Title
Authorize the Sale of the Sheraton Grand Phoenix Hotel; Further Authorize Lease Agreement and Any Additional Agreements to Facilitate the Lease and Hotel Sale (Ordinance S-43964)
Description
Request to authorize the Downtown Phoenix Hotel Corporation and the City Manager, or his designee, to sell the Sheraton Grand Phoenix Hotel and the hotel's personal property to TLG Phoenix (or other City-approved nominee) (Buyer); and to enter into a 20-year Government Property Lease Excise Tax (GPLET) and other agreements as necessary and appropriate to facilitate the lease and hotel sale. Further request authorization for the City Treasurer to accept, and for the City Controller to disburse, all funds related to this item, pursuant to the agreements, and for the Chief Financial Officer to liquidate, pay down, restructure, refinance or renegotiate the City's hotel debt.
Report
Summary
The City of Phoenix created the Downtown Phoenix Hotel Corporation in 2005 to develop a convention headquarters hotel to support the expanding Phoenix Convention Center. The hotel opened in 2008, in time to serve the first guests of the expanded Convention Center, and to benefit the tourism industry, downtown revitalization, and the local economy. At the Dec. 2, 2015 Formal City Council meeting, the City Council authorized the Downtown Phoenix Hotel Corporation to market the hotel for sale and present recommended purchase offers to the City Council.
Pursuant to the Letter of Intent from TLG Phoenix dated July 7, 2017, TLG Phoenix has deposited $100,000 in escrow. Within five business days after executing the Purchase Contract, TLG Phoenix will deposit an additional $4.9 million, with the remainder of the purchase price due on closing. The hotel sale price will be no less than $255 million inclusive of all lease payments. The term of the lease will not exceed 20 years, at which time the land and improvements convey to the Buyer. The property may only be used for hotel and related uses, consistent with current uses, unless otherwise approved by the City. Buyer will honor all existing convention, meeting and event contracts, as well as labor agreements, at the hotel. Buyer will have a 45-day due diligence period upon execution of the Purchase Contract, with a one-time 30-day extension contingent upon an additional $100,000 deposit. Closing is anticipated around Jan. 5, 2018. The City will pay for title insurance, and each party will pay its share of transaction costs.
The hotel's capital replacement fund of approximately $13 million will remain with the property to facilitate required renovations. TLG Phoenix anticipates making $30 million to $40 million in hotel renovations and property improvements.
Financial Impact
Staff estimates the net expense to the City to complete this transaction and close out the City's financial obligations related to the hotel will be approximately $40 million, significantly reducing the obligation of the Sports Facilities Fund. An independent economic impact analysis concluded that the direct public benefit as a result of this transaction would exceed $391 million over the life of the 20-year GPLET, including the generation of more than $2 million annually in net new lease excise and personal property taxes, which would primarily benefit local schools.
Location
340 N. 3rd St.
Council District: 7
Department
Responsible Department
This item is submitted by Assistant City Manager Milton Dohoney, Jr. and the Phoenix Convention Center Department.