The owner of the Embassy Suites hotel in downtown Winston-Salem owes the city $800,000 for leasing the Grand Pavilion Ballroom and nearby conference areas, thanks in part to the effects of COVID-19 on the hotel and convention business here.
The Winston-Salem City Council is expected to approve a lease amendment on Monday that will give Embassy Suites owner Sarona Holdings until 2030 to pay off the biggest chunk of the company’s $800,000 debt to the city.
The lease change also will give all revenues from the Grand Pavilion to the city instead of the hotel, and give the city immediate access to the space so that planned renovations totaling $1.6 million can go forward.
In a complicated arrangement, the city owns the Grand Pavilion, a ballroom below a privately-owned parking deck, and 38,000 square feet of meeting space in the lower level of Embassy Suites.
The hotel owner has been leasing the Grand Pavilion and the conference rooms from the city for $600,000 per year.
The city uses the lease revenue to pay off debt the city owes on the property, debt that amounted to about $6 million at the end of 2020.
Recently, city administrators told members of the city council that the Embassy owner stopped making its lease payments in September 2019.
The hotel owner explained the failure to pay by saying that it had budgeted revenues from the Grand Pavilion to total $1.8 million in 2018, city officials said, but actual revenues were about half that amount. In 2019 the hotel expected to break even after making its lease payment, but instead wound up $400,000 in arrears.
City officials say that when the pandemic struck in 2020, that killed any chance the hotel could have had to make money off the Grand Pavilion. In response to the pandemic, Benton Convention Center nearby closed.
In addition, Assistant City Manager Ben Rowe said, the hotel owner had to spend $800,000 to replace a chiller and other systems, expecting to make up the revenue from events but failing to do so because of the coronavirus.
Under the new deal the city is voting on Monday, the hotel would have until the end of December in 2023 to pay off the $360,000 owed for pre-coronavirus debt, and until the end of 2030 to pay off the $440,000 in debt accumulated since the start of the coronavirus shutdown at Benton.
Rowe said the lease modifications were worked out in talks between city and hotel officials.
Rowe said that when the lease change is put in effect, the city plans to contract with Hospitality Venture Management Group to operate the Grand Pavilion. Hospitality already manages the Benton for the city.
“We can market that space along with the Benton as an extension of the Benton,” Rowe told members of the city council in a recent Finance Committee meeting. “Over time, by booking events, it will generate revenue to pay the debt.”
Since the new lease arrangement will give the city control of the Grand Pavilion, Rowe said, it will be easier for the city to move forward with renovations that would change the appearance of the ballroom to stylistically match that of the Benton.
In 2020, the council approved $1.6 million to “refresh” the Grand Pavilion. It’s not a complete makeover as was done with the Benton, but things like carpeting and paint will be handled in a way that complements the Benton decor.
Rowe said because the pandemic has created down time in the convention business, it’s a good opportunity to go ahead with the renovations.