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Peabody Hotel Group Backs Out of Palm Springs Resort
 Development; City Approved Site for 400 room
 Luxury Hotel in 2001 Languishes

By Kimberly Pierceall, The Press-Enterprise, Riverside, Calif.
Knight Ridder/Tribune Business News

Mar. 23, 2005 - Palm Springs has 143 hotels, but none of them are four-star resorts.

Now a lack of financing threatens the city's chance to change that.

The Indian Oasis Resort, a 275-acre project that includes an 18-hole golf course, a 10-story 400-room hotel, 40,000 square-feet of convention space, homes, shops and office space on land leased from Agua Caliente tribe members has been approved since 2001.

The project's developer, Ernest Noia, has had difficulty convincing a major hotel company to invest.

"You cannot build a $130 million hotel in a marginal market," said Noia, a lawyer familiar with Indian-land issues.

"If we can't put this together this year, we'll never put this together," Noia said.

Recently, the Peabody Hotel group had signed on, but the group's chairman, Martin Belz, said he needed $30 million in financial incentives from the city before fully committing to the project.

He said the mayor and the City Council were supportive of the project but could not guarantee financial backing.

Noia still is talking with hotel investors and operators, but he's also talking to condominium developers who may be able to get the project financed and built sooner.

The city's first hope is that he builds a hotel or a combination of condos and a resort near the Palm Springs Airport off Mesquite Avenue, said John S. Raymond, the community and economic development director for Palm Springs.

A hotel would net the city 12 percent of every room occupied and provide some needed "panache" for Palm Springs, he said.

"We're not a primary tourism destination in the world of tourism," Raymond said, comparing the city to Las Vegas and Orlando.

A new resort, however, would set the desert apart, he said.

"They have a halo-effect on the rest of the community," and, "you start to develop an identity in the tourism world, " he said.

The last major resort built in the Coachella Valley, the 560-room Renaissance Esmeralda in Indian Wells, opened in 1995.

"The Coachella Valley, in general, is challenging because of the seasonality of the market," said Bruce Baltin, a senior vice president with PFK Consulting.

The annual occupancy rate in the Coachella Valley typically is about 60 percent.

Lenders usually can find year-round markets with occupancy rates closer to 75 percent in Orange County, San Diego and Temecula, Baltin said.

"When a lender looks at the opportunities across the country -- San Diego is a very strong hotel market year round -- it's a lot easier to show a lender these occupancies that average in the upper 70 percent compared to Palm Springs," said Belz. "That's part of the reason you end up needing incentives."

One solution for developers has been combining a hotel with condominiums, Baltin said.

That way, he says, they're guaranteed property purchases that will compensate for hotel losses during slow months.

As a last resort, Noia said that the city could finance it with a bond, keep the room tax and own the golf course.

David Ready, Palm Springs' city manager said the City Council hasn't seen a financing proposal but would consider it.


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Copyright (c) 2005, The Press-Enterprise, Riverside, Calif.

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