Our View: Right move is to sign lease with New West Inns
October 25, 2009
The Iron Horse Inn continues to be an albatross around the city’s neck at a time Steamboat Springs and its residents can least afford it. The city should sign a three-year lease with New West Inns and allow the property to be managed by a company with experience doing so.
Not only will leasing the property to New West Inns – a Boulder-based company that operates Steamboat’s Comfort Inn hotel – minimize the city’s annual loss on the Iron Horse during the next three years, it will give the city additional time to explore and develop long-term plans for the 2.36-acre property on the Yampa River.
The city, led by a previous City Council, bought the 52-room Iron Horse Inn in October 2007 for $4 million. The city used certificates of participation to fund the purchase, as well as $1 million in planned renovations and $235,000 in issuance costs, bringing the total cost to $5.3 million.
There’s a 25-year payoff on the certificates of participation, and annual payments on the debt service could be as high as $480,000 some years. If the city were to pay off the debt early, it would be subject to what amounts to a prepayment penalty in excess of $1 million, and the city’s future ability to secure bonds could take a significant hit.
The original intent of the purchase was that the property would provide affordable housing for city employees, but operational issues and expenses have resulted in mostly problems for the city.
The city initially operated the Iron Horse and rented rooms on a nightly and long-term basis. But projected operating losses and a desire to keep the city out of the housing business led the current City Council to explore leasing the motel to a private property management company. An agreement was reached in November 2008 with Resort Group to manage the property. According to the agreement, the city retained the right to offer some of the units to its workers.
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But a bedbug infestation and the collapse of the economy doomed the agreement with Resort Group. The contract has been in dispute since February. The city, meanwhile, tried unsuccessfully to negotiate deals this summer with Colorado Mountain College and TK Mining to lease some of Iron Horse’s rooms for students and mine workers. In June, a new request for proposals went out, and New West Inns was the only company to respond.
The deal now in front of the city would allow New West Inns to operate the motel as a nightly rental facility. New West Inns would pay the city $13,500 a month, or $162,000 a year. New West Inns also would share 15 percent of its net operating profit with the city, a deal that would net the city a projected $22,728 in 2010. The city would receive 20 percent of any net profits over $500,000.
City officials also say New West Inns might make some of the rooms available for long-term rentals, which could allow the Iron Horse to provide some affordable housing for the local work force.
The city should sign off on the three-year lease if for no other reason than it will minimize the loss of taxpayer dollars. The city’s 2010 debt service on the motel is $343,000. The New West Inn lease would allow the city to recoup an estimated $184,728 in 2010, meaning the projected operating loss would be $158,272. The city stands to lose more than $200,000 if it continues to operate the facility as is, some city officials say.
In short, there is no easy way out of the Iron Horse mess. That’s why the best option is for the city to finalize the three-year lease with New West Inns and continue to work with a local residents committee on developing long-term plans for the redevelopment of the site. Such redevelopment would not occur within the next three years, so the property lease would not pose an obstacle to continued planning.
It’s unfortunate that no matter how the city operates the Iron Horse, it will be in competition with private business. But the city’s No. 1 concern should be as a steward to the taxpayers. Therefore, sign the lease and minimize our short-term losses.