July 25–The Dauphin County General Authority opened a hotel in Pittsburgh in 2000 thinking it was a strong investment.
That hasn’t been the case.
For most of its history, the Hyatt Regency at the Pittsburgh International Airport has not earned the Authority enough money to keep up with its more than $5 million in annual debt payments on the property.
The Authority spent most of 2012 in technical default on the $90 million it still owes on the hotel, according to the Authority’s 2012 audit. That means the Authority had to make its loan payments from a bond reserve fund, but was unable to repay the reserve fund on the timeline laid out in the bond contract.
The problems continue into this year. In January and July, the Authority told its creditors it had to make two more unscheduled withdrawals from the bond reserve fund in order to pay its debts on the hotel, according to bond documents.
The Authority was also in technical default in 2006. At that time, it was able to repay the bond reserve fund in 2007, when the hotel had its most profitable year to date — a year that now looks like an outlier.
But the Authority might not be saddled with the hotel for much longer.
“We’re currently in the process of working out a sale that will place it back on the tax roles in private ownership,” said Dave Shannon, the head of the Authority’s audit committee.
The Authority hopes it can complete a sale within the year, Shannon said. He said it was too soon to comment if the Authority would be able to recoup its entire investment.
By all accounts, the hotel is well run.
In a 2012 study commissioned by the Authority on improving hotel revenue, the Greenwood Hospitality Group praised the hotel staff and condition of the building. While it said the Hyatt brand is not as strong as others in the business traveler marketplace, Greenwood expected hotel business to continue to increase as the economy recovered. Greenwood also offered suggestions that could boost annual operating profits by $250,000 to $500,000.
But, Greenwood said, it would not be enough.
“The potential improvement in the operating profits would be beneficial but it is not sufficient to resolve the significant financial challenges the Authority is currently facing with respect to the hotel,” the study said.
For 2013, the Authority owes $5.1 million, according to the audit. Of that, $1.77 million will go toward paying the principal; another $3.35 million is dedicated to the interest payments.
Through 2029, the Authority owes $54.9 million in principal and $35.6 million in interest.
“The financial statements pretty well speak for themselves,” Shannon said. “It’s a struggle.”
The Authority built the hotel in 1998. When asked if the hotel was a good investment, Shannon, who joined the Authority board two years ago, said he wasn’t in a position to comment.
As to the current situation, Shannon said the hotel “belongs in private hands. At least that’s my opinion.”
Allegheny County would certainly appreciate if the Authority got out of the hotel business.
As a nonprofit municipal entity, the Authority does not have to pay property taxes on the hotel. When it built the hotel in 1998, the Authority made an agreement with the county saying it would make an annual payment in lieu of taxes, provided it earned enough money. In 2012, for example, the Authority would have paid Allegheny County $767,000 according to the original schedule.
Because of the hotel’s financial struggles, Shannon said the Authority has not made one of these PILOTS in at least a decade.
So how does any affect Dauphin County taxpayers?
Unlike some of the Authority’s other investments, Dauphin County did not guarantee it would pay off the bonds with tax money if the Authority could not. However, if the hotel debt were to overwhelm the Authority, it could make borrowing for other, more needed local projects, difficult.
That does not appear likely to happen.
Last year, the Authority sold Forum Place, another failed investment, to the state for more than $100 million. Almost all of the money from that sale went to pay bondholders.
The hotel is just one part of the Authority’s portfolio. It also owns Dauphin County office buildings and Dauphin Highlands Golf Course. Overall, Shannon described the Authority’s fiscal health as “rock solid.”
Is the Authority planning any other investments on the scale of the Hyatt Regency?
“To the best of my knowledge, Shannon replied, “absolutely not.”
