Downtown Asheville's historic Grove Arcade under proposal to convert apartments to hotel

ASHEVILLE - After a legal back-and-forth between the city of Asheville and attorneys representing the Grove Arcade leaseholders, the city has deemed an application to convert 35 of the historic building's apartments to a hotel "incomplete." But a city spokesperson clarified that no city consent is required for the project, despite the city being the owner of the building and "questioning" whether it could be done without their consent.

Conceived as "the most elegant building in America," the 1929 building designed by G.W. Grove is owned by the city of Asheville. However, after obtaining the building in 1997 — when the building was surrounded by a chain-link fence and boarded up — the city signed a 99-year lease with the Grove Arcade Public Market Foundation, a nonprofit with the purpose of restoring and preserving the building. The Grove Arcade reopened in 2002 after millions in renovations, a project that was aided from a Duke Energy-affiliated company that sublet in the building.

The plan to convert 35 apartments in the Grove Arcade to a hotel was first reported by Asheville Watchdog on April 10 with the city processing the application on May 23, according to the city development portal. However, the application has not come without legal questions from the city of Asheville.

In an April 25 letter sent to City Attorney Brad Branham, development attorney and project representative Jesse Swords with Allen Stahl and Kilbourne indicated that the city had "questioned" whether a new zoning permit could be submitted for the Grove Arcade without the city's permission as the owner of the building.

Because the lease agreement hands development rights to both the Grove Arcade Foundation and its subletters, Swords wrote another letter May 22 advocating for the Planning and Urban Development department to "accept our client’s application for Level I review, and approve it, as is."

The lease agreement was modified by City Council in 2018 to allow the foundation to sublet the building to Grove Arcade LLC for $10 a year. The company is jointly run by the Chicago-based real estate investment firm Northpond Partners and the Asheville-based Dewey Property Advisors. The company is tasked with maintenance, upkeep, marketing and management of the historic building and is the company filing the hotel conversion.

"With respect to the Grove Arcade, specifically, the operative lease and sublease provide ample evidence of Grove Arcade Asheville’s authorization to submit the Small Hotel application," Swords wrote in the April letter.

The zoning permit, designed under the 2022 Hotel Overlay — where small hotels are allowed in the Central Business District — would allow certain residential units to be "rented on a flexible basis when not occupied by their owners or long-term residents," Swords wrote, suggesting the hotel would have a similar management structure to short-term rentals.

City consent 'not required' for conversion

Current development documents do not indicate the exact rooms that would be converted to a hotel, but do note that "no more than 35" will be proposed in the project. The project proposes to pay $3,000 a room to the city's Housing Trust Fund or Reparations Fund under a proposed public benefits table, according to development documents.

City spokesperson Kim Miller said that the city staff now believes consent is not required for the project.

"Pursuant to the lease agreement, and related documents, City consent, as owner of the property, is not required for a conversion of this nature. An appropriate review and approval process, however, remains in place," Miller said in a July 8 email. "The extent and specifics of such can only be determined upon the submission of a fully completed application."

Miller told the Citizen Times July 19 that the application has been deemed "incomplete" as "staff are working to obtain further information from the application in order to perform the requisite review."

The Grove Arcade is one of two Level I hotel applications that have recently been received to convert specific residential units in a building to a hotel under the city of Asheville Hotel Overlay. It's also not the only application that has raised legal questions.

At 17 N. Market St., a developer recently proposed to convert some units in the building to a Level I hotel after receiving notices of violation for prohibited short-term rental activity. The developer and the owners of the short-term rental units have since faced a lawsuit from building residents who said they were not told of the application to convert most of the building to a hotel and expressed frustration over the violation of city ordinances. The city has deemed that application as "incomplete" until all homeowners in the building file affidavits in support of the conversion.

Will Hofmann is the Growth and Development Reporter for the Asheville Citizen Times, part of the USA Today Network. Got a tip? Email him at WHofmann@citizentimes.com.Please help support this type of journalism with a subscription to the Citizen Times.