Staff Recommends Approval of Both Proposed Hotels

City Manager Dirk Brazil announced at last night’s council meeting that the city had already posted the staff report for both hotel proposals, which were put on the agenda for next week’s November 1 Davis City Council meeting.

The city has put both proposals on the agenda to be considered on the same day, but as separate items.  Staff is recommending approval of both projects.

This is despite acknowledging that the Planning Commission voted 4-3 “that it could not support recommending approval of the applications. The Commission also made comments on project consistency with City Council criteria for evaluation of hotel proposals.”

Meanwhile, the Planning Commission was unanimous in its approval of the Residence Inn application in late September.

Hyatt House

The Hyatt House is proposing “the construction of an extended stay hotel, parking, and customary accessory uses and facilities at 2750 Cowell Boulevard. The 2.031-acre parcel is currently vacant.”

The project proposal includes the following components:

• 120 guest rooms, including studios, one-bedroom units, and suites;
• Ground-floor guest amenities including guest kitchen, fitness room, lobby with bar, meeting room, and outdoor pool and courtyard;
• A four-story structure with a maximum height of 47’10” to parapet, with a tower at 55’ at the building entry;
• Surface parking lot with approximately 112 vehicle spaces (including EV charging spaces, consistent with the City’s draft EV readiness plan);
• Sustainability features including bicycle infrastructure, photovoltaic panels over a portion of the roof and parking lot generating an estimated 290 kilowatts of electricity, a commitment to achieving a LEED Gold certification from the US Green Building Council, and purchasing any remaining electricity from offsite renewable sources through the proposed City of Davis Community Choice Energy JPA;
• Vehicular and bicycle access from Cowell Boulevard, and bicycle/pedestrian access from the greenbelt along the south edge of the site; and
• Off-site improvements including a storm drain connection to Albany Avenue and pedestrian/bicycle improvements on Cowell Boulevard.

Residence Inn

The Residence Inn is proposing “the construction of an extended stay hotel and customary accessory uses and facilities at 4647 Fermi Place, near the intersection of Mace Boulevard and Second Street. The 2.69-acre parcel is currently vacant.”

The project proposal includes the following components:

• 120 guest rooms, including studio and one-bedroom units;
• Ground-floor guest amenities including fitness room, lobby (with a potential lounge amenity), meeting room, guest laundry, and outdoor pool and exercise court;
• A four-story structure with a maximum height of 49’4” to parapet;
• Surface parking lot with approximately 120 vehicle spaces (including EV charging spaces);
• Sustainability features including carport photovoltaic panels generating an estimated 75 kilowatts of electricity, a commitment to achieving a LEED equivalency certification through a mutually agreeable third party, and purchasing any remaining electricity from offsite renewable sources through the proposed City of Davis Community Choice Energy JPA; and
• Vehicular access from Fermi Place and bicycle/pedestrian access from Fermi Place and Second Street.

Fiscal Analysis

The current city budget assumes the city will collect $1.27 million in TOT (transient occupancy tax) from the city’s 11 current hotels.  A review by the Finance and Budget Commission “concluded that each would likely result in a net fiscal benefit to the City of Davis.”

Staff writes that “the Commission concluded that the estimated net fiscal benefit of either of these hotels is likely to be in the hundreds of thousands of dollars annually with a one-time fiscal benefit of $1.8-1.9 million in development and impact fees and construction tax revenue. Financial benefits to Davis Joint Unified School District, the local tourism district and the County of Yolo would be significant.

“The rationale for the fiscal benefits is largely the same for each hotel based on the distinct similarity of the projects. If both hotel projects are approved, the fiscal benefits cannot be simply combined because, depending on the timing of the opening of each hotel, demand may be split until new customer demand is created and absorption is achieved. Eventually, the City can expect each hotel to produce the fiscal impact as estimated if market assumptions are realized.”

Staff notes that the commission “did not provide a specific figure for either hotel because estimates of tax revenues are sensitive to assumptions about the occupancy and room rates.”

Hotel Supply

Staff notes that the Davis hotel supply is “not increasing as quickly as anticipated.”  The main reason for that is that, while the HVS study on hotel valuations and appraisals assumed that Embassy Suites Hotel and Conference Center would be in construction and online, “no application for building permits has been submitted at this time.”

Staff summarizes, “City Council approved entitlements for the hotel conference facility at 1111 Richards Boulevard in summer 2015. The approved project involves replacement of the existing University Park Inn and Suites and Caffé Italia restaurant with a six-story 132-room Embassy Suites hotel and 13,772 square feet of conference space. Litigation was filed against the project, which is still pending. Although the litigation would not prevent issuance of building permits for the project as approved, an application has not been submitted. The timing on the project is unknown and nothing is likely to happen prior to the resolution of the litigation.”

Demand Generators

Staff argues that “unmet need for supply exists and will increase over time.”  They note that “there are people attending UC Davis events but not staying in Davis hotels.”

When the city conducted an informal poll of event planners at UC Davis, the city received some information:

• Hotel Loyalty Programs – guests want to use loyalty programs and are not provided with all the choices in Davis. There are presently no Hyatt or Hilton hotels in the City of Davis, for example. Both brands have strong customer loyalty and associated programs.
• Amenities and services – guests want better appointed facilities (no details provided).
• Depending on the time of year, supply cannot accommodate all guests.
• 50% of event planners that responded (unknown number of respondents), replied that more hotel rooms are needed.
• 50% of respondents think there is enough demand for two new hotels (this is not explained any further).

Staff notes, “The HVS study addresses the segment of the market that prefers an extend-stay room format and determines that demand for this segment is estimated to be 3,797 rooms in 2016 and the forecast calls for modest increases. All of the demand is currently unmet in our city.”

Transient Occupancy Taxes (TOT)

• Davis voters approved Measure B in June 2016 which increased the TOT from 10%-12%. The increase will go into effect on December 1, 2016. This was estimated to generate an additional $240,000 per year in tax revenue which goes in to the City’s general fund. The increase in TOT means that each hotel room now contributes more in tax revenue and this makes additional hotel rooms of increased benefit, particularly with a net positive room absorption over time and higher rate rooms
• Hotel stays of longer than 30 days are not subject to TOT collection. Staff has included conditions of approval in the Conditional Use Permits of the two proposals to limit hotels stays to no longer than 30 days to avoid the provision that allows for the collection of TOT to be discontinued after a stay of 30 days.

Council Options

Both proposals require City legislative actions, which means the council “has full discretion to consider the proposals without regard to the typical time limitations under the Permit Streamlining Act.”

However, if approved, “a project will have an 18-month timeline for Conditional Use Permit, Final Planned Development and Design Review entitlements. Substantial construction must occur before the deadline, but an extension of up to an additional 18 months can be granted by the City and is not uncommon for larger projects.”

Staff notes “the uncertainties of development” as well as their analysis that the “timing of the hotel projects may be the key determining factor in their successful entry in to the Davis market and the ability for the market to achieve absorption without substantial negative impacts to current hotels.”

Staff writes, “Such project applications are not made lightly by the proponents and not without substantial investment in land acquisition/option costs, plan development, and entitlement processing. Such investments are also not made without confidence on the applicant’s part that there is sufficient market demand to absorb the project.”

The range of options for City Council action includes the following:

1. Approve application(s) with findings and conditions as set forth in the staff report(s), including any modifications that the Council may deem appropriate.
2. Deny application(s) with findings for denial (these findings would need to be crafted at the dais or a request made of staff to return to Council at a future meeting with draft denial findings). Davis Municipal Code states that if a proposal for rezoning or conditional use permit is denied a substantially similar proposal may not be proposed for a minimum of one year.
3. Request that an applicant(s) explore project changes as may be suggested by the Council, thereby continuing the hearing and returning at a later date for consideration. The City Council may establish timeframe parameters (minimum and maximum) for consideration of changes prior to the matter returning to the Council for action. Depending upon the scope of the changes staff would determine whether new public hearing notices would be required and whether Planning Commission review of the changes would be necessary. Unless the matter is continued to a date certain, new public hearings notices would be required.
4. Continue the application hearing(s) to a future date pending further information (examples include: Embassy Suites litigation/project status, additional data or market analysis, etc…).

The Vanguard will have individual analysis of the projects and much more in the coming days.

—David M. Greenwald reporting