When Red Lion Hotels Corp. put its 118-room downtown Medford property on the block in November 2011, it didn't take Sid DeBoer and other Lithia Motors insiders long to assess the long-term consequences — for both the company they run and the city.
DeBoer, the chairman of Lithia Motors, considered both possibilities: the benefits if the property was handled right, and the liabilities if it fell into disrepair. Within weeks after the Spokane, Wash.-based hospitality chain announced Medford was one of four hotels it was selling, the DeBoers offered $2.8 million for the property.
Red Lion Hotels Corp. said last week that it hopes to sign an agreement with an existing hotel property in the Medford area to replace its former downtown hotel.
“Our first objective was to sell the property,” said Ron Burgett, executive vice president of lodging and brand development for Red Lion Hotels Corp. Although the chain often signs franchise agreements with new owners, Burgett said it couldn’t come to an agreement with the Riverside Avenue property buyers.
“We desire to have a presence in Medford, because we’ve been there for so many years,” he said. “Because we’ve had a presence, there is guest demand. We don’t have any conversion in the works, but there’s a pretty aggressive search. It kind of depends on the life cycle of hotels where someone is buying a hotel and needs to reflag.”
Burgett said once a deal is struck, a conversion could take place in as little as six months. New construction would take up to 18 months.
The offer was rejected and Red Lion entertained other offers, including one closer to the company's $3.5 million asking price that was accepted. When that deal fell through, however, it opened the door for DeBoer and Lithia's vice president of real estate, Mark DeBoer, along with longtime associate Dick Heimann, to re-enter the picture.
Sticking to the original offer, the trio, who formed DHD LLC in March, needed to find someone to revamp the hotel, preserve its conference center and restore quality food service.
And, said Sid DeBoer, city participation was essential.
"In our minds, we knew we would back out if we couldn't find someone and the two pieces didn't come together," DeBoer said. "None of us here involved in DHD had any interest in running a hotel, motel or convention center."
Just as important, DeBoer said, was actually pulling the deal together so that the property didn't lapse into downtown blight.
"We didn't want it to turn into a 'no-tell motel,' " DeBoer said.
Doug and Becky Neuman ultimately took on the hotelier role, but it took some negotiating to get the Ashland developers on board.
The Neumans are credited with converting the former Mark Antony Hotel in downtown Ashland into the highly successful Ashland Springs Hotel, and reviving Lake of the Woods Resort, among other ventures. The Neumans also purchased the former Windmill Inn complex near the south Ashland freeway exit in the spring for $1.6 million and announced they would plow up to $6 million to overhaul the property.
With the Neumans' immediate finances tied up on that project, DeBoer said, pulling them into the Red Lion deal required some incentives.
"We were getting late in the process and we had to have everything nailed down or we would've backed out," said DeBoer, rather than lose a $75,000 deposit. "When I told (Doug Neuman), 'What if we loaned you all the money,' he finally warmed to the idea. Not only are we loaning him the money at an attractive interest rate, but there was no down payment. We felt he was the most qualified person."
DHD fronted the $1.725 million purchase price to the Neumans, plus, DeBoer said, "a couple hundred thousand" to begin the overhaul.
After the initial start-up costs, additional money loaned for the project will be on a matching 50-50 basis, DeBoer noted.
In the interim period leading to the purchase, DeBoer said, DHD paid for consultants, environmental studies, legal and real estate fees.
While the Neumans are wasting no time remaking the Red Lion into The Inn at The Commons, the development loan period is for three years, DeBoer said.
"If after three years he's making progress, he expects we could extend the loan," DeBoer said. "But we had to have some framework."
After three years, DeBoer said, the property should get an appraisal, allowing the Neumans to obtain a commercial loan and pay off the DHD note.
"We would've loved to have had someone come in and tear it down and build a whole new deal with a convention piece," DeBoer said. "But we couldn't find anyone to do that. The only attractive offer we had was to finance Doug and his organization."
In the long run, DeBoer said, there's no guarantee DHD's investment will pan out.
"Until (Neuman) makes it successful, he could give it back to us and then we really haven't sold it," DeBoer said.
What DeBoer envisions, however, is an updated hotel, restaurant and convention center with plenty of parking across the street from Lithia's headquarters and The Commons downtown redevelopment area.
"It's all part of the strategy of making a commitment to Medford," he said. "Lithia didn't want to get involved with lending money on the hotel, so I had to personally take that on. This is a unique opportunity for us to use the wealth we've accumulated to try to help the community."
The Red Lion acquisition didn't come without controversy. DHD worked a deal with the Medford Urban Renewal Agency to sell to the city about 40 percent of the property for $1.6 million, with the understanding the city would convert it to parking. That agreement was criticized, in part because, at the Red Lion's insistence, the price DHD was paying for the entire property was not initially made public.
Eyebrows were also raised because it appeared that DHD stood to make a substantial profit by selling the two parcels for considerably more than it paid. But DeBoer said because of the loan and other expenses, there will be no windfall for his group.
DeBoer said the city's participation, in which it acquired a 3.29-acre portion on the south end of the property, was critical because the commercial activity surrounding The Commons will require more parking.
"Without the city participating, it wouldn't have happened," DeBoer said. "I have to give them credit for standing the heat, because they weren't aware of what we were paying, our expenses and other things done. The price is fair market for property and probably under, technically."
In its heyday, the Red Lion filled a substantial amount of its rooms. Aggressive hotel building at both Medford freeway exits over the past 20 years bit into demand and occupancy was closer to 40 percent. By reducing the room count and updating beds, televisions and much of the decor, the Neumans expect to create an attractive location for conventions.
"What makes a big difference is when you can offer a complete package," Doug Neuman said. "Access to real good food and an environment where event planners know they're going to be taken care of. If an event planner has to go for an outside caterer and has to think about who's doing this and that, it gets risky."