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Council Hits the Brakes on Proposed Kimpton Hotel Project Across from City Hall

Developer had asked for 50 years of free rent and 136 City parking spaces; City will ‘look at the numbers again’ and ‘consider alternatives,’ says Councilmember Gordo

Published on Tuesday, April 4, 2017 | 5:51 am
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[Updated Tuesday, April 4, 2017 | 10:15 a.m.]   To the apparent surprise of Mayor Terry Tornek and a small group of determined protesters, the Pasadena City Council voted 5-2 Monday evening to “pause” the proposed Kimpton Hotel project, which would have redeveloped and rehabilitated the historic Julia Morgan-designed YWCA building in the Civic Center into a luxury hotel space and constructed adjacent new buildings.

The motion before the Council was an economic subsidy plan to provide 50 years of free rent along with 136 City-owned parking spaces for the duration of the entire lease to the developers, KHP III, in order for them to continue with the project.

Developer Joe Long told Councilmember Tyron Hampton during the discussion portion that without the rent and parking subsidies, the increasing expenses of the project meant it “could not move forward.”

The hotel project has been in the sights of local preservationists since its proposal, although the influential preservation organization Pasadena Heritage has supported the plan.

Members of the Pasadena Civic Center Coalition (PCCA) have long felt that the proposed hotel project was inappropriate for the Civic Center and took away valuable green space, and have filed suit to stop the project.

Councilmember Victor Gordo, who proposed the final alternative to the proposed motion, said that pausing the project — which would mean no permits or construction for the time being, if ever — would allow the Council and developer to “work together to look at the numbers again,” and make time for the Council to “consider other alternatives” for the historic property. Gordo said he also wanted to take a look the local hiring component, should the project continue. Developer Long had said that any construction would not have begun until “sometime in 2019.”

Gordo said, early in the evening’s discussion, “I am struggling with this.”

Marsha Rood, former Development Administrator for the City of Pasadena and member of the Pasadena Civic Center Coalition, said she was pleased by the vote.

“I was heartened that the Pasadena City Council carefully and thoughtfully listened to the voice of the community — a community that loves and protects its famous and beautiful Civic Center,” Rood told Pasadena Now on Tuesday morning. “The City Council recognized that the continuing financial burden of supporting this project with massive City subsidies was too much to bear — with no end in sight. Thank you, City Council, for listening to the people and doing the right thing.”

KHP had originally proposed to rehabilitate the existing 40,570-square-foot historic YWCA building, and construct a new two-to-six-story, 87,342-square foot new building, both of which would become an approximate 127,912-square-foot, 181-room Kimpton Hotel with restaurant and banquet facilities totaling 1. 93 acres, on a site bounded by Garfield Avenue on the east, Union Street on the south, Marengo Avenue on the west and Holly Street on the north.

The total project cost to the developer was estimated to be approximately $81.7 million, including approximately $14 to $16 million to rehabilitate the city-owned historic YWCA Building, along with the construction and operation of a new building.

KHP had originally proposed, in 2013, to pay the City rental payments that were the greater of three-percent of the hotel’s gross revenues, or $300,000 annually.

But in 2016, according to the City staff report, KHP continued to scale down the proposed ground rental payments as as hotel project costs increased, first to a flat $300,000 annual payment for the first 10 years, and then $377,000 per year with adjustments every ten years based on changes in the consumer price index. Based on estimates from two separate appraisal firms, KHP’s proposed ground rental payment could be considered as fair market value.

Since 2013, however, the total construction cost per room increased from $289,900 to $451,459, an increase of nearly 64%. Moreover, KHP’s original cost projections contemplated paying market rate wages for construction, and not paying the higher “prevailing wage” established by the State, which have historically been required to be paid by contractors on any project considered a “public work” and paid for in whole or in part from public money.

As a charter city, Pasadena was considered exempt from the Prevailing Wage Law. However a 2015 change in the law imposed penalties on charter cities for failing to comply with the Prevailing Wage Law. KHP then agreed to comply with the Prevailing Wage Law, which, it said, added $8.9 million to construction costs.

According to Pasadena Senior Project Manager David Klug, the 50-year free rent request amounted to a $7 million subsidy for KHP, and the 136 parking spaces represented another $3.7 million. A projection from the City staff report also reported that the City would receive $44 million over the first 20 years. The City would also share in room revenue, and 20 percent of the hotels’ income proceeds after a 14% internal share to KHP.

City Manager Steve Mermell called the hotel project the “best use” for the property, and said that should the property be used for another project—City offices, for example—the City would not receive any hotel taxes or revenues.

During the two-hour public speaker portion of the meeting, resident Crystal Baldwin said, “This project started with good intentions, but somewhere along the way, it became this monster hotel gobbling up a park.”

Sue Mossman, executive director of the Pasadena Heritage Trust, said, “This is an excruciating moment in time. We continue to agonize over this project. We’re very concerned about the thin margins.” Mossman added that she would be happy to have to the City subsidize the developer “even more” if it would help the project move forward.

PCCA member Marsha Rood also voiced her concerns, saying, “The return on this investment is very thin, because the investment is very thin.”

“The developer knew about the costs of this project six months ago,” said Avrim Gold, of the West Pasadena Residents’ Association. “Now, suddenly it’s here. This decision is about the integrity of the city, this is a game changer.”

KHP developer Long told the council in his response that, “Quality comes at a high price. This carries a greater cost than other projects. Our returns are right on the margin. Without the financial support, we don’t have a project.”

Mayor Tornek eventually told the Council, following a full discussion, “We’ve seen these issues and questions before, in September. If we don’t do this, we could find ourselves guilty of ‘demolition by neglect,’ which is what we originally tried to avoid here. I’m not willing to go out and look for another project. We need to weigh the facts as we see them, not as we would like them to be.”

Kennedy had originally proposed a counter motion, which was later superseded by Gordo’s, in which Kennedy asked that if the developer was unable to make the project work with subsidies, the City would “end its relationship with the project and the developer.”

In the end, Councilmembers Gordo, Tyron Hampton and Margaret McAustin argued against the subsidies, with McAustin remarking, “I’ve always liked the idea more than I have liked the project. It’s always felt to me like trying to convince yourself to buy the wrong house, just because it’s in the right neighborhood.”

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