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Home My WebLink About12/15/2004 - STAFF REPORTS (2) 12/14/2004 16:42 FAX 760 520 8207 CITY OF PALM SPRINGS CHRIS M Z001/005 F A C S I M I L E Name: City Council prom: John Raymond Date: December 14, 2003 S-biect: Indian Oasis Resort Pages (incl cover). 5 Here's a draft letter for review tomorrow in Closed Session on the Indian Oasis project. You have received a prior letter from Ernie Noia related to the same project. There's obviously an issue with the tinning of the City's"commitment'but Dave Aleshire worked over the weekend to draft this letter which we(Dave,Ernie, and 1)think solves the timing problem. From the d0ak Of... John S.Raymond City of Palm springs Palm Springs,CA 92262 12/14/2004 16:42 FAX 760 325 $207 _ _ CITY OFPALM SPRINGS CHRIS H 1Q 002/005 DRAFT December 14,2004 Mr.Martin S.Belz Peabody Hotel Group yyyy ,r6 lvIII'.N 111 Re: The Indian Oasis Project: Emie Noia and Peabody Hotel Grou Letter of Understanding Dear Mr.Belz: The City Council of the City of Palm Springs has been extremely excited to hear from our staff of the rogress being made on the Indian Oasis Project. We are especially pleased to �v hear that Mr. • 'Noia has brought in such a prestigious group as the Peabody Hotel Group to assist with this project. We understand that the Peabody Hotel Group("P07),or its affiliate and Mr. ' Noia are forming a California Limited Liability Company('Indian Oasis, LLC") for the purpose of owning constructing and operating a Resort Hotel/Golf Course Project (the "Resort") on a portion of property which is the subject of the Indian Oasis Master Plan. Additional entities will be formed for the development of other phases of the proj ect. By way of background, the City of Palm Springs has been involved over the last decade with several major destination resort projects which are a vital part of the City maintaining its historic prominence in the tourism industry. One is known as the"Classic' project and is on the east side of the Palm Springs International Airport. After many years, this project has finally come together and a prestigious golf course is now under construction. Lennar'I �;". . , has acquired the property and is now developing the other components of the project. In the Ian few years Mr. Noia has been working on the extremely exciting Indian Oasis Project, the key to which is the golf course destination resort. We have talked with him many tunes about his efforts to find the right partner who can develop a four-star hotel on the property. We are extremely pleased that this property may be the West Coast location for the Peabody Hotel Group. While there is currently a great deal of controversy concerning the location of other potential destination resort hotels in and adjacent to the mountain areas of the community, Mr. Noia% location has not generated such controversy and appears to be a perfect location for this type of project. As we understand the ciurent plan, the Resort is designed for a portion of the property and will be the first of a planned six-phase development that will include commercial and 01003/0002136500.01 12/14/2004 16:42 FAX. 760 323 6207 _CITY .OlL PALM SPRINGS d CHRIS M Z 003/005 Mr.Martin S. Belz DRAFT December 14,2004 Page 2 residential components. It is the City's, and we understand the developer's, intent that the hotel and golf course be in the initial phase of the project. We understand that the Peabody Hotel Group, a national hotel development and management company, or its affiliate, will be the project manager and majority owner of the hotel/golf course project. PHG currently owns/manages hotels with an aggregate of 3,217 rooms and 227,950 sq. ft, of meeting-rooms and convention space. We believe that bringing such a strong national entity to Palm Springs will only enhance Palm Springs' strong identification in the tourism industry. Moreover, we believe that Palm Springs with its unique environmental setting and blend of world-class facilities with the desert's major airport and with a $36M convention center expansion underway bringing the convention center to over 200,000 sq. ft., will also be an ideal location for Peabody's west-coast operations. We understand that the specific components of the Project are as follows: 1. The total cost ("Project Cost") of the Resort project will be approximately S130 million of which the hotel is estimated to cost$113 million. 2. The improvements are planned to consist of an approximately 400-room "four- star" hotel with an adjacent 18-hole championship golf course. The hotel will include approximately 40,000 sq. ft. of convention and meeting rooms; a gourmet restaurant(s),and have approximately 5,000 sq. ft. of retail space. In order to commit to this project, PHG is looking for several important understandings- First,PHG must successfully negotiate a lease for a 33-acre hotel site and a 180—acre golf course site on terms acceptable to PHG, and it must receive Bureau of Indian Affairs' approval for this project. In addition, PHG believes that it will need infrastructure assistance from the City of Palm Springs. It is believed that at least $30 million of net proceeds must be raised to offset the infrastructure cost of the Resort, including of the golf course. You have suggested that you are flexible in the form of the assistance as to whether it will be cash investments, land rental contributions, debt service or other sources. You have also suggested that you would like some fort of commitment before December 31, 2004. This deadline exists in order to meet requirements of the underlying Indian owners. 0100310002136590.01 12/14/2004 16:42 FAX 760 323 8207 CITY OF PALM SPRINGS 4 CHRIS M Q1004/005 Mr.Martin S.Belz DRAFT December 14,2004 Page 3 The City can appreciate that a project of this scale will need financial assistance with current market conditions. The City of Palm Springs in the past has entered into agreements with major developers whose projects would generate a significant economic return to the City. The City's approach has been to determine the streams of revenue which will be generated by the project. These streams of revenue can include property tax increment which is generated to the Redevelopment Agency, and transient occupancy tax revenues and sales tax revenues which are generated to the City. The City has also developed land-based community facility district assessment financings. We believe that we have an innovative and creative financing team who can investigate these various sources of revenue and structure transactions_ Our criteria normally are that we only want to give away a percentage of the revenue being raised so that the City still retains an overall economic benefit, and that the City contributions are performance-orientated. We do not advance funds, but we pay the funds out of monies produced by the project. Of course, depending upon the nature of the revenue, a bond issue can be arranged so that the money is available and repayment is through the revenue stream. We understand from your letter that you believe that the money needs to be available at the commencement of the construction of the Resort, and we are willing to work towards this goal. Under the California Redevelopment Law, there are many challenging legal issues to be mat in structuring this type of a transaction. As an example, under recent developments in California Redevelopment Law, if the Agency provides assistance to a private project, then the project must be built with the payment of prevailing wages. We don't know whether you had planned on paying prevailing wages for this project,but if you did not,that could be a significant economic burden. We, therefore, have to develop innovative methods of providing financial assistance. One technique involves the provision of public infrastructure by the City itself. Therefore,the details of how financial assistance will be provided are very important. While at this stage of our discussions, we'M provide a'commitment" exactly in the form in which you are requesting it, we believe that we can indicate our significant interest in entering into a dialogue which can lead to such a commitment. We understand that you have provided a project per£orma outlining the need for assistance, and including projections of the anticipated public revenue which will be produced by the project, and these are being reviewed by our financial consultants. With these two elements, our consultants can then look at whether the $30 million which you have requested is the appropriate level of assistance and what 01003I0002l36590-01 12/14/2004 16:48 FAX 760 328 8207 CITY OF PALM SPRINGS + CHRIS H ¢005/005 Mr-Martin S.Belz DRAFT December 14, 2004 Page 4 financial mechanisms can be developed legally out of the streams of revenue which you anticipate the project will generate. We are prepared to move forward expeditiously to do this. Please let us assure you that this project has enormous importance to the City's economic future. We are prepared to make this project the highest priority for our redevelopment staff and put all necessary resources to developing with you a financing plan for the project. We are prepared to do this in an extremely expeditiously manner. We believe that the parties could develop an appropriate memorandum of understanding outlining the intentions of the parties over the next several weeks and bave it approved by the Council in January (tbe Council is not scheduled to meet again until January). Thereafter, the negotiations could proceed for a final agreement with hearings thereon in the first half of 2005. Again, let us say how excited we are about this project. We hope that our outline of how to proceed in this manner is helpful to you. We look forward to hearing from you at your earliest convenience. Sincerely, Mayor,Palm Springs 01003/0002/36590.01