City looks to buy Hotel Pattee in partnership with PEDI nonprofit

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Perry Mayor John Andorf, left, and Perry Economic Development Inc. President Tom Berkgren represent the public-private partnership aiming to buy the Hotel Pattee and La Poste.

The city of Perry and the local investment group, Perry Economic Development Inc. (PEDI), are looking to partner in purchasing the Hotel Pattee, a plan discussed Thursday night at a work session of the Perry City Council.

Proponents say the new ownership arrangement, if successful, will ensure the stability and long-term sustainability of the hotel at the hub of the Perry economy and put an end to the ownership merry-go-round that has become a pattern since 2008, with four owners in 13 years.

Tom Maxwell, current owner of the Hotel Pattee and La Poste, approached local Perry realtor Bill Clark in May 2020 and asked his help in finding a buyer for the properties.

“The pandemic was kind of the last straw for Tom,” Clark said at the work session, referring to the COVID-19 public health emergency and the resulting lock downs that crushed the hospitality business nationwide in 2020.

No private buyer was found, Clark said, but a committee was formed in November, composed of city leaders and PEDI members, in order to study the feasibility of a public-private partnership for local ownership and control.

“Every three to five years, the hotel has turned over ownership,” Perry City Administrator Sven Peterson, a member of the committee, said during the work session. “At what point do we say, ‘Maybe that model isn’t really working for us’? Now we’re here 13 years later, and we really are kind of in the same boat we were in 2008. We’re looking for a long-term solution that gives us in Perry some local ownership and local say in how the hotel moves forward. It is such a crucial part of the community fabric and the economic fabric of what goes on in town.”

The city’s commitment to the hotel’s viability has been proved by the steady stream of funding that has flowed from the city to each of the private owners in turn.

“The hotel ownership since the Ahmansons,” Clark said, “has always involved both significant contributions on behalf of Perry Economic Development and the city of Perry because of the importance of the hotel to the greater community.”

The city has subsidized the hotel over the years to the tune of more than $1 million, and PEDI has also made large donations, a testament to the centrality of the business to the commercial health of the downtown, but the support has not brought stable ownership.

“All of the grants that we’ve given out over the years have shown that giving grants is not the answer for fixing the issue of that turnover,” Peterson said. “Historically, we have invested money into it repeatedly and to different extents, and I think the community and Perry Economic Development and the city council have always come to the table and said, ‘Yes, that’s something that’s vital and important to keep investing in.'”

Questions and comments from the council members implied they were open to the idea of the city’s acquiring the hotel and event center. Perry City Council member Barb Wolling drove to the heart of the matter when she asked, “What is the city’s financial commitment to this project?”

Tom Burkgren, president of PEDI, said $600,000 has been pledged by PEDI and the Wiese Foundation toward the purchase, but their investment is contingent on the city’s buy in. Peterson said the city would make a $300,000 grant to PEDI toward the purchase and would forgive the $350,000 loan made to Maxwell in March 2020, effectively lowering the purchase price.

Peterson said the city’s investment would not cause a tax increase for Perry taxpayers.

“We’ve built up a healthy reserve fund of local option (sales tax revenues),” he said, “not only for emergencies but also for opportunities like this.”

Burkgren said an additional $1.2 million would need to be raised from investors by March 31.

“We are confident that we will be able to do it, with the city’s participation on the front end,” he said. “Without the city’s involvement, the fundraising will not go forward.”

PEDI Secretary Matt McDevitt said the committee has done its due diligence, making a thorough inventory of the hotel’s infrastructure needs. He also said the committee has closely studied similar municipal arrangements in Corning, Coralville, Storm Lake and elsewhere, trying to determine “what is that sustainable solution for the future.”

Calling the proposed partnership a “bold endeavor” and a “great model,” Peterson urged the city council to take “the opportunity to work on a public-private partnership really to secure the future of the Hotel Pattee, a fixture in the community and just a really important asset to us for our local economy.”

Burkgren was similarly optimistic about the deal’s likely outcome.

“This is one of the best opportunities I’ve seen in Perry,” he said. “The question I posed to our (PEDI) board was, ‘If not us, then who? Who is going to do this?’ I guess I would pose the same question to the citizens of Perry. This is not a purchase out of necessity. This is a purchase out of tremendous opportunity.”

Perry Mayor John Andorf noted the long track record of Perry’s support for the hotel and the many successes of public-private projects in Perry, from building the DMACC campus to establishing the Perry Industrial Park.

“I think this is something we want to look at continuing,” Andorf said. “Oftentimes we look at the hotel as the heart of the city. As we move forward with the bike trail that’s being built and travel and leisure coming back to life probably later this year, this is an opportunity to really grow, and we can partner to make that happen.”

He said a memorandum of understanding would be brought before the city council at its Feb. 1 meeting that begins to formalize the terms of the public-private partnership of Perry and PEDI. An April 1 closing date for the purchase is expected, and the hotel will not close but go through a seamless transition to new ownership with no break in operations.

Timeline of Recent History of the Pattee Hotel, originally built in 1913 and listed on the National Register of Historic Places

  • September 1993 Roberta Green Ahmanson, doing business as Pattee Enterprises Inc., buys the 80-year-old hotel at auction for $60,000 and proceeds to sink $14 million into upgrades and restoration.
  • May 1997 Hotel Pattee reopens after upgrades and restoration.
  • December 2006 Roberta Green Ahmanson, doing business as Pattee Enterprises Inc., closes the hotel and later dissolves Pattee Enterprises Inc. in 2010.
  • April 2008 City pledges $500,000 in development agreement with Leisure Hotel Corp.
  • July 2008 Leisure Hotel Corp. buys the hotel for reported $1.1 million.
  • July 2013 Leisure Hotel Corp. closes the hotel in mortgage default.
  • October 2013 Jay and Denise Hartz buy the hotel with assistance from local investors.
  • November 2013 City pledges $350,000 in development agreement with the Hartzes.
  • July 2017 Jay and Denise Hartz list the hotel for sale at $2.65 million.
  • March 2018 Maxwell Hospitality LLC buys the hotel for an undisclosed sum.
  • March 2020 City loans $350,000 to Maxwell Hospitality LLC
  • April 2020 City pledges, through Perry Economic Development Inc., $400,000 in TIF property tax revenues to hotel.
  • June 2020 Maxwell Hospitality LLC seeks a private buyer for the hotel, but no buyer is found.
  • January 2021 Perry Economic Development Inc. enters into a purchase agreement to buy the hotel in partnership with city of Perry.

The PEDI board issued a statement Thursday night that addressed some aspects of the proposed partnership:

Q. How does the new public/private partnership expect to make this a successful venture when past ownership efforts have been economically challenging?

A. We believe this partnership will include economies of scale and local control of profits as well as expense reduction through utilizing existing resources. The variety of financial resources of the city and its ability to secure applicable grant funding will enhance the sustainability of this endeavor.

Q. Why shouldn’t the Hotel be owned and operated privately like it has been in the past without taxpayer involvement?

A. Even with private management, history has demonstrated that other public and private resources have been needed to support the successful overall economic contribution of the hotel. We believe the proposed public/private partnership will enable the most effective and efficient utilization of local funding, and it will secure critical assets for the long-term future of the community.

Q. How will non-public funds be secured to support the purchase of Hotel Pattee and La Poste?

A. Perry Economic Development is willing to provide a portion of the purchase funding and has begun discussions with private sources of supplemental contributions. With necessary additional public support, the economic development group is optimistic about its ability to secure necessary funding for the project.

Q. What is the timeline for this project?

A. The current timeline is focused on completing a purchase of the hotel and La Poste assets sometime in the first trimester of 2021.

Q. How will the hotel and La Poste be managed?

A. Several ideas and examples from other communities are being studied in parallel with the effort to secure necessary funding for the project.

Q. Is this going to be done “on the backs” of the local taxpayers?

A. We do not believe taxpayers will bear the burden of this effort, given the expected local economic benefits. However, the quality ongoing management of the properties and the services provided will be critical to both economic and social enrichment.

Q. Do other communities own hotels, and are they successful?

A. Yes, we have researched several communities that successfully have owned and operated local hotels and meeting/entertainment venues. As we believe has been the case in Perry, the overall local economic benefit generated exceeds the risk involved.

Q. If this public/private partnership purchase effort is not successful, will the Hotel Pattee and La Poste be closing?

A. Based upon our ongoing discussions with current ownership, we do not have reason to believe that either property is in imminent danger of closing. However, it should be noted that this effort would further secure the long-term stability and viability for both properties.

Q. Has a purchase price for the two properties been determined?

A. Key confidential elements of a purchase agreement between Perry Economic Development and the ownership of the properties have been negotiated. However, moving forward with such an agreement is based upon key contingencies, such as securing the necessary funding for the project.

Perry City Administrator Sven Peterson sent the Perry City Council the following memorandum regarding purchase of the Hotel Pattee:

Memorandum

DATE: January 14, 2021

From: Sven Peterson, City Administrator

To: The Honorable Mayor and City Council

RE: Hotel Pattee

Purpose

The purpose of this memorandum is to present the opportunity of the City entering into a Public/Private Partnership for acquiring the Hotel Pattee to ensure the stability and sustainability of the community asset.

Background

Since Roberta Green Ahmanson refurbished the Hotel Pattee in the mid-1990s, we have seen several groups own and operate the Hotel. Some of these owners have been better stewards of the Hotel than others. Each owner has cited different reasons for closing or selling the Hotel Pattee. Over the years, the City has offered Development Agreements utilizing Tax Increment Financing as the source of funds. To date, the City has directly invested over one million dollars in the Hotel through these agreements.

Discussion

When considering this proposal, six core questions came up to answer:

1. Is there a solid business case and compelling rationale? (The Why)

As I have thought about this concept, the main consideration has always been sustainability. In recent years, we have seen ownership last 3-5 years with an uncertain turnover. The last two times we have been lucky with the ownership being engaged and committed to the success of the Hotel Pattee. However, this may not always be the case. The second consideration I have thought about is stability. The Hotel Pattee is a key component to the economic stability of the downtown core. There has been a great deal of progress with economic vitality downtown and throughout the community in the past couple of years. While many factors weigh into this, the Hotel certainly provides a strong draw for tourists. With the possibility of the Hotel ownership turning over (now and in the future), we should consider the importance of consistent ownership of the property. There are also several overlapping activities that could be of benefit to our operation and the community.

2. Does this proposal have a committed sponsor? (The Who)

When the Hotel was put up for sale in 2017, Perry Economic Development led an effort to explore the potential for community ownership. Today the opportunity of a Public/Private Partnership has presented itself. The concept of the City eventually owning and engaging in the operation of the Hotel Pattee would offer a layer of financial sustainability when it comes to the purchase and upkeep of the Hotel. The City has several funding sources that a private owner would not have access to. The largest reason for the City to be the owner of the properties is that the City will always be there to shepherd the viability of the assets.

3. Does this project have a clear scope? (The What)

The what of this proposal ultimately comes down to the City and Perry Economic Development partnering for the acquisition of the Hotel Pattee. This not only provides an anchor for the community’s economic vitality but also serves as the identity of the community. The Hotel is essential to capturing the full potential of the Raccoon River Valley Trail and the soon-to-be connection to the High Trestle Trail. Along with trail visitors, the Hotel offers space for large events that draw people from outside the community.

4. Is there buy-in from key stakeholders? (The How)

Perry Economic Development is a key partner in this endeavor. PED has committed to leading the fundraising effort to purchase the Hotel Pattee properties and eventually donating them to the City of Perry to own. This opportunity will also involve initial and on-going investment from the City of Perry.

5. Does this project have a precise finish line? (The When)

The Committee is working towards an ownership transfer in early spring. This will require a great deal effort being put into fundraising and determining the best management structure for the business. Transfer from Perry Economic Development to the City of Perry largely depends on the fundraising effort.

6. Is this a true priority? (The Where)

Economic Development has been identified as a priority of City Leadership. Where the Hotel Pattee and its success fit into that broad term is debatable. We have seen a great deal of momentum and success in our downtown core with investment and new businesses over the past few years. We are also looking towards the connection between the Raccoon River Valley Trail and the High Trestle Trail becoming a reality. While it is outside the scope of what the City of Perry has done, it is not outside the scope of Municipal Government. Communities such as Storm Lake, Coralville and Cedar Rapids have played key roles in developing hotels owned by the City.

Summary

While there are a number of benefits to the concept of the City owning the Hotel Pattee, there are undeniable risks. I will speak for the committee and say that we feel that the benefits of this opportunity greatly outweigh the risks. For 14 years, The City and Perry Economic Development have been providing grants to subsidize the Hotel Pattee. This is the best opportunity that we have to come together as a community to acquire the Hotel and keep our investment within the community and with some say in our investment. Moving forward with this opportunity would be a bold step for our community but one that proves to be worthwhile.

Our next step in this process would be to adopt a Memorandum of Understanding that outlines roles and responsibilities moving forward.

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