Jonathan Lansner, the OC Register’s veteran real estate columnist, wrote today that Disney had no choice but to pull back plans for Anaheim luxury hotel.
Some key excerpts from the column, which Register subscribers can access here:
Disneyland’s luxury hotel in Anaheim wasn’t a financial no-brainer to start with.
So a last-minute pullback of a controversial city tax break would, at a minimum, obviously force Walt Disney Co. to recalibrate its plans.
Alan Reay, who follows the hotel industry at Atlas Hospitality in Irvine, says the latest twist in Anaheim’s quest to add four-star hotels is no surprise.
“I’d have been shocked if Disney did go forward for now,” Reay says. “They were thrown a huge curveball at the last minute.”
The Disney project, along with two 4-Diamond projects by the Wincome Group, were approved in 2016 to participate in the city’s Hotel Incentive Program – which used TOT rebates to incentivize the construction of 4-Diamond hotels in the Anaheim Resort, which currently has only one such property.
Lansner describes why the city’s sudden move to yank the TOT rebate incentive throws such a big monkey wrench into the project’s development:
And on Aug. 6, Anaheim officially told Disney that because of those new plans the controversial tax subsidy was gone. Please note that the current city council is nowhere as wild about Disneyland as the group that previously approved the hotel deal.
That tax break, estimated to be valued at $267 million, comes from reduced hotel-room taxes generated by the new luxury lodge during its first two decades in operation. That means if the hotel’s never built, city coffers lose $113 million as well over 20 years, plus the chance to collect all hotel taxes thereafter.
The city’s change of heart put Disney — a publicly owned company with huge transparency requirements — in a tough spot, Reay says. So Disney executives had to step back quickly. Imagine a consumer being told just before closing a major purchase that a significant rebate was no longer valid; that shopper would likely walk away, too.
Lansner writes that the hold could very well become a cancellation of the entire project:
Reay expects Disney’s executives to diligently review the hotel project’s finances and construction plans assuming the tax credits are now gone. They’ll have to weigh those added costs as well if any legal and negotiation options are viable, too.
“Disney may very well say ‘No’, ” Reay says.
That’s because the luxury hotel game is the most difficult niche in the often unpredictable hotel business.
For starters, building a four-star luxury hotel — rooms plus high-end amenities, top-shelf dining and full-service meeting and convention facilities — isn’t cheap. They can cost two times, even three times, the construction expenses of a three-star, limited-service hotel, which is essentially just rooms. Reay guesses Disney could spend up to $1 million per room to build the new hotel.
As for those who continue to claim these 4-Diamond priojects would have been built without the TOT rebate incentives:
“The hotel market is as strong as it ever been in my 20-plus years in the business,” Reay says. “But we did not see developers jumping into Anaheim to build a luxury product without incentives.”
Those who say these 4-Diamond hotels will be built without the incentives have yet to explain why no 4-Diamond hotels have been built in the Resort in 20 years.