By Kathy Lee Scott/Garden Grove Journal
When a proposed 600-room water park hotel opens, Garden Grove’s redevelopment agency must pony up $42 million to McWhinney Real Estate Services, the developer.
Chad McWhinney, CEO, said, “Our lenders want the city’s portion of the money upfront.”
At its April 13 meeting, the council, also acting as the redevelopment agency, unanimously approved the modified agreement with the developer. Councilmember Andrew Do was absent.
The agency doesn’t have $42 million lying around, so it will need to issue tax-exempt bonds, Greg Blodgett, senior project manager, told the council.
City Manager Matt Fertal said the bond costs would be paid by the tax revenues generated from the hotel. “It should take about 20 years to pay them off,” he added. “By paying the $42 million as a lump sum, the city will get revenues that are double the bond costs.”
Each year, the agency will pay a bond debt service charge, which could equal the amount of money the agency would have shared with the developer under its former agreement.
Now, the agency and city keep all the various taxes on the improved property.
“We figure it will generate $8.5 million (taxes) a year,” Blodgett said.
The project will sit on 11.7 acres along Harbor Boulevard, north of Garden Grove Boulevard, and include the 12-story hotel, around three acres of water rides and features, plus 18,000 square feet of retail space.
“This will be the largest new construction project in California,” McWhinny said.
In addition, McWhinney, through its Garden Grove MXD entity, will erect a 1,200-space parking structure, for which the agency will front the developer $5 million more.
According to Florida Booth, managing director of Horwath HTL, an agency consultant, a private-public partnership “will make it easier for the developer to get financing. The bank sees he won’t just walk away from the project.”
Booth’s report showed the completed project would appraise at $291 million. After subtracting a $332 million construction bill, the amount left over – minus $41 million – equals the value of the land.
“As it is now, it’s bringing in zero dollars to the city,” she said.
Figuring less than 75-percent occupancy, Booth estimated the hotel would bring in $23 million or more annually over the 10-year period she examined.
At the council meeting, Charles Mitchell asked, “Will the bond money be taken by the state? Would that put the city’s budget in jeopardy?”
According to Councilmember Bruce Broadwater, “We won’t issue the bonds until the hotel is built.”
McWhinney still had no answer about how Garden Grove residents can use the water park without staying at the hotel. Under the agreement, the developer will provide 20 free hotel rooms and water park passes to the agency each year for the first five years the hotel is open.
Blodgett suggested the agency will donate the rooms to the Garden Grove Chamber of Commerce for door prizes. “If the council or staff gets them, then they need to report them as gifts or income,” he said.
The agency should finish demolishing and clearing the site by March 27, 2012. On July 27, 2012, MXD should begin construction, with a September 2014 completion deadline.
Broadwater said, “This is a fabulous deal for Garden Grove. “
Mayor William Dalton said, “If we start now, it’ll speed up the process and make money when it opens.”