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VOL. 132 | NO. 71 | Monday, April 10, 2017

“Gateway’ Puzzle Begins To Come Together

By Bill Dries

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Starting last summer, a new ownership group for the city’s largest hotel by room count was undertaking its due diligence largely out of the public eye.

The sale of the Sheraton Memphis Downtown convention center hotel to a newly formed joint venture is one of several pieces of an emerging plan for the area around the convention center and the 9 block area between the Pyramid and St. Jude Children’s Research Hospital.

(Daily News/Andrew J. Breig)

There were some rumblings about the Sheraton Memphis Downtown changing hands three years after a renovation of the 600-room hotel attached to the Memphis Cook Convention Center.

But those were overshadowed by the larger public push by the administration of Memphis Mayor Jim Strickland toward a broad, coordinated plan for what Strickland has called “The Gateway” on the city’s western border of the Mississippi River – the area that includes the convention center and the Pinch area to its north.

The hotel deal emerged last week with the agenda for the Tuesday, April 11, meeting of the Center City Revenue Finance Corp. The CCRFC is to vote Tuesday on transferring a tax abatement the current owners of the Sheraton have to the new ownership group.

The deal underlying the transfer of the payment-in-lieu-of-taxes agreement is to transfer the 600-room property from Host Hotels & Resorts LP to LMS Real Estate Investment Management LLC, a newly formed liability company.

The LLC is a joint venture between Starwood Capital Group, a private investment firm from Greenwich, Connecticut, and Schulte Hospitality Group, a management company from Louisville, Kentucky.

The hotel changes hands as the city prepares to begin an estimated $60 million in renovations to the Memphis Cook Convention Center.

The “Gateway” plan includes private mixed-use development leveraged by city funding of infrastructure improvements of the nine-block Pinch area between the Pyramid and the campus of St. Jude Children’s Research Hospital.

A multibillion-dollar expansion by St. Jude of its physical campus and programming is fueling city plans in that area. The Schulte Hospitality letter to the CCRFC about transferring the PILOT mentions the Gateway project in general.

“Schulte and Starwood are excited to be part of the redevelopment of downtown Memphis and the neighboring Pinch District,” the letter reads. “The (joint venture’s) strategy for operating the hotel is to retain the existing staff, improve operational efficiencies as we have at the other 80 hotels we manage, and leverage our in-house sales and revenue management teams to drive more business to the hotel.”

The letter also says the joint venture is “securing a franchise license agreement from Marriott.”

What the letter doesn’t indicate is plans to add more rooms to the hotel, which added a tower of 200 rooms in 2000 during the hotel’s previous incarnation under the Marriott flag. Host Marriott bought what was originally a Crowne Plaza hotel in 1998.

The hotel was rebranded as a Sheraton in 2013 and underwent room renovations in 2014 to the tune of $4.5 million.

The Strickland administration’s ideal scenario for upping convention center business, in addition to the pending renovation of the convention center itself, is having an additional 900 hotel rooms connected to or in the shadow of the convention center.

Denver developer and financier Robert Swerdling has proposed several versions of a 600-room hotel at Front Street and Poplar Avenue where the Mud Island parking garage currently operates. Word of the proposal surfaced in January. Since then, Swerdling has changed and refined his proposal after Strickland said the city will not pay to build or be the owner of such a hotel as Swerdling originally proposed.

There has been at least one other proposal for a new convention center hotel.

City chief operating officer Doug McGowen said the city wants to make sure a new hotel would work with the original convention center hotel and the convention center itself. That includes talking with the new ownership group about the Sheraton.

“When that new ownership group closes, we will have a very early conversation with them to say, ‘We are investing a significant amount of money to bring the convention center up to modern standards and we would hope this new ownership group would similarly invest in the Sheraton hotel to bring it up to similar quality,’” he said in March.

McGowen said then that the city could meet a goal of 900 rooms if the new owners of the Sheraton and possibly another hotel in the area were to add a total of 300 more rooms to the convention center mix.

The joint hotel venture plans to close on the hotel deal April 19.

PROPERTY SALES 83 405 4,276
MORTGAGES 104 424 4,814
BUILDING PERMITS 148 883 10,151
BANKRUPTCIES 53 264 3,149