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City officials say they won't sell money-losing Hilton

Baltimore HotelsHotel and Accommodation IndustryFinancePublic OfficialsFort McHenry

City officials said Thursday that they've ruled out selling the money-losing Hilton Baltimore convention center hotel, but hope to turn a profit on the $300 million project within a decade.

The city could lose $60 million to $90 million if it sold the hotel now, officials said.

"We would do it at a very significant financial loss to the city," finance director Harry E. Black said of a potential sale. "We don't believe we're at that point yet. We believe the situation is manageable."

A consultant's report released Thursday called the hotel's finances "markedly improving" and showed projections of increased income over five years.

The convention center hotel, on West Pratt Street overlooking Oriole Park at Camden Yards, opened in August 2008, two years after then-Mayor Martin O'Malley and the City Council authorized more than $300 million in tax-exempt bonds to finance its construction.

The hotel has since lost more than $50 million, including $11.2 million last year.

The city hired Davenport & Co., an investment advisory firm, to look into all aspects of the 757-room Hilton Baltimore, from operations to the debt structure. The report concluded that the hotel is performing better than most of Baltimore's private hotels, based on occupancy and room rates. It generates more than enough business to cover its operating expenses, but not enough to cover its large debt payments.

The consultant predicted that the hotel would generate $4.5 million more by 2017 than it does now.

Independent political observers were split about the hotel's financial prospects.

Economist Anirban Basu, who runs the Baltimore-based consulting firm Sage Policy Group, said market trends show it's still possible the hotel's financial condition will improve.

"My very strong feeling is the hotel is underperforming of its potential," he said. "The strategy of improving performance is not just a pipe dream and could be accomplished under different management, but not necessarily different ownership."

Christopher B. Summers, president of the conservative Maryland Public Policy Institute, disagreed, arguing that the city is out of good options.

"When the initial plan was raised to do this, they should have run away as fast as possible," he said. "This is the largest city-financed project in history. It's a great game of Monopoly with other people's money."

This year, the city withdrew about $1 million from reserves and $1.5 million from a hotel occupancy tax account to cover the bond payments. The Hilton is expected to contribute $2.8 million to the general fund this year from the hotel occupancy tax, so the hotel was drawing from money it generated, officials said.

Davenport & Co., which was paid $24,700 for the report, explored a range of possibilities, including changing the debt structure or selling the hotel.

"It is not probable that the property could achieve a sale price that would effectively retire the indebtedness at this time," the report states.

Though the Hilton's occupancy rate is higher than the Baltimore-area average, it falls substantially short of projections that city officials relied on when they issued about $301 million in tax-exempt municipal bonds in 2006 to finance its development.

The forecast for 2012 called for an occupancy rate of 74 percent. Instead, the rate was 64 percent. Original projections predicted that the hotel would take in $22.9 million in cash in 2012. Instead, the hotel brought in $17.4 million.

"Even though these projections are lower than the original ... the Baltimore Hilton's performance is trending in a positive direction," the report states.

The debt obligations are also increasing. The city will owe about $18.5 million in debt on the hotel in 2014, a figure that will rise to $28 million by 2039, according to the report.

But while the hotel is having trouble covering its debt, the Hilton generated $100 million in economic impact for Baltimore in 2012, officials said.

"We're very pleased with the pace of business reflected in the report," said Michael Doyle, executive vice president of Capital Hotel Management, a contractor that oversees the project's finances.

Doyle stressed the hotel's importance to the city's overall fiscal health. He said the convention center and area businesses benefit from its existence. Of its 450 employees, 77 percent are city residents, he said.

Doyle said he believed the hotel could turn a profit — debt included — within the next decade.

Del. Curt Anderson, chairman of Baltimore's House delegation in Annapolis and a member of the Baltimore Convention and Tourism Board, said he expected 2014 to be a good year for the hotel. He said there will be celebrations honoring historic 1814 battles, including the bombardment of Fort McHenry.

"We're very excited about bringing 20 percent more tourism," he said. "We certainly need this hotel."

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Baltimore HotelsHotel and Accommodation IndustryFinancePublic OfficialsFort McHenry
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