Staff Photo by Dan Henry / The Chattanooga Times Free Press- 7/5/16. The Chattanoogan Hotel on Tuesday, July 5, 2016.Hotel at a glance
› Name: The Chattanoogan.› Location: 1201 Broad St. in downtown Chattanooga.› Opened: 2001.› Owner: City of Chattanooga, overseen by the Chattanooga Downtown Redevelopment Corp.› Operator: Benchmark Resorts and Hotels.› Features: 199 hotel rooms, three dining establishments, a day spa, fitness center, indoor pool, business center and 25,000-square-foot conference center.› Debt: $37 million.
It might come as a surprise to Chattanooga residents to learn that the city owns a hotel, The Chattanoogan.
But maybe not for much longer, since city officials hope to sell the luxury hotel and conference center that opened on South Broad Street in 2001.
"We've had some private companies express interest in buying it," Mayor Andy Berke said. "We would love to see it go into private hands."
City officials also would like to sell the hotel because it doesn't cover its costs.
"That, and ideally, we would just like to be out of the hotel business," City Finance Officer Daisy Madison said. "We would like to return that property to the private sector, so it can be returned to the tax rolls."
The city currently spends about $2.3 million each year to make up for the shortfall from the hotel's income in repaying the hotel's debt. Over the past two fiscal years, 2016 and 2015, Benchmark Resorts and Hotels, which manages the hotel for the city, has made lease payments of about $1.1 million, or about one-third of the roughly $3.4 million that's The Chattanoogan's share of the debt for the bonds that built the hotel. And not all of Benchmark's lease payment goes toward The Chattanoogan's debt.
"Some of the dollars that have come in [are re-invested] so they can keep that well-maintained," Madison said.
The $129.2 million bond package also paid to construct the Chattanooga/Hamilton County Development Resource Center (DRC) where city and county planners work, a parking garage, and the Chattanooga Convention Center.
So, the city still owes $37.3 million on the hotel's 30-year bond issue that was part of the original $129.2 million debt issue issued in 2000 to finance The Chattanoogan, the expansion of the trade center and construction of the Development Resource Center. The cost of the hotel represented 37 percent of the bond issue, making The Chattanoogan portion about $47.8 million of the original issue.
That $37.3 million is the lowest price a buyer would have to pay to get the hotel now, Madison said.
"Minimum," she said. And Madison hopes the city can sell The Chattanoogan for more.
Worth $37.3 million?
The Chattanooga Downtown Redevelopment Corp. chose the PFM Group, a nationwide financial services company for government and nonprofit clients that has a Chattanooga office, to market the hotel. PFM Group was picked after the city issued a request for proposals; the contract is still being worked out, Madison said.
Madison didn't want to speculate about how much the Chattanoogan might be worth. It has 199 hotel rooms, three restaurants and 25 meeting rooms, which feature 25,000 square feet of exhibit space.
"It all depends on who you're talking to," she said. "That's why we're putting it on the market, and the market will tell us what it will bear."
Two experts who buy and sell motels have different takes on whether the hotel merits a $37.3 million price tag.
One potential buyer might be Vision Hospitality Group, a Chattanooga-based family-owned-and-operated hotel company founded in 1997 by Mitch Patel that's affiliated with the Hilton, Marriott and InterContinental brands.
"If it comes to market, it's certainly something that we would look at pretty seriously," said Andrew "Drew" Hibbard, Vision's vice president of finance and investments. "I think it's a beautiful property. It's definitely one of the nicer properties in Chattanooga."
H. Brandt Niehaus, the Louisville, Ky.-based three-time past president of Hotel Brokers International, was skeptical.
"Based on the cash flow, it doesn't justify a $37 million value," Niehaus said. "But that doesn't mean a different operator couldn't do better."
Tom Cupo, the Benchmark employee who manages the Chattanoogan, said that it does about 25 percent better than comparable hotels in Chattanooga and 5 percent better than comparable hotels in Atlanta.
"We've had two records year in a row, and we're poised for a third record year in a row," Cupo said.
Asked if The Chattanoogan might become a Trump property, Madison didn't miss a beat.
"If he would buy it, I would sell it to him in a minute," she said.
Contact staff writer Tim Omarzu at tomarzu@timesfreepress.com or www.facebook.com/MeetsForBusiness or twitter.com/meetforbusiness or 423-757-6651.