The Orange County Register
07/07/16

Anaheim Considers Tax Incentives for Three Luxury Hotels Near Disneyland
By Joseph Pimental

http://www.ocregister.com/articles/anaheim-721842-city-hotel.html

ANAHEIM – The City Council on Tuesday will consider tax incentives reimbursing developers some $560 million over 20 years for building three luxury hotels in Anaheim’s resort district, including one at Disneyland.

City leaders said the hotels would help Anaheim attract higher-end visitors and conventions to stay and play in a city that offers Disneyland, Angel Stadium, Honda Center and the Packing House. Average nightly rates of $300 would mean double the tax revenue collected from lower-end properties, they said, and the new luxury hotels would add 2,000 jobs.

But an industry expert echoes the city’s mayor in questioning whether the market is there for luxury accommodations and whether developers need incentives to realize the business opportunity.

The three hotel projects would be the first ones to take advantage of a policy the council approved in a 3-2 vote last year to encourage the construction of hotels that meet AAA’s four-diamond rating by offering to reimburse developers for 20 years 70 percent of the transient occupancy tax collected from guests. Guests pay a 15 percent bed tax.

After the 20 years, the city would keep all of the bed-tax revenue, which goes toward paying off bonds from 1996 that funded improvements to the resort district and toward the city’s operating expenses and community programs.

City staff members estimate that the three hotels would generate $300 million in revenue after paying developers the incentives over the two decades. And once Anaheim is keeping all of the bed taxes, staff members project that the city would get $613 million over 10 years.

The projects the City Council will consider on Tuesday are:

• A 700-room luxury hotel and parking structure proposed by Disney for 10 acres at 1401 Disneyland Drive, at the north end of the Downtown Disney parking lot. Construction would start in 2018, with a slated opening in 2021.

• A $208 million, 580-room hotel proposed by Good Hope International, an affiliate of Wincome Group. The Anaheim Plaza Hotel & Suites, at 1700 S. Harbor Blvd, directly across the street from Disney California Adventure, would be demolished and replaced by the luxury hotel.

• A $225 million, 700-room hotel proposed by FJS Inc., an affiliate of Wincome Group, that would replace another of its existing properties, The Anabella Hotel, adjacent to the Anaheim Convention Center.

To meet the AAA’s guidelines for a four-diamond rating, a developer has to spend about $225,000, including $30,000 in furnishings and fixtures, per room of a new hotel.

In Anaheim, developers envision luxury touches such as rooftop lounges and restaurants for watching Disneyland’s nightly fireworks, spas, signature restaurants and concierge service.

Though more than 20 million people visit Anaheim each year, The Disneyland Hotel and Disney’s Grand Californian Hotel & Spa are the only four-diamond places to stay in.

San Francisco, which attracts 17 million visitors a year, has 20 four-diamond hotels. Denver, drawing 15 million visitors annually, boasts eight luxury hotels. Orlando, Fla., anchored by Walt Disney World and Universal theme parks, offers 30 four-diamond properties for its 60 million annual visitors.

“The resort, I cannot overstate it enough, this is the most significant economic engine for the city,” said John Woodhead, Anaheim’s community development director. “We’ve been trying to establish this (luxury) market for 15 years in Anaheim. We thought we could do it with a smaller incentive package, but we have not been able to do so.”

City staff members have said their research indicates that the Anaheim market could support at least 2,500 luxury rooms.

“Each year, we are losing more than 100,000 visitors,” said Woodhead, citing a study from tourism bureau Visit Anaheim. “Many of them are the high-end clientele and conventioners. We’re losing them to the coast and the danger is we’re also losing them to Los Angeles. L.A. has a nice four-diamond market built around the Staples Center and their convention center.”

Alan X. Reay, president of the Atlas Hospitality Group, which specializes in the sale of hotels, is skeptical. He said this is the best time for developers to build a hotel and questions whether an incentive is needed to lure them.

He also questions if high-end clients and conventioners would choose Anaheim.

“If you were one of these people who could afford to stay at a high-end hotel and just spent three or four days at a convention, would you stay and spend the rest of your trip in Anaheim?” Reay asked. “Or would you stay somewhere along the coast where you can step outside and touch your feet on the sand?

“I’m not sure there’s much else to do in Anaheim than Disneyland,” Reay said.

Mayor Tom Tait was one of two council members staunchly opposed last year to offering incentives. He’s gearing up for another fight. Tait said he doesn’t like giving money to developers that could be used for other city projects.

“If there was a market for luxury hotels here,” he said, “they’d already be here.”

Two more luxury hotels are planned at the GardenWalk mall. Those received a separate $158 million bed tax subsidy from the city in 2013.