COVID-19 Cancellations Driving Need For More County Help On Hotel Debt
The coronavirus pandemic has cost Hilton $13.4 million in canceled group bookings at the publicly owned hotel in Downtown Cleveland, consultants told Cuyahoga County Council on Monday.
The revenue decline is what led Cuyahoga County to consider paying $7.9 million to cover debt payments and property taxes at the hotel, they said.
The hotel has remained open during the pandemic. But many large groups, such as trade associations and other convention planners, canceled spring and summer business with the hotel.
“Originally we moved them into the fall, where people were feeling more comfortable,” Hilton Cleveland Downtown General Manager Teri Agosta told county council. “But now the fall books are moving into the first or second quarter, and even ’22 and ’23.”
The Cleveland-Cuyahoga County Port Authority holds the title to the hotel property and leases it to Cuyahoga County. The county is responsible for maintaining the building and is on the hook for repairs and damage. The county owes $20.7 million in lease payments this year, which pay down the construction debt on the 600-room, $280 million hotel.
Hilton typically contributes $8 to $9 million from the hotel’s revenues toward those payments. But with the hotel industry cratering during the pandemic, Cuyahoga County is proposing to cover $6.5 million from Hilton’s share of the burden. The county also would pay $1.4 million in property taxes.
Those payments would be on top of $9.5 million the county already planned to pay from its general fund. If council approves the payments, the county’s general fund will contribute about $17 million toward hotel debt service and property taxes this year.
Hotel occupancy has plummeted nationwide during the COVID-19 pandemic. In May 2019, Cleveland-area hotels were about 65 percent full. But this May, those hotels reported occupancy of 26.5 percent, according to CHMWarnick, the county's consultant on hotel management.
Dale Miller, the Democratic chairman of county council’s finance committee, asked the administration to come back with a breakdown of what the county’s contribution would have looked like without the pandemic.
Democratic Councilman Pernel Jones asked whether the county considered refinancing its hotel debt in light of the pandemic.
“We know this hotel belongs to the county and this is our contractual responsibility to make these payments,” Jones said. “But many times, the community still has questions and concerns and desires an opportunity to weigh in.”
County financial advisor Bob Franz said refinancing the hotel debt wouldn’t make economic sense right now. If the county were to refinance, it would have to borrow money to repay the principle and interest owed until 2024, he said.
But the county is considering capitalizing on current low interest rates to refinance debts on the Global Center for Health Innovation, Fiscal Officer Michael Chambers said. And Cuyahoga County also recently refinanced its convention center debt, he said.
“If I knew for sure we could lessen that $7.9 million, we would certainly take advantage of it,” Chambers said.
Council members, many of whom voted in favor of building the hotel in 2014, largely spoke favorably of the project on Monday.
Republican Councilman Mike Gallager said the hotel delivered just what was promised at its inception: a political convention. The economic impact of the 2016 Republican National Convention was worth the county’s spending, he said.
“Any suggestion that the hotel in any way, shape or form was a mistake, is just a mistake,” Gallagher said. “It actually put us on the map with our brand new convention center.”