Government

Mayor: Cedar Rapids must decide whether to sell city-owned hotel

City bought foreclosed hotel that's now the renovated DoubleTree by Hilton

Cedar Rapids mayor Ron Corbett gives the annual State of the City address at the DoubleTree Hotel and Convention Center in Cedar Rapids on Wednesday, Feb. 24, 2016. (Adam Wesley/The Gazette)
Cedar Rapids mayor Ron Corbett gives the annual State of the City address at the DoubleTree Hotel and Convention Center in Cedar Rapids on Wednesday, Feb. 24, 2016. (Adam Wesley/The Gazette)

CEDAR RAPIDS — In the near future, Cedar Rapids officials must decide whether to keep or sell the city-owned hotel operated as DoubleTree by Hilton, into which the city poured more than $40 million, Mayor Ron Corbett said Wednesday. City Hall purchased the old, foreclosed hotel building and invested heavily to revamp it. Now it’s paying dividends, Corbett said. The question is if the city should continue to own it.

“We are thrilled with the results, but it was never our goal to own the hotel long-term,” Corbett said, during his annual State of the City address, sponsored by the League of Women Voters. “Owning a hotel doesn’t really fit the core mission of city government.”

Corbett said the decision may still be a couple of years out, or more, but it is one the city will have to make. It’s also one the city will need to take its time to make given the complexities of a hotel intertwined with a 100,000-plus square-foot convention center and 8,000 seat arena.

The city purchased the rundown, 275-room, once privately-owned Crowne Plaza Five Seasons Hotel from a creditor in 2010 for $3.5 million and remodeled it.

The purchase came as the city was also spending $85 million to renovate the adjoining city-owned U.S. Cellular Center and building the convention center. Given the other projects, it wouldn’t have made sense to leave the hotel dark, Corbett said.

In 2011, the city signed a 10-year contract with an option for 15 years with Hilton Worldwide Inc. to run the DoubleTree. Under the contract, Cedar Rapids could sell the hotel after five years, which was later extended by two years. Hilton Worldwide would have the first right to match any offer on the hotel, under the contract.

The DoubleTree is now beating occupancy goals and the arena is drawing 175,000 per year, Corbett said.

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“If things are going well, some people will say, why get rid of it, while others will says now is the time to do it,” Corbett said.

It’s still up in the air, he said.

Owning the hotel also comes with baggage.

Cedar Rapids still has $44 million in outstanding debt on the hotel, according to city spokeswoman Maria Johnson.

Moody’s Investor Service called Cedar Rapids’ ownership of the hotel and convention center a “risk” in a report downgrading the city’s bond rating a notch from Aaa to Aa1 in 2014. The agency gave the Aa1 rating again in 2015, again calling hotel ownership a risk.

In the 2014 report, Moody’s estimated the annual hotel budget at $15 million with a projection of net profit in fiscal 2014, although it did not provide additional insight in the 2015 report. Moody’s noted the hotel hadn’t pressured the city’s general operations but was risky because the city would be responsible for addressing cost overruns.

Johnson declined to provide more detail about the hotel’s metrics, saying it is proprietary information.

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