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About this blog: Growing up in Brooklyn, NY I lived in high-density housing and experienced transit-oriented services first hand. During high school and college summers I worked in Manhattan drafting tenant floor plans for high-rise office buildi...  (More)

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Finally a Hotel for 1400 El Camino Real ? But ? There's a Catch

Uploaded: Feb 21, 2015
Pollock Financial proposes building a boutique hotel on a now vacant lot on El Camino. Pollock Financial has a strong history in Menlo Park of providing good projects, and I consider Jeff Pollock an approachable, good guy. This is a welcome project not only for how this fits into the vision for the Downtown Specific Plan (DSP) at long last, but also since hotels passively generate city revenue in the form of a Transient Occupancy Tax imposed on the room rate on guests.

The applicant asks the city council to consider rebating a portion of the TOT to their investors. See Staff Report


Unfortunately, the applicant muddies the waters on a gullible staff and council to subsidize investors by returning (dare I say 'an above the table kick') a percentage of the Transit Occupancy Tax for a period of time. This request gives new meaning to the phrase "Public Benefit." Usually it's defined as a benefit that is dedicated to the public ? not from the public to the investors. (I'll note that this lot was not vacant or economically fallow while the downtown plan was discussed and approved ? so arguments that this project removes blight won't work.)


There are several problems with this idea, traversed below.


Existing Incentives Are Valuable

There is already plenty of incentive provided by the DSP, including a density bonus, which provide additional hotels rooms for lease, and a reduction in the parking requirement.

Precedent Will Create Future Problems

Once you start rebating taxes, every (similar) project will want the same. Stanford Park Hotel didn't need it; the Rosewood didn't need it; the Marriott Residence Inn didn't need it. Another developer mentioned to me that he was planning another boutique hotel a couple of blocks from this site. If staff knows about this possibility and hasn't informed council you have a problem. Who is to tell, and by what established criteria, the 'asks' for tax rebates can be judged?

The council will be hard pressed to come up with a reason why another hotel project would not be entitled to the same passback, setting us up for future a legal challenge.

Why not rebate the Utility User's Tax (UUT) to residents at the same time?

To be fair there is a precedent: the Four Seasons Hotel in East Palo Alto asked for and received a 10 year rebate of their TOT to the developers. That was at a different time, when Whisky Gulch was rife with various issues. I suspect that in retrospect East Palo Alto regrets having made the hotel deal that way.

Legal

The TOT is statutory. There is no requirement, and none anticipated when these were enacted, to siphon off the tax. If we do, perhaps we could rebate the Utility User's Tax to residents at the same time.

Fiscal Responsibility ? We Are Not the Bank of Menlo Park

The city should not be in the business of guaranteeing invertors' return in private projects. The names of the investors should be made public for transparency of any conflicts. The contractual rate of return to the investors should be made public.

Two years ago, Menlo Park voters passed Measure K, which increased the hotel Transient Occupancy Tax from 10% to 12 %. If the city had felt that it was flush, it shouldn't have gone to the voters.

And we know from past experience, that just because the city feels flush today doesn't mean that they will be next year, or in two years, or later. The city would be obligated to pay regardless of the city's budgetary needs.

The Fiscal Impact Analysis of the DSP did not anticipate rebates of the TOT.

Finally, I don't buy the suggestion that the project won't be built without the city subsidizing private investors' return. Come on. It would never have come this far without assumptions that the project penciled out otherwise.

The staff and council should be Wise to the Ways of the World, and not go down this path at Tuesday's study session.

Comments

 +  Like this comment
Posted by I love MP services, a resident of Atherton: West Atherton,
on Feb 21, 2015 at 3:52 pm

The Four Seasons was located in a California Redevelopment Plan Area which took 10 years to procure approval. Putting a Four Seasons in a previous "murder capital of the nation" was highly risky. Further, the Four Seasons agreed to hire local residents before going outside the city. There was also a quid pro quo for the rebate - the city received 90% of the property taxes (which is normally only about 20%). Since Gov. Brown disbanded the Redevelopment Agencies, the city of Menlo Park will not be allowed to receive an increased portion of property taxes and thus gets noting. Lastly, the hotel operator (and not the developer) received a rebate because they were cleaning up blight and crime. Not so easy to say the same about El Camioo in Menlo Park.


 +   1 person likes this
Posted by Peter Carpenter, a resident of Atherton: Lindenwood,
on Feb 21, 2015 at 4:35 pm

Peter Carpenter is a registered user.

The Council started down this slippery slope when it gave away the fair market value of the city owned parking associated with the 555 Glenwood project:

"In response to the Planning Commission?s direction to incorporate a requirement for fair market rent for the Garwood Way parking spaces after a period of five years, the City Attorney has negotiated changes to the proposed license agreement and encroachment permit, the revised version of which is included as Attachment F. Specifically, new clause 4(a)(vii) states that the City shall have the right after five years to impose rent in an amount equal to the Fair Rental Value for the exclusive use of the Parking Area going forward on a monthly basis. In the event that the City and the project sponsor are not able to agree on the Fair Rental Value, the clause provides typical procedures for determining it, including the potential use of arbitration. As with other parts of the proposed agreement, if total TOT revenues are greater than $700,000, this provision would not apply, since the City would then be receiving revenue well in excess of the projections. It is the applicant?s position that if the Hotel is generating TOT revenues to the City in excess of $700,000, the City is being generously compensated for the use of the parking area and no additional payments should be required. In addition, if clause 4(a)(vii) becomes effective, other potential payments related to TOT performance would not apply, in order to avoid duplicate penalties. As noted in the Planning Commission staff report, the proposed agreement is intended to strike a balance between representing the City?s revenue interests and being acceptable to commercial lending entities that finance property purchase and conversion projects such as the subject application."

That was, as I stated at the time, an illegal gift of public property. The current proposal to waive the TOT would, in my opinion, also be an illegal gift of public property.


 +  Like this comment
Posted by change in positions, a resident of Menlo Park: Downtown,
on Feb 22, 2015 at 7:16 am

Interesting to read here Soffer's comments, which follow what he had written earlier, immediately endorsing the project:

(Stu is awfully good at "flip flopping".

See:

Web Link

Posted by Stu Soffer
a resident of Menlo Park: Linfield Oaks
on Feb 19, 2015 at 10:03 am
Stu Soffer is a registered user.

Don't know about the setbacks, height and occupancy parameters used to get to $8.5 million (I get 6.3). But this is the right idea for El Camino. Bring it on, Jeff

-----------

Then we read in the Daily News:

Web Link

Developer proposes four-story, 63-room hotel

Site formerly housed Shell gas station; Pollock Group says it would need financial assistance from city

Included are the outrageous comments from our brain dead City Development Manager Jim Cogan.

----
?This is a no-risk opportunity for the city because it?s sharing a portion of revenue that we

wouldn?t have otherwise,? Cogan said. ?If there?s no hotel there, then there?s no [transit occupancy tax] revenue.?

He continued: ?They have to get financing for the project and they have to return a certain profit to their financial partner. That $1 million [over five years] would guarantee that they can make the return to their financing partner during the period in which they are repaying their construction loan.?

Not only would the city benefit from earning ?a portion of something? rather ?than all of nothing,? but the hotel also would generate foot traffic for nearby stores and eateries, Cogan added. Such a project could become a downtown ?destination? and revitalize the area.

-----------

Is Jim Cogan on the payroll of the City or on Pollack's payroll? (good question - maybe both?)


 +   3 people like this
Posted by lessons learned, a resident of Menlo Park: Felton Gables,
on Feb 22, 2015 at 11:24 am

lessons learned is a registered user.

Good analysis, Stu, and I don't see any flipfloppery here. The project at first glance looks like a no-brainer. A boutique hotel in a hotel-hungry area, and we love the TOT. But, as the cliche goes, the devil is in the details, and the problems with this project don't even qualify as details -- you could drive a truck through the holes.

Two arguments that developers should not be allowed to make:

* "The project is the benefit" -- no, not unless you are building something that truly is a public amenity, like a school, and even then you can't just blow off the parking requirements.

* "It won't pencil out unless the city gives us a break." Well, too bad, then invest your money elsewhere. The city doesn't owe you the right to earn your target rate of return, whatever that is.

Between this, 555, and the Greenheart project, the northern part of El Camino is going to be a major cluster-@#$%, but I expect by the time it's all built, our city manager and development director will have spruced up their resumes and moved on to the next town.


 +  Like this comment
Posted by Menlo square resident, a resident of Menlo Park: Downtown,
on Feb 23, 2015 at 8:59 pm

We need a nice Boutique Hotel on this vacant lot. The resturants in the Downtown area are hurting.. The shopping on Santa Cruz needs a boost. This development along with new housing projects will get some energy in Menlo Park. It is difficult to build a four star Hotel with the land price, huge City fees and parking requirements.. If this was so easy there would be many other boutique Hotels already built. There hasn't been a new Hotel built in Menlo Park in manny,many years. The City is the winner with this project.. The City will get 90 % of the TOT tax.. Without this Hotel, they will get zero TOT.
Why is this not a good deal for the City and the residents. This money can be used for Police,fire protection and other services without increased taxes for the people of Menlo Park.


 +   3 people like this
Posted by a better deal, a resident of Menlo Park: Allied Arts/Stanford Park,
on Feb 24, 2015 at 8:45 am

How about negotiating an extra 10% of the TOT after the initial 10 years? That would give the city a return on its investment, too.

In the Specific Plan, a hotel is a use that is deemed worthy of getting public benefit bonus. And that assumes its full TOT and that it complies with Plan rules, such as parking. If the City staff and developer want to tinker with the rules, they should ask the Council to modify the Plan so the rules would apply to all. This sort of one-off negotiating was supposed to end with the Plan, not be a part of virtually every project.



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