Economic development directors in cities around the world say they are looking for two things in particular – more jobs and more tax revenue1.
Fairmont Breakers Long Beach has proven to be a superstar in one (creating jobs), with the potential to add significantly to the Long Beach city coffers almost immediately after opening later this year. That catches the attention of both economic development experts and political leaders.
Enough so that a public-private partnership including a tax-sharing agreement made sense to all involved.
Public-Private Partnership
When John Molina and Pacific6 bought the Breakers Hotel building in 2017, that site was generating little to no revenue for the city. It had operated for years as an assisted living/senior housing facility. Even property tax revenue (which the city shares with the county and others) was low.
Plans to restore the 15-story historic building to its original glory as a luxury boutique hotel changed all that. Early estimates of restoration/renovation construction costs were $135 million – improvements that would directly impact assessed value for property tax.
A successful hotel generates a lot of sales tax through its food and beverage services, the spa and more. And hotels have something other businesses don’t – a Transient Occupancy Tax, sometimes called a bed tax. The tax is collected every time a room is rented.
In Long Beach, that TOT is set at 13 percent of the room cost. Hotels in the downtown Tourism Business Improvement Area, which will include Fairmont Breakers, collect an additional three percent for promotional and support services.
When Pacific6 approached city officials with a proposal to share that TOT money for a while after the hotel opened, it was a no-brainer. That pledge would help get financing for the construction, and would generate multiple benefits including more jobs, which in turn would put more money into the city’s economy.
All About Jobs
In the city staff’s 2018 report proposing the tax credit deal, it is estimated that the hotel would create 500 construction jobs, and once it opens another 240 permanent jobs for operations. A 2022 study done by consultants Kleinhenz Economics pegged the total construction jobs at 742, with the operations phase requiring 311 full-time equivalent jobs.
How important is that to a city? According to Kleinhenz, construction would create another 697 indirect and induced jobs. Added to the on-site workers, that results in an annual payroll of $92.6 million. That’s a positive economic development impact to be sure.
So it was no surprise when the Long Beach City Council agreed in 2019 to return 80 percent of its TOT tax to Fairmont Breakers for its first nine years of operation, with a cap of $13 million. Even the 20 percent was estimated in 2019 to generate $400,000 annually for the city out of a total $2.2 million.
Those numbers are significantly higher today, thanks to the expected premium room rates at a Fairmont Breakers AAA five-diamond-rated hotel. Renato Alesiani, vice president of real estate and hospitality for Fairmont Breakers Investco, LLC, said the $13 million TOT cap could be reached in as little as half the nine years stated in the agreement.
Helping Preserve History
In addition to the city’s participation in a public/private partnership, the federal government’s National Park Service is supporting Fairmont Breakers through its Historic Preservation Tax Incentives Program. Those tax credits also are part of the financing package, and another public/private partnership.
The Breakers Hotel was built in 1926. It is on the city’s register of historic places and is in process for designation on the state and national registers. Pacific6 has been working with the California Office of Historic Preservation and the National Park Service since construction began in order to retain as much of the historic building as possible – a goal near and dear to John Molina’s heart.
“We’re keeping as much in place as we can,” he said. “Part of what we’re doing here is giving back to the city where we’ve been born and raised. It (Breakers Hotel) is unique.”
Once construction is complete, Fairmont Breakers Long Beach will be unique in another way. It will be the only five-diamond hotel in the city, and it is literally next door to the Long Beach Convention and Entertainment Center.
A New Level Of Luxury
Its existence will open a sector of customers who have previously had to go elsewhere to experience high-end luxury hotels.
“Many of our convention clients are thrilled to have a luxury hotel option in Long Beach for their event attendees,” said Steve Goodling, President & CEO of Meet Long Beach. “This greatly rounds out our offerings as a convention city.”
Hospitality and tourism is one of the top economic sectors in Long Beach – according to a 2019 (before the pandemic) study, the total economic output of the sector was $1.76 billion, with $1.17 billion of that direct spending. And a large proportion of that spending is from people living outside Long Beach.
And according to the Beacon Economics study done for the Convention & Visitors Bureau, visitors actually spend more on food service than they do on their rooms. Fairmont Breakers will have five different restaurants and lounges, plus a full-service luxury spa – the only one in a hotel in Long Beach.
Adding to the top end of that business sector is economic development in spades.
Good Jobs, Good Careers
Finally, back to job creation. An agreement has already been reached with UNITE HERE Local 11, the union representing hotel workers, to make Fairmont Breakers a union hotel, paying union scale wages.
Another public/private partnership agreement, this time with Cal State Long Beach, will help train future hoteliers. Fairmont Breakers has agreed to provide internships to CSULB students in the Hospitality Management degree program.
Creating jobs, adding to the tax base, bringing money in from outside the city – that is economic development at its best, and worth strong public/private partnerships. And that is Fairmont Breakers Long Beach.
Note: This presentation contains forward-looking statements including, but not limited to statements regarding a company’s future financial performance, its plans and expectations for fundraising, customer and earnings growth and the future growth of the relevant market. All statements contained in this presentation other than statements of historical fact are forward-looking statements. Forward looking statements are not guarantees of future performance and are subject to risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements. These forward-looking statements reflect our view only as of the date of this presentation. Except as required by law, AV undertakes no obligation to update any forward-looking statements.
- Why Local Economic Development Is Important For Every City, and multiple other city sites.