Convention Hotel Financing Plan Gels

By ANDY FIXMER
Staff Reporter

The long-stalled convention center hotel project, holding up the next phases of downtown development adjacent to Staples Center, appears to be reviving and could be headed towards consideration by the Los Angeles City Council.

In a series of meetings with city officials, representatives of Anschutz Entertainment Group, operator and co-owner of the Staples Center, and hotelier Lew Wolff have discussed plans for a $300 million convention center hotel that would involve public participation but avoid the politically unpopular option of tapping the city's cash-strapped general fund.

Instead, AEG and Wolff, who recently joined the development group, would finance the project in part through the 14 percent tax on room receipts generated by the new hotel, according to sources briefed on the plans.

How that money would be applied is still in question. Among the options: Developers could ask for payment of the tax to be forgiven for a period of years or the tax receipts could be used to back a bond issue.

The developers may still need as much as $60 million in city aid to start construction. The funds would come from the tax and-or the bond issue.

The developers may also ask the city to waive or discount permit fees and business taxes, which could add up to savings of several million dollars, among other smaller breaks, according to the sources.

Also under consideration is a proposal to split what had initially been conceived as a single 1,200-room hotel into properties of 900 and 300 rooms.

While the public financing role would be reduced under the new proposal, it still faces considerable scrutiny from a City Council uneasy with any sort of subsidy for private development. AEG and Wolff are vetting financing plans with city officials in order to assure a warm reception when a formal presentation is made to the City Council. The developers hope to make an announcement before the council breaks for August.

AEG President and Chief Executive Tim Leiweke wouldn't confirm any details of a financing plan, other than to call any discussion "idle speculation."

"Reports of this being a done deal are inaccurate there is still a lot left to do," he said, adding that AEG and Wolff were "months of hard work away," from presenting a finalized deal.

Leiweke criticized those who have been talking about the plans, saying that could jeopardize the deal.

"This deal is complicated enough without a lot of people who aren't parties to it talking about things they don't know," he said. "This is the most important deal our company has been involved with, and we're not going to screw it up because people are talking out of turn."

Miguel Contreras, executive secretary/treasurer of the L.A. County Federation of Labor, AFL-CIO, said "My understanding is they are very close" to a plan to bring before the council.

City Councilwoman Jan Perry, whose 9th District includes the site of the proposed development, said she was scheduled to meet with AEG officials for an update on the project on May 27.

Gathering the team

Leiweke did confirm that AEG and Lew Wolff were moving forward together to develop the hotel, a move first reported by the Business Journal on March 15.

He said AEG and Maritz Wolff Co-Chairman Lewis Wolff "have known each other for a long time, and based on our strong relationship we have entered into active conversations about the entertainment district and the hotel."

With Wolff on board, the team has begun presenting provisional financing plans to officials in City Hall, including several conversations with Chief Legislative Analyst Ron Deaton, whose office often negotiates complex development deals between developers and the City Council.

"If there was a way to privatize this deal and not do a public deal, it would be a home run for Los Angeles," Leiweke said. "I'm sure they don't want to be in the hotel business, but it goes against the norm in almost every other city where the public is at risk and a lot of subsidies are put into development and operations."

AEG has approvals from the city to build an entertainment district it is calling L.A. Live on roughly 1 square mile of surface parking lots surrounding the Staples Center.

The project, which could cost as much as $1 billion to develop, would feature a 1,200-room hotel, a large restaurant and retail center and a 7,500-seat theater. The Academy of Television Arts & Sciences has a contract to hold its Emmy Awards ceremony at the site in 2007, contingent on the completion of the theater and the hotel.

AEG officials had earlier estimated that it would take 18 months to build the theater and the hotel, meaning that to meet the Academy's requirements construction would have to start by mid-2005.

Earlier studies said a hotel slated for the area needed to have 1,200 rooms to draw new business to the ailing convention center.

Wolff declined comment, referring requests for comment to AEG.

Splitting the hotels could be more attractive to management companies such as Hilton Hotels Corp., Marriott International Inc. or Starwood Hotels & Resorts Worldwide Inc., which could operate both properties and install more than one of their brands, according to several hospitality industry sources.

In signing on to participate in such a large public project, Wolff, whose firm owns a controlling stake in Fairmont Hotel Management Co., is also breaking from its preference to operate non-union properties.

As part of its effort to receive approvals for the L.A. Live project from the City Council in 2001, AEG signed an agreement with the AFL-CIO promising to use union labor in the development whenever possible.

Of the 19 hotels in which Wolff has a stake, only six are unionized. As a co-owner of the convention center hotel, the firm could be opened to political pressure from the Hotel Employees & Restaurant Employees Union to organize its other properties or face a lobbying effort that could stall the convention center hotel deal in the City Council.

A call seeking comment from HERE Local 11 President Maria Elena Durazo was not returned.

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