TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Scott Agajanian, Economic Development Director
PREPARED BY: Scott Agajanian, Economic Development Director
SUBJECT:
title
Transient Occupancy Tax Revenue Sharing Agreement
end
RECOMMENDATION
recommendation
Conduct a Public Hearing on the Economic Development Subsidy Report; and
Approve a Transient Occupancy Tax Revenue Sharing Agreement with Safar & Safar Brothers, Inc. for the property located just north of Joan Dunn Lane and East of Antelope Road at Assessor’s Parcel Numbers (APN) 384-240-003 and 384-240-004.
body
PRIOR ACTION/VOTE
None.
CITY COUNCIL GOAL
Aggressively pursue economic development.
BACKGROUND
The City of Murrieta (City) has identified tourism and leisure opportunities that attract residents and visitors as an Economic Development Goal of the General Plan. One of the supporting policies to meet this goal is to encourage the development of business-oriented hotels that capitalize on the superior freeway locations in Murrieta and the expanding office, professional, and technical job base. Business-oriented hotels provide stronger weekday hotel stays, which create a more stable and prosperous tourism industry. Another goal of the Economic Development Element of the General Plan is to create a sound, stable, and diversified economic base that features healthcare as a core industry, with a policy of promoting Murrieta as a center for medical/health services and technology through active encouragement and recruitment of medical office, medical research, and health care facilities in the City.
These two goals of promoting and encouraging health care services, and also promoting travel and tourism, have found a convergence in medical tourism, which happens when people need to travel for medical care. Murrieta has become a regional hub of healthcare, and individuals travel to the City to have access to healthcare services that are available here. Healthcare providers in Murrieta, specifically in the northeast corridor of Murrieta’s Innovation zoning, have struggled to meet the medical demands of the region in their current footprints. Loma Linda University Medical Center has announced expansion plans and has already expanded to add new hospital bed space. Kaiser Permanente has constructed an ambulatory surgery center and will follow up with a new hospital in this corridor. Every major medical center in the City has expanded or is planning an expansion at this time.
In September 2024, the Economic Development Department began a dialogue with Safar & Safar Brothers, Inc. (Developer), regarding the development of a hotel that would serve the needs of the medical industry in Murrieta. This conversation progressed, with the developer entering a Purchase and Sale Agreement (PSA) to acquire the property located at APNs 384-240-003 and 384-240-004. In addition, Safar & Safar Brothers, Inc. has completed a pre-application process with the City of Murrieta on this site, which is just north of Loma Linda Medical Center, for a proposed four-story, 122-room hotel.
There is considerable community interest in seeing a venue of this type opened in the City of Murrieta. The tourism, travel, and economic impact created through this type of hotel would have a substantial impact within the City. This hotel would not only benefit the City’s medical corridor but also serve to bring a new revenue stream to the City in the form of Transient Occupancy Tax (TOT) and also in new tourism spending that would come to the community. A pro forma prepared by the Developer has forecasted gross revenues of approximately $15 million to be generated in the first four years of operations. In addition, it is estimated that there would be $1,530,273 in TOT revenues for the City of Murrieta in the same four-year span.
To assist the Developer with financing this project, Safar & Safar Brothers, Inc., is requesting a TOT Revenue Share for this project that would provide them with fifty percent (50%) of the TOT for the first three years for an amount not to exceed $600,000. After that point in time, one hundred percent (100%) of TOT revenue from the hotel would go directly to the City of Murrieta. Given the revenue forecast by the hotel, it is anticipated that it would take just over three (3) years for this revenue-sharing agreement to be completed.
Many municipalities have approved similar TOT revenue-sharing agreements to incentivize hotel construction, including the City of Murrieta. On September 21, 2021, the Murrieta City Council approved a 15-year 50/50 split TOT revenue-sharing agreement for the Hotel Murrieta project, and on December 6, 2022, the Murrieta City Council approved a $1,000,000 revenue share for the Homewood Suites project.
In this case, the proposed hotel, a Woodspring Suites, is of a smaller scale and is asking for a smaller revenue-sharing agreement. Although the City of Murrieta would not typically create a revenue-sharing agreement, this hotel is going to support a region that has not developed any hospitality accommodations to date, and the growth of healthcare has created a dire need for support facilities. The region that this hotel will be located in, the need for additional ancillary businesses to support local healthcare providers, and the benefit to the community in bringing access to room stays near the City’s major medical centers, are all special circumstances that make this revenue- sharing agreement necessary to achieve the goals laid out in the City’s General Plan.
In addition to the direct Transient Occupancy Tax that will be created by this project, the project will create other economic impacts from the travel it generates, including Sales Tax and new Property Taxes for the site. This new business will also be a job creator. generating an anticipated 20 full-time new jobs and eight (8) part-time jobs to start. In addition to those permanent jobs, there are indirect and induced jobs that will be created through the development of the hotel and its ongoing maintenance.
The City may enter into such an agreement with any developer, pursuant to Assembly Bill 562 as codified as California Government Code Section 53083, after conducting a public hearing and posting an Economic Development Subsidy Report outlining the entity involved, the duration of the agreement, a description of the subsidy with the purpose for its creation, projected tax revenues, and estimated number of jobs created. Those terms are outlined in this City Council presentation and the attached Agreement and Report.
This Agreement does not assume future approvals by the City for development or entitlement. It is for the sole purpose of finalizing the economic details that the City may choose to commit to at this time.
FISCAL IMPACT
The Woodspring Suites by Choice Hotels forecasts revenues of $15,302,730 in its first four (4) years, generating TOT revenues of $1,530,273 during that period of time. If approved, under the Agreement, the City is estimated to receive approximately $930,273 in new TOT revenues from this business in the first four (4) years and would share the estimated remaining $600,000 with Safar & Safar Brothers, Inc. Additional revenues that are not forecasted at this time are new sales taxes created from on-site dining and retail and off-site spending generated from new tourism within the City of Murrieta. The City would not be sharing any of these additional revenue streams, only the TOT revenues outlined in this Agreement.
ATTACHMENTS
1. TOT Sharing Agreement
2. Economic Development Subsidy Report