The City of Memphis is the new owner of an old hotel, after council members unanimously agreed to purchase the outdated Downtown Sheraton during the Oct. 1 meeting.
Mayor Paul Young pitched the vote as a choice between potential “catalyst” to invigorate economic development Downtown, or a property with declining returns.
“This is one of those projects that I believe is very, very important for our economic vitality as a city. We cannot afford, as a community, is to have another tower in Downtown Memphis go dark – or to be auctioned off to the highest bidder and it become a one-star or two-star hotel,” said Young.
The deal was closed on a 9-0 vote.
The franchise effectively operates as the nearby Renasant Convention Center’s hotel. If the location were shuttered, it would also leave a hole the the city’s plan to pay off $300 million in renovations to the center. The revenue is collected through taxes on hotels and motels.
However, the poor condition of the 600-room hotel has inspired visitors to seek other lodgings.
Nevertheless, city leaders see potential for greater revenue from the property – along with the increased traffic events held at the center bring to Downtown. The downside to doing nothing has also become apparent.
“The impact they create when they come into the community is substantial. We applaud the administration’s efforts to make this move forward,” said Renasant G.M. Dean Dennis. “We have a record of those conventions that won’t come because the quality of the hotel. Most recently, KOA Campgrounds said we want to come to Memphis. We want to continue to think about it, but it’s not up to the standards that we need to make it work.”
Young related a text he recently received from a small business owner, after a recent conference in Memphis.
“They were giving us praise – us as a community, praise – for the conference that was just held, because they had such an amazing week with all the patrons that have come to their business. That’s just one example of the potential impact our convention center has on small businesses Downtown,” said Young. “It really is an economic impact, having a hotel that is going to allow us to attract more conferences and events.”
Money for the $22 million purchase was freed up through a $30 million bond sale. The Center City Revenue Finance Corporation put up $1.5 million in good faith money. The state-chartered industrial developmental board will take control of the city’s new property.
The transactions were approved separately during the morning Economic Development, Tourism & Technology committee.
Prior to the vote, members inspected the rundown location for nearly an hour.
The building was purchased from Starwood Capital Group, after the Miami-based investment firm balked at renovations. Built in 1978, the Downtown Sheraton’s last renovation was in 2009.
The rehab on the building is expected to cost upwards of $200 million “to match the quality” of the convention center.
“It’s certainly going to be a significant amount of money,” said Young.
However, the city doesn’t plan on being a long-time owner. Ownership of the hotel is expected to transfer to a nonprofit within two years. One potential owner is Provident Resources Group. Talks are expected to continue.
The owner will be expected to hire the developer for the site’s rehabilitation at a fee. The nonprofit will issue a bond. It will be secured through a tourism development zone surcharge and other “tools.”
The significant renovations to the structure won’t begin in earnest until the bonds are issued. It could take up to two years for them to be issued.
In the interim, the administration is proposing working with the previous team that had the contract on the property.
“We don’t want to be the ones managing a hotel,” said Young.
