The Chattanooga Downtown Redevelopment Corp. on Tuesday unanimously approved the sale of The Chattanoogan, but for a purchase price $5 million lower than what was offered last year for the city-owned hotel and conference center.
The previous agreement the city struck last fall with the Schulte Hospitality Group in Kentucky was for a $32 million cash offer. But Chattanooga Finance Director Daisy Madison, chairwoman of the Chattanooga Downtown Redevelopment Corp., said the city agency was "unable to negotiate mutually agreeable terms" with the group.
Madison said the offer for $27 million from the new undisclosed buyer was still higher than Schulte was willing to pay after negotiations, and she believes the outcome was "more favorable" for the city. The new buyer was not identified by city staff, but Madison said the new buyers said they plan to invest $10 million to $11 million to renovate The Chattanoogan.
"We still need to execute a purchase agreement, but the major items are pretty much firm," Madison said. "We don't expect much to change."
The city is expected to have a signed agreement with the buyers this week and a closing date of mid-July, according to documents. Closing costs are estimated to be about $830,000. The new buyer will pay a $1 million deposit within five days of the executed agreement.
The city will keep ownership of the parking garage associated with the hotel and lease 160 spaces to the new buyer at market rate.
The Chattanoogan opened in 2001 and the 199-room hotel includes three restaurants and conference meeting facilities.
The staff of the downtown redevelopment corporation said that based on the hotel's revenue of the last five years, the city could pay only about $25 million of the nearly $32 million in remaining debt on The Chattanoogan. Selling the hotel complex at $27 million leaves the city with $4.93 million to still cover the debt, though all but $1.2 million of the remaining debt should be made up for with property taxes paid by the new owner once the hotel becomes privately owned.
As a city-owned facility, The Chattanoogan has not paid property taxes over its 17-year life.
The Chattanoogan now is operated for the city by Benchmark Resorts and Hotels, which will continue to run the hotel until the sale is completed. During the 2015 and 2016 fiscal years, Benchmark 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. So the city spends about $2.3 million each year to make up for the shortfall from the hotel's income in repaying the hotel's debt.
On top of the hotel's nearly $32 million in debt, the parking garage debt is an estimated $6 million. Most of that would be paid off through a parking arrangement with the Tennessee Valley Authority and revenue from the new buyer leasing spaces, they said.
The downtown redevelopment corporation voted in July 2016 to put The Chattanoogan up for sale to help pare the city's $129.2 million debt issued to pay for the construction of the hotel along with the Chattanooga/Hamilton County Development Resource Center and the expansion of the Chattanooga Convention Center.
On Tuesday, board members also approved the 2019 fiscal year budget for the hotel and conference center.
The FY 2019 proposed budget includes a projected $14.8 million in operating revenue for the hotel - up nearly $500,000 from the previous year. After expenses, the hotel is expecting a profit of $628,793, records show.
The city expects $981,000 in revenue for the parking garage in FY 2019 with a profit of $622,284 after expenses.
Contact staff writer Allison Shirk at ashirk@timesfreepress.com, @Allison_Shirk or 423-757-6651.
