$11-MILLION RESTAURANT DISPUTED BY COUNTY

April 19th, 2016

Jeff Appelbaum, a lawyer and principal for Cuyahoga County on the new county-owned Hilton Hotel, strongly disputes the figures used by me to calculate the cost of restaurant/bar facilities at the new hotel. I totaled figures at $11 million.

He diminishes the cost outlines he provided me by substantial numbers.

I can see his complaint and want to use his entire response and follow with the documents I was sent. I think a good part his remarks are valid. The figures provided, however, mislead me because I asked for figures for restaurant and bar operations and got in addition apparently banquet facility cost figures.

Here is what he says, followed by the documents provided to me by him:

I read your article, entitled “Taxpayers Pay $11 Million for Dining,” and I am concerned about the way various facts were portrayed. I have always respected your efforts as a journalist; and, while I may disagree with your conclusions, it is never my intent to argue with you about public policy. It is my concern, however, when facts are recited in an incorrect way to support a conclusion. I am not suggesting this was done maliciously, but this is a complex project, and I suspect you just misunderstood or misinterpreted the information that you reviewed and that you are unaware of some aspects of how this project actually works.

In any event, here are some concerns with your article:

1) You indicate the existence of three venues—the Burnham, Eliot’s and Bar32—and suggest that $11M was spent on those venues. That is incorrect.

Let’s start with your review of OS&E (Owner Supplies & Equipment). You added $2,543,896 to your calculation for these venues. In fact, the actual OS&E is $2,925 for the Bar32, $54,750 for Eliot’s and $73,334 for the Burnham, for a total of $131,009 (as was set forth in the information that I provided to you for review). That is about 5 percent of the number you reported—an overstatement of $2,412,887. The vast amount of the Food and Beverage OS&E covers 45,000 sq. ft. of banquet facilities and the kitchen that serves banquets, room service and all other food and beverage functions in the hotel. In addition, there is the employee cafeteria, the “Grab and Go” food service in the lobby, the Hilton Honors Lounge, etc. For example, the tables and chairs in the ballrooms and meeting rooms alone account for $1,519,553, which has nothing to do with the three venues you discuss. Most of the cutlery budget is required for banquet service. I think you must recognize that, because in your article you are critical of the fact that we are paying for 11,304 salad forks, 10,500 dinner plates and 3,200 banquet chairs. Certainly you understood that those quantities have very little to do with the restaurants and two bars that seat a few hundred. Rather, they are required for the banquet facilities where an event can seat 3,000 at banquet tables and up to 6,400 in theater seating, generating significant revenues that benefit taxpayers, as discussed below.

Similarly, you misstate the FF&E values. You added $3,477,936 to your calculation for these venues. In fact, that number covers all FF&E associated with Food and Beverage throughout the building. The 45,000 square feet of banquet facilities includes two large ballrooms divisible into nine smaller rooms and nine additional meeting rooms that require FF&E. There is also the “Grab and Go” food service in the lobby, the employee café, the Hilton Honors Lounge, etc. A large portion of FF&E is actually for kitchen equipment that includes the banquet kitchen, restaurant display kitchen, support pantries behind meeting and ballrooms, ice machines on the guest floors, Hilton Honors Lounge equipment, “Grab and Go” equipment, employee café equipment, and similar items. All of that is necessary in any hotel regardless of the nature and style of the restaurant and bars. The actual amount of FF&E for the “dining venues” you write about is as follows: $368,283 for Eliot’s, $348,605 for the Burnham, and $162,667 for Bar32, for a total of $879,555 (as set forth in the information I provided for your review). This is about 25% of the number you reported, or an overstatement of $2,598,381.

(Nowhere did I ask for banquet costs. RB)

With respect to construction costs, the restaurant number includes base construction cost attributed to the space –not just fit out cost. For example, the restaurant includes outdoor canopies, railing work and the site entry (the values of which you cite in your article). Those elements finish the architecture of the hotel on the east façade and provide public access on the mall. That work would have been performed regardless of what was in that space. If there was no restaurant (an impossibility for a convention center hotel), there still would have been floors, ceilings, doors, etc., for whatever was put in that space. The same can be said of much of the cost for the other two venues. So these numbers are not “additional cost” for the restaurant or bars, but base building cost.

Here is the document sent to me in my request for the cost of the restaurant and bar facilities and the figures I used:

FF&E Costs
EXECUTIVE LOUNGE $205,793
KITCHEN $2,392,587
LOBBY BAR $368,284
RESTAURANT $348,605
SKYBAR $162,668
TOTAL $3,477,936

OS&E Costs
BANQUET (mtg/prefunction) $1,519,553
KITCHEN $893,333
LOBBY BAR $54,751
RESTAURANT $73,334
SKYBAR $2,926
TOTAL $2,543,896

Here are the documents sent to me on the costs with totals. The attachments are labeled as “restaurant,” “Skybar,” and “Lobby bar,” reflecting my request, none labeled as ballroom food costs. Further, County taxpayers, via the added quarter percent sales tax levied without a vote, are paying for those food services too.

Restaurant document as submitted:

roldo 160418 table 1a

Skybar document as submitted:

roldo 160418 table 2a

The Lobby Bar document as submitted:

roldo 160418 table 3a

Here is an added part of my request on restaurants to Appelbaum:

I see figures on only one restaurant at $2,429,448 total.

There are two restaurants I thought.

Also, haven’t received info on TIF, duration, amount. (Later I received from another County source information that the TIF would be $750,000 annually for 30 years or $22.5 million if taxes or value are not increased over that period, with the Cleveland schools held harmless.)

Here is Appelbaum’s response to my question that I thought there were two restaurants in the hotel:

There is one full-service, three-meal restaurant, which is the Burnham. It has an upper and lower dining area. In addition, there is a lobby bar (“Eliot’s”) and the Skybar on the 32nd floor (“Bar 32”). The numbers we provided cover those venues. With respect to the TIF, the duration is 30 years. The property tax/TIF payment amount will have to be obtained directly from the County, as I don’t have that information.

Jeff

Here are his concluding remarks in total:

2) Your statements regarding “subsidization”

You compare these venues to the restaurants at Gateway and suggest to the reader that the restaurants are paid for by the public but that the revenue benefits private parties. I will not debate the merits of the Gateway model, but it is not the hotel model. In this case, the restaurants and banquet facilities will conservatively generate about $12M in the first stabilized year, with that number increasing every year thereafter. The annual expense to operate those facilities will be about $7.5M, so that the F&B profit generated will be about $4.5M per year and growing. There will be 350 new jobs created by the hotel that will match the profile of the residents currently living in Greater Cleveland, including many that are now unemployed. Many of those will be well paid jobs with union benefits for those working in food and beverage (that is what much of the expense is for). The profit from that department falls to the bottom line along with other department revenue, and ultimately pays for debt service and all other costs with the residual going back to the County. Overall, the hotel will generate at least $41M in revenue in the first stabilized year with growth thereafter. After paying for all costs and expenses and contributing $9M a year for debt service, dollars will still be available that are returned to the County. While a management fee is paid to Hilton as part of the expense, there is no developer, restaurant operator, or other private party that receives residual profit. It is all returned to the County. This says nothing about the business that the hotel drives to other venues in Cleveland, the additional jobs that are created, taxes paid, etc.

You may not agree that the convention and visitors business is important for Cleveland, or that this type of long-term job creation is worthwhile, but I wanted to be sure you had the proper facts at your disposal.

In March the Plain Dealer wrote that Zack Bruell would operate the Hilton restaurant. I’m sure he won’t do it for nothing.

And I maintain that the hotel, along with the restaurants, will lose money. The county has borrowed some $250-million and will be paying those costs plus interest. The jobs for the most part are lower paid jobs and might just be shifting from other competing but not subsidized downtown restaurants and hotels.

The figure $11 million didn’t seem outrageous when I considered that the restaurants in the baseball stadium and the arena cost about $7.5 million more than 20 years ago.

I—and the public—still then don’t have a figure on what these hotel restaurant/bar facilities cost.

By Roldo Bartimole…

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