Trading Miramar Bed Tax for Buildings
New Plan in Los Angeles Developer Rick Caruso’s Plight to Rebuild the Historic Hotel
Thursday, March 1, 2012
Rick Caruso is a busy guy.
Until his deal fell through last week, Caruso was on the short list of people trying to purchase the Los Angeles Dodgers for something like $1.5 billion. He’s considering a run to be mayor of L.A. next year, and even if not, he’s known to spend hundreds of thousands — sometimes millions — on others during election season every year. His Americana at Brand and Grove shopping centers are two of the snazziest in Southern California, and he’s also gambling on Las Vegas, where he’s the exclusive leasing agent for a new $550-million retail, entertainment, and food district being planned by Caesars for the middle of The Strip.
That busy schedule, however, is bringing lots of frustration to Santa Barbara, where people wonder what’s taking the well-coiffed, well-dressed, and, well, well-done-everything-else Caruso so long to rebuild the historic Miramar Hotel on the Montecito coast. When the developer — whose personal fortune is estimated to be $850 million — first got involved nearly five years ago, he promised that if he couldn’t get a bank to finance the roughly $170 million project, he’d do it himself. “Banks are calling us,” Caruso told The Santa Barbara Independent in 2007. “We have a balance sheet that, if it came down to it, we could do it on our own.”
But by the time his five-star, 186-room project was approved for the 16-acre South Jameson Lane property a year-and-a-half later in December 2008 — just three months after the now notorious collapse of Lehman Brothers — the world would be in the midst of a recession. Amid foreclosures, bankruptcies, and layoffs, the market for constructing luxury hotels tanked. “It’s not an outlier,” explained Matt Middlebrook, a senior vice president with Caruso Affiliated, of the Miramar, which has sat vacant and been bumped from hotelier to hotelier since 2000. “It’s the norm.”
Those once-eager banks are just now starting to call again, and Caruso — despite the lingering intrigue and mistrust that he’s endured since the first Montecito Association meeting in 2007 — remains unyielding. When I spoke to him on his cell phone last Friday, the ever-polite Caruso only had a minute to talk, yet he did so matter-of-factly, explaining that he’s always intended and still intends to rebuild the Miramar himself.
Caruso’s next big idea will be entertained by the County of Santa Barbara’s Board of Supervisors on Tuesday, when they’ll decide whether to take the next step in a proposal to wave off a decade of potential bed taxes and extend his soon-to-expire building permits forever in exchange for the immediate demolition of the unsightly, dilapidated, and trouble-attracting blue-and-white structures on site. Though most publicly agree that cleaning up the 12-year-old mess is a pretty attractive trade-off, others quietly surmise that the deal’s estimated $18 million in tax savings — which amounts to chump change for this near-billionaire — is more likely a way for Caruso to dump his long-struggling property to the next highest bidder.
Caruso flatly denied those allegations during our brief conversation on Friday afternoon. “I have no interest in selling — I’ve been approached by a lot of people trying to buy, and we’ve turned them down,” he told me. “I have no reason to lie to you. There’s no hidden agenda here.”
By Paul Wellman
Two parts of Caruso’s proposal are straightforward. The county supervisors are almost certain to extend the permits — which expire in mid March — by a year. They rarely deny such a request, and in this case, no one wants to be on the political hook for making this beleaguered process start all over again. That would likely doom the project for another decade or so.
And knocking down the crumbling structures is something that everyone had been pleading for since at least 2007. The only confusion here is why the county has not condemned the buildings and forced Caruso to tear them down already. It turns out that they can’t, according to county CEO Chandra Wallar, as the structures, while ugly, have not been declared a danger to the greater public, so the building code’s condemnation policy does not apply. But Caruso says he would do it himself if his plan is approved Tuesday, shouldering the expected $1.5 million in demo costs and beginning teardowns as soon as possible, after getting the right approvals and paying another $1.5 million or so in fees to the California Coastal Commission for a permit.
The third aspect of the plan — the 10-year bed-tax rebate — is what has everyone buzzing. Currently, everyone who stays in a hotel in the unincorporated parts of Santa Barbara County pays a 10-percent transient occupancy tax (TOT, otherwise known as “bed tax”), so a $200 room at a Los Olivos bed-and-breakfast gets bumped to $220. In the last fiscal year, those taxes brought in $6.9 million to the county.
But Caruso wants a 10-year break from the TOT once the Miramar is in operation. So on Tuesday, the county supervisors must determine whether it’s worth leaving potential money on the table — which is estimated to start at about $1.5 million per year and range up to $2.1 million by the end of that decade — in exchange for a stronger hope that the Miramar actually gets built and begins to generate property and sales taxes that go beyond what the bed tax would have delivered.
And it’s not just for the Miramar. Because of where the hotel project is in the development process, Caruso’s proposal would have to take the form of a countywide ordinance: If the supervisors decide to move forward and ultimately approve it, anyone building a new hotel in the unincorporated part of the county would be able to apply for a similar rebate. Those applications would then go to the Board of Supervisors for approval. If given the okay, a hotel developer would have up to four years to finish building the project before the 10-year rebate period began. So if this ordinance is approved, and it takes Caruso five years to build the Miramar, then he’ll only have nine years of rebate; if it takes eight years, then he’d have only six years, and so on. Procedurally, the hotel would still charge visitors with the tax, submit the funds to the county, and then be rebated the money on the back end. Though creative, Caruso’s proposal is not novel, as it already exists in Los Angeles, Anaheim, Palm Springs, and elsewhere.
By Paul Wellman
Rick Caruso (front, right) had a lot of community support for his project to move forward in 2008, but it has since stalled because of financing.
As it stands, the Miramar property — which was assessed at $54.9 million even while vacant — is taxed by the county at $568,000 per year, and that gets divvied up by 16 agencies, with about $142,000 coming straight to the county’s general fund. If the hotel finally gets developed, the county’s number-one number cruncher, Bob Geis, estimates that the property tax would bump to $1.7 million per year and that sales taxes would generate an additional $1.5 million.