The city of Chattanooga, which built Chattanooga's premier hotel and conference center nearly two decades ago, is getting out of the hotel business.
A Buford, Georgia-based hotel chain has purchased the city-owned Chattanoogan hotel and promised Friday to make "substantial investments" in the 17-year-old facility. Ascent Hospitality paid the city $27 million for the 199-room hotel and conference complex, which first opened on Chattanooga's downtown Southside in 2001.
Although the sales price is less than the hotel's share of a larger outstanding city bond issue, city officials said placing the hotel under private ownership will generate an extra $280,000 in property taxes a year and save the city $23 million in payments over the remaining life of the bonds used to pay for the hotel.
"The Chattanoogan hotel is one of our city's most important assets and Ascent Hospitality is the ideal partner to make it every aspect of it even better," Chattanooga Mayor Andy Berke said in announcing the sale late Friday. "We have structured a transaction that will provide immense benefit to the taxpaying public of Chattanooga, while enhancing the experience to the many thousands of business and recreational travelers that visit this hotel every year."
The sales comes more than two years after the city agency responsible for managing the facility, the Chattanooga Downtown Redevelopment Corp., voted to sell the Chattanoogan. An original $32 million purchase agreement last year from the Schulte Hospitality Group fell through, and the CDRC began negotiating for the sale with Ascent earlier this year.
This has obviously been a time-consuming and complex endeavor, but we are excited to be part of this great city," said John Tampa, president and co-founder of Ascent Hospitality. "As demand for premium lodging continues to grow here, Ascent looks forward to making substantial investments that will offer all of our guests an outstanding experience in Chattanooga."
Ascent Hospitality currently owns, manages or is developing 32 hotels in Alabama, Georgia, Mississippi, Pennsylvania and Indiana, in addition to The Chattanoogan. In Dalton, Georgia, Ascent operates an 88-room LaQuinta Inn and Suites hotel, which opened a decade ago.
Tampa said "Chattanooga is one of the most dynamic and attractive metro areas in the Southeast," and he said his company is proud to expand its portfolio into Tennessee for the first time.
Daisy Madison, the city's chief financial officer and CDRC chairwoman, said selling The Chattanoogan has proven to be the most difficult and complicated dealing in her 26 years of work in city hall finances.
Originally, the city planned to sell the hotel and use the sale proceeds to reduce its pro rata share of the bonds associated with the hotel. But the buyers said for their deal to be completed, the city first had to pay off the existing bonds, which include a secured interest in The Chattanoogan and other facilities as collateral for the debt.
The city erected the downtown conference center in 2001 to help bring more business groups to town. The facility was aided by a special state tax break that allows the city to keep a portion of the sales tax generated in and around the hotel and by a half-cent increase in the local sales tax approved by Chattanooga voters to pay for hotel and other downtown improvements along with other economic development programs.
The hotel's income and tourist zone tax payments have not been enough to pay all of the annual debt costs for the hotel, which still has more than $30 million of debt as part of a larger city bond issue. But with the sales tax revenue from the additional half-cent sales tax approved by voters, the city has been able to pay the annual debt service costs on the $129.2 million of bonds issued nearly two decades ago to pay for the construction of The Chattanoogan along with the Chattanooga/Hamilton County Development Resource Center, a parking garage and the expansion of the Chattanooga Convention Center.
The CDRC voted in July 2016 to put The Chattanoogan up for sale to help pare that debt, which now totals just under $90 million for all of the downtown Chattanooga facilities. The city estimates the unpaid portion of the bonds associated with The Chattanoogan totals over $30 million.
"This is a very, very, very complex deal — much more complex than I would have imagined when we started this process," Madison said this summer. ""But bottom line, we still think this is the right approach and will save us significantly over the life of this issue. The debt service costs will go down; the new owner is looking to invest more money in the hotel, and The Chattanoogan will go back on the tax rolls."
Contact Dave Flessner at email@example.com or at 757-6340