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HomeMy WebLinkAbout1/2/2013 - STAFF REPORTS - 5B OF PALM S,6 .,y e u .n ~o°roenco`'r ' City Council Staff Report •Cg41FOpl��P NEW BUSINESS DATE: January 2, 2013 SUBJECT: DIRECTION ON HOTEL INCENTIVE PROGRAM PARTICIPATION FOR THE PALM GROVE GROUP, LLC (THE ARRIVE HOTEL), 1551 NORTH PALM CANYON DRIVE FROM: David H. Ready, Esq., Ph.D., City Manager BY: Community & Economic Development Department SUMMARY In January, 2008, the Mayor and Council adopted the Hotel Incentive Program which consisted of two primary incentive components: 1) the construction of new hotels and, 2) the renovation and upgrading of existing hotels. Staff made a presentation to City Council on September 5, 2012, seeking direction from Council to allow it to negotiate one-on-one Hotel Incentive Agreements with developers of hotel properties based on a number of factors: (1) the need for the particular hotel product in the City's inventory; (2) the demonstrated financial need for the incentive by the Developer; and (3) the public benefit provided through the development or redevelopment of the hotel. This request is from the developers of the ARRIVE Palm Springs Hotel, The Palm Grove Group, LLC, to seek a ten year Hotel Incentive Assistance Agreement (Operations Covenant) for the development of the ARRIVE Palm Springs. This agreement would provide for a rebate of up to 50% of TOT collected and paid to the City for the first ten years of operation. If the Council directs staff to do so, a Covenant documenting that agreement would return at a future meeting for Council approval. RECOMMENDATION: Staff recommends that the City Council provide an incentive for the ARRIVE Palm Springs Hotel through a Ten-Year Incentive implemented by a rebate of Transient Occupancy Tax of 50% of annual TOT collected and paid to the City. ITEM NC. 6 Arrive Hotel/Incentive Program January 2, 2013 Page 2 BACKGROUND: In January, 2008, the Mayor and Council adopted the Hotel Incentive Program which consisted of two primary incentive components: 1) the construction of new hotels and, 2) the renovation and upgrading of existing hotels. Generally, the program provided for up to a 50% rebate of TOT to developers of new hotels for prescribed periods of time, based on the quality of the hotel. For those hotels undergoing renovation, the City would keep the historical "base" TOT and share a portion of the TOT above the base. As the ordinance provides, the 2008 Hotel Incentive Program expires at the end of December 2012, having stimulated an incredible renovation of more than 1,600 Palm Springs hotel rooms and generating in excess of a $180 million investment in the renovation and upgrading of hotel properties throughout the City. The exception is the category of new first class hotels: that class of hotels will expire at the end of 2013. As the ordinance provides, the 2008 Hotel Incentive Program expired at the end of December 2012. Anticipating the end of the Program, on September 5, 2012 staff presented several policy recommendations to City Council on how to assist future new hotel developments on an individual project basis designed to accommodate each property, rather than an extension of the program. Staff asked Council to allow it to negotiate one-on-one Hotel Incentive Agreements with developers of hotel properties based on a number of factors: (1) the need for the particular hotel product in the City's inventory; (2) the demonstrated financial need for the incentive by the Developer; and (3) the public benefit provided through the development or redevelopment of the hotel. At that meeting, Council gave direction to prepare covenants with the owners of a proposed new Doubletree Hotel and the Spanish Inn. Around the same time (August, 2012) Staff also received an inquiry regarding the potential for incentive assistance on the recently-approved 32-room ARRIVE Palm Springs boutique hotel. That project recently received the approval of its preliminary PDD from City Council and was hoping to be "vertical" by the end of 2012 to meet the provisions of the existing Hotel Incentive Ordinance, but based on a number of site conditions, they were unable to break ground to meet the deadline. Besides the financial need, attractiveness and quality of the proposed projects, Council also asked staff to consider additional criteria for determining eligibility for the assistance the program represents. One of the criteria proposed is similar to what the former redevelopment agency would have considered: whether the project proposal would provide a catalyst for development in its particular location, i.e. is it in a relatively underdeveloped area? One other criterion was whether the project site had any unusual or difficult site conditions that would detrimentally affect the project's viability. 02 Arrive Hotel/Incentive Program January 2, 2013 Page 3 In both instances, the ARRIVE Hotel meets these additional project criteria. Their project site, located just south of Vista Chino on the west side of North Palm Canyon, is in an up-and-coming but relatively underdeveloped business district north of Uptown; and, and as such, would have a much bigger impact on the neighborhood around it. At the developer's neighborhood meeting, many residents talked about how relieved they were to have that empty lot built up to improve the neighborhood's safety and appeal. The second impact is the site condition, where the requirement to underground overhead utility lines has added approximately $300,000 to the project cost, or increasing the overall project cost more than 5% just on that requirement. That additional cost is the basis for staffs recommendation to increase the length of the rebate from 5 years to the 10 years that would have been provided under the recently- expired ordinance. The hotel developers are also developing a new brand around the ARRIVE in conjunction with the hotel, which they fee will further enhance the city's draw for the new wave of consumers who are attracted to Palm Springs by the younger and more unique branding at the Ace, Saguaro, Riviera, Colony Palms and other recently updated/re- launched hotels. While other recent projects presented to Council would provide needed new rooms and may appeal to the more traditional tourist demographics for the city, Palm Springs will derive significant long-term value from investment in newer, fresher brands that appeal to the next generation of visitors. Within a few years, the developers expect ARRIVE to have a national presence similar in scope to the Ace, making its original (and likely smallest) location in Palm Springs that much more significant. Several other ARRIVE projects are underway in the Bay Area, Austin and Phoenix, as well as other cities. FISCAL IMPACT: The Fiscal Impact for the property would be an increase in general fund revenues at approximately 50% of the TOT generated by the property for the first ten years of its operation, after which the City would receive 100% of the TOT generated by the property. Based on the Developer's pro forma estimates, the estimated net revenue to the City over the ten year period would be $913,617.50, with a similar amount being rebated to the Developer. David H. Ready, Esq City Manager Jo S y ond, Director Comm ni y Economic Development 03