Its been a long dry spell for the city of Escondido in its quest to get a new hotelmore than 30 years. But that is about to end. In as little as two months a Marriott Hotel could break ground and begin to rise on land adjacent to the AAA building and across the freeway from the Vintana/Infiniti building and easily visible to motorists on I-15.
The 105-room hotel to be called La Terraza Springhill Suites by Marriott Hotel will be built by the Excel Hotel Group, which owns 18 hotels, some of them Marriotts, and is building three more.
Wednesday the City Council voted 5-0 to authorize an Economic Incentive Agreement for the developer. The incentive is that the city will share Transient Occupancy Taxes (TOT) collected by the hotel with the developer for ten years, for a maximum of $1.9 million for the developer.
Twenty-eight years ago, the City Council approved of the La Terraza Business Park, and as a condition for approval required that a high-end hotel be built there first. That never happened, although eventually businesses including the Triple A and 24-Hour Fitness began to be built in that part of town.
Recently a group approached the city to make a presentation to the Economic Development Sub-committee. They wanted 60% of TOT collected for ten years. The committee asked the city to look at this and to look at what other cities have done to create incentives to lure a hotel developer.
The final deal was hammered together by the City Council Economic Development Subcommittee, which requested an economic analysis of three scenarios by Keyser Marston Associates (KMA). The options assumed a 50% TOT economic incentive with no dollar limit; the same incentive but with a $1.5 million limit and a $1.8 million limit. During preparation of the report, city staff negotiated the 60% down to 50% of TOT.
KMA identified a reasonable target of internal rate of return (IRR) of 12.5% and, based on land and construction costs and estimated that without any economic incentive from the city that the project would yield an IRR of 9.3%, which was judged to be too low for a reasonable developer to undertake the project.
The citys master plan approved in the 1980s envisioned a hotel in the project. All parcels except two have been developed. A hotel at that spot was approved in 2007 when the city approved an economic incentive agreement with the Magnolia Hotel Group to operate 105 rooms, where the franchise operator would get 50% for maximum of $1.8 million, which could be extended. But despite that, no hotel had been built due to a lack of financing. The city council relented its requirement for a hotel and the American Automobile Association club was built.
On Wednesday David Ferguson, representing the Excel Hotel Group, spoke to the council. They have a track record and they are confident they can be in the ground in two months, he said. Marriott has given them a letter that they will be given a 20-year franchise, and they are in contact with their finance sources. Thats where the TOT comes in. Without the TOT agreement Excel would likely be unable to finance the project.
Council member Olga Diaz said she was happy about the agreement. Fifty fifty is better than sixty-forty. She pointed out that most other cities in the county are not offering any incentives to bring in hotels. She said she would like to get together with other cities in the Highway 78 Corridor and develop regional standards for incentive agreements, so that one city doesnt undercut another. But she concluded, This is fi nally, finally a good project. I look forward to getting this kind of economic activity in the city. Thanks for making this happen.
Councilman Ed Gallo commented, Heres my theory. Weve had this property for twenty-eight years with nothing on it. Weve tried and tried to get something built up there. The hotel was supposed to go where the Infiniti dealer is now. Then we had the gorgeous Triple A build and then we got 24-hour Fitness and Century 21. The owners of the property were extremely difficult to work with but financing has always been a problem. We didnt have hoteliers come in to do it, now we have a hotelier come in.
He said he wasnt entirely happy with extending the TOT agreement if the occupancy rate doesnt fit expectations. If the rate doesnt reach the project, which is possible, the owner will ask for an extension on his ten years to get a return. Im not a big fan of that but Im not going to pooh pooh the project. Right now we get zero. We will get sales tax and the occupants will eat in town, and Vintana is across the street. If we have a Marriott sign that you can see from the freeway that says a lot about our community. Right now, we have a 24-hour Fitness. Right now our best hotel is Best Western, which is probably better than Comfort Suites. Thats all we got. The rest are motels. I can support the project.
Gallo said the reason most other cities dont offer incentives is because they have beaches.
We dont have beaches. We have Dixon Lake. Big whoop! Thats why they dont have to offer anything. We are not in that position.
Mayor Sam Abed said he was anxious to see a name hotel in Escondido. It does concern me because Escondido is transitioning to a great city. If we had four or five hotels we would have negotiated less. He noted that Now the economy is rebounding and its good that we are building at the right time. He quipped, So we need to have that hotel built by Monday, please.