Hotel Quandary in Calabasas

Suspense is hanging over Calabasas – will it be a hotel or a self-storage facility that gets built on a vacant parcel of land off of Las Virgenes Road? Many hope it’s a hotel for the estimated $500,000 in bed tax revenue it would generate for the city, the business it will likely bring to nearby restaurants and the jobs it will create while adding only a little to the traffic on the already-busy street. But others believe a self-storage facility, while it would produce little tax revenue for the city, would add even fewer cars to the road. For now, the question is in the hands of Malibu developer Richard Weintraub, owner of the 4-acre site. Last month, Calabasas city officials rejected his first proposal for the site – a large-suite Marriott International Inc. Springhill Suites hotel with 127 rooms – because its four stories were higher than what the city allows. Weintraub, in response, submitted a three-story hotel design – for which the city council was expected to give preliminary approval on June 22. Separately, Weintraub also proposed a three-story self-storage facility that met with the city’s low-height and low-traffic preferences, as a safer bet than the hotel. But now Weintraub says he may lose Marriott as the potential operator of the hotel because he lost the fourth story. A shorter hotel means building either significantly fewer of the large suites promoted by the Marriott brand, or building the same number of rooms, just smaller. The lot’s limited area and sloped terrain won’t allow a longer or wider hotel to spread out more rooms. “We don’t know if this will make sense financially,” Weintraub said. “For this particular product, we would have to see what our construction costs would be, but now we would be having smaller rooms so that would mean less revenue, and we were pretty tight before (with the four-story proposal).” Scarce competition Springhill Suites offers suites with about 450 square feet for about $150 a night with two or more bedrooms and work stations for longer-stay business travelers and families. The closest one to Calabasas is in Burbank. Weintraub has built other hotels for Marriott so he proposed his plan to that company first. It jumped at the idea, he said, because of hiking trails behind the hotel and in nearby Malibu Canyon; closeness to the 101 Freeway; no competition nearby for a hotel like Springhill Suites; and the fact that Malibu is only about 10 minutes away. The short drive from Calabasas to Malibu and L.A.’s strong tourism industry makes the city a solid market for hotels, said land use and hospitality industry experts. “The hotels in the San Fernando Valley do get summertime leisure demand from people going to the beach who can’t find a hotel, or rooms at the beach,” said Bruce Baltin, managing director of CBRE Hotels in its L.A. office, a division of CBRE Group Inc. in Los Angeles. Plus, the Springhill Suites room rates would most likely be cheaper than those in Malibu, experts said, which would also drive demand. As originally proposed, the hotel was to stand 50 feet high. Residents opposed the hotel’s fourth story for environmental reasons and because it exceeded city height limits. In light of that opposition, officials indicated to Weintraub the height needed to be lowered. “This was, yes, about politics, without any doubt,” said Calabasas City Manager Tony Coroalles. “To be fair to everybody, the council represents the community and gets elected by the community. Had nobody come out to complain, it would’ve been approved at four stories.” The city supports hotels in the immediate area for their little traffic, number of jobs and the business they bring to nearby restaurants and shops – which the west side of town needs, Coroalles said. But mostly it’s the hotel bed-tax revenue the city likes. The four-story Marriott would’ve brought in at least $600,000 a year, he added. If the three-story hotel is built, it will bring in around $500,000. That would go a long way to address the $1 million deficit Calabasas is facing in next year’s budget, having lost two companies last fall – Acura 101 West and London, England-based Spirent Communications – that generated nearly $1 million in sales tax revenue, Coroalles said. Pepperdine University is now leasing Spirent’s former 107,000-square-foot office space, but doesn’t generate any sales tax revenue. “And that’s why the revenue-producing sources like hotels become very important,” he added. In contrast, a self-storage facility will generate only property tax revenue for the city, and that’s only a 4 percent portion of the 1 percent property tax on the assessed value of the building, Coroalles said. Self-storage facilities provide one or maybe two jobs, and aren’t economic drivers to local businesses, said Robert Scott, executive director of the public policy and economic research organization Mulholland Institute in Calabasas. “From an economic development perspective, a hotel is a better choice,” Scott said. “If it’s a high-end hotel … it’s a good idea. It’s a good landmark. As far as capturing business coming to town – obviously that’s a huge element.” Calabasas resident John Suwara, who co-founded the Calabasas Coalition, the residents’ group that opposed Weintraub’s and another hotel project at their four-story heights, said he’s OK with either use of the land as long as it doesn’t exceed three stories. “We’re not opposed to the self-storage facility if that’s what he (Weintraub) decides to do; it’s lower traffic,” Suwara said. “We’re not opposing the Rondell (Marriott) hotel either at three stories as long as he builds it within the requirements specified by the city council.” Hotel chances Weintraub’s property is on the city’s western side. The surrounding fast food restaurants and full-service eateries would likely benefit from the hotel because it’s not designed at this point to include a restaurant. “I always thought a hotel would fit very nicely there,” Weintraub said. “There still isn’t anything on the west side of town and businesses have never really flourished there because there’s no critical mass of shopping or residents. Everyone goes to Old Town (Calabasas) or The Commons (shopping center).” Additionally, hotel occupancy for the area runs more than 80 percent and room rates keep rising, which indicates big demand, he added. Calabasas showed its openness to hotels when it recently approved another hotel close to Weintraub’s. That developer also proposed four stories and 127 rooms but reduced it to three stories and 111 rooms to get it approved. The project, however, also includes 70 single-family homes. Weintraub said he wants to build a nice, upscale hotel but there are challenges. The property is tightly constrained by major utility, sewer and transformer lines underground, and construction costs have climbed significantly recently, which may make fewer or smaller rooms not profitable enough for him to get a construction loan, he explained. According to a study released this month by CBRE, construction costs in the L.A. market rose 3.5 percent in January from a year ago, compared to 1.8 percent across the country. That’s due to a strong demand and a shortage of labor, which has driven up wages. Baltin, CBRE’s hotel expert, said Weintraub has a lot of other brands he could pursue as an operator. But when it comes to Marriott, cutting down the size has to pencil out for both Weintraub and the operator. “If Marriott builds 110 rooms there, they can’t build another one nearby,” Baltin said, because hotel brands have territories. “They’re allocating a brand to a site, and that may be too few rooms for Marriott to want to tie up that area.” There’s still the self-storage possibility, which needs approval only by the planning commission unless there is an appeal, according to Coroalles. Weintraub previously developed Uncle Bob’s Self Storage in Calabasas and sold it five years ago, so he knows the market, he said. If that is the fate of the Las Virgenes Road site, Weintraub believes the city will lose out on a good deal. “They lost a really nice, highly successful, and well-respected brand that would have brought a ton of weekday and weekend people to the city,” he said.