Is selling the hotel a smart play?
24 Hour Dorman
The city-owned hotel, arena and convention complex were back in the news this week, which inevitably led to talk by residents and elected officials about selling the DoubleTree Hotel.
The city, it’s been argued countless times, shouldn’t be in the “hotel business.” But can it afford to sell?
It was The Gazette’s B.A. Morelli who pulled a gem from the City Council’s “consent agenda” showing a $569,000 payment to cover operating losses for the U.S. Cellular Center and Convention Complex and a contribution to the facilities’ capital improvements fund. The facilities are attached to the hotel.
The consent agenda is a big bundle of city business, liquor licenses, bills, etc., the council approves all at once with no discussion. It was approved without a peep Tuesday. God forbid the council would take a few minutes, as it spends a half-million bucks, to update the community on the status of massive public facilities it bankrolled.
And the payment is not bad news. The city is keeping its promise to set aside an increasing percentage of convention and arena revenues for future improvements, in this case $320,000. That’s a much better idea than letting the joints go to pot after tens of millions of dollars were invested in their futures.
The rest, roughly $249,000, represents operating losses for the arena and complex. Nobody likes to lose money, but back in 2011, city officials projected $500,000 annual losses. Arenas and convention centers are amenities built to bring visitors, not make profits. City leaders hoped, someday, hotel revenue would cover those losses.
But the city borrowed $44 million to fix up the hotel. So, for now, hotel revenue, along with hotel/motel taxes and TIF incentives, is used to pay down bonded debt. That debt won’t be retired until 2032.
Which brings us back to selling the hotel, the persistent insistence the city dump the one piece of this three-piece band that makes money.
As City Manager Jeff Pomeranz points out, the hotel currently is worth less than the roughly $40 million in debt still owed on its renovation. So unless someone rides in to buy it for more than its worth, it will take several years of bond payments before its value exceeds debts.
If the city sells the hotel, it likely forfeits its future chance to cover arena and convention operating losses with hotel revenues. So while the privately owned hotel profits, the city subsidizes its adjoining facilities. And operating losses have been smaller than anticipated, according to City Finance Director Casey Drew, in no small part because of synergies and savings achieved through joint management of all three facilities by Hilton. Sell the hotel, and joint management benefits may go away.
Maybe all of this gets worked out in a sweet sale deal, or maybe it doesn’t. But when city leaders fall back on the politically safe scenario of a hotel sale, someday, they also should explain how, exactly, that’s going to work. Because it’s entirely possible keeping it is a smarter long-term play.
Speaking of explaining, quit putting stuff on the consent agenda that should be discussed in public. It looks bad, and conspiracy theories feed on silence.
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