Steamboat city officials buck Iron Horse lease
September 7, 2010
Steamboat Springs — Editor’s note: This story has been corrected from its original version. The City Council did not vote to put the Iron Horse Inn up for sale Tuesday night. Instead, the council directed staff to seek new requests for proposals from property management companies interested in operating the city-owned Iron Horse.
City officials voted Tuesday night to seek a new property management company for the Iron Horse Inn. They also rejected a proposed new lease for the downtown property and demanded that its current operator pay the full rent deferred since March.
Steamboat Springs City Council decided unanimously — in a 6-0 vote, with Councilman Scott Myller absent and new member Bart Kounovsky sworn in hours earlier — to take several actions that could move the city toward, as City Council President Cari Hermacinski put it, "getting rid of this albatross around our neck." The Iron Horse Inn has created significant financial burdens and management challenges for the city since a previous City Council bought it for about $4 million in 2007. The purchase was an effort to provide affordable housing for city employees during a time of skyrocketing property values.
City Council effectively declared that purchase a resounding failure Tuesday night.
The vote rejected a newer lease that has been effective since July 1 with Boulder-based operators New West Inns, which has operated the Iron Horse since November. Anne Small, the city's purchasing and risk manager, told City Council that New West Inns did not pay rent from December through May. The city waived rent for three of those months and deferred it for three others.
New West asked the city to waive the $13,500 rent for December, Small said, because New West had to purchase new beds to replace twin beds the city bought during plans to house Colorado Mountain College students in the inn. The city agreed to waive December's rent.
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New West then asked the city to waive January and February's rent, citing high start-up costs and "obstacles of reputation," Small said. The much-maligned inn had a bedbug problem under previous management in February 2009. The city also agreed to waive January and February's rents.
Finally, Small said, Iron Horse's rent from March to June was deferred, during a period when New West brought in new management for the inn.
The new lease crafted during the summer was an effort to help the inn move toward profitability. That proposed lease required 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, according to Small. She said last month that the new lease was implemented before council approval because Sept. 7 was the earliest it could be placed on an agenda.
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.
City Council's vote Tuesday night ruled that the old lease never changed.
"We want the $13,500 per month that's due as of March 1," Hermacinski said.
That means New West owes Steamboat Springs more than $67,000, accounting for the about $13,300 New West paid the city for June and July. Failure to pay that amount, City Council said Tuesday, would place New West in default. City Council directed city attorney Tony Lettunich to look into collection procedures should New West be unable to pay.
The inn includes two buildings between the Yampa River and U.S. Highway 40 just east of downtown.
Last month, operations manager Jay Belyea said all 26 units designated for long-term rentals are full. Most of those occupants are members of Steamboat's work force, renting studios for $600 a month, he said.
The other building is used for nightly rentals, which have struggled.
City Council did not direct Small to include work force housing in the requirements for potential new operators, instead directing her to assess any proposals that might come in for the property.
"Any way we can offer this property to anybody is the best thing we can do," Councilman Walter Magill said.
But the vote does not immediately mean Iron Horse tenants will have to find new homes, or that nightly rentals will stop. Hermacinski said the Iron Horse should continue functioning as long as possible to continue generating revenue.
Councilman Jon Quinn noted that allowing Iron Horse to pay $3,000 in monthly rent would have given New West an unfair advantage over privately owned hotels. He expressed concern that the inn's financial struggles were not brought to light earlier.
"I have to admit, I'm a wee bit troubled by the timeline," Quinn said. "There were warning flags a long time ago, and now it's September."
— To reach Mike Lawrence, call 871-4233 or e-mail email@example.com