A sign from Resort Group on a truck in back of the Iron Horse Inn on Thursday informed its employees to pack their towels with them when they move out of the inn. Resort Group has informed the city they no longer want to manage the facility and started moving their employees who were living there.

Photo by Matt Stensland

A sign from Resort Group on a truck in back of the Iron Horse Inn on Thursday informed its employees to pack their towels with them when they move out of the inn. Resort Group has informed the city they no longer want to manage the facility and started moving their employees who were living there.

Bedbugs, unsatisfied manager among Iron Horse Inn challenges

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What's a bedbug?

According to the Harvard School of Public Health, bedbugs are nocturnal "nest parasites" and "small, wingless insects that feed solely upon the blood of warm-blooded animals."

When hatched, they are about the size of a poppy seed; grown bedbugs are about a quarter of an inch long. According to the Harvard report, bedbugs painlessly drink small amounts of human and animal blood, preferably while hosts are asleep. They can produce skin lesions similar to mosquito or flea bites and are not known to transmit any infectious diseases.

When not feeding, bedbugs hide in various cracks and crevices - their favorite hiding spots are bed frames, mattresses and box springs. Bedbugs can spread to new dwellings by hiding in moved luggage, furniture, clothing, pillows, boxes and other objects.

- Brandon Gee

On the 'Net

For more information about bedbugs, including their biology, health significance and guidance on managing an infestation, visit the Harvard School of Public Health Web site.

The city's purchase of the Iron Horse Inn initially was praised as an astute move to lead by example and secure affordable housing for city employees and other local workers.

City officials now privately joke that the best solution might be to empty the building and burn it down.

A reoccurring bedbug problem is among the headaches the city faces at the former motel in the 300 block of South Lincoln Avenue. Mountain Resorts Realty, a division of Resort Group, has told the city it wants out of its contract to manage the facility and began moving its employees out this week.

"The bed bug infestation at the Iron Horse Inn is an extremely difficult and unacceptable situation for the Resort Group companies," Steamboat attorney Ward Van Scoyk, representing Mountain Resorts Realty, wrote in a letter to City Attorney Tony Lettunich. "Due to the significant possibility of substantial damages and irreparable injury, Mountain Resorts Realty has determined that it is necessary to terminate its relationship with the Iron Horse."

The Iron Horse Inn was mostly deserted Thursday except for a few city employees and workers removing snow and ice from pathways - and a sign from Resort Group telling its employees to take their towels with them when they leave.

Interim City Manager Wendy DuBord said the city opposes Mountain Resorts Realty's request to terminate its contract with the city, but hopes to reach an amicable solution with the company. DuBord referred all other comments to Lettunich.

DuBord also confirmed that bedbugs were found at the Iron Horse Inn about a year ago when it still was under city management. DuBord said bedbugs are a common problem in residences and lodging establishments, adding that the Iron Horse Inn might have been particularly vulnerable because it houses a temporary and transient workforce.

According to the Harvard School of Public Health, bedbugs "became relatively scarce during the latter part of the 20th century" but are experiencing resurgence and "are increasingly becoming a problem within residences of all kinds including homes, apartments, hotels, cruise ships, dormitories and shelters."

There have been subsequent bedbug reports since management of the Iron Horse Inn transferred to MR Realty last year. City Facilities Manager Bob Robichaud said the last report he received was in December. If the problem has returned, Robichaud said, he hasn't been made aware of it, but Van Scoyk's letter indicates that the problem has persisted.

Prior to this week's move, Resort Group housed a collection of employees including front desk managers, maintenance staff and housekeepers in 36 rooms at the Iron Horse Inn. The employees came from Michigan for the winter through a partnership with the Grand Hotel on Mackinac Island, according to Van Scoyk's letter.

"Cross-contamination into managed units, or even the perception of the possibility of cross-contamination in the minds of owners and guests, would have a disastrous effect on Resort Group and its business," Van Scoyk wrote. "Resort Group has never been associated with a bed bug problem and has not experienced bed bugs in any of its nightly rentals. It cannot take the risk that this will happen."

'Nothing but problems'

Resort Group Vice President Mark Walker could say only that the company is not currently in breach of its contract and MR Realty continues to manage the Iron Horse Inn. Like DuBord, he also expressed his wish to reach some sort of compromise with the city.

"It is my opinion that the bed bug problem is sufficient grounds for Mountain Resorts Realty to unilaterally terminate its agreement with the City regarding the Iron Horse Inn," Van Scoyk wrote in his letter to Lettunich. "However, it is my client's preference to reach a mutual agreement with the City regarding termination and transition of the property to another manager."

Noah Rector, a city bus driver who lives at the Iron Horse Inn, said one of his friends, who since has left Steamboat, had scars on his arms from being bitten by the tiny nocturnal pests.

"It's kind of concerning that they're moving these people out," Rector said Thursday. "This place - we've had nothing but problems since we moved in here."

Rector said leaks, a hole in the wall, toilet problems and uncovered electrical outlets are among the issues he has dealt with since moving into the Iron Horse Inn. While he had nothing but praise for the on-site manager, Rector said it is otherwise hard to bring problems to anybody's attention because of the manager isn't always available and the Iron Horse no longer maintains a staffed front desk.

"They need to tear it all down and do something new with it," he said. "It's pretty bad."

The quarters aren't exactly his idea of affordable housing, either. Rector and a roommate pay $900 a month for a two-bed unit with a mini-fridge, stove and microwave. Rector said Iron Horse residents also are taxed on the subsidy they receive from the city, and would lose an end-of-season bus driver bonus if they moved out.

Interim Finance Director Bob Litzau said the unit's rent is valued at $1,200 and therefore the resident whose name is on the lease is taxed on a $300 subsidy to comply with federal tax law.

"If they avail themselves of the reduced rent at the Iron Horse, then they only get half of their year-end bonus," Litzau said. "If they move out in the middle, they still only get half."

Regrets

"I don't know what we're going to do with it," City Council President Loui Antonucci said Thursday of the Iron Horse Inn.

A previous City Council, which included Antonucci, purchased the Iron Horse for about $4 million in November 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 it 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, contracted with Resort Group to manage the property and established a committee to explore redevelopment opportunities. Antonucci said redevelopment remains the long-term goal.

Antonucci said he regrets the purchase today. He added that the city got a fair price at the time, and said since the city was renting houses for seasonal workers, council members thought it made sense to just buy something. The Iron Horse Inn, an underutilized piece of property on the Yampa River and Yampa River Core Trail, was attractive.

This year's debt service on the Iron Horse Inn is $339,103, according to the city's 2009 adopted budget. Councilwoman Cari Hermacinski, one of the sharpest critics of the Iron Horse Inn purchase during the 2007 campaign, said the city needs to work quickly to identify alternatives in anticipation of losing the property's most significant source of revenue. Under the city's contract with Resort Group, the company leases 37 of the inn's 52 rooms. The remaining rooms are reserved for city employees.

To reach Brandon Gee, call 871-4210 or e-mail bgee@steamboatpilot.com

Comments

mtroach 5 years, 10 months ago

"If anything, the people staying there should be getting a rent cut and a rebate!"

or a clean room, and a doctors apointment.

Yuck!!

I never wanted to be a landlord, now my elected officials have made me into a slum lord. Its disturbing that these conditions are deemed acceptable for public affordable housing.

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Steve Lewis 5 years, 10 months ago

I meant - What are the OTHER city employees experiencing?

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carlyle 5 years, 10 months ago

From whom did the Council purchase the Iron Horse Inn? And how long did the previous owner own the building?

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Steve Lewis 5 years, 10 months ago

When the City withholds $1 million of needed renovation, the City should expect its property will be substandard. Duhhhh.

Resort Group has experienced its own problems with its oversized, underemployed workforce, as documented in the Pilot's story on Lift-Up earlier this year. This move is obvioulsy related to R.G. workforce cuts.

$900 a room is too much. What are the city employees experiencing?

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Fred Duckels 5 years, 10 months ago

Steve, It seems that if you do gooders come up with problems, it is finger pointing time. The rest of us get to pick up the pieces. If you were in the private sector and made a mistake like this, justice would be swift. The first rule in my company is "no excuses-no finger pointing". Now it is either the city or Resort Group, where do you and your pals come in?

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Steve Lewis 5 years, 10 months ago

I'd say I made a logical case that explains the poor condition of the property. So I guess I would "come in" with the folks who were planniing on doing the needed renovation.

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JLM 5 years, 10 months ago

Government ownership of free market enterprises always leads to a waste of public funds. The Iron Horse saga is a classic --- overpaid, undermanaged and horrible conditions. Bedbugs? Freakin' bedbugs!

This is exactly why governments should not be in the real estate business, they can't even manage bed bugs.

Governments cannot compete and win in enterprises which must compete with the vigor of capitalism and capitalists.

We should all be collectively wise enough to prevent this from happening. In this instance any honest person would conclude that government intervention is NOT the answer.

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Scott Wedel 5 years, 10 months ago

The $1 million renovations were not for basic repairs, that was to remodel it into fewer rooms that had kitchenettes. When it was purchased, the building was claimed to be in okay shape and not requiring $1M in repairs to fix toilets, holes in walls and eradicate pest infestations.

The Iron Horse purchase is and always was a complete disaster. The concept made no sense in that the community's need and desire for affordable housing never included buying a motel to subsidize housing for seasonal workers. The price was no deal as it was already renting monthly and the management offer made it cash flow neutral when not yet paying off principal or doing repairs. So no reason to believe the purchase price was any deal. And they bought it when the real estate market was at it's peak and they probably couldn't sell it for more than $3M today. And then the financing was possibly the worst arrangement ever because it does not allow paying it off to refinance or sell the property. No one ever finances a property like that. Even if the City didn't want to sell it then it might have been able to refinance it at this time of historic low interest rates.

And so now the City is spending a big chunk of money on motel rooms instead of on affordable housing for families and full time residents. It is this sort of incompetence in concept, purchasing, financing and now managing that destroys any credibility that the City has any clue at what they are doing when it comes to affordable housing.

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Scott Wedel 5 years, 10 months ago

I will add that this does not necessarily prove that government is inherently bad at housing. Grand County Housing has units including apts and they seem capable of making reasonable transactions and then managing their properties.

And the senior apts in Oak Creek have also been fine.

No it is the SB City that is so bad and that should not be a surprise because there is no apparent plan and no community buy in (why should community volunteers help the City run a motel for seasonal workers? More important to help residents).

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Steve Lewis 5 years, 10 months ago

Scott, The Iron Horse needed repairs when it was bought. Yes there was a bigger remodel in that budget, but it only makes sense that repairs would be also in that budget.

When a building leaks or has bug infestation, most people would say the owner was negligent. Its simply illogical to say the leak or bugs are because the owner never should have bought the property. Yes, the City has been negligent with this property.

The Iron Horse has been a politcal football, without a doubt. Priorities for it reversed with the election. With the change in leadership the Iron Horse project became a black sheep in the City's priorities. The article above is hardly an example of Steamboat's best effort. Steamboat's worst effort, that may be more accurate.

I thought you elsewhere liked the idea of government assisted rental programs? What's the difference between Ski Corp owning housing and a municipality owning housing?

My planning commission, including Hermacinski and Myllar, made the recommendation that Steamboat should be asking itself to do as much as it was asking the private sector to do in the housing effort. The Iron Horse was part of that effort. I just don't get what's wrong with that plan.

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Steve Lewis 5 years, 10 months ago

Brandon, Given the 2007 planning commission recommendation that the City make its own housing efforts, I asked Cari Hermacinski during the election how she could criticize the Iron Horse purchase. She replied that she criticized the "executive sessions" leading to the purchase. She never criticized the Iron Horse during her campaign.

So no, Cari was NOT a citic of the Iron Horse. I know it was hard to tell, but its true.

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JLM 5 years, 10 months ago

Perhaps the biggest indictment of the Iron Ho House deal was the quality of the decision-making and the timing.

Real estate consumes enormous amounts of capital and is subject to valuation cycles which are merciless. It has an investment cycle which is longer than the City Council's term.

This is exactly why governmental entities should stay out of business and particulary businesses which risk immense amounts of capital with attendant market, timing and management risks.

There are a great number of endeavors which are appropriate to the government sector and there are a great number of endeavors which are appropriate to the private sector.

It is when bleeding heart liberals who cannot compete themselves in these businesses harness the public purse for their venture capital that things go awry.

Even in the pursuit of otherwise lofty goals the public purse is not the right source of funding. Philanthropy is not a legitimate government endeavor.

The results speak for themselves.

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papafu 5 years, 10 months ago

Ok then. How about some ideas on how to deal with the situation.

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elphaba 5 years, 10 months ago

Charging $1,200 for one-half of a motel room (infested and substandard) is not doing anyone any favors. Adding insult to injury for those employees is having phantom income reported to the IRS. The "tax law" that the CIty is worried about is a result of their own overvaluation of the housing. They apparently were trying to make an Enterprise Fund break even so it's the employees who now have to pay! What kind of assistance is that????????

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JLM 5 years, 10 months ago

Harness the power of the market --- experience, knowledge, competence, profit motive --- by creating incentives to create the desired outcomes.

Want to create more affordable housing?

Provide tax incentives, favorable zoning, waivers of fees, free land and social equity (funds necessary to lower the break even cost of a project to allow it to be profitable at the desired level of rent or income). Hell, take a piece of the action just don't let the freakin' government run the damn enterprise.

The financial incentives allow the private sector to contribute its expertise at no cost to the endeavor.

When the correct incentives are offered, the market will respond. Everybody is paralyzed with the notion that somebody who actually knows what they are doing might make a freakin' buck in the process.

Who do you want running the show? Somebody for whom this is not their first rodeo or a bunch of feel good but inexperienced liberals? Think of it like a heart surgery and the heart is the public purse. You decide.

This is the same challenge facing the development of alternative energy which costs 2-3 X the cost of fossil fuels. I can assure you that T Boone Pickens is not trying to harness the wind because he is a philanthropist.

You can't simultaneously prod the private sector into action on socially redeeming projects while condemning its success. You gotta give an entrepreneur an opportunity to take a risk and make a buck and refrain from then engaging in class warfare against the entrepreneur class in America. [Now, those do nothing Wall Street knuckleheads who can't live on $500K per year, you can publicly behead them on the steps of the NYSE as far as I am concerned. Just kidding, I know that's against the Geneva Convention but you could send them to Gitmo, no? Nice island environment, palms blowing in the breeze and likely to be vacant shortly.]

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carlyle 5 years, 10 months ago

"Ubi est mea." some think to be the motto of Chicago. Perhaps that expression ought to be applied to the acquisition of the Iron Horse Inn by the city of Steamboat Springs. Somebody made a lot of money when the Inn was sold. Who were those people? More importantly, how long did they own the Inn before the sale? For you non-Latin scholars, "Ubi est mea" translates as "Where is mine"? RLM misses the point - the Iron Horse Inn sale was a fraud on the people of Steamboat Springs.

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Fred Duckels 5 years, 10 months ago

Equally inportant in this deal, is the financing arrangement. Who in Gods world signed off on this, did they get Lenny's last name. The city attorney should have noticed this immediately, if he did, then did the council,in their executive sessions overrule? Purchase of this is bad enough, but keeping us in the deal with no way out, doubles the folly. We are out of options with one exception, that is to bite the bullet and take the prepayment penalty. This may be the least painful.

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Fred Duckels 5 years, 10 months ago

The only reason that makes any sense for this financing arrangement, would be councils desire to make the deal non reversible. This would prevent future sales to unload the property.

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JLM 5 years, 10 months ago

Of course the IH sale was a fraud. Governments always pay more for everything. What is a mouse built to government specs?

A freakin' elephant!

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Scott Wedel 5 years, 10 months ago

Steve, It is quite logical to say that it is a mistake to buy a property with leaks and infestations if the new owner is not immediately able to fix issues that are causing further damages to the property. Since it was purchased so close to an election then the only way the City could have been sure that the problems were fixed were to make that part of the purchase contract. So yet another gross mistake in the saga of City and the Iron Albatross.

What is wrong with the SB City owning the Iron Albatross is that when the private sector screws up then that company screws something up and loses money then if the company goes down the tubes.

When government owns a property and screws it up then they always can spend more taxpayer money on the problem. And government is not an efficient allocator of money for return on investment, but allocates based upon what absolutely must be done and what is popular.

If providing housing for seasonal workers was such an important issue for the City then instead of buying the Iron Horse or anything else, the City should have put out to bid 3, 5, and 10 year contracts for seasonal housing for X number of workers. The guaranteed income of a multi-year contract could be used by existing motels to expand or new construction.

What to do about the Iron Albatross now? First, it needs to be recognized that the City has already lost at least $1M, probably closer to $2M, on the purchase between falling real estate prices, bad maintenance and now an awful reputation.

So then, what is allowed by the crazy financing contract? I've been told by top corporate lawyers that being trapped by a contract just means you don't have a good enough lawyer.

If it is too onerous to sell the Iron Horse then then The City should put it up for a 20 year lease and make that company responsible for everything and allow negotiating/arbitration for rent credits for money spent on improvements (but not for maintenance).

And separately, the City should request bids for providing seasonal housing for groups of 20 employees (so that different places could win part of the overall contract).

And I'd expect that the City would be disappointed in what the private is willing to pay to lease the Albatross, but that is the discipline of the free market as compared to incompetent free spending City that purchased it.

If the proposed lease for the Albatross is just too miserly then the City might consider letting some organization like Lift-Up to have it for basically free if they reserve 20 or so rooms for City employees. And maybe Lift-Up could raise the money and volunteers to repair it and then use it for emergency and reduced rent housing. For what Lift-Up spends on emergency housing this might be a cost effective way to help their clients So while the City would still be losing lots of money from the Iron Horse, at least it'd be helping people.

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Scott Wedel 5 years, 10 months ago

I just read the management contract and Mountain Resorts letter to the city.

I wouldn't be surprised if Mountain Resorts ends up suing the City over this. Their letter to the City is mostly a list of how the bedbug infestation affects their employees, hurts their ability to do their job and how moving out was expensive.

And the management contract says under the section RENTAL UNIT STANDARDS that the CITY shall be responsible for furnishing and maintaining the property.

Basically, the contract was set up so that the City is in charge, but is assigning Mountain Resorts to do a few tasks for the City. The contract spends a lot of words on how the manager is supposed to do what the City says and how the manager can't spend much without approvals of the City.

And probably the most important part of the deal is that Mountain Resorts was going to pay about $400K a year for using 75% of the rooms for housing. With Mountain Resorts gone then that leaves the City expecting to pay $211K in operating costs for employee housing rooms valued at about $172K. And the projected rent is high - $1800 for a two bedroom, $1350 for a one bedroom. So any future management contract is going to bring in a lot less money to the City.

The City has a $400K a year rental agreement in which the City is responsible for the condition of the rooms and maintenance in general and all that City Facilities Manager Bob Robichaud knows is what was in a December report. And interim City Manager Wendy DuBord didn't even know what was in that report. Obviously, neither had been in the building recently. Could there be any better demonstration of why SB City government should not own or manage the Iron Horse or the Rehder building?

Add in $383K of debt service and $42K in property taxes to make it a great big loser of $450K a year or so.

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Scott Wedel 5 years, 10 months ago

Fred, How about everyone pitching in and making a plaque with the names of the city council and senior city staff to put on the building as a way to remember their contributions?

I suggest something appropriate like a piece of scrap metal with the names spray pointed on.

And a few who think it was a good deal might actually show up for the dedication ceremony..

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Steve Lewis 5 years, 10 months ago

Ahhh that was a nice respite. Back to balancing reality.

The Iron Horse package that the previous council left us was a number of City owned larger units (after a remodel) at a cost of $175,000 per unit. That was a smart plan, even if you hate Govt.'s attempt to house its own workers. The value is still there, when funded.

The Iron Horse, in its condition and management today, is the result of the City's priorities today.

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Steve Lewis 5 years, 10 months ago

Scott, This is how you see it: The prior council, anticipating a remodel effort, should have required repairs of the original structure be done by the seller, then tear that repair up to do the remodel?

That doesn't make sense to me.

The rents seem way higher than needed to finance a $175,000 unit. I don't get that. (neither do I understand your operating cost math). This seems a valid question to ask the current council, as they set up the deal.

You seem to feel that this council is completely disconnected from this turn of events. That doesn't make sense to me either, given they set this rental plan and contract up.

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Scott Wedel 5 years, 10 months ago

Steve, It is not "my" operating cost math. It is the math in the City's contract with the Resort Group.

As fir the repairs vs remodel - that is why the City should not have purchased it because it is LUNACY to spend $4M, pay financing cost of $250K to sell $5.3M of bonds to have an extra $1M WHEN YOU DON'T KNOW IF YOU ARE GOING TO REPAIR OR REMODEL IT!!! Apparently the only thing they knew is that they were going to buy and they were going to make it impossible to sell or refinance it.

Breakdown of units and average rent according to City and Resort Group contract. (note that there are two rental rates - one for the City's units and one for the Resort Group's units. Here they are averaged. In a prior post I used the Resort Group's rate) 2 - two bedrooms units at $2100 a month 2 - one bedroom units at $1275 a month 23 - efficiencies at $1080 a month 25 - motel rooms at $780 a month

Currently there are SB 1 bedroom apts in the newspaper for $850 and $900. Thus, rents paid in a future management contract should be expected to be 25% or more less than in the current contract.

The rents are not high enough to finance a $175K unit because THERE ARE OPERATING EXPENSES and utilities. Expenses at 40% of income is from that sort of high turnover operation in a 40 year old building and a 15 year old building is not unreasonable.

I never said that everything was the fault of the previous City Council or that the current one has been any better. I have been trying to make the point that the City is incompetent at operating this sort of business.

I do not know to what extent the current City Council should be blamed for this turn of events because it seems to have completely surprised City staff responsible for managing the property/contract. When the facilities manager says he last heard of bedbug issues in December and the interim city manager says she last heard of bedbug issues before the contract was signed then obviously they are not talking to each about the Iron Horse and it suggests neither one regularly visit it.

Hopefully, the City Council will determine how there was such a complete breakdown in managing the Iron Horse. If there is evidence that the City Council knew or should have known what was going on then they should be booted out of office as well.

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Scott Wedel 5 years, 10 months ago

As for redeveloping the Iron Horse: It is currently about 23,000 sq ft on 2.36 acres.

Only trouble is that there is a very long property line along the river. When I used the google satellite image and Routt county GIS to compare the Iron Horse parcel to nearby about 1 acre parcels, I got about 1.5 usable acres at the Iron Horse. It appears that the Iron Horse property line is close to the river bank and the core trail is on that property and so much of the parcel is not available to be developed.

Thus, I would not hold out much hope that redeveloping that parcel would add sufficient value/income to justify the expense.

Based upon current free market rents and realistic occupancy rates and what I have seen in commercial appraisals, I think the Iron Horse is currently worth about $2.7M.

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Fred Duckels 5 years, 10 months ago

This sounds a lot like Victorville Ca. with their power plant and lawsuit. Wheeling and dealing is best left to those with skin in the game. Hanging around any government entity, tends to indoctrinate, to allow amateurs to assume that they are ready to accept challenges, that are over their heads.

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Fred Duckels 5 years, 10 months ago

Rumor has it that the city did this deal on the sly, getting in the back door and outsmarting the greedy developers. I'll bet that they could'nt wipe the smiles off their faces.

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