Steamboat City Council saddled with Iron Horse Inn

Officials say the city is financially stuck with the property for 7 years

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— City officials are seeking new management, not a new owner, for the Iron Horse Inn. Those officials say Steamboat Springs is financially saddled with the property for the next seven years.

The Steamboat Springs City Council voted Tuesday night to open the inn to requests for proposals from interested parties that would like to take over management of the two-building facility. Boulder-based New West Inns has operated the Iron Horse since November.

Tuesday’s discussion arose from the fact that New West didn’t pay the $13,500 monthly rent from December through May — the city waived rent from December through February and deferred it from March through May — and that New West has been operating under an unofficial, new lease agreement with city officials since July.

That new lease agreement drastically reduced New West’s rent payments since July 1. City Council voted Tuesday to negate that agreement and uphold the original lease, demand payment of full rent due since March and open management of the Iron Horse to RFPs.

City Council did not vote to place the inn for sale on the open market, as was incorrectly reported in the story “City bucks Iron Horse” on page 1 of Wednesday’s Steamboat Today. A reporting error and misunderstanding of Tuesday night’s conversation led to the incorrect information.

Several City Council members expressed a desire Tuesday to rid the city of its Iron Horse ownership, which has resulted in significant financial burdens and management challenges since a previous City Council bought the inn for about $4 million in November 2007.

But the terms of that purchase make it financially unfeasible for the city to sell the Iron Horse, likely until 2017 or beyond.

City interim Finance Director Deb Hinsvark said Wednesday the city bought the Iron Horse by issuing nearly $5.3 million in certificates of participation. Those certificates, similar to bonds, are sold to investors who receive returns on the investment.

Hinsvark said the terms of those certificates stipulated that the city would not pay off its Iron Horse debt in full for 10 years, in order to guarantee a certain level of return to investors through interest. Seven years are left on that deal.

“If we were to sell the facility right now, we’d have to sell it not only for the outstanding debt, but also for the amount of interest for the next seven years,” Hinsvark said. “We’d have to put into an irrevocable trust the amount of money that would be necessary to pay the interest for the next seven years, plus the outstanding principal.”

That total amount would be about $7 million, she said.

The city’s issuance of certificates of participation in 2007 included the sale price of about $4 million, an additional $1 million planned for renovations and at least $235,000 in issuance costs.

Hinsvark said the city issued $5,285,000 for the Iron Horse purchase in 2007.

Through December 2009, she said, the debt remained at that number because the city had not paid down any of the principal.

Interest rates vary, but Hins­­vark said at a 6 percent rate, annual interest on the Iron Horse debt is about $325,000. Extrapolating that for seven years depends on variables including the city’s ability to pay off principal, but Hins­­vark estimated the cost of interest throughout seven years would be about $2 million.

“We’d have to sell the property for about $7 million,” she said. “That’s what prevents us from putting the property out on the market for sale.”

City Council voted unanimously Jan. 19 to use money from the $1 million initially planned for renovations to instead pay debt service for 2010 and then revisit the Iron Horse issue next winter. City Council President Cari Hermacinski noted Tuesday that the city is using borrowed funds for a building bought with debt.

“This building is eating us up,” Hermacinski said. “As far as I’m concerned, we should put this thing out to RFP as soon as possible instead of just cutting rent in half.”

Anne Small, the city’s purchasing and risk manager, said she couldn’t speculate as to what sort of proposals potential new managers could have for the Iron Horse.

“I think one of the reasons we go out to RFP is to see what’s out there, because we don’t know,” Small said. “That’s why you put it out to RFP — to see what ideas someone else may have.”

Comments

Scott Wedel 4 years ago

So once again we are asked to believe that City finance dept has been acting in secret on major issues for months without informing anyone. That City finance waived rent from March to May and then negotiated a new lease in July without bothering to tell anyone anything about it.

Seriously??????????????????

This is the same City finance dept that admitted they had been talking to US Bank about possible default on base area redev bonds since they were issued in December and yet nothing was mentioned until April, days before the contract for summer construction was about to be signed.

I have no idea how City Council members deal with a finance dept that obviously has a pattern of withholding critical financial information from the public. This is not some minor detail, but exactly how does City Finance waive rent and propose a new contract without telling anyone anything? Or have City Council been briefed of these issues and it is the City Council that is withholding the information from the public?

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pitpoodle 4 years ago

Jeez, does anyone at our esteemed newspaper ever talk to anyone in city government? Or do reporters just wait until they are invited to a public meeting to be spoon fed any pertinent information? Even then, they can't seem to get it right. Can we please get someone to do any investigation at the newspaper so perhaps residents are not the last to know? Obviously council isn't on top of it.

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Scott Wedel 4 years ago

Also, a lesson here is that a City Staff and a City Council can make horrendous decisions regarding purchasing and financing a property.

So maybe this City Council should change the rules so that any form of issuing debt must be approved by the voters. And thus greatly limit the sort of harm that some ill-advised City Council can cause with their bad judgment.

In a few years we may have a new city council talking about how the base area redevelopment bonds are another black hole destroying city finances.

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freerider 4 years ago

 Why Doesn't City Council just invite the Hells Angles back and let them move into the Iron Horse ?  It would be good for the economy right . Just think about all the liqour sales and the ER room will get plenty of action from all the fights . Restaurants and bars will see more business for sure cuz I don't think they cook .

I remember it was a City Council member that invited the Angels to town in the first place . It was the same guy that had the Hampton Inn built on a foundation only permit . Then the Inn sank about 6 inches in the mud along the river ... anybody remember that guys name ?? I heard he moved to Vegas ...I bet he was one of the developers involved withe the 700 farce...

Iron Horse has bad karma ....

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Bill Dalzell 4 years ago

Freerider, I think you are referring to Steve Campbell. I am pretty sure he was never on council and he definitely was not involved in 700. I am also pretty sure that no other council member invited Hells Angels to town. The foundation only permit and the sinking hotel, seems pretty accurate if my memory serves correctly. Lets not forget council inherited the Iron Horse from past members.

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MsRed 4 years ago

No housepoor, dorms will not work-they tried it already, not enough students needed housing so it did not work out like they thought, just like a number of ideas regarding this property including but not limited to the initial decision to buy this property, it has all failed- except for the long term housing in the units that have little kitchenettes- but this will not sustain the business on it's own.

So far two or three different management companies have attempted to manage the property on behalf of the city. This is a difficult property to manage due to age,location,previous issues,& lack of amenities. Not to mention it seems the city is placing unreasonable demands (in the current times) on the properties ability to actually make money, instead of sucking it from the city budget & tax payers already empty pockets.

Well done, well thought out, well what a mess we have!!!!!

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elphaba 4 years ago

There is a state constitutional amendment commonly known as TABOR which says that any long term debt must be approved by voters. How did this former City Council get around that state law? The thinly veiled "Certificates of Participation". We now have long term debt not approved by anyone except that Council. Also Mr. Ivancie, a member of that Council, should be asked about that circumvention of state law. He is running for the State Legislature. It should dog him every day on the campaign trail.

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sledneck 4 years ago

Vote yes on 60, 61 and 101. Take the oxygen from the fire.

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jerry carlton 4 years ago

sledneck I agree! First time I remember agreeing with you but I guess that is because I am a redneck and not a sledneck.

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Jon Quinn 4 years ago

There is no question in my mind that the council which approved the Iron Horse purchase did a huge disservice to the citizens of this community. The financial impact will be felt for years to come. And financing this with COPs which guaranteed 10 years of interest to the investors... absolutely ridiculous.

But... 60, 61, and 101 are not the answer. I will give you 1 very timely example of what kind of impact these ballot initiatives would have on the citizens of Steamboat. This week we considered future water rate hikes for Steamboat based on the capital improvements necessary over the next 20 years. That model was based on being able to pay for the necessary improvements with a 20 year bond measure. With that payment schedule we are looking at rate hikes of 9% for 2011 through 2013, and then an 8% hike in 2014, 6% in 2015, and 5% hikes for the subsequent 4 years. Were these ballot initiatives to pass we (that is the citizens and taxpayers of Steamboat) would be required to finance these water improvements over 10 years instead of 20. You could expect those rate hikes to be almost DOUBLE should these measures pass.

There are some times when it makes sense to finance a purchase over 20 years or 30 years. Everyone must understand the real impacts these ballot initiatives will have on the ability of local governments to function properly, and they must understand that they will have real and measurable negative impacts on the citizens of Steamboat and Colorado.

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Scott Wedel 4 years ago

The measures start off with a decent idea, but include poison pills that make them very bad ideas.

A measure to require that government get voters approval before issuing bonds is a decent idea. The idea that bonds have to be repaid in 10 years is a really bad idea. Because of the poison pill aspect of these measures they should be rejected. Hopefully, the good parts will be offered again.

Hopefully there is an easier way to change the city's rules so that all future city debt has to be approved by city voters.

Maybe the city back base area bonds were a bad mistake by Cari, Jon and crew, just like Iron Horse was a bad mistake of the previous City Council. Certainly, Cari, Jon and crew along with city staff are demonstrating how to completely mismanage the Iron Horse and mishandled base area bonds about as badly as possible. "Notice of default? Impossible. Well, the issuer has been complaining for months that revenues promised when the bonds were issued were not there when the bonds were issued. But notice of default? How could that be? Just because the redevelopment agency was about to commit to yet more expenses? Why should that matter?" Let's face it. The responsible party in all that was US Bank, the bond issuer. The irresponsible borrowers and spenders was the City Council and the base area redevelopment agency.

Now that all of the base area's development agency's revenues are committed to repaying debt, what do you think is going to happen?

I truly wish it had gone to a public vote.

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sledneck 4 years ago

The Iron Horse was not a "dis-service". It was an act of negligence and ignorance bordering on criminal. And which side of the "border" is arguable.

Someone should be in jail.

Proposals for further real estate aqusitions should be tabled till this particular quagmire is settled and untill someone explains why the city should be in the real estate business.

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John Fielding 4 years ago

.

As a city owned property, is the Iron Horse exempt from property tax?

.

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Scott Wedel 4 years ago

It is not that ridiculous to compare Iron Horse and Base Area Redevelopment debt. They do not have the exact amount of risk. Iron Horse was always a riskier move, but the city at the time had financial analysis saying how they'd make money on the deal. So with greater rewards comes greater risks.

The risk in the base area bonds is that base area development agency has committed the great majority of their revenues towards repaying these bonds. It is harder for their revenues to drop so drastically that they cannot repay their bonds so it is less likely that the city will have to use general fund money to pay that debt.

But we are also asked to expect that a redevelopment agency is not going to have any other critical projects for a number of years that they now cannot afford. So does anyone seriously doubt that the City funds are going to be needed to further support the redevelopment agency?

Either way, we have a current City Council committing the City for a number of years to support projects that claimed at the time to be without risk or financial consequences when it will not take long for those promises to be proven false.

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pitpoodle 4 years ago

The previous council did some really stupid stuff - no question about that. That said, this council is little better. Come down memory lane for a moment to SB 700 decisions. Scott W has correctly stated, "we have a current City Council committing the City for a number of years to support projects that claimed at the time to be without risk or financial consequences". This council swore that financial consequences surrounding SB 700 would be without risk for current residents. In fact, we were told current residents would have no liability, if SB 700 was approved. We are lucky that voters understood just how expensive our liability could have been. Question why city staffers are making critical financial decisions that are obviously without council approval or (we guess) knowledge.

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