Proposed incentives for building hotels in Los Angeles look to be getting sweeter, but not enough to incite a sugar rush among developers.

L.A. city officials have broadened tax incentives and removed a union-friendly requirement in their latest proposal aimed at boosting hotel development, but builders and business groups say the changes won’t be enough to convince investors and developers that have passed on opportunities in Los Angeles to take another look.

“These incentives will make a big difference at the margins, when a project comes very close to penciling out,” said Robert Lowe, chief executive of West L.A. commercial real estate developer Lowe Enterprises. “But the tax incentives by themselves won’t make a project that doesn’t make economic sense in Los Angeles suddenly make economic sense.”

Lowe’s company has built hotels across the country, but none in Los Angeles. Other developers, too, have avoided the city, which is home to expensive land and a cumbersome, expensive development process.

“I’ve had a number of clients look at building hotels in Los Angeles but they all decided against it,” said Justin Thompson, partner and land-use attorney in the L.A. office of Boston law firm Nixon Peabody, who has represented hotel developers.

It’s just those sorts of decisions that city officials have been trying to counteract with a hotel development incentive proposal that has been nearly two years in the making. Finalizing a plan has become more urgent lately because of the need for major hotels around the Los Angeles Convention Center to help draw larger conventions to the city.

Until now, the city has offered hotel development incentives on a case-by-case basis, but that approach was problematic, in part because of oft-arising reports of politically connected developers getting more favorable treatment. A City Council committee last year called for a consistent incentive policy that could be applied to major hotel developments and significant hotel renovation projects.

Checking cards

An initial proposal last summer would have let hotels keep a share of the taxes they collect for the city, but only for projects in four zones – two downtown, one in Hollywood and one in North Hollywood. And the incentives would only have been granted if the hotel developers and operators met certain conditions, most notably agreeing to a “community benefits” package of union-friendly requirements for local hiring, living wages, project labor agreements and card-check neutrality.

Card-check neutrality is essentially a pledge by employers not to oppose union sign-up drives. That part of the incentive proposal drew fierce opposition from at least three major business groups in the city: the Los Angeles Area Chamber of Commerce, the Central City Association and the Valley Industry and Commerce Association.

All three groups argued that card-check neutrality opens the door to union intimidation of workers and stacks the deck in favor of unions, thus negating the benefits from the tax credits.

A revised proposal earlier this month dropped the requirement for the community benefits programs and allows incentives for hotels anywhere in the city, not just in the four zones. New hotels with more than 300 rooms would qualify, as would major renovation projects for hotels with more than 150 rooms.

Hotels would be eligible to keep as much as half of four taxes that would otherwise go to the city: the room or “bed” tax, and sales, property and parking taxes. The amount and length of time for those tax breaks would vary by hotel project and would be determined by the so-called financing gap: the difference between the total estimated project cost and the amount of financing the developer or hotel operator could secure for the project. Some hotel projects could end up keeping much less than 50 percent of tax revenues for just a few years, while others could keep the maximum 50 percent for 25 years.

Carol Schatz, chief executive of the Central City Association, welcomed the changes, saying they remove major barriers to hotel development.

“We’re going to claim victory on this one,” she said. “Whatever the reasons for the changes, the important thing is they got to the right place.”

Schatz said if this proposal goes through, it should help counteract the impact of the new $15.37-an-hour minimum wage for large hotels, which she said has led to the scrapping of plans for at least two hotels downtown.

Packages persist

But others were more cautious about the impact of these incentives.

Gary Toebben, chief executive of the L.A. chamber, said the change in the proposed incentives paper over a political reality: Few if any major hotel projects would be approved by the city without community benefits packages, regardless of whether they are required under an incentive program.

If items such as card-check neutrality and higher wages will end up being part of a hotel’s approval anyway, Toebben said the changes to the incentive proposal don’t amount to much.

“It will all come down to the negotiations on each hotel project,” he said, just as is the case now. “The more community benefits that are added to whatever incentive agreements are reached, the less this proposal becomes about building hotel rooms and more it becomes about other issues in the community, especially union-building.”

And land-use attorney Thompson said the incentives themselves do little to address probably the biggest stumbling block for new hotel projects in the city: the lengthy and cumbersome permitting process.

“This isn’t going to have a great impact on the amount of time it takes to get all the development approvals and the resulting land-carrying costs,” Thompson said.

But he said the incentives will probably be far more useful on major hotel renovation projects. Those projects usually don’t require extensive zoning and development approvals.

“These incentives could end up being a real boon for renovation,” he said.