Steamboat Springs Operators of the Iron Horse Inn are paying the city lower monthly rent through a deal implemented this summer while they work to move the inn toward profitability.
The city’s new lease contract with Boulder-based New West Inns, which has operated the Iron Horse since November, stemmed from New West’s high startup costs and low rentals for much of this year at the Iron Horse.
The Steamboat Springs City Council is scheduled to act on the new lease Sept. 7. But Anne Small, the city’s purchasing and risk manager, said the new lease has been effective since July 1. The lease requires monthly payments of $3,000 in rent and 10 percent of gross profits. That equated to payments from Iron Horse of about $6,700 for June and about $7,000 for July, Small said.
The old lease, which the previous City Council approved unanimously in November, required New West Inns to pay $13,500 in monthly rent for the Iron Horse, plus an annual payment of 15 percent of net operating profits.
Deputy City Manager Wendy DuBord said that deal proved too costly at the Iron Horse.
“We met with (New West staff) two or three months ago, and they just weren’t able to meet the original proposal,” DuBord said. “Unfortunately, it hasn’t done as well as anyone anticipated.”
Small said if the City Council decides in September not to approve the new lease, “we’ll have to go back and do something retroactively.” She said the new lease, pending council approval, would be good until June 30, 2011. At that time, she said, the city could review the inn’s revenue stream and likely renegotiate the lease terms.
The new lease likely means a decrease of more than $100,000 in revenues for the city during the year the lease is in effect.
The original lease would have generated $162,000 for the city, plus the 15 percent of the Iron Horse’s annual net operating profits. Small said she expects total revenues of about $69,000 from the new lease.
Those revenues help pay off the city’s debt on the Iron Horse. Debt service this year is expected to cost $343,000.
A previous City Council bought the Iron Horse Inn for about $4 million in 2007, in an effort to provide affordable housing for city employees during a time of skyrocketing property values. The city used certificates of participation to finance the purchase, along with an additional $1 million originally planned for renovations and issuance costs of $235,000.
The current City Council voted unanimously Jan. 19 to postpone renovation plans and use money from that $1 million fund to instead pay debt service for 2010 and then revisit the issue next winter. Small said that fund would accommodate the decrease in Iron Horse revenues under the new lease contract.
Small noted that all monies involved with the Iron Horse are in their own fund that’s separate from the city’s general fund.
She said city officials moved forward with the new lease before City Council approval to support New West’s efforts to make the Iron Horse sustainable.
“Sept. 7 was as soon as I could get it on the agenda,” Small said. “We feel that they are providing a good-faith effort.”
Turning the Horse
The inn includes two buildings on U.S. Highway 40 across from Hilltop Parkway.
Outside its main entrance Tuesday afternoon, operations manager Jay Belyea said all 26 units are full in the building designated for long-term rentals. Most of those occupants are members of Steamboat’s workforce, renting studios for $600 a month, he said.
He acknowledged that nightly rentals, in the inn’s other building, have not done well.
“It’s been a slow start. We have a lot of obstacles to overcome,” Belyea said. “Taking over the Iron Horse came with … quite a reputation, let’s just say. And we’ve been struggling from Day 1 to overcome that.”
The Iron Horse purchase was a controversial campaign issue in the 2007 City Council election that saw all incumbents defeated and five new members elected. In February 2009, a bed bug problem arose at the inn, driving Mountain Resorts Realty to end its management contract and move its employees out of the inn, which nearly was vacant as recently as last summer.
Belyea, who also works as a code enforcement officer for the city, noted that the bed bug problem preceded New West’s involvement and said the inn has “since been certified pest-free,” which was a requirement of New West’s original lease.
Beds were an issue for New West for another reason.
In April 2009, the city discussed a deal with Colorado Mountain College to provide student housing at the inn. Belyea said when New West took over, they discovered “trampoline-style twin beds” that suited a dormitory, but not the hotel business.
New West bought new beds “for the entire property,” Belyea said, adding to the capital costs.
Belyea said he and front desk manager Maureen Hance each have more than 10 years of experience in the hotel industry in Key West, Fla.
Belyea said they’re ramping up advertising and acting on multiple fronts to turn the Iron Horse around.
He noted that the Iron Horse is paying all its utilities and bills and said he hopes to reach a point where the terms of the original lease are possible — potentially as soon as next summer.
“We would ultimately like to get back there,” Belyea said about the original lease. “Hopefully, by this time next year, this whole big question mark will be answered, and we’ll see some profitability.”