A foreclosure auction at the Hilton Hotel Minneapolis, the state’s largest hotel, has been rescheduled for March 10, though business is nearing pre-pandemic levels.
Hilton was at the center of a foreclosure case more than two years ago. In April 2020, hotel owners stopped making monthly payments as bookings evaporated at the onset of the pandemic.
Wells Fargo, JPMorgan’s trustee, lent $180 million to investors in 2018 and filed a lawsuit in October 2020 over loan defaults.
Hilton’s fate is seen by some as a proxy for the future of downtown Minneapolis. The pandemic has devastated many businesses. Those who persevere are waiting for the vitality to return.
There are some indicators that people and activities are returning to urban cores. Doug Green, a member of the investment group that owns the hotel, said he expects the hotel’s revenue this year to be in line with 2018 after years of slump.
Hilton had revenue of $44.4 million and became profitable in 2022, according to receiver reports in court filings. That’s a big jump from its 2021 revenue of $12.2 million. Hilton’s best year was 2019, with $63 million in revenue, Green said.
Earnings before interest, taxes, depreciation and amortization (EBITDA), a measure of profitability, was $14.2 million last year, court documents show.
The sheer size of Hilton properties makes operating costs high under any circumstances, Greene said. But there’s another major hurdle.
“The problem is our interest costs have doubled,” said Green, managing director of Florida-based Haberhill LLC, which jointly owns the hotel with Chicago-based Walton Street Capital.
Greene said he couldn’t predict whether he and other investors would be able to keep owning the hotel. Originally scheduled for January. The hotel owner was notified of the new auction date Tuesday, Sept. 13, at the Hennepin County Sheriff’s Office.
Manus Clancy, a senior managing director at Trepp, a New York-based firm that routinely monitors distressed assets, said it’s not uncommon for commercial real estate foreclosures to be delayed.
“It could take years for this to work,” Clancy said.
Deals are sometimes struck at the last minute to avoid foreclosures, and the hotel market is far more favorable for sellers today than it was in 2020, he said.
“Nationally, we’ve seen hotel values really rebound over the last year,” Clancy said.
Since opening in 1992, the 826-room Hilton has been a downtown landmark.
At the time, the city of Minneapolis paid $84.5 million to fund the hotel project, drawing criticism, especially from other hoteliers, who believed the city government was funding a large new competitor.
Steve Cramer, who was on the Minneapolis City Council at the time, said the city’s funding was aimed at promoting the long-term health of downtown.
“The city at the time had decided to build a new, modern convention center. To make that happen, there needed to be a convention headquarters hotel, and we didn’t have one. It was kind of a package deal,” said Cramer, now a Minneapo Chief Executive of Leith City Center Council.
The city spent $200 million to build the Minneapolis Convention Center, which opened in 1989 and was followed by a $208 million expansion in 2002.
Hilton Hotels Corporation bought the nearby hotel under its brand name in 1999 and paid the city $40.5 million for its stake. The hotel has since undergone other transfers of ownership.
The city government retains ownership of the hotel land and underground car park; the hotel’s land lease is valid until 2091. “The city owns the garage,” Green said. “All the revenue goes to the city.”