Convention Center Hotel Plans Lifted By Court Decision

Staff Reporter

L.A. city officials, their hopes raised slightly by an Aug. 8 court ruling related to a proposal for a downtown convention center hotel, are tweaking their plans despite continued concerns in other circles about financing.

Councilwoman Jan Perry, whose district includes the Los Angeles Convention Center and the proposed hotel, now believes that a funding proposal could be introduced in the Council within six months, and she hopes the plan is approved in time to start construction by the end of 2004 or early 2005.

"(The ruling) seems like it lays the foundation definitively for us to build a convention center hotel," she said. "We are extremely optimistic and specific on how we are going to move ahead, which is great and very encouraging."

A committee of downtown business owners, residents and public officials will be created to develop the funding plan, according to Perry, who said a similar mechanism was used for the Staples Center.

The ruling, by Superior Court Judge James C. Chalfant, reaffirmed an earlier decision that the city could not use public funds to support a private, non-profit "revitalization corporation." But in ruling that city funding used as an investment for which it receives a return is an allowable expenditure, he provided a roadmap for the city to modify its proposal.

"Basically, it's a drafting issue," said Peter Echeverria, a deputy City Attorney overseeing the lawsuit. "We're very encouraged at the judge's ruling, and at this point we're very encouraged at the feasibility of the project."

Still, opponents said the ruling would force the city to rewrite how it will subsidize the hotel's construction all over again, a process that could take as long as two years.

"They're trying to pull a public relations stunt," said Christopher Sutton, the Pasadena attorney representing Peter Zen, president of FIT Investment Corp., which owns the Westin Bonaventure Hotel and Suites. "On some level it's some kind of a reversal, but the result is the same. The ruling says it can't go forward as planned."

Funding woes remain

City officials have argued that without $20 million to $30 million in subsidies, the proposed 1,200-room, 40-story hotel isn't economically feasible. Its total development cost is estimated at $280 million.

But how the city will subsidize the construction remains far from certain. The county won a ruling in June blocking the city from using incremental tax funds, a tool of community redevelopment agencies, for a period of eight years. The city hasn't appealed the ruling, but county attorneys expect one to be filed within a few weeks.

"I don't know where they're going to get the money," said L.A. County Supervisor Zev Yaroslavsky. "They can't take it out of the Redevelopment Agency because I don't think there's anything left, and the ruling prevents them from taking it out of property taxes. They are going to have think creatively on this one."

Political support for using public funds to subsidize the hotel's construction remains, at best, thin. Mayor James K. Hahn, whose office declined comment on Chalfant's ruling, has said publicly he supports building the hotel, although not with public funds.

A proposal to issue bonds backed by the taxes generated by the hotel is troubled because of downtown's low hotel occupancy levels and the uncertainty of a rebound in business for the area. Without those channels of funding, the hotel's opponents said the city's proposal is essentially dead.

"It's a blimp made of lead," Sutton said. "If they really want this hotel, the honest thing to do would be to put it on the ballot and let the voters decide, but I think they know voters won't approve it."

Still, Yaroslavsky, who said he wants to see the convention center hotel built, just not with redevelopment funds, believes there are other incentives the city could provide.

He said the city can exempt the private non-profit entity that builds the hotel from paying taxes on the property for a number of years, or allow future transient occupancy taxes to go directly toward subsiding the construction.

"There are a number of ways and sources of city money they could invest in this project," Yaroslavsky said. "This isn't dead. Using redevelopment money wasn't the only source they had."

Planning ahead

Tim Leiweke, president of Anschutz Entertainment Group, which owns a controlling interest L.A. Arena Land Co., developer of the Staples Center, described Chalfant's ruling as a positive step. AEG owns the land on which the hotel would be built.

AEG, planning a $1 billion dollar sports and entertainment complex around Staples, won't start its development until the hotel is approved.

"Everything is ready to go," he said. "All we are waiting for is approval of the hotel. Once that's in place we can literally start construction the next day."

Leiweke said AEG wouldn't have a stake in the hotel but would seek a seat on the board of the entity created to build it. "Our role is to develop the retail and commercial aspects," he said of the project, which would include retail, restaurants and a 7,000-seat theater. "At this point we wouldn't be the ones to build the hotel."

Leiweke said two hotel operators were being considered to manage the planned hotel. Both, he said, were prepared to invest in the project. "We've had good discussions," he said. "They are willing to take some risk but they are waiting for the lawsuits to be resolved and the council to approve the financing."

Sources close to the negotiations said the two companies were Starwood Hotels and Resorts Worldwide Inc. and Hyatt Corp., names Leiweke declined to confirm.

Meanwhile, he pointed to the nearly 2,000 new residential units built, under construction or planned for the area immediately around Staples Center.

"This is the most positive development I have seen in L.A. since we got involved eight years ago, and that includes the Staples Center," Leiweke said. "I've never seen so much development and such a huge economic impact ready to go, and (Chalfant's) legal decision is a step in the right direction."

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