|By Jaclyn Giovis, The Journal-News, Hamilton, Ohio|
Knight Ridder/Tribune Business News
June 13, 2004 - HAMILTON, Ohio -- The Hamiltonian Hotel is barely turning a profit and owes the city over $800,000, but it's not likely to close down anytime soon, according to city officials.
The Hamiltonian Ltd, represented by general partners BriLyn Inc. and Tipton Associates, Inc. of Cincinnati and comprised of about 50 local investors, owes the city $844,943 in combined loan and mortgage debt as of Jan. 1, 2004, according to the most recent city calculations.
The original loans by the city to the Hamiltonian Ltd. in 1985 were made from federal grant monies -- not general fund sources.
However, the investor group has not made payments on their community development block grant revolving loan and ground mortgage note since September 2001, city records show. And the hotel -- built with a plan of attracting about a 61 percent occupancy rate -- has averaged about 45 to 50 percent full for the last few years, which financially, puts it below the break-even point, Hamiltonian financial reports show.
"Hamilton has every intention of collecting that money from the Hamiltonian," said Hamilton City Finance Director George "Butch" Gordon. "But because no payments have been made and our auditor requires us to write down the value of that receivable, we had to give it a zero-dollar value."
City officials say they will support the hotel and are optimistic that its investors will eventually make good on the debt. After all, the Hamiltonian has been trying to rebound from the crush nearly all downtown businesses felt when major industry left the city a few years ago, city officials said.
"We've deferred payments and tried to put this at the back end, so that they can try to become economically viable," said City Manager Mike Samoviski.
As of Dec. 31, 2002, when the city was required to write off the debt on their comprehensive annual financial report, financial statements disclosed that the Hamiltonian owes a principal amount of $740,424. The original CDBG loan was issued for $650,000 and the original ground mortgage note was issued for $375,000. The loan and mortgage notes bear an interest rate of 5 percent.
Monthly payments were set at $4,849 on the loan including interest. Additional payments of up to $20,000 a year are required based upon earnings levels. The loan is secured by a second mortgage and security agreement on the property and hotel project.
The monthly mortgage payment was set at $2,798. The mortgage has been amortized in equal monthly installments over a 25-year term beginning in 1990 and maturing in 2015.
"This deal was not made on investing to make money over the long term," said BriLyn Chief President and Executive Officer David L. Brooks. "Citizens saw the need (for a hotel) and invested and took risks, maybe with the hope that it would make money but (they) knew that most likely it would not."
The deal was originally struck between the Hamilton City Council and the Hamiltonian in 1985 to stimulate the development of a downtown hotel project.
Hamilton received allocations from the federal government to be used in certain redevelopment efforts. Those funds were converted into an Industrial Development Bond Loan Agreement, which was secured a by a first mortgage holder -- a partnership of Ohio Casualty Group and First Financial Bank.
The city of Hamilton acted as a second mortgage holder, by issuing a commercial revolving loan set up so that funds generated by the repayment of the hotel loans could be used by the city to reinvest in other projects through its revolving loan fund. More recently, RLF funds have been used for such projects as Matandy Steel & Metal Products, Valeo Climate Control, the former Weber's Grill, and the business district's Facade Improvement Program.
This setup created a "soft mortgage," meaning that city loan repayments are secondary to the hotel's obligation to the first mortgage holder. In other words, if the hotel did not continue to make enough money to pay off both debts, it was only required to pay the first mortgage holder.
Officials from First Financial Bank declined to comment on their relationship to the Hamiltonian. Officials from Ohio Casualty Group also declined to comment, other than to say they support the establishment and are in constant communication with involved parties.
In the city's 2002 comprehensive annual financial report, city officials stated that "the Hamiltonian has requested that the city forgive the entire debt."
City officials maintain that they will not forgive the debt. However, officials say they will temporarily overlook the issue until business improves.
"It's not in the best interest of the community that we foreclose on this property at this time," said Hamilton Economic Development Director Tim Bigler.
"Financially, it makes no sense, because if you foreclose on the property the first thing that gets paid off is taxes. The first mortgage holder is the industrial revenue bonds and the second mortgage holder is the city. We would not see proceeds from the sale of the hotel. We'd come way down on the list.
"It's pointless to foreclose on something when you know you're probably not going to see the money anyway," he said.
And because the original money loaned came from federal grant allocations for redevelopment in blighted areas, the city is technically not losing anything in the long term by waiting until the market improves to collect, Bigler said.
"It's clearly federal money we're talking about here, and that's why you don't write it off forever," he said. "We'll ride it out, because that money will eventually get refunded back to the city."
In a letter from Brooks to Bigler, dated Oct. 29, 2002 -- the last piece of written correspondence pressing the issue -- Brooks wrote that future repayment is not likely to come from the Hamiltonian. That is, unless the market changes dramatically.
"Tim, there is no financial way The Hamiltonian can make any payments, much less the $120,000 per year in payments you propose to have City Council vote on in November (2002)," Brooks wrote.
"We believe that it is in the best interest of the city for The Hamiltonian to remain open, and continue trying to pay off their first mortgage holder (May 2015) versus creating tension on both sides for which there is no solution. The publicity and the wasted time and energy for all parties would simply be non-productive."
According to Brooks, not much has changed since he wrote to the city.
"The current financial status -- due to the loss of over 12,000 jobs, the increased competition in Oxford and along I-75 and the Veteran's Highway -- is flat, plus or minus break-even at best," Brooks said.
Market conditions must improve, jobs must be added, and it's possible that citizens may have to contribute charity dollars if the hotel is to continue its ability to meet bond market obligations three years from now, he said.
On Oct. 16, 2002, Bigler wrote a letter to hotel officials addressing the company's negligence of loan and debt repayment. In that letter, Bigler said that Hamilton officials recognize the financial conditions facing the hotel and suggested an alternative refinancing agreement.
But Brooks subsequently refused that offer in his Oct. 29 correspondence. City official have not since made a concrete effort to recoup dollars owed.
"Since the cessation of payments by the Hamiltonian, we have not been able to recapitalize the RLF to the level that we have in the past, thus potentially impacting future development projects in Hamilton," Bigler wrote in the Oct. 29 letter.
Responding to that issue in a recent interview, Bigler said "You can always find projects to use the money for and if you have more money, then you can be more creative in the projects you do." He added: "We're hoping for the best, and that things will turn around."
Despite its current plight, city officials and investors say the justification for building a hotel was simple: The city of Hamilton did not have a nice hotel, and it was sorely in need of a meeting place for corporate and social events and lodging.
They say the Hamiltonian still fills a need in the community and that the community should support the hotel despite its waning financial performance.
"We're not making money on it; we're losing money on it," said Brooks. About three years ago, the company cut management fees in half to help support operations. "We're in it for the same reasons that the civic people are. We'll keep doing this as long as they want us to continue."
Dave Belew, who along with Hamilton residents Joel Schmidt, Joel Marcum and Richard Fitton was a key figure in bringing the city's hotel development to fruition, said, "we've got to buy time.
"We think things are on the upturn. We don't want to lose the hotel," he said. "That would discourage industry from coming. It's still very important. The last thing we need to do is incur the wrath of people in non-support of the hotel. We need people to stand behind it."
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