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Palm Springs Offers Unprecedented Hotel Tax Rebates for Two
 Proposed Resorts, The Hard Rock Hotel and Mondrian Hotel

By Kimberly Pierceall, The Press-Enterprise, Riverside, Calif.McClatchy-Tribune Regional News

Dec. 15, 2007 - Not wanting to lose two proposed hotels under the Hard Rock Hotel and Mondrian brands and hoping to encourage more like them to be built, Palm Springs is offering developers millions of dollars in tax rebates.

An unprecedented hotel tax rebate approved unanimously Wednesday by the City Council would allow developers of eligible first-class hotels built after Jan. 1 to keep half of the transient occupancy taxes it gives to the city for 20 years or until they've earned $50 million from the deal. Hotel guests in Palm Springs pay a 13.5 percent tax per night in larger hotels and 11.5 percent tax per night in hotels with fewer rooms.

Existing hotels can apply for a tax break if they agree to spend a minimum of $50,000 per room on renovations or $1 million on non-room improvements. They would be able to keep 50 percent of whatever taxes they assess above and beyond what they had paid the city the year prior for 10 years or until they earn $25 million.

"The burden is on them. For them to reach $50 million, they have to produce $100 million in (transient occupancy tax)," said David Ready, Palm Springs, city manager. "Not only do we get the $50 million, we get conventions that we never got before."

The move was made primarily to keep two proposed hotels, The Hard Rock Hotel and Mondrian, from falling victim to a lending environment in shambles. The Nexus Cos. , based in Santa Ana, have proposed the Hard Rock Hotel that could feature up to 490 rooms .

"Palm Springs is a yet unproven hotel market," said Lauri Kibbey, developer of the Mondrian Hotel. "Incentives are necessary."

Kibbey plans to analyze if the incentive ordinance approved Wednesday will be enough to keep the project moving forward.

Kibbey expects the Mondrian project to cost more than $130 million.

Another year will be spent drawing up construction plans now that the hotel has received its necessary city approvals, she said.

Ready said the city couldn't get new hotels if it hadn't spent $34 million to renovate the Palm Springs Convention Center. Now the convention center needs new hotels so it can book more business.

"We know we're going to need an additional 800 to 1,000 new convention center hotel rooms if we're going to stay competitive," he said.

If a hotel signs on for the incentive program but ends up not getting built, the city doesn't get any tax revenue it may have expected. But if the hotel is built, the city would get half of the taxes raised.

"Half a loaf is still a lot more to the city than no loaf," said John Raymond, the city's economic development director.

If the hotel is later sold, the new owners would be required to have the city sign off on a new agreement if they're eligible for the incentive, Raymond said.

Cities offering hotel developers incentives to build classy new properties isn't unique.

The city of Garden Grove, "actually gave away land for free to developers," said Alan Reay, president of hotel brokerage firm Atlas Hospitality Group in Irvine.

"It was a very, very good move on their part," he said.

In Palm Springs' case, the tax rebate could very well be worth more than free land to full-service hotels that could earn millions in transient occupancy tax annually, he said.

"They're not actually having to write a check," Reay said about the city. "Anything you can do to bring in high-end quality hotels just improves the entire tourism market."


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Copyright (c) 2007, The Press-Enterprise, Riverside, Calif.

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