LA WATCHDOG - Councilman Kevin de Leon (“KDL”) has filed a motion to start the process where the City would enter into a Development Incentive Agreement (the “Agreement”) for a 236-room luxury hotel located at 670 Mesquit Street in the Arts District. Based on previous City agreements with other developers, the Vella Group (the “Developer”) is looking for a subsidy equal to 80% of the 14% hotel tax over the next ten years, an amount estimated to be at least $30 million, if not more.
As part of the process, the City would first retain a consultant, paid for by the Developer, to determine if the cost of the development exceeds the market value of the project. If there is a “feasibility gap,” the City and Developer would enter into an Agreement to fund the shortfall.
Based on recent history, the consultant will conclude that there is a “feasibility gap” and that the City should enter into an Agreement with the Developer. But this may not be in the best interest of City, especially given other more pressing needs for the cash, including the construction of permanent supportive housing for our growing homeless population and the repair and maintenance of our streets.
The Developer appears to have adequate financing to complete a $1 billion development, questioning the need for a subsidy. This hotel is part of 1.8 million square foot development that also includes about 1 million square feet of creative office space, 208 multi-family residential housing units, an Arts District Central Market, a grocery store, 136,000 square feet of retail space, an studio/event/ gallery space of over 90,000 square feet, and a 62,000 square foot gym. Also under consideration is a 132,000 square foot deck that would extend over the railroad tracks and connect to the river.
The Developer and KDL will argue that the City has entered into nine Agreements with total subsidies exceeding $1 billion. However, there is considerable debate as to whether these “givebacks” were necessary given the apparent success these hotels have enjoyed. By the way, the results of previous agreements have never been audited.
Of the previous nine deals, eight have been within walking distance of the Convention Center. This proposed hotel is three miles from the Convention Center, hardly walking distance.
In 2018, Controller Ron Galperin issued a report on Incentive Agreements. He recommended that any agreement align with the City’s plan for economic growth, that the City retain experienced outside financial and legal advisors so that the City is on an equal footing with high-powered developers, consider less costly alternatives and conduct a rigorous analysis of future benefits, and follow up on the actual costs once the project is completed.
While we do not know the details of this development, more than likely any Agreement will be a giveaway to wealthy developers and not in the best interests of the City and Angelenos, especially given that there are more pressing needs for the cash. But campaign contributions to KDL and other ethically challenged Councilmembers may rule the day.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. He can be reached at: [email protected].)