The URL can be used to link to this page

2005 02 01 RDAe 0 4 4 4 adja Redevelopment Agency Agendas are Available on the City's Web Page @ www.la-quinta.org REDEVELOPMENT AGENCY AGENDA CITY COUNCIL CHAMBERS 78-495 Calle Tampico La Quinta, California 92253 Regular Meeting Tuesday, February 1, 2005 - 2:00 P.M. Beginning Resolution No. RA 2005-001 CALL TO ORDER Roll Call: Agency Board Members: Adolph, Henderson, Perkins, Sniff, and Chairman Osborne PUBLIC COMMENT At this time, members of the public may address the Redevelopment Agency on any matter not listed on the agenda. Please complete a "request to speak" form and limit your comments to three minutes. Please watch the timing device on the podium. CLOSED SESSION NOTE: Time permitting, the Redevelopment Agency Board may conduct Closed Session discussions during the dinner recess. In addition, persons identified as negotiating parties are not invited into the Closed Session meeting when the Agency is considering acquisition of real property. 1. CONFERENCE WITH AGENCY'S REAL PROPERTY NEGOTIATOR, MARK WEISS, PURSUANT TO GOVERNMENT CODE SECTION 54956.8 CONCERNING POTENTIAL TERMS AND CONDITIONS OF ACQUISITION AND/OR DISPOSITION OF REAL PROPERTY LOCATED SOUTHEAST OF THE MILES AVENUE AND WASHINGTON STREET INTERSECTION AND NORTH OF THE WHITEWATER CHANNEL (APNs 604- 040-012/013 AND 604-040-022/023). PROPERTY OWNER/NEGOTIATOR: RICHARD OLIPHANT, CP DEVELOPMENT LA QUINTA, LLC. Redevelopment Agency Agenda 1 February 1, 2005 RECONVENE AT 3:00 P.M. PUBLIC COMMENT At this time members of the public may address the Agency Board on items that appear within the Consent Calendar or matters that are not listed on the agenda. Please complete a "request to speak" form and limit your comments to three minutes. When you are called to speak, please come forward and state your name for the record. Please watch the timing device on the podium. For all Agency Business Session matters or Public Hearings on the agenda, a completed "request to speak" form should be filed with the City Clerk prior to the Agency beginning consideration of that item. CONFIRMATION OF AGENDA APPROVAL OF MINUTES 1. APPROVAL OF MINUTES OF JANUARY 18, 2005. CONSENT CALENDAR NOTE: Consent Calendar items are considered to be routine in nature and will be approved by one motion. 1. APPROVAL OF DEMAND REGISTER DATED FEBRUARY 1, 2005. 2. APPROVAL OF CONTRACT CHANGE ORDER NO. 1 AND CHANGE ORDER NO. 2 FOR PROJECT NO. 2002-07F, SilverRock RESORTS ON- AND OFF -SITE STREET, WATER, AND SEWER IMPROVEMENTS. BUSINESS SESSION - NONE STUDY SESSION 1. DISCUSSION OF ECONOMIC ANALYSIS REPORT REGARDING SilverRock RESORT DEVELOPMENT OPTIONS. Redevelopment Agency Agenda 2 February 1, 2005 CHAIR AND BOARD MEMBERS' ITEMS — NONE PUBLIC HEARINGS — NONE ADJOURNMENT Adjourn to a regularly scheduled meeting of the Redevelopment Agency to be held on February 15, 2005 commencing with closed session at 2:00 p.m. and open session at 3:00 p.m. in the City Council Chambers, 78-495 Calle Tampico, La Quinta, CA 92253. DECLARATION OF POSTING I, June S. Greek, City Clerk of the City of La Quinta, do hereby declare that the foregoing agenda for the La Quinta Redevelopment Agency meeting of Tuesday, February 1, 2005, was posted on the outside entry to the Council Chamber at 78-495 Calle Tampico and on the bulletin boards at 51-321 Avenida Bermudas and 78-630 Highway 111, on Friday, January 28, 2005. DATED: January 28, 2005 JUNE S. GREEK, CIVIC, City Clerk City of La Quinta, California Redevelopment Agency Agenda 3 February 1, 2005 T 0 4uf 4 ,� QurKrw COUNCIL/RDA MEETING DATE: FEBRUARY 1, 2005 ITEM TITLE: Demand Register Dated February 1, 2005 RECOMMENDATION: It is recommended the Redevelopment Agency Board: AGENDA CATEGORY: BUSINESS SESSION CONSENT CALENDAR STUDY SESSION PUBLIC HEARING Receive and File the Demand Register Dated February 1, 2005 of which $460,733.86 represents Redevelopment Agency Expenditures. PLEASE SEE CONSENT CALENDAR ITEM NUMBER 1 ON CITY COUNCIL AGENDA COUNCIL/RDA MEETING DATE: February 1, 2005 ITEM TITLE: Approval of Contract Change Order No. 1 and No. 2, Project No. 2002-07F, SilverRock Resort On and Off Site Street, Water and Sewer Improvements RECOMMENDATION: AGENDA CATEGORY: BUSINESS SESSION: CONSENT CALENDAR: OL- STUDY SESSION: PUBLIC HEARING: Approve Contract Change Order No. 1, reducing the contract by $447,620, and approve Contract Change Order No. 2 in the amount of $713,384.35. FISCAL IMPLICATIONS: Original Contract Award Amount Contract Change Order No. 1 Contract Change Order No. 2 Revised Contract Amount $2,598,048 ($447,620) $713,384 $2,863,812 The net add to the contract is $265,764.35. Adequate funding is available in the project contingencies to fund this change order. CHARTER CITY IMPLICATIONS: Charter City implications have previously been addressed at bid time. Since this project is funded by RDA funds, the project was bid as a prevailing wage job and all subsequent contract change orders reflect prevailing wages. BACKGROUND AND OVERVIEW: On August 3, 2004, the La Quinta Redevelopment Agency formally acted to award a contract in the amount of $2,598,048 to Granite Construction Company to construct improvements specified by Project No. 2002-07F, SilverRock Resort On and Off Site Street, Water and Sewer Improvements. However, at the time of award CVWD had not completed their review and approval of the domestic water system to be installed under this contract. On November 4, 2004, CVWD completed their review and approved the water plans with significant material changes. The District approved the water system but changed a large portion of the ductile iron pipe from standard bell and spigot joints to restrained joint pipe. This type of change has a two -fold impact to the project cost: 1) material cost is significantly higher for the restrained joint type of pipe; and 2) production time is significantly slower because of the additional time and labor it takes to connect each joint of pipe. On average, the contractor's revised pricing reflects a 76% increase in costs, of which 50% can be attributed to material cost increase and the remaining 26% can be assigned to installation. Contract Change Order No. 1 deletes original domestic water related bid items 70 through 77 (Attachment 1) which were priced from design drawings without benefit of CVWD approval. This Change Order reduces the original contract amount by $447,620. Contract Change Order No. 2 provides substitute revised unit pricing (Attachment 2) for those same items previously deleted in Contract Change Order No. 1, and specified markup for the prime contractor since this work is performed by a subcontractor. The total amount of Contract Change Order No. 2 is $713,384.35, which equates to a net add to the contract of $265,764.35. FINDINGS AND ALTERNATIVES: The alternatives available to the City Council include: 1. Approve Contract Change Order No. 1, reducing the contract by $447,620, and approve Contract Change Order No. 2 in the amount of $713,384.35; or 2. Do not approve Contract Change Order No. 1, reducing the contract by $447,620, and do not approve Contract Change Order No 2 in the amount of $713,384.35; or 3. Provide staff with alternative direction. S:\CityMgr\STAFF REPORTS ONLY\C8 Proj 200207F.doc 2 Respectfully submitted, T' othy R as , P.E. Public WorJ ire r/City Engineer Approved for submission by: Thomas P. Genovese, City Manager Attachments: 1. Contract Change Order No. 1 2. Contract Change Order No. 2 T:\PWDEPT\COUNCIL\2005\02-01-05\C8 Proj 200207F.doc 3 ATTACHMENT V C4J OF T19 CONTRACT: CONTRACTOR: SilverRock Resort On and Off Site Street, Water and Sewer Improvements Granite Construction Company 38-000 Monroe Street Indio, California 92203 CONTRACT CHANGE ORDER NO. 1 Sheet 1 of 1 Project No. 2002-07F Pursuant to the terms of the original Contract Agreement, you are hereby directed to make the herein described changes or do the following described work not included in the plans and specifications for this Contract. Unless otherwise stated all work shall conform to the terms, general conditions, and special provisions of the original Contract. DESCRIPTION OF CHANGE: Due to CVWD review and approyal delete bid items 70 through 77 Bid Item Description Qt JUnit Unit Price Item Total 70 24" DIP Water 19539/LF $80.00 $123,120 71 18" DIP Water 2,232/1-F $75.00 $1679400 72 12" DIP Water 1270/1-F $60.00 $769200 73 Blowoff Assembly 1/Ea $3 900 $39900 74 8" Fire Detector Check 1/EA $69800 $69800 75 Fire Hydrants 13/EA $49100 $539300 76 Adjust Gate Valve to Grade 27/EA $300 $89100 77 1.5" water service 4/EA $29200 $89800 Total $447,620.00 Previous Contract Amount through Change Order No. 0 $2,598,048.00 Deduct this Change Order No. 1 ($447,620.00) Revised Contract Amount $2,150,428.00 By reason of this contract change order the time of completion is adjusted as follows: 0 days added to contract time. The contract completion date shall remain: March 1, 2005 Submitted By: Approved By: Date: Date: ********************************************************************************************************************** We, the undersigned Contractor, have given careful consideration to the change proposed and hereby agree, if this proposal is approved, that we will provide all equipment, fumish all materials, perform all labor, except as may be noted above, and perform all services necessary to complete the above specified work, and hereby accept as full payment the amount shown above, which includes direct and indirect overhead expenses for any delays. Accepted By: Title: Contractor: Granite Construction Company. Date: T:%PWDEPT\PROJECTS12002 PRJCTS0002-07 SILVERROCK RESORTX2002-07 F ON-OFFSITE IMPVMNTS\CONSTRUCTIOWROGRESS PAYMENTS & CCaS%CCO 01 DELETE 4 W ATER. DOC ATTACHMENT 2 O� �p TwT �►, '� Qdat4 w5 CONTRACT: CONTRACTOR: SilverRock Resort On and Off Site Street, Water and Sewer Improvements Granite Construction Company 38-000 Monroe Street Indio, California 92203 Sheet 1 of 27 Project No. 2002-07F CONTRACT CHANGE ORDER NO. 2 ********************************************************************************************************************** Pursuant to the terms of the original Contract Agreement, you are hereby directed to make the herein described changes or do the following described work not included in the plans and specifications for this Contract. Unless otherwise stated all work shall conform to the terms, general conditions, and special provisions of the original Contract. DESCRIPTION OF CHANGE: Due to CVWD review and approval add revised bid items 70 through 77 Bid Item Description Ctt JUnit Unit Price Item Total 70 24" DIP Water 19539/LF $158.30 $243,623.70 71 18" DIP Water 29232/LF $111.70 $249,314.40 72 12" DIP Water 12701LF $90.855 $1159385.85 73 Blowoff Assembly 1/Ea $3 900 $39900 74 8" Fire Detector Check 1/EA $69800 $6,800 75 Fire Hydrants 13/EA $4100 $53,300 76 Adjust Gate Valve to Grade 27/EA $300 $8100 77 1.5" water service 4/EA $29200 $8,800 SubTotal $689,223.95 Prime Contractor's mark-up $24,160.40 Total $713,384.35 Previous Contract Amount through Change Order No. 1 $2,150,428.00 Deduct this Change Order No. 2 $713,384.35 Revised Contract Amount $2,863,812.35 By reason of this contract change order the time of completion is adjusted as follows: 0 days added to contract time. The contract completion date shall remain: March 1, 2005 ********************************************************************************************************************** Submitted By: Date: Approved By: Date: ********************************************************************************************************************** We, the undersigned Contractor, have given careful consideration to the change proposed and hereby agree, if this proposal is approved, that we will provide aft equipment, furnish all materials, perform all labor, except as may be noted above, and perform all services necessary to complete the above specified work, and hereby accept as full payment the amount shown above, which includes direct and indirect overhead expenses for any delays. Accepted By: Title: Contractor: Granite Construction Company I Date: 5 TAPWDEPT\PR0JECTS12002 PRJCTSL-1002-07 SILVERROCK RESORTi2002-07 F ON-OFFSITE IMPVMNTS\CONSTRUCTION\PROGRESS PAYMENTS & CCUS\CCO 02 REVISED WATER.DOC COUNCIL/RDA MEETING DATE: February 1, 2005 ITEM TITLE: Discussion of Economic Analysis Report Regarding SilverRock Resort Development Options RECOMMENDATION: AGENDA CATEGORY: BUSINESS SESSION: CONSENT CALENDAR: STUDY SESSION: PUBLIC HEARING: Discuss Economic Research Associates (ERA's) report on SilverRock Resort Golf Course Capital Improvement Options and authorize staff to forward same to prospective hotel developer(s), once selected. FISCAL IMPLICATIONS: The estimated development costs for analyzed options are as follows: • Second Golf Course $8-10 million • Permanent Clubhouse $6-8 million • Practice Facility/Golf Academy $3-4 million Anticipated returns are discussed at length within the analysis prepared by ERA. BACKGROUND AND OVERVIEW: ERA prepared a "Market Support and Pro Forma Financial" report for the Agency in June of 2002, which analyzed the market feasibility of a 36-hole golf complex. This analysis was prepared prior to the Agency's acquisition of "The Ranch" property. Subsequently, the Agency closed on the property and embarked upon the first phase development of a project soon to be known as "SilverRock Resort." In October 2003, the Agency adopted a project budget of $90,444,178 that included funds for Phase I (including the first golf course and driving range), a permanent clubhouse, and certain Phase 2 infrastructure (well sites, "hotel drive," etc.). This appropriation did not include sufficient funding for a second golf course or other project amenities (i.e., such as vertical structures at the driving range, an executive course, museums, theatres, spas, etc.). As Phase I development proceeded, the Agency received comments, suggestions and proposals specific to project phasing including expedited development of the second golf course and enhancement of the practice/driving range facilities. In consideration of these suggestions, staff contacted ERA and requested an objective evaluation of three specific capital improvement options: • Development of the second 18-hole golf course • Construction of the permanent clubhouse • Development of a state-of-the-art golf practice center/golf academy Gene Krekorian of ERA met with representatives of Landmark Golf Management, LLC., Golf Health and Performance Center, and staff to get a better understanding of some specific issues and concepts that were being explored. Mr. Krekorian will be in attendance to discuss the results of his analysis, which is provided as Attachment 1. Staff presents ERA's report to the Agency for its review and consideration in moving forward with future phases of SilverRock Resort. As noted above, there currently exists a funding allocation for a permanent clubhouse (totaling $8,640,000 for design and construction). No allocation currently exists for the other alternatives. ERA's analysis specific to the golf -related capital enhancements is but one part of a larger, and evolving, project development package that will include consideration of other resort -related proposals (i.e., hotels, casitas, retail, theatres, museums, park amenities, etc.). Prospective hotel developers have all indicated an interest in participating in discussion and planning efforts specific to project phasing, design and build -out. The Arnold Palmer Classic Course, the very first phase of SilverRock Resort, is nearing completion. The course has been toured in recent weeks by the architect, PGA Tour officials, other touring professionals, and representatives from the Bob Hope Desert Classic. Staff is in the process of reviewing their comments and suggestions specific to the golf course. Additionally, staff is reviewing and reconciling budget data and will be reporting to the Agency in coming weeks relative to budgetary considerations as they relate to project close-out, any proposed course modifications/improvements, and regional drainage requirements. In consideration of the above, staff believes it important to consider Mr. Krekorian's report in the context of the entire project scope. Accordingly, staff would suggest that the analysis be shared with the prospective hotel developer, once one is chosen, and incorporated into future planning efforts for the project as a whole. FINDINGS AND ALTERNATIVES: The alternatives available to the Agency Board include: 1. Discuss ERA's report on SilverRock Resort Golf Course Capital Improvement 2 Options and authorize staff to forward same to prospective hotel developer(s), once selected; or 2. Provide staff with alternative direction. Respectfully submitted, Mark Weiss, Assistant Executive Director Attachment: 1. ERA analysis. Approved for submission by: Thomas P. Genovese, Executive Director 3 ATTACHMENT 1 Economics Research Associates Memorandum Date: January 18, 2005 To: Mark Weiss From: Gene P. Krekorian Subject: Evaluation of SilverRock Resort Golf Course Capital Improvement Options ERA No. 15734 BACKGROUND The SilverRock Resort first 18-hole championship golf course is well under construction, with first play scheduled for early 2005. The SilverRock Resort master plan calls for a second 18-hole championship golf course, along with development of several hotels and residential casitas. The existing 3,000-square-foot Ahmanson House will serve as the temporary clubhouse for the initial 18-hole golf course, with a larger high -quality permanent clubhouse to be constructed in the future. The golf complex includes an extensive practice range, with the south end situated close to the permanent clubhouse site and intended to accommodate same -day golfers and public use. The master plan calls for development of the north end of the range with state-of-the-art golf practice facilities and/or a world -class golf academy. As the first golf course nears completion, the City of La Quinta is in the process of evaluating the priority of the next golf facility capital expenditures. As noted, several complementary projects are under consideration: (1) Development of the second 18-hole golf course (2) Construction of the permanent clubhouse. (3) Development of a state-of-the-art golf practice center/golf academy. There are a number of issues which need to be assessed for each of the candidate projects. With regard to the second golf course, the primary issue is the appropriate development timing. Timing also is an issue for the clubhouse and practice center, as well as the sizing, programmatic content, and cost -benefit of each. The following memorandum report addresses these issues. 10990 Wilshire Boulevard Suite 1500 Los Angeles, CA 90024 310.477.9585 FAX 310.478.1950 www.econres.com Los Angeles San Francisco San Diego New York City Chicago Washington DC London rl Economics Research Associates SUMMARY Mark Weiss ERA No. I5734 January 18, 2005 Page 2 There are significant tangible and intangible benefits inherent in each of the three major golf capital projects under consideration. The second 18-hole golf course would add scale and notoriety to the complex, offer operating efficiencies, and complete development within the project boundaries. A permanent clubhouse would enhance the image and presence of the complex and improve the overall golfer experience. A state-of-the-art practice complex/golf academy would create marketing cachet and provide outstanding services to golfers. The cost of developing each of the candidate projects is estimated as follows: Second Golf Course $8-10 million Permanent Clubhouse $6- 8 million Practice Facility/Golf Academy $3- 4 million In terms of operating economics, expected direct revenue from the permanent clubhouse and practice center would exceed direct operating expense by a reasonable margin: Annual Amount at Stabilization Permanent Practice Clublouse Range Net Contribution $535,000 $543,000 Less: Undistributed Expenses 300,000 395,000 Net Operating Income $2353,000 $148,000 With respect to the second 18-hole golf course, an additional 25,000 annual rounds would be required to fund the $2.1 million incremental operating expenses. It is unlikely in the current golf environment an additional 25,000 rounds can be generated with the second course, particularly without the first 750 hotel room keys in -place. From a pure economic feasibility perspective, the direct operating income generated by a permanent clubhouse or practice facilities is not sufficient to justify their capital expenditure. However, the indirect benefits related to both the permanent clubhouse (increased play and greens fees) and practice facilities (marketing impact) appear to be sufficient to justify most, if not all, their respective capital expenditure. Based on an assessment of the direct and indirect benefits of each project, priority should be given to the permanent clubhouse and practice facilities. If funds are limited such that it is not possible to develop both projects concurrently, the permanent clubhouse probably has higher priority. Concurrent development, however, could be possible with private participation in developing the practice facilities/golf academy. The projected economics of the practice facilities/golf academy are dependent on implementation of a very successful business operation involving instructional activity and 5 Economics Research Associates Mark Weiss ERA No. 15734 January 18, 2005 Page 3 golf -oriented athletic training. This is a highly specialized, entrepreneurial -based business which relies on the management and marketing efforts of key individuals. it is strongly recommended that the City be insulated as much as possible from the extraordinary financial risk associated with these types of ventures by structuring financial transactions with prospective operators in an appropriate fashion. DEVELOPMENT OF SECOND GOLF COURSE The development plan for La Quinta's SilverRock Resort calls for two championship 18-hole golf courses and a mix of visitor accommodations including 250 hotel rooms and 300 condominium hotel/time share casitas (maximum 500 keys) within the initial phases of the project. The first 18-hale course is well under construction, with first play scheduled for early 2005. The original market feasibility study for the property conducted by ERA in June 2002 evaluated two golf development scenarios, one with concurrent development of both 18-hole courses, and a second with the two courses phased according to market conditions acid the development timing of on -site hotel properties. In both scenarios, all on -site overnight accommodations (750 keys) were assumed to be in place when the golf facility opened. Golf play generated by on -site hotel guests was a major source of demand accounting for about one-half of the play projected over the early years of operation: Annual Play at Stabilization (rounds) Source of Play 18 Holes 36 Holes City Residents 12,000 12,000 On -Site Hotel/Visitor 20,000 38,000 Nonresident Public 12,000 20,000 Total 44,000 70,000 A series of data tables summarize current conditions in the Coachella Valley golf market (see Exhibits 1-7). Overall, the Coachella Valley public golf market has been relatively strong over the past 20 to 30 years, with most courses historically maintaining annual play levels in the 40,000- to 45,000-round range and sustaining greens fee increases substantially in excess of the increase in the general cost of living indices. Further, the visitor seasons have lengthened over the past 10-15 years, and the area is increasingly attracting full-time residents. The high -end golf market, however, has softened considerably over the past three years. This current softness is due primarily to the entry of numerous high -end public facilities since 1997, including the two Desert Willow courses in 1997 and 1998, Landmark Golf Club (36 holes), PGA West Norman Course, Cimarron and Sun City's nine -hole expansion in 1999, Shadow Ridge in 2000, Sun City -San Gorgio in 2001, and Trilogy in 2003, coupled with recessionary Southern California and national economies between 2001 and 2003, and the impact related to the events of September 11, 2001. Co Economics Research Associates Mark Weiss ERA No. 15734 January 18, 2005 Page 4 Virtually every golf property in the Coachella Valley has been adversely affected by the soft golf market, with some faring better than others. Golf properties most impacted are those associated with major hotels -- Golf Resort at Indian Wells, La Quinta Resort, Westin's Mission Hills, Marriott's Desert Springs, and Marriott's Las Palmas. Golf revenue declines at most upper end courses of 10-20 percent from their peak years of 1998- 1999 has occurred. The valley, like other desert -oriented destination areas, is characterized by severe golf demand seasonality. Demand during the peak season is very strong with play during the January -April period supply constrained. During the off-season, when the climate is not conducive to tourism, demand is relatively weak and the numerous courses in the region compete vigorously for limited golf play. Significantly, during the winter peak season, golf capacity is limited by rninimum daylight hours, while the greatest capacity exists during the summer period when demand is weakest. Consequently, greens fees are extremely high during the peak season, and very low during the off-season. Often, as much as 50 percent of annual play and 60-65 percent of revenue is generated during the peak four months of the year. This severe peaking characteristic results in a situation where the upside financial opportunity is limited since play levels typically are in the range of 35,000-45,000 rounds annually and, at the same time, there is limited downside as a certain income level is nearly .guaranteed because of the excess demand condition which exists during the peak season. With an improving economy in 2004, the Coachella Valley golf market responded with improved performance, as indicated by the following selected golf course play levels. Annual Rounds Percent Golf Course FY 2003 FY 2004 Change ■ 1 1 ■I WY ■1... �M.■■YY■..YI.1■Y01.1■1 II ■ ■/ M ■ Indian Wells 81,400 88,200 8.4% Desert Willow 75,900 801200 5.7% Tahquitz Creek — Resort 39,000 42,000 7.7% Landmark Golf Club 58,000 58,000 --- As noted, despite the loss of the Skins Game in 2002-2003, Landmark Golf Club performance has remained steady over the 2003-2004 period, and the other high -quality public resort courses have posted impressive gains over the past year. Looking forward, the Coachella Valley public/resort golf market is expected to remain soft over the next several years despite the recovery in the visitor industry and overall market growth as a number of additional courses will be added to the public golf inventory: • SilverRock Resort, La Quinta • Northstar Resort, Palm Desert • The Classic, Palm Springs • Desert Cove, Cathedral City • Indian Canyon Golf Course (redevelopment), Palm Springs 7 Economics Research Associates Mark Weiss ERA No. 15734 January 18, 2005 Page 5 The addition of these courses will increase the capacity of High -end daily fee/resort golf facilities in the Coachella Valley by 20 to 25 percent. As well, redevelopment of the two Indian Wells resort courses and repositioning of the Palm Springs Tahquitz Creek complex are planned. The removal of public access golf capacity resulting from continuing real estate activities at the Trilogy, Shadow Ridge, PGA West, Landmark Golf Club, and Desert Willow will partially mitigate this near -term golf course inventory expansion. However, even with modest market growth anticipated, it will take several years to absorb this excess capacity. There are efficiencies inherent in the operation of a 36-hole versus an 18-hole facility, particularly in golf operations (pro shop, starting, carts), clubhouse operations, and general and administrative functions, such that the marginal cost of maintaining and operating a second 1.8-hole course is about 50-60 percent of the cost for one 18-hole course alone, or about $2.2 million per year: Annual Operating Expenses* (thousands of constant 2004 dollars) M Operating Expenses 18 Holes 36 Holes Course Maintenance $1,600 $3,000 Golf Operations 550 700 Food and Beverage 600 800 Clubhouse Undistributed 400 400 General and Administrative 850 1000 Capital Improvement Replacement Reserve 100 200 Total $4,100 $6,200 *At stabilization, assuming a permanent 20,000-square-foot clubhouse. Thus, while play levels of 36,000-40,000 annual rounds are needed to operate one 18-hole course above breakeven, only about 25,000 additional rounds are needed to cover the incremental operating and maintenance expenses of the second course. Early development of the second golf course at SilverRock Resort offers several benefits: (1) A 36-hole complex, due to its scale and notoriety, would enhance the recognition and public awareness of the project. (2) The capacity offered by two golf courses would allow the facility to host large tournaments and compete directly with Desert Willow, the Golf Resort at Indian Wells, Landmark Golf Chub, and other 36-hole complexes in the Coachella Valley. (3) With two courses, overseeding the courses in the fall could be staggered to allow one course to remain open at all times. (4) Development of the second course would occupy otherwise undeveloped land, providing improved aesthetics and erosion control. E'1 Mark Weiss Economics Research Associates ERA No. 15734 January 18, 2005 Page 6 (5) The presence of a second course would serve as an attraction for a hotel to commit to the resort. Despite these benefits, and the need to generate only about 25,000 additional rounds to support the second 18-hole course, development of the second 18-hole course is not justified in the near term: + Play from on -site hotel guests is critical for the economic success of the golf complex. With the on -site hotel facilities (750 keys) in place, only 12,000 Coachella Valley visitor rounds are required. Without the on -site overnight accommodations in place, the initial 18-hole course will be required to capture about 32,000 Coachella Valley visitor rounds. A second course would increase this reliance to 57,000 visitor rounds annually, a major challenge in the current golf market. + The market is expected to remain soft with the likely addition of additional competitive golf courses. + Substantial pressure on the rate structure at high -quality resort courses in the Coachella Valley, exacerbated by the expanding role of golf wholesalers, will persist in the near tern. Additional capacity at SilverRock Resort will intensify this downward pressure on rates. Thus, until SilverRock Resort gains experience in the marketplace with the first 18-hole course, and until on -site hotel transactions are consummated, the risk of developing the second 18-hole course appears excessive, substantially outweighing the potential benefits of an expanded golf complex. PERMANENT CLUBHOUSE Clubhouse functions for the first l 8-hole course at SilverRock Resort will initially be provided by the 3,000=square-foot Ahmanson house, currently undergoing extensive renovation. A much larger (20,000+ square feet) and more functional permanent clubhouse is planned, although no timetable has been set for its construction. There is little question that the permanent clubhouse is justified with both courses open. The issue is whether the permanent clubhouse should be developed prior to the construction of the second 18-hole course. While there are no definitive plans for the permanent clubhouse, the general concept calls for an upscale facility offering a broad range of components. A representative conceptual distribution of building floor area is as follows: 4 J, Economics Research Associates Mark Weiss ERA No. 15734 January 18, 2005 Page 7 Building Floor Area Component (square feet) Pro Shop 2,250 Dining Room 3,000 Bar/Grill 13-500 Banquet/Meeting Space 3,500 Kitchen 2,500 Day Locker Rooms 1,500 Administrative Offices 750 Lobby, Circulation, Storage, Common Space 4,000 Total 20,000 Cart storage would be in addition to the floor area outlined above. There are no special needs or requirements which must be met for hosting the Bob Hope Classic. The permanent clubhouse provides numerous potential benefits, some direct and others indirect. In terms of direct benefits, golf retail merchandising and food and beverage opportunities are improved considerably in terms of volume and efficiencies. More important, however, are the indirect benefits related to a high -quality clubhouse, primarily in enhancing the facility image and overall golfer experience, which should translate into higher play levels and/or an increased fee structure. The economic analysis for a permanent clubhouse examines direct and indirect benefits of the facility in comparison with the temporary Ahmanson House operation. The difference in costs of operating the permanent versus the temporary clubhouse also are considered. Retail Merchandise Retail merchandise at resort golf courses relates primarily to "soft" goods (e.g. apparel) which are characterized by high profit margins, although there are some courses which focus considerable effort on "hard" goods (e.g. golf clubs), such as the Golf Resort at Indian Wells, which generally produce small profit margins. The attractiveness of the course logo, affiliation with a golf tournament or other event, merchandise selection, and other marketing factors influence the volume and profitability of retail merchandise sales. In general, merchandise sales at resort -style courses total $10 to $20 per round of golf in retail merchandise sales (see Exhibit 8). Based on a review of this information, the mix of resident versus visitor play anticipated at SilverRock Resort and other factors, merchandise sales are projected as follows: 10 Economics Research Associates Mark Weiss ERA No. 15734 January 18, 2005 Page 8 Retail Net Contribution Ahmanson Permanent House Clubhouse' Annual Rounds at Stabilization 441)000 44,000 Revenue Per Round $7.00 $15.00 Annual Gross Sales $2503000 $660,000 Less: Cost of Sales2 150,000 365.000 Net Construction $1001000 $295,000 With one 18-hole course. CCost of sales estimated at 60% for Ahmanson and 55% for permanent clubhouse. Food and Beverage With respect to food and beverage, a larger well -designed clubhouse offers improved service to golfers and facilities to accommodate golf tournaments, although the primary opportunity is in non -golfer food and beverage, particularly non -golf banquets and special events. Food and beverage volume is dependent on the extent and design of facilities offered, market area demographics, competition, and management focus and strategies. Food and beverage annual gross revenue for selected competitive venues, segmented into golf and non -golf generated components, is presented in Exhibit 9. Golfer food and beverage revenue, which includes beverage carts, snack bar, and bar/grill expenditures, typically ranges from $7 to $10 per round of golf at high -end daily fee and resort courses. A factor of about $6.00 for the Ahmanson House and $8.50 for the permanent clubhouse is employed in this analysis. Non -golfer revenue at high -end daily fee and resort courses with permanent clubhouse facilities, derived principally from special events, ranges widely from $500,000 to over $l million per year. With the Ahmanson House, no special event revenue is included, while such revenue generated by the permanent clubhouse is projected at $1 million per year. Comparative food and beverage projections for a permanent SilverRock Resort clubhouse are compared with the Ahmanson House as follows: 11 Economics Research Associates Mark Weiss ERA No. 15734 January 18, 2005 Page 9 Annual Food & Beverage Gross Revenue Ahmanson Permanent House Clubhouse Gross Revenue Golfers $245,000 $ 330,000 Special Events --- 1,000,000 Subtotal $2451-000 $1,330,000 Less: Cost of Sales 80,000 425,000 Net Revenue $165,000 $ 905,000 Less: Operating Expenses 190,0002 665,000 Net Contribution ($ 25,000) $ 240,000 'Assumes one 18-hole course. 2As budgeted in SilverRock Business Plan. Undistributed Clubhouse Expenses In addition to direct expenses related to golf operations, merchandising, food and beverage, and administrative functions, there are a series of other clubhouse costs which are not distributed directly to these functions such as clubhouse maintenance and repair, utilities, janitorial, communications, security, and building landscape maintenance. Typically these undistributed costs range from $10 to $20 per square foot of clubhouse building floor area. A factor of $15 per square foot is applied to both the existing Ahmanson House and permanent clubhouse scenarios. Clubhouse Net Income Including the undistributed clubhouse annual operating expenses yields the following comparative net income related to direct clubhouse activities: Ahmanson Permanent House Clubhouse Direct Clubhouse Net Contribution Retail Merchandise $100,000 $295,000 Food & Beverage ( 25,000) 240,000 Total $ 75,000 $535,000 Less: Undistributed 45,000 300,000 Net Income $ 30,000 $2353,000 As indicated, under both options, net operating income is positive (direct revenues exceed the direct cost of operations). Annual net income projected with a high -quality 20,000-square-foot permanent clubhouse exceeds that from the Ahmanson House by approximately $200,000. This differential related solely to direct clubhouse revenues and expenses is not sufficient to economically justify the capital investment in the clubhouse, 12 Economics Research Associates Mark Weiss ERA No. 15734 January 18, 2005 Page 10 estimated at $6 to $8 million. Annual net income in the range of $500,000 to $600,000 would be required to satisfy a reasonable return on invested capital. Since the annual differential in direct net contribution is $300,000 to $400,000 deficient, indirect benefits in the form of higher play levels and/or greens fees attributable to the permanent clubhouse is needed to economically justify the capital cost. An annual increase in play of about 4,000 to 5,000 rounds (10%), or an increase in average greens fees of $8.00 from $84 to $92 (10%), or a combination of more modest increases in each, would produce sufficient indirect revenues. These levels of improvement in performance resulting from a high - quality permanent clubhouse appear reasonably achievable. PRACTICE FACILITIES SilverRock Resort will feature a double -ended golf practice range. The south end of the range, with capacity for up to 50 golfers, will be dedicated to same -day golfer warm- up and public practice use. Extensive state-of-the-art golf practice facilities and/or a world -class golf academy on the north end of the range is being considered. Facilities associated with high -profile golf academies in the U.S. vary widely, with most offering access to a natural turf practice range tee line, video and private swing analysis instructional equipment, putting greens, and short game practice areas. The more elaborate facilities include several dedicated full-length practice holes, classrooms, indoor hitting bays, and training equipment. course: Branded world -class golf academies offer three principal benefits for the golf (1) Rental ,Income: These facilities generate solve rental or concessionaire income from the usage of the facility. Assuming most of the improvements are funded by the golf course (lessor), rental income at major practice centers may total between $50,000 and $100,000 per year (10% of gross instructurai revenue). (2) Hotel Roont Sales: To the extent that golf academies are located in destination resort areas, patrons of the academies often require lodging. Thus, the academy drives room -night sales activity. (3) Image Enhancement: High -quality golf academies create awareness and image enhancement through association with high profile instructors and their professional clients. In effect, the academy provides in -kind national promotion and marketing for the entire golf project. The City of La Quinta has received unsolicited offers regarding operations for the north end of the golf practice range. From these proposals, along with the experience of selected nationally oriented golf academies/learning centers, a basic prototype of the SilverRock Resort Golf Academy is characterized as follows: 13 Mark Weiss Economics Research Associates ERA No. 15734 January 18, 2005 Page 11 • North Range Tee Line (40 natural turf tee stations) • Short Game Practice Area: — Putting Green — Chipping Green — Bunkers — Fairway Chipping Area • Practice Holes (three) Indoor Training Facility (10,000 square feet) — Indoor Hitting Bays/Golf Instruction — Physical Therapy — Golfer Skills Testing Evaluation — Fitness and Strength Training — Educational Classrooms — Healthcare/Wellness Support Services (medical, chiropractic, massage, nutrition, physical theiapy, other) • Parking Area (75 spaces) As envisioned, the golf academy would be a world -class integrated complex offering leading edge programs and services. In addition to the golf practice range constructed with the first 18-hole golf course at SilverRock Resort, the incremental capital costs associated with the golf academy concept outlined above are estimated below: Component Development Site Work $ 100,000 Tee Line Improvements 50,000 Building Construction (10,000 sq.ft. @ $200) 7-jM0,000 Practice — Short Game — Area 250,000 Parking Lot (75 spaces @ $2,000) 150,000 Practice Holes (3 @ $200,000) 600,000 Soft Costs (@ 15%) 475,000 Contingency (5%) 180,000 Total $358057000 In evaluating the economics of the practice facilities, a master lease approach has been assumed whereby the City of La Quinta/golf operator funds all of the development cost and leases the complex to an operator. It is assumed that the operator's rent will be related to the revenue generated at the facility. The City would bear the cost of maintaining the practice range and practice holes, including range ball replacement and ball collection, and other expenses such as utilities, exterior building maintenance and repair, and administrative expenses related to the leasing operation. Clearly, there are numerous alternative scenarios involving development funding and operating roles of the 14 Economics Research Associates Mark Weiss ERA No. 15734 January 18, 2005 Page 12 operator and City which can be formulated, but the fundamental economics of the development would not significantly change. The economics of developing the practice center/golf academy complex are analyzed in Exhibit 10. As noted, the economic analysis shows stable -year annual gross revenue for the golf operator (lessee), rent accruing to the golf course owner (lessor), and the lessor's expenses related to the operation. The analysis is presented both with and without the inclusion of the three practice holes. Under the master lease model, it is assumed that the master lessor would receive rent equal to a percentage of gross lessee revenue: Rent Payments as a Percent of Gross Revenue Outdoor Instruction 15% Indoor Training; Health and Fitness Service Fees 20% Merchandise G% Practice Hole Surcliarge (% of outdoor instruction) 10% The master lessor also would receive 100 percent of office rent from medical/physical training tenants and 100 percent of sponsorship revenue. The master lessor would be responsible for maintenance of the practice holes and other outdoor facilities, range ball replacement and collection, building utilities and exterior maintenance and repair, and administrative expenses. follows: Based on this model, net operating income accruing to the master lessor is projected as Practice Holes With Without Master Lessor Rental Income $543,000 $440,400 Operating Expenses 395,000 _283,000 Net Operating Income $148,000 $157,400 As with the permanent clubhouse analysis, the direct net income is not sufficient to justify the capital cost of the facility, estimated in the range of $4 million. However, one of the major intangible benefits of a high profile golf practice complex/golf academy is the promotional value related to the facilities. Although it is not possible to quantify such benefits, the in -kind value in terms of promotion and marketing expenditures could be significant. Golf courses generally spend the equivalent of 3 to 4 percent of gross revenue ($150,000 to $200,000 per year for the first SilverRock Resort course) on marketing and promotion. It would not be unreasonable to expect that the presence of a prestigious nationally recognized golf academy could generate this level of promotional value for SilverRock Resort. 15 Exhibit 1 COACHELLA VALLEY GOLF COURSE INVENTORY 2004 Facilities Regulation Executive Par 3 Total Course (18-bole equivalents) Regulation Executive Par 3 Total #15734 Public Resort Semiprivate Private Total 9.0 6.0 12.0 36.0 63.0 6.0 0.0 4.0 6.0 16.0 3.0 000 1.0 5.0 9.0 18.0 6.0 17.0 47.0 88.0 12.0 9.0 17.0 48.0 84.0 4.0 0.0 3.0 6.0 13.0 2.0 0_0 0.5 5.0 7.5 18.0 9.0 20.5 59.0 106.5 Source: Robert Gibson Associates and Economics Research Associates. 16 #15734 Exhibit 2 NEW PUBLIC REGULATION LENGTH COURSES 1.990-2004 Current Number Year Peak Season Rate Course of Holes Opened (WDnM, Cathedral Canyon 91 1990 $ 80/ 80 Mission Hills North 18 1.991 $135/140 Sun City — Santa Rosa 18 1992 $ 90/ 90 Tahquitz Creek Resort 18 1995 $100/100 Heritage Palms 18 1996 $120/ 120 Desert Willow — Firecliff 18 1997 $165/165 Desert Willow — Mountain View 18 1998 $165/165 PGA West — Norman 18 1999 $23 5/23 5 Sun City — San Gorgonio 9 1999 $ 90/ 90 Landmark Golf Club 36 1999 $135/145 Cimarron 18 1999 $ 95/ 95 Shadow Ridge 18 2000 $13 5/ 145 Sun City -San Gorgorio 9 2001 $ 90/ 90 Trilogy @ La Quinta 18 2003 $ 99/129 'Expansion. Source: Economics Research Associates. 17 -1t M 00 W �i 0 a a: P-c L G i .Q 0 d. as 13' m In O In In In O O C5 0 0 0 0 0 h In In In 0 0 0 0 0 In O In I/ 1 c n to t` In In "tt In t` IT lqt m d d• M �10 0\ t-- ON 1�0 cn 110 In 64 In O 00 In In O O In C7 In O O O In In In In In In In O O In In cl• ei• N In N In •Ct N d- In M nt M M . d• N In t1 In cn 1�0 M 69 o °O � a. o O O+ In all In C> C� o In O n o In IIn � �- o t-- t-4 " t - + + N 64 �O '� � d• O O ON O O O\ InaN In O O O H Cl In In V) O O O �� O A I- cM N t` t- In W O In t- 8 ,0 In d• cm In N In O N O In In In a. rn C) O C) � In In O\ In 0% In vi o N ty An In In +n -� 00 10 10 d' ON ON ON 00 00 ON 0 00 t` 00 N ON In �%a O ..-. .... In In C> In O M 'Cl- In O\ N O\ b+9 Ca O O N v1 N was ON In InON"a%InmO0 OInInC) l� Vl W M a\ al� 00 r- t- 0% O t1 "%0 00 ` ON 0, M I!) 64 0 � 8 0 0 Cd �i CA A cd Cd O AV,z N U y 0Cd 33 Cd �'oAQ o �c�v.�`r' cd c ooc� 10 o •� � _tea .�•O T N O r-_, E '� N E y : CA U r Cd V)=O :z 4 ty y O .:'.`3 Ncd y CCS CIS Q? � ►..,HHAaHUAa 04(/) ► Cl* -lAxv Ca im rn M In ZW- tz O E'{ W L. PC W � � !� H ZO W N c)cl 4) �� 0-0 O v? Y) to O O O O ;n d � O% Q\ [l- M \O � 69 '=3 A C? Qi w W � a I. W) to O to to O kn cn v) O v-) V1 d' to b4 O O O O O N v1 v1 O O 69 O O O o 0 0 0 0 0 0 to O� M 'O N 1%0 O N In N t— ON 6A O kn to to O Vn Vn Vn to kn to M %lo 01 It O Nt M C'1 i-- (ON -It . '--� ... .--� •--� N N •- C) O O V) N N 6R O O O Co O O O O O O O O O O O O O Co O O O O N N O O O O Co O O Co O 00 O N w O% kn Co V7 to 00 O 00 00 d- to cf) t— 1-- cn M M Cf) 4t cl O 0 4+ v p N O 4-' O 00 O O O C14A E C� �1 Q %* L C7 N r • N 1z �, +�. .--� O ' �. w 4-t O U o > O o C. O Cf b y b U aNi p S '' a0i CO U "C Co U — v)ca O N dry' Owp N0 00 N C v °' •U O � � � � ° No, -o c0 a0i U Q •-• O 0 N O O .� N O -� v N O> N A b1? o O 1) >1 � � �° v d, "G 0 N ca O N � � .4) p 0u. ,c L U cn N .� u' o o cu N h v o O O y p O C U0 �r� P. . U Z,,c a � a •� U U cyC � a 0 C* 00 00 00 h O > Q Q 4-4 O O C � p .� N O ++ td y �,. vi V 'N co pCO o c* 4 s O N N `� p c� O A �� O p�'a N C p o�� U0 v 3 ,- E� iv) a., 0 u. 4 r�i a. W.t� � z c� 0.4 v) a. 20 a> N w o -� N E 0 -0 o a> o E O � � z X g0 v 4 E � 4i N a V ♦-+ ocn %D 3a =&n H 0 >, o �" ai aCi o co 0 'n > a ..: 4. o 0 o ; Q . A.0 v 0 end 'C c> ' o C O O 04 O U "�% N cq O •� 0 0 O 0 0 •0 c 00 ,-• U IO 91. U A= cn V 0. rs, � V C � a W LJ ow P, y a a a t 0 0 a 00 B Ri ±.i .r (n ,.� , p o o _ w o a, , b o U 0, a y m " C 0 on tt! CA 0 i 9 o a ' . Vw O va ��NV V o cc 0 a m U cn a A x V A cn w co o. U z n. p EW m Ga < z P. O U 0 V L N C y � H 4 :y � o 4o 40 U o o » o a. v) 21 v M in =tt W W C/1 z� W � V iZ C) rW �o Who Z 0-4 w 1...4 �w �o w r� 0 115 o O O O c� cn M .-e c M 061-4 M o o O c M N 00 �O o �n 00 (T O N k kn O 1) bA b � L IL a> o w t Ol C) 00 L7 � pf/9 Q �D •-+ t� bA a � O t!) O M Qi U "d O C) O O C O 00 O N a00 00 M �l1 d� N 0 � O o N vn a �i O pt:C7 a0 0 o a N H a 00 00 0 M N �, O C) 0 ;o H 0 0 Po a O ' N ed L. > o 0 0 0� 0 00 'r N o a aON a� o Itt H 19 C .0 w O 23 Zt: O Q O -,r kf) o Z O %o 00 �a 4604 6q pA H o t-- 0 0 � V PC b O o O 00 O a' O N a00 00 O c� lry N 0 F� w v� a O C O 0 0 N yam,, fit 00 00 00 o "' N .r Cd O opo N C:ll 1%0 i 0 0 C NJ" NI i o 0 0 00 0� N N 4r rA M O � O Cd UD cxd a, O c oin O W, 2tk 0 I �+ G 40. to O V1 O O O t� kn M f� O O C71 cli O [t d 00 bA O O CQ O d O ko 00 M O d 00 �n 00 O O I:t O O 0000 Ilzr (D d C) C> o C> O N N O O O 00 00 C> O O O 00 to 00 tl- t- I'O ai o 0 M oa�Cdi V V k-t U U C7 �, -c� a W � C 3 C7 os -a w a U C7 a co n c 25 ik RK w � G3 C O O O 0o O O O �4 a O 6 w z o Q +' tV C> 00 m l - N C> O o N w 6q Q? PO r cl co dam• O Co I- O O w a y e kn N O N M 00 69 ~ A O A 5 o � 5 o o 110 64 a .0 N �'" O O O O O O O O O O O C7 w V) o kn N kn H H V a V o 0 0 0 o a N o N O O O 00 tn 00 ;j O � Q H o V 1 U O U4-4 x 04 � U rr°��, u U • o a o O 4) Cy Q QCO o U'° C ►� �1 ►� a m �° 26 #15734 Exhibit 10 PRACTICE FACILITIES STABLE -YEAR OPERATING ECONOMICS (Constant 2004 Dollars) Practice Holes With Without Operator Gross Revenue Outdoor Instruction Full -Time Instructors (6 a $100,000) $ 600,000 $ 480,000 Part -Time (6 @ $30,000) 180,000 140,000 Total $ 780,000 $ 620,000 Indoor Training (5,000 hrs. @ $100) $ 500,000 $ 500,000 Sponsorships 50,000 50,000 Health and Fitness (300 days a? $1,200) 360,000 360,000 Merchandise 100,000 90,000 Office Rent (4,000 sq.ft. @ $30) 120,000 120 Other 25,000 20,000 Total $1,935,000 $1,860,000 Lessor Net Operatine Income Master Rent Outdoor Instructor (a I S%) $ 117,000 $ 93,000 Training, Health/Fitness (@ 20%) 1721000 172,000 Sponsorships 50,000 50,000 Merchandise (a 6%) 6,000 5,400 Office 120,000 120,000 Practice Hale Surcharge (a 10% of Outdoor Instruction) 78,000 - - Total $ 543,000 $ 440,400 Expenses Practice Holes Maintenance (3 @ $35.00) $ 105,000 --- Short Game Practice Area Maintenance 507000 $ 50,000 Range Maintenance/Picking (50%) 35,000 30,000 Balls 10,000 8,000 Utilities & Building Maintenance (@ $10/sq.ft.) 100,000 100,000 Insurance 20,000 20,000 Administration 75,000 75,000 Total $ 395,000 $ 283,000 Net Operating Income $ 148,000 $ 157,400 Source: Economics Research Associates. 27