200 S. Anaheim Blvd.
Suite #733
Anaheim, CA 92805
Tel: (714) 765-5162
Fax: (714) 765-5164
www.anaheim.net
CITY COUNCIL AGENDA REPORT
City of Anaheim
ECONOMIC DEVELOPMENT
DATE: OCTOBER 4, 2022
FROM: ECONOMIC DEVELOPMENT DEPARTMENT &
PLANNING AND BUILDING DEPARTMENT
SUBJECT: EXTENSION OF TIME FOR PERFORMANCE-FORCE
MAJEURE FOR OPERATING COVENANT AGREEMENT NO.
MIS2016-00632 & DEVELOPMENT AGREEMENT NO. 2016-
00001 AND ANNUAL REVIEW OF DEVELOPMENT
AGREEMENT NO. 2016-00001 FOR THE 1700 SOUTH HARBOR
BOULEVARD HOTEL PROJECT
ATTACHMENT (Y/N): YES ITEM # 06
ACTION:
That the City Council, by Motion:
1) Approve a Revised Schedule of Performance pursuant to Section 818 (Enforced Delay; Extension of Time for Performance) of the Operating Covenant Agreement between the City of Anaheim and Good Hope International dated July 12, 2016, as amended by that certain First Amendment to the Operating Covenant Agreement dated December 18, 2019;
2) Approve an extension to the term of Development Agreement No. 2016-00001 between the City of Anaheim and Good Hope International pursuant to Section
7.3 (Force Majeure; Extension of Time of Performance) consistent with the Operating Covenant Agreement’s Revised Schedule of Performance; and 3) Determine on the basis of the evidence submitted by Good Hope International that the property owner has complied in good faith with the terms and conditions of Development Agreement No. 2016-00001 for the 2021-2022 review period.
BACKGROUND:
Good Hope International (Applicant) is requesting an extension to their Operating Covenant Agreement (OCA) and their Development Agreement (DA) pursuant to the force majeure clause in light of the impacts of the COVID-19 pandemic.
On April 16, 2020, the Applicant provided notice to the City in accordance with Section 818 of the OCA that performance might be delayed as a result of the pandemic and associated executive orders. In 2021, the Developer requested the City confirm that the OCA deadlines and the DA term had been extended 180 days by operation of said agreements’ force majeure clauses, and the City so confirmed. On September 6, 2022, 1700 S. Harbor Boulevard
October 4, 2022
staff received a request from Good Hope International requesting an additional extension to the time schedule provisions in the OCA, and a corresponding extension to the term of the DA (Attachment 2). The Applicant requests an extension of twenty-four (24) months pursuant to Section 818 of the OCA and Section 7.3 of the DA.
DISCUSSION:
The impacts of the pandemic on the Anaheim Resort were unprecedented. Further, the impacts of the pandemic on the hotel industry were significant due to shutdown of entertainment venues and the Anaheim Convention Center. As the pandemic subsides, lasting impacts have been created due to supply chain issues, workforce labor shortages, and availability of development financing. The proposed project schedule for the redevelopment of the Anaheim Hotel site has been negatively impacted by the pandemic.
On June 16, 2015, the City Council adopted a Hotel Incentive Program. The program was structured to provide a hotel meeting certain American Automobile Association (AAA) Four Diamond standards (“Luxury Hotel”) with the equivalent of 70% of the Transient Occupancy Tax (“TOT”) generated by the development of the new Luxury Hotel, for a period of 20 years (“Operating Period”). The incentive payments are provided only if the hotel is constructed, opened, and continually operated as a Luxury Hotel.
The program aimed to create a new Luxury Hotel Market that did not exist in the City, to support the Convention Center, capture a visitor segment lost to neighboring cities with Luxury Hotel offerings, and raise the hospitality landscape in the City. Incentivizing the development and operation of Luxury Hotels is intended to (i) provide desirable and attractive experience for tourists and local residents, (ii) promote job creation opportunities in the City, (iii) indirectly encourage other property owners to upgrade and enhance surrounding properties, (iv) maintain and enhance a business friendly environment, (v) generate a net increase in TOT revenue to the City which will assist in the support of public services, (vi) enhance property values, and (vii) allow the City to remain economically competitive with other large cities that offer similar hotel incentive programs.
On July 12, 2016, City Council approved Operating Covenant Agreement No. MIS2016- 00632 (OCA), Development Agreement No. 2016-00001 (DA), and other related entitlements for the development of an eight-story, 580-room Luxury Hotel with accessory restaurants and meeting rooms at 1700 South Harbor Boulevard. The subject site is an approximately 8.8-acre property consisting of two parcels located at the southeast corner of Harbor Boulevard and Disney Way (Attachment 1). The property is currently developed with The Anaheim Hotel, a 300-room hotel and accessory uses that were constructed in the early 1960’s.
The proposed project under the OCA and DA would nearly double the size of the existing hotel and add significant amenities. Concurrently with Operating Covenant 1700 S. Harbor Boulevard
October 4, 2022
Agreement No. MIS2016-00632 and Development Agreement No. 2016-00001, the Applicant also processed Operating Covenant Agreement No. MIS2016-00635, Development Agreement No. 2016-00002, Purchase and Sale Agreement No. MIS2016- 00633, and other entitlements for the redevelopment and expansion of the Anabella Hotel site, which has subsequently been developed as The Westin Anaheim Resort. The Applicant opted to move forward with development of the Anabella Hotel site prior to the Anaheim Hotel site, because the Anabella Hotel site included acquisition of a portion of the Anabella Hotel project site from the City of Anaheim. A portion of the Anaheim Convention Center’s truck marshalling area along Katella Avenue was incorporated into the project site and concealed from street view thereby enhancing the overall appearance of the streetscape along Katella Avenue. Subsequent to City Council approval of the OCA and DA in 2016, the DAs for both the Anaheim Hotel site and Westin Anaheim Resort were the subject of separate referenda. Both referenda qualified, as Measures J and K respectively, on the November 2018 municipal general election ballot. The majority of the voters approved the measures, which supported the approval of the two DAs.
In addition to the Measure J and K referenda, the November 2018 ballot also contained Measure L, which was approved by the voters. Measure L changed the economic model on which the Anaheim Hotel and Westin Anaheim Resort were originally based by increasing labor costs at hotels that have hotel incentive program agreements with the City. On December 17, 2019, City Council approved amendments to the OCA and DA for the Anaheim Hotel site, resulting in a five-year extension to both agreements. The five-year extension was intended to allow The Westin Anaheim Resort to open, reach stabilization, and allow the Applicant to evaluate the impact of the new economic model imposed by the passage of Measure L.
Construction for The Westin Anaheim Resort commenced on December 3, 2018 and, after a delay due to the pandemic, it was opened to the public on June 2, 2021. Since the Westin opened in the middle of the pandemic, the property has only recently begun to stabilize. Due to these circumstances, while the applicant is still committed to the development of the second hotel site located on 1700 S. Harbor Blvd., they seek to trigger the force majeure clause and request an extension of twenty-four (24) months pursuant to Section 818 of the OCA and Section 7.3 of the DA.
Development Agreement Annual Review
Pursuant to the DA, the City Council is required to determine annually if the Applicant has complied in good faith with the terms and conditions of the DA. The DA requires the Applicant to provide the City with $100,000 for the City, in its sole discretion, to fund certain public improvements that the City will construct near the Project. The Applicant did provide this payment to the City in January 2019, shortly after the DA went into effect. The Developer does not have any other current obligations under the DA.
1700 S. Harbor Boulevard
October 4, 2022
IMPACT ON BUDGET:
Incentive payments under the OCA are conditioned upon the development and operation of a hotel meeting certain criteria set forth in the Hotel Incentive Program and will be equal to 70% of the TOT generated by the hotel and received by the City.
Respectfully submitted, Concurred by,
Sergio M. Ramirez Ted White
Economic Development Director Planning and Building Director Attachments:
1. Site Map
2. Request Letter-Force Majeure
3. Revised Schedule of Performance
4. Annual Review Letter of Request
5. Operating Covenant Agreement and First Amendment
6. Development Agreement and First Amendment