Ground Breaking Set for Whittier’s Hilton
Ground breaking for the long-awaited, $13.5-million Hilton Hotel in this city’s rapidly changing uptown will be Tuesday, marking the start of the third major hotel project in the Southeast area in two years.
A three-year struggle by Whittier officials to land the city’s first big hotel ended successfully when the project’s developer, Duffel Financial and Construction Co. of Lafayette, Calif., secured financing for the eight-story building only two days before a Dec. 31 deadline to qualify for low-interest, tax-free development bonds.
Seen as Anchor Building
Civic leaders hope the 206-room hotel, to be built on a three-acre site along Greenleaf Avenue between Mar Vista and Penn streets, will anchor the city’s ongoing face lift of the retail district, where cobblestone streets and speciality stores have been added to lure shoppers to the area.
“The hotel is going to be a real shot in the arm for the city and the redevelopment of the Greenleaf Avenue strip,” said Wayne Harvey, president of the 760-member Chamber of Commerce. “We’re tickled at the news.”
Officials are also cheering the potential revenue the hotel will generate for the city--$150,000 to $170,000 a year in bed taxes and $130,000 a year in property taxes. About 100 full-time jobs also will be created when the hotel opens in December, 1985.
The Whittier Hilton will be less than seven miles from the area’s two other major hotel complexes--a 300-room Holiday Inn and Convention Center in La Mirada along the Santa Ana Freeway and a 200-room Downey Hilton on Firestone Boulevard, which should be finished and operating by summer.
Norwalk and Pico Rivera also have considered hotel projects, which if built could add another 400 to 500 rooms to the area by 1988.
City officials cite two reasons for their increasing interest in hotels.
One is that the direct economic returns are unbeatable, particularly in light of fewer--and smaller--revenue sources since property-tax-cutting Proposition 13 took effect in 1978. While cities can keep only a fraction of sales tax revenues, they can keep all of the hotel bed taxes.
In Downey, for example, the city receives only 1 cent of the 6.5% state sales tax revenues generated locally, while it receives all of the bed taxes from hotels and motels, ranging between 5% and 10%. “On a per-square-foot basis, it’s just the biggest bang for the buck,” said City Manager Robert R. Ovrom.
Secondly, both city officials and industry experts say there is a growing demand for what hotel analyst Bruce Batlin calls “quality accommodations” for traveling business people. Industrial centers in north Santa Fe Springs, Whittier, La Mirada, Cerritos, Downey and Pico Rivera need top-flight overnight accommodations and meetings facilities, officials said.
“There’s no question the demand is currently there,” said Batlin, a partner in the Houston-based accounting and research firm of Pannell, Kerr, Forster Co., which studied the Whittier Hilton proposal and recommended two years ago that it be built.
“But whether the region can support all those hotels is open to debate,” he said at his Los Angeles office. “Those hotels will draw from across the region. They will compete against each other.”
In recent years, several large companies have located in the Southeast area, including aerospace giant Northrop Corp., which bought the old Ford plant in Pico Rivera, and Eastman Kodak Co., which recently opened its Western regional headquarters in Whittier.
Officials in Pico Rivera are pushing for a $24-million hotel-and-convention complex to be built on a seven-acre plot at the intersection of Rosemead and Washington boulevards. The project has been stalled for months because the developer has been unable to find financing.
‘Very High’
Dennis Courtemarche, Pico Rivera’s city manager, said “the council is still very high on the project” and indicated that unless the current developer finds a backer “very, very soon” the developer may be replaced.
Courtemarche agreed that if all the proposed hotels in the area are built “it might be difficult for each one to make it.”
In Norwalk, officials have already approved plans for a 150-room Sheraton Hotel off Imperial Highway, but the developer is still working on obtaining financing.
Based on his company’s research, Batlin said hotels like those being built and considered in the Southeast area need a 70% occupancy rate to make money.
Whittier officials believe the Hilton can turn a profit with a 60% occupancy rate, a level they believe will be reached within five years of opening.
In the meantime, Security Pacific National Bank, the primary financial backer of the Hilton, anticipates the hotel will lose up to $1.7 million over the first five years while the hotel is building a name and clientele.
The Northern California-based Duffel reached an 11th-hour agreement with Security Pacific, which is loaning the developer $8.3 million through a certificate of participation. The certificate is a low-interest, tax-exempt form of an industrial development bond.
Deadline Met
The agreement was reached in Security Pacific’s San Francisco headquarters only two days before a Dec. 31 deadline for the project to qualify for the tax-exempt bonds.
A year ago, a similar financial package to construct the hotel--which will include a pool, spa, central courtyard, a 5,000-square-foot ballroom, restaurant and meeting rooms--fell through. At that point, Duffel decided to seek conventional financing, which proved difficult.
But in June, the city learned the project still qualified for the much-needed tax-free bonds, thanks to an extension of the Tax Reform Act of 1984, which allowed local redevelopment agencies to finance new construction more easily. That extension eventually resulted in Duffel’s agreement with the city and Security Pacific.
Although the package still must be formally approved by the City Council, Mayor Myron Claxton said “it will be passed with flying colors.”
Besides the bank loan, Duffel will finance the project by leasing $3 million to $4 million in furnishings and fixtures, including carpets, telephones and office equipment.
The city’s redevelopment agency donated the three-acre hotel site, worth about $2.2 million. City officials have also agreed to build parking for 300 vehicles on the site, including a two-story structure on the hotel’s south side.
Joseph Duffel, citing his own studies and Security Pacific reports showing the hotel will lose money for the first several years, went to the council in December seeking further concessions. Mayor Claxton said the council has agreed and is prepared to:
- Waive the bed tax--at least $150,000 a year--for up to five years or until the hotel begins making money.
- Loan Duffel $300,000 to make required off-site public improvements--sidewalks, larger sewer lines, fire hydrants and widening Bright Avenue on the project’s east side.
- Allow Duffel to use the hotel’s parking fees to maintain the parking structure. The developer will also be given the option of purchasing the parking structure at the end of three years.
Whittier City Manager Thomas Mauk said the concessions were necessary to let the project proceed. He said he expects the hotel to “turn the corner” and make a profit in three to five years.
Claxton answered some official and public criticism that the city gave Duffel too much by saying:
“This project is one of the focal points of redevelopment. This city is badly in need of a quality place to hold civic functions and gatherings. We did what we felt was right to get the project rolling.”
Councilwoman Sabina Schwab disagreed, saying the city was too hasty in dealing with Duffel. She said she is concerned about the “hurry up” nature of negotiations in the final days before the deadline and will vote against the city’s concessions to the developer.
“We need a new hotel. But do we need it so badly that we give away the store to get it without considering what we are doing?” she said.
Claxton said the council will consider the staff’s recommendation to approve the concessions later this month.
Hotel construction will proceed in any case, he said.
