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City Mgm't Recommends, Council Will Vote Oct 1 On $13 Million "Economic Development Subsidy" For Pacific6's "The Breakers" Planned Luxury Hotel/Spa (Ocean Blvd/Locust Ave.) 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.
(Sept. 25, 2019, 3:40 p.m.) -- At the Oct. 1, 2019 City Council meeting, Long Beach city management will ask the City Council to let "Breakers Development, LLC," an affiliate of Pacific6 Enterprises (a Long Beach-based corporation whose co-founders include John Molina and through a Pacific6 subsidiary owns keep 80% of the hotel room tax ("transient occupancy tax") amounting to $13 million over nine years that the City would otherwise collect when The Breakers reopens as a luxury hotel and spa at 210 E. Ocean Blvd./Locust Ave.

A city management agendizing memo from Economic Development Director John Keisler, approved by Acting City Manager Tom Modica, says the proposed hotel room tax give-back (which it calls "tax sharing") would let the Pacific6 subsidiary keep $13 million in Transient Occupancy Tax (hotel room tax) collected at The Breakers) over 9 years if it 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, it wouldn't automatically nix the deal; city management says it would return to the City Council "to amend" the subsidy [effectively allowing a future Council to take various actions ranging from reducing the taxpayer subsidy to simply letting it continue.]

City management's memo indicates that Pacific6 estimates the hotel's total development costs will exceed $135 million. City management's memo cites various reports, studies and projections from consultants hired by the City and by Pacific6 but hasn't attached them for public review. Consistent with LB City Council allowed practice (that a number of other cities don't follow), city management doesn't routinely disclose the actual contract for public or Council review until after the Council authorizes it and it's signed and binding on taxpayers.

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

[Scroll down for further.]

[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 fixes required by state regulators to enable the Molina/Wu/Network LLC to operate its 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 displaying Pacific6 artist renderings and describing Pacific6's plans for The Breakers building. In August 2019, 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."



A hearing on the economic development subsidy for the Breakers Development was scheduled for August 13 (listed among "Hearing Reminders" on the July 23 City Council agenda) but the hearing didn't take place. Instead, management agendized it for Oct. 1. In previous Council items related to The Breakers, Councilmembers have been effusively praised Pacific6's stated plans for The Breakers building.

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