Thursday, September 9, 2010
Steamboat Springs 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.”