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(o V, 19 , Continental Assets Management `6 Continental Assets Management 130 West Huntington Drive, Arcadia, California 91007 Tel (626) 358 -9888 Fax (626) 358 -9800 Proposal To: City of Arcadia From: Andrew Chang Sr., President Date: Nov. 19, 2013 Re: Seabiscuit Pacifica Development Agreement Proposal Our project team has developed a business forecast and projection model for the City tax revenue created from the subject project, please see the attached sheet of our analysis. According to our projections, the project will create the followings in next 40 years, Transient & Occupancy Tax $40,106,710.45 Property Tax income $ 3,295,458.00 City permits & all fees $ 511,071.01 Total Revenue Estimated $43,913,239.46 Average per Year Income $ 1,097,830.99 This amount of revenue is significant and could be very beneficial to the City and all its residents far into the future. For our project to achieve this level of success, we have to survive a competitive start -up period, with considerable costs for advertising with a goal of reaching a relatively stable occupancy of 75% after the first 3 years. In addition to challenging start -up, we also face Marriott's building reserve requirements for high quality franchises. Marriott requires all franchisee to set aside a 5% reserve every month to maintain the building which is taken directly from your gross income, therefore, the project would be 5% cash short to begin. We are requesting some help from the City with our tax contributions during the first 10 years. Our request is extremely conservative and considerate that we offer to pay from zero to 3.5% on TOT tax and 50% rebate on property tax, and 25% less the published rate from City permits & fee. This plan will maximize the retention rate for City to keep 87.09% of total contribution which will be $38,245,175.39. In other words, for each dollar of tax revenue our project creates, we believe it would be fair for us to have that 12.5 cents "breathing room ", while the City retains the remaining 87 cents. IM jMA1 kilo Continental Assets Management Why is our project so unique compared to other projects? Fundamentally differences are: 1. The City has no investment in it. The project does not require any City funding; the City does not have to buy the land, subsidize its value, or try to sell it to a developer, the developer already owns out right. 2. City does not need to condemn any business, nor is holding the land for developer (i.e., there are no holding costs). 3. City has zero risk and zero liability since there is no City investment or involvement. The developer and their bank will have their capital at risk of $80,000,000. 4. There is no holding or waiting period for hotel construction, tax revenues can be generated immediately after completion. 5. During the construction of Phase I, the City will still receive TOT tax from current Santa Anita Inn. 6. The developer has options, we have received multiple offers from several REIT to build for other purpose uses, multi - family residential, senior condominiums, assisted living, medical plaza, mixed use, etc. Yet our choice is hotel which generates the most tax revenues. Why we must have this Development Agreement. 1. No one likes to lose money when you invest $80 million dollars from day one, which is our bottom -line. a) New businesses carry higher risk, more unknowns, and greater start -up costs. b) Higher construction cost convert into higher debt services for hotels to survive, and comes with a very high mortgage obligation for the hotel operator. c) Marriott's high quality franchise requirement of 5% cash reserve every month can easily take a startup hotel into negative cash flow. 2. Bank as our financial partner wants to know if there are any tax incentives for the project before they can fund. 3. 87% retention is the best adjusted number the project can produce, which was originally 75% over 15 years. Commitment to the Community Unlike outside hotel developers, we have lived and worked in Arcadia for the last 30 years, and we have watched all our children grow up in Arcadia. As a local developer, we will pledge 5% of our net income over the next 10 years to local charitable organizations. I don't think you will find many local companies in Arcadia willing to demonstrate this kind of commitment to the community. M Continental Assets Management During my recent heart surgery, I met some brilliant community leaders who helped me realize how important it is to invest in our local schools, hospitals, churches, etc. They have inspired me to step up and help support these volunteer organizations. We are proud to be part of Arcadia, and want to help make it an even better place to live and work! Conclusion From the first day of our ownership, our vision has been to turn this old tired motel property into a world renowned franchise hotel. We want to build the best looking building in our community, make sure we can run a successful hotel operation to continue building a name for Arcadia. We have presented you the results of the hard work of our team, and have crunched all the numbers and made all the projections. Now we ask you to turn the pumpkin into a 40 million dollar horse carriage, and turn Cinderella into the most beautiful princess on the block! Shall we create this magic together? Thanks to all the City workers who has dedicated their time and efforts to bring this far, Lisa, Jason, and Dominic, and to all our team, Gene, Luis, Andrew, Kent, James, your work is much appreciated. Thank You Everyone! M M Hotel- Condominium Concept The Hotel Condominium concept was first introduced in Miami, Florida during the early 1980's. When developers started building newer and larger hotel condominiums next to the hotels, this idea exploded. We have studied a handful of luxury hotels in Hawaii and Los Angeles, especially the iconic L.A. Live in Los Angeles and W Hotel in Hollywood. Both projects are very successful financially for both the owner /developer and their host cities, and the L.A. Live project is anchored by the Marriott Hotel and Ritz Carlton Residence. Our studies have shown a high demand for hotel condominiums that can provide upscale services for affluent business travelers, leisure travelers, or overseas investors who like to stay more than a few days in a hotel, like to have more room, privacy and comfort than a hotel, with two to three bedrooms, kitchen, and bath facilities. In addition to providing these many amenities for patron, this project would have incredible views of the world famous Santa Anita Race Track as well. Kgy Financial Consideration The key financial distinction of our project is that we will retain control after the sales and shift all units into hotel rental pool. Therefore aN owQgrs /occupants /transients must Ray Transient Occupant Tax ('TOTE no matter who they are or how longy stay, they all have to Ray the 1%, full LOT tax under the City TOT Rules and Regulations. In reality, this hotel condominium will be operated as a hotel, be managed by the Hotel Management Company, and stay in the hotel rental pool at all times. Therefore all condo guests will be subject to the City's Hotel Transient Occupant Tax. The only exception to the rule would be if an investor /owner chose to stay, they could only have the first 90 days free from TOT tax, on the 91" day, they must pay taxes. Sp,gcial Target Group Our project will attract a target group of investors including corporate travelers, business visitors, medical patients, overseas businessmen, and seasonal transient groups like horse jockeys, trainer, owners, or private investors. This project will be successful in part due to its unique location next to the World Famous Santa Anita Race Track, as well as the many successful businesses in Arcadia, the vibrant Asian community which attracts overseas international business, and cosmopolitan communities such as Arcadia and Pasadena. Implementation Procedure 1. First this has to be written into the Development Agreement between the parties and to be approved by the members of the City Council. n 2. All details shall be spelled out in each owner's CC &R and HOA Policy approved by proper authorities. I All City Rules and Regulations on TOT shall be implemented by the Hotel Hospitality Company, Licensed and bonded to collect all taxes and pay City on a monthly basis. 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E . n �< o 2# 7 2 =§ # « E o cu r ` § / 0 m = R § � c k \ 2 2 � E 2 § oj \ � / CL aj % k m w k ƒ @ �m� | Phase Est. estimate atS30O,OOO per room) Phase 11 arhetva|ue (estimate at $1,100,000 per unit) Total costs both phases Estimate property tax Annual Property Tax amount Currently Santa Anita Inn paying � Property Tax Gains 40 years in gains Total Property Tax Gains City portion of tax revenue-9% SEAB|SCU[TPA[H[A NOV.19,2013 ____ SeabiscuitPadfica No.19,2O13 EQ instrumentation EQ instrumentation _-Hotels permits estimate Hotel- Condomimnium permits Residence inn Planning Building permits fees Building permits fees Plan Check fee Plan Check fee Fiire Hydrant Fiire Hydrant Plan Maintainence Plan Maintainence EQ instrumentation EQ instrumentation Issuing fee Issuing fee Planning Planning 'One stop surcharge One stop surcharge System Dev Surcharge System Dev Surcharge 'Art Dev Art Dev :State Green Building surcharge Dwelling units const.tax Residential Dev. Tax TotalFees 182,209.20 State Green Building Surcharge Fairfield Inn & Suites Total 235,301.70 Totalfees 93,560.11 Grand Total 511,071.01 M . . . . .......... --- . . . ....... -.-- , From: Transient and Occupancy Tax From: The Property Tax From: The Issuence of Permits . . . . ........ .... Grand Total $ 40,106,710.45 3,295,458.00 511,071.01 $ 43,913,239.46 Average 40 years per year annual income $ 11097,830.99 n �D 7 n 3 K o. a m a 4! 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