DTLA – A key City Council committee last week approved a proposal to expand the Convention Center and the adjacent J.W. Marriott hotel, including plans to allow the developer to keep almost $100 million in taxes generated by the project.
Anschutz Entertainment Group, which developed Staples Center and L.A. Live and operates the Convention Center under an agreement with the city, is working on a $1.2 billion plan with the aim of luring more conventions and travelers. The city Chief Legislative Analyst’s office, using a report from the firm Keyser Marston Associates, found that the project has a $119.4 million funding gap. It recommends allowing AEG to keep $97.7 million — mainly in the 14% transient occupancy tax charged to those staying in hotels — over a 25-year period.
The council’s Economic Development Committee approved the proposal on Tuesday, Nov. 13. It next goes to the council’s Budget and Finance Committee and could reach the full council this week.
AEG is seeking the public assistance specifically for the construction of an 850-room hotel. The 40-story building is budgeted at $700 million, and would provide meeting and event space in addition to the guest rooms. Under the proposal, AEG could keep half of the TOT tax generated over a quarter-century, with the remainder going to the city.
The need for public assistance stems from a hotel meant to accommodate large groups, according to Ted Fikre, vice chairman of AEG. That requires the construction of more ancillary space and meeting rooms than the average hotel.
“Construction of all the facilities drives development costs much higher,” Fikre said. “Then from an operating standpoint, being a full-service hotel makes it more expensive.”
AEG announced the proposal for the fully privately financed project in May. It would link the Convention Center’s currently separated South and West halls, creating 800,000 square feet of contiguous events space. Overall, the $500 million plan would create 350,000 square feet of new facility space. The Gilbert Lindsay Plaza outside the Convention Center would become a 140,000-square-foot green space.
The city would not pay any money upfront for the Convention Center expansion, and instead would negotiate an agreement with AEG’s development partner, Plenary Group, which would front the design and construction costs. The city would make annual payments once the work is completed. The exact amount and length of the payments are still to be determined, as a financial plan for the expansion must be completed.
The hotel, pitched as an expansion of the existing 878-room J.W. Marriott (a Ritz-Carlton hotel also in the existing tower holds 123 rooms), would rise on a current parking deck behind L.A. Live. A sky bridge would link the hotel to the Convention Center.
Fikre said the hotel and Convention Center project must proceed at the same time for the project to be feasible.
The project would help the city reach its goal of having 8,000 hotel rooms within a quarter mile of the Convention Center, according to John Wickham of the CLA’s office, who presented the report to the Economic Development Committee. He said the project would make Los Angeles more competitive in the regional convention market, and specifically said it would help the city land medical conventions.
Doane Liu, executive director for the city Department of Convention and Tourism Development, echoed Wickham, saying the improvements would allow Los Angeles to secure more and different types of conventions.
“The biggest thing holding us back right now is the lack of contiguous space,” Liu said. “We currently have two separate halls, and this would create one large contiguous space, which gives planners more flexibility.”
Liu said approving the expansion plan would have an immediate impact, as convention organizers plan their large gatherings five to 10 years in advance.
If the city green-lights the development incentives, AEG still has to close an approximately $20 million gap in the budget. The CLA report posited adding a $25-per-night “destination fee” to hotel guests’ bills. Fikre said that is being discussed.
Development incentives for hotels are common in Downtown. Most recently, the city signed off on a deal for developer Lightstone’s two-tower, 1,130-room project at Figueroa Street and Pico Boulevard. It would allow Lightstone to keep $67 million in taxes over the course of 25 years.
The awarding of incentives has drawn criticism from some, including City Controller Ron Galperin. In an August report, Galperin said the city has approved $1 billion in incentives for developers since 2005. The report called for greater transparency and a coordinated framework for providing any future incentive.
Fikre acknowledged the concerns, and said that the CLA and Keyser Marston Associates heavily scrutinized AEG’s proposal.
“We fully understand the spirit of the Controller’s report and the press scrutiny,” Fikre said. “The city staff, from my vantage point, has been vigilant to make sure we do need the subsidy, that we’re not overstating the gap, or overstating the benefits.”
If the city approves the framework of the deal, a year of negotiations and pre-development work would follow, Fikre said. Much of the work would involve the Convention Center, including advancing the design and getting more concrete cost estimates.
The goal is to break ground in 2020 and open the hotel and Convention Center expansion in 2022.