The City Council agreed Friday to provide up to $290 million in subsidies and loans for construction of a 55-story hotel next to the Los Angeles Convention Center despite the vow of a competing hotelier to take the issue to the ballot.
Eight years in the making, the deal was approved unanimously, with backers saying it was critical to attracting enough business to the Convention Center to end a flow of red ink at the city-owned venue.
"When we talk about this kind of investment by the developers and the city, it's kind of a leap of faith," said Councilwoman Janice Hahn. But "I think it will absolutely revitalize downtown."
Consultants hired by the city said the loans and subsidies were necessary to allow the new 1,100-room hotel to succeed. It will also increase the demand for downtown hotel bookings as more conventions come to Los Angeles, consultants said. The building will also include 110 luxury condominiums.
But the general manager of the Westin Bonaventure Hotel said the subsidy would allow the new hotel to charge lower rates and attract guests from existing establishments.
"We raise the alarm of the impending collapse of the entire downtown hotel market if the consultants are wrong again," Brian Fitzgerald told the council. "The proposed tax subsidy is a gamble we cannot afford to make."
The Bonaventure's owners plan to pursue an existing lawsuit against the city challenging the deal as well as take the matter to the ballot, said Christopher Sutton, an attorney for the hotel.
"There is going to be a referendum or an initiative on this, one way or the other," Sutton said. "The voters aren't going to approve this."
A referendum to overturn the council's action would give opponents 30 days from when the ordinance is published to collect about 49,300 signatures. The subsidy deal would be put on hold during that time, and longer if the referendum qualified for the ballot.
Because an initiative seeks to create a law rather than repeal one, opponents could start collecting signatures anytime and then would have 120 days to collect 73,900 signatures.
A fierce fight would be waged against any ballot measure, said Tim Leiweke, president of AEG, a development firm that is providing land for the hotel project and building a massive entertainment district nearby.
Leiweke said any campaign would not hesitate to take on Peter Zen, an executive with the Bonaventure who has led the opposition.
"We will aggressively defend the honor of this project and its developers with a strong campaign," Leiweke said. "We invite them to have a public debate about the character and claims of Peter Zen."
Leiweke noted that when the Bonaventure was built it received city subsidies in the form of discounts on land purchased by the Community Redevelopment Agency and then sold to developers.
Zen, former president of the city's Convention Center Commission, was fined $7,600 last year by the city Ethics Commission for violating campaign finance rules while raising money for then-Mayor James K. Hahn.
Sutton said opponents of the deal may focus on Philip Anschutz, the Denver billionaire who owns Staples Center and heads AEG.
"If it's such a great deal, why doesn't Mr. Anschutz build it on his own?" Sutton asked. "Why do the taxpayers have to spend millions to help a billionaire?"
Leiweke told the council that AEG was only selling the land for the hotel, at cost, to developers Wolff Urban Management and Apollo Real Estate Advisors, who will build the $400-million project for Hilton Hotels.
"We don't get one dime in subsidies. This isn't about underwriting billionaires," Leiweke told the council Friday.
The deal calls for the hotel to receive a rebate of at least $246 million in the hotel bed taxes it is expected to generate during the first 25 years.
If the hotel is more successful than expected and the $246 million is reached before 25 years, the hotel and the city will evenly split any hotel bed tax until the hotel receives $270 million.
In addition, the project is being given a below-market-rate loan of $16 million from the city redevelopment agency and a rebate of $4 million in building permit fees.
Some council members say the city investment is warranted to help make the Convention Center more competitive with those in other cities. The number of major conventions in Los Angeles dropped from 35 in 2001 to 15 last year.
Michael Collins, an executive of the city convention bureau, said the biggest problem cited by convention organizers who declined to come to Los Angeles was the dearth of hotel rooms within walking distance of the venue.
Without sufficient business, the city's general fund has been tapped to subsidize the debt payment on the expanded Convention Center for up to $20 million per year.
Councilman Eric Garcetti noted that subsidized hotels have had problems in other cities but said this project was different because it was part of a planned $1.7-billion entertainment district called L.A. Live that AEG is building.
It will have restaurants, theaters and other attractions to make the hotel more viable, Garcetti said.
The project was also backed by the Hotel Assn. of Los Angeles, union leaders who have been promised good pay and benefits for the hotel jobs and the Los Angeles Area Chamber of Commerce, which sees the development as key to revitalizing downtown.
"The Chamber of Commerce rarely supports government subsidies, but what we do support is smart investment in our city's economic future," said Sam Garrison, a chamber spokesman.