Vancouver short on Hilton debt payment
Wednesday, November 23, 2011
For the second time in a year, Vancouver officials said that they will have to tap into lodging tax reserves to pay the debt on the building that houses the Hilton Vancouver Washington and Vancouver Convention Center.
Exactly how much in reserve money will be needed won’t be known until after Dec. 1, but Vancouver Chief Financial Officer Lloyd Tyler estimated the amount at $350,000 to cover the $2.4 million payment due Jan. 1.
Until last year, the Hilton had been able to meet its $4 million annual bond payments through its operating revenue, a dedicated lodging tax collected by the city and a sales tax credit from the state.
But the continuing economic doldrums have kept room rates low, even though room occupancy is up, making it difficult to cover the full payment, Hilton General Manager Eric Walters said.
“We did gain market share this year and will finish with our best market performance since opening in 2005,” Walters said. “We will still finish the year down 17 percent in revenue and 40 percent down in profit compared to our best year, which was 2008.”
Last December, just over $584,000 was drawn from the reserve fund to make a $2.3 million payment on Jan. 1, 2011.
In July, the Downtown Redevelopment Authority — the 225-room hotel and 30,000-square-foot convention center at 301 W. Sixth St. — was able to make its $1.7 million payment without tapping reserves.
Walters said that the hotel’s difficult contract negotiations with its unionized workers, Unite Here, are still moving along, and he hopes both sides will talk again soon.
Still, he said, the union’s initial request for a 53 percent pay raise would cost $1.1 million a year, cutting into the Hilton’s $1.6 million share of the debt payment. Management has offered a 3 percent raise.
“If we were to meet the union’s demands, it leaves very little left to flow toward debt service,” Walters said.
The 114 unionized workers voted down a boycott in early November, however. “They have not made a counterproposal at this point, but we hope to get back to the table. “
The Hilton does not receive any money from the city’s general fund, which pays for operations such as fire, police and streets. Rather, it gets about half of a 4 percent lodging tax on room bills for all hotels across the city. State law prohibits lodging tax money from being spent on anything but programs that promote tourism.
The Vancouver Downtown Redevelopment Authority in 2003 took out $68 million in bonds for the Hilton hotel and convention center, with the city backing the loans. Hilton Hotels Corp. is paid a flat fee to manage the site.
Under the terms of the 2003 financing documents, the city of Vancouver agreed to guarantee the loan, but how much it must cover out of its reserve every year is capped, Tyler said. For 2010 and during the 2011-2012 biennium, the annual cap is $650,000. The reserve balance was $1.3 million in December 2010.
The dipping into reserves is another sign of the ongoing struggle to meet the payments for the building.
Clark County Board of Commissioners Chairman Tom Mielke in October said the city had approached the county about forgiving $4.4 million in loans the county had given from its share of a state sales tax credit to pay for the hotel-convention center.
The money, given as a loan with no deadline for repayment, was unlikely to be repaid anytime soon, Tyler said last month. Mielke said that nonetheless, the county was disinclined to forgive the debt.
That amount accumulates at a rate of $45,000 to $60,000 a month, with an interest rate of 5.64 percent, Vancouver Chief Financial Officer Lloyd Tyler said.
Walters said that going into 2012, finances are expected to improve slightly, but revenue will still be down 30 percent compared with 2008, its best year to date. Whether reserves will once again be needed or not “is going to be close,” he said.
“We’ll run a higher occupancy in 2012 than in 2008,” Walters said. “But our average rate hasn’t returned. It’s a good indication that occupancy is coming back — it’s the first sign of recovery for us. But it’s going to take some time.”