A city committee signed off Tuesday on a proposed deal that would give Los Angeles Convention Center operator Anschutz Entertainment Group $97.7 million worth of “incentives” to build an 850-room expansion of its J.W. Marriott hotel and upgrade the convention center simultaneously.
The expansion would help boost the convention center’s standing, drawing more visitors to Downtown Los Angeles, says John Wickham, of the city’s chief legislative analyst’s office.
Under the terms of the proposed agreement, the city would only keep roughly half of revenue generated by the hotel addition in the first 25 years of operation—most of it from the city’s transient occupancy tax—all of which would otherwise go into city coffers.
AEG needs the tax break, city officials say, to fill the project’s $119 million “funding gap,” or the difference between a development’s estimated value when complete and the cost to construct it.
“We’re never going to be in a place to compete with Orlando, Las Vegas, or Chicago… but we can compete with most of the other markets,” and this project would help the city do that, Wickham said. His office prepared a report on the project for the committee.
The discrepancy is in large part because of “the risk associated with building a high rise, steel frame structure” like the hotel, the report says.
“Let’s move some dirt, break ground, and cut the ribbon as soon as we can,” said Los Angeles City Councilmember Joe Buscaino, who serves on the economic development committee.
The hotel and convention center expansion would cost AEG and its partner on the development, Plenary Group, an estimated $1.2 billion.
The expansion would add an estimated 350,000 square feet to the convention center and simultaneously put a new 40-story hotel tower alongside it, with a connection to the convention center via a pedestrian bridge.
“As a result of this project, the city would achieve the development goal of 8,000 hotel rooms within walking distance of the [convention center],” says the report, referencing a long-held city goal to build up hotel rooms in the area.
Wickham estimates Los Angeles ranks 19th or 20th in the nation in terms of convention center size and amenities. When complete, he says, the upgraded convention center and adjacent hotel tower could bring the city up to 11th or 12th place.
The proposal “really hone[s] in on something that serves the city, the convention center, and AEG,” he said.
The chief legislative analyst’s recommendation comes just a few months after City Controller Ron Galperin released a report calling for a more comprehensive strategy toward doling out these kinds of deals.
Since 2005, the city has approved more than $1 billion in tax benefits to hotel developments without having a framework in place to ensure the deals are “transparent and advantageous to taxpayers,” according to Galperin’s office.
But committee members were overwhelmingly supportive of the AEG proposal on Tuesday.
“Quite frankly, we just can’t wait any longer to do this,” said City Councilmember Curren Price, Jr., who chairs the economic development committee.
Mayor Eric Garcetti had previously said he wanted the expansion complete by 2022.
AEG has its project could open as soon as 2021 “with the commitment of requisite support and resources.”
The deal still needs the approval of the full City Council.