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If the Fairmont Miramar’s proposed revitalization project is ultimately approved by the City Council, construction is expected to begin at the corner of Wilshire and Ocean Boulevards in 2016.
Rendering Courtesy Of The City Of Santa Monica
If the Fairmont Miramar’s proposed revitalization project is ultimately approved by the City Council, construction is expected to begin at the corner of Wilshire and Ocean Boulevards in 2016.

News, Development, Business, Santa Monica, Hotels

Will A New-Look Miramar Be A Financial Boon For Santa Monica?

The Miramar's Famous Fig Tree.
Rendering Courtesy Of The City Of Santa Monica
The Miramar's Famous Fig Tree.

Posted May. 18, 2012, 1:30 am

Parimal M. Rohit / Staff Writer

As the debate of whether the Fairmont Miramar Hotel and Bungalows’ proposed revitalization projects continues on in light of the City Council’s recent support of the planned project, one of the key arguments presented in favor of expanding is that the new hotel and condominium facility will bring in millions of dollars to Santa Monica.

With a huge influx of cash, City Hall would have more money to pay for firefighters, police officers, and public schools, among basic infrastructure items, proponents of the Miramar revitalization project claim. Other economic benefits include prospects for local hiring and union jobs as well as planned affordable housing units and possible childcare tuition subsidies.

A website dedicated to advocating Miramar’s proposed expansion and revitalization stated the new plans “will generate a significant increase in the transient occupancy taxes and other revenues and taxes paid to the City of Santa Monica.”

Los Angeles firm PKF Consulting performed an “Analysis of Incremental Fiscal Impact” of the Miramar revitalization plan based upon “measurable tax revenues which include direct sales tax, transient occupancy tax (TOT), property tax, business tax, utility tax, and parking tax revenues.”

According to the PKF Consulting study, the firm states “a total impact of approximately $12,750,775 in a representative year in 2011 dollars for the hotel revitalization, (which) equates to an increase of approximately 117 percent.”

“It is our opinion that the proposed hotel expansion would bring significant incremental fiscal impact to the City of Santa Monica,” the fiscal impact analysis stated.

PKF Consulting based its analysis on several numerical factors, such as: 14 percent transient occupancy tax rate; tax contribution of 1.5 percent of retail sales; utility taxes of 10 percent each for electricity, gas, telephone, and water, respectively; a weighted utility tax rate of 9.5 percent; a parking tax of 10 percent; and, a business tax assessment of $180.80 for the first $60,000 of gross total revenues, then $1.25 per $1,000 of gross total revenues above $60,000.

Accordingly, PKF Consulting estimates City Hall will receive more than $6.8 million in “total measurable tax revenues.”

Adjusting for the recent dissolution of redevelopment agencies, PKF Consulting estimated “the City’s incremental tax revenue would approximate $5.1 million per year and approximately $48 million over the first 10 years.”

Not factored into the PKF Consulting study were: indirect tax impacts; potential upside of a condominium rental pool program; additional real estate tax revenue from condominium re-sales; and, the “incremental impact from the eventual sale by Ocean Avenue LLC of the revitalized hotel, which would also likely result in a significantly higher assessed value.”

“While the existing facilities present a high level of construction quality and upscale facilities, the proposed revitalization will feature higher-end luxury construction and lavish hotel facilities comparable to the top tier of Beverly Hills hotels,” members of PKF Consulting stated in its study.

Though the consulting firm states it is relying upon direct tax impacts and, by 2020, an assumed 81 percent hotel occupancy rate and an Average Daily Rate (ADR) of $818 per room, opponents of the proposed Miramar expansion and revitalization do not see the project through rose-colored glasses.

Attorney Rick Zbur of Latham and Watkins told The Mirror that the PKF Consulting study is too optimistic.

“Their TOT projections, we think, are wildly optimistic,” Zbur told The Mirror, adding that the Miramar is forecasting an ADR at $624 when the new Miramar opens in 2016. Currently, the Miramar’s ADR is at $300 per room and current occupancy rates are at 80 percent.

“The (proposed) ADR rates would be among the highest in the state,” Zbur added.

Interestingly enough, developer and Miramar affiliate MSD Capital L.D. CEO Alan Epstein told The Mirror the financial impact analysis is not an idealistic, rosy forecast but instead something “we believe in.”

“We would not be taking on a project of this significance unless we believe the fiscal impact would be achievable,” Epstein said. “We went to a third party to see if they could validate the numbers, and they did.”

If the Miramar’s proposed revitalization project is ultimately approved by the City Council, construction is expected to begin at the corner of Wilshire and Ocean Boulevards in 2016.

Current plans call for the Miramar to reduce the number of hotel rooms from 302 to 265, but increase the total square footage of the property’s facilities from about 262,000 square feet to more than 556,000 square feet. Retail, restaurant, and spa space would all be expanded by at least three times the current size. Up to 120 private residences would be added.

PKF Consulting added the revitalized Miramar would feature “larger average room size and higher suite mix, additional food and beverage and retail concepts, and a design and layout that takes advantage of ocean views and presents outdoor patio and balcony areas.”

The Miramar’s Palisades Wing was the hotel’s original building and opened in 1927. About 30 years later, in 1957, the Ocean Tower was added. The bungalows had been progressively worked on between 1920 and 1946 before being refurbished in the 1990s, according to PKF Consulting.

“Everyone agrees the hotel needs to be revitalized and it probably is on the most prominent corner in the city,” Epstein told The Mirror. “It has to be fantastic. Not good, but fantastic.”

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Comments

May. 24, 2012, 8:04:05 am

Audrey said...

You can't drive thru Santa Monica as it is.....Enough is enough! The numbers can be manipulated. The City council members will get more campaign contributions.....and will just approve the plan.

May. 18, 2012, 9:00:40 am

donis Theo said...

To the above comments add the zero income and loss from TOT and loss of jobs while this mass is being built. The hotel industry in Santa Monica is now tragic. It will be more tragic in 6 years. Bad economy still lingers and it will. Add to that the tough non smoking laws that the City imposes to all new Hotels. Who will pay 500 bucks a night to have to smoke on the street in the middle of the night ? Europeans? South Americans ? Russians? Far East ? Even a percentage Americans. They all still smoke. That is why Miami is booming from tourists in contrast to S. Monica. Their laws are within reason and logic.

May. 18, 2012, 3:29:53 am

Ron Di Costanzo said...

Just about the kind of objective "journalism" one expects given what the paper costs....

May. 18, 2012, 2:16:04 am

Adam Rakunas said...

No. No, it won't. This has been another edition of Simple Answers to Stupid Questions. I mean, holy crap, guys, are you on MSD's payroll, too? Where's the reporting that talks about how 200 condos' worth of traffic twice a day is going to turn an already clogged area into a standstill?

May. 18, 2012, 3:13:57 am

Angelo Mangi said...

Commercial projects such as this are usually incorporated as a separate entity. Thus, the stock which controls the asset can be sold without ever selling the property and thereby triggering a re-assessment. This is the great loophole in Prop 13, and is why there has been such a great and growing disparity in the amount of property taxes paid by residential property owners as opposed to commercial property owners. This project will have catastrophic residual impacts on the entire Wilmont neighborhood. Of course, the developers are promising the sun, the moon and the sky even though the massively oversized project will block the sky for so many of its neighbors. The developers are coun ting on the promise of a potential payoof to generate support, but they will, as noted in the article, not be around to deliver on those promises. As noted, they plan to build and flip the asset, leaving the Wilmont neighborhood to pick up the pieces.

May. 23, 2012, 2:00:23 am

robert gurfield said...

In response to http://www.smmirror.com/articles/News/Will-A-New-Look-Miramar-Be-A-Financial-Boon-For-Santa-Monica/34661  POSTED MAY. 18, 2012, 8:30 AM PARIMAL M. ROHIT / STAFF WRITER  The article uncritically abstracts from the financial analysis from http://www.miramarrevitalization.com/, submitted by MSD developers advocating for the Miramar Hotel and Condo Expansion.  Absent is any thoughtful, independent analysis to validate the proposed benefits and costs to the city. Are the projections of hotel rates and occupancies realistic?How will the city and the residents handle the increased congestion during rush hour and summer beach traffic along Ocean Av, Wilshire Blvd, California Incline and adjacent city Streets? What burden will the condos impose on city services? Increased costs to the city for new services to the condos and affordable housing include schools, water and sewer, trash removal, street lighting, police and fire protection, traffic management, pedestrian safety, and the loss of property tax revenue resulting from the decline of property values of existing buildings along California, 2nd Street, 3rd Street and Wilshire Blvd. Environmental impact costs for ongoing increased pollution in runoff to the Bay, and geologic destabilization of the Palisade, are not mentioned. The analysis must consider that economic conditions in Santa Monica will be quite different when the project comes on line in 4 or 5 years and during its subsequent hundred year lifetime. How likely is it that over the long term, the tax income promised to the city by MSD will actually materialize? Will they post a bond or provide some other guarantee? Those of us living and working in Santa Monica will bear the personal cost of dealing on a daily basis with the increased traffic and congestion produced by the project. We Santa Monica residents have no responsibility to sacrifice the sophisticated urban beachside residential character of our beloved city, to a crowded tourist mecca that welcomes high rise high density development along its shore line.  In view of these uncertainties it is imperative that the City conduct intensive independent studies of the financial and other impacts of this project on the community, and then amend the Development Agreement to promote the welfare of Santa Monicans, which is not the same as the profits of the Miramar, its developers and the Dell family. Robert M Gurfield

May. 26, 2012, 12:07:59 pm

Wendy D. said...

I generally don't go to "downtown" Santa Monica on a Saturday, but a friend was working on a marketing project at the pier. I waited for three lights to get from 6th to 5th Street on Colorado. The traffic was insane even with 6 (SIX!!) traffic cops trying to get the traffic moving. I can't even imagine what it would be like with the added congestion of the new Miramar. Santa Monica doesn't need the burden of a new Miramar.

Aug. 16, 2013, 10:02:35 pm

Costine H said...

How disgusting to see these mediocre corrupt politicians justify destroying this city so we can increase morons working union jobs, cops and firefighters. Where are the improvement to streets and schools? The new train will bring over the entire east LA to visit and all we are left with is overcrowded streets, snail pace traffic, noise and pollution. You shameless bastards destroyed an amazing city! Shame on you

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