Phoenix Getting Ready to Sell Sheraton Downtown Phoenix Hotel
The Arizona Republic is reporting Phoenix is positioning itself to sell the financially troubled Sheraton Phoenix Downtown Hotel, a move that could force the city and taxpayers to absorb tens of millions of dollars in losses.
City officials from Mayor Greg Stanton to Chief Financial Officer Neal Young said Phoenix is refinancing debt on the hotel so it can get ready to sell the 1,000-room Sheraton, the largest hotel in the state.
Selling the city-owned hotel would address concerns that the city is keeping it afloat with money that should be used to ensure the Phoenix Suns stay downtown. The hotel has performed so poorly that Phoenix is spending money that some City Council members say is needed to help pay for a new arena to replace US Airways Center, which the basketball team leases from the city.
The hotel has lost more than $38 million since its doors opened during the height of the recession in 2008, city officials said. Phoenix leaders at the time said the project was an investment to draw more convention and tourism dollars, and they suggested it would perform well.
Concerns that the hotel could cripple Phoenix’s ability to keep the NBA team downtown are stirring as Suns management has quietly begun talks with city leaders about the future home of the franchise.
The team has a 40-year lease to operate at US Airways Center, but its agreement includes a provision for the Suns to opt out at the 30-year mark if the building is considered obsolete. That could allow the Suns to leave downtown Phoenix by around 2022.
But decisions about the team’s future might need to be made much earlier. In 2019, the Suns can initiate the process to determine if the building is obsolete. That’s a narrow timeline for a major urban-development project.
Phoenix owes about $330 million on the hotel, but city estimates suggest its value ranges between $175 million to $225 million, though a formal appraisal hasn’t been done.
City Council members voted late last month to refinance the hotel debt so the city can lower its payments and start putting money aside for a Suns arena or other projects.
Phoenix is covering the hotel’s losses with revenue from a sports-facilities fund that gets money from a special tourism sales tax. That sales tax was created to build US Airways Center, which opened in 1992. The hotel received about $16 million of that tax revenue last year alone, leaving virtually nothing to save for a new Suns arena or renovation of the existing facility.
City officials hope that refinancing the hotel debt will immediately lower the city’s annual payments on the hotel to the point that it doesn’t siphon money from the sports fund and lowers the amount of principal it owes on the debt to about $300 million.
In the long term, the aim is to remove the financial risk the hotel poses to taxpayers by selling, officials said.
Deputy City Manager Paul Blue, who oversees the city’s downtown-redevelopment efforts, said the hotel was an important piece of infrastructure needed to help Phoenix’s convention center open, but it’s time to move on. He said the city did its part by getting the Sheraton built at a crucial time as the city opened its convention center and invested in other projects downtown.
Blue said the city is interested in selling the hotel so that Phoenix isn’t vulnerable to the ups and downs of the traditionally fluid hospitality industry. He said the city doesn’t have a timeline for a potential sale, but it could come as early as next year.
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