Exhibit 21: City Council Questions to Applicant from September 17, 2024 Hearing
1. Why is only one hotel planned for the project?
Applicant’s Response: Related’s professional assessment of the market is that the Project can only reasonably support one hotel. Our assessment is informed by our company’s extensive experience developing hotels throughout the country, including The Conrad in Los Angeles, which we completed in 2022, comprehensive market data on the South Coast Metro and John Wayne Airport hospitality submarket, input from various hotel operating partners, and the current state of the hospitality industry and capital markets. While we are excited to be pursuing a hotel at Related Bristol, it will be the most ambitious and challenging component of the project to realize. This can be attributed to a combination of factors including: the increasing cost of construction, escalating cost of hotel operations, softening in business travel demand as the economy continues to shift to a hybrid work environment that promotes online versus in- person meetings, and a backdrop of a highly competitive and well supplied hospitality submarket that already has 12,000 hotel rooms. Related is very concerned that the inclusion of a second hotel will render the first hotel financially infeasible as investors and lenders on the first hotel will perceive the second hotel as unacceptable competition that will take business away from the first hotel and jeopardize their investment. The average daily room rate of full-service hotels in this submarket is approximately $220/night whereas new construction would require rates approaching $400/night for feasibility. The addition of a second hotel would only further soften the market and add downward pressure on the rates achievable at the first hotel. Segmentation and differentiation of two hotels on the same property would be difficult to accomplish and we believe the second hotel would cannibalize business from the first hotel.
It is worthwhile noting, however, that Related Bristol’s specific plan does contain flexibility to convert uses that could potentially facilitate a second hotel should the economic fundamentals and market conditions significantly improve. However, our professional assessment is that a second hotel is infeasible for the foreseeable future and should not be included in order to protect the feasibility of the first.
Following receipt of the Applicant’s response, the City has added the following additional information for the City Council’s consideration:
During the Ad Hoc Committee negotiations, Related discussed the challenges associated with developing a financially feasible a hotel at the site as reflect in their response above. The Ad Hoc Committee considered the information and focused on the Applicant committing to pursuing an upscale high-quality hotel that is not currently available in Santa Ana. As reflected in the Development Agreement Section 4.2.4, the Applicant is committing to pursuing and securing a minimum of four-star class hotel. Similar hotels in area with a four-star rating include the Westin South Coast Plaza, Avenue of the Arts, the Hilton Orange County, and the Marriott. Four-star hotels are large, upscale establishments, fully staffed and offer special services and amenities, including concierge Exhibit 21: City Council Questions to Applicant from September 17, 2024 Hearing
services, 24-hour reception, fine dining and onsite restaurants, room service, multiple pools and hot tubs, high -class fitness centers, bellhops, valet parking and transportation, day spas, meeting and conference facilities, business centers, and an array of special suites. The Specific Plan has also been structured with the flexibility of allowing for additional hotels to be cons tructed on the site without requiring additional analysis subject to approval by the Planning Commission.
2. How many units will be for sale, if any, and why?
Applicant’s response: Related Bristol is situated on land that has been owned since 1903 by one of the original pioneering farming families of Orange County, the Callens Family (“The Family”). Their stake in this community and in this City goes back to the beginnings of the City of Santa Ana and Orange County. The Callens family have been the stewards of the land for over a century, the land is a family heirloom which, they intend to own for perpetuity and do not want to sell any part of the property, whether to Related or to future homeowners.
As such, the Related Bristol project is subject to a 99-year ground lease with The Family. For-sale housing on a ground lease with on-going ground lease payment obligations causes for-sale housing to be financially infeasible. While ground lease for-sale housing has been done on a limited scale in the past, that product and financing was produced decades ago in a different financial market which does not exist today. Financing and investor interest is not available for for-sale housing on a ground lease in this location.
Related Bristol’s ground lease would obligate a home buyer to make annual ground lease payments in addition to their annual cost of home ownership.
Historically, the value of homes on ground leases underperform the market in relation to homes on fee simple land. The value of ground lease homes declines over time as the remaining ground lease term shortens and the home ages, eventually reaching zero at the end of the lease unless extended. These fact patterns significantly diminish the marketability and appeal of such homes given buyers have other choices (i.e., homes on fee simple land), and subsequently, lenders, buyers, and investors elect to not invest. Due to the declining nature of the value of these homes over time, for sale homes on a ground lease are not an effective tool for creating generational wealth.
The City of Santa Ana approved the South Bristol Corridor General Plan Amendment and did not differentiate between for-sale or for-rent residential units.
From a legal perspective, the applicant has presented a General Plan complaint project, which is why a General Plan Amendment is not required to implement the project.
Exhibit 21: City Council Questions to Applicant from September 17, 2024 Hearing
While Related would consider a for-sale component on the project were Related purchasing the project site in fee simple, for the salient reasons described above, Related Bristol has not proposed any for-sale homes at this time.
Following receipt of the Applicant’s response, the City has added the following additional information for the City Council’s consideration: The Ad Hoc Committee discussed the challenges that the project presented because the property will continue to be owned by the underlying owners, not Related.
These challenges impacted negotiations related to the open space, the value of the land and ultimately the amount of the community benefit payment and recordation of the DA against the property.
3. Will the new grocery store be a Vons store or one of similar quality that is associated with union labor?
Applicant’s response: Pursuant to the Development Agreement, Related has committed to include a full-scale grocer of at least 35,000 square feet within the first two phases of the project. Related understands that the full-scale grocer is important to the immediate community and we are committed to including one in the Project. We are prepared and committed to engage with Vons, the existing onsite grocer, to extend their existing lease as soon as the project is approved.
We are grateful that Vons has expressed early interest in the new project and has supported our project in writing and verbally in the past, most recently at the City Council hearing on September 17
th.
As construction of the full-scale grocer retail space nears completion, Related will solicit interest from various grocer operators, including the Albertsons Corporation which owns Vons. Related welcomes a Vons, Albertson, Ralphs, or a similar operator, and will solicit their respective interests once there is an actual space and design for them to consider.
While Related welcomes the interest of union grocers, Related, as the Ground Lessor, is not involved nor can we dictate whether or not such grocer operator is union or non-union, or which grocer brand they wish to operate. If the project’s grocer was required to be union, and such a union grocer wasn’t interested or we were unable to reach a mutually agreeable lease, the Project would not be able to fulfill our obligation to the Community to include a full-scale grocer and the Project would risk being in legal default of the Development Agreement. This exact scenario occurred on another project in San Francisco more than twenty years ago and the developer ultimately sued the City and won. We want to structure Related Bristol for success and avoid repeating the mistakes of the past. The build-out of this project will occur over a decade and no one can predict what the state of the rapidly-changing grocery landscape will look like when the new store is ready to be occupied.