Phoenix has entered into exclusive negotiations to sell the city-owned Sheraton Grand Phoenix downtown hotel —the largest hotel in Arizona — for $255 million.

The city signed a letter of intent with TLG Phoenix LLC, an investment company based in Florida, to accept the offer and negotiate a purchase contract, city officials announced Tuesday evening.

But the deal faces criticism from some council members concerned about the loss to taxpayers. The city also attempted, unsuccessfully, to sell the hotel to the same buyer for a higher price last year.

If Phoenix ultimately takes the offer, the city's total losses on the taxpayer-funded Sheraton could exceed $100 million.

The city still owes $306 million on the hotel and likely would have to pay that off, even after a sale. That would come on top of about $47 million the city has sunk into the hotel, largely when bookings dropped due to the recession.

Phoenix wants to sell the Sheraton, which has 1,000 rooms and is one of the taller structures in the downtown skyline, so it can get out of the turbulent hotel business.

A sale also frees up tourism tax revenue the city has used to keep the hotel afloat. The revenue could instead help patch budget deficits or finance a potential new arena for the Phoenix Suns.

Not a sure thing

The deal is still far from the finish line and requires City Council approval. It is expected to vote before the end of the year.

Some council members will likely question the sale price given the hit to taxpayers.

“I’m not pleased about it," Councilwoman Thelda Williams said Tuesday, adding that she needs more details to know if she can support it.

"Let’s see what happens. We haven’t been very successful so far."

Williams's hesitancy comes after a previous attempt to sell the hotel to TLG Phoenix.

Early last year, Phoenix accepted a $300 million offer to sell the property to the same investors. But that deal fell through in summer 2016 — for reasons never publicly explained — and the city began talking to other buyers.

But the city struggled to find another buyer willing to pay as much. One potential offer it received discussed a purchase price between $150 million and $200 million.

Mayor Greg Stanton, who voted to build the hotel as a City Council member, was cautiously optimistic about the new offer Tuesday evening.

"The city has been working hard to find the right buyer for the hotel," Stanton said in a statement. "This is a very compelling proposal that would keep the Sheraton as a key component of our convention business so I'm interested to see where this negotiation goes."

Offer shows hotel underwater

The latest offer appears to confirm what some private-sector investors have warned: The Sheraton is worth substantially less than what the city owes.

Jeremy Legg, a special-projects manager for the city's convention center, announced basic terms of the new sale agreement in a statement to the The Arizona Republic on Tuesday evening.

Legg said while many details of the sale are not yet negotiated, the deal will ensure the Sheraton remains a "first-class" convention hotel to buttress the city's nearby convention center.

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Phoenix opened the hotel in 2008, spending about $350 million to build it. Several officials, Stanton included, have defended the decision, saying it was necessary to support a larger convention center and revive the downtown core.

Legg said the TLG Phoenix would ensure the hotel remains a viable convention anchor and downtown engine. He said the company would spend as much as $30 million to $40 million to give the hotel a face-lift.

"Not only will that make the property more attractive to conventions," he wrote, "but it also means the city won’t have to make the necessary investment in those renovations, which the city would have to do if it did not sell the property."

In addition to taking a loss on the building, Phoenix would give the buyer a property-tax break — the city hasn't released a potential value for that incentive — and transfer over a roughly $13 million reserve fund for hotel improvements.

TLG Phoenix is headed by Lee Pillsbury, a well-known lodging investor. He could not be reached for comment Tuesday evening.

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