Downtown Napa Hotel Property 2024
1 Downtown Napa Hotel Analysis
Napa
,
California
For 3VG
October
2024
Copyright
©20
2 4
by
Economic Forensics and Analytics, Inc.
Petaluma, CA
ATTACHMENT 22
Downtown Napa Hotel Property 2024
2 Executive
Summary
A proposed hotel, with features to provide more gathering spaces for residents and visitors alike, is being considered for downtown Napa.
This property will provide millions of dollars in
additional annual tax revenues to the City of Napa in various ways. Our estimates show that after construction and five years of hotel and associated retail open and operating
, the City of
Napa receives another
$3
8 ,
6 84
,000
beyond what
the current tenants
generate
. This includes
$9
,7
15 ,000
million during construction an
d $28
,9
68 ,000 million
after the first five years of
operations.
Figure EX
-
1 summarizes the difference after two years of construction and five years of operation; the space between lines is what this project does financially for the City of Napa.
We consider the first five years of operation only, due to having a financial forecast for those five years from 3VG as of September 2024
, the hotel will operate beyond five years.
Figure EX
-
1: Summary of Fiscal Revenue Differences, Current Dollars,
Proposed Project and Current Tenants
The estimates here show
additional f
iscal revenues in net
,
taking
into account the current use
of the same parcels, come from four sources: (1) property taxes
after construction reassessed
the property value
; (2) sales taxes
during construction and operations
; (3)
transient
occupancy
taxes
due to more hotel stays in the city of Napa
; and (4) other fees and costs paid to the City of
Napa by the developer. We also consider additional tax revenues generated by broader economic impacts during each phase, net o
f the broader economic impacts of current tenants
on the city economy.
The property is one block from Main Street
on First Street in the city of
Napa
.
Additional
property tax revenues come from
new
land improvements after
demolishing
the
$4,895,932
$7,052,538
$372,206
$422,236
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
Construction
Year 1
Construction
Year 2
Ops Year 1
Ops Year 2
Ops Year 3
Ops Year 4
Ops Year 5
City of Napa Revenue ($)
Proposed Project
Current Tenants
ATTACHMENT 22
Downtown Napa Hotel Property 2024
3 sites’
current buildings.
The current estimated budget for construction is $2
66 million in terms
of the projected
costs
of improvements
, equipment
,
furniture,
and fixing installed
.
From that
budget,
$250 million
will
increase the
parcel’s
assessed value
versus
t
he
current
assessed value
in 2024
of
approximately $38,494,000
.
T
he County of Napa, based on these parcels’ tax rate
area (TRA)
, assesses 1.011
percent
of the assessed property
value (land and improvements to
the land) as of July 2024. Ballot measures may change this over time; we assume the City of
Napa retains 0.23
percent
as its portion
for general fund use
.
Property tax revenues for the
City
of Napa are estimated as $
4 42
,
830
annually after the hotel’s first five years of operation versus $
9 5,910
on average from the current
parcels’ land and improvements
. We assume there would
be two years of reduced assessed value during construction, which is outpaced by subsequent gains after construction and
property tax
re
-
assessment.
The developer is estimated to also
pay $9,742,800 to the City of Napa in fees, five percent of the “hard” construction costs.
New sales tax revenues are also net of what is lost from the current uses.
We estimate, based
on
the
City of Napa
data
,
that the mix of current
tenants
generated an average of $259,250 of
sales tax revenue for the City of Napa (based on its portion of the 7.75
percent
we use in our
estimates) from fiscal year 2020
-
21 to 2023
-
24. This includes years with
significant
changes
due to the pandemic and its aftermath.
During construction, we assume that
4 0
percent
of the
construction
project's hard costs (
for example,
goods such as
bulk lumber, concrete, structural
steel
,
and pre
-
fabricated building components, such as roof trusses, to be used in connection with construction
) are purchased so that the
City of Napa is the appropriate location for sales
tax assessment.
This
s
pending becomes
an additional $
632,000
in sales tax revenues for the
City of Napa
during the two year
s
of construction above and beyond the current tenants.
Once
operations begin, taxable sales
on
-
site
generate replacement sales tax revenue for what is lost from current tenants.
After five years
of operations, the estimate
d
increase
in sales tax
revenue over
current
operations is
$
131,100
.
This estimate does not
consider
sales tax
revenues made during construction.
TOT revenues
are
where the City of Napa gets a
revenue
surge
once this project begins operations versus the current tenants’
daily taxable sales
.
Transient occupancy tax (TOT) and developer and other fees paid during construction are the final categories. TOT revenues
from these parcels are new to the City of Napa
and greatly
enhance the municipal benefits derived from these spaces versus current uses. The annual revenue based on estimated operations data (occupancy rates and average daily rates foreseen by the owner) is a five
-
year average of $
5,266,800
. The TOT average alone over years 1 to 5 of
operations is 17.
61 times the estimated sales tax revenue, using a 3.6
percent
growth rate of
taxable sales from 2024 forward over seven years from the current tenants.
ATTACHMENT 22
Downtown Napa Hotel Property 2024
4 Introduction
This report considers the fiscal revenues for the current and potential
uses of a site in
downtown Napa
if converted to a hotel
property
. The current site is primarily retail
and
restaurants
, with some city spaces
and
no vendors. The potential site is a hotel and gathering space for Napa visitors and residents alike, with retail, restaurants, and other vendors. The location is
between First Street and Pearl Street, bordered by Coombs Street to the west, directly across from the County of Napa building ju
st to its south.
The Gordon Building is not
included in the proposed site.
3VG commissioned this report
in cooperation with the City of
Napa
.
The
hotel’s construction
generate
s
a
more significant
assessed value for property tax purposes
than the current assessed value.
Development and other fees are paid to the City of Napa as part of the construction and site improvement processes . The augment
ed
property taxes
continue
annually
once the site is improved
and
operations
begin
. The sales tax revenue
estimates are net (as are the property tax estimates) of those generated by
current tenants and
owners
once
the hotel opens
. Transient occupancy tax (TOT) is an additional line of fiscal revenue for the City of Napa
that is
not currently generated
within these parcels
.
We show the
projected level of
room purchases annually
based on reasonable occupancy rates and
competitive average daily rates per the
regional
market.
The parcels
have
associated street addresses in downtown Napa, all on First Street.
•
Assess
or’s
Parcel Number (APN)
003
-
166
-
013
-
000
: 1106 First Street
•
APN
003
-
166
-
010
-
000
: 1116 First Street
•
APN
003
-
166
-
016
-
000
: 1118 First Street
•
APN
003
-
166
-
004
-
000
: 1130 First Street
T
he
project
has
two phases: construction and operations over seven years.
Construction Phase
This project
’
s land improvement phase
(demolition, remediation, and construction) will
last
approximately
2 4
months.
We see in Table 4 that the construction effort creates property tax, sales tax, and an array of fees and other revenues for the Ci ty
of Napa over two years.
Construction spending to improve the land and prepare for operations, the amount that acts as the basis for property tax reassessment once construction ends, is $250 million. Another $16 million is estimated
to be spent on furniture, fixtures,
and equipment for the rooms
and
common spaces (FFE) and operating supplies and equipment for those working at the hotel or servicing the condominium residents, equal to $16 million.
Net of the current tenants, the new
ATTACHMENT 22
Downtown Napa Hotel Property 2024
5 and additional revenues to the City of Napa
include:
•
P
roperty taxes one year after construction ends
equal to
$
575,000
:
o
During construction, there is an estimated property tax reduction of approximately $74,934 over two years
, then an increase of $481,000 after reassessment
;
o
By year 5 of operations, an additional $2.
5 million in property taxes for the City of
Napa are generated due to the
land improvements
(see more detail below).
•
Additional sales tax revenues are generated due to
both
40 percent
of construction costs
being taxable (approximately $100 million in taxable sales) and $16 million in
FFE/OSE
purchases applicable to the parcels’ location in the City of Napa as a point of sale :
o
Project construction generates
approximately $1.1 million versus
$527,832
in
estimated sales tax revenues from current tenants
, an estimated gain of $632,168
;
and
•
E
stimated
fees of
$9,742,800 to the City of Napa, five percent of the “hard” construction costs, costs not related to design, legal, and other administrative expenses,
and salaries.
Table 1 shows the estimated costs of improving the parcels (property tax revenues), creating taxable sales
and thus
sales tax revenues, and preparing the property for operations.
Table
1 : Summary of
Estimated
Construction Costs
, 24 months of Construction Spending
$2
50 million
in
estimated
building
costs
(
improved parcel value
)
and $16 million in FFE/OSE
Year 1
Year 2
Construction
Costs
Building
$97,428,100
$97,428,100
FFE and OSE
$0
$16,000,000
Design and Fees
$27,571,900
$27,571,900
Estimated
Subt
otal
s
$125,000,000
$141,000,000
Total Spending
$266,000,000
Sources: 3VG and EFA
, FFE =
Furniture
, Fixtures and Equipment; OSE = Operating Supplies and Equipment
Of the planned 161 hotel rooms and 78
residential condominium
units (239 total units),
the
hotel property is estimated to have 210 rooms and condominiums for daily hotel operations
and
29 residential condominium units
. The 29 residential units
are expected to be used as
permanent residences
.
Construction costs include bulk lumber, concrete, structural steel,
and
pre
-
fabricated building components, such as roof trusses
. The cost of construction and these
materials will exceed $5 million
,
as shown in Table 1.
We assume
4 0
percent
of the
construction costs represents the taxable sales from construction efforts; an additional $16 million in taxable sales includes furniture, fixtures, equipment,
and
operational supplies to
be
delivered
to
and thus assessable in the
C
ity of Napa
as
a point
of sale for
sales tax revenue.
While the property tax changes
,
Infrastructure placement and installation during construction ATTACHMENT 22
Downtown Napa Hotel Property 2024
6 prepare
for subsequent operations. During this process, the current tenants at the abovementioned parcels
will
no longer exist;
the current tenants’
taxable sales will be gone.
However,
other taxable sales will be applicable to the city of Napa during this period based on the construction project’s purchase of taxable goods and services ,
from on
-
site equipment
to
worker lunches throughout the downtown area.
T
he
broader
economic impacts from
construction
spending
and the
annual operations
generate more
pr
operty tax, sales tax, and
other local fees paid due to additional economic activity and transactions rippling out from
project
spending. We also show estimates of what the current tenants are likely to generate in
the future
to be
both
conservative and
to
show the opportunity costs.
Property Tax Revenues and Developer
Fees: Land Improvements to Ongoing Revenue
During the
project's construction phase, impact fees are
paid by the project developer to
provide the municipality with a cost offset for the “impacts” to come on municipal budgets as costs.
We assume fees
paid to the City of Napa during the construction phase
are five (5)
percent of the hard
construction costs, as land improvements and the assumed operations and maintenance costs
generate some ongoing costs for the City of Napa. Final fees are a matter of negotiation, but we assume 5 percent to be conser
vative.
When the construction process ends, the land improvements will be approximately
$2
11 ,506,000
, which adds back a net change to the assessed property values in Napa County ,
equal to $
2 50
,000,000
–
$38,494,000 = $
2 11
,506,000
.
T
he
estimated
change in property tax
revenues from these parcels is
approximately
4.21 times more revenue
once the property is
reassessed
.
Property taxes
link
this project's construction and operations phases
for city
revenues.
According to the County of Napa Assessor’s office, the parcels are in tax rate area (TRA) 002 -
262. This TRA has a property tax rate of 1.1101 percent of the assessed land and improvements value
s
; the City of Napa (as of July 2024) retains 0.23 of the 1.1101 percent
total
. Since the land
is not changing from the current tenants, we assume no change in property tax revenue from the current tenants
regarding
land value. With a
0.23 percent tax
as our assumption
, Table
4 summarize
s
the estimated fiscal revenues from this project
, assuming
there is likely a
revaluation to just the land’s assessed value (as the current improvements are removed) during the two years of
construction
once the current
improvements
are removed
. Thus, during the
construction period, there are fewer
property tax revenues (an annual average of $
37,467
reduction) before the
$232,639
average
yearly
gains begin
based on 0.23 percent
.
Figure 1 shows the dramatic change in property tax revenues coming to the City of Napa after construction ends and reassessment and operations begin.
We assume the two phases are
ATTACHMENT 22
Downtown Napa Hotel Property 2024
7 sequential; within two months of construction ending, the operations phase begins.
Figure 1: Property Tax Comparison, Two Years of Construction and Five Years of Operations, Current Dollars
Operations Phase
EV3 provided a proforma financial statement for
the
first
five
years of
hotel
operations
and
estimates of additional retail spaces supported by the construction effort but not owned by the hotel operator (10,506 square feet additional)
.
Key operational
assumptions are as follows:
•
Operations would begin
two years after the construction phase
;
•
In the first five years, occupancy rates will rise from 55 percent on average to 67 percent on average;
•
There are 210 rooms
and residential units
available to guests;
•
Average daily rates will be $799 to $948 for years 1 to 5 ,
respectively;
•
Approximately 67 percent of revenues generated on
-
site are room sales; the rest are a
mix of services, restaurant, and goods sold on
-
site (we assume
95 percent of
the non
-
room
sales are taxable sales);
•
Transient occupancy
tax (TOT)
rates
are estimated
at 12
percent
based on what the City
of Napa retain
s
after overnight stays
and not taking into account any future changes
;
o
The actual TOT rate collected in the city of Napa is 1
2 percent
as of
July 2024 and
may change over time;
•
S
ales tax rates
are
estimated at
7.75 percent over the first five years
using a similar set
of assumptions as of July 2024
, where the City of Napa retains one (1) percent
;
o
An additional 10,506 square feet (sq ft) of space provide more taxable sales
from
non
-
related retail businesses and restaurants
;
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Construction
Year 1
Construction
Year 2
Ops Year 1
Ops Year 2
Ops Year 3
Ops Year 4
Ops Year 5
Property Tax Revenues ($)
Current Tenants
Proposed Project
ATTACHMENT 22
Downtown Napa Hotel Property 2024
8 The operations phase provides four (4) sources of revenue gains for the City of Napa as follows:
•
Sales tax revenues from taxable sales
on
-
site
(from both
, net of what was lost based on
previous tenants and owners, including the net effects of employees and vendors generating more wages/salaries and more revenues that become more taxable sales;
•
Property tax revenues that are ongoing based on how the land improvements and operations affect the property’s value and the net effects of employees and vendors generating more wages/salaries and more revenues that become more property transactions that g
enerate increases in assessed values;
•
Transient Occupancy Tax (TOT) revenues based on overnight stays at the property, which are new tax revenues from these parcels than with previous tenants or owners; and
•
Broader economic effects based on operations and employee and vendor spending within the city of Napa.
Important
comparisons
include
the ratio of taxable transactions or assessed value from the proposed use of these parcels versus their current use.
Further, the operations phase also
creates broad economic impacts on the city of Napa and expands property, sales, and TOT revenues due to other transactions
related to the property through its employees and vendors.
Sales Tax Revenues
The
construction and land improvement processes will
create
taxable sales
(see above for the
construction phase’s assumptions)
. The current tenants and owners of the
abovementioned
parcels
generate the following estimated sales tax revenues for the City of Napa, shown in Figure
2 .
By year five of operations, these parcels
will have provided an additional $42,300 in
sales tax revenue to the City of Napa compared to
the current tenants. The gains
from
hotel
construction are shown in Table 2
, exceeding the current tenants’ sales tax revenue by over $632,000 during those two years
,
as described above.
The sales tax rate for the City of Napa
has
not changed since fiscal year 2020
-
21 (July 2020 to
June 2021). The City of Napa receives one (1) percent of 7.75 percent collected for every $1 of taxable sales.
For
example, there would be $1 for every $100 in taxable sales for the City of Napa, though the entire sales tax revenue would be $7.75 per $100.
The loss of current
tenants
and owners
on these
parcels
means some sales tax revenues will be lost
during construction
as
an opportunity cost
.
ATTACHMENT 22
Downtown Napa Hotel Property 2024
9 Figure
2 : Sales Tax Revenue Retain by Current Tenants, Proposed Hotel Site Downtown Napa, Fiscal Y
ears
2020
-
21 to 2023
-
24, Current Dollars
Sources: City of Napa, HdL
We assume that the parcels’ current tenants/owners will generate $ 2 59
,250 in the first
year of
construction
and then
3.6 percent growth to the fifth year of hotel operations once constructed ,
the average of the fiscal years shown in Figure 2
;
t
he City of Napa ha
d
a
percentage change of
taxable sales between 2015 and 2019 was 3.6 percent per year. Those years are likely more indicative of change over the next five to seven years than the years , including the pandemic
(2020) and its aftermath (2021 and 2022), which changed -
22.5 percent, +29.1 percent, and +23.6
percent,
respectively.
Table
2 shows
estimated sales tax revenues
for the included years.
Table
2 :
Estimates Sales Tax Revenues, Current and Proposed Uses, Current Dollars
Construction
Year 1
Construction
Year 2
Operations
Year 1
Operations
Year 2
Operations
Year 3
Operations
Year 4
Operations
Year 5
Current
tenants'
estimated sales
t
ax
revenues
$259,250
$268,582
$278,251
$288,269
$298,646
$309,397
$320,536
Subtotal
Current Tenants
$259,250
$268,582
$278,251
$288,269
$298,646
$309,397
$320,536
Sales tax revenues
on site (operations)
$226,598
$253,489
$274,529
$288,255
$302,668
Sales tax revenues
on site (construction)
$500,000
$660,000
Broader taxable sales from operations
$52,234
$54,115
$56,063
$58,081
$60,172
Subtotal
Hotel Operations
$500,000
$660,000
$278,832
$307,603
$330,591
$346,336
$362,840
Estimated net sales tax revenues
gained or
(lost)
, City of Napa
$240,750
$391,418
$581
$19,334
$31,945
$36,939
$42,304
Sources: 3VG, City of Napa, Author’s
Calculations
, 30% of construction costs will be taxable sales
As shown in the estimates below, the resort’s hiring of workers, wages paid to these workers, vendor payments, and broader spending by overnight guests are critical ways this resort affects Napa
’s economy.
TOT revenues
add more benefits to the City of Napa from this project .
1 1
See
City of Napa TOT FAQ
for more.
$213,528
$315,871
$283,956
$223,643
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
FY 20-21
FY 21-22
FY 22-23
FY 23-24
Sales Tax Revenues (Current
Dollars)
Fiscal Year
ATTACHMENT 22
Downtown Napa Hotel Property 2024
10 Transient Occupan
c
y Tax (TOT) Revenues
TOT revenues are a new line
for the City of Napa
on
these parcels.
3VG provided an
operational proforma financial statement
as initial data
for
this analysis. Table
3 shows the
progress of the main components of estimating TOT for a hotel: (1) occupancy rate; (2) average daily rate; and (3) expected number of rooms offered to be a place to stay.
We use 12 percent
at the TOT rate the City of Napa currently
has
in place as of 2024.
Table
3 : Transient Occupancy Tax (TOT) Revenues, Estimated Years 1 to 5 of Hotel Operations, 3VG estimates
Year 1
Year 2
Year 3
Year 4
Year 5
Five
-
Year
Average
Totals
Rooms
210
210
210
210
210
210
ADR
$799.00
$853.00
$893.00
$937.65
$984.53
$893.44
Occ Rate
55.0%
63.0%
67.0%
67.0%
67.0%
63.8%
RevPar
$439.45
$537.39
$598.31
$628.23
$659.64
$572.60
TOT Rate
12.0%
12.0%
12.0%
12.0%
12.0%
12.0%
Estimated TOT Revenues
$4,042,100
$4,942,900
$5,503,300
$5,778,400
$6,067,300
$5,266,800
$26,334,000
Sources:
City of Napa, 3VG
When multiplying the occupancy rate and the average daily rate (the average price of rooms offered by the property), a new number is created called “RevPAR” or “Revenue Per Available Room”. RevPAR multiplied by the number of available rooms estimates taxa ble revenues; those
revenues multiplied by the TOT rate
are the estimates
for TOT revenues. We assume 365 days
each year; leap years are not included to make the analysis consistent and not assume there would be two leap years over a five
-
year estimation window.
Fiscal
Revenue Summary
Property tax revenues for the City of Napa come from the property’s construction and the net
change in property improvements.
The property will have 210 new hotel rooms, 29 new
residences, and various retail and restaurant spaces.
The sale of the 29 residents generates
real
-
estate transactions that
may
augment property tax revenues
further
. In contrast to sales
and TOT revenues, property taxes, once augmented, remain in terms of an increase in the assessed property values in Napa.
Fees
are
also
paid to
the City of Napa during construction.
Sales tax revenues
come
from
spending during construction
and taxable sales
on
-
site
once
hotel
operations begin
. Transient occupancy tax (TOT) revenues depend on overnight stays at the resort and what is paid for each
of the 210
room
s
when occupied. To be conservative, we only
estimate additional revenues from the
parcels
and not
any
indirect effects on other
businesses
within
the city limits
.
Table 4 provides an overall summary of net fiscal revenues from these parcels for the City of Napa.
The construction effort is estimated to generate $9,
715
,
0 00
in city
revenues and $
28,
968
,
0 00
during the first five years of operations.
ATTACHMENT 22
Downtown Napa Hotel Property 2024
11 Table
4 :
Summary
Estimated State and Local Tax Revenues from Construction (Const) and Operations
Construction
Operations
Operations
Construction
Operations
Property Tax
Year 1
Year 2
Year 1
Year 2
Year 3
Year 4
Year 5
Avg
Total
Total
Current
$90,307
$92,113
$93,955
$95,834
$97,751
$99,706
$101,700
$97,789
$182,420
$488,947
Proposed
$53,211
$54,275
$575,000
$586,500
$598,230
$610,195
$622,398
$598,465
$107,486
$2,992,323
Sales Tax
Revenues
Current
$259,250
$268,582
$278,251
$288,269
$298,646
$309,397
$320,536
$299,020
$527,832
$1,495,099
Proposed
$500,000
$660,000
$278,832
$307,603
$330,591
$346,336
$362,840
$325,240
$1,160,000
$1,626,202
TOT
Current
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Proposed
$4,042,100
$4,942,900
$5,503,300
$5,778,400
$6,067,300
$5,266,800
$
-
$26,334,000
Fees/
Other
Payments
Current
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Proposed
$4,579,122
$4,579,122
$
-
$
-
$
-
$
-
$
-
$
-
$9,158,244
$
-
Net Change
Total
Proposed
$5,132,333
$5,293,397
$4,895,932
$5,837,003
$6,432,121
$6,734,931
$7,052,538
$6,190,505
$10,425,730
$30,952,525
Total Current
(2024)
$(349,557)
$(360,695)
$(372,206)
$(384,103)
$(396,397)
$(409,103)
$(422,236)
$(396,809)
$(710,252)
$(1,984,046)
Proposed
-
Current
$4,782,776
$4,932,702
$4,523,726
$5,452,900
$6,035,724
$6,325,827
$6,630,302
$5,793,696
$9,715,478
$28,968,479
About
Economic Forensics and Analytics, Inc. (EFA)
Economic Forensics and Analytics, Inc. (EFA) is an independent research and consulting firm located in Sonoma County, California. Since 2000,
EFA has
provid
ed
clients with customized economic analysis at reasonable costs compared to competitors. We have a wide range of clientele in the private and public sectors
across the United
States and Canada
.
For government and businesses alike, EFA provide
s economic forecasting and
economic
impact analysis using the latest data and a proven method of describing the effects of decisions. EFA president
Robert Eyler
has a doctorate in economics from the University of California at Davis. See more at www.econforensics.com
.
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