Presentation to America’s Lodging Investment Summit (ALIS) Successful Public/Private Hotel Case Studies & Tools in a Post-RDA Era January 27, 2015 by: Kosmont Companies 865 S. Figueroa Street, Suite 3500, Los Angeles, CA 90017 213-417-3300 www.kosmont.com
Public/Private Hotel Case Studies (post RDA) 2
Case Study: City of Redondo Beach – Marine Ave. Hotels The Challenge • City desired to utilize area near Metro station • Odd lot size & shape; multiple ownership; and vacant condition had deterred private development • Developer proposed 147-room Hilton Garden Inn, 172-room Marriott Residence Inn and 180 Room Extended Stay Hotel located adjacent to the Metro station The Post-RDA Tools Used Ground Lease / Lease- Leaseback Metro Station Site-Specific Tax Revenue Pledge (Prop & TOT) Mezzanine Reserve Fund • 3
Case Study: City of Redondo Beach – Marine Ave. Hotels The Outcome- Opened May 2014 • Without Site Specific Tax Revenue project does get financed • Will add over $3.5 million/year in TOT & create ~150 jobs • Brings quality hotel operations to the City’s “front door” • Hilton Garden Inn - 147 rooms • Marriott Residence Inn - 172 • TOD project across street from Metro Green Line station • 3rd Hotel; Homestead Suites- 2015 4
Case Study: Starwood Hotels - W Hotel, Hollywood Funding Target: $200M total project capitalization $17.5M funding gap – funded by EB-5 Investment Level: $500,000 per Investor plus processing costs Investment Placement: Drai’s Restaurant and Nightclub Delphine Restaurant Job Creation Required: Minimum 10 jobs per $500,000 (established and validated by economic study) Repayment Period: Five years Status: 35 investors with EB-5 I-526 visa application in process. Restaurant loans funded in mid-2011. Permanent jobs created by end of 2012. 5
Case Study: Starwood Hotels - W Hotel, Hollywood EB-5 Basics EB-5 Financing is a low cost source of financing for public & private projects which can be combined with other forms of project financing: • Funding ranges from $5 Million to $100 Million per project; can be phased and financed with no minimum LTV • Short-term; typically structured as a 5-year repayment program • Flexible - will subordinate to other equity and debt • Streamlined source of front-end money not burdened by “public purpose” requirements (such as bonds) • Compatible with City economic development goals to promote job growth and private sector investment • If City is involved, no general fund guarantees; can pledge tax increment or site specific tax revenue to secure investor interest 6
Case Study: Redondo Beach Waterfront Revitalization The Challenge • Redondo Beach’s aging waterfront increasingly struggles to compete in SoCal, especially with neighboring South Bay cities • Cost of deferred maintenance best paid for by new private investment but needed control of “sub-leases” on ~ 15 prime waterfront acres • City acquired waterfront assets; used as collateral via lease/leaseback 7
Case Study: Redondo Beach Waterfront Revitalization International Boardwalk Pier Plaza Marina Properties Add’l Properties in RFQ The Post-RDA Tools Used & The Outcome • Kosmont structured Lease-leaseback financing for 15 acres of land acquisition to be paid back from tenant lease cash flow • RFQ issued for 15+ Acres of Waterfront development • CenterCal Development selected as Master Developer • MOU executed & CEQA Process kicked off 8
Case Study: Redondo Beach Waterfront Revitalization 9
Potential P3: Camarillo Hotel & Conf. Center The Challenge Deficiency of local hotels and sufficient demand for medium to large size conferences and events City proposed new 3 to 4 star hotel & ~ 10k to 20k sq. ft. conf. ctr. Market support for ~ 200 or more rooms 12 acre site may also accommodate complimentary retail uses Current Status Site located on 101 Fwy at Ventura Boulevard and Las Posas Road (within City’s Heritage Zone) Potential for infrastructure incentives to private developer City currently seeking development team to implement project 10
Tools & Incentives for Successful Hotel Public / Private Partnerships 11
ED Tools for CA Cities – Post RDA Real Estate & Property Special Districts ( Tourism, BIDs, Joint Powers etc.) Authorities (JPAs) Economic Development Rebate of Taxes / Real Estate Enhanced Infr. Revenues Project Financing Districts (EIFDs) Land Use / Zoning P3 / Project Delivery (Higher Density; Parking) Methods Theses tools often work best when used together 12
New Rules: Types of Districts Expanding Tourism & Restaurants Golf Downtown Wineries Auto Districts 13
TID Characteristics • Tourism Improvement Districts: Funds raised through an assessment on lodging stays Provides services directly benefitting businesses within district As of 2013, there are over 50 local tourism improvement districts in CA Noticeable TID is San Diego; TID funds programs /events to attract overnight visitors to San Diego Convention Center (i.e. Comic Con) 14
New Tools: EIFDs – Summary of Key Terms The Area 1. Enhanced Infrastructure Financing District • Governmental entity established by a city or county that carries out a plan within a defined area to construct, improve and rehabilitate infrastructure 2. Public Financing Authority (PFA) The Team • Legislative body that governs the EIFD • Composed of participating governments and members of the public 3. Infrastructure Financing Plan The Strategy • Plan adopted by city or county. Describes public facilities & development to be financed by the EIFD • Implemented by Public Financing Authority (PFA) 15
Types of Projects New EIFD may Fund Industrial Structures Hotel / Mixed Use TOD Projects Civic Infrastructure Wastewater/Groundwater Light / High Speed Rail Parks & Open Space Childcare Facilities Brownfields 16 Source: SB 628 – Bill Text
EIFDs – Diverse Funding Approach Can finance ANY property with an estimated life of 15 years or longer! Can use multiple funding sources with tax increment: If Bond Issuance then 55% voter approval required Funding Sources: • Property tax revenue including RPTTF • Vehicle License Fee (VLF) prop. tax backfill increment • Development Agreement / Impact Fees • User fees • City / county / special district loans • Hotel TOT • Benefit assessments Contribution from Special District Levied by EIFD • Private investment Potential to apply State funding sources: • Proposition 1 bond funds • Cap-and-trade proceeds EIFD Federal & State Grants Fund • Greenhouse Gas Reduction Funds • Federal DOT/EPA/DOE funding programs 17
Forming an EIFD Receive Finding of Completion (FOC) Successor Certify no SA assets under litigation will benefit Agency Comply with State Controller’s asset transfer review Prerequisite Identify infrastructure projects Define project area Participating legislative bodies Schedule public hearing for IFP adopt resolution of intention to establish EIFD Create Select vendor to prepare plan Identify District Members Create Public Appoint PFA Members Distribute to property owners and Infrastructure affected taxing entities Financing Financing Authority Plan (IFP) (PFA) Legislative bodies adopt IFP Conduct public hearing and resolution of formation Approve the IFP creating EIFD Adopt resolution proposing adoption of IFP and formation of EIFD 18
Los Angeles’ Economic Incentive Program Incentives Offered: • Business tax incentives to incentivize office occupancy, spur investment, attract “creative office” • TOT incentives & occupancy tax to make physical improvements to existing hotels, spur investment, lengthen stays & improve occupancy • Site Specific Tax Revenue (SSTR) for Retail Centers • Other incentives (per incentive list provided to Mayor) Eligible improvements related to incentives for existing hotels • Façade / exterior / entryways and landscaping improvements • Raising level within existing “flag” system – i.e., Hyatt to Hyatt Regency • Improve/add restaurants, bars & retail – including access and visibility • Upgrade technology to attract higher-end customer, i.e., Executive Conference center • Improve indoor air quality and provide “wellness” attributes • Upgrade infrastructure 19
Hotel Incentives Eligibility Requirements of a hotel applicant for incentives eligibility: • Agree to a Project Labor Agreement (PLA) for temporary & permanent jobs • Provide pedestrian & retail oriented improvements • Fund an analysis (fiscal analysis) as part of application • Must be a 3-star hotel or higher • Must have at least 200 rooms or more 20
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