Guest Blogger: David Blank, Lakeside Chautauqua Board of Directors

The second of three scheduled workshops focused on the Hotel Lakeside Project was held on July 14 in Chautauqua Hall. Approximately 70 Lakesiders were in attendance as Dan Dudley, Lakeside Chautauqua CFO & COO, and David Blank, Lakeside Board of Directors Treasurer, discussed a path to fund the historic restoration and rehabilitation project under consideration.

There are three primary elements that need to successfully come together to fund this project, which the PCS and Coon Restoration construction experts expect to cost $12.1 million, coupled with another 2.7 million in engineering, architects, other soft costs and contingency items, for a total of $14.8 million.

The first element is the Ohio and Federal Historic Tax Credits, expected to offset both construction and soft costs by $5.6 million, assuming that we can access the competitive state funds, and that those funds continue to be available in the state of Ohio budgets (the state and federal credits each account for about one-half of the total credits on a net basis). The net cost, assuming success with the historic tax credits, is then reduced to $9.2 million that has to be obtained.

The next element to achieve project funding is commercial borrowing based on the expected income available from hotel operations – more on this below.

The primary remaining piece of the funding formula is philanthropic efforts by Lakesiders and others to complete the funding not available from the other sources.

Much of the presentation focus dealt with expected financial results for hotel operations, and specifically with the level of net cash flow expected to be available for mortgage payments.

In summary, the financial model work to date is based on the following conditions:

  • If a minimum annual occupancy rate in the 25-28% range can be achieved, and
  • If an average initial room rate in the $142-$155 range can be realized, then
  • With these factors, annual net cash flow available for mortgage payments is in the $300,000-$400,000 range
  • Annual net cash flow in that level will pay principal and interest on a mortgage in the $3.6-$4.8 million range

Discussion proceeded to the reasonability of the occupancy rates and room rates used in the modeling. Today’s occupancy is in the 3,500 room nights per year level, overwhelmingly in the summer season. Occupancy in the 25-28% range is based on a modest increase during the season, mostly during weekdays, as well as approximately 1,800 additional room-nights during the shoulder months of April, May, September and October.

Achieving those levels will require additional programming, marketing and advertising to attract increased clientele, and it is expected that the occupancy rates would ramp up over a several year period until those levels are attained.

The resulting 5,500-6,300 room nights is about half the occupancy level projected by Hotel & Leisure Advisors for the project initially suggested, and about 60-80% increase from current levels.

The level of room rates in the financial model is consistent with the hotel room rates today by type of room, although there are more premium balcony rooms than there are premium rooms today.

Applying the room rates to the month by month/weekend and weekday occupancy levels, plus expected revenues from food service and other operations are then netted against expected expenditure levels for rooms and other operating costs, marketing, management costs, energy and utilities, insurance, property taxes and capital expenditures to determine the net cash flow levels. Again, the expected net cash flow is in the $300,000-$400,000 per year level once mature occupancy levels are reached in about four years.

Critical to any loan agreement would be the terms and conditions attached to the borrowing commitment. Undoubtedly the lender would look to Lakeside to guarantee the mortgage payments regardless of hotel operations.

To put that in context, Lakeside’s annual operating budget is in the $7 million range, so at a worst case, if the hotel operation netted close to zero, although the mortgage payments would be a big dent in the financial picture, it is expected that it could be managed within the context of the annual overall costs.

Nonetheless, the terms and conditions that would be required by a lender are critical in any decision to accept a loan. Discussions with lenders to date lead us to believe a loan in the range identified is likely, but there has been no discussion related to other important details.

As with the first presentation, there was spirited discussion about most of the content, including ways to attain the occupancy levels, loan conditions and the extension of the time the hotel would be open into the shoulder months, among other topics.

To summarize the content of this session, successful funding of rehabilitation of the Hotel Lakeside under this plan requires success in the state historic tax credit competition, successful negotiation of an acceptable loan package based on realistic hotel financial operations, and success in philanthropy to complete the funding needs.

The final Hotel Lakeside Presentation is scheduled for 3:30 p.m. Thursday, July 30 in Chautauqua Hall, with Peter Ketter of the historic preservation architecture firm Sandvick & Associates discussing the requirements and opportunities of the historic tax credit process.