CHICAGO — The St. Louis convention center hotel complex now owned by bondholders formally asked late last week to extend the deadline for a payment in lieu of taxes it owes the city at the end of the year to help stave off a shortfall in working capital expected this winter.
Bond trustee UMB Bank NA reported in a recent call with bondholders that it has set aside the $3.25 million payment owed at the end of the year, but was in negotiations with the city over some form of extension. A resolution introduced on Friday calls for the hotels to make a partial payment of $1.95 million, with the remainder being paid in July and October of next year.
Bondholders took ownership of the Renaissance Grand Hotel and Suites earlier this year after foreclosure proceedings. The proceedings followed a default last December on debt-service payments on the $98 million 2000 issue by the hotel developer and lead member of the obligated group Historic Restoration Inc.
The extension request comes as the bidding process for the 165-room Lennox Suites is advancing and efforts are underway to establish the area as a community improvement district and transportation development district. Such a move would allow the Renaissance to collect a 2% sales tax on rooms. It would generate an estimated $150,000 to $400,000 in revenue annually at the 918-room Grand operated by Marriott Corp., according to a bondholder notice.
On the possible sale of the Suites building, the trustee reported that 29 firms have showed an interest in bidding on the hotel. The trustee reported that it is likely a bid deadline in December would be set, with a closing possible in March if bondholders agree to a sale.
The hotel is under pressure to come up with more cash to manage operations through the winter. Occupancy for the year through Sept. 11 declined to 52.3 % from 66.6 % last year while room rates declined to $120.26 from $123.24, resulting in a loss of $171,051, compared to a profit of $3.1 million a year ago. The hotel also traditionally has seen significant operating losses between December and March.
“Additional developments with regard to a solution to the potential working capital shortfall are expected shortly, and Series A holders may expect a second conference call on the subject between now and Dec. 15, 2009,” the bondholder notice reads.
The hotel has undergone a series of cost-cutting measures recommended by consultant Jones Lang LaSalle Hotels saving about $1 million in 2009, but further cost cuts are not expected to bridge the working capital shortfall.
The hotel has long struggled and little improvement appears on the horizon due to the downturn in tourism and competition from other nearby new or improved hotels. The lodging industry in the city has experienced slow growth in recent years, and the outlook is dim.
A consultant’s report earlier this year warned that the city is a “hard sell” for tourist and convention business because its downtown lacks sufficient attractions, aside from its famous Arch and the St. Louis Cardinals during baseball season.
On the convention front, the city lacks amenities touted by its chief competitors. Atlanta offers a stronger hotel stock and Delta Air Lines hub; Denver has newer hotel stock, easy accessibility to West Coast cities, and a moderate climate; Indianapolis offers lower fares and accessibility to Midwestern industrial corporations; and Minneapolis has a thriving downtown and a Delta hub.
Moody’s Investors Service earlier this year downgraded the hotel bonds to Ca from Caa2, warning that it is unlikely bondholders can recoup their full investment even in an eventual sale of the facilities.
The St. Louis Industrial Development Authority issued the senior-lien revenue bonds in 2000 as part of a complicated financing scheme that included public funding to acquire and renovate the $266 million hotel complex that serves the city’s convention center.
The uninsured bonds initially garnered a low investment-grade rating from Moody’s but fell into junk-bond territory as revenues failed to meet original projections after the hotels opened in 2003.
Bonds have recently traded at prices between 11 and 35 cents on the dollar.