Presentation to America’s Lodging Investment Summit (ALIS)

Successful Public/Private Hotel Case Studies & Tools in a Post-RDA Era

by: Kosmont Companies

865 S. Figueroa Street, Suite 3500, Los Angeles, CA 90017 213-417-3300

www.kosmont.com

January 27, 2015

Public/Private Hotel Case Studies (post RDA)

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The Post-RDA Tools Used Ground Lease / Lease-

Leaseback

Site-Specific Tax Revenue Pledge (Prop & TOT)

• Mezzanine Reserve Fund

The Challenge • City desired to utilize area near Metro station • Odd lot size & shape; multiple ownership; and vacant condition had deterred

private development • Developer proposed 147-room Hilton Garden Inn, 172-room Marriott Residence Inn

and 180 Room Extended Stay Hotel located adjacent to the Metro station

Metro Station

Case Study: City of Redondo Beach – Marine Ave. Hotels

The Outcome- Opened May 2014 • Without Site Specific Tax Revenue

project does get financed

• Will add over $3.5 million/year in TOT & create ~150 jobs

• Brings quality hotel operations to the City’s “front door”

• Hilton Garden Inn - 147 rooms

• Marriott Residence Inn - 172

• TOD project across street from Metro Green Line station

• 3rd Hotel; Homestead Suites- 2015

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Case Study: City of Redondo Beach – Marine Ave. Hotels

Funding Target: $200M total project capitalization $17.5M funding gap – funded by EB-5

Investment Level: $500,000 per Investor plus processing costs

Investment Placement: Drai’s Restaurant and Nightclub Delphine Restaurant

Job Creation Required: Minimum 10 jobs per $500,000 (established and validated by economic study)

Repayment Period: Five years

Status: 35 investors with EB-5 I-526 visa application in process. Restaurant loans funded in mid-2011. Permanent jobs created by end of 2012.

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Case Study: Starwood Hotels - W Hotel, Hollywood

EB-5 Basics EB-5 Financing is a low cost source of financing for public & private projects which can be combined with other forms of project financing:

• Funding ranges from $5 Million to $100 Million per project; can be phased and financed with no minimum LTV

• Short-term; typically structured as a 5-year repayment program

• Flexible - will subordinate to other equity and debt

• Streamlined source of front-end money not burdened by “public purpose” requirements (such as bonds)

• Compatible with City economic development goals to promote job growth and private sector investment

• If City is involved, no general fund guarantees; can pledge tax increment or site specific tax revenue to secure investor interest

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Case Study: Starwood Hotels - W Hotel, Hollywood

The Challenge

• Redondo Beach’s aging waterfront increasingly struggles to compete in SoCal, especially with neighboring South Bay cities

• Cost of deferred maintenance best paid for by new private investment but needed control of “sub-leases” on ~ 15 prime waterfront acres

• City acquired waterfront assets; used as collateral via lease/leaseback

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Case Study: Redondo Beach Waterfront Revitalization

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International Boardwalk

Pier Plaza

Marina Properties

Add’l Properties in RFQ

• Kosmont structured Lease-leaseback financing for 15 acres of land acquisition to be paid back from tenant lease cash flow

• RFQ issued for 15+ Acres of Waterfront development • CenterCal Development selected as Master Developer • MOU executed & CEQA Process kicked off

The Post-RDA Tools Used & The Outcome

Case Study: Redondo Beach Waterfront Revitalization

Case Study: Redondo Beach Waterfront Revitalization

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Potential P3: Camarillo Hotel & Conf. Center The Challenge Deficiency of local hotels and sufficient demand for medium to large size

conferences and events City proposed new 3 to 4 star hotel & ~ 10k to 20k sq. ft. conf. ctr. Market support for ~ 200 or more rooms 12 acre site may also accommodate complimentary retail uses Current Status

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Site located on 101 Fwy at Ventura Boulevard and Las Posas Road (within City’s Heritage Zone)

Potential for infrastructure incentives to private developer City currently seeking development team to implement project

Tools & Incentives for Successful Hotel Public / Private Partnerships

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Economic Development Real Estate

Project

Real Estate & Property

Special Districts (Tourism, BIDs,

etc.)

Rebate of Taxes / Revenues

Land Use / Zoning (Higher Density;

Parking) P3 / Project Delivery

Methods

Enhanced Infr. Financing Districts

(EIFDs)

Joint Powers Authorities (JPAs)

ED Tools for CA Cities – Post RDA

Theses tools often work best when used together 12

New Rules: Types of Districts Expanding

Restaurants Golf Tourism & Downtown

Districts Wineries Auto

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TID Characteristics

• Tourism Improvement Districts: Funds raised through an assessment on lodging stays

Provides services directly benefitting businesses within district As of 2013, there are over 50 local tourism improvement districts in CA Noticeable TID is San Diego; TID funds programs /events to attract overnight visitors to San Diego Convention Center (i.e. Comic Con)

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New Tools: EIFDs – Summary of Key Terms

1. Enhanced Infrastructure Financing District • Governmental entity established by a city or county

that carries out a plan within a defined area to construct, improve and rehabilitate infrastructure

2. Public Financing Authority (PFA)

• Legislative body that governs the EIFD • Composed of participating governments

and members of the public

3. Infrastructure Financing Plan

• Plan adopted by city or county. Describes public facilities & development to be financed by the EIFD

• Implemented by Public Financing Authority (PFA)

The Area

The Team

The Strategy

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Types of Projects New EIFD may Fund

Hotel / Mixed Use

Civic Infrastructure

Brownfields

Wastewater/Groundwater Light / High Speed Rail

Parks & Open Space

Industrial Structures

Childcare Facilities

Source: SB 628 – Bill Text 16

TOD Projects

EIFDs – Diverse Funding Approach

Can use multiple funding sources with tax increment: If Bond Issuance then 55% voter approval required

Funding Sources: • Property tax revenue including RPTTF • Vehicle License Fee (VLF) prop. tax backfill increment • Development Agreement / Impact Fees • User fees • City / county / special district loans • Hotel TOT • Benefit assessments

Contribution from Special District Levied by EIFD

• Private investment

Potential to apply State funding sources: • Proposition 1 bond funds • Cap-and-trade proceeds

Federal & State Grants • Greenhouse Gas Reduction Funds • Federal DOT/EPA/DOE funding programs

EIFD Fund

Can finance ANY property with an estimated life of 15 years or longer!

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Forming an EIFD

Successor Agency

Prerequisite

Receive Finding of Completion (FOC) Certify no SA assets under litigation will benefit Comply with State Controller’s asset transfer review

Create Public

Financing Authority

(PFA)

Create Infrastructure

Financing Plan (IFP)

Identify District Members Appoint PFA Members

Select vendor to prepare plan Distribute to property owners and affected taxing entities

Participating legislative bodies adopt resolution of intention to

establish EIFD

Identify infrastructure projects Define project area Schedule public hearing for IFP

Conduct public hearing

Approve the IFP

Adopt resolution proposing adoption of IFP

and formation of EIFD

Legislative bodies adopt IFP and resolution of

formation creating EIFD

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Los Angeles’ Economic Incentive Program Incentives Offered:

• Business tax incentives to incentivize office occupancy, spur investment, attract “creative office”

• TOT incentives & occupancy tax to make physical improvements to existing hotels, spur investment, lengthen stays & improve occupancy

• Site Specific Tax Revenue (SSTR) for Retail Centers • Other incentives (per incentive list provided to Mayor)

Eligible improvements related to incentives for existing hotels • Façade / exterior / entryways and landscaping improvements • Raising level within existing “flag” system – i.e., Hyatt to Hyatt Regency • Improve/add restaurants, bars & retail – including access and visibility • Upgrade technology to attract higher-end customer, i.e., Executive

Conference center • Improve indoor air quality and provide “wellness” attributes • Upgrade infrastructure

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Hotel Incentives Eligibility Requirements of a hotel applicant for incentives eligibility:

• Agree to a Project Labor Agreement (PLA) for temporary & permanent jobs

• Provide pedestrian & retail oriented improvements

• Fund an analysis (fiscal analysis) as part of application

• Must be a 3-star hotel or higher

• Must have at least 200 rooms or more

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