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San Marcos, California City Council Poised to Buy Back Stalled
Marriott Hotel, then Lease it to Palmetto Hospitality

By Andrea Moss, North County Times, Escondido, Calif.McClatchy-Tribune Regional News

Jun. 9, 2009--SAN MARCOS -- More than a year after it sold a high-profile property to a developer, the city has tentatively agreed to buy back the land as part of a two-pronged deal designed to save a stalled Marriott hotel project.

The City Council will be asked Tuesday to approve the deal during a meeting set for 7 p.m. at City Hall.

Construction workers were putting up the hotel's framework when Palmetto Hospitality suspended the project early this year because the developer lost its construction loan in the middle of a national recession.

The building has sat unfinished since then.

If the council gives its OK, the city would pay Palmetto $3.92 million for the 2.25-acre site on the southeast corner of Los Vallecitos Boulevard and Las Posas Road -- the same amount the developer paid San Marcos for the property.

The city's money would be deposited into an escrow account that Palmetto could use only to finish the 112-room Marriott Residence Inn, under terms of the deal.

The agreement also calls for Palmetto to lease the property from the city for about 60 years, though the developer would have the option of buying the land a second time in four to six years.

The city originally sought a ground-lease deal with Palmetto, but agreed to sell the site to the developer when Palmetto officials said they couldn't get a construction loan for the project if they didn't own the property.

Councilman Mike Preston said Monday that city officials decided to sell the hotel site to Palmetto because the hotel is expected to generate $375,000 in new hotel tax revenue for the city each year.

The deal now being proposed is in the city's best interest because it will ensure that the partially framed hotel is completed while giving the city another source of steady income, he said.

"I think it's a good thing in the face of the current economic times," Preston said. "They get the money freed up so they can build it, we get the hotel tax money instead of (a partially built structure)."

Officials at South Carolina-based OTO Development, which is Palmetto Hospitality's parent company, and City Manager Paul Malone could not be reached Monday for comment.

The hotel site is right off Highway 78 on its north side.

San Marcos officials welcomed the start of the project in September 2008, saying the hotel would boost the city's image in the minds of drivers passing through the city. The hotel was scheduled to open this fall, before the construction work was halted.

The first hint that it might resume surfaced last month, when city officials said the developer had asked the city for financing help.

City officials have taken an "entrepreneurial" landlord approach with a growing list of properties in recent decades as a way to make sure the city has a steady source of income despite its lack of major malls, auto park and other businesses that generate large amounts of sales tax revenue.

The list of city-owned sites now includes the land beneath the Creekside Marketplace shopping center at San Marcos Boulevard and Grand Avenue, the Old Spaghetti Factory and Hometown Buffet restaurants off Rancheros Drive, and two nearby corporate buildings.

More than a dozen tenants, including the Internal Revenue Service, also lease office space at City Hall.

Preston said the approach has served the city well so far. The proposed deal with Palmetto Hospital also will help create local jobs at a time when they are badly needed as a result of the recession, he said.

That's something the Building Industry Association of San Diego County asked the city to do last month.

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To see more of the North County Times, or to subscribe to the newspaper, go to http://www.nctimes.com.

Copyright (c) 2009, North County Times, Escondido, Calif.

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