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Outside of Public Hearing, City Staff Gave Offices Of Councilmembers Pearce & Price These Talking Points Supporting $13 Million/9 Yr. "Economic Development Subsidy" For "The Breakers" Downtown Luxury Hotel; AUDIO: Hear Various Councilmembers' Explain Their Reasons For Approving It (7-0) is reader and advertiser supported. Support independent news in LB similar to the way people support NPR and PBS stations. We're not non-profit so it's not tax deductible but $49.95 (less than an annual dollar a week) helps keep us online.
(Oct. 6, 2019, 7:35 a.m.) -- City of LB Economic Development staff sent a talking points-style email to the office of 3rd dist. Councilwoman Suzie Price and shared similar information with the 2nd district office of Councilwoman Jeannine Pearce prior to Pearce making the Oct. 1 motion, seconded by Price, to approve a staff-recommended $13 million/9 year "Economic Development Subsidy" for the developer of "The Breakers," a historic former hotel at 210 E. Ocean Blvd.

Economic Development Dept. Deputy Director Sergio Ramirez sent the talking-points style email (marked "high" importance) to Councilwoman Price's Chief of Staff at 1:33 p.m. on Oct. 1 just hours before the public hearing on a $13 million/9 year Economic Development Subsidy. Mr. Ramirez tells that staff also provided the same information to Councilwoman Pearce's office during a regularly scheduled briefing between the Department and Pearce's Council office [date and time not immediately clear.]

At the Oct. 1 hearing, Councilwoman Pearce made the motion and Councilwoman Price seconded the motion to allow the developer ("Breakers Development, LLC," an affiliate of Pacific 6 Enterprises whose founding members include John Molina) to retain 80% of the hotel's "transient occupancy tax" collected from hotel guests during the hotel's first nine operating years.

In making the motion to approve the item, Councilwoman Pearce said that although she and Mr. Molina have not always seen eye to eye on all issues, she does see eye to eye with him on The Breakers project.

In seconding the motion, Councilwoman Price referenced an item included in the talking-points email but not visible in publicly agendized hearing materials to the effect that the hotel will be required to operate for a 20 year minimum period. Councilwoman Price engaged Mr. Ramirez in a public colloquy about this, after which Price voiced satisfaction with inclusion of the provision.

However a 20-year hotel operating period alone arguably doesn't address a related LB taxpayer matter. As previously reported by, an August 14, 2019 report from the City's real estate economic consultant, Kayser Marston Associates (KMA) (obtained by projects that during the subsidy's nine year period, the hotel would receive more revenue from the subsidy than LB taxpayers would receive from all of the hotel's remaining room tax plus sales tax revenue generated at the hotel plus property tax revenue from the hotel project. That taxpayer-negative cash flow is projected to continue until year ten when the subsidy is supposed to end and the City would begin collecting the full transient occupancy tax, producing City of LB revenue totaling over $2 million per year (hotel room tax + sales tax + property tax) from the hotel project.

But that City-projected future revenue won't materialize if a future Council were to extend the subsidy beyond its initial nine year period. LB Councils have exctended subsidies given to other large, City Hall-desired LB businesses (commonly rationalized to "retain" the business or address market conditions or enable expansion.) If that were to occur regarding the subsidized luxury hotel, the 20 year operating period might not produce the City-forecast revenue and the hotel could become chronically costly for the City.

[Scroll down for further.]

City staff didn't attach the proposed contract text for public review prior to the Council vote which would show if the contract includes any provisions to recoup or protect LB taxpayers against this scenario. (Under long-standing LB-Council allowed practice [not practiced in some other cities or by the Port of LB], LB city management doesn't disclose the actual proposed contract, which management shows the public only after it's signed and taxpayers are bound.) obtained the talking-points style email after inquiring about any materials provided to Councilmembers before the hearing. Mr. Ramirez provided the talking-points style email on request. In the public interest, links to it in full here.

The Economic Development Subsidy drew mixed public testimony but unanimous Council supportive comments. Councilmembers voted to approve it 7-0 (Andrews absent, 1st dist. vacant.) after which Mayor Garcia praised the Council's action and predicted major future benefits from the hotel.

To hear LB Councilmembers' discussion of the Economic Development Subsidy leading up to their unanimous vote, click here.

Public speakers supporting the subsidy included representatives of UniteHere! Local 11 and the LB Convention & Visitors Bureau. 5th dist. resident Ann Cantrell testified in opposition citing several grounds; Corliss Lee (founder Eastside Voice) said that although she loves the project, she considered the subsidy too large (a "windfall profit.") 1st dist. resident Jeremy Arnold supported the $13 million subsidy but argued it should be larger (roughly $20 million.)



Prior to the Council vote, Councilman Roberto Uranga (a member of the CA Coastal Commission) asked city staff if the project touches the Coastal zone. City management responded that it's "just outside the coastal development permit area."

An August 14, 2019 report to city management from the City's real estate economic consultant, Kayser Marston Associates (KMA) (referenced in but not attached to the publicly agendized hearing memo) indicates that during the subsidy's nine scheduled years, the hotel developer would receive more in from 80% of the hotel's room tax than LB taxpayers would receive from the remaining 20% of the hotel's room tax estimated plus sales tax revenue generated at the hotel plus property tax revenue from the hotel project. The final page of KMA's report includes a Table showing total revenue -- net hotel room tax (after the subsidy) + generated sales tax + property tax -- that KMA projects the City would receive over the hotel's first ten years would amount to $6.952 million (bottom right corner, Table 4 below.) Basic math indicates that's an average of roughly $690,000 a year for LB taxpayers from the hotel project during the hotel's first ten years of operation.

Source: KMA Aug. 14 report, Table 4.

By comparison, basic math indicates the proposed $13 million "economic development subsidy" would provide the hotel operation with an average estimated subsidy of $1.44 million per year ($13 million / 9 years = $1.44 million/yr.) for the first nine years of its operation -- basically twice the amount LB taxpayers would receive from all consultant estimated revenue from net hotel room + generated sale tax + property tax during the hotel operation's first ten years.

That would change in years ten and beyond if a future Council allows the subsidy to expire as currently scheduled. On the same chart, the KMA report notes that over the first 20 years will generate $33.2 million in revenue for the City from all taxes (hotel room tax + gross sales tax + property tax (if a future Council doesn't extend the subsidy beyond the first nine years.)



Responding to's invitation for a response/comments prior to the hearing, Brandon Dowling, Communications Director Pacific6 Enterprises, emailed the following statement:

At completion, the Breakers Hotel will support over 200 local jobs, will become a gateway for thousands to experience our city's continued renaissance, and will create a vibrant hub in Downtown for residents and visitors alike. We're proud of our work with the City of Long Beach to ensure this historic building is returned to its former purpose and glory and can be enjoyed by many for years to come.

The City-hired KMA report estimates the hotel project's net operating income (stabilized in year 5 at 80% occupancy) would amount to $7.736 million. It estimates a "warranted investment" (assumed 8.0% return on costs) of $96.7 million. And it estimates development costs of $134.3 million. This produces what KMA calls a "feasibility gap" of $37.7 million.

KMA recommends that "Given the magnitude of the feasibility gap, the City and Developer may consider exploring the utilization of historic tax credits, EB-5 financing or other alternative financing vehicles." City management's memo doesn't mention these options in its Oct. 1 agendized hearing memo

The KMA report said among the "key issues" that the City "needs to consider" is "Any agreement with the Developer will need to ensure the proposed quality level of the Project is maintained throughout development. In particular, KMA would suggest including a minimum diamond rating and/or cost threshold (shell and or FF&E) in any agreement with the Developer." City management's hearing memo recommends Council approval of the subsidy if the firm invests $70.7 million in direct costs for the hotel's development including construction costs and furniture, fixtures, and equipment. If the firm doesn't invest $70.7 million, city management indicates the issue would return to the Council [a future Council] "to amend" the subsidy...leaving open in what way(s) a future Council might do so.

KMA's analysis also "assumed the proposed Breakers Hotel and Spa will be an independent hotel affiliated with the 'Preferred Hotels and Resorts' brand" and its analysis is "predicated on a AAA 4-Diamond hotel and...specifically used Preferred Hotel and Resorts as the hotel brand/flag." Accordingly, KMA noted that any agreement with the Developer "will need to ensure the proposed quality level of the Project is maintained throughout development. In particular, KMA would suggest including a minimum diamond rating and/or cost threshold (shell and or FF&E) in any agreement with the Developer."

On this issue, city staff's agendizing memo proposes: "In event the hotel operator loses the Preferred Hotels and Resorts as the hotel brand/flag but replaces the flag with another AAA-rated Four Diamond Hotel flag, equal to, or better than, Preferred Hotels and Resorts, subject to City Manager approval, the TOTSA [transient occupancy tax sharing agreement] would remain in effect." City management's agendizing memo doesn't indicate what options/protections the City would have if a lesser owner/operator took over. [The contract text itself isn't attached to the agendized item, a practice LB Councils have routinely allowed for agenda items seeking Council approval to enter into contracts; the City discloses the contracts only after they're binding on LB taxpayers.]

KMA's report advised city management in pertinent part: "Given the current lending environment, equity requirements and capitalization rates, typical hotel returns in Southern California range from 8.0% to 9.5% on costs. Given the location, operator and proposed quality level, KMA assumed a 8.0% return on costs for the project." It described the difference between the hotel-supported investment ($96.7 mil) and development costs ($134.3 mil) as a "feasibility gap" of roughly $37 million, calling it "significant" and adding that the developer "would be required to accept a below market rate of return even after a subsidy provided by the City."

The KMA report also indicated it believes the "public revenues generated by the project are significant" based on the following:

  • ...The gross TOT generated by the project over 20 years is $42.6 million (present value of $19.4 million when discounted at 8.0%.)...[T]he developer would receive $13.0 million in TOT, which has a present value of $10.6 million when discounted at 8.0%.

  • The food and beverage department of the Hotel will generate significant sales. Based on the projected revenues, the Project will generate $3.1 million in sales tax over 20 years (present values of $1.4 million when discounted at 8.0%.)

  • The City will receive a share of the property tax levy on the Project. Based on similar projects in Long Beach, the City's share is estimated at 2.325% of the base levy, which results in the City receiving $546,000 in property tax revenue over 20 years (present value of $255,000 when discounted at 8.0%.) [footnote in text: The City needs to confirm its share of the property taxes.]

    Assuming the revenues and subsidy described above, the City would receive $33.2 million in net revenues (after the subsidy) from the Project over 20 years ($12.3 million present value.)

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    The city's real estate consultant stated that the City "needs to consider the following key issues":

    • The estimated feasibility gap would suggest the Developer is willing to accept a below market return. Any City participation in the Project should require a review of the Project's financing to ensure adequate debt and equity is available for its construction and stabilization period.

    • KMA utilized a relatively low return on cost to reflect the Project's coastal location, which traditionally support lower returns.

    • Given the magnitude of the feasibility gap, the City and Developer may consider exploring the utilization of historic tax credits, EB-5 financing or other alternative financing vehicles.

    • The proposed FF&E allowance and renovation costs for the Project reflect a very high quality level for the hotel. It should be noted, that it can be difficult for boutique hotels to receive a four diamond rating, as they often do not have some of the physical amenities (e.g. conference space, spa, porte cochere, etc.) required by the rating agencies.

    • The City needs to review the proposed permits and fees to ensure there is an adequate budget.

    • The Project will generate a significant amount of revenue to the City, including $42.6 million in gross Transient Occupancy Tax over 20 years ($29.6 million net) [footnote text: Based on KMA projections] In addition, the food and beverage operations would generate over $3.1 million in sales tax revenue over the same [20 year] period.

    • Any agreement with the Developer will need to ensure the proposed quality level of the Project is maintained throughout development. In particular, KMA would suggest including a minimum diamond rating and/or cost threshold (shell and or FF&E) in any agreement with the Developer.

    Overall, the feasibility gap is significant, reflecting a relatively [sic, adjective appears missing here] risk development due to high cost of renovating a historic building and the challenging ADRs currently supported by the market.

    On Sept. 19, the City posted a legally required statement on the City's Economic Development webpage reciting the "public purposes" for the proposed economic development subsidy:

    [City of Long Beach "public purposes" text] 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 [transient occupancy tax] reflect the City’s holistic approach to economic development.

    This economic development subsidy will support the adaptive reuse of a historic structure in the downtown Long Beach area by transforming a vacant and underutilized building into an upscale boutique hotel and spa. However, hotels are a very risky investment. Although Average Daily Room rates have increased in the Downtown over time, the cost to develop and construct a new hotel is often greater that its market value based on capitalized net operating income. As a result, hotel development and construction is not economically viable without some form of subsidy. The opinion that the public benefits received by the development, construction and operation of a hotel business center at this strategic location significantly outweighs the subsidy being proposed.

    Pacific6 also owns the Ocean Center Building roughly a block west of The Breakers on the SW corner of Ocean Blvd. at Pine Ave. which Pacific6's website indicates it plans to convert into an apartment/residential facility. There's no public indication at this point as to whether Pacitic6 will seek, and city management will recommend, some type of economic development subsidy for the Ocean Center building. However in 2016, the City agreed to offer the building's previous owner (who had planned to turn it into a hotel) an economic development subsidy equal to 50% of transient occupancy tax for up to 20 years.

    The City of LB, with City Council voted approval, has provided economic development subsidies to a number of firms listed on a City webpage here.. They include a 2017 economic development subsidy amounting to 80% of the transient occupancy tax -- $28 million over nine years -- expected to be generated by an American Life envisioned high rise hotel on the SE corner of Ocean Blvd/Pine Ave. (former Jergins Trust site across the street from the now-Pacific6 owned Ocean Center building.

    Pacific6's John Molina is separately a principal in Molina/Wu/Network, LLC, an entity now finalizing an agreement with the City already approved in principle by the City Council, that would let the LLC operate -- for the LLC's profit and rent of $1 a year -- a smaller version of the former/larger non-profit Community Hospital on Termino Ave. just south of PCH. Under the City Council's approved general terms, LB taxpayers would spend $25 million over 20 years to cover half the cost of seismic upgrades required by state regulators to enable the Molina/Wu/Network LLC to operate a smaller version of Community Hospital on the site.

    The City Council has signaled that it plans to spend Measure A General Fund ("blank check") sales tax dollars for this (which the Council told voters in 2016 would be used to prioritize police, fire, street and sidewalk infrastructure.) In July 2019, the Council voted without dissent to hold a special citywide election on a City Hall written ballot measure that would make the Measure A sales tax permanent.

    In mid-June 2018, Pacific6 acquired, which has since published a number of stories describing Pacific6's plans for The Breakers. In mid-August 2019, displayed artist renderings and described them in these terms:

    New renderings reveal what the Breakers Building will look like after community-investment partnership Pacific6 has completed its renovation of the 14-story building on Ocean Boulevard. Converting the building into a hotel, it will feature a jazz club, rooftop terrace, spa, swimming pool and other amenities that will serve both visitors and locals -- and the renderings showcase both the grandeur and return to former glory that its developers hope to bring back into the building...John Molina has previously stated he plans to restore the building to its glory as a Long Beach landmark. "Our goal is to bring back an iconic building in the city and make it useful," he told the Post earlier this year."

    Help keep our independent news going and growing in Long Beach. No one in's ownership, reporting or editorial decision-making has ties to development interests or other special interests seeking or receiving benefits of City Council development-related decisions; or holds a City Hall appointive position; or has contributed sums to political campaigns for Long Beach incumbents or challengers. No one in our ownership, reporting or editorial decision-making has been part of the governing board of any City government body or other entity on whose policies we report. is reader and advertiser supported. You can help keep really independent news in LB similar to the way people support NPR and PBS stations. We're not non-profit so it's not tax deductible but $49.95 (less than an annual dollar a week) helps keep us online.

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