- Associated Press - Saturday, April 11, 2015

PHOENIX (AP) - The city of Phoenix is making preparations to sell the Sheraton hotel that has lost more than $38 million since it opened in 2008.

City officials, including Mayor Greg Stanton and Chief Financial Officer Neal Young, said they are refinancing the hotel’s debt so it can be positioned for sale. The 1,000-room hotel near the city’s convention center is the largest in Arizona.

The Arizona Republic reports (https://bit.ly/1FuwIel) that city officials want to use money now backing the hotel’s losses to help keep the Phoenix Suns downtown by building a new arena.

Phoenix leaders said when they originally backed the hotel that it would draw more convention and tourism dollars and perform well financially.

The city owes about $330 million on the hotel but it is likely worth between $175 million to $225 million.

The Suns have a 40-year lease to operate at US Airways Center, but its agreement includes a provision for the Suns to opt out at the 30-year mark if the building is considered obsolete. That could allow the Suns to leave downtown Phoenix by around 2022.

But the Suns could start the clock ticking on a move earlier. The team can initiate the process to determine if the building is obsolete in 2019, leaving little time for Phoenix officials to develop a replacement.

City Council members voted late last month to refinance the hotel debt so the city can lower its payments and start putting money aside for a Suns arena or other projects.

Phoenix is covering the hotel’s losses with revenue from a sports-facilities fund that gets money from a special tourism sales tax. That sales tax was created to build US Airways Center, which opened in 1992.

The hotel received about $16 million of that tax revenue last year alone, leaving virtually nothing to save for a new Suns arena or renovation of the existing facility.

City officials hope that refinancing the hotel debt will immediately lower the city’s annual payments on the hotel to the point that it doesn’t siphon money from the sports fund and lowers the amount of principal it owes on the debt to about $300 million.

Deputy City Manager Paul Blue, who oversees the city’s downtown-redevelopment efforts, said the city did its part by getting the Sheraton built at a crucial time as the city opened its convention center and invested in other projects downtown.

Blue said the city is interested in selling the hotel so that Phoenix isn’t vulnerable to the ups and downs of the traditionally fluid hospitality industry. He said the city doesn’t have a timeline for a potential sale, but it could come as early as next year.

“If you continue to own the hotel, you always have to have an eye looking backwards,” Blue said. “Government is not good at owning this class of assets. We clearly think the private sector is probably better suited.”

Selling now would be a big financial hit for the city, but some council members are willing to take a small loss to get out from under a loss-leader,. Say in the $10 million to $20 million range.

“I would support the city selling the hotel at a price that would constitute a small loss if that means we could stop the red ink,” Councilman Bill Gates told the Republic. “I don’t want to see us waste the money away by owning a hotel that continues to lose money over a long period of time.”

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