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2020-10-19 Coral Mtn Cost Revenue Analysis1 From:Nicole Criste <ncriste@terranovaplanning.com> Sent:Monday, October 19, 2020 10:03 AM To:Gilbert Villalpando Cc:Cheri Flores Subject:Re: Coral Mountain Resort Cost Revenue Analysis ** EXTERNAL: This message originated outside of the City of La Quinta. Please use proper judgement and caution when opening  attachments, clicking links or responding to requests for information. **  You’re very welcome, and thanks for the compliment!  Nicole Sauviat Criste Principal TERRA NOVA PLANNING & RESEARCH, INC.® 42635 Melanie Place, Ste 101 PALM DESERT, CA 92211 (760) 341-4800 FAX#: 760-341-4455 E-Mail: ncriste@terranovaplanning.com From: Gilbert Villalpando <Gvillalpando@laquintaca.gov>  Date: Monday, October 19, 2020 at 10:00 AM  To: Nicole Criste <ncriste@terranovaplanning.com>  Cc: Cheri Flores <clflores@laquintaca.gov>  Subject: Re: Coral Mountain Resort Cost Revenue Analysis  Thank you Nicole! You are amazing!  Thank you,  Gilbert Villalpando | Assistant to City Manager  City Manager's Office  City of La Quinta  78495 Calle Tampico ◦ La Quinta, CA 92253  Ph. 760.777.7094  www.laquintaca.gov   www.playinlaquinta.com  From: Nicole Criste <ncriste@terranovaplanning.com>  Date: Monday, October 19, 2020 at 9:57 AM  2 To: Gilbert Villalpando <Gvillalpando@laquintaca.gov>  Cc: Cheri Flores <clflores@laquintaca.gov>  Subject: Re: Coral Mountain Resort Cost Revenue Analysis  ** EXTERNAL: This message originated outside of the City of La Quinta. Please use proper judgement and caution when opening  attachments, clicking links or responding to requests for information. **  Gil,  I’ve attached the original report, and the summary table for 30 hotels. That’s everything I’ve produced at this time. Note  that without TOT, we’re upside down.  Nicole Sauviat Criste  Principal  TERRA NOVA PLANNING & RESEARCH, INC.®  42635 Melanie Place, Ste 101   PALM DESERT, CA 92211   (760) 341-4800 FAX#: 760-341-4455 E-Mail: ncriste@terranovaplanning.com From: Gilbert Villalpando <Gvillalpando@laquintaca.gov>  Date: Monday, October 19, 2020 at 9:41 AM  To: Nicole Criste <ncriste@terranovaplanning.com>  Cc: Cheri Flores <clflores@laquintaca.gov>  Subject: Re: Coral Mountain Resort Cost Revenue Analysis  Hi Nicole,  Do you have a copy of his latest report? I don’t have anything with hotels. Thank you,  Gilbert Villalpando | Assistant to City Manager  City Manager's Office  City of La Quinta  78495 Calle Tampico ◦ La Quinta, CA 92253  Ph. 760.777.7094  www.laquintaca.gov   www.playinlaquinta.com  From: Nicole Criste <ncriste@terranovaplanning.com>  Date: Monday, October 19, 2020 at 7:58 AM  To: Gilbert Villalpando <Gvillalpando@laquintaca.gov>  Cc: Cheri Flores <clflores@laquintaca.gov>  Subject: FW: Coral Mountain Resort Cost Revenue Analysis  3 ** EXTERNAL: This message originated outside of the City of La Quinta. Please use proper judgement and caution when opening  attachments, clicking links or responding to requests for information. **  Gil,  Can you let Garrett know if he’s in the clear, or if further discussions or guarantees need to be discussed? Please keep  me in the loop so I know what he needs to do, if anything.  Thanks,  NIcole  Nicole Sauviat Criste  Principal  TERRA NOVA PLANNING & RESEARCH, INC.®  42635 Melanie Place, Ste 101   PALM DESERT, CA 92211   (760) 341-4800 FAX#: 760-341-4455 E-Mail: ncriste@terranovaplanning.com From: Garrett Simon <gsimon@meriwetherco.com>  Date: Friday, October 16, 2020 at 11:01 AM  To: Nicole Criste <ncriste@terranovaplanning.com>  Cc: Gilbert Villalpando <Gvillalpando@la‐quinta.org>, Jon McMillen <jmcmillen@laquintaca.gov>  Subject: Re: Coral Mountain Resort Cost Revenue Analysis  Thanks Nicole.  It looks like we are good here as well.  Please let me know if there is anything else we need to do on this  matter.  Please Add Good, Garrett Simon 970-596-6642 www.meriwetherco.com On Oct 13, 2020, at 3:06 PM, Nicole Criste <ncriste@terranovaplanning.com> wrote:  Garrett,  Attached is the summary table for the 30 room hotel option. I have not written it up in the report, and  can do that if you would like. The reductions are proportional, because the number of people on the site  is reduced, which reduces costs as well as revenues.  4 Let me know if you have any questions.  Nicole  Nicole Sauviat Criste  Principal  <image001.png>
TERRA NOVA PLANNING & RESEARCH, INC.®  42635 Melanie Place, Ste 101   PALM DESERT, CA 92211   (760) 341-4800 FAX#: 760-341-4455 E-Mail: ncriste@terranovaplanning.com From: Garrett Simon <gsimon@meriwetherco.com>  Date: Sunday, October 11, 2020 at 12:21 PM  To: Nicole Criste <ncriste@terranovaplanning.com>  Cc: Gilbert Villalpando <Gvillalpando@la‐quinta.org>, Jon McMillen  <jmcmillen@laquintaca.gov>  Subject: Re: Coral Mountain Resort Cost Revenue Analysis  Yes, 30 rooms in phase 1.  Thank you.  Please Add Good, Garrett Simon 970-596-6642 www.meriwetherco.com On Oct 11, 2020, at 12:20 PM, Nicole Criste <ncriste@terranovaplanning.com> wrote:  Garrett,  Yes, I can run it based on 30 rooms. Do you expect those still in Phase 1, or later. We’d  not talked about numbers or timing, so I need those specifics.  Nicole  Nicole Sauviat Criste  Principal  <image001.png>
TERRA NOVA PLANNING & RESEARCH, INC.®  42635 Melanie Place, Ste 101   PALM DESERT, CA 92211   (760) 341-4800 FAX#: 760-341-4455 E-Mail: ncriste@terranovaplanning.com 5 From: Garrett Simon <gsimon@meriwetherco.com>  Date: Sunday, October 11, 2020 at 8:36 AM  To: Nicole Criste <ncriste@terranovaplanning.com>  Cc: Gilbert Villalpando <Gvillalpando@la‐quinta.org>, Jon McMillen  <jmcmillen@laquintaca.gov>  Subject: Re: Coral Mountain Resort Cost Revenue Analysis  Nicole,   Can you now sensitize this for 30 hotel rooms as we discussed?  Please Add Good, Garrett Simon 970-596-6642 www.meriwetherco.com On Oct 9, 2020, at 1:16 PM, Nicole Criste  <ncriste@terranovaplanning.com> wrote:  Gentlemen,  The streamlined cost revenue analysis we discussed is attached. This is  the report only. I am cleaning up the model run tables, and those will be  appended to the report when the final document is completed.  Please review at your convenience, and provide comments. We can also  set up a call/meeting if there are questions.  Have a good weekend!  Nicole  Nicole Sauviat Criste  Principal  <image001.png>
TERRA NOVA PLANNING & RESEARCH, INC.®  42635 Melanie Place, Ste 101   PALM DESERT, CA 92211   (760) 341-4800 FAX#: 760-341-4455 E-Mail: ncriste@terranovaplanning.com <LQ Coral Mountain Resort Cost‐Revenue Analysis 10.8.20.pdf>  6       <Summary Rev. Costs 30 Rooms 10.13.20.pdf>            Aid in Future COVID‐19 Relief Funding and Get Your Community Counted! Take the 2020 Census Online Here:  https://my2020census.gov/, Everyone Counts!   Aid in Future COVID‐19 Relief Funding and Get Your Community Counted! Take the 2020 Census Online Here:  https://my2020census.gov/, Everyone Counts!   Coral Mountain Resort Summary of Major Revenues and Costs I. Introduction The following analysis has been prepared to analyze the major City of La Quinta revenue and cost categories associated with the development of the Coral Mountain Resort project. The project consists of a General Plan Amendment, Change of Zone, Specific Plan and Tentative Tract Map on 386 acres at the southwest corner of Madison Street and Avenue 58. The project would result in the development of 600 single family attached and detached residential units, 150 hotel rooms, a 60,000 square foot neighborhood shopping center and 57,000 square feet of resort retail development. The project is to be a private club, and with the exception of the neighborhood commercial shopping center, would not be generally accessible to the public. For purposes of this analysis, it has been assumed that maximum potential build out would occur. Should fewer units or square footage be constructed, costs and revenues to the City would also be reduced. The project site is located in south La Quinta, in an area which, when annexed, was encumbered by the County of Riverside’s Redevelopment Agency. As a result, the City has not, and will not receive property tax on the project site until 2035. This analysis has been prepared to determine what costs and revenues will be generated by the project, absent property tax revenues. The applicant provided unit values and other assumptions used in this analysis, which are provided below. Phasing assumptions are based on the phasing provided in the project’s environmental documentation, Specific Plan and other documents. The project is to be built in three phases. For purposes of this analysis, annual revenues and costs are calculated at build out of each phase, and build out of the project. The application materials provide for a build out year of 2026. Given the scope of the project, and La Quinta’s historic residential absorption rates, this is likely an aggressive assumption for 600 residential units and a hotel. Coral Mountain Resort Cost/Revenue Analysis October, 2020 Page 2 of 9 • 26 estate homes with an average price of $6 million per unit built in Phase 1. • 104 Surf Village homes with an average price of $2.75 million per unit built in Phase 1. • 470 homes with an average price of $2 million per unit built in Phase 3. • 150 hotel rooms built in Phase 1. • 10,000 square feet of neighborhood commercial, and 57,000 square feet of resort commercial development built in Phase 1. • 25,000 square feet of neighborhood commercial development built in Phase 2. • 25,000 square feet of neighborhood commercial development built in Phase 3. • Hotel average daily rate of $350 per room. • Resort commercial Food and Beverage sales of $6.6 million annually. • Resort Commercial retail sales of $5.5 million annually. • Short term vacation rental participation of 30% of 600 units. • Short term vacation rental occupancy rate of 45%. • Short term vacation rental rate of $800 per unit per night. It should be noted that the applicant’s values and assumptions are generally consistent with conditions in La Quinta and the region in non-pandemic times. Hotel room rates and short term vacation rental (STVR) rates vary greatly in the City and region. Greater Palm Springs Convention and Visitors’ Bureau reports support the hotel rates provided. STVR rates and occupancy are also consistent with the higher end of that market. It should be noted that until 2020, La Quinta did not track room nights or occupancy for STVR, and the use of 2020 year-to- date data would not be an accurate representation of occupancy levels in non- pandemic years. Therefore, the assumptions provided by the applicant have been used. Based on those assumptions, 180 of the residential units would be STVRs, which would generate a total of 29,565 room nights annually. This analysis is based on 2020 dollars. No inflation or cost of living adjustments have been made to either costs or revenues. Therefore, proportional increases in both can be expected over the build out period and beyond. Finally, this analysis addresses only major General Fund revenues. Additional costs and revenues will be associated with the project, such as the collection of increased gas tax, to offset road maintenance. Both the revenues and the costs associated with these restricted funds are limited, and will not substantially change the economic benefit or loss associated with the build out of the project. Coral Mountain Resort Cost/Revenue Analysis October, 2020 Page 3 of 9 II. Revenues Three primary revenue categories have been analyzed for this report: Property Transfer Tax, Sales Tax and Transient Occupancy Tax. As noted above, the project will generate no property tax for at least 15 years. Therefore, no property tax has been assumed, nor has Property Tax in Lieu of VLF been included. Revenue allocations are directly tied to the phasing proposed for the project. Revenues will begin in Phase 1, which includes the hotel and 130 residential units, as well as 67,000 square feet of commercial space. Phase 2 includes only the addition of neighborhood commercial square footage, and a corresponding increase in sales tax revenue. Phase 3, which includes an additional 470 housing units and the balance of the neighborhood commercial square footage, will result in a significant increase in revenues. Build out calculations are based on a stabilized project, relying on averaged resales of residential units for the life of the project. The following discussion summaries the result of the modeling conducted for this report. Detailed tables are provided in Appendix A. Property Transfer Tax The City receives Property Transfer Tax for properties sold within this area. The sales rates have been assumed based on average sales per year, both new and resale, during the build out of the project. Buildout assumptions, for every year once the project is fully developed, were also calculated. It should be noted that no property transfer tax was calculated for either the hotel or the commercial square footage in the project. These sales occur infrequently, are not predictable, and will only rarely increase the City’s revenues during the life of the project. For purposes of this analysis, it was assumed that 130 units would be constructed in Phase 1. Of these, 104 units would be valued at $2.75 million, and 26 at $6 million. This represents the resort residential portion of the project located adjacent to the hotel and wave pool, as well as the 26 custom home sites located at the northwest corner of the resort complex. The balance of the residential development, 470 units, would be built in Phase 3 of the project, and upon completion, would represent build out of the proposed project. As shown in Table 1, at build out the project would generate $74,800 annually in Property Transfer Tax at build out. Coral Mountain Resort Cost/Revenue Analysis October, 2020 Page 4 of 9 Table 1 Annual Property Transfer Tax Revenue Phase 1 Phase 2 Phase 3 Build Out Total Property Transfer Tax $44,880 $38,500 $127,600 $74,800 Sales Tax The applicant provided annual retail sales and food and beverage sales estimates for the resort commercial complex, which includes the hotel and commercial village proposed in the southern quadrant of the project. No assumptions were provided for the neighborhood commercial development proposed in the northeastern corner of the project. For analysis purposes, the 60,000 square feet of commercial space was calculated separately, using Urban Land Institute regional calculations for neighborhood shopping center sales per square foot. For the proposed 57,000 square feet of resort commercial space, the applicant’s assumptions were divided by the project square footage to generate sales per square foot. Consistent with the project description, retail space is assumed to be built in Phase 1 for the resort commercial, and in Phase 1, 2 and 3 for the neighborhood commercial component. The City receives 1% of the total 6% State sales tax rate, and an additional 1% generated by Measure G, which was approved by the voters in 2016. In total, therefore, the City receives 2% of most retail sales. On the basis of the assumptions described above, the project will generate $570,040 in sales tax at build out, as shown in Table 2. Table 2 Annual Sales Tax Revenue Phase 1 Phase 2 Phase 3 Build Out Total Sales Tax Revenue $276,523 $423,282 $570,040 $570,040 Sales tax was calculated for project generation only. In addition, residents will likely expend funds elsewhere in the City and region. Assuming the project has a high percentage of STVRs, as described above, the off-site spending associated with the project could be more characteristic of a hotel visitor, rather than a permanent or seasonal resident. If this is the case, spending will be more limited, and may occur almost entirely within the project. If the project is occupied by more permanent or seasonal residents, disposable income will be spent both in the project and elsewhere in the region. In order to assure a conservative estimation of revenues, therefore, no indirect sales tax generation is included in this analysis. Coral Mountain Resort Cost/Revenue Analysis October, 2020 Page 5 of 9 Transient Occupancy Tax The City collects Transient Occupancy Tax (TOT) for both hotels and short term vacation rentals (STVR). Hotels charge 11% in TOT per room night, while STVRs collect 10% per room night. Occupancy and rates, as described above, vary between the two uses. Hotels in the Coachella Valley, pre-pandemic, were experiencing annualized occupancy rates of about 68%, due in great part to the low occupancy levels in the summer months. This annualized occupancy rate was used to calculate TOT for the project’s hotel. Data for STVR occupancy, as described above, is limited in both the City and region, especially since this is a relatively new phenomenon that all cities are experiencing. In La Quinta, approximately 6.5% of all single family units are currently used as STVRs. The City also has several projects built for vacation rentals, including Legacy Villas and Puerta Azul. As described above, this analysis assumed that 30% of the total residential units in the project would be used as STVRs, and that they would be occupied 45% of the time. Based on these assumptions, TOT revenues from the project would represent the single largest revenue source for the City. At build out, the project would generate $2.8 million in TOT revenue, as shown in Table 3. Table 3 Annual Transient Occupancy Tax Revenue Phase I Phase II Phase III Build Out Total Transient Occupancy Tax Revenue $1,735,849 $1,735,849 $2,829,480 $2,829,480 Summary of Revenues The major revenue categories associated with the project will result in a total of $3.47 million annually to the City at project build out. As described above, and shown in Table 4, more than 80% of these revenues are tied to Transient Occupancy Tax. An increase or decrease in TOT revenue would significantly affect the project’s revenue stream. Please see Section IV of this report for further discussion of the impact of TOT revenues on City funds. Coral Mountain Resort Cost/Revenue Analysis October, 2020 Page 6 of 9 Table 4 Summary of Annual Revenues Phase I Phase II Phase III Build Out Property Tax $0 $0 $0 $0 Property Transfer Tax $44,880 $38,500 $127,600 $74,800 Local Sales Tax $276,523 $423,282 $570,040 $570,040 Transient Occupancy Tax $1,735,849 $1,735,849 $2,829,480 $2,829,480 Total Annual Revenues $2,057,252 $2,197,630 $3,527,120 $3,474,320 III. Costs As with revenues, this analysis considers the largest costs associated with new development as they would impact the General Fund. Restricted funds were not analyzed, but the costs associated with City-wide roadway maintenance and similar costs which are payed through restricted funds would be limited for a project of this size, and offsets by additional revenue categories, including Gas Tax, which the project will generate. Three major categories were analyzed for cost impacts: General Government, Fire Services and Police Services. In all three cases, a per capita cost was developed based on the current (2020/2021) adopted City budget expenditures for Police and Fire costs, and the previous year (2019/2020) adopted budget for General Government costs. The reason for the variation in budget year analysis was solely due to the deep cuts the City has implemented in 2020 for pandemic-related revenue shortfalls. The $10 million in cuts in personnel, facility expenditures and other General Government categories are expected to be short-term in nature, and do not reflect the level of service the City would provide in non-pandemic conditions. The 2019/2020 adopted budget, therefore, was used to calculate General Government expenditures. For Fire and Police expenditures, both are directly tied to contracts with the County of Riverside, which increase yearly and over which the City has no control. The current (2020/2021) aggregated costs associated with both services, for example, are 4% higher than the previous year (2019/2020), regardless of pandemic conditions. Therefore, the 2020/2021 contract costs were used to calculate per capita expenditures. In addition, hotel rooms were counted as residential units, to reflect the demand for police and fire services at hotel and resort facilities. The household size, 2.6 persons, was calculated based on Department of Finance 2019 estimates. Project population is assumed, at build out, to total 1,950 persons. Coral Mountain Resort Cost/Revenue Analysis October, 2020 Page 7 of 9 Finally, to determine per capita costs, Department of Finance’s population estimates for 2019, which total 40,660 persons in La Quinta, were divided into the total budget amount for each category, as described below. The following discussion summaries the result of the modeling conducted for this report. Detailed tables are provided in Appendix A. General Government Costs General Government costs include a broad range of services, from business licenses to short term vacation rental permitting, and from recreation programs to Code Enforcement. The project, however, will not have an impact on all General Government activities, particularly where economies of scale occur based on the City’s existing population. For this analysis, the following budget categories were included: Community Resources (which includes recreational programs, Wellness Center and Code Enforcement), and Facilities (which includes parks and public building maintenance, and limited street funding). The total General Fund costs associated with these programs is $7,671,900. On a per capita basis, this translates to a cost of $188.68 per resident. As shown in Table 5, the costs of General Government associated with build out of the project will be $367,926 annually. Table 5 Annual General Government Project Costs Phase I Phase II Phase III Build Out Total Annual Costs of General Government $137,362 $137,359 $367,926 $367,926 Fire Service Costs As described above, Fire Service costs are based on a per capita cost of the 2020/2021 budget. The current cost for Fire Service contracting is $8,021,700. On a per capita basis, the cost is $197.29. Based on the project’s build out population of 1,950 persons, the project will generate an annual cost to the City of $384,710 at build out, as shown in Table 6. Table 6 Annual Fire Service Project Costs Phase I Phase II Phase III Build Out Total Annual of Fire Services $143,625 $143,625 $384,710 $384,710 Coral Mountain Resort Cost/Revenue Analysis October, 2020 Page 8 of 9 Police Service Costs Police Services represent the single largest expenditure for the City. The 2020/2021 contract with the County of Riverside totals $17,506,700. On a per capita basis, this translates to $430.56 per resident. As shown in Table 7, the total costs for Police Services at project build out will be $839,598 annually. Table 7 Annual Police Service Project Costs Phase I Phase II Phase III Build Out Total Annual Cost for Police Services $313,450 $313,450 $839,598 $839,598 Summary of Costs General Fund costs associated with project build out will total approximately $1.22 million annually at build out of the project, as shown in Table 8. Table 8 Annual Project Cost Summary Phase I Phase II Phase III Build Out General Government $137,362 $137,359 $367,926 $367,926 Police Protection Services $313,450 $313,450 $839,598 $839,598 Fire Department Services $143,625 $143,625 $384,710 $384,710 Total Project-related General Fund Costs $457,075 $457,075 $1,224,308 $1,224,308 Coral Mountain Resort Cost/Revenue Analysis October, 2020 Page 9 of 9 IV. Comparison of Revenues versus Costs Table 9 compares the project’s revenues to anticipated costs. As shown in the Table, based on the assumptions made in the analysis, the project will result in positive revenues for the City at build out. As the Table shows, the positive cash flow is entirely dependent on the Transient Occupancy Tax revenues projected for the project. Without TOT revenues, the project will be revenue negative, with the exception of completion of Phase 2, when the project will be revenue neutral. Phase 2 includes the addition of 25,000 square feet of neighborhood commercial space, and related sales tax revenue, with no increase in population density. The sales tax revenue generation makes up for the shortfall shown in Phase 1. At project build out, without TOT revenue, the project would be revenue negative at about $579,468 annually. Table 9 Summary of Project Revenues and Costs Phase I Phase II Phase III Build Out ANNUAL REVENUES General Fund: Property Tax $0 $0 $0 $0 Property Transfer Tax $44,880 $38,500 $127,600 $74,800 Local Sales Tax $276,523 $423,282 $570,040 $570,040 Transient Occupancy Tax $1,735,849 $1,735,849 $2,829,480 $2,829,480 ANNUAL COSTS General Fund: General Government $137,362 $137,359 $367,926 $367,926 Police Protection Services $313,450 $313,450 $839,598 $839,598 Fire Department Services $143,625 $143,625 $384,710 $384,710 SUMMARY OF REVENUES/COSTS: Revenues: Total Annual Revenues at Phase Buildout $2,057,252 $2,197,630 $3,527,120 $3,474,320 Costs: Total Annual Costs at Phase Build Out $457,075 $457,075 $1,224,308 $1,224,308 Annual Cash Flow at Phase Build Out $1,600,177 $1,740,555 $2,302,812 $2,250,012 Annual Cash Flow without Transient Occupancy Tax Revenue -$135,672 $4,707 -$526,668 -$579,468 Summary of Project Revenues and Costs 30 Hotel Room Option Phase I Phase II Phase III Build Out ANNUAL REVENUES General Fund: Property Tax $0 $0 $0 $0 Property Transfer Tax $44,880 $38,500 $127,600 $74,800 Local Sales Tax $276,523 $423,282 $570,040 $570,040 Transient Occupancy Tax $589,165 $589,165 $1,682,796 $1,682,796 ANNUAL COSTS General Fund: General Government $78,493 $78,491 $309,058 $309,058 Police Protection Services $179,114 $179,114 $705,263 $705,263 Fire Department Services $82,072 $143,625 $384,710 $384,710 SUMMARY OF REVENUES/COSTS: Revenues: Total Annual Revenues at Phase Buildout $910,568 $1,050,946 $2,380,436 $2,327,636 Costs: Total Annual Costs at Phase Build Out $261,186 $322,739 $1,089,973 $1,089,973 Annual Cash Flow at Phase Build Out $649,382 $728,207 $1,290,464 $1,237,664 Annual Cash Flow without Transient Occupancy Tax Revenue $60,217 $139,042 -$392,332 -$445,132