|By David Nicklaus, St. Louis
Post-DispatchMcClatchy-Tribune Regional News
Nov. 20, 2009--The financial drama surrounding the Renaissance Hotel has been a private-sector affair until now, but St. Louis' elected officials are about to take center stage.
The 7-year-old hotel, built in hopes of attracting more convention business, has lost money from Day One. The original owners lost control of the property to bondholders, who are no longer getting interest payments on their $98 million investment.
Now city officials, who helped provide the heavy taxpayer subsidies that got the hotel built, are being asked for the first time to make further sacrifices.
Citing operating losses, the hotel wants to stretch out a $3.25 million payment it owes the city on Dec. 31. It would pay $1.95 million then, $650,000 next July 1 and $650,000 on Oct. 1. The money ultimately covers a mortgage held by the U.S. Department of Housing and Urban Development.
A bill submitted to the Board of Aldermen would authorize the deferral and set up two special taxing districts to help cover future payments. Barbara Geisman, St. Louis' deputy mayor for development, said the deferral wouldn't affect the city's budget because the money can only be used to pay the HUD mortgage.
"I think the help we're giving them is help we can give without any downside for the city," Geisman said.
The city, of course, wants to avoid any possibility that the 1,073-room hotel might close. A disclosure document filed this week uses some of the most alarming language yet to describe the property's finances, saying that "there may be a working capital shortfall this coming winter and in the winter of 2010-2011."
Through Sept. 11 of this year, the hotel posted an operating loss of $171,051, and its occupancy fell to 52.3 percent from 66.6 percent last year. Moreover, it is heading into its slowest season.
Essentially, the bondholders say they need more cash to get through two lean winters. They hope to get that cash from the city, the special taxing districts and a possible sale of the old Lennox Hotel, which was renovated into suites as part of the Renaissance complex.
Twenty-nine "interested parties" have requested information about the Lennox, but hotel consultant Gary Andreas thinks a buyer will be hard to find.
"What kind of person would buy it? If you're allowed to use four-letter words, I would say, 'A fool,'" said Andreas, a partner at H&H Financial in Chesterfield.
The suites building lacks laundry and food-service facilities and would compete with an Embassy Suites that's planned for the old Dillard's building, two blocks east on Washington Avenue.
"I have a hard time picturing any hotel operator who might buy it, except at a severe discount," Andreas said.
Questions also can be raised about the special taxing districts, which would impose a 2 percent sales tax on Renaissance customers. The hotel says the tax could raise between $150,000 and $400,000 a year to repay its debt to the city. That, in turn, would free up other cash to ease the operating shortfall.
Such an assumption, however, violates a cardinal rule of economics: There's no free lunch. The hotel would be charging 2 percent more for a room and hoping no one would notice. Perhaps you can fool some of the people some of the time, but eventually a higher price will drive customers away. The Renaissance has been cutting room rates, not raising them, this year because of the weak economy.
"If you're talking about a single hotel, I know the elasticity of demand is greater than one," says Joseph Haslag, a professor of economics at the University of Missouri. "That means demand goes down by enough that total revenue is going to shrink."
The Renaissance's cash-raising plans, then, have an air of desperation about them. City officials may have no choice but to go along, but they also need to think about what happens next if these measures aren't enough.
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Copyright (c) 2009, St. Louis Post-Dispatch
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