The DoubleTree Hotel is not going to manage and operate the Modesto Centre Plaza for the city.
Modesto officials said the hotel's parent company called off the talks after two days of negotiations this month. And the DoubleTree, which adjoins the downtown convention center, formally withdrew in a letter Wednesday to City Manager Greg Nyhoff.
Modesto officials had tried to negotiate a five-year deal for the hotel to take over operation of the city-owned side of the downtown convention center. By contracting with an outside manager, the city had hoped to eliminate a $600,000 to $700,000 annual general fund subsidy required for Centre Plaza.
Shahid Kayani, area general manager for the DoubleTree by Hilton, wrote that the decision was based on information gathered during a due diligence process. Factors in the decision included lagging revenue generated by Centre Plaza and the city's proposed guidelines and performance objectives for the management contract, Kayani wrote.
"Additionally, we are of the impression overall that the city may not be ready and accepting of the substantial change we believe would need to happen to stabilize the Modesto Centre Plaza business model," the letter states.
The Bee was unable to reach a company spokesman for clarification. Kayani's letter also mentions that "negative press and actions cost us considerably in the entire process."
The proposed outsourcing contract was opposed by a dozen community members and business owners who spoke at a July 10 public hearing, some of whom criticized the hotel's food serv-ice. A City Council decision Aug. 20 to proceed with negotiations was approved on a 4-3 vote, after the hotel demanded that no changes be made to its catering contract, which runs through 2019.
Too little income
The convention center does not generate enough income from bookings to cover the city's payroll expenses and other costs. The potential outsourcing contract had threatened the jobs of eight full-time city employees and 20 part-time workers.
Nyhoff said city staff will continue to manage the convention center. As a fallback position, the council included a reorganization of the Centre Plaza operation in the city budget approved in June. The restructuring is supposed to reduce the general fund subsidy by $200,000 and is likely to include some staff cuts.
City officials have to confer with labor groups, and then a reorganization plan will be brought to the council for approval, Nyhoff said.
Mayor Garrad Marsh said he favored reorganization as the next step to reduce the subsidy.
The DoubleTree outbid a city employee group for the right to negotiate a management contract with the city. Other companies that manage convention centers expressed interest in Centre Plaza last year. Officials said those companies shied away from bidding because of the long-standing contract that allows the DoubleTree to cater events at the center.
Mark Averell, city purchasing manager, said there were two fruitful days of negotiations this month before the DoubleTree backed away. He said the company did not suggest any dramatic changes for running Centre Plaza.
He said the company's review of bookings and accounts receivable for this year seemed to be a factor in the decision.
The city had proposed performance measures that the hotel would have needed to meet, such as improved marketing, community involvement, customer satisfaction surveys and increasing events, to earn incentive payments. But they were just proposals, Averell said.
In its proposal to manage Centre Plaza, the DoubleTree had sought fee payments from the city, averaging $130,000 a year, plus incentive payments that could have totaled $400,000 to $500,000 over the five years.
Councilman Dave Geer said he was disappointed the talks fell through. "We are losing an awful lot of money with the current situation," he said.
Councilman Joe Muratore called the outcome "unfortunate." He said the hotel operators cited the lengthy process leading to negotiations and the disagreements over the catering contract as reasons for dropping out.
Some council members had wanted to shorten the term of the catering deal so that it would expire with the outsourcing contract in 2017. That way, other companies might compete for the contract when it was rebid.
Council members Geer, Muratore, Dave Cogdill Jr. and Stephanie Burnside supported the August decision to proceed with negotiations; Dave Lopez, John Gunderson and Marsh were opposed.
Nyhoff said the city and the DoubleTree maintain a partnership with the concession contract. He said he hopes to improve the partnership with the hotel and form a task force to find ways to increase bookings for the center.
Bee staff writer Ken Carlson can be reached at firstname.lastname@example.org or (209) 578-2321.