City-owned Hilton lost $5.6M last year

City-owned hotel revenues declined last year, even with Orioles' playoff run.

The city-owned Hilton Baltimore convention center hotel lost $5.6 million last year — a worse performance than 2013 despite its close location to Camden Yards and the Orioles' playoff run.

It was the seventh consecutive year that the hotel has underperformed financially, according to an audit of financial statements presented Wednesday to the city's Board of Estimates. Under the deal's initial projections, the hotel was supposed to be making $7 million in profit by now — pumping that money into the city's budget.

"It's terrible news," said Stephen J.K. Walters, a professor of economics at Loyola University Maryland. "It's a sad example of the misallocation of scarce capital and a misbegotten development strategy."

The money-losing year was a setback for the hotel, which had been making financial progress. With a strong hotel market, solid business at the nearby convention center and a winning baseball team, economists say, it should have been poised for a banner year.

Instead, the business, on West Pratt Street overlooking Oriole Park at Camden Yards, reported flat revenue from hotel rooms and $1.6 million less from food and beverage sales.

"I don't have a crystal ball to say whether it will always be a money-loser," said Dennis C. Coates, a professor of economics at the University of Maryland, Baltimore County. "But it's not a good sign if they can't do well when the Orioles are doing well."

Jeffrey P. Pillas, the chief financial officer of the Baltimore Development Corp., stressed that the hotel has contributed 400 jobs to the local economy — 80 percent of which have gone to Baltimore residents. Pillas emphasized that the hotel has positive cash flow, but its assets depreciated by more than $8 million last year, hurting its profitability.

"We have plenty of cash flow," he said. "We've serviced all our debt on time as we were supposed to."

In 2013, the hotel lost $2.9 million — the best performance in the taxpayer-financed project's history. That year, city finance officials said they had ruled out selling off the hotel and hoped to turn a profit within a decade. A consultant's report called the hotel's finances "markedly improving."

Jan Freitag, a vice president with the Tennessee-based firm Smith Travel Research, said 2014 was a banner year for hotels across the country, including Baltimore. Baltimore's market showed a 5.2 percent growth in occupancy rates and a 7.9 percent growth in hotel revenue, he said.

"Demand was up," Freitag said. "Markets across the country were either strong or very strong."

Moreover, in 2014, the Baltimore Orioles won the American League East and brought 2.4 million fans to Camden Yards — the highest number since 2002. But Pillas said the Orioles' success didn't necessarily translate into increased revenue at the Hilton because Yankees and Red Sox games didn't always fall on weekends.

"It depends when the out-of-town team is here," he said. "When it's during the week, we don't get that crowd."

Instead of breaking even or turning a profit, revenues at the hotel slipped by about $2.1 million from 2013, while expenses increased.

Pillas said last year's slip in revenues could be attributed in part to a "turnover in management" at the facility.

"It's a difficult business," he said. "This year, I expect things to be much improved. I think 2015 will be a pretty good year."

The 757-room convention center hotel 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 interest rates on the bonds range from 4.6 percent to nearly 5.9 percent. The hotel paid $15.6 million in interest last year.

The hotel has lost more than $70 million since it opened.

City Council President Bernard C. "Jack" Young was among the council members who voted against the initial hotel deal. But Young now supports the project and believes its financial situation will improve, said his spokesman, Lester Davis.

City officials note that 2015 is supposed to be a big year for bookings at the nearby convention center. A record 29 conventions are booked for this year, compared with 20 each of the previous two years. The Hilton is expected to benefit from those additional visitors.

"He's confident that things will move in the direction of the hotel turning a profit," Davis said. "The numbers in 2014 were not fully where you want them to be. There's an expectation that this year will be the year [the hotel] starts to emerge from some of the financial issues."

lbroadwater@baltsun.com

Twitter.com/lukebroadwater

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
39°