The Orange County Register
By Art Marroquin
ANAHEIM – Anaheim is trying to get into the luxury hotel game, even without an ocean.
The City Council on Tuesday will consider whether to offer hefty room-tax breaks to developers wanting to build upscale resorts, a move that supporters say will attract more lucrative conventions and high-spending tourists.
If the plan is approved, Anaheim soon could have hotels trying to compete with oceanfront resorts in Newport Beach, Laguna Beach, Dana Point and Huntington Beach for the highest end of the hospitality business.
Anaheim would be among the few cities in Orange County subsidizing high-end hoteliers.
“We believe that we’re missing a very important segment of the hospitality industry,” said John Woodhead, Anaheim’s community development director.
Guests at Anaheim hotels pay a tax of at least 15 percent of their room rate.
Under Anaheim’s proposed initiative, developers of hotels that meet AAA’s stringent guidelines for four-diamond ratings would get to keep 70 percent of their bed taxes for up to 20 years.
Of the remainder, 10 percent of the taxes would go to the city and 20 percent would pay off bonds that funded improvements to Anaheim’s city resort district in 1996.
Existing hoteliers wanting to overhaul their current properties to meet the higher-quality standards would receive a lesser subsidy.
“Without providing this incentive, developers will not make the investment that’s needed to build four-diamond hotels in Anaheim,” City Councilwoman Kris Murray said. “I believe it’s the right thing to do, because these types of hotels will bring exponentially more revenue to Anaheim and help the city’s economy to grow.”
Mayor Tom Tait said he opposes the plan because a majority of the room tax generated by those luxury properties would be kept by hotel developers – rather than going back to Anaheim’s coffers to help pay for police officers, libraries, road repairs and other city services.
Hotel taxes account for nearly half of the city’s revenue, a projected $133 million during the next fiscal year.
“This policy is insane and will blow a major hole in our city’s finances,” Tait said. “We shouldn’t be in the business of picking winners and losers because every other hotel in Anaheim has to pay its taxes.”
MORE AND MORE ROOMS
A resurgence in local tourism and convention business spurred developers to spend nearly $150 million to build eight new resort-area hotels during the past year. That has led to the addition of more than 1,500 hotel rooms, according to the Anaheim/Orange County Visitor & Convention Bureau.
By the end of this year, roughly 22,000 hotel rooms will be within walking distance of the Convention Center, Disneyland and Disney California Adventure. Of those, the Disneyland Hotel and Disney’s Grand Californian Hotel & Spa are the only hotels that meet AAA’s coveted four-diamond rating.
“I don’t think there’s any shortage of builders wanting to come into Anaheim, but there is a problem when you offer incentives to one group of hotels and not to another,” said Alan Reay, president of Atlas Hospitality Group in Irvine, which provides research on the state’s hotel industry.
SUPPLY AND DEMAND
“If a demand really exists for luxury hotels, then a developer will come in and build them,” Reay said, adding that local visitors who choose to stay near the beach instead of Disneyland do so because “they want to be by the water, not because Anaheim doesn’t have a four- or five-star hotel.”
Dan Shaughnessy, director of sales and marketing for the Anaheim Marriott, supports the subsidy plan because four-diamond hotels could add value to the city’s overall hospitality market.
“Adding some of that luxury supply definitely won’t hurt Anaheim as a destination,” said Shaughnessy, whose three-star hotel recently completed a $15 million renovation. “It might actually add some cachet to the city, which would be good for everyone.”
Officials started crafting Anaheim’s hotel incentive program in May 2013, when the city approved a $158 million room-tax subsidy to hotelier Bill O’Connell Sr. to build a pair of four-star hotels at the GardenWalk mall. The idea was approved by City Council 4-1, with Tait casting the dissenting vote.
O’Connell missed a May26 deadline to start building the first hotel because of a community group lawsuit that sought to kill the project. Last month, the case was dismissed, and city officials are working on a new deadline.
“When we approved the program for the GardenWalk hotels, I said that I wanted to offer this incentive to any hotelier who wanted to build a four-diamond hotel in Anaheim,” City Councilwoman Lucille Kring said.
Such subsidies were not needed to build luxury hotels spanning five beach cities in Orange County.
However, incentives have worked to build three-star hotels in Orange County. Garden Grove gave $47 million to developer McWhinney Enterprises, along with 12 acres along Harbor Boulevard, to build the $250million Great Wolf Lodge Southern California water park, set to open next year.
OTHER CITIES’ MOVES
Santa Barbara County, Palm Springs and Los Angeles also have offered incentives to build hotels in recent years.
“Cities that want to attract conventions need full-service rooms with four-star properties,” said Jan Freitag, senior vice president of STR, a hotel industry research company.
“There is a little bit of an arms race mentality going on where the mentality might go: If L.A. is doing it, then Anaheim should do it,” Freitag said. “I can certainly see the reasoning as the demand for conventions is on the rebound.”