City-owned Sheraton hotel prepared for sale with unanimous City Council vote

(Nikiana Medansky/DD)
The Sheraton Hotel on Third Street was built to room guests after the Phoenix Convention Center was expanded and a nonprofit was created in 2005 to help the city own and operate the hotel. (Nikiana Medansky/DD)

The city-owned Sheraton Grand Phoenix hotel on Third Street can now potentially be sold following a unanimous vote by the Phoenix City Council on Wednesday to amend the Downtown Phoenix Hotel Corporation’s Articles of Incorporation.

The Downtown Phoenix Hotel Corporation is a nonprofit created in 2005 that is owned and controlled by the city of Phoenix for the purpose of owning, acquiring, constructing, equipping, operating and financing a hotel, according to the City Council formal meeting agenda.

The hotel was built for the expanded Phoenix Convention Center to provide rooms for guests. According to Deputy City Manager Paul Blue, the operational costs of the hotel were meant to be covered by the revenue brought in by guests. During the recession, however, the rate of occupancy of rooms fell dramatically, and so too did revenues.

Blue said it was difficult for the Downtown Phoenix Hotel Corporation to keep up with the hotel’s expenses during the recession.

“We were very challenged and had difficulty paying all of the expenses, but we were able to get through it,” Blue said.

Phoenix is not interested in owning the hotel anymore because the revenue is not constant. It is subject to change along with the season and economy. The city wants a fixed source to pay for the debt brought on by the construction of the hotel, Blue said.

“Long-term, it is not the type of asset we are comfortable owning because we need a more level sort of an obligation,” he said. “The good times and the bad times are unpredictable. Our hope is to sell the hotel while times are good to people who may be better suited in the private sector.”

The hotel has performed well within the last year. Its operating revenues increased by $3.2 million, or 6.4 percent, in 2014. However, Standard & Poor’s Ratings Services lowered the Downtown Phoenix Hotel Corporation’s rating from a BB+ to a BB, according to the corporation’s 2014 financial report.

Room vacancies in this year’s second quarter were 25.5 percent, down from the same quarter in 2013 and 2014, according to the unaudited flow of funds summaries released by the city.

Blue said he hoped that if the city sold the hotel to a new owner, the money would be able to pay off the debt the hotel created when it was built. Blue said it would be nice if the sale would bring in a little extra money on top.

Correction: Dec. 4, 2015

A previous version of this story stated District 6 councilman Sal DiCiccio did not vote on the amendment because he was not present at the meeting. He voted on the amendment despite his absence.

Contact the reporter at Kmlane5@asu.edu.