The Garden Grove Agency for Community Development (Former Agency) and Palm Court Lodging, LLC, a California limited liability company (Palm Court) entered into a Disposition and Development Agreement on June 26, 2001 (Agency DDA) pursuant to which Palm Court was to acquire land from the Former Agency and develop two hotels.  One hotel was completed. The disposition of land for, and the development of, a second hotel as provided for under the Agency DDA, has not yet occurred.  Developer is the assignee of Palm Court with regard to the acquisition of land and development of the second hotel under the Agency DDA.  The Agency DDA agreement has been delayed due to an enforced delay. In May 2016, the City entered into an Exclusive Negotiation Agreement (ENA) between the City and Newage Garden Grove, LLC (as successor to Palm Court Lodging) (“Developer”) for the development of approximately 10-acres of real property in Garden Grove. Newage Garden Grove, LLC assigned its rights and obligations under the ENA to Newage Garden Grove II, LLC. The ENA has allowed the Developer to further analyze the Proposed Project and undertake completion of the environmental review of the Project, and determine the economic feasibility of the Project. The Developer concluded that the most feasible site is now the 3.72 acres comprised of approximately 2.25 acres (Agency Property) being conveyed to the Developer pursuant to the Agency DDA, and approximately 1.5 acres owned by the City (City Property) being conveyed to the Developer pursuant to the City DDA (See Attachment No. 2). The Agency Property and City Property are referred to herein as the “Site.” A public hearing notice was published for the September 13,  2022, Garden Grove City Council Meeting on August 30, 2022, and on September 6, 2022 for the Economic Development Subsidy and  Disposition and Development Agreement with Newage Garden Grove II LLC.

The Kam Sang Company, managing member of the Developer, owns and manages over one billion dollars in assets, and has developed and acquired significant retail and hospitality projects including major hotel brands, such as Marriott, Sheraton, Embassy Suites, Starwood, and Hilton.

Kam Sang's recent developments include: Garden Grove Brookhurst Triangle Phase I, acquisition of the Puente Hills Mall in the City of Industry, and construction of the Ritz Carlton in Rancho Mirage.  The Developer has selected Nickelodeon as the preferred hotel brand for the Site, and has finalized brand standards for the development, the amenities, and the attractions.  The Nickelodeon brand is iconic and its programming is aimed at children and adolescents ages 8-17.  Nickelodeon programming consists of original first-run television series, along with occasional broadcasts of released and original made-for-cable movies.  The development will benefit from the marketing power of the Nickelodeon name which reaches 500 million households.

Proposed Project Development Scope -  The Developer is proposing to construct a full-service Nickelodeon hotel or an equivalent AAA Four-Diamond resort hotel with hotel program entertainment/pool deck (height of approximately 61 feet) on a 3.72-acre site (Proposed Project).  The Proposed Project would include 500 guest suites with balconies; a themed pool experience with a lazy river; an event space that includes a 600-person maximum occupancy theater; a grand ballroom at 9,490 square feet; two meeting rooms at 4,194 square feet and 4,031 square feet; a variety of food and beverage opportunities to be placed throughout the hotel totaling a maximum area of 22,296 square feet; themed amenities totaling 13,238 square feet; a 7,000-square foot arcade; and a spa and fitness center at 8,532 square feet.

The Proposed Project will include specific entertainment amenities unique to the Nickelodeon Hotel Resort, including a Nick Studio, a Studio Hall, a Kid’s Lounge, and The Odeon, a fine dining restaurant. The Proposed Project will include a pool deck area that will be themed to the Nickelodeon animated characters, and will feature a pool, a lazy river that traverses along the pool deck, and a pool slide.  The Proposed Project includes a total of 23 stories with the main hotel tower at a height of 335 feet. The hotel tower will feature a unique serpentine shape with a transparent glass facade. The Proposed Project will also provide a total of 528 parking spaces within a five-level parking structure (four levels above-grade and one level below-grade). California Environmental Quality Act Compliance (CEQA) The Developer has processed approval of a Planned Unit Development (PUD) and Site Plan to authorize the construction of the Proposed Project.   The build-out of the Site will be based on the submitted concept plan and environmental document that is the basis for setting the development standards for the Proposed Project.

The Proposed Project was reviewed and an Initial Study and Mitigated Negative Declaration (IS/MND) was prepared pursuant to the California Environmental Quality Act (CEQA), Public Resources Code Section 21000 et seq. and the CEQA Guidelines (California Code of Regulations, Title 14, Sections 15000 et seq.).  Based on the Initial Study and supporting technical analyses, it was determined that all potentially significant impacts can be mitigated to a level of less than significance.   A copy of the Initial Study/Mitigated Negative Declaration is available for review at www.ggcity.org/planning/environmental-documents. The 20-day public comment period on the IS/MND occurred from June 9, 2022 to June 28, 2022.  Comment letters were received on the environmental analysis, and the City has prepared responses to each of the comment letters which are incorporated into the Final IS/MND and are attached to this report and available for review at the above referenced webpage.

At the August 23, 2022, City Council meeting, the following actions were taken:  Adoption of Resolution No. 9767-22 denying the appeal of PUD-141-01(A), Site Plan No. SP-107-2022, and Street Vacation No. SV-002-2022; adoption of Resolution No. 9768-22 adopting a Mitigated Negative Declaration and Mitigation Monitoring and Reporting Program for the Project; introduction and first reading of Ordinance No. 2938 approving an amendment to Planned Unit Development No. PUD-141-01 to create a sub-area, PUD-141-01(A), establishing development standards and performance standards for the Project; and adoption of Resolution No. 9769-22 approving Site Plan No. SP-107-2022 to facilitate development of the Project.

Proposed Disposition and Development Agreement (DDA) - Provided below are the salient points of the DDA:

1. The Developer will acquire the Agency Property pursuant to the Agency DDA.
2. The Developer will acquire the City Property for the purchase price of $920,000.
3. The Developer will construct and operate a AAA Four Diamond Hotel (the "Conforming Hotel," as defined in the DDA) on the Site.
4. The costs to develop the Conforming Hotel will meet or exceed the minimum requirements of $250,000 per key for shell costs and $45,000 per key for FF&E costs.
5. Subject to the Developer fulfilling its obligations under the DDA including without limitation, the construction and operation of a Conforming Hotel, the DDA provides for Covenant Consideration payments to the Developer in an amount equal to sixty percent (60%) of the Transient Occupancy Tax ("TOT") collected and remitted to the City during the 30-year Operating Period based on the applicable TOT rate with respect to the Proposed Project, up to a maximum amount of Ninety-Three Million Dollars ($93,000,000).
6. The DDA includes, indemnity and insurance provisions, and other provisions customary to comprehensive documents for the disposition and development of property as entered into by the City from time to time.
7. The Developer shall comply with the Prevailing Wage Statutes, use not less than 60% for union labor, and provide a preference for local workers.

2021 Economic Development Strategic Plan - The Proposed Project is in alignment with the City’s 2021 Economic Development Strategic Plan including:

Goal 1: Promote Community based Development that attract businesses and complements the culturally diverse character of Garden Grove including attracting national/international hospitality and commercial investment.

Goal 2: Leverage financial tools available through the Federal, State, and County levels and explore creative incentive financing as an alternative method for project financing to attract new quality investments including utilizing Ab 562 as economic subsidy to entice business.

Goal 3: Develop methods and strategies to expand and enhance the City’s tax revenue base that will ensure a high level of service to its residents and business owners by support major tax generating uses so the economy grows in a healthy and solid direction.

Goal 4: The Grove District is a major economic development engine for the City of Garden Grove revenue.  New hotel developments in the Grove District area collectively represent a source of significant new revenue and employment generator for the city.

The completion of the Proposed Project will provide for significant revenue and job creation to the City. City revenues will be achieved through property tax, transient occupancy tax, and sales tax generated from Proposed Project activity and operations. An Economic Development Report & Analysis was prepared by the City's consultant, Tierra West Advisors pursuant to Government Code Sections 53083 and 52201.

The estimated net project revenue to the City generated at year 3 is estimated to be approximately $3.5 Million. The financial impact to the city is expected to generate approximately $236.4 million in City net tax revenue over 30 years. The breakdown of these revenues includes; $166.4 million (70.4%) is TOT, $7.8 million (3.3%) is property tax, and $62.1 million (26.3%) is sales tax. (See Tierra West Report Attachment No. 3).

Over a 30-year period, the Proposed Project is projected to have a financial impact within the City and region in excess of $3.75 billion dollars. Benefits attributable to the Proposed Project will include jobs created and revenues generated from project hotel stays, retail sales, spin off of jobs, and tourism expenditures for services such as dining, fuel, attractions, and other visitor demands. The Development is expected to create and support over 2,800 jobs, many of which will be local. Project construction is estimated to exceed $277 million dollars. The Proposed Project is expected to create approximately 1,000 jobs through construction and permanent full time equivalent positions. In addition to the direct jobs created by the Proposed Project, indirect and induced jobs generated for the community, area, and region are expected to support another 1,800 jobs.

The Economic Development Report concluded the Proposed Project will provide a significant financial revenue generator and job creation for the City including:

• During the term of the DDA, the City is anticipated to receive over $236.4 million net in related tax revenues from TOT, Sales, and Property Taxes.
• During this period the Project will provide 1,000 new jobs through construction and direct jobs at the Resort.
• Indirect and induced jobs as a result of the Proposed Project is anticipated to exceed 1,800 jobs in the region.
• The City is receiving the fair reuse value for the land involved in the transaction due to the gap in development and operational costs.
• The public assistance provided through the DDA is appropriate for this project and consistent with public agencies and hotel developments.

The Proposed Project will generate increased property taxes when compared to the year prior to acquisition of the Property by the City, thereby vastly exceeding the 15% threshold identified as a measure of “economic opportunity” in Government Code 52200.2(b).  The City has concluded that the Proposed Project would serve as a continued catalyst for the City’s Tourism Corridor and provide a significant net positive financial impact on the entire local economy.

It is recommended that the City Council:

• Conduct a Public Hearing;

• Adopt a Resolution approving the Disposition and Development Agreement between the City and Newage Garden Grove II, LLC.; and
• Authorize the City Manager to execute the Disposition and Development Agreement, including any pertinent related documents, and make minor modifications as needed.

By:  Greg Blodgett, Division Manager