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Home My WebLink About2008-01-28 08-077 ORDERDate: zn, zone 08 077 Item/Subject Order, Authorizing Amendment to [.ease with the New Castle Hotel Corporation to Extend the Term and Mod fy the Formula for Calculating Rent Responsible Depmtmend Airport The New Castle Hotel Corporation will be investing eight million dollars in the Four Points Sheraton located at the Airport. This will inw1w substantial exterior and Interior work which will affect hotel operations during construction. In order to support the financing and amortization of this investment, New Castle has requested a 13 year lease extension, providing for a 40 year remaining lease term. They have also requested a modification in the formula for calculating rent in recognition of the of vemq losses that will exist during the construction period and for a period of time thereafter and the additional debt that must be serviced. The current formula for calculating rent includes a base rent pus a percentage of certain hotel revenues. Under the proposed terms, a greater percentage of the revenue to the Airport will shift to the fixed base rent from the variable percentage rent. Although this will decrease rental income to Airport during the initial few years, it will provide a more stable revenue flow and the Airport will have fully recovered the reduced revenues after seven years. Beyond that point, we project that the airport will see an increase in annual revenues over the remaining term. In addition and based an the proposed renovations, City Assessing conservatively estimates an increase in property tax revenue to the City of approximately $50,000 annually, a B %increase, even during the initial fore year periotl of the revised lease. Rebecca Hump Department Head Manager's Comments: This has been discussed on several occasions by the Transportation and Infrastructure Committee, which recommends your approval. The Committee particularly noted that the situation with New Castle is different from other drywairport leases in that New Castle pays a premium due to its close location to the alrport terminal, the presence of a firs[ class hotel connected to the terminal provides an amenity for travelers using BIA, and, under the terms of the ease, the City can take possession of the building M the expiration of the lease. G.` Ory Manager Associated Information: Memo with supposing material from Airport Budget Approval: nance Director Legal Approval: �- Ci Solicitor Introduced for X Passage First Reading _ Rehnral Page I of 1 03 077 r° January 2a. zoos AuigMbCO lorPal r CITY OF BANGOR (TIRE.) ORDER, Authorizing Amendment to Lease with the New Castle Hotel Corporation to Extend the Term and Modify the Formula for Calculating Rent. WHEREAS, The New Castle Hotel Corporation leases property at the Bangor International Airport for the operation of the Sheraton Four Points Hotel; and WHEREAS, The New Castle Hotel Corporation has committed to Invest an additional eight million dollars in renovations to the property; and WHEREAS, Both parties desire td amend the lease term for an additional thirteen years in order to amortize this Investment; and WHEREAS, The renovations will result in increased revenue over the remaining term of the lease and B is beneficial to troth parties to amend the formula for calculating the rent due, NOW, THEREFORE, BE IT ORDERED BY THE CITY COUNCIL OF THE CITY OF BANGOR,THAT the Airport is authorized to execute a lease amendment with New Castle Hotel Corporation to extend the lease term for an additional thirteen years and to modify the formula for calculating rent in accordance with the proposal that has been reviewed and recommended by the Transportation and Infrastructure Committee and in a form approved by the Cry Solicitor or Assistant City Solicitor. IN CITY C CIL Sanuan 28, 2008 Motion {fade and Seconded ' for Passage Notion Doubted Vote: 7-t Councilors voting Yes: D'ffiEi Farrington, Gratvtck, Haves, Palmer Stone and Wheeler Councilors voting No: NlaniChette Coum m lox Absent: Create Pap ITTCN. �1 # 08-Q7Z 0 a p E a I vith the h Hotel moth Che. the CTern Hotel ift t F ' to BZCeod [he Term and NodiEv [h'e Formols for Calculmtl g Hest AmlmdbCsmdbr 1'(1vAY'N � A 677 BGR � INTERNATIONAL AIRPORT Iz14zYIP9CIbill aI TO: Transportation and Infrastructure Committee CC: Ed Barrett, Norm Hellmann, Debbie Cyr, Penelope Olson FROM: Rebecca Hupp DATE: January 3, 2008 RE: Iease Amendment Request by New Castle Hotel As previously discussed, the New Castle Hotel Corporation, owners of the Four Points Sheraton located at the Airport, has a lease agreement with the Airport that is In effect until 2016 with two ten-year options to renew. New Castle leases the land from the Airport and owns the building. The terms of this lease are very similar to our other lease agreements where the Airport is guaranteed a base rental plus a percentage of revenue. Currently, there is a $60,000 base rent, which Is reduced by an amount equal to one-half of the real estate taxes paid to the City. In addition M the base rent, three and one-half percent (3 +h%) of 91 'h%of room revenue and 2% of flood and beverage revenue is paid to the Airport as rent New Castle also pays property texas to Me City on Me full value of the land, building, and personal property. The City has no similar land lease arrangements with hotel operators in Bangor. Other hotels operate on privately owned land. The rental rate for other Airport tenants may have similar formulas for calculating their rental rates but they occupy leased space In the terminal. New Castle is requesting a lease amendment to extend the lease an additional 10 years and to change the formula for calculating Me rental rate. New Castle requests that the override assessed an the room revenue be amended as indicated in the following table. Ground Rant AssunnRons Current nos 2009 2010 2011 2012 Base ReM $W.O T.-, ii 888.0 $90.0 $9T.0 $95.0 %uf 91.5% or Rooms Revenue 3.5% 0.0% 1.5% 2.0% 2.6% 3015% %dFostl eM Bevera .Revenue Te% 00% 1.5% 20% 2.0% 2.0% please note that under the proposed terms, a greater percentage of Me revenue M the Airport will shift to the fixed base rent, and, after eleven years, the Airport will have fully recovered the reduced annual revenues from years 1-4. Far many years, New Caste has been considering eMensive renovations to the Sheraton Four Points. However, during construction, the hotel will experience a negative cash flow of $1.5 million. This presents a significant obstade that needs m be overcome as each Individual property within the system must be self-sustaining. The New Cashe Corporation, at the urging of Its local hotel manager, is prepared to invest approximately $8 million during the first half of 2008 to renovate the building. The proposed modifications will add valuable space on the lower level, upgrade the exterior of the building and renovate and upgrade Me entire lobby area. These are all improvements that will hold their value past the term of the lease. J3 077 The proposed renovations will ensure the hotel will meet the specifications necessary to maintain its branding as a Four Points Sheraton. Maintaining a recognizable brand at the Airport Is critically important in attracting customers to use the facility. There is no language in the existing lease requiring any Improvements or imestrnerrcs in the facility. Without Mese renovations, revenues and profit would likely deteriorate significantly over time. This would be detrimental M the Airport, in terms of decreased concession revenue and decreased amenity value to our customers, and to the City in terms of decreased tax revenue. After renovation, the Company anticipates being able M generate an additional $1.2 million per year In room revenue. More food and beverage business will also be attracted. This will be bereficial to the Airport, the City and the hotel. Based on the prepared! renovations, City Assessing cxnserwitively esdmama an Increase In property, tax revenue to the City of approximately $50,000 annually, a 69% increase, even during the initial five year period. The lease amendments requested by New Castle are reasonable. They will ensure that the $B million in renovation to the Four Point Sheraton at BIN take place and that the hotel continues to be an attractive asset to the Airport The imrestment will increase revenues to the hotel and the Airport and will provide the City General Fund a projected atltlitional $50,000 In annual tax revenue. The attached spreadsheet outlines the financial Impact of the three upbers over a 20 year Period. ;3 U77 Sheraton Four Points Financial Implications Estimated 20 Year Revenues Option 1: No improvements are made to the existing faclllty City of Bangor - Taxes 1,532,523 BTA - Concessions 2,409,600 Option 2: $8,000,000 of Improvements under Current Terms City of Bangor -Taxes 3,308,163 BIA- Concessions 21939,911 Option 3: $8,000,000 of Improvements under Proposed Terms City of Bangor -Taxes 3,308,163 BIA - Concessions 3,125,161 NO Jaw I'm 1,m, I'm IJUN Imm lump Imm INM ]Am lasw ]Mm law lam 44mm 151W Im" 01,W IAW Am LAIM mum Lam 15m, ]5IM, Mm DUN, lb],m I� UMMI MM Mwt�FmMI am MW WAN MM mmll AmA mm, (AmI Am) MAD) AW WM 61AL KVI 05A MW AM am am MIN