2014 Economic Development Subsidy Report SRR 2014-11-04 (TOT)ATTACHMENT 3
ECONOMIC DEVELOPMENT SUBSIDY REPORT
for the
Purchase, Sale, and Development and related Agreements,
including Hotel TOT Rebate Agreements
between
SilverRock Development Company, LLC and the City of La Quinta
November 4, 2014
This document is the Summary Report ("Report") pursuant to the requirements of Part 4
(commencing with Section 52200) of Division 1 of Title 5, and Section 53083 of the Government
Code, representing the economic opportunity and development subsidy report associated with the
Purchase, Sale, and Development Agreement ("Agreement") by and between SilverRock
Development Company, LLC ("Developer") and the City of La Quinta ("City"). The Agreement
facilitates the sale and development of up to 145 acres owned by the City of La Quinta including
land that is largely vacant, but includes portions of the existing Arnold Palmer Golf Course (the 145
acres are collectively referred to as "Development Areas"). The Site is generally located south of
Avenue 52 between the existing SilverRock golf course and Jefferson Street, and west of Jefferson
Street between Avenue 52 and Avenue 54 ("Site"). The City is proposing to implement Hotel
Transient Occupancy Tax Rebate Agreements to assist in the development of SilverRock Resort.
THE DEVELOPMENT
Project Site
In 2002 the City acquired 525 acres inclusive of the Development Areas, and began construction on
the SilverRock Resort Arnold Palmer Classic Golf Course in 2004. This 18 -hole public golf course
occupies 200 acres and was opened in 2005. In 2006, City Council approved the SilverRock Resort
Specific Plan ("Specific Plan"). The Specific Plan identifies Planning Area 1, a 373 -acre planning area
that contains the existing 18 -hole golf course and sufficient land area for a second proposed 18 -hole
golf course. The Site that is the subject of this Report includes the areas identified in the Specific
Plan as Planning Areas 2 through 6, and includes portions of Planning Area 1 that is within and
around the existing and proposed golf course land.
Project Description
Site development is governed by the Specific Plan and the La Quinta General Plan ("General Plan").
The General Plan broadly demarcates a portion of the site as Tourist Commercial. The Specific Plan
designates the site for a variety of uses, including Civic and Cultural Events Facilities (Planning Area
2), Boutique Hotel (Planning Area 3), Resort Hotel and Resort Casitas (Planning Area 4), Mixed -Use
Resort Retail Village (Planning Area 5), and Traditional Hotel and Resort Casitas (Planning Area 6).
The proposed development encompasses all Development Areas and portions of the site designated
for circulation, utilities and other public uses.
Long Range Property Management Plan and Approval of Properties used for Project
The proposed property disposition is consistent with the City of La Quinta Successor Agency's Long
Range Property Management Plan ("LRPMP"), which was approved by the California Department of
Finance. The proposed property disposition is also consistent with the 2011 transfer of 86 acres of
land designated for private development, also as approved by the California Department of Finance.
The 2011 transfer includes Specific Plan Planning Areas 4, 5, and 6, which was previously the
subject of a March 2011 fair market value purchase and sale. The properties included in the 2011
transfer were not subject to the LRPMP.
Additionally, the Site encompasses 59 acres identified in the LRPMP as properties to be retained for
future development. The LRPMP includes two valuations for the 59 acres: Estimated Current Value
and Encumbered Value. The Estimated Current Value of the 59 acres is $295,000, as determined by
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appraisal and assumes that there are no covenants or conditions limiting development of the 59
acres. In contrast, the Encumbered Value of the property is $0, due in part to the restrictions on
property development as a result of the funding source, tax exempt bond proceeds, originally
utilized to purchase the 59 acres in 2002.
ECONOMIC OPPORTUNITY AND DEVELOPMENT SUBSIDY
Terms
The Agreement represents the purchase of up to 145 acres of the Site in two phases and a Transient
Occupancy Tax ("TOT") rebate for a period of up to 15 years for both the luxury and lifestyle hotels.
The purchase land price would be $1.00 per parcel. This value is established as the maximum
amount allowable in consideration of the original land purchase being made with tax-exempt bond
proceeds and associated internal revenue tax codes limiting private payment.
Governmental tax-exempt bonds, such as the bonds used for the acquisition of the 145 acres, which
the California Department of Finance approved for transfer to the City in furtherance of
development, are not "private activity" bonds. A bond is a private activity bond if both (i) more
than 10% of the proceeds of a bond issue are used for a private business use (the "private business
use" test), and (ii) more than 10% of the debt service on the bonds is directly or indirectly secured
by an interest in property or payments with respect to property used for a private business use or
derived from payments in respect of property used for a private business use (the "private security"
or "private payment" test). Both tests must be met for a bond to be a private activity bond. Under
this proposed property disposition, more than 10% of the bond issue proceeds are used for a
private business use. As such, the City must avoid "private payment," deriving payment in respect of
the property used for a private business use so that the bonds remain tax exempt Thus, to
minimize the risk of having a "private payment" realized from the sale of the properties, the sale
price may not exceed $1 for each parcel.
A summary of key points within the Agreement are as follows:
• Developer to design and construct master site infrastructure
o Including re-routing of certain golf holes on the Arnold Palmer Classic Course to
accommodate the Luxury Hotel site
o The estimated cost to construct the master site infrastructure is $42 million
• Development to include the following components:
o Phase 1
■ Luxury Hotel (approximately 140 keys)
■ Luxury Branded Residential (35 units @ 3,000-4,500 s.£)
■ Conference and Shared Service Facility (71,000 s.£)
■ Mixed Use Village (120 units @1,000-2,000 s.f. and 40,000 s.f. retail)
■ Resort Residential (160 units @ 2,200-4,000 s.£)
o Phase 2
■ Lifestyle Hotel (approximately 200 keys)
■ Lifestyle Branded Residential (60 units @ 2,100-3,500 s.£). The 60 Lifestyle
Branded Residential units may be locked off and utilized as up to 120 nightly
rental units
TOT rebate available for 15 years for each hotel
o Years 1-10, 95% of TOT is available for rebate until developer achieves an 11%
return on cost annually
o Years 11-15, 75% of TOT is available for rebate until developer achieves an 11%
return on cost annually
o In any given year TOT rebate stops upon the developer achieving an 11% return
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Projected Tax Revenue
The Agreement includes a TOT rebate for the Luxury and Lifestyle hotels. The Agreement excludes
rebate of TOT revenues generated by the any resort residential component, including Luxury
Branded Residential, Mixed Use Resort Residential, Resort Residential, and Lifestyle Branded
Residential. The rebate of TOT is limited to the first fifteen years of operations for each hotel and is
limited to 95% of the total TOT generated. Also, the TOT rebate is contingent upon the Luxury and
Lifestyle hotels independently generating less than 11% returns over the course of the 15 -year
period.
In addition to generating TOT, the proposed development will generate property and sales tax
revenues. The following table outlines the projected tax revenues, the projected rebate amount, and
the City's share of the projected tax revenues.
ESTIMATED TAX REVENUE OVER 15 -YEAR PERIOD
Estimated Net New
Revenue Category City Revenues
Luxury and Lifestyle Hotel TOT $46,600,000
Residential TOT $12,200,000
Sales Tax $6,000,000
Property Tax $3,000,000
Estimated Gross New Revenues $67,800,000
Less Estimated Luxury and Lifestyle TOT Rebate ($20,100,000)
Total Net New City Revenues $47,700,000
Note: 15 year period starts at the opening of the Luxury Hotel
The projected tax revenue and developer returns would result in the developer receiving an
economic development subsidy of up to $20,100,000 over a fifteen year period beginning in the
first year of operations. The revenue and subsequent subsidy are estimated based upon projected
financial returns, occupancy rates and average daily rate for the Luxury and Lifestyle hotels. Sales
tax revenues are based on estimated sales from the proposed mixed-use village, resort spa and
hotel food and beverage sales. Property tax revenues are derived from the improvements made to
the property.
No expenditure of public funds is proposed with this Agreement The estimated economic
development subsidy of $20,100,000 is representative of potential revenue lost by the City.
However, the City is estimated to receive $67,800,00 in TOT, sales and property tax revenue
directly attributed to the proposed development for a net gain of $47,700,000 in new tax revenues.
In addition, as a result of the proposed property disposition, the ensuing development will generate
substantial property and sales tax revenues for the County of Riverside, local school districts, and
other special districts. The following table outlines estimated property and sales tax revenues for
each entity:
ESTIMATED PROPERTY AND SALES TAX REVENUES OVER 15 -YEAR PERIOD
Estimated Net New Estimated Net New
Entity Sales Tax Revenues Property Tax Revenues
School Districts $22,200,000
County of Riverside $1,500,000 $9,100,000
City of La Quinta $3,000,000
Other Taxing Entities $9,700,000
M -R
Estimated Jobs Created
Tall Man Group, Inc, the City's real estate and develoment consultant, estimated the number of jobs
generated by the development of the Site based on information provided by multiple potential hotel
operators, Meriwether Companies and the Bureau of Labor Statistics. The proposed Project is
estimated to generate the following number of jobs:
ESTIMATED JOBS CREATED
Job Category Full Time Jobs Part Time Jobs
Temporary Construction Jobs 11544 206
Permanent Operations Jobs 466 169
Note: Part time jobs are presented as full-time equivalents
The Agreement will be the subject of a public hearing before the La Quinta City Council on
November 4, 2014, at 5:00 PM or thereafter in the City Council Chambers of the City of La Quinta
located at 78-495 Calle Tampico, La Quinta, California.
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