SR-212-001-01 (2)
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Santa Monica, California
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w/lodging
Council Meeting: December 12, 1989
TO: Mayor and city council
FROM: City staff
SUBJECT: Recommendation to Adopt a Low Cost Coastal Lodging
Fee for the City of Santa Monica
INTRODUCTION
This report recommends that the City Council adopt a low cost
lodging replacement fee as required by the City's Draft Local
Coastal Program to mitigate the loss of affordable hotel and
motel rooms within the Coastal Zone and direct the city Attorney
to prepare an ordinance to implement the program. This fee would
be imposed on developments that remove affordable guest rooms
from any site within the coastal zone.
The purpose of this
replacement fee is to maintain a range of prices for overnight
lodging in the city.
BACKGROUND
Both the California Coastal Act and the city's Draft Local
Coastal Program include policies that address the protection of
low cost lodging~
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State Coastal Act
section 30213 of the Coastal Act states in part that:
"Lower cost visitor and recreational facilities shall be
protected, encouraged, and, where feasible, provided."
The intent of Section 30213 is to ensure that there is a balanced
mix of visitor and recreational facilities within the Coastal
Zone, so as to provide recreational opportunities to all economic
sectors of the public. Access to coastal recreation facilities
is also enhanced when there are overnight lodging facilities for
all economic sectors.
On October 6, 1989, the Coastal Commission and staff defined
"low-cost overnight facilities" as follows:
"A low-cost overnight facility is an overnight lodging
facility which charges no more than the average per room, per
night rate of lodging facilities such as a hostel, Motel 6,
Super 8 Motel or other similarly priced lodging facility."
Santa Monica's Local Coastal Program
Policies 37 and 45 of the City' s Draft Local coastal Program
state:
Policy 37. Lower cost visitor and recreational facilities
shall be protected, encouraged, and, where feasible,
provided. Developments providing public recreational
opportunities are preferred.
Policy 45. Where new development removes low cost lodging
facilities, such new development shall mitigate this impact.
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Mitigation shall be in the form of a fee paid into a fund
established by the city for the provision, including land
acquisition and construction, of replacement of low-cost
lodging facilities within the Coastal Zone.
The Coastal Commission has been implementing the above policies
for projects in Santa Monica that involve the removal of low cost
visitor accommodations. Three such projects have been required
to provide fees to mitigate the loss of low cost accommodations.
In 1983, the coastal Commission approved the demolition of the 97
room Surf rider Hotel and, as a proj ect condition, required an
in-lieu fee of $500,000.00 to mitigate the loss of 97 affordable
rooms. The $500,000.00 was utilized to help finance the Youth
Hostel currently under construction downtown.
In 1988, the Coastal Commission approved demolition of a low
cost, 34 room motel at 1501 Ocean Avenue and the construction of
a retail/office project. A condition of project approval
included payment of an in-lieu fee of $200,000.00 to mitigate the
loss of low cost visitor serving accommodations.
On October 10, 1989, The California Coastal Commission approved a
62 room hotel project at 1447-53 Ocean Avenue that included
demolition of a motel (Auto Motel) with 30 affordable rooms. A
condition of approval imposed by the Coastal commission included
a $255,450.00 replacement fee for low cost accommodation
replacement. The Coastal Commission declined to give Santa
Monica the mitigation fee for disbursal as the City currently
does not have a mitigation fee program in place.
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originally, the fee program was to be included in the City's
Local Coastal Program, but due to the Coastal commission action
on the Auto Motel, and other upcoming projects within the coastal
zone, staff recommends implementing the low cost lodging
replacement fee prior to adoption of the revised Local Coastal
Program. By adopting this ordinance, the city will be able to
set and collect the mitigation fee from upcoming projects. Upon
certification of the City's Local Coastal Program, this ordinance
will be incorporated into the Zoning Ordinance along with the
Coastal Program's implementing ordinances.
PROPOSED FEE PROGRAM
Policy 45 of the City's Local Coastal Program proposes the
establishment of an in-lieu fee to be paid by the developers of
projects which displace low cost or budget motel or hotel units
in the Coastal Zone. A development proposal in the Coastal Zone
which removes low-cost lodging would be required to pay a per
unit fee to the City to mitigate the loss of the units. The
definition of a low-cost unit established by the City is based on
average nightly rental rates.
A survey of motels and hotels (see Attachment A) in Santa
Monica's Coastal Zone, identified 24 lodging establishments
containing a total of 2, 375 rooms. Of this total, 650 rooms,
distributed among 15 different motels and hotels, were classified
as low-cost units (the hotel/motel survey included the Kensington
and Flamingo complexes). Room rates for low-cost/economy
hotels/motels were identified to be in the range of $35.00 to
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$80.00 per night. The average room rate of the above range is
$57.00 per night for a double occupancy room. In a report
entitled ~otel Development Update Report, May, 1989, motel rooms
within the above range were defined as economy or low cost.
Additionally, staff considered the potential for on-site
replacement of affordable rooms within a newly constructed hotel.
This option has not been included in the program as industry
experts advised staff that this was an unlikely scenario. It
would be administratively impossible to operate a single lodging
facility with greatly disparate room rates unless there is a
significant difference in accommodations and amenities in a
facility. Such a facility is highly unlikely to be constructed.
Fee Methodology
An economic consultant was retained to provide an analysis to
deterllline the proper amount of the fee to be assessed. To
develop this fee, the analysis included: land costs a hotel/motel
operator could afford in order to build low-cost lodging,
operating costs consistent with hotel/motel industry experience,
financing and return on equity, improvement costs, and
development parameters. The basic approach in the analysis was
to determine the amount of assistance required by a developer of
new economy rooms so that a 10% return on equity investment could
be achieved. The analysis assumed that the assistance is the
amount of fee the City should collect for the removal of the 650
low-cost visitor accommodations in the Coastal Zone. A standard
development model was used utilizing the following assumptions:
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o A pure hotel/motel facility; that is, no restaurant o~
other non-room income operations;
o Density of 187 units per acre with a resultant FAR 0=
1.5.;
o Parking requirement of 1.0 space per room; free parking;
predominant use of subterranean parking (about 80% 0=
total) ;
o Improvement costs (excluding land but including
furniture, fixtures, and equipment) of approximately
$42,600 per room;
o Land cost at $106 per square foot;
o Financing at 11. a%: annual interest rate and 30-yea=
equal amortization;
o 90%: of total development costs in the form of a mortgage
with a resultant lO%: developer equity investment;
o Return on developer equity investment requirement of 10%
annually; (return on equity is a widely accepted measure
of prOfitability.);
o Average building space of 350 square feet per roo~
(including lobby, corridors, and other common areas);
o Average three floor construction above parking;
o Average parking space of 350 square feet.
To determine the appropriate density for a replacement project,
data was gathered from affordable hotel/motel projects recently
approved in Santa Monica. Three examples were found:
o The 126-room Econo Lodge to be located on a 22,500
square feet site, with a resultant density of 244 rooms
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per acre.
o The 68-room King Chai (in planning) to be located on a
15,000 square foot site, at a resultant density of 197
rooms per acre.
o A 69-room hotel proposed for an 8,720 square foot site
on Main street, with a resultant density of 345 units
per acre.
For this analysis, land sale comparables for 13 properties within
the City of Santa Monica were obtained. Sales prices range from
a low of $70.15 per square foot of land area to $143.59 per
square foot. Based on the comparables, the analysis utilized an
average of $106 per square foot for land cost (the mean value) .
Replacement Fee Program
Based on the above methodology, it was determined that a
mitigation fee of $8,000.00 per room would be necessary to ensure
full replacement. To reflect changes in financial conditions
such as land costs, improvement costs, maximum allowable rental
levels, and operating costs, an inflation adjustment factor has
been included as part of the fee program. Similar to the method
used in the housing and parks mitigation fee, the fee should be
adjusted for inflation by the percentage change in the consumer
price index and a factor that accounts for any changes in land
costs.
Developers demolishing affordable motel or hotel rooms within the
Coastal Zone will be required to pay the fee on a per room basis.
Prior to issuance of a demolition permit or building permit for a
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new project, at least 50% of the total fee required shall be
paid. The balance of the fee shall be paid in full prior to the
issuance of a certificate of occupancy and shall be secured by an
irrevocable letter of credit or other form of security acceptable
to the city.
Disbursement of Program Funds
A program to allocate the low cost lOdging mitigation fees will
be implemented after a sufficient amount has been collected by
the City. It is anticipated that an RFP process, similar to the
one used in connection with housing fees and the fees previously
collected will be used to allocate the funds.
BUDGETARY/FISCAL IMPACT
This ordinance will result in the receipt of low cost lodging
replacement funds.
A separate account will be established for
deposit of these funds.
RECOMMENDATION
It is respectfully recommended that the City Council direct the
ci ty Attorney to prepare an ordinance to establish a low-cost
lodging mitigation fee for first reading at the January 9, 1990
City Council meeting.
Prepared by: Paul Berlant, Director of Planning
Suzanne FriCk, Principal Planner
Johanna GUllick, Associate Planner
12/06/89
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ATTACHMENT A
AFFORDABLE ROOMS IN THE SANTA MONICA COASTAL ZONE: FALL 1989
NAME OF MOTEL/HOTEL
NUMBER OF ROOMS
PRICE RANGE
Ocean Park Motel
2452 Lincoln Blvd.
29
$38-55
TraveLodge Motel*
1525 Ocean Avenue
35
$65-80
Pacific Sands Motel
1515 Ocean Avenue
42
$40-45
Auto Motel
1447 Ocean Avenue
30
$45
Hotel Carmel*
201 Broadway
93
$38-60
Ocean Lodge
1667 Ocean Avenue
16
$55
seaview Hotel
1760 Ocean Avenue
11
$35
Beach Auto Hotel
1670 Ocean Avenue
25
$45-55
Sea Shore Motel
2617 Main street
20
$40-50
Bayside Hotel
2001 Ocean Avenue
39
$42-62
Cal Mar Hotel
220 California Avenue
35
$55-78
Santa Monica Motel
2102 Lincoln Blvd.
29
$40-50
Kensington/Flamingo Hotel
1746 Ocean Avenue
182
$35-65
Embassy Hotel
1001 Third Street
43
$40-60
Sovereign Hotel*
205 Washington Avenue
21
$69-89
TOTAL
650
* Hotel or motel also contains rooms that are above $80.
Note: Average price of hotel rooms = $57.00. This is based on a
room rate range of $35.00 to $80.00
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ATTACHMENT B
Additional Operating Expenses
Item
Cost Basis
Utilities
$4 per square foot of building space
Property Taxes
1.1% of total development costs
(including land)
Insurance
0.3% of development costs excluding land
Repairs and
Maintenance
5.0% of development costs excluding land
Maintenance
(reserve)
2.0% of development costs excluding land
Supplies and
Misc
4.0% of total operating revenues
Note: These factors are based upon reported industry averages
HARD CONSTRUCTION COST FACTORS
Item
Cost Basis
Building Shell
$65 per square foot of building space
Surface Parking
$8 per square foot of land area
subterranean
Parking
site Work
$8,800 per space
$8 per square foot of landscape/hardscape
area
Off-site Costs
Estimated at $80,000 lump sum
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CITY OF SANTA MONICA
INTER-DEPARTMENT MEMORANDUM
DATE:
December 8, 1989
TO:
Mayor and Councilmembers
FROM:
city Clerk
SUBJECT:
INCORRECTLY CODED AGENDA ITEM
A staff report coded Item ll-F, delivered in Wednesday's packet
delivery, was incorrectly coded. It should be coded II-E.
11-E: Recommendation to direct the City Attorney to prepare an
ordinance implementing a low-cost lodging replacement fee to
mitigate the loss of affordable hotel and motel rooms within the
Coastal Zone.
Please note this change in your council packets. We apologize
for the inconvenience.