints. In Mound, a study concluded the city shouldn't pursue one, saying it wouldn't work economically. The city shifted to restaurants, retail and entertainment instead.

But a 92-room boutique hotel, the Landing, is going up in Wayzata and will open in 2017. It is part of a major 14-acre redevelopment project, the Promenade of Wayzata, that includes senior housing, retail, offices and condos.

Developer Steve Bohl said it helps that Wayzata has easy access to downtown Minneapolis off Interstate 394 and is close to several corporate headquarters, enabling the hotel to draw on business travelers during the offseason.

"The market out there supports it," he said. "Wayzata … has really turned into a destination area to visit. I think our occupancy in the summer will be just packed."

Developers have pursued a hotel in Excelsior since the early 1990s, but faced questions over whether it could stay open outside the summer months.

Developer Charlie James, who planned the hotel for a grassy lot near the shoreline that he has owned since 1976, reworked plans over the years to build a landmark hotel he said would be architecturally significant — with a ballroom, restaurant and spa, and detailing reminiscent of the old hotels.

The plans initially divided city leaders. The Heritage Preservation Commission voted to block the project for its size and scale, saying it was too big for the quaint downtown. But the City Council overturned the decision in 2013, saying the hotel would boost tourism and revenue.

James adjusted the plans when bids came in over budget and a hospitality company backed out. Final approval deadlines were extended several times over financial figures and tax-increment financing plans.

This year the City Council put a June 1 deadline on the project, and then extended it to Dec. 7. This week James, who declined to comment Friday, notified the city that he was withdrawing the application.

"Simply put, the costs of construction of the current design are too high to be spread over so few rooms," James wrote. "We have been focused on overcoming this obstacle and have investigated many, many scenarios by which the project might proceed.

"Unfortunately, our ability to resolve this issue cannot be synchronized with the applicable statutory timetables."

James said in the letter that he will have more details next week about "what might lie ahead" for the site.

"It's unfortunate," Council Member John Beattie said. "Not all, but most people were excited about the prospect of the hotel."

The city had discussed enacting a lodging tax if the hotel moved forward, which could have gone toward street beautification projects. Tax-increment financing from the project would have funded improvements to the city's port and park.

"It's a big loss for the lake," Gaylord said. "We've put a lot of energy into this so it's disappointing it's come to this conclusion."

Kelly Smith • 612-673-4141