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UPDATE: (Dec. 20, 2016, 9:50 p.m.) -- As seen LIVE: at the opening of the Dec. 20 Council meeting, Mayor Robert Garcia announced that this item (described below) was withdrawn from Dec. 20 agenda so staff can do additional work on it.
(Dec. 18, 2016, 11:50 a.m.) -- An item placed on the City Council's Dec. 20 asks LB City Councilmembers to approve giving away (City Hall calls it "sharing") half of LB's hotel room tax ("transient occupancy tax") for up to the next twenty years, an estimated roughly $12.4 million sum, for a developer/investor group that proposes to create a "boutique" hotel inside the historic Ocean Center Bldg. at the SW corner of Ocean Blvd. at Pine Ave. The agendized action is a formal hearing item, required under state law since Jan. 1, 2014 for local "economic development subsidies" of this type (details below.) [Scroll down for further.] |
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In its agendizing memo, city management describes the proposed transaction as a transient occupancy tax "sharing" agreement that would effectively give up an estimated $12.4 million in hotel room tax revenue over up to twenty years. City management says the subsidy will bridge what it describes as a "feasibility gap" between the assumed development costs and 10.5% return on assumed development costs, figures proffered by a City Hall-paid consultant. The agendizing memo indicates City Hall's "real estate economic consultant," Kayser Marston Associates (KMA), reviewed the proposal's financial framework based on the Developer's pro forma, in part citing information prepared by a "valuation and advisory services group" contracted by one of the developer's general partners. The agendizing memo (signed by Kathryn McDermott, the City's Interim Director of Economic and Property Development, co-signed as approved by City Manager Pat West) offers the reasoning below in seeking Council approval for the hotel room tax giveaway...and asserts that "absent the City's participation in covering the majority of the feasibility gap identified by KMA through TOT sharing, the Proposed Project would not proceed."
[City management agendizing memo text] KMA estimates the Proposed Project return based on the anticipated development costs and the Proposed Project's operating parameters. This analysis compares the level of investment supported by the Proposed Project's NOI [net operating income] to its total development costs. Typical hotel returns in Southern California range from 8.5 percent to 10.5 percent on costs. Given the location, operator, proposed quality and the fact that this is a renovation project, KMA assumed a 10.5 percent return on costs for the Proposed Project. Specifically, the high return on cost assumption reflects the complexity and risk associated with the renovation of a historic building. CA Government Code Section 53083 (effective Jan. 1, 2014) requires that before a local government entity approves an economic development subsidy (defined as "any expenditure of public funds or loss of revenue to a local agency" of over $100,000 "for the purpose of stimulating economic development within the jurisdiction of a local agency, including, but not limited to, bonds, grants, loans, loan guarantees, enterprise zone or empowerment zone incentives, fee waivers, land price subsidies, matching funds, tax abatements, tax exemptions, and tax credits"), the local government entity must make a number of informational statements available in written form to the public and through its Internet Web site, if applicable. The City of LB maintains a website page listing "economic development subsidies" (currently for seven other entities) which can be found at this link. Regarding the Ocean Center Building proposal, the City's economic development subsidy statement at this link recites in pertinent part: The Developer is with an entity to be formed, comprised of the entities below, who propose to redevelop privately owned property at 110 East Ocean Boulevard for development as a hotel and benefit from the economic development subsidy:
An internet check (Dec. 18, 2016) indicates:
In a section titled "statement of the public purposes for the economic development subsidy," the economic development subsidy document states: Hotels provide an important service to cities by providing facilities for tourists and conventioneers to stay, providing direct benefits to the City, its nearby retail establishments, surrounding tourist attractions, and Convention Center activities. These direct benefits include increased revenues from property, sales, parking, business license, utility and hotel taxes and enhanced economic benefits for the supporting food and beverage establishments. While the General Fund revenue picture has improved, long-term revenues are not expected to be sufficient to maintain current service levels. Pursuit of opportunities, such as this hotel development, which generate new General Fund revenues like TOT reflect the City’s holistic approach to economic development.
On May 17, 2016, the Council approved (8-0, Gonzalez absent) a 50% hotel room tax giveaway for the developer for a new building to be constructed (hotel and other mixed uses) at the former site of the Jergins Trust Building across Pine Ave. from the Ocean Center Bldg. City staff informed the Council at that time that the hotel room tax giveaway (50%) for that project was expected to amount to roughly $27 million over twenty years. The Council-approved transaction also included sale of the prime located property as city "surplus" (acquired from LB's dissolved Redevelopment Agency) for $7 million dollars. In its urging Council approval of the May 2016 transaction, city management's agendizing memo (signed by City Hall's now-retired Director of Economic and Property Development, Mike Conway, and the City's Director of Development Services, Amy Bodek) stated: "For comparison purposes, the Buyer/Developer's project across the street from LA Live in downtown Los Angeles includes a rebate of 100 percent of the TOT received by the City of Los Angeles for a period of 25 years. Staff believes that the proposed TOT sharing agreement for this Project is mutually beneficial and an essential requirement for development of the Project." (Details of the May 17, 2016 Council approved transaction here.) Developing. blog comments powered by Disqus Recommend LBREPORT.com to your Facebook friends:
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