Cedar Rapids council cements commitment to its downtown hotel

CEDAR RAPIDS - The City Council Tuesday night agreed to take on up to $35.4 million in bond debt to pay for its purchase in March of the downtown hotel, for the hotel's renovation, for interest and other costs and for the construction of a skywalk across First Avenue from the hotel to a proposed new parking ramp.

City officials listed the hotel-related costs as these: $3.2 million for the purchase; $21.8 million for renovation; $1 million for carrying costs during the period when the hotel remains closed, prepares to reopen and reopens in the fall of 2012; $2 million for a new skywalk; and interest charges.

John Frew, the city's consulting project manager, noted that interest charges could range from $2 million to $3.5 million. He said the city will take on bond debt for the hotel-related matters a step at a time, so the $35.4-million debt figure approved last night was a high end of what might be total debt of $32 million or less, he said.

At the same time as the council cemented its financial commitment to the hotel renovation project, the council also agreed to file a formal application with Hilton Worldwide to secure the Doubletree by Hilton franchise for what the city now calls the Cedar Rapids Convention Complex Hotel.

Frew told the council he expected to be back on June 28 to announce “the wedding” between the city and Hilton and to prepare to fly the franchise flag of Doubletree by Hilton on the shuttered but soon-to-be-renovated hotel.

City Council member Monica Vernon, who chaired last night's meeting as mayor pro tem, said the council had taken a “visionary step” when it agreed to buy the long-struggling Five Seasons Hotel from its creditors with a mind to returning it to its former, upscale self.

Vernon said the council decided it made sense to buy the 32-year-old hotel and renovate it as the city was renovating the U.S. Cellular Center arena attached to the hotel and building a new convention center next door. The arena and convention center project, called the Convention Complex, is a $75.6-million project in addition to the hotel project.

At the same time, Vernon stressed that the city's interest is to sell the hotel once renovated.

City Manager Jeff Pomeranz told Vernon that the hotel renovation along with the new Convention Complex will put the city in a good position to sell the hotel if the council decides it wants to. But the value of the hotel will depend on the hotel's success and the success of the Convention Complex, he said.

“We need to move forward so we have an asset we can sell,” Pomeranz said. “ … We probably don't want to be in the hotel business forever.”

Lee Clancey, who was the city's mayor from 1996 through 2001, applauded the council last night for what she said was a “brave move” to take on the “temporary” hotel purchase and its “permanent” renovation as well as the Convention Complex project even as the council continued to work to recover from the 2008 flood.

Clancey said a city the size of Cedar Rapids needed a “first-class” hotel and convention complex if was going to have a “healthy” downtown and if was going to compete against other cities.

Frew explained to the council how he and others on a City Hall evaluation team courted different hotel franchises, including Doubletree by Hilton, Sheraton, Radisson and Hyatt. Ramada and Drury hotels also expressed interest.

Frew said Doubletree by Hilton was the “most flexible” in its demands about the hotel's renovation and he said Hilton brings with it an attractive customer reservation system. Frew said the city's proposed hotel operating budget anticipates charging $10 a night less than the Marriott Hotel on Collins Road NE with an expectation of an occupancy rate of 64 percent.

City Council member Kris Gulick called Doubletree by Hilton a “good choice,” and he said it sounded as though the franchise would help the city hit the “sweet spot” to maximize a return on its investment.

The city-owned hotel has been closed since February. In late June and July, the hotel's contents will be put up for public sale in preparation for the hotel's renovation. It is slated to reopen in the fall of 2012.