Wednesday, July 16, 2008

Convention Center crater in South Tahoe

unedited June Tahoe Mt. News

By Kathryn Reed

RockResorts, a subsidiary of Vail Resorts, has backed out of the deal to be the hotelier at the South Lake Tahoe convention center site.
This means no management company is onboard to run the city’s largest redevelopment project – a $410 million convention center-hotel-retail enterprise. The city used eminent domain to oust a handful of owners in the nearly 12-acre area.
A press release dated May 21 from RockResorts says, “In light of the recent announcement by Lake Tahoe Development Company (LTDC), the third party developer of the Chateau at Heavenly Village project, that it has placed the project on hold due to financing issues, RockResorts has terminated marketing license and technical services agreements associated with the project. As a result, LTDC will no longer be permitted to use the RockResorts brand in marketing the project.”
The developer says the decision was mutual. LTDC says one reason it has not been able to get financing is RockResorts is not well enough known in the finance world, especially outside the United States.
Rock is affiliated with: Hotel Jerome in Aspen; The Osprey at Beaver Creek; The Pines Lodge in Beaver Creek; Keystone Lodge; The Arrabelle at Vail Square; The Lodge at Vail; La Posada de Santa Fe Resort & Spa; The Landings St. Lucia in the West Indies; and Snake River Lodge & Spa in Jackson Hole. Future RockResorts include Biscayne Hotel & Spa in Miami and Rum Cay Resort Marina in Port Santa Maria, The Bahamas.
Calls to RockResorts were not returned as of press time. Laurance Rockefeller founded the company in 1956. Vail has been sole owner since 2005.
Early on Rock was touted as a perfect fit because the Vail-owned Heavenly Mountain Resort is across the street. Blaise Carrig, Heavenly’s chief operating officer, had been effusive about the benefits Chateau at Heavenly Village guests would reap because of the Vail connection. An overpass was touted as a way to link the hotel and gondola – something Caltrans has not signed off on.
Kevin Lane, one of the partners in LTDC, said it is likely to take several more months to secure a lender.
“Certain lenders have certain relationships with certain flags,” Lane said in explaining why RockResorts is out. Lane essentially blamed potential lenders for Rock being out of the picture. He said Rock might be brought in down the road. A second hotel is planned for phase two.
The agreement between the developer and South Lake Tahoe states a four star hotelier must be used. Rock fits that profile. So would Four Seasons, Westin, Fairmont and St. Regis.
Lane said acquiring a hotelier and financing is essentially being done simultaneously. He would not disclose who LTDC is talking to. LTDC’s other partners are Lane’s father, Randy, and the father-son duo of John Serpa Jr. and Sr.

City reaction

It was a call from the Tahoe Mountain News the last week of May that alerted city council members and the city manager that Rock is out of the picture.
Council members Kathay Lovell and Ted Long as well as Mayor Mike Weber voted for the initial project. They said they would do so again. Council members Jerry Birdwell and Bill Crawford were not on the council for the initial vote.
Hal Cole and John Upton were the other council members for the 2006 vote. That duo acting as the subcommittee negotiated the deal and recommended the council OK the project despite knowing the developer had not secured financing.
“There was a level a comfort knowing Rock was involved in the project so it is a concern for me,” Lovell said. “I would (still vote for the project). I think it’s certainly better than having those old motels.”
“I’m very disappointed. I don’t know what to say. I’m obviously surprised. It’s not something anyone had talked about. In fact there was talk (Rock) would take over the whole thing,” Long said.
Long called back later that day saying he’d made some calls and thought Rock’s departure could be a good thing.
Weber and Jinkens learned of Rock pulling the plug from a council member who had spoken to the Mountain News.
“There’s always a bigger fish looking to eat a smaller fish. Regardless, I’m confident someone will come in and finish it,” Weber said. “Frankly, I saw the presentation Rock did and it seems like they operate great properties. I had never heard of them (until then).”
“I did not know they pulled out. When did that happen? I was not aware of it. I guess my question is why,” Birdwell said. “I still feel it will be developed, but I think it will be on hold for a while. I do not think it’s good for our tourists to see that (hole). But I think they probably understand economic conditions are bad throughout the country.”
“Have they? That’s not a surprise. In fact, Randy Lane said at the City Council meeting when he appeared recently that if he could find financing, that one of the conditions of financing would be he would have to get someone with a more recognizable name than RockResorts. He said he would certainly fly any flag whoever loaning them wished them to have or something to that affect,” Crawford said. “When RockResorts came aboard I had never heard of them.”
“We had not heard about the decision about Rock. So the issue is: what does this mean now? I think Randy alluded to partners other than Rock. Offshore partners are a possibility. Until they let us know I don’t know,” Jinkens said.
Despite all the surprise, on June 3 the council voted 4-0, with Crawford abstaining, to approve the private Mello Roos for the project. Two Mello Roos were always going to part of the deal. This one taxes hotel-condo buyers to essentially create a homeowners association. The public Mello Roos, which the council has yet to vote on, would create a $50 million redevelopment debt that the city would pay to LTDC.
“Well, if money is in short supply, why shouldn’t I wait,” Crawford said after the council meeting in explaining why he abstained. “My thoughts are let’s not give any more ammunition to a public that thinks the city will do anything to satisfy a developer.”
LTDC’s attorney, Lew Feldman, briefly addressed the council about all the property having not yet been acquired. He said escrow with Lakeside Landing owners John and Margaret Maxhimer should close by the end of the month. Their property is where the Chateau’s sales office is.

Impact on SLT

An American flag stands in the corner of the big dig as though it’s a battleground. And in some ways the hole in the ground near Stateline is just that.
Chatter on the street ridicules the council for approving the project without LTDC having financing; critics chastise another tourist project; and fingers point toward Nevada casinos which may reap more benefits from room nights, and restaurant and gaming dollars when the project is done than businesses on the west end of Highway 50 will see.
With the removal of the 1960 Winter Olympic-era hotels near Stateline, the city lost 577 hotel rooms. The 116 hotel-motels that remain within the city limits total about 6,000 rooms.
The original LTDC plan called for the first hotel-condo structure to have 130 rooms. The second, dubbed a boutique hotel, would have 46 rooms. With the ability to lock off rooms, all told 386 rooms could be rented. The concept is like Marriott.
Christine Vuletich, director of finance for South Lake Tahoe, could not pinpoint the loss of dollars from the hotel room tax from the demolition of the properties. The most recent statistics from March 31 show that in the first six months of this fiscal year that citywide the transient occupancy tax is down 0.2 percent compared to a year ago.
In the redevelopment area, TOT is down 4.2 percent or about $76,000.
“We have no way to prove the folks who would have stayed in those (demolished) hotels booked across the street or some other place,” Vuletich said. “So it’s hard to objectively quantify (the loss of TOT).”
The city is guaranteed to receive $374,000 in TOT from the convention center project based on the contract.
“That’s the thing, the upside potential of the project is much, much greater than any short-term reduction in revenue we are experiencing right now. That’s why we are doing it,” Vuletich said.
In the 2007-08 city budget 18 percent of revenue is projected to come from TOT. That’s about $5.55 million.
Sales tax is down citywide as well – 6 percent in the first six months of this fiscal year compared to the same period a year ago.
“That’s the experience of every other city in the state of California right now. The reduction is because that’s the way the economy is going, especially in retail sales,” Vuletich said.
Sales tax represents 21 percent of expected revenue in the current budget, or $6.46 million.
Vuletich doesn’t have estimates for what is not coming in from the shops that were leveled. Nor is it known if those same potential dollars are being spent elsewhere.
The city is bringing in more in property taxes because after LTDC bought the acreage the county had to reassess the land. LTDC wrote checks totaling $7 million to acquire the property. The assessed value will be recalculated as structures fill in the hole.
Jinkens, the city manager, says the contract prevents the city from being on the hook for any debt to date. This is unlike the Heavenly Village project which some contend is a drain on city coffers. The city has no financial liability on the west side of the street until the project is up and running.
“If the delays are too long, there will have to be amendments to the agreement,” Jinkens said. “We don’t want a hole there any longer than it needs to be.”
He said the city is monitoring the situation on a monthly basis. He would not give a date for when the city might get tired of the fence around the concrete and rebar and want to renegotiate the deal.
“Does the city want to assume the risk? I don’t think so and I don’t think the taxpayers want to assume the risk,” Jinkens said when asked if the city would take over the development.
For the project to be something other than what’s in the agreement, developers would have to seek approval from the city and Tahoe Regional Planning Agency. LTDC can sell its development rights, but the council needs to OK that transaction.
According to Lane, California law says LTDC can’t lose entitlements it has to development rights because the foundation has been poured.
“This thing is a long ways from being settled,” Crawford said.

A bit of history

This is not the first time the city has made a huge investment in redevelopment the hard way. It shelled out at least $14 million in eminent domain acquisition at what is now Heavenly Village.
“I’m tired of all of these years of the city accommodating developers, developers, developers,” Crawford said.
The city is paying about $9 million a year in debt service – which is 9 percent of the city’s annual expenses – for the Heavenly project. The council has had to refinance that debt multiple times in the last few years.
The city also got stuck with a $6 million parking garage that doesn’t always operate in the black. It doesn’t help that on June 21 for Opening Days Lake Tahoe, which could be one of the busiest days of the years, the city is accommodating tourists with an $8 maximum daily rate instead of the normal $23/day.
The Heavenly Village complex also required the city to borrow $7 million from the general fund to finish the project.
Heavenly Village was almost a hole in the ground because American Ski Corp., which owned Heavenly Ski Resort at the time and was going to be the developer, was delisted from the New York Stock Exchange and in extreme financial chaos.
Marriott essentially saved the day after Harrah’s backed out.
Another hole in the ground was at the corner of Highway 50 and Ski Run Boulevard at what is now Lake Tahoe Vacation Resort. That plot of dirt was empty for about five years while Richard Hodge Sr. went through bankruptcy.
“He was the one who in the early 1980s who had the concept of doing redevelopment,” said Dina Schwarte, who owned a consulting firm at the time that handled deals for land owners in that area.
She represented the 3,000 owners of the Waterfront Club, a timeshare on the back of the property. The city was taking all the property that is now Lake Tahoe Vacation Resort by eminent domain. At the time multiple businesses occupied the acreage, as well as apartments. Schwarte admits it was a blighted area.
The Chevron Station was on other side of the street. Al Moss built a Chevron franchise where it is now. He has since sold it. He was not available for comment.
Hodge owned Ski Run Marina then, too. The original plan was to have what is now the gas station be parking for the hotel project and the marina.
“Mr. Hodge was in the same situation we have going on now (with the convention center). He couldn’t get financing. It takes so many years to get a permit that then you can’t get financing,” Schwarte said.
Hodge filed for bankruptcy. Michael Phillips (not the real estate agent) got the marina he sold to Hodge in foreclosure. Embassy Suites got the lodging site out of bankruptcy.
Embassy opened the time-share parcel in 1997 as Embassy Vacation Resort. Sunterra took over in October 2006. Diamond Resorts bought Sunterra in April 2007. The second phase of LTVR opened in February 2008.
The owners also had rights to develop the parcel on the southeast corner of Ski Run and the highway. Because they didn’t do so in the timeframe dictated in the contract, that land has returned to city ownership.

Developers’ plans

Lake Tahoe Development Company officials say they have between $80 million and $90 million of their own money invested in the project. They are paying more than $1 million a month in interest on a $48 million loan.
Construction is at a standstill and has been all year. It will stay that way until the developers secure $200 million.
LTDC is contemplating breaking the first hotel project into two phases.
Lane said it will take about 14 months of construction to be able to open phase one. Because no dirt needs to be disturbed, work can occur year-round. If building resumes by the end of 2008, it’s possible the project could open in summer 2010.
When the city and TRPA approved the project two years ago developers said construction would start in 2007 – which it did a year ago this month – and would be fully built out by summer 2009 – which clearly won’t happen. Though, even a year ago Randy Lane projected winter 2009 as the opening season.
Money continues to flow from LTDC for marketing and sales efforts. A big sign for the Chateau on the parking garage at the Reno-Tahoe airport says, “We’re building the new Tahoe.”
An ad was taken out earlier this year in the San Francisco Chronicle alerting would-be buyers of the hotel-condo project to an offering staged at the Fairmont hotel. The cash infusion was not enough to put construction crews back online.
Lane maintains securing financing for this project is his No. 1 priority. This doesn’t mean the other companies he and his father operate are standing still.
Permits for the Gondola Vista project were secured in May. The 20-units, with four affordable housing units, will be off Montreal, near Harrahs and across from Forest Suites Inn.
The earliest ground will be broken on it is 2009. Lane said details need to be worked out, but it will definitely be tourist accommodations and not condominiums.
The long talked about project at what is now Timber Cove Resort is in the planning stage. What is there now will be leveled and something new will take its place.
“Nothing is going to change on that landscape for a little while,” Lane said.
The Lanes had two partners in the Sierra Shores development in the center of town. The 16 units are sold on a quarter share basis. Lane said it’s close to being sold-out.
Lane was the sole owner of the Cedar Room restaurant at Elk Point Way that is no longer in existence. On May 1 Elegant Affair catering began leasing the property, with the intention of staging wedding receptions there.
The Lanes have some residential property as well.

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