Panel Urges City Subsidies for Hotel Project

A City Council panel recommended Monday that Los Angeles provide $266 million in subsidies and loans to the developers of a 55-story hotel next to the Convention Center, but opponents threatened a referendum drive to put the matter before the city’s voters.

The financial deal was endorsed on a 4-0 vote by members of the council’s Ad Hoc Committee on the Convention Center Hotel, with Councilman Tom Labonge and others saying that the project would make the center more competitive and breathe new life into downtown.

“This is a good thing for the city of Los Angeles, without question,” Labonge said.

Councilwoman Jan Perry said the construction of 1,100 hotel rooms and 110 luxury condominiums would create 3,000 construction jobs and would provide permanent work for about 800 hotel employees.

“It will have a lasting impact on the area,” Perry said.

The project also was endorsed by the Los Angeles Chamber of Commerce and the Central City Assn. as necessary to help the Convention Center attract sufficient business to pay the $30 million in annual debt payments incurred during the center’s construction.

“Either we have it or we don’t find ourselves competing in the national convention market,” said Michael Collins, head of the city convention bureau.

However, Peter Zen, an executive with the Westin Bonaventure Hotel, said he would press a lawsuit challenging the project.

Zen also announced that he was considering a referendum drive to require voters to approve the city’s plan to let the developers keep the $246 million in hotel bed taxes expected to be generated by the hotel during the first 25 years. He said he would need to collect 40,000 signatures from registered voters to put the issue on the ballot.

In addition to questioning whether the subsidy is fair to taxpayers, Zen told the council panel that it was unfair to competing hotels such as his, which may lose guests to the subsidized hotel. “It will just damage other ongoing healthy hotels,” Zen told the council members.

He said a similar project in Houston caused financial problems for other hotels.

Chris Sutton, an attorney for the Bonaventure, argued that the city should rely on the private market to build the hotel based on its chance for success after the construction of a $1-billion companion development called “L.A. Live,” a mix of theaters, restaurants and other attractions.

“This subsidy is unneeded,” Sutton said. “This hotel will be built without this subsidy. You just have to wait and see.”

A marketing expert hired by the city said, however, that the 68% occupancy rate for downtown hotels was not high enough to make the hotel pencil out without a subsidy. City Administrative Officer Bill Fujioka said an analysis predicted that the hotel would attract more business to the Convention Center than that one hotel could handle, so other hotels should also benefit.

The break on the bed tax, a $16-million loan and the waiver of $4 million in building fees were proposed in a deal with developers AEG, Wolff Urban Management and Apollo Real Estate Advisors.

Council President Alex Padilla, who heads the special committee, questioned a part of the deal that said that if the hotel booked more rooms than expected and received the $246 million before 25 years, the city would split, on a 50-50 basis, all bed tax revenue generated until the end of the 25th year.

Padilla said an argument could be made that the city should get all the transient occupancy tax after the first $246 million. “If the hotel is as successful as everybody hopes it will be, we might reach a point where [tax] relief doesn’t make sense,” he said, reserving final judgment until the matter reaches the full council in the next few weeks.