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HomeMy WebLinkAbout9/5/2012 - STAFF REPORTS - 5.C. O�?ALM S'04 �Z c u n 41FORd�P r City Council Staff Report * cq�fF . NEW BUSINESS DATE: September 5, 2012 SUBJECT: AUTHORIZE NEGOTIATION OF HOTEL INCENTIVE ASSISTANCE AGREEMENTS FOR SPECIFIC HOTEL PROJECTS FROM: David H. Ready, Esq., Ph.D., City Manager BY: John Raymond, Community & Economic Development Director SUMMARY In January, 2008, the City 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. As Council knows, the Renovation Incentive Program was extraordinary successful, generating in excess of a $180 million investment in the renovation and upgrading of hotel properties throughout the City. This type of development has had a positive and significant effect on tourism in the City, with other positive spillover effects. 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. Staff believes that there exists an opportunity to assist future new hotel development and perhaps some additional renovations, but that the next phase of the program should be on an individual project basis uniquely designed to accommodate each property, rather than an extension of the current 2008 program. Staff is 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. Recently, Staff has received inquiries regarding the potential for incentive assistance on two projects. Below are descriptions and a discussion of each and a recommendation from Staff to negotiate full agreements with each to bring back to Council. ITEM NO.�_ Hotel Incentive Program September 5, 2012 Page 2 RECOMMENDATION: AUTHORIZE NEGOTIATION OF HOTEL INCENTIVE ASSISTANCE AGREEMENTS FOR SPECIFIC HOTEL PROJECTS: RECOMMENDATION: 1) Direct staff to prepare a five year Hotel Incentive Assistance Agreement with the new Doubletree Hotel to include rebate of 50% of TOT collected and paid to the City for the first five years of operation; and 2) Direct staff to prepare a five year Hotel Incentive Assistance Agreement with the Spanish Inn — Marriott Autograph Collection Hotel to rebate of 50% of TOT collected and paid to the City for the first five years of operation. BACKGROUND: In January, 2008, the 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. The exception is the category of new first class hotels: that class of hotels will expire at the end of 2013. Staff is recommending that the Council allow the Hotel Incentive Program to expire on schedule, but to reserve the power to enter individual, case-by-case agreements with developers of new hotels or those renovating key existing properties. The first two projects that Staff is seeking direction on are: 1) The new construction of a 90-room, Doubletree Hotel on the property at 250 South Indian Canyon Drive. This property is currently vacant land and has been purchased by Raymond E. Johnston, who is the long-term owner of the adjacent Best Western Las Brisas Hotel. 2) The Spanish Inn property at 640 North Indian Canyon Drive, which has been purchased from foreclosure by Pacifica Companies. The new owner proposes to finish the property and open it as a Marriott Autograph Collection Hotel. The finished property would provide approximately 50 hotel rooms. 02 Hotel Incentive Program September 5, 2012 Page 3 Both properties have requested City assistance with the understanding that neither property qualifies for participation in the original 2008 incentive program. The proposed agreements would include commitments from the developers regarding the quality, standards, services, maintenance, and operation of each hotel appropriate for each hotel and consistent with the expectations of the Council in providing the incentive. The Doubletree developer is experienced in the market and their adjacent Las Brisas has been at the top of its class of hotels in performance in occupancy, ADR and the combined *index of RevPar. For the new property they sought some assistance to stabilize cash flow over the first few years. Their assistance request was to receive 100% of the TOT for 3 years; alternatively, they believed that 50% of the TOT for six years would be almost as beneficial. Staffs recommendation is an agreement that would provide a rebate of 50% of TOT collected and paid to the City for the first five years of operation. The Council is familiar with the Spanish Inn. While it is not a new hotel, it has not been operated for nearly two decades so it is impossible to establish a baseline TOT. The developers propose to invest in finishing the remodel and bringing it up to the standard of a Marriott Autograph Collection hotel, Marriott's boutique hotel brand. They sought 50% of TOT for 10 years, in order bring their return from an unassisted 3.69% to an amount close to 6%. Staffs recommendation is an agreement that would provide 5 years of rebate at 50% of annual TOT, collected and paid to the City. This would close about half of the financing gap and improve their return. FISCAL IMPACT: The Fiscal Impact for each of the properties would be an increase in general fund revenues at approximately 50% of the TOT generated by the properties for the first five years of their operation, after which the City would receive 100% of the TOT generated by the properties. In the case of Las Brisas, the total cost of the rebate over the five years would be approximately $957,500 based on their projections, and in the case of the Spanish Inn it would be about $425,575 based on their projections. In both cases the City would receive a similar amount of new TOT during that period. David H. Ready, Es City Manager Thomas Wilson, Assistant City Manager 1 James Thompson, City Clerk Jo n S. R y o d, Director C mm tykE Oonomic Development 03