The City of Baltimore transferred an additional $3.1 million last month to the city-owned Hilton Baltimore Inner Harbor hotel, according to a recent financial disclosure, bringing the total amount of payments to about $16 million since the coronavirus pandemic decimated the hotel and tourism industry.
The city built the 757-room convention center hotel in the mid-2000s, creating a unique city-owned corporation and borrowing $300 million in bonds to fund its construction.
The Baltimore Hilton, on West Pratt Street overlooking Oriole Park at Camden Yards, was intended to lure more business to the convention center next door and has struggled to turn a profit under the crippling weight of its debt. After refinancing the bonds in 2017, the Baltimore Hilton continued to perform below projections, but it was eking out a profit.
Then, the coronavirus pandemic hit. The hotel has been bleeding money ever since, triggering cash infusions from the city of Baltimore.
Officials at the Baltimore Development Corporation, which oversees the hotel, say the Baltimore Hilton is outperforming its peers in the city, but acknowledged it could need more cash as the area’s hospitality industry continues to lag behind pre-pandemic levels.
The city is required to chip in money if the Baltimore Hilton cannot cover its bond payments. Those payments, which topped more than $15 million last year, will continue until 2046 when the debt is fully repaid. Between now and then, the hotel is expected to spend nearly half a billion dollars paying down the outstanding principal and interest.
Baltimore Development CEO Colin Tarbert said the city has made three payments totaling about $16 million to help pay the hotel’s debt so far. While he hopes that this August payment was the last, he said more payments could be needed.
“We don’t anticipate the hotel to stabilize and get back to the pre-COVID numbers for another two years, potentially three years,” Tarbert said. “However, I think for the hotel, we’re getting to the point where hopefully we can cover the debt service.”
In addition to the $16 million received from the city, Tarbert said, the hotel received about $3.5 million in COVID relief money over the course of the pandemic, most of which originated from the federal government. He said the Baltimore Hilton received $225,000 from a state fund that was geared primarily toward small and boutique hotels.
“I was hoping they would be more inclined to support the [Baltimore] Hilton because the Hilton is really the centerpiece of Baltimore’s tourism and convention business,” Tarbert said of the state fund.
The Baltimore Hilton has long benefited from its public ownership and financing. While privately owned hotels pay property and hotel occupancy taxes to the city, the Baltimore Hilton diverts millions of dollars of those taxes to pay down its debt through an arrangement called tax increment financing — commonly called TIF bonds.
But when the hotel sought $7 million from the federal Paycheck Protection Program, it learned it was ineligible for those funds, in part, because it was technically a public entity, Tarbert said.
Among similarly sized hotels in Baltimore, the occupancy rate has been just under 50% and the average daily room rate has been $168 recently, Tarbert said. He did not give precise figures for the Baltimore Hilton, but he praised staff and management and said the hotel is outperforming those metrics after effectively shutting down for an entire year and temporarily serving as a field hospital.
In 2019, which Tarbert called the Baltimore Hilton’s best year, the hotel had an average occupancy rate of 67% and an average daily rate of $178, according to financial disclosures, but even in that “best” year, the hotel was still performing below projections set a few years prior during the debt refinancing — and even further below projections made when bonds were originally issued in 2006.
When it was proposed in 2005, the Baltimore Hilton was billed as the largest public works project in Baltimore’s history and became a lightning rod for critics. City leaders and community members spent more than 28 hours across multiple hearings that year debating whether hotel operations would ever be able to repay the $300 million in bonds — or if taxpayers would be left holding the bag.
“Building this convention hotel is an important step in Baltimore’s comeback,” Mayor Martin O’Malley said at the time.
Some people, including six City Council members who voted against the bond package, were more skeptical.
“It’s all predicated on those things working,” then-Councilman James B. Kraft said of revenue projections. “For the sake of every taxpayer, I hope those expectations are met.”
Others, like Heywood Sanders, a professor of public administration at the University of Texas at San Antonio, were more blunt.
“Look,” Sanders told The Sun in 2005. “I don’t relish the role of Official Cold Water Thrower. It’s just that I have a long list of cities where this doesn’t work. Why is it going to be different [in Baltimore]?”
On Thursday, Sanders said he has been closely following developments at the Baltimore Hilton and the adjoining convention center ever since. The main reason Baltimore built the hotel was to attract convention attendees to the center, Sanders said, and that simply has not happened — regardless of the pandemic.
Sanders said he has been regularly filing public records requests with the state to obtain attendance figures specifically for conventions and trade shows — excluding public events and meetings — at the Baltimore Convention Center.
According to Sanders, the center had 286,087 such attendees in fiscal year 2006. That number has been exceeded only three times since the Baltimore Hilton’s opening, with attendance peaking in fiscal year 2014 at 309,622, he said.
In fiscal year 2019, the number of convention and trade show attendees had dropped to 204,166. Over the past decade, the convention center has lost notable events, such as Otakon, a celebration of Asian pop culture that used to draw about 30,000 people to Baltimore, Sanders pointed out.
“In the world of convention centers, there are relatively few magic bullets,” Sanders said. “This is an enormously competitive business in which cities around the country have invested hundreds of millions and often billions of dollars in new and expanded venues and in subsidized or fully publicly financed hotels in an effort to get convention business, and it has often proved remarkably unrewarding.”
Sept. 12, 2022.
Sanders said it’s not a given that the Baltimore Hilton will eventually return to pre-pandemic booking or revenue levels.
Earlier this year, for instance, an international conference for theater professionals returned to the Baltimore Convention Center, but unlike in past years, members didn’t stay at the Baltimore Hilton. The Baltimore Hilton filed a federal lawsuit last month against the United States Institute for Theatre Technology, or USITT, claiming the organization improperly cancelled a deal that was supposed to generate $637,000 for the hotel.
The Baltimore Hilton alleges in court documents that the hotel had been giving USITT a discount on the rooms, plus other concessions, in exchange for booking an expected 2,974 room nights in late February and early March, but that apparently was not enough to entice the organization, which allegedly directed members to stay at other hotels. The Baltimore Hilton claims USITT owes a $414,000 cancellation fee as calculated under a 2017 agreement.
USITT has not formally responded to the complaint, which was filed in August, and did not respond to a request for comment Tuesday afternoon.
Dr. Linda Loubert, an associate professor of economics at Morgan State University, called the Baltimore Hilton “a really hard nut to crack.” The hotel is costing the city money that could be spent on neighborhoods or schools, Loubert said, but it also could be driving economic impact in other industries, like restaurants and entertainment.
To Loubert, it’s hard to justify spending more money on the Baltimore Hilton without knowing more about post-COVID marketing strategies and business plans for the city-owned hotel.
“It would just be good to make sure that transparency about what we’re doing — and why we’re doing it — is communicated,” Loubert said.
The city flirted with selling the Baltimore Hilton in 2013 when city leaders were again concerned the hotel could become a drag on Baltimore’s finances, but a sale appears unlikely anytime soon. Tarbert said the city could face a significant penalty if it tried to sell the hotel anytime before 2027, when the bonds first become eligible for redemption — or full repayment.
For now, Tarbert said, it would be great for the Baltimore Hilton if the Orioles could keep winning baseball games and Paul McCartney could plan another concert in Baltimore.
