Coming out of the planning commission meeting, it was obvious that there is serious neighborhood concern regarding the location of the proposed Hyatt House hotel. The interesting dynamic was that there was almost an equal number of people speaking up on Wednesday that we need a hotel for city revenue and to support existing and emerging businesses.
The response of the neighbors was simple – all of that is true, but that truth holds no matter the location of the hotel. That said, given how quickly and how hot this issue has burned, it might be worth resetting the discussion away from land use concerns and toward fiscal concerns.
While the city needs to figure out sources of tax revenue, it is important to understand there is considerable difference in four different analyses of the impact of additional hotels on the Davis city fiscal system.
The PKF Consulting study represents one of the more optimistic views on market demand. They believe that building the Embassy Suites with additional rooms and also 18,000 square feet of meeting space “would likely require additional guestrooms than what would be offered at the Embassy Suites, thus requiring additional, conveniently located hotels to accommodate this overflow demand.”
They find that 18,000 square feet of meeting space could include between 500 and 1000 attendees, depending on the type of function. “A hotel with approximately 18,000 square feet of meeting space would typically feature between 350 and 400 guestrooms,” they note. But the Embassy Suites will have just 132 rooms, which means that Davis will need other hotels to complement the Embassy Suites in order “to capture either overflow group demand that is booked at the Embassy Suites (but can’t be accommodated).”
PKF argues that at least three new sites can be “readily absorbed by the market,” and they find “occupancy is projected to increase to 67.0 percent in 2019 and further increase to approximately 70.0 percent in 2020 and 2021. It is at this level we project the Davis hotel market to stabilize. While this stabilized occupancy level is above the annual average occupancy level achieved by the Davis hotel market since 2007, it is in line with the year-to-date performance and is reflective of the growth occurring in Davis.”
Based on these projections it was projected that four new hotels could ultimately generate between $1.5 and $2 million in new revenue for the city just by themselves.
In January, the Vanguard met with existing hotel owners who are skeptical of these claims from PKF, and point to their own analysis that paints a very different picture.
They note, while the occupancy rate has increased from 61 percent in 2012 to 67 percent in 2014 (the most recent data available), the rate varies by day and month. Basically, from Sunday through Thursday, hotels have trouble booking rooms, and it is only on the weekends, mainly Friday and Saturday, where hotels approach 70 to 80 percent capacity.
But even these are variable, depending on the time of the year, with the summer months generating heavy usage that falls way off during the late fall to early spring. In essence, there are only about five times during the year when the market is saturated: when UC Davis opens, Picnic Day, and during three separate graduations – in the spring, fall, and for the law school.
The analysis notes that coupling additional hotels with the already-approved Embassy Suites would add about 328 rooms to the market that would have to be absorbed – the existing hotel owners do not see the demand generators at this time to justify that belief.
The PKF model suggests an industry that would grow from roughly $17 million a year upwards to $40 million by 2021. However, the existing hotel owners presented to the Vanguard what they consider a more realistic projection, which would be five percent growth, which is keeping more with historic revenue growth, and the hotel industry would move from just over $17 million up to $25 million by 2021. Even that growth rate, some say, is optimistic.
The premise of the PKF study is that there is leakage from Davis to surrounding cities like Woodland due to lack of supply. The statistics suggest otherwise, the hotel owners argue. Right now, Sunday through Wednesday is dead. If there are days of leakage, perhaps Friday and Saturday are those days, but, most of the time, those days are averaging at most 80 percent occupancy rates during peak months.
There are perhaps five days a year when there is leakage to other cities, but that is not sufficient to justify the proposed increase in rooms PKF is suggesting.
The city contracted with HVS Consulting & Valuation in order to get an independent assessment of the hotel market demand.
As staff notes, “HVS analyzed scenarios for hotel development in Davis, with the existing room supply and the addition of Embassy Suites as the baseline. Impacts of adding additional hotels were projected. HVS concluded that the near-term development of a conference hotel facility with the addition of an extended stay hotel to be built shortly thereafter would be most beneficial to visitors, the City of Davis, other hotels in the market, and the overall community.”
However, HVS concluded “that the addition of another hotel, specifically another extended-stay facility, would not benefit the market for another four to five years after the initial extended-stay hotel has opened.”
The HVS report analyzes the study performed for the Hyatt House, noting, “Based on the forecast, occupied room nights will have to increase by 40% over a two-year period to sustain a 65–66% occupancy level. Those figures are somewhat extraordinary, especially for a market that has yet to surpass 70%.”
They note that “it is likely that those occupied room nights will come from induced demand associated with the Embassy Suites and unaccommodated demand from those who would like to stay in Davis, but the types of accommodations desired do not exist or are sold out. Furthermore, the projected (2015–2021) compounded annual growth rates for the previously described metrics are higher in all categories when compared with those achieved between 2007 and 2014. Although the stabilized level of occupancy for the Davis market appears somewhat robust, it is clear that there are significant levels of unaccommodated demand in this market.”
However, HVS adds that “although projected to be higher than historically achieved in the analysis completed by PKF, it is reasonable to assume that the entry of branded, high-quality hotels would have a positive impact on the rate structure of the market as a whole.”
HVS concludes that these projects “appear slightly aggressive but not entirely unreasonable.”
City staff writes, “Staff accepts the analysis that shows that construction of one extended stay hotel in Davis would benefit the City and the market by capturing room nights from visitors who are going elsewhere because they are seeking either amenities or a hotel brand that is not available here.”
“Additional rooms in an extended stay hotel could also complement the hotel conference center by accommodating overflow guests, provided there are mechanisms to address inefficiencies of shuttling meeting-goers,” staff adds.
However, staff concurs “with the HVS conclusion that there is not current capacity to absorb the rooms proposed for both the Hyatt House and the Residence Inn if they were to open within the same period of time.”
This analysis has led at least some to conclude that the best approach would be for a consideration of both proposals at the same time. That is probably more appropriately an issue for the council rather than the planning commission to consider.
Questions that the council should address are:
- What are the short-term and long term needs for hotels in the community?
- What is the likely revenue generation of a single hotel and both hotels?
- Do we need one additional hotel or two, or should the council even weigh in on that issue?
- If the council does believe we need one rather than two (or zero), which one is the better location?
—David M. Greenwald reporting
A robust discussion of the economic benefits of a hotel is a healthy process. It is important to note however that the economic benefit to Davis of new hotels is not site specific to the Rosecreek location the Hyatt has proposed.
Which I believe I noted.
One of the important fiscal steps that Finance and Budget Commission took during the Nishi process was to convert uncertain revenues into certain revenues. The “make whole” provision vis-a-vis property taxes made certain $93,000 per year of uncertain revenues. The Community Services District for maintenance of the open space made certain another $181,000 of uncertain revenue.
The specifics of the Hyatt House project are different than the specifics of Nishi were, but the core problem is the same . . . making uncertain revenues into certain revenues.
I thought that after the Nishi discussion, which raised the prospect of a general plan update, it seems it’s back to planning as usual….project by project, analysis by analysis, debate by debate. What’s up?
The city is moving forward with a general plan update. However, someone can correct me on this, isn’t the city required to process applications that it receives?
Yes they are, but the General Plan Land Use change for Business Parks is not something that the applicant has asked for. Neither is the South Davis Specific Plan change Staff has recommended.
There are plenty of questions to be answered before any action is taken on these hotel proposals. For instance, nailing down how many additional hotels could be supported without over-saturating the market and driving one more more other Davis hotel out of business. That would be detrimental so adding to much supply just hurts the City financially and in terms of planning as well. Again, I agree that the TOT is desirable, but not at the cost of simply moving the TOT source from one site to another and losing a hotel, rather then adding TOT revenue.
Also, we need definitive answers to the TOT exemption issue and potential for UCD “master leases” in hotels concern that Ron raised yesterday. So hopefully City Staff will research these questions and further review the various opinions on confirming if one or two hotels would be viable without costing the loss of an existing hotel by allowing over-saturation of the market now. It would seem that with the proposed Embassy Suites Hotel and the expansion of another existing hotel, that two hotels may well be too many, but that one would work.
Once again our City Staff is shown to be singing different tunes depending on what conflicting message they want to give to the public.
When they want to claim traffic on Richards Blvd and Olive Dr. will not be a problem if Embassy Suites and Nishi are built, they use the Fehr and Peers traffic analysis to certify the Embassy Suites Mitigatated Negative Declaration and the Nishi EIR. In the Fehr and Peers traffic study, they assumed a very low number of attendees at the conference center of just 225 people. This was the number provided to them by the project applicant/developer. This low number was used to partially justify Fehr and Peers almost laughable conclusions that traffic through Richards and Olive would hardly be affected by the two projects (Nishi and Embassy Suites) moving forward.
I challenged this ridiculously low number of attendees by analyzing maximum occupancy and instead calculated a maximum attendance based on the square footage of the facility and state law as about 1,000 people. I was soundly criticized by pundits in the Vanguard and ignored by Council when they approved both the projects.
But fast forward…now when the City wants to justify building additional hotel rooms, lo and behold, they roll out the PVK report which says essentially the same thing I was shouting from the rafters months ago.
So if the City does not want to plan and pay for adequate Richards and Olive traffic mitigation measures for the Embassy Suites and Nishi, they use the Fehr and Peers traffic study using the arbitrarily low conference center daily attendee counts (225) to certify the Embassy Suites MND and Nishi EIR. But if they want to justify building more hotels in town, they use the PVK study that estimates 1,000 conference center daily attendee counts. Guess what?…The developers win in both cases.
No wonder citizens have such little trust in our City government when they pull such shenanigans.
Alan – I assume you are referring not to the “PVK” study but to the PKF study cited in the article. That study is not a City-commissioned study but was commissioned by the proponents. The City does not cite it in the staff report but the proponents do cite it. The city is therefore NOT rolling out the PKF report, the proponents are.
The City commissioned the HVS report which was discussed at two different City Council meetings (in March and April of this year). We have never discussed nor made reference to the PKF study.
Rob – Your point is taken on it not being Staff rolling out the PKF study and it is the Hyatt project proponents touting it. But the discrepancy in estimated conference center attendees between the Fehr and Peers traffic study and the PKF hotel study still speaks volumes about the underestimations of traffic impacts used in the F&P traffic study. This study was partially a basis for approval of both the Embassy Suites and Nishi projects.
Eileen Samitz said . . . “Also, we need definitive answers to the potential for […] UCD “master leases” in hotels concern that Ron raised yesterday.
Eileen as I said in my response to Ron when he raised this “master Lease” issue yesterday, there is no logical business reason that would cause the University to sign a master lease with an Extended Stay hotel in Davis? In addition, there is no logical business reason that would cause a professor to stay in an extended stay hotel for an academic year (or even for an academic semester).
The simple reason for both those realities is economics. The projected nightly room rate in the HVS study is $156.00. Multiply that $156.00 by 30 days and you get $4,680.00 per month before any applicable taxes. Why would a single professor want to pay $4,680.00 per month rather than rent an apartment in Davis for half that much? Similarly, why would a professor with a family subject spouse and kids to living in a hotel for a year rather than in a home or apartment? The answer in both cases is that there is no reason why a professor would do either of those things.
Bottom-line, Ron’s hypothetical scenario has a statistical probability that is between slim and none and, and slim has left the building.
With that said, the best way to completely remove any doubt on Ron’s hypothetical would be to have UCD state on the record that it has no interest in pursuing such an extended stay hotel master lease.
Matt:
You ignored my responses in the other article. Are you doing so on purpose?
Here we go again, I guess. You’re (still) making a number of incorrect assumptions:
1. There is no requirement to stay for a year, or even a semester. Davis’ city code only requires an agreement to stay beyond 30 days. In such cases, the guest would not pay ANY TOT, starting on the first day. (Again, you were initially completely wrong about this, and are still failing to acknowledge it.)
2. You’re assuming that the rate is known, and is non-negotiable for long-term guests.
3. You’re assuming that a (furnished) apartment is available, at the rate (and time frame) that would appeal to a long-term guest.
4. You’re assuming that a guest would be staying with his spouse/family.
5. It’s not just limited to “master leases”. Any individual can engage in such an agreement with an extended-stay hotel.
Someone else (quiello?) stated that hotels might discourage long-term (beyond 30-day) stays, due to potential eviction problems. As I responded, I don’t know how difficult it is to evict someone (for example, a professor) who (for some reason) stays beyond their agreement. However, hotels have no inherent interest in collecting the TOT, and avoiding it would certainly appeal to guests.
This issue (loss of TOT) may be more of a concern if extended-stay hotels have difficulties filling rooms (e.g., if too many hotels are simultaneously constructed). In such cases, hotels may effectively function as apartment complexes, without any TOT collected for city coffers. (At least for affected units.)
Ron, 1. you identified your hypothetical person as a visiting professor. Do you know of any visiting professors whose stay in Davis exceeds 30 days but is less than a full semester? I don’t, but your experience in the visiting professor world may be greater than mine.
2. Yes, that is exactly what I am assuming. The whole business premise of an extended stay hotel is built on that business reality, and the expert opinions provided to the City identified that rate at $156.00 per night on average.
3. Yes, I am assuming that if the University might be contemplating arranging accommodations for a visiting professor (otherwise they wouldn’t be signing a master lease for visiting professors), then their already existing master leases for apartments would be the much less expensive (for both the professor and the University) route for solving the business problem.
4. No I am not assuming that, nor did I assume that. Go back and read my words. I very explicitly laid out two scenarios, the first one without family and the second one with family.
5. Agreed; however, you were the one who defined the hypothetical with the University pursuing master leases with one or more of the Extended Stay hotels. If you want to take that scenario off the table, please feel free to do so.
Your final two paragraphs introduce a whole new set of your “what if” hypotheticals. One of the things about hypotheticals is that it is impassible to be 100% certain about their outcome, so if the criteria for moving forward is 100% certainty, then the introduction of an army of hypotheticals is a very good way to build an argument for saying “No.”
Matt:
I’ll go ahead and respond, even though you and I are still disputing the meaning of the code, at this point. (I asked others on the Vanguard to weigh in, regarding that other posting.)
1. You brought up someone staying for a full year, or a semester. I pointed out that they only need an agreement to stay beyond 30 days, to avoid paying TOT (from the first day of their stay). There are probably a variety of situations (involving professors, and others) that would be searching for arrangements beyond 30 days.
2. Again, you’re assumptions appear to be incorrect, regarding the ability to negotiate amounts and timeframes. (Especially for stays longer than 30 days.)
3. The rate, terms, and timeframe for an alternative (furnished apartment) might not be better for some visitors than those provided by (and negotiated with) an extended-stay hotel.
#4, #5 – Not sure that you’re disagreeing with my points above.
Thanks to David for posting this though there is really not enough to base a decision on. At a minimum there should be data on price sensitivity and source of business segments. I would also be highly surprised if the developers did not have some information on how the biggest individual customers were projecting their room needs.
This project is too complicated and generates too many impacts to be waived through planning with only a shorthand traffic report and a negative declaration in the CEQA process
the minimal report they use relies on six year old traffic data. And those data are deficient
The city still hasn’t learned from past errors ….
Welcome back Mike. Still waiting for you and your no-grow cohorts to tell us if there was ever a development you supported other than your own.