Letter: City should pass on loan to hotel developerEditor’s note: The following letter was also submitted to Mayor Alan Oberloh and council members, as well as Worthington City Administrator Craig Clark and Director of Community/Economic Development Brad Chapulis.
We are contacting you representing the collective voice of the lodging businesses serving the city of Worthington to send a unified message urging you to reject any further investment or loans of public money into the proposed new hotel project at the city Events Center.
Collectively, we are very supportive of the new Worthington Events Center as an important asset for the city and a stimulus for the local hospitality market. We all support a vision of growth for the city and success for its business community.
However, the reasons for our strong concerns are grounded in the realities of the Worthington lodging market and the damaging impact that another new hotel, with additional city funding, would have on this community’s current hotels and potential investors.
The city has already approved $530,000 of public financial subsidies to this hotel project through donation of land and tax increment financing.
Now another request is pending for a $400,000 loan. The city will likely end up with more money invested in the hotel than the developer and will also be at risk of financial loss given the weak market. We strongly encourage the City Council to investigate further the equity position of the developer relative to actual investment vs. the financial commitment made by the city.
Here are key facts about the current Worthington hotel business relative to this proposed new hotel:
* Hotel occupancy rates (a key indicator of market strength) in Worthington are 49.9%, far below both national averages and the level where the construction of additional rooms is warranted. (Statistics from the respected hotel industry research firm Smith Travel Research -statistics noted by Bob Campbell of Lexington Development Partners.)
* Average Daily Rate (another key indicator of market vibrancy) is $77.88, well short of industry standards and another, major “red flag” against adding more rooms. (Statistic also originates from STR.)
* STR Report for Southern Minnesota shows occupancy at 48% with $72.16 ADR for 2011 — with very little increase over the past three years.
* Based on the solicitation email to potential investors from Bob Campbell, the hotel will need to generate over $2 million in revenues from a market that now generates only $4.4 million annually. This means the new hotel would need nearly half of the existing market revenues to make it viable at a break-even point.
* Existing Worthington area hotels, which employ many of your constituents, are currently dealing with a highly volatile market and would be further negatively impacted when this hotel enters the market.
Over time, the Events Center may help build the market to the point where it could support a new hotel. But, we want to be clear: the current Worthington market cannot support another hotel and putting more taxpayer money at risk to help fund it will be damaging to the business of the existing hotels in the community and the approximate 80 direct hospitality jobs that they support.
An agenda item considering the $400,000 city loan to the proposed new hotel is on the City Council Agenda for the meeting on July 23. We collectively ask that you respect the concerns of your constituents in the existing Worthington hotel community and reject it.
Bill, Judy and Jim Rieckhoff,
Holiday Inn Express Ownership
Sunny Patel, Travelodge Owner/Operator
Nancy Vaske and Howard
Anderson, AmericInn Operator/Vice President TRH
Days Inn Owner/Operator
Jo Patel, Super 8 Owner/