Staff Correspondence - #26 - Laserfiche WebLink

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Exhibit 21:City Council Questions to Applicant from September 17, 2024 Hearing 1. Why is only one hotel planned for the project? Applicant’s Response: Related’s professional assessment of the market is that the Project can only reasonably support one hotel. Our assessment is informed by our company’s extensive experience developing hotels throughout the country, including The Conrad in Los Angeles, which we completed in 2022, comprehensive market data on the South Coast Metro and John Wayne Airport hospitality submarket, input from various hotel operating partners, and the current state of the hospitality industry and capital markets. While we are excited to be pursuing a hotel at Related Bristol, it will be the most ambitious and challenging component of the project to realize. This can be attributed to a combination of factors including: the increasing cost of construction, escalating cost of hotel operations, softening in business travel demand as the economy continues to shift to a hybrid work environment that promotes online versus in- person meetings, and a backdrop of a highly competitive and well supplied hospitality submarket that already has 12,000 hotel rooms. Related is very concerned that the inclusion of a second hotel will render the first hotel financially infeasible as investors and lenders on the first hotel will perceive the second hotel as unacceptable competition that will take business away from the first hotel and jeopardize their investment. The average daily room rate of full-service hotels in this submarket is approximately $220/night whereas new construction would require rates approaching $400/night for feasibility. The addition of a second hotel would only further soften the market and add downward pressure on the rates achievable at the first hotel. Segmentation and differentiation of two hotels on the same property would be difficult to accomplish and we believe the second hotel would cannibalize business from the first hotel. It is worthwhile noting, however, that Related Bristol’s specific plan does contain flexibility to convert uses that could potentially facilitate a second hotel should the economic fundamentals and market conditions significantly improve. However, our professional assessment is that a second hotel is infeasible for the foreseeable future and should not be included in order to protect the feasibility of the first. Following receipt of the Applicant’s response, the City has added the following additional information for the City Council’s consideration: During the Ad Hoc Committee negotiations, Related discussed the challenges associated with developing a financially feasible a hotel at the site as reflect in their response above. The Ad Hoc Committee considered the information and focused on the Applicant committing to pursuing an upscale high-quality hotel that is not currently available in Santa Ana. As reflected in the Development Agreement Section 4.2.4, the Applicant is committing to pursuing and securing a minimum of four-star class hotel. Similar hotels in area with a four-star rating include the Westin South Coast Plaza, Avenue of the Arts, the Hilton Orange County, and the Marriott. Four-star hotels are large, upscale establishments, fully staffed and offer special services and amenities, including concierge Page 1 of 3