By Sara Hall on May 03rd, 2013
Editor’s Note: This story is part one of two
With the grand opening of the new civic center and park on Saturday, residents are wondering what will become of the old city hall site.
City Council heard three proposals last week during the afternoon study session on April 23 about how to re-use the land at 3300 Newport Blvd., from RD Olson Development, Sonnenblick Development, The Shopoff Group.
Both Olson and Sonnenblick presented hotels, while Shopoff offered a mixed-use of residential and retail.
Artist renderings of the projects proposed from (top to bottom) RD Olson Development, Sonnenblick Development, The Shopoff Group.
Artist renderings of the projects proposed from (top to bottom) RD Olson Development, Sonnenblick Development, The Shopoff Group.
“We all recognize the great need to revitalize Lido Village,” said Lido Isle Community Association spokesman, Hugh Helm, at the meeting, “and the city hall site re-use is the key first step.”
Community response at the meeting was largely in favor of a hotel, with a handful of residents speaking during public comment, including Helm.
A few of the key issues behind the proposals include projected revenue for the city, revitalizing the struggling surrounding retail, how it fits in with the community, financing of the project, economic feasibility, use of the two landmark ficus trees, and parking.
Edward Cook III, longtime Lido resident and co-president of McCarthy Cook & Co., a real estate investment and development firm, has his own take on the issue.
“This is the single most important land use decision on the peninsula,” ever, said Cook, who has taken an interest in the issue both personally and professionally. “It’s a once in a lifetime opportunity.”
The staff is currently reviewing the three proposals with their consultants, said Kim Brandt, community development director.
“Once we conclude our review, we will present our findings to the City Council in a staff report that will of course be made available to the public. We are hoping to get back to Council in June,” Brandt wrote in an email.
The first proposal last Tuesday was from Bob Olson, of RD Olson Development, who presented a 130-room boutique hotel called the Lido House Hotel.
The estimated of total project cost is $43 million, Olson said later.
The facility would include a restaurant, spa and fitness center, bay to beach park, ballroom and meeting room, rooftop lounge and viewing deck.
During the next 10 years, the hotel would bring approximately $400 million of direct and indirect spending from hotel guests and about $17 million in taxes to the city, according to Bruce Baltin, senior vice president for PKF Consulting.
Robert Sonnenblick, chairman of Sonnenblick Development LLC, also proposed a hotel during the meeting, his consisting of 20 town homes, 12 villas and guest rooms.
The cost range for the proposal is approximately $70 million, Sonnenblick said later.
The Sonnenblick property would include public courtyards, plazas and promenades, two restaurants, rooftop bar, lounge and event area, health spa, several water features, outdoor event areas, meeting space, and 210 below grade parking spaces.
The 10-year economic impact would be about $682 million of direct and indirect spending by hotel guests and approximately $1.6 million annually in tax revenue, according Sonnenblick partner, David Rose.
Bottom line is Auberge is a very high end operator, Sonnenblick said, some Auberge resorts have room rates as high as $1000 per night, he explained.
A high-end luxury project creates higher room rates and brings in wealthier customers, he explained, which increases revenue from TOT taxes and guest spending in the local community.
The only mixed-use proposal came from William Shopoff, president and chief executive officer of The Shopoff Group. The Shopoff project would consist of 99 luxury apartment homes and 15,000 square feet of upscale retail space.
The estimated project cost will be approximately $60 million, Shopoff said later.
The commercial area would include restaurants, community meeting room, pedestrian walkways, water features, a parking garage, and a town square and public plaza.
The average rental rates are expected to run between $5,000 to $6,000 per month, Shopoff said.
All three said their project would help revitalize the area.
A hotel would bring visitors to the area, whose number one activity is spending money, Olson said. A hotel will also create activity in town from the residents, he added.
More retail in an area that is already struggling isn’t the solution, Olson continued.
“This is our opportunity to reinvigorate lido and give our city,” Olson said.
A mixed-use space could be as good or better than hotel, Shopoff argued, for a number of reasons.
It would spark economic vitality and redevelopment, he added. The new residents will shop locally, he explained.
Traffic would be lower, especially during special events at a hotel, he added, and the high-end retail and restaurants will add vibrancy to the area, he sad.
In Cook’s opinion, a retail and apartment mixed use project, built in an area already struggling with retail, would contribute very little to economic vibrancy, he said.
“It needs something to jump start (the area and existing retail) not more retail,” Cook said.
“A hotel does so much more for both the city and the local community than an apartment building does,” Sonnenblick said. Financially, a hotel would bring in about 10 times more than an apartment complex, he added.
But it’s not all about economics, Shopoff countered.
It really has to be the best fit for the community and work well with the residents.
After Tuesday’s meeting, Shopoff said it’s clear the public has an opinion on the matter and at the meeting’s public comment, he understands they were overwhelmingly in favor of a hotel.
His project has supporters, Shopoff said, they just didn’t show up.
“It’s our job to try and get (supporters) to show up,” and they should have worked harder on that aspect, he admitted.
He plans on talking more with the community and hopes residents keep an open mind and don’t rush to judgment.
“We’ll provide all the information and the community and decision makers will determine what’s best,” Shopoff said. “We’re going to put our best foot forward, our best project.”
Shopoff said they are honored to be participating in the process.
Some residents that live nearby may fear that with an apartment complex it might get “rowdy” there, Shopoff said, but that is not going to happen, he confirmed.
“It’s incongruent with out tenant profile,” he explained.
The residents will be real contributors to the community, he continued.
Shopoff said at the meeting that he hoped the site will be the “most exclusive rental building in Orange County.”
The average rental rates are expected to run between $5,000 to $6,000 per month.
His project also includes a park with public space. It intermingles better with the community, he added.
“Our project is perfectly designed for both that site and the (local) marketplace,” Sonnenblick said.
Sonnenblick said he is currently gathering endorsements and sitting down with neighborhood groups. He encouraged residents to consider design, economic and feasibility issues, before supporting one proposal over another.
“We are very excited about this opportunity and we think our design could be a very successful hotel,” for the area he added.
Olson, a Newport Beach resident, is working with homeowners and has received a lot of support from the community, he said.
“I think it will give an identity to Lido, the peninsula and the city,” he said.
He emphasized the importance of involving the community and making sure residents feel that it’s their hotel. His project is designed to get guests out and into the community, rather than capturing them and keeping them on the property, he explained. They have one restaurant, but would encourage guest to eat out at local restaurants as well. He didn’t want to compete with the local restaurants, he added.
The restaurant will be WK Grill, created in honor of W. K. Parkinson, who dredged the harbor and built the isle up to 10 feet above the high tide line. He built Lido Isle.
“He was an oil man with a colorful past,” Olson said. So the restaurant will be themed around the life of W.K.
This is an urban area and not a large piece of land, Olson said, so his team wanted to create a hotel appropriate for the setting. It’s not a big resort environment, he added.
“That’s the wrong concept for Newport Beach,” he said. “It wouldn’t work in this community.”
The three developers have also contacted the owners of several neighboring sites, including Lindsay Parton, President/Principal of DJM Capital Partners, the firm about to seal the deal for Lido Marina Village.
“Revitalizing Lido Marina Village is an exciting opportunity, to say the least. It’s not often you have such a picturesque and even iconic place with all the important elements already there,” Parton wrote in an email.
He endorsed RD Olson Development out of the three, he said.
“The architecture ties in with the history of the area and will provide an authentic lodging experience for visitors to Lido Village and Newport Beach alike,” Parton continued.
The two companies recently worked together on a project in Huntington Beach.
“Our challenge is to bring it to life with some fresh thinking, creativity and a lot of TLC. Quality boutiques, innovative restaurants, and a great ambience and style -that’s something we know how to do. But getting it just right for the locals – that’s something we take pretty seriously,” Parton wrote.
The Fritz Duda Company, owner of the neighboring site, Via Lido Plaza, declined to comment on the three potential developers, said property manager Tristan Ritter. They may comment at a later time as things progress, she added.
The second half of this story will appear next week and cover the financing aspect of each project, economic feasibility, the two ficus trees, and parking.
Editor’s Note: This story is part one of two
“To me, green in the hotel industry is bulls—.”
Bob Sonnenblick has always been a guy who speaks his mind, and—if the above quote is any indication—he didn’t disappoint Thursday morning when asked whether “green” was a driving force behind hotel development during a panel at the Bisnow Lodging Investment Summit.
The principal of Sonnenblick Development LLC presented his argument as a matter of dollars and cents.
“If there are identical hotels on a corner, and one is green and one is not green. … and you said to the customer—we all live and die by the customer—‘Mr. Customer, would you pay a premium on your room rate to stay at that green hotel?’” the answer would be “no.”
“If the customer won’t pay the extra money for that project to be green, then the whole concept is bulls— in our business and it won’t last,” Sonnenblick argued.
To his credit, Bob Sonnenblick (right) didn’t mince words when sharing his thoughts on sustainable development. Fellow panelists, such as Buccini/Pollin Group’s Dave Pollin (left), didn’t share his views, however.
I admire the man’s conviction. As for his argument? It’s my turn to call BS.
Sonnenblick is absolutely correct about the premium of green—or the lack thereof. Study after study shows customers will not pay a dime extra to stay in a sustainable hotel. But there are other important factors to consider.
First, Sonnenblick failed to account for lost business. Going back to his original example with the two identical hotels, Mr. Customer might not pay more to stay in the green hotel, but he likely would book there over its non-green competitor across the street. As even more studies have shown, an increasing number of consumers favor sustainable businesses, and many large groups and government agencies will only book at hotels that meet certain sustainability standards.
Speaking of government, there’s also the issue of increased regulation. Sonnenblick can scream about rate premiums all he wants, but the point is moot if and when the U.S. government begins to require eco-conscious development and operations. Many municipalities and states (see: California) have begun to do so, and it’s already a fact of life in Europe, where carbon counts and credits are an accepted facet of the business ecosystem.
Third, and as we’ve reported time and time and time again, there are real cost-savings to be had, provided an owner or developer holds the hotel long enough to recoup some of that up-front investment.
And finally, Sonnenblick’s argument in and of itself is antiquated. Green isn’t a matter of either/or anymore. It’s too deeply ingrained in our everyday products and practices. From light bulbs to wall coverings to washing machines, things are simply built more sustainably, more efficiently. They’re “green” by default. You can’t avoid it.
A developer choosing between building a sustainable hotel or not is like a marketer deciding whether or not to the use the Internet or mobile channel.
To his credit, Sonnenblick did acquiesce on the moral side of the argument. When fellow panelist Mark Purcell of Starwood Hotels & Resorts Worldwide said any short-term costs pale in comparison with the long-term future of his grandchildren, Sonnenblick agreed.
“I agree with the moral argument,” he said. “I just mean that if things don’t have an economic benefit, they don’t last.”
I would counter that hoteliers who fail to recognize broad-scale shifts in business, culture and society won’t last.
When it comes to sustainability, the train already has left the station. It appears Sonnenblick has been left standing on the platform.
WASHINGTON, D.C.—Though the “Hotel Development Roundtable” panel during last week’s Bisnow Lodging Investment Summit lasted 45 minutes, Bob Sonnenblick was able to sum up the development landscape in less than 4.5 seconds.
“It’s a pretty good time to be a developer,” said the president of Sonnenblick Development.
Costs are down, new supply is almost nonexistent and interest rates are at historic lows, Sonnenblick continued.
Land prices have increased approximately 20%, but that’s after falling 75% during 2009 and 2010, he said. Construction costs are still down 40% compared with 2007.
“All those things lead to a pretty good time to be a developer right now,” Sonnenblick said.
Liam Brown, president of the U.S. and Canada division for select-service and extended-stay lodging and owner and franchise services, Marriott International, agreed.
“We are on a nice growth trajectory relative to new development,” he said. There’s nothing bad looming on the horizon, and “supply growth is terribly constrained.”
Brown noted that financing is not as loose as it was during 2007, but that’s not necessarily a bad thing. On the contrary, increased scrutiny ensures only the strongest projects come to market.
Mark Purcell, VP of North American development for Starwood Hotels & Resorts Worldwide, didn’t have quite as favorable a spin. Lenders might be talking actively about financing, but they have extremely difficult thresholds that developers must meet.
“It’s very much project-specific,” he said.
Further financing troubles
“It’s twice as easy to finance a limited-service hotel today as it is a full-service hotel,” Sonnenblick said.
“Full-service hotels are terribly difficult to finance,” Brown said. What full-service growth does exist is mostly from conversions.
Lender hesitation around the sector is a matter of scale, Purcell said. They would rather spread their dollars around a variety of less-expensive, limited-service projects than one or two full-service hotels.
A typical full-service hotel costs up to $400,000 a key, Sonnenblick explained. A select-service project rarely exceeds $200,000 a key.
To help fill in the financing gaps, many developers are turning to public funds, the panelists said.
Sonnenblick said he’s a huge proponent of approaching municipalities as potential partners. That’s what he did in one location, where his development company partnered with the local government to split the cost of the city’s bed tax in exchange for job creation and commercial development in what would have stayed a vacant lot.
Smart municipalities view hotels as multi-story retail, said Dave Pollin, co-founder of The Buccini/Pollin Group and chairman of the board of BPG’s hotel management affiliate Pollin/Miller Hospitality Strategies. Each new development brings with it new sales taxes, payroll taxes and more.
The “vast majority” of projects Purcell is overseeing at Starwood Hotels have some component of public assistance, such as historic credits and business improvement district grants, he said.
Anyone building an expensive project will have to put a lot of layers in the capital stack, he added. Public funding can help.
But can the brands? It’s not likely, Sonnenblick said.
“Things have changed,” he said. “When I look to the brands now, I love them for their reservation system and whether they’re going to operate or not operate. … but looking at the brand for money today is useless.
“Maybe 3% of the project cost could come from one of the brands” in the form of sliver equity or key money, “but that’s about it.”
Marriott’s Brown did not disagree. The major chains use their money cautiously—and only for high-profile locations, strategic locations.
However, a good brand is imperative in the lending process, he added. Fly a strong flag, and “most of the projects stand on their own,” he said.
Pollin has scored some key money from the brands by drumming up a little competition.
“Key money is available in the range of $5,000 to $15,000 a key depending on where the project is and if there is another brand that could run that flag,” he said.
Asking for incentives from a brand comes at a cost, Sonnenblick warned.
“The more money you ask that brand for, the longer you’re going to get locked into them contractually on a deal. There’s a give and take on that,” he said.
By Jeffrey Cassady
BUSINESS WRITER
Published: Thursday, April 11, 2013 at 4:21 p.m.
Last Modified: Thursday, April 11, 2013 at 9:14 p.m.
DAYTONA BEACH —New York City. Miami. San Francisco . . . Daytona Beach?
For more than a decade, all-in-one complexes that contain a traditional luxury hotel and individually owned condominiums have been popping up in large cities and high-end vacation destinations around the country.
Now, as the developers of two new hotel-and-condo projects on the State Road A1A oceanfront prep for construction, the trend could be making its way to the land of NASCAR and biker parties. Although some industry experts have doubts about the concept working in this market, the developers are confident and local tourism leaders see a big potential upside in going upscale.
The projects’ developers hope the complexes’ condo sales will translate into quick cash after the facilities open and that the mix of a regular hotel and condo space will help protect them if the travel or real estate markets turn sour.
“It’s a very good mix,” said Alexey Lysich, vice president of Protogroup Inc., which plans to break ground on a $150 million two-tower hotel-condo-retail complex at the eastern tip of Oakridge Boulevard in August. “Condo residents can use room service, the shop and other hotel services.”
Mixed-use hotel-and-condo projects started growing in popularity — particularly in major cities — during the late 1990s as developers sought to lure condo buyers with plush hotel amenities and the opportunity to have their property associated with well-respected luxury brands, said Daniel Lesser, president and CEO of New York-based LW Hospitality Advisors.
“It made sense to all parties involved,” Lesser said. “For operators, it’s another revenue stream. For residences, it means hotel services. It also renders a project less risky because, on the spectrum of risk, hotels are considered higher-risk than residential by itself.”
But Daytona Beach is more Chevy than Mercedes-Benz, one industry leader suggests, and getting the luxury crowd’s attention could prove difficult for the historically blue-collar destination. That’s especially true with the plethora of swanky tourist magnets within driving distance of the World’s Most Famous Beach, said Bob Sonnenblick, chair of Los Angeles-based real estate development firm Sonnenblick Development.
Indeed, nearby vacation cities such as Palm Beach, Fort Lauderdale and Miami already have five-star hotel-and-condo complexes from brands like The Ritz-Carlton Hotel Co. and Four Seasons Hotels and Resorts.
“(Mixed-use hotel-and-condo complexes were) popular 10 years ago on the very high-end branded basis,” Sonnenblick said. “It never caught fire in a three-star, Daytona-type market … South Beach is the new Riviera of the United States. I don’t know that someone there is going to say, ‘Forget South Beach. I want to go to Daytona.’ “
Still, the developers of the two Daytona Beach projects are out to convince high-rolling buyers and vacationers to give the area a look.
Protogroup’s 105-condo, 400-to-500-hotel room development will be joined by a 100-condo, up-to-900-room hotel-and-condo complex Toronto-based investment firm Bayshore Capital plans to build south of Sun Splash Park.
“For us in particular, a project that has more hotel rooms than condos is more helpful to us in the short run,” said Don Poor, director of the Ocean Center, which will be just up the road from both developments. “In the long run, the condos attract more high-end development and improve the quality of the surrounding (neighborhood). (Residents) have (year-round) demand for high-end restaurants, high-end retail and so forth.”
The Protogroup property will feature an independent hotel, complete with retail space, a conference center and luxury amenities, Lysich said. The Bayshore property will have a branded luxury hotel, though the company is not yet ready to announce the flag under which the hotel will operate, said chairman and CEO Henry Wolfond.
“This will be a luxury resort hotel and residential condominium unique to the Daytona Beach market,” Wolfond said of his company’s project. “Once the brand is announced, we have no doubt whatsoever that it will transform and revitalize Daytona Beach to its past glory.”
And branding often is a key selling point for condo buyers looking at mixed-use hotel developments, Lesser said. Well-off buyers typically like the prestige of owning property associated with posh hotel chains like St. Regis or Ritz-Carlton.
“There is cache associated with (owning a condo attached to a hotel) for folks,” he said. “I can’t say that I have come across a large hotel with residences that wasn’t branded.”
As it stands, the Protogroup complex, tentatively named The Daytona Beach Convention Hotel & Condos, will not have a branded hotel, which could make it difficult not only to attract residents but also to obtain financing — a task already difficult because of tight credit for condo projects, Sonnenblick said.
“I don’t believe that there is any construction financing today for unbranded four-star hotels,” he said. “Every construction lender I talked to requires having a brand attached to new hotel projects.”
However, Lysich said Protogroup has the funds to cover about half the construction cost and that the other half will come from investors, a bank or both.
Bayshore is “highly confident” it can finance its project, Wolfond said, adding the company should have lenders in place within the next 60 days.
If the projects are built, they will go a long way toward modernizing Daytona Beach’s tourism scene, said longtime local hotel developer George Anderson.
“It’s definitely a big plus for Daytona Beach when you have someone with capital who’s willing to run with it,” Anderson said. “The world of vacationing is going to change, and Daytona hasn’t stayed up with the times.”
