The 472-room hotel, currently owned by defunct financial-services giant Lehman Brothers, could undergo $45 million in renovations. Sage, a prominent hotel owner and manager, is talking to Westin and another, unidentified brand about the property.
View full sizeSage Hospitality and Optima Ventures plan to buy the 472-room Crowne Plaza hotel in downtown Cleveland and renovate it to take advantage of the nearby medical mart and convention center, which are under construction and set to open in 2013.CLEVELAND, Ohio -- A Colorado hospitality company and a major downtown investor plan to buy the Crowne Plaza in downtown Cleveland, transforming it into a four-star hotel before the nearby medical mart and convention center open in 2013.
Sage Hospitality and Optima Ventures recently agreed to acquire downtown Cleveland's second-largest hotel from defunct financial-services giant Lehman Brothers Holdings Inc.
The 472-room hotel, which is bleeding money, could undergo more than $45 million in renovations and be recast as a Westin or another high-end brand. And the potential owners are exploring ways to connect the hotel, at 777 St. Clair Ave., to the convention center and medical-device showplace with an overhead walkway.
The project demonstrates renewed interest in downtown Cleveland, where a casino is set to open next year and construction is under way on the $465 million convention center and medical mart. Despite region-wide economic challenges and population losses in many city neighborhoods, downtown Cleveland is attracting residents, restaurants and bullish real-estate investors including Optima, which has purchased four office buildings here since 2008.
Hospitality experts say the taxpayer-financed convention center and medical mart will be more competitive with a high-end hotel nearby. The Cleveland Marriott Downtown at Key Center is closer to the convention center site, but the Crowne Plaza is larger and could become downtown's most upscale hotel.
Now, the Crowne Plaza is about 20 percent occupied, languishing at the bottom of a soft market. Occupancy at downtown hotels was 57.8 percent for all of 2010 and 47.7 percent in February, according to research company STR.
"We think once the convention center is up and running, that citywide occupancy will come up into the mid-60s -- and we'll be better than average," said Ken Geist, a Sage partner and executive vice president who handles acquisitions and development.
Sage, which is based in Denver and owns or runs about 65 hotels, has been managing the Crowne Plaza for a year. The company will share ownership of the hotel with Optima, an affiliate of a private, global operation involved with oil, gas, telecommunications and manufacturing in eastern Europe. Optima already owns the Penton Media Building, next to the Crowne Plaza; One Cleveland Center; the Huntington Building on Euclid Avenue; and 55 Public Square. An Optima executive could not be reached for comment.
Geist said Sage and Optima are evaluating the Crowne Plaza deal and expect to acquire the property in early June. He would not disclose the purchase price, though he said it is "significantly less" than the Cuyahoga County auditor's estimated market value of the property -- $19 million.
Attorneys and asset managers involved with Lehman Brothers, which declared bankruptcy in 2008, did not respond to requests for comment.
Sage will run the hotel, ditch the Crowne Plaza brand and remake the building inside and out, with a new facade, roof, and mechanical systems; new guest rooms and meeting spaces; a restaurant and, possibly, a spa; and a new lobby and fitness center. The hotel might close for part of 2012 and reopen in early 2013, Geist said.
Employment at the property, which uses union labor, could go from roughly 120 employees to nearly 400 upon reopening.
Geist said Sage is talking to Westin Hotels & Resorts and another, unidentified hotel franchisor about bringing a four-star brand to Cleveland.
"Certainly a better brand would be good," said David Sangree, president of the Hotel & Leisure Advisors consulting firm in Lakewood. "If it really attracts a lot of doctors and medical professionals, they generally like nicer properties. But being in Cleveland, there's always going to be a limit on how high of a rate you can charge."
Sage has asked the city of Cleveland to approve a tax-increment financing deal, which would tap anticipated growth in property tax revenues to support bonds for the project. Under the 30-year, $2.9 million deal, the Cleveland Metropolitan School District would receive more money as the taxable value of the hotel increases. But Cuyahoga County, the city and other property tax beneficiaries would see no increase in revenues from the project for 30 years.
Legislation related to the financing will be introduced at the April 4 Cleveland City Council meeting.
The city also plans to help Sage approach the county and the state about funding for possible connections between the hotel and Public Auditorium, a historic, city-owned building between the Crowne Plaza and the convention center site.
Sage might explore building an overhead walkway between the hotel and the historic hall, providing guests with indoor paths to the auditorium, the convention center and the medical mart.
The city has budgeted $4.4 million for improvements to Public Auditorium, with hopes of bidding out the work this year and finishing it by 2013.
"Whenever you're connected to a four-star hotel, your marketability is really improved," said Ken Silliman, chief of staff to Mayor Frank Jackson. "And, of course, the Cleveland Marriott is just across the street from the medical mart and convention center."
The 385-room Marriott, across St. Clair from the convention center site, has experienced more than $13 million in renovations during the last five years. General Manager Bob Megazzini expects to replace the hotel's restaurant in 2013.
"It's the opportunity to have two modern, first-class convention hotels next to a three-facility complex ... and adding nearly 300 jobs in the process," Silliman said. "I venture that very few Midwestern cities can put together a package like that."