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Steamboat Springs City Councilman Jon Quinn called the Iron Horse Inn a "money pit" Tuesday night as council members discussed what to do with the facility purchased in 2007 and operating at a significant annual loss.
Operator contract could minimize Iron Horse losses
Thursday, August 20, 2009
Steamboat Springs — Jon Quinn said at Tuesday's Steamboat Springs City Council meeting that the Iron Horse Inn was one of two issues that spurred him to run for election and put him in his seat on the council.
Two years later, the city's purchase of the inn is a persistent headache. The property is projected to lose $450,000 to $500,000 this year. On Tuesday, council members unanimously directed the city to negotiate a contract with New West Inns - owners and operators of the Comfort Inn in Steamboat - to manage the Iron Horse Inn as a nightly rental facility. The arrangement is expected to cut the inn's annual loss to $175,000.
"It's truly the money pit now," Quinn said.
A projection for city management of the inn showed a $150,000 loss, but Deputy City Manager Wendy DuBord recommended contracting with New West Inns.
"Quite frankly, it's not our core business," DuBord said.
A previous City Council purchased the Iron Horse Inn for about $4 million in 2007, in an effort to ensure the availability of affordable housing for city employees at a time when property values and housing costs were soaring. The city used certificates of participation to finance the purchase, an additional $1 million originally planned for renovations and issuance costs of $235,000.
The planned purchase was a hot-button campaign issue in the 2007 City Council election that saw all incumbents defeated and five new members join the council. After the election, the new council hoped to divest itself of the property but discovered that such a move would not be wise. Because of what is essentially a prepayment penalty, the $6.5 million needed to immediately pay off the certificates was significantly higher than the $5.3 million borrowed for the purchase.
Instead, City Council decided to save the $1 million originally intended for renovations. The inn's previous manager and staff ran the inn and the city nearly broke even through its first ski season. In 2008, the city contracted with Resort Group to manage the property as work force housing and established a committee to explore redevelopment opportunities.
This past winter, a bedbug problem resurfaced at the Iron Horse Inn. Mountain Resorts Realty, a division of Resort Group, told the city it wanted out of its contract to manage the facility because of the bedbug problem and began moving its employees out in February. Seasonal city employees also have since left the Iron Horse Inn, which is "virtually vacant" as of two weeks ago, according to a city staff report.
"We just don't have any tenants," DuBord said.
Redevelopment option
City Council President Loui Antonucci said allowing New West Inns to operate the Iron Horse as a nightly rental facility allows the city to offset the costs of owning, operating and paying the debt on the facility. This year's debt service on the Iron Horse Inn is $339,103, according to the city's 2009 adopted budget. Annual payments on the inn continue through 2032 and are as high as $480,300 in some years.
"We obviously would like to defray some of those costs," Antonucci said.
Quinn said he is sour on the idea of a city-owned hotel eating into the profits of private businesspeople.
"It's definitely troubling," he said. "It was purchased for affordable housing and now we're directly competing with private enterprise."
Quinn said he'd like the city to divest itself of the property as soon as possible. Steamboat resident Bill Jameson asked at Tuesday's meeting why the city doesn't raze the inn and build something else. Both options are problematic because of the way the city's purchase of the inn was structured. The certificate of participation holders, not the city, technically own the inn until it is paid off. The Steamboat Springs Building Corp. was created as an intermediary between the city and the certificate of participation holders and the board of that entity would have to sign off on the city's plans for the property.
Antonucci said redevelopment remains the long-term goal and that he expects the Steamboat Springs Building Corp. would sign off on such a redevelopment. Redevelopment is at least three years away, though, Antonucci said. A committee of city employees, local residents and council members exploring redevelopment options next meets in September.
"Everything is still up in the air," Antonucci said.
Antonucci said the property on the Yampa River and Yampa River Core Trail in the 300 block of South Lincoln Avenue is underutilized but that it is challenging to figure out how to feasibly create a plan for the site that accomplishes the original goal of providing affordable housing.
Comments
JLM 3 years, 9 months ago
The real question is this --- is the current decision-making in any way superior to the flawed logic which got the City of SBS into the deal in the first place?
"There is damn little useful education in the second kick of a mule!"
I predict that if this plan is allowed to go forward, then the total number a year from now will be even steeper. Sometimes the right thing to do is to retreat and safeguard your liquidity.
We have not heard the end nor have we paid the final measure of folly on this deal.
The great lesson --- governments cannot compete effectively and win in private sector enterprises.
addlip2U 3 years, 9 months ago
" The arrangement is expected to cut the inn's annual loss to $175,000." This " laughable monster" will probably never make any money or return on the investment. Would leveling the building with the ground cut the loss further?
Fred Duckels 3 years, 9 months ago
I understand that the coumcil came in the back door on this deal and outsmarted the developers. The financing arrangement is unbelievable unless they wanted to prevent anyone from selling at a later date. Seems a good idea to not elect any more socialists to the council. We have had enough visionaries for one decade.
Scott Wedel 3 years, 9 months ago
The debt service currently costs $339K a year.
So presumably operating it as a motel will create an operating profit of about $160K that can be used towards service the debt.
So it should do better standing than as a pile of rubble.
The tricky part of this possible contract is that the current condition of the building is probably not sufficient to start operating it as a motel tomorrow. And so the City will have to spend money to bring it up to a reasonable condition. And they'll do that in a way that is not counted as an operating expense.
I think it is quite likely that they will find a way to spend another $300K or so in order to try to make $160K this year. And they'll define that as a capital improvement that, in theory, adds $300K in value to the property so it is not counted as an expense.
So operating it will cost them $140K or so in terms of cash flow which is somehow supposed to be a good deal for the taxpayer.
Scott Wedel 3 years, 9 months ago
The smart thing for the City to do would be to go out and start buying back those bonds. The restrictions and limitations on the property are a pain for the City, but the bondholders just care about the interest rate.
And they do trade http://emma.msrb.org/SecurityView/SecurityDetailsTrades.aspx?cusip=857885AY3
We certainly have not heard the end of this because the $339K is interest only. Over the next 5 years it quickly grows to $475K a year when it also starts to include principal.
And in the bond disclosure is the statement that the 10 year old building is in good condition and all but nine of the units in the older building had been remodeled in the past year. So how did the building go from good condition to a pile of crap in one year?
The City of SS has a miserable history of making real estate investments (see remodeling SS airport terminal right before the sole commercial airline serving it went bankrupt) because they are made during booms and use projections of more of the same to justify the project.
But the Grand County Housing Authority seems to have the exact opposite history and acquires property at good prices.
We don't have to degenerate into a political philosophy argument because we agree that the City of SS is really bad at it and should never be allowed to do anything like this again.
freerider 3 years, 9 months ago
This is the same city council that wants to jump in bed with 700 club and put 4 to 5 thousand more cars on the road North of town without any concept of the traffic situation , 40 years of let the next guy fix it mentality is what I've seen in Steamboat ...wow !!
Scott Wedel 3 years, 9 months ago
I have sympathy for the City in regards to traffic because if SB 700 is not approved then when growth occurs in Hayden and Stagecoach then no one is paying for traffic studies or traffic improvements within SS.
It goes to the question of whether SB 700 increases local growth, or whether local growth is going to occur regardless and the only question is where it will occur.
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