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HomeMy WebLinkAbout11/14/2007 - STAFF REPORTS - RA.2. M1 o pA�M SA.o G} Community Redevelopment Agency Report C44 VL�`r DATE: November 14, 2007 NEW BUSINESS SUBJECT: JER PARTNERS—WYNDHAM HOTEL RENOVATION NEGOTIATIONS FROM: David H. Ready, Executive Director BY: Community and Economic Development BACKGROUND Highland Hospitality Corporation acquired the Palm Springs Wyndham Hotel in the summer of 2005. The property is held by HH Palm Springs, LLC. The Highland acquisition occurred as Wyndham was divesting itself of its hotel properties and significantly curtailing its national marketing program. While Highland initially discussed with City staff some potential upgrades/renovations, Highland undertook no facility or property improvement program for the Palm Springs Wyndham. Earlier this year Highland Hospitality Corporation was acquired by a fund of JER Partners, a private real estate investment company, which initiated a comprehensive review of the Palm Springs Wyndham Hotel. Because there has not been any investment in a comprehensive property improvement/ renovation program for the Wyndham for more than ten years and because the Wyndham franchise has abandoned an aggressive national marketing program, the Hotel's performance and profile has diminished and now negatively impacts the City's ability to market the newly expanded and remodeled Convention Center. In September 2007, the Hotel owner approached the City and asked that the City consider economic participation in its efforts to "reposition" the Hotel, potentially change the Hotel "flag" (the Wyndham agreement expires in November 2008), and implement a comprehensive Property Improvement Program to revitalize the image of the Hotel and renovate the property. On October 2nd, the Council Subcommittee, Mayor Oden and Councilmember Mills, met with representatives of JER Partners and Highland Hospitality, Rich Banjo and Rick Adams, who presented a proposal for the City's participation in the renovation and repositioning of the Wyndham. On October 16, 2007, the Council Subcommittee met with staItwid �Hckl ` ■ owner's proposal and directed staff to negotiate a potential agreement for the City's participation in the comprehensive renovation of the Hotel. Staff has engaged in negotiations with the Hotel owner since October 16th. Negotiations with the Hotel owner determined that without City participation, they would invest only $6-$8 million in the Hotel in order to protect the asset and would not evaluate further investment in the Hotel beyond $6-$8 million for five years. That level of investment would not support an Upper Upscale brand. The Hotel owner presented an option to reposition the Hotel as an Upper-Upscale property through a major renovation. Such a repositioning would require a minimum investment in the Hotel of $24 million and a maximum of $25.5 million. Negotiations determined that the Hotel owner has-conducted a thorough assessment of the property improvements needed for the repositioning of the Hotel. RECOMMENDATION: The Council Subcommittee and staff recommends that the Community Redevelopment Agency direct staff to negotiate and return to the Agency with a contract for its approval that would provide for economic participation in the renovation and "re-flagging" of the Hotel in the amount of$3.2 million, pursuant to the following terms: 1. The property would always be operated as a full-service hotel with a national marketing program; 2. The Hotel would participate in the Convention Center's Committable Rooms Program with no less than 350 rooms, and provide leads to the Convention Center for potential room bookings in excess of the Hotel's capacity; 3. The Hotel would provide, without charge, Hotel meeting space as needed/appropriate to all groups that book/occupy 100 rooms or more in the Hotel; 4. The Hotel owner would enter into a Franchise Agreement of up to 20 years, which would bring an Upper-Upscale brand with a national marketing program to the Hotel; 5. The Hotel owner would implement, by the end of 2008, a Property Improvement Program (PIP) appropriate to an Upper Upscale brand; 6. The Hotel owner would invest in the property no less than $18.3 million in the implementation of the PIP; 7. The City would contribute $3.2 million at the completion of the implementation of the PIP or progressively through the implementation of the PIP, as to be negotiated; 8. If the PIP was completed for less than $21.5 million, the Hotel owner Partners and the City would share proportionately in the savings; 9. The Hotel owner would be solely responsible for all costs of the PIP above $21.5 million; and 10. The Hotel owner or any successor owner of the Hotel property would plan and implement future renovations and improvements consistent with the requirements of their Brand, with reinvestments equal to or greater to those required by the Franchise Agreements, Lender Agreements and/or Management Company Agreements, whichever represents the highest reinvestment standard. FISCAL ANALYSIS The repositioning of the Hotel into the Upper-Upscale category will drive an increase in the Hotel's Average Daily Rate (ADR) and Occupancy Rate. Projects made by JER in the improvement in both of those performance categories would produce an increase in transient Occupancy Tax (TOT) of over $700,000 per year. Staff believes a more conservative model is appropriate, which would provide approximately one-half of the JER projection or$350,000 of new TOT per year. J n Ra o �J, irector lTiomas J. Wilson/AssisfAt City Manager om nity & nomic Development Development Sepvices David H. Ready, E ve Director Attachments: