Miramar Hotel

Paul Wellman

Miramar Hotel

Miramar Stuck in More Muck

County Suspends Negotiations over Hotel Incentive Program

Wednesday, October 24, 2012
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Negotiations between Los Angeles developer Rick Caruso and Santa Barbara County officials have been suspended after county officials determined an agreement on how to implement an incentive program for the Miramar Hotel isn’t currently possible.

The county says it can’t guarantee multi-year payments under the recently adopted hotel incentive program, which gives developers occupancy tax rebates over a 15-year period. The deal — designed with Caruso’s Miramar in mind — was supposed to encourage the building of luxury hotels, but detractors say the county is giving away too much tax revenue to wealthy developers. Santa Barbara officials believe that under state law — which doesn’t allow counties to take on long-term indebtedness — implementation agreements are “subject to annual appropriations,” meaning the current board of supervisors can’t guarantee the money each year of the agreement, and future supervisors could choose not to set aside the funds.

Understanding this, Caruso wants to include a term in the agreement that would penalize the county — or for the county to agree to litigation that would compel the funds be distributed — should it not pay. County officials would not accept this suggestion. “Without such assurances, the County is essentially preserving its rights to breach the agreement at any time, without reason, and without any recourse for the property developer,” wrote Matt Middlebrook, executive vice president for Caruso Affiliated, in a letter to County CEO Chandra Wallar. In its current form, the agreement states Caruso would have to pay “prevailing wage” upfront during construction — an estimated $10 million in additional construction costs — without any guarantee he would receive the back-end funds.

Rick Caruso
Click to enlarge photo

Paul Wellman

Rick Caruso

Wallar informed the Board of Supervisors and Caruso of the decision to end further discussions last week. In her letter, she noted several areas where both sides came together, including instituting a priority of local hires and initiation of demolition. Middlebrook said Caruso Affiliated believes the county misunderstood the provisions of the proposed agreement or misinterpreted the applicable law, and he urged county officials to take a closer look at things. Included in his response letter is a legal opinion from area law firm Hollister & Brace, which says the county “plainly has the ability” to make the appropriation.

The deal could be worth at least $15 million for Caruso throughout the life of the rebate, less than 10 percent of the total $170 million estimated construction cost. However, that could be enough to make the project that much more attractive to potential financiers, Middlebrook said. “The intent of the ordinance is to strengthen the viability of the applicant hotels through the rebate of a portion of the transient occupancy tax in order to attract financing in a very difficult market for new hotels,” he said. Letters from Union Bank and PNC Bank officials — who have had informal talks with Caruso—said that if the rebate is not guaranteed, it would not be considered reliable and thus banks would not consider it in a financing decision.

Caruso’s group had been in negotiations with county officials from the CEO, Auditor-Controller, Planning and Development, and County Counsel offices. Dennis Bozanich, assistant to the CEO, said a third-party review to determine whether the tax rebate is needed to make the project economically viable is underway, but as of Tuesday it had not been provided to the county. When completed, the review should be an interesting read, as many don’t believe Caruso’s plan will make enough money. According to county analysts, the Miramar could reasonably generate between $8 million and $12 million annually after expenses, but that’s considered a “low return for a project of this magnitude and risk.”

Caruso, who recently put to bed rumors he would be running for mayor of Los Angeles, is the most recent of three owners to have trouble getting the Miramar rebuilt, though he is perhaps the closest to getting the site up and running again after it was shut down 12 years ago. His plans for the Miramar include 186 rooms, a beach club, and a spa. Caruso said he was committed to demolishing the buildings on the property once the rebate program was in place.

Middlebrook points out the property currently brings in no sales or bed tax revenue, and little property tax revenue compared to when the hotel is built on what is now a dilapidated lot.

“This program will assist in getting the Miramar built as soon as possible,” Middlebrook wrote. “By getting the hotel built sooner, the County will benefit from the creation of hundreds of new jobs, and millions of dollars in new sales, property, and hotel tax revenue,” he went on. “By ending the negotiations abruptly and without a sound basis as you have puts all of these badly needed financial benefits in jeopardy.”


Independent Discussion Guidelines

Let it rot. He can let it sit there and get nothing for his investment. His decision. No special favors.

Botany (anonymous profile)
October 24, 2012 at 7:39 a.m. (Suggest removal)

amazing. probably the most prime piece of real estate for a hotel developer in the US and nothing can get done.

he's never going to build. tell caruso to get stuffed. next.

lawdy (anonymous profile)
October 24, 2012 at 8:13 a.m. (Suggest removal)

Yep, this mess is all Caruso's fault alright. No responsibility to the objectionista who have delayed this project through three owners.

JohnLocke (anonymous profile)
October 24, 2012 at 8:34 a.m. (Suggest removal)

Atlas is Shrugging. Follow the money, the position SB officials have past and present are just the same typical short sighted stupid attitude that liberals have towards development and real growth. Let him build it...the money will come.

gingo (anonymous profile)
October 24, 2012 at 8:40 a.m. (Suggest removal)

Caruso wanted his sweet daddy deal. The BOS tried to give away the farm with tax breaks. Plenty of blame to go around. Fiscal responsibility is definitely not a strong suit of this Board majority. Neither is intellegence, ethics or professionalism.

BeachFan (anonymous profile)
October 24, 2012 at 8:43 a.m. (Suggest removal)

Doesn't matter who is to blame. Crony Capitalism/Welfare is BAD. Either the Project makes economic sense or it doesn't. The Project needs to stand on it's own and not be subsidized with Public Tax Dollars.

The Carpetbaggers from New York started this mess, A Local Group had a better plan, their bid was reasonable and made economic sense, greed killed the Golden Goose.

howgreenwasmyvalley (anonymous profile)
October 24, 2012 at 8:48 a.m. (Suggest removal)

So first he wants a handout then he wants to literally bite the hand that feeds him. Pig.

Ken_Volok (anonymous profile)
October 24, 2012 at 9:06 a.m. (Suggest removal)

If the nosy, busy bodies of Montecito Foundation hadnt stuck their unwanted botox filled heads into the whole shebang years ago, we'd have one of the most beautiful hotels already built. Employing people, paying taxes and looking good.

Why we let a few well funded, over zealous and misguided folks determine the state of our area is beyond me... they blocked the 101 expansion years ago which has cost us hundreds of millions and at least as many hours lost, they blocked the Miramar redesign by the very tasteful and LOCAL Ty Warner and we are left with a rotting, dilapidated mess while they live high on the hog. Hogs that are built from inheritance rather their hard work... These people know nothing of the value of work since they dont work and only complain between tea and crumpets.

iamsomeguyinsb (anonymous profile)
October 24, 2012 at 9:20 a.m. (Suggest removal)

I say rebuild it old school as it is! Boy, we really blew it by not letting Ty Warner, a much more local presence, do this project. This Slick Rick guy is as bad as Mitt Romney!

This clause he wants to put in is ridiculous: I can sue the @!#$%@# out of you if you don't give me my tax break in cash payments every year.....

Isn't that how it reads?

bimboteskie (anonymous profile)
October 24, 2012 at 9:40 a.m. (Suggest removal)

NOTE: Doreen Farr voted AGAINST the "deal (aka gift, giveaway, kickback)".

Ken_Volok (anonymous profile)
October 24, 2012 at 1 p.m. (Suggest removal)

The Miramar property is a classic case of the greater fool theory of economics. Fool number one Schrager over paid by five million dollars but was able to make a ten million dollar profit by selling . The next fool Ty was soooo hurt by the planning process that he could only snap up a quick ten million by selling to the biggest fool so far, Mr. Caruso. At that price and with the gold plated designs he has created he will never make a profit with or without the tax break. Hello! foolish rich guys! THE MAINLINE OF THE UNION PACIFIC RUNS RIGHT THROUGH THE BEST PART OF THE PROPERTY. Your dreams of making this a world class resort are a complete fantasy. No rich tourist is going to pay big bucks to stay at a place that has a dozen loud trains trains a day going by. The Miramar worked for a century because thrifty travelers were willing to put up with the trains. Caruso's only option is to find an even bigger fool than himself.

Herschel_Greenspan (anonymous profile)
October 24, 2012 at 2:33 p.m. (Suggest removal)

iamsomeguyinsb has it right. And BTW those same folks are again delaying the 101 improvement.

JohnLocke (anonymous profile)
October 24, 2012 at 3:21 p.m. (Suggest removal)

It's a perfect place for an affordable housing project.

easternpacific (anonymous profile)
October 24, 2012 at 4:14 p.m. (Suggest removal)

Atlas Shrugged indeed!
The Libertarian/Objectivist school would not ask for nor sanction the handouts by the county.

Pure Capitalism means you build the business that you can afford to build ON YOUR OWN.

taz (anonymous profile)
October 24, 2012 at 6:47 p.m. (Suggest removal)

Perfect spot, affordable housing for artists.

Ken_Volok (anonymous profile)
October 24, 2012 at 7:24 p.m. (Suggest removal)

This is now a game of poker in which Caruso is trying to run a bluff. He has a lot of money in the pot. He will not walk away from this. If I know Chandra, she is playing her cards close to vest and calling Caruso's bluff (she, meaning the County, has much less in the pot and longer the County lives without the tax revenue, the less it matters). He either has to call (which means walking away from his investment) or bet (which means taking the investment risk to build the project). Bluffing is a time honored strategy in poker. It can pay off, but when you lose, you lose big.

Eckermann (anonymous profile)
October 24, 2012 at 10:13 p.m. (Suggest removal)

I think Eckerman might be right . But notice he's quite willing for the workers to pay the taxes with the wages he doesn't want to pay them.
Chandra is to be saluted.

Ken_Volok (anonymous profile)
October 24, 2012 at 10:38 p.m. (Suggest removal)

Listen. Hear that big whooshing sound? It is the collective sigh of relief. BOS made a HUGE mistake in voting to give Caruso special dispensation. Hooray.
Economy is only going to get worse, before it gets better. Caruso made a bad bet. Let him sell it to someone with less grandiose plans. Keep the project small, tasteful and affordable for visitors. Like the old Miramar. Let's see those blue roofs again.

chilldrinfthenight (anonymous profile)
October 25, 2012 at 2:59 a.m. (Suggest removal)

Technically, if Mr. Caruso wanted to make an income in the coming new year when the Fiscal Cliff takes effect and 6.5K people will loose their Governmental Jobs and sends the Unemployment rate skyward, only that very few .001% will be able to afford Mr. Caruso hotel room. His and anyone else seeking a Payday loan style windfall of $$$$$, will loose out if they attempt to rebuild the Miramar in anything less than Old World charm and Medium End in-expensive lodging.
That's the carm of the old hotel, keep the old world charm but improve the structural and technical aspects of the property; that would be my goal if I were in a position as Mr. Caruso is.

dou4now (anonymous profile)
October 25, 2012 at 8:56 a.m. (Suggest removal)

Herschel_Greenspan is absolutely correct. No 5-star place has a freakin' train running through it several times a day (and night). Caruso blew it - let him pay the price.

SezMe (anonymous profile)
October 26, 2012 at 2:13 a.m. (Suggest removal)

SezMe is absolutely correct about Herschel_Greenspan being correct. I remember working at Montecito Sea Meadows. Great complex, but those trains running right by it were very disrupting.

billclausen (anonymous profile)
October 26, 2012 at 3:50 a.m. (Suggest removal)

Rick, Matt

The county refusing this deal means you need to it 15mm more equity in That's chump change for Caruso affiliated. Probably a month of net revenues at the Grove

There's no reason you should get special treatment.

Time for you to build it knowing what you knew when you bought it or take your lumps and move on

Go back to LA guys. It's time. We're tired of your BS


thomas592003 (anonymous profile)
October 27, 2012 at 5:47 a.m. (Suggest removal)

Paying "prevailing wages" is not an ADDITIONAL BURDEN. It is just the baseline cost of doing business. Slavery got outlawed a few years ago.

taz (anonymous profile)
October 27, 2012 at 6:01 p.m. (Suggest removal)

Bill Clausen is correct about Sez_Me and Greenspan being correct, but he neglects to point that chilldrinofthenight is also correct; and in addition to being correct, dou4now should be given the Miramar as they have a sane vision for it that doesn't feudalize the area further.
If I'm correct, Tom and Taz are also correct.

Ken_Volok (anonymous profile)
October 27, 2012 at 6:25 p.m. (Suggest removal)

This is starting to get like Blazing Saddles.

billclausen (anonymous profile)
October 27, 2012 at 11:07 p.m. (Suggest removal)

Not the campfire song.. aka Board of Supes Meeting.

Ken_Volok (anonymous profile)
October 27, 2012 at 11:56 p.m. (Suggest removal)

Those trains honk really loud through Montecito all right. they would definitely ruin the atmosphere of a 5 star type resort. The Biltmore has the train running right behind it too. after a while you get used to it. sort of. If a train were ever to derail going through one of those resorts at the speed they travel, it would be a disaster. an earthquake of sufficient magnitude could cause this to happen. some of those tank cars carry ammonia and acids, not to mention pressurized gases or regular gas and diesel.

GluteousMaximus (anonymous profile)
November 4, 2012 at 6:59 p.m. (Suggest removal)

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