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Memorandum
Date: June 25, 2007
To: Mr. Jim Dunn, General Manager
Palm Springs Convention Center
From: David E. Bergman, Principal
Economics Research Associates
RE: Mondrian Hotels
ERA No. 17311
Morgans Hotel Group: The Mondrian
Morgans Hotel Group(MFIG) focuses on its core boutique hospitality segment within the
hotel industry by differenliating its properties on luxury, modern design, and iconic
facilities. According to management Morgans' strategy includes targeting major-market,
high growth locations with boutique, minimalist design, lifestyle hotels that appeal to a
high end target demographic MHG is said by some to be the creator of the rapidly growing
life-style boutique hotel segment.
The company operates and has ownership interests in 10 hotels with a total of more than
2,700 rooms. Morgan's currently has announced plans to open Four additional hotels with
an additional 2,000 rooms. 'Ihe Mondrian brand is specific to Los Angeles(West
Hollywood)and Scottsdale, Arizona but management intends to expand the brand
nationally. In recent years the group has been preparing to position their presence in the
market place to compete in the same market segments as Starwood's"W"brand and with
the Kimpton group(Hotel Monaco and others).
Mission
According to Morgan-b 2006 Investor Presentation: MHG's mission is to provide an
engaging, unique experience with an energetic atmosphere, distinctive restaurants,
dynamic bars, modern design, luxury amenities, and celebrity patties and major events.
Customer Segment
Morgans Hotel Group's target demographic segment lies between 25-50 years, is affluent,
and seeks a lifestyle hotel experience. The majority of overnight visitors skew to the 30-1-
end of the spectrum. MFIG states that on average, 60%of customers are business clients
and the remaining 40%stay for leisure. Approximately a third of the business segment
10990 Wilshire Boulevard Suite 1500 Los Angiles, LA 90024
310,477,9585 FAX 310 478.1950 www.econres.com
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comes from corporate accounts in the technology, cnterlainmenl, financial services,
advertising, fashion and consumer goods indum ies.
Mondrian Brand
The Mondrian name references a Dutch painter whose works, characterized by intersecting
perpendicular lines and planes of primary colors, profoundly influenced the development
of abstract aft.
Los Angeles
MI IG states that the: Loa Angeles Mondrian attempts to capture the quintessential
California lifestyle by uniting a love of nature and the outdoors, casual living, and glamour
and fantasy. Designed by Philippe Starck, the hotel includes the Asia do Cuba restaurant
and the.Skybar. A Sunset Boulevard address combines a premium location with a unique
re-invention of the hotel experience, according to management.
Scottsdale
Mi-16's goal for the Mondrian Scottsdale is to appeal to younger, sophisticated travelers.
Designed by Benjamin Noriega-Odic, the hotel has created a luxurious retreat in a
vibrantly pleasure-driven environment. MI IG's describes the hotel as an "urban resort"
that creates its own oasis in the heart oFOld Town Scottsdale.
Restaurants and Bars
Morgans' hotels arc operated with branded, marquee restaurants and bars including Asia de
Cuba,Slue Door, Skybar, and Hudson Bar. 'These businesses attract both hotel guests and
local clientele, and are major profit centers, according to MHG's Investor Presentation.
Recent high profile events include The Academy Awards Private after Party,People's 50
Most Beautiful People Launch Party, ESPN ESPY's After Party and Host Hotel. and a
number of others. Morgans claims to have established a strong service culture that has
Favorable ralangs across the brand at approximately 90%according to MHO, although
online reviews from user generated sources such as vipadvisor.com express some
dissatisfaction with the Mondrian properties in Los Angeles and Scottsdale.
Performance
In 2003,Morgan Hotels in the US avetaged an 80%occupancy rate and an ADR of$280,
with Revenue per Available Room (rcvPAR)growth at 17.3%. Occupancy has grown at
an average annual rate of 6.8% from 2003 to 2005, with ADR growing at 9.6%over the
same time period. Total revenues have grown at 11.1%,wirh adjusted LBITDA growing at
20.7%, at 79.5 million dollars in 2005. EBITDA is still 18% below 2000 levels, and in
2003 the Hotel Operating Margin was 31.4%, less than the 40.5% in 2000, MGH's capital
structure remains approximately 40%debt. (Data from MHO 2006 Investor Presentation)
Growth Strategy
MHG plans to pursue expansion aggressively in existing markets or new markets that fit
the stated strategy oFthe brand. Specific to the Mondrian brand, hotels have been
Economics Research Associates
Mondrian Motels Project No. 17311 Page 2
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announced in Miami, Chicago, and Las Vegas. The stratcgiL goal is to leverage
Mondrian's brand equity as a lifestyle hotel; into a nationally rec0gni7cd destination for
both high end leisure and group business. The position of the brand is explicitly
understated a,to retain (he integrity of the brand as a unique proposition based on status
and exclusivity.
Figure 1
MHG Hotels General Information
Los San Total
Angeles Scottsdale Francisco I New York Miami Group Mondrian
Mondrian Mondrian Clift Morgans Hudson Delano Shore Club Avera a Average
Number of Rooms 237 194 363 113 802 195 307 316 216
Standard Room $395 S275 5375 $489 S289 $585 $585 S428 $ 335
1 Bedroom Suite $575 S535 SS69 S529 $1,700 51,350 $876 $ 555
(or similar) *rates shown above are rack rates
Figure 2
MHG Hotel Markets 2006 ADWS and Occupancy Information
West Hollywood Miami New York Scottsdale San Francisco
ADR (average daily rate) $ 199.34 $139,21 $ 284.00 $ 164.20 $ 167.63
Occupancy Rate 79% 71% 85% 70% 76%
Rates Analysis
The Mondrian brand differentiates itself on exclusivity and image rather than price. Thus
MHG hotels prices are consistently higher than the average market rares, as demonstrated
in Figure 3. While the Scottsdale and Los Angeles Mondrians are approximately double
tho market ADR,the two Miami properties are more than four times the market ADR.
In terms of seasonal variation MHG necks to keep occupancy yields at or above 75%year
round. In order to drive occupancy they will reduce rates up to about a 40%discount over
what is archived during peak months. Evidence Form recent web searches for prices at the
Scottsdale property indicates their willingness to match market demand through
discounting beyond these parameters.
Economics Research Associates
Mondrian Hotels Project No 17311 Page 3
n0l
Figure 3
MHG Hotel Rate as % of Market Average
Los Angeles Scottsdale San Francisco New York Miami
Mondrian Mondrian Clift Morgans Hudson Delano Shore Club
Standard Room $ 395 $ 275 $ 375 $ 489 $ 289 S 585 5 585
Market ADR $ 199 5 164 S 168 $ 284 5 284 S 139 5 139
Rate as%of Market Average 198% 167°/ 224% 172% 7021 420% 420%
Group Business Opportunities
The Mondrian does not position itself as a convention hotel. Yet at the same time,this
draws, according to MHG, "mavericks"that are looking for a different, unique convention
experience. MHG will include properties in city wide blocks but tend not to market
themselves directly to the consumer a$a convention hotel. Although marketing efforts are
not directed at convention traffic, MHG has built the sales infrastructure to cater to this
market. MHG has a presence on multiple online convention/group portals such as
Convention Plan ll.com and STARcite.com, and has a sales force of 90-1- in addition to
relationships with group representation companies such as Helms Briscoe, Krisam, and
Conference Direct. In 2008, MHG hotels will begin using the PASSKEY interface,the
industry standard for group planning and management.
fhe Mondrian in West Hollywood is currently involved in a limited amount of convention
activity. Group business at this property tends to focus on specifically high end celebrity
parties and events- While the Clift in San Francisco has a reasonable amount of group
business, the Miami properties don't participate in city wide convention group business
activities except during orf season. In New York the Morgans hotel tends not to pursue
group business and does not have internal meeting space; however the Hudson property
has group facilities and is more active in the seginent.
Scottsdale, which represents the most recent expansion and the closest analogue to Palm
Springs, has the most significant group orientation in its business mix. MHG expects that
rates in Palm Springs will be structured in a similar to the Scottsdale property.
Management reports that they intend to extend this same approach to any new property in
Palm Springs. MHG is also active in referring leads between properties and will cross
book properties.
Economics Research Associates
Mondrian Hotels Project No 17311 Page 4
Fiscal Implications
Using Morgan Hotels Average Rate
Transient Occupancy Fax(TOT):
=Total Room Revenues " TOT
=Number of Rooms ^ Nighis/Year°' Occupancy Rare * 80%of Average Rack Rate * TOT
= 300 * 365 ' 70% ' ($428 * 80%) ` 13.5%
=S3.543.069
Sales Tax Collected:
=Total Room Revenue "' Taxable Sales(20%) Retained Taxes (1%)
_. 52,48 9
Total Tax to Patin Springs=53,596,558
Using Mondrian Brand Average Rate
(Average Los Angeles and Scottsdale Rates)
Transicnl Occupancy Tax (TOT):
=Total Room Revenues TOT
=, 2 773,197
Sales Tax Collected:
=$41.084
Total Tax to Palm Springs =$2,814,281
The annual fiscal implications of opening a Mondrian branded hotel appear above.
Assumptions include a 300 room hotel, with the first calculation utilizing the MHG
average rate and the second calculation using an average rate of the Mondrian properties in
Los Angeles and Scottsdale. Total tax income to Palm Springs is projected to range
between two and a half to three and a half million dollars annually,the majority of which is
generated by way of the Transient Occupancy "fax.
The sensitivity analysis presented above dempn9lrates a comprehensive range of potential
TOT revenues. Assumplions used include a 13.5%TOT and a 300 room hotel. The
columns vary by Occupancy Rate while the rows vary by the Average Daily Rate. The
highlighted ranges signify the most realislic ranges for each variable.
Economics Research Associates
Mondrian Hotels Pro)ect No. 17311 Page 5
Figure 4
Transient Occupancy Tax Sensitivity Analysis
Average Daily Rate
Occupancy Rate 60% 65% 70% 75% 80% 85% 90%
$ 100 $ 886,950 $ 960,863 $ 1,034,775 $ 1,108,688 5 1,182,600 $ 1,256513 5 1,330,425
$ 110 $ 975,645 $ 1,056,949 3 1,138,253 5 1,219,556 $ 1,300,860 $ 1,382,164 S 1,463,468
$ 120 $ 1,064,340 $ 1,153,035 $ 1,241730 $ 1,330,425 $ 1,419,120 $ 1,507,815 $ 1,596,510
130 3 1,153,035 $ 1,249,121 $ 1,345,208 $ 1,441,294 $ 1,537,380 S 1,633,466 $ 1,729,553
$ 140 $ 1,241,730 $ 1,345,208 $ 1,448,685 S 1,552,153 $ 1,655,640 3 1,759,118 $ 1,862,595
$ 150 $ 1,330,425 $ 1,441,294 $ 1,552,163 $ 1,663,031 $ 1,773,900 S 1,884,769 $ 1,995,638
$ 160 $ 1,419,120 S 1,537,380 $ 1,655,540 $ 1,773,900 $ 1,892,160 $ 2,010,420 $ 2,128,680
$ 170 $ 1,507,815 S 1,633,486 $ 1,759,118 S 1,884,769 $ 2.010,420 S 2,136,071 $ 2,261,723
$ 180 $ 1,596,510 $ 1,729,553 $ 1,862,595 $ 1,085,638 $ 2,128 680 8 2,261,723 $ 2,394 765
$ 190 $ 1,685,205 5 1,825,639 $ 1,966,073 S 2,106,506 $ 2246,940 S 2,387,374 $ 2.527,808
$ 200 $ 1 773,900 $ 1,921,725 S 2,069,550 $ 2,217,375 $ 2,365,200 $ 2.513,025 $ 2,660,850
$ 210 $ 1,862,595 8 2,017,311 $ 2,173,028 $ 2,328,244 S 2483,460 $ 2,638,676 $ 2,793,893
S 220 $ 1,951,290 $ 2,113,898 $ 2,276,505 $ 2,439.113 $ 2,601,720 $ 2,764,328 $ 2,926,935
S 230 $ 2,039,985 $ 2,209,984 $ 2,370,983 $ 2,549,981 S 2,710,080 $ 2,889,979 S 3,059,978
$ 240 $ 2,128,680 $ 2,306.070 $ 2,483,460 $ 2,660 850 $ 2,838,240 $ 3,015,630 S 3,193,020
$ 250 S 2,217,375 $ 2,402,156 $ 2,586,938 $ 2,771,719 S 2,956,500 $ 3,141,281 $ 3,326,063
$ 260 3 2,305,070 $ 2.498,243 $ 2,690,415 $ 2,882,588 $ 3,074,760 $ 3266,933 $ 3,459,105
$ 270 $ 2,394,765 $ 2594,329 $ 2,793,893 $ 2993,456 $ 3,193,020 $ 3,392,584 $ 3,592,148
$ 280 $ 2,483,460 $ 2,690,415 $ 2,897,370 3 3,104,325 $ 3,311.280 $ 3,518,235 $ 3,725,190
$ 290 $ 2,572,155 $ 2,786,501 $ 3.000.848 S 3,215,194 $ 3,429,540 $ 3,643,886 $ 3,868,233
$ 300 $ 2,060,850 S 2,882,588 $ 3,104,325 $ 3,326.083 $ 3.547,800 S 3,769,538 $ 3,991,275
$ 310 $ 2.749.545 $ 2,978,674 $ 3,207,803 $ 3,436,931 $ 3.666,060 S 3,695,189 $ 4,124,318
$ 320 $ 2,838,240 S 3,074,760 $ 3,311,280 $ 3,547,800 $ 3,784,320 $ 4,020,840 $ 4,257,360
$ 330 $ 2,926,935 $ 3,170546 $ 3,414,758 $ 3,658,669 S 3,902,580 $ 4,146,491 $ 4,390,403
S 340 3 3,015,6$0 $ 3,266,933 $ 3,518.235 $ 3,769,538 S 4,020,840 S 4,272,143 $ 4,523,445
$ 350 $ 3,104,325 $ 3,363,019 S 3521,713 $ 3,880,406 $ 4,139,100 $ 4397,704 $ 4,656.488
$ 360 $ 3,193,020 $ 3A59,105 $ 3,725,190 $ 3,991,275 $ 4,257,350 $ 4,623,445 $ 4789,530
$ 370 S 3,281,715 $ 3,555,191 $ 3,828,668 3 4,102,144 $ 4,375,620 $ 4,649,00$ $ 4,922,573
$ 380 $ 3,370,410 $ 3,651,278 $ 3.932,145 $ 4.213.013 $ 4493,880 $ 4,774,748 $ 5,055,615
$ 390 $ 3,459,105 $ 3,747,364 $ 4.035,623 $ 4,323,881 $ 4.612,140 S 4,000,399 $ 5,188,658
$ 400 $ 3,547,800 $ 3,843,450 $ 4,139,100 $ 4,434,750 $ 4730 400 $ 5,026,050 $ 5,321,700
Economics Research Associates
Mondrian Hotels Project No 17311 Page 6
MORGANS HOTEL GROUP
June 19, 2007
David Ready, City Manager
City of Palm Springs
Dear David Ready,
We are very pleased to announce that an agreement of terms has been reached between
Morgans Hotel Management Group,LLC and re: Loft Partners Palm Springs,LLC to
develop and manage an approximately 200-room upscale Mondrian hotel and Mondrian
branded residences. We envision that the ptoperty will be designed and positioned as a
contemporary"urban resort" complete with a fantasy pool area, destination bar,renowned
restaurant, fuIl-service spa, state-of-the-art fitness center, expansive meeting and banquet
facilities, etc. Under our agreement of terms, our management agreement would have a term
of 10 years with two 5 year options and we would be an equity partner in this project.We
look forward to working with the City to make this exciting project a success for the
destination of Palm Springs.
Regards, '
Marc Gordon
Chief Investment Officer
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MORGANS HOTEL CROUP LLC 475 TENTH AVENUE NEW YORK CITY NY 1001E PHONE 212 277 4100 FAX 212 277 4290
MORCANSHOTELGROUP COM NEW YORK MIAMI LOP ANGELES SAN HRANCISCO LONOON
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4
CITY COUNCIL STAFF REPORT
DATE: JUNE 27, 2007 CONSENT CALENDAR
SUBJECT: APPROVAL OF AMENDMENT NO. 2 TO AN EXCLUSIVE AGREEMENT
TO NEGOTIATE WITH THE OASI GROUP FOR A 7.8+ ACRE CITY-
OWNED PARCEL AT THE NORTHEAST CORNER OF CALLE
ALVARADO AND AMADO ROAD, MERGED REDEVELOPMENT
PROJECT AREA #2, EXTENDING THE TERM TO DECEMBER 31, 2007
AND AUTHORIZING THE CITY MANAGER TO EXECUTE ALL
DOCUMENTS RELATED TO THE AMENDMENT
FROM: David H. Ready, City Manager
BY- Community & Economic Development Department
SUMMARY
This action would extend the Exclusive Agreement to Negotiate with the Oasi Group for
the 7.8 acres north of the Palm Springs Convention Center to December 1, 2007. The
Original EAN was extended on February 21, 2007 to July 1, 2007 in order to allow
additional time for the project to reach the entitlement stage, and for the Development
Agreement and Purchase and Sale Agreement to be finalized. The project is through its
design phase and has already been through the Architectural Advisory Committee and
to the Planning Commission on May 23, 2007. The Planning Commission continued the
Public Hearing until June 13, but ran out of time before hearing it, and continued the
item until June 21. The item was to have reached the City Council on June 27, but it
now could be early-to-mid July. The Development Agreement would then come to
Council after the approval.
RECOMMENDATION:
1. Adopt Minute Order No. "A MINUTE ORDER OF THE CITY OF
PALM SPRINGS, CALIFORNIA, APPROVING AMENDMENT NO, 2 TO AN
EXCLUSIVE AGREEMENT TO NEGOTIATE WITH THE OAS] GROUP FOR A
7.8+ ACRE CITY-OWNED PARCEL AT THE NORTHEAST CORNER OF
CALLE ALVARADO AND AMADO ROAD, MERGED REDEVELOPMENT
PROJECT AREA##2, EXTENDING THE TERM TO DECEMBER 31, 2007"
ITEM NO.
City Council Staff Report
June 27, 2007 -- Page 2
Oasi Group ENA Amendment
2, AUTHORIZE THE CITY MANAGER TO EXECUTE ALL DOCUMENTS
RELATED TO THE AMENDMENT
Jo n S. ym nd Director of Tom Wilson, Assistant ity Manager
CotT.uKity & So6nomic Development
� _ r
David H. Ready, City M r
Attachments:
Minute Order
Amendment No. 2 to Exclusive Agreement to Negotiate
MINUTE ORDER NO.
APPROVING AMENDMENT 2 TO
AGREEMENT NO. WITH THE OAS[
GROUP FOR A 7.8+ ACRE CITY-OWNED
PARCEL AT THE NORTHEAST CORNER OF
CALLE ALVARADO AND AMADO ROAD,
MERGED REDEVELOPMENT PROJECT
AREA #2, EXTENDING THE TERM TO
DECEMBER 31, 2007 AND AUTHORIZING
THE CITY MANAGER TO EXECUTE ALL
DOCUMENTS RELATED TO THE
AMENDMENT
I, James Thompson, City Clerk of the City of Palm Springs, hereby certify that
this Minute Order Approving Amendment No. 1 to Agreement No. with the
Oasi Group for a 7.8+ acre City-Owned Parcel at the Northeast Corner of Calle
Alvarado and Amado Road, Merged Redevelopment Project Area #2, extending
the term to December 31, 2007 and Authorizing the City Manager to Execute All
Documents Related to the Amendment, was adopted by the City Council of the
City of Palm Springs, California, in a meeting thereof held on the 27th day of
June, 2007.
James Thompson, City Clerk
AMENDMENT NO. 2 TO THE
EXCLUSIVE AGREEMENT TO NEGOTIATE
The Oasi Group, LLC
THIS AMENDMENT NO_ 2 TO THE EXCLUSIVE AGREEMENT TO
NEGOTIATE ("Agreement") is made this ! day of
)U�Af, , 2007, by and between THE CITY OF PALM
SPRINGS ("City"), and THE OASI GROUP, LLC, a California Limited Liability
Corporation ("Developer").
RECITALS
A. On February 23, 2006 the City and Developer entered into an Exclusive
Agreement to Negotiate ("ENA") for the purposes of negotiating a Disposition and
Development Agreement for the sale of City property generally described as the
Convention Center parking lots and the development of a Group Meeting Hotel and
condominiums on the Parcel.
B. Developer has proceeded in good faith in the planning of the project and
the acquisition of an adjoining property for inclusion in the project.
C. Developer has requested additional time to complete the required
milestones identified in the Schedule of Performance and an extension of the period of
negotiation in which to complete all tasks identified in the ENA and the Schedule of
Performance; such changes were a result of the Developer's redesign of the project to
be able to accommodate public parking on the site.
D. The ENA provides for extensions by the mutual agreement of the parties
(Section 2.A.3).
E. The parties amended the ENA in Amendment No_ 1 approved February
21, 2007, to extend the period of time to July 1, 2007.
F. City agrees that an extension of time is warranted and in the best interests
of the City for the orderly completion of the required milestones and the negotiation of a
disposition and development agreement.
NOW, THEREFORE, and in consideration of the foregoing Recitals, City and
Developer agree as follows:
AGREEMENT
1. The foregoing Recitals are true and correct.
2. Exhibit B to the ENA is amended to read as provided in the document labeled
"Exhibit B" to this First Amendment and milestones provided therein shall be
deemed the milestones for the ENA.
3. The first sentence of Section 2.A of the ENA shall be amended to read: "The
term of this Agreement shall be for the period of time from February 23, 2006 to
December 31, 2007 (the "Period of Negotiation") and it is the intent of the Parties
to negotiate and prepare definitive documentation reflecting the transaction for
execution and delivery within such Period of Negotiation."
4, All other terms and conditions of the original ENA shall remain unchanged and in
full force and effect_
5. The persons executing this Amendment on behalf of the Parties warrant that they
are duly authorized to execute this Amendment on behalf of said parties and that
by doing so executing this Amendment the parties hereto are formally bound to
the provisions of this Amendment.
"CITY"
THE CITY OF PALM SPRINGS, a Charter City
and municipal corporation
David H. Ready, Esq., Ph.D., City Manager
ATTEST:
City Clerk
APPROVED AS TO FORM:
City Attorney
(SIGNATURES CONTINUED ON NEXT PAGE]
-2-
"DEVELOPER"
THE OASI GROUP, LLC, a California Limited Liability
corporation
(Check One: _individual, _partnership,
_corporation)
[NOTARIZED]
5igna
Print Name: L.OA( k1$
Print Title: k en%Jor- ^ (''cI
[NOTARIZED]
Signature
Print Name:
Print Title:
Mailing Address:
(Corporations require two signatures; one from each of the following: (A) Chairman of Board,
President, any Vice President; AND (B) Secretary, Assistant Secretary, Treasurer, Assistant
Treasurer, or Chief Financial Officer.)
[END OF SIGNATURES I NOTARY JURAT(S) FOLLOW]
-3-
State of California )
)ss.
County of Riverside )
On dune 20,2007 before me, Carrie Rovney,Notary Public
bale Name and Title of Officer
personally appeared - Lauri Tvbh - ----------------------------
Narne(s)of Si6mcr(s)
8
■proved to me on the basis of satisfactory evidence
_ CARRIE ROVNky
Commtsak r t eae5as io be the person(s)whose name fs)is/are subscribed to the
-r' Notary Faille-county
within instrument and acknowledged to me that
Rlverslga County
Mycomm.EwirO3Mo(26,2o1 he/she/tlrc7 executed the same in tris/her/therr authorized
capacity(ics),and that by his/her/their signatures(s)on the
instrument the personfs), or the entity upon behalf of
which the person(s)acted, executed the instrument_
WITNESS my hand and official seal
Signature of Notary PutrFE� ^