LA WATCHDOG - Jade Enterprises is requesting incentive payments over the next 25 years of $63 million in connection with its development of a three star, 300 room hotel that will be located within a half mile of the Los Angeles Convention Center.
These payments would be made under a City policy to support the goal of having 8,000 hotel rooms within walking distance of the Convention Center.
This incentive payment will make up for the supposed $24 million shortfall between the development costs of $132 million and the annual cash flow from the property over the next ten years and the value of the hotel in 2032. The difference between the $63 million incentive payments and the $24 million loss is the result of the timing of the incentive payments over 25 years.
This proposed giveaway is wrong for many reasons.
According to the outdated March 2020 feasibility report prepared by the City’s consultant, there are almost 13,000 hotel rooms that are existing, approved, under construction, or proposed within walking distance of the Convention Center, surpassing the policy goal of 8,000 units.
The City can also put this $63 million to a better use, whether it be for the homeless or our streets and parks.
As part of the analysis, the total benefits of this development to the City over the next 25 years is projected to be $161 million, of which Jade would receive 40% of the goodies. But these benefits will be front end loaded with the developer receiving almost two-thirds of the benefits in the first ten years. This disproportionate arrangement is unacceptable.
While it is possible that Jade could walk from this hotel development, it is unlikely because this 22 story, dual branded hotel is part of a $300 million development on low cost land that includes a 23 story residential complex with 250 apartments.
It is also unlikely that Jade would walk because the economics of the hotel appear to be understated by the City’s consultant. Using a different set of reasonable assumptions, the hotel deal is a home run, even without the incentives.
And if the City were to provide incentives, it should be reimbursed for the incentive, plus interest and an equity kicker, that allows the City to participate in the upside of this project.
This proposed giveaway stinks. It is not worth any further consideration. And if it does see the light of day, the consulting report needs to be updated. And in the interest of transparency, the City Council needs to have open hearings where Councilmembers and the public may ask questions of and demand answers from the developer and the consultant.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. He can be reached at: [email protected].)