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Carlson Hotels and the City of Myrtle Beach Agree to Part Ways after
 Contentious Two-year Relationship of Missed Goals and Bond Default
 at the Radisson Plaza Hotel Myrtle Beach

By Dawn Bryant, The Sun News, Myrtle Beach, S.C.
Knight Ridder/Tribune Business News

Mar. 10, 2005 - Radisson will no longer operate the Myrtle Beach Convention Center hotel as soon as the city's Hotel Board Corp. picks another management team to take over.

Carlson Hotels Worldwide, Radisson's parent company, and the Myrtle Beach Hotel Board Corp. have agreed to part ways after a contentious two-year relationship of missed financial goals, a bond default and frustration over corporate support of the project.

In the past few months, both sides had struggled to agree on performance marks for the coming budget year, which starts April 1.

"It was just something that everybody kind of agreed to," said Walt Standish, chairman of the Hotel Board Corp., which oversees the Radisson's operations for the city. "It made sense for everybody. We think there are plenty of people out there who want to run the hotel." The search for a Radisson replacement already has started. Six possible operators have expressed interest, board consultant Tom Reifert said.

Reifert declined to name the companies. Before the hotel was built, DoubleTree and Clarion had expressed interest along with Radisson.

Myrtle Beach was among the first cities in the country to use public backing to finance a hotel that would be operated by a private company. The city issued $65 million in bonds in 2001 to cover the hotel's construction and start up costs.

Last year, the city defaulted on the bonds and had to refinance $47.7 million to cover the hotel's first-year losses.

The city makes two debt payments a year and is scheduled to pay off the bonds in 2036. The Hotel Board reimburses the city for those payments from hotel profits.

Through a unanimous vote in a special meeting Wednesday, the Hotel Board told its consultant, Strategic Advisory Group, to continue negotiations with the interested operators and bring at least two finalists to the board for consideration. Strategic Advisory Group helped the city develop the project and has worked with the board to guide the hotel's progress.

Officials plan to pick an operator within the next two months.

"For obvious reasons, this needs to happen sooner than later," Standish said.

The details of the split still are being negotiated. Officials don't expect the city to have to invest more money. Because both sides agreed to end the relationship, penalties for breaking the contract won't apply.

Radisson initially put $2 million into the project. Officials still are talking about whether Radisson would take that money with it, and, if so, from where that money would come.

The next operator would be expected to put in the same financial commitment as the Radisson did, Standish said.

"I wouldn't expect the transition itself to cause the city or the hotel board to put up any money," he said.

The hotel's 120 employees were told of the pending change Wednesday. Determining how many people will keep their jobs will be up to the new operator. Officials said most employees probably wouldn't be affected.

Steve Hedberg, a Carlson vice president overseeing the Myrtle Beach Radisson, said he was disappointed in the split but it was for the best. Radisson mentioned ending the agreement as one of several options outlined during recent budget talks.

"We had a tough start, but I thought we did some good things there," he said. "We only want what's best for the community."

In the hotel's two years of operating, board members and their consultants frequently expressed concern with Radisson. In November 2003, after news that the city likely would have to bail out the hotel, some suggested replacing Radisson.

Other complaints from locals included Radisson's comparably small corporate sales staff focusing on group business.

Locals expected that the chain's sales staff would send more business to the Myrtle Beach property than it did.

Radisson responded by cutting costs, increasing marketing efforts and including the Myrtle Beach property in national promotional materials.

Last year, it offered to lend up to $3 million if future debt payments fell short.

During its first year, the Radisson became the beach's only AAA four-diamond hotel.

Radisson has a 10-year contract to operate the hotel, which opened in January 2003.

Last year, updates to Radisson's qualified management agreement with the Hotel Board shortened the contract from 15 years. Radisson also agreed to other changes that could have meant $3 million less for the chain through the life of the contract.

Changes to the contract came as the city had to bail out the hotel after a lackluster first year that resulted in a bond default.

The subsequent $47.7 million refinancing increased the city's debt load, causing it to reconsider other big-ticket projects.

Officials had to pass on plans to buy the former Myrtle Square Mall property for a trade center, focusing instead on less-expensive land behind the convention center. The city backed the refinanced bonds with hospitality fees, which are charged on such things as hotel rooms and prepared food.

Those fees would guarantee payment if the hotel doesn't make enough money.

The city financed the hotel so the convention center would have on-site lodging, an amenity deemed a necessity to compete for larger convention business.

Officials expected that the hotel would lure large groups to Myrtle Beach to fill the Radisson's 402 rooms while creating business for other hotels, restaurants and attractions.

The Radisson struggled to meet forecasts, losing $1.7 million its first year, twice as much as scaled-down projections predicted. City leaders had criticized Radisson officials for not making needed changes quicker after the rough start.

The hotel is on pace to make $1.2 million by the end of its second budget year, which ends March 31. Projections had fore cast nearly $2 million. Local leaders acknowledge the improvement but say there's still a way to go.

How quickly the hotel can reach its financial goals was a sticking point in recent budget negotiations.

"I think we can get there ... it's just when. Is it sooner or later?" Hedberg said. "I didn't want to overpromise something I couldn't deliver."

Despite the difference, the Hotel Board on Wednesday approved a budget that included the Radisson numbers for the 12 months starting April 1. Much of it likely will change once a new operator is on board.

The board had to approve a financial plan to meet requirements and share it with the bond trustee.

Mayor Mark McBride, who opposed the hotel project from the beginning, wants the city to find a consultant to replace Strategic Advisory Group. He is skeptical another operator can achieve what the Radisson couldn't in two years.

"We are taking advice from the people who suggested the Radisson to us in the first place," McBride said. "It is time for us to get a new consultant." City Councilman Randal Wallace said the hotel needs a chain with a larger national sales staff focusing on group business that can take the property to the next level.

"Certainly Radisson did a good job getting us off the ground and moving," he said. "It was time for a change."

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To see more of The Sun News, or to subscribe to the newspaper, go to http://www.MyrtleBeachOnline.com

Copyright (c) 2005, The Sun News, Myrtle Beach, S.C.

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