A developer based in Alaska has offered to purchase the Iron Horse Inn for $915,000 and renovate it into an independent hotel, but city officials and the Steamboat Springs City Council said they are in no hurry to entertain any bids for the aging property.

Photo by John F. Russell

A developer based in Alaska has offered to purchase the Iron Horse Inn for $915,000 and renovate it into an independent hotel, but city officials and the Steamboat Springs City Council said they are in no hurry to entertain any bids for the aging property.

As developers eye Iron Horse Inn, Steamboat says it's in no hurry to get rid of the property

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Story highlights

•Alaska-based developer offers $915,000 to purchase Iron Horse Inn

•City appraisal of hotel confirms unsolicited offer is in range of "as is" value for property

•City says it is not in any hurry to sell property, must first outline public process

— To shine and become competitive again, the Iron Horse Inn needs millions of dollars' worth of attention in the form of new floors, paint and general maintenance.

But developer KC Wilson still sees great potential in the aging and underutilized hotel.

He said Wednesday that he wants to purchase and renovate the city of Steamboat Springs' riverside hotel into a more successful and independent one.

However, city officials said they no longer are in a hurry to rid themselves of the debt-riddled property at the edge of downtown.

Wilson recently approached the city with an unsolicited offer to purchase the Iron Horse as is for $915,000.

A May appraisal of the property ordered by the city confirmed Wilson's offer “is most representative of the 'as is' market value” for the riverfront property and its two buildings Wilson and the city's appraiser estimated would need $2 million to $3 million worth of upgrades to become a competitive hotel. The appraisal estimated the total value of the property and its buildings at between $600,000 and $1.2 million.

“If it works out, it works out. I think this would be a fun project,” Wilson said Wednesday.

Wilson's offer this year is the second bite at the property, and the attention comes after city officials abandoned a plan to retrofit one of the now-closed hotel buildings into a temporary police station.

In March, Chicago-based developer Bob Helle said he was in the early stages of forming a proposal to raze the existing hotel buildings and replace them with an affordable housing project.

The city has not given either proposal serious consideration, saying it first needs council's endorsement to sell the property and then a public process to allow any interested developer a chance to bid on it.

“We have so many things to deal with right now, especially in this heavy tourism season; the Iron Horse just isn't coming to the top of the list of priorities,” City Manager Deb Hinsvark said. “It's not urgent.”

Stopped the bleeding

Hinsvark said the city bought itself some time last year to think about the future of the Iron Horse Inn when it decided to cease hotel operations in the newer building on the property.

After the change, Hinsvark said, the city expects to take in $180,000 in revenue from the property while spending $130,000 to operate and maintain it.

Before the hotel closed, the city was losing money to operate it.

Today, revenue is generated in one building that is occupied by 26 tenants who rent month to month.

“The reason this isn't urgent right now is we've closed the hotel,” Hinsvark said. “The cost of the monthly rentals (in the older building) covers the cost of the care at the other side of the business.”


Even if the city sells the hotel, Hinsvark said, it still will be responsible for paying off the more than $4 million of outstanding debt on the property.

The city purchased the Iron Horse in 2007 for about $5 million and had a vision it would be used as affordable housing.

Although they acknowledge something must be done about the property that since has become a financial burden for the city, council members also have been reluctant to discuss any potential sale in the wake of the recent bids.

“We know that we need to take a look at the Iron Horse again, but right now, it is not at the top of this council's priority list,” Council President Bart Kounovsky said.

But he added the he thinks the city at some point will need to rid itself of the hotel.

He said the first step in any potential sale or repurposing of the site would be to move the collateral off of the buildings and onto another city property.

Hinsvark said a more detailed outline of that process could be presented to the council in the fall, after budget season.

Ongoing maintenance

Although any plan the city chooses to rid itself of the Iron Horse would cost it a significant amount of money, a sale could relieve it of ongoing maintenance costs.

Today, the older building on the property still is home to 26 tenants who rent rooms for $625 per month.

Wilson said he recently went on a walk-through of the buildings and found many deficiencies in the property that would be costly to fix.

“Everything in the place is worn out," Wilson said. "It would need new laundry facilities, phone systems, furniture, flooring. You're basically buying two shells that you would have to renovate. But even with that, the location is good, and if the price is right, it would make some sense.”

He also said he is worried about the electricity in the older building that houses the long-term tenants.

He specifically charged that the city did not make adequate adjustments to the older hotel building when it went from serving nightly rentals to the long-term stays.

"This property has not been operated as a hotel nor kept up to date with necessary maintenance or renovations," Wilson wrote to Hinsvark in a letter included in the appraisal.

Hinsvark said the city has taken steps to better maintain the building and accommodate the long-term tenants.

“We paid for a thorough walk-through by an engineer to make sure the facility is solid and safe, and we've taken some steps to resolve some issues,” she said. “We feel comfortable that we've done the due diligence to make it safe.”

Wilson said that when he made the offer, he hoped he could start renovations as soon as this summer. But he's now frustrated it won't be entertained anytime soon.

“Honestly, I just don't think they want to deal with it right now,” he said of the property. “If they can kick the can down the road a little bit, they're going to do that. That's the thought process right now.”

Still, he said that if the city decides it wants to sell it, he currently is interested.

To reach Scott Franz, call 970-871-4210 or email scottfranz@SteamboatToday.com

Comments

Paul Hughes 10 months ago

The Brenner/Dellinger/Anderson Council's purchase of the Iron Horse may have been the worst Council decision ever. It was self-serving ("re-elect us because we've done something for affordable housing"), irrational, and done by circumventing any public process. But simply shutting down the hotel part to cut the City's losses will just make the situation worse. If the Iron Horse were owned by a business, and it shut down, the City would use every means at its disposal to avoid having a vacant hotel right on the main commercial corridor (see Hampton Inn). The City shouldn't get an exemption just because it's the City. It's no longer a question of whether the City will transfer the Iron Horse to the private sector, but how. There will be no fairy godmother to wave a magic wand and turn the hotel into a thriving enterprise for the City. The Iron Horse is a millstone around the City's neck, and we must accept that the pain is going to last until we pay off the last dollar of the outrageous debt that came with the Inn. Time to make the best of a bad situation and move on. And please stick to doing city business while leaving hotels to people who know how to run them.

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John Fielding 10 months ago

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There may be some wisdom in the wait a while position, it is likely there will be substantial appreciation in market value in the next few years. However I am concerned that is not the result waiting will enable. Having seen proposals to demolish or renovate the buildings for other city funded uses I suspect that will be more likely.

The usual process for making a decision of this nature is to calculate the cost of keeping the property (including the value of the alternate use of money from the sale) vs the probable increase in value by waiting to sell. Unfortunately, we cannot actually pay off the high cost debt generated by the acquisition because of onerous prepayment penalties. But the city could use the money to reduce other debt or fund its backlog of important repairs.

I have not heard the reasons why the hotel portion can not be utilized for month to month rentals. That at least would fulfill the original mission of making low cost space available.

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Scott Wedel 10 months ago

Paul,

"If the Iron Horse were owned by a business, and it shut down, the City would use every means at its disposal to avoid having a vacant hotel right on the main commercial corridor"

It is thoroughly none of the City Council's business whether a hotel in city limits is closed. Iron Horse was never a prime hotel and it being closed will have no impact upon the local economy. There is no shortage of local hotels and tourists will be better off alternatives than the city run Iron Horse.

I am not sure why the main building is now closed instead of being rented. It appears the City is not totally inept at renting rooms. It would seem to make more sense to do that for the entire property than leave the main building vacant.

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John Fielding 10 months ago

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I am also interested in exactly how the cost to maintain and operate is calculated. Does it include amortization of high cost repairs like boilers, appliances and roofing? Are the full costs of the employees included, such as accounting, benefits, recruitment, etc. or is some portion covered by other city departments? Is it fair to calculate the cost to Routt County taxpayers of covering the loss of revenue from that property tax potential? If it pays no property tax that is in fact a subsidy.

The property needs to be returned to private ownership as soon as possible, if for no other reason that that a for profit entity would not let half the facility sit idle, would invest in it, create jobs and commerce, provide a greater service to the community, and pay more taxes. And if there are any regulations that hinder its fuller utilization, let us make accommodation for a short term while we reevaluate whether they should be repealed.

In fact a special provision for reduced restriction of single room occupancy facilities would help meet the needs of the most financially distressed of our brethren.

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Scott Wedel 10 months ago

“We have so many things to deal with right now, especially in this heavy tourism season; the Iron Horse just isn't coming to the top of the list of priorities,” City Manager Deb Hinsvark said. “It's not urgent.”

Yeah, things like sign boards are so much more urgent. This city is like a puppy. It is not urgent today so it is a low priority. But at some other point, it is an absolute crisis.

Iron Horse has about something like a $400,000 a year payment that increases to like $600,000 a year in a few years. In terms of an item with a large financial impact, there are not that many items much bigger.

Seems to be a no brainer to start the process to sell it and deal with the debt issues (certifications of participation to avoid triggering voter approval of debt) so the property could be sold. Changing the asset to other city property might be trickier than expected because of YVHA's planned default because YVHA's theory of limitations on lenders would seem likely to apply to this. So the City should not waste time trying to determine how long and how much it will cost to be able to sell the Iron Horse.

Personally, I think City should be looking to buy these bonds on the municipal bond market might be the easier way to deal with them.

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John Fielding 9 months, 4 weeks ago

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Is it possible that the loan structure for the purchase (certificates of participation) was in fact illegal? It clearly was done to circumvent TABOR restrictions. If so, is it possible that it could be recalled or otherwise negated? It may be that if such a finding is made, the principal balance of the loan may be paid off without any penalty for having illegally agreed to the long term high interest arrangement.

I do not suggest we avoid repayment of the principal debt, we overpaid and must accept the loss in value. But we may not be legally or morally obligated to continue in a loan that was illegally arranged.

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Scott Wedel 9 months, 4 weeks ago

Certificates of Participation are cleverly designed to not be debt. They are legally more like lease payments which the City Council can stop paying at any time and return the asset to the holders of the certificates. But they are enough of a promise to pay that not paying will destroy the city's credit rating.

The cost to SB of ruining their credit rating is apparently more than the cost of the Iron Horse payments. It is possible that SB's existing debt has clauses on credit rating and the interest rates will increase if Sb's credit rating declines.

It would most definitely increase Sb's costs of new debt because a government flush with cash making purely strategic moves to not pay is the worst type of risk.

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