Days before his hotel-condominium plan was to be reviewed by Anaheim city planners, a developer said he may scrap his project over concerns about the crumbling housing and hotel markets and the pressure of a looming Disney-backed ballot initiative.
Derek Baak's proposal is one of at least two residential projects in Anaheim's Resort District that would face a citywide vote if an anti-housing initiative passes in June.
In hopes of beating that June vote, Baak had rushed his proposal through the permit process and hoped to get City Council approval by February. But now he is having second thoughts about his mixed-use plan, a 105-room boutique hotel and 191 condominium units on the site of an old Toys R Us store. He has asked the planning commission to rehear his project this month in order to gain more time to consider his options.
"Nobody knows what will happen with the market, so the more time you can take on a project of this magnitude, the more comfortable you are," said Baak, vice president of West Millennium Homes. "Because of the ballot initiative, we're being forced to move forward with something we'd like more time on."
Baak said he assumed the initiative would pass. The Walt Disney Co. has worked hard to keep stand-alone housing out of the Resort District, arguing that housing doesn't mix with tourists and night revelers.
Last year, the entertainment giant filed a lawsuit and backed two ballot measures in hopes of blocking housing from the resort area. One of the measures was removed from the ballot when the project it was intended to oppose died after it lost City Council backing. Zoning currently prohibits new residential development in the 2.2-square-mile district that surrounds Disney's two theme parks. But, for now, a housing project could be approved by a vote of the City Council.
"You can never predict exactly what's going to happen with a ballot measure, but Disney's got some pretty deep pockets," Baak said. "It's got a pretty good chance of passing."
Baak's plan to resurrect a neglected area of Harbor Boulevard had been endorsed by a majority of City Council members and city planners, but until recently had been opposed by Disney. He had planned to ask the city to remove the rear portion of the property, the site of the condos, from the Resort District.
Recently, he learned that officials with a Disney-funded citizen's group had viewed his project more favorably than before. But that may not matter now.
"We've spent a significant amount of money, and it would hurt to walk away," he said. "But you can't throw good money after bad money."
Councilman Harry Sidhu, who has supported the project, said he was surprised to learn that Baak was considering pulling the plug.
"This hotel-condo project would be a great addition to Anaheim," he said. "It would have improved visibility of Anaheim as you entered from Garden Grove, but I do understand the concern of the financing. Banks are pulling away from projects like this."
Councilwoman Lorri Galloway said the project's possible demise was troubling.
"This should be a red flag to all developers and landowners in this city," she said. "To me, it feels like one entity, Disney, is deciding what landowners and developers must do, to the point of [forcing an early decision on] financing a project that is not economically feasible."
In addition to concerns over the ballot measure, Baak said he was also wary of market conditions.
"In the current lending environment, we're not certain when we can get funded on this project," he said.
If Baak does walk away from nearly two years of negotiations to buy and develop the five-acre parcel, he wonders who would take his place.
"I don't see how there will be any new buyers for this property, especially with an approved ballot initiative," he said. "Who's going to spend the money and take the risk? If they want to build condos, the project would have to go on the ballot. And you can't build a stand-alone hotel with the price of the land there. The price would have to drop significantly, maybe even to zero, to make it work."
But Sidhu said he saw a much brighter future for the parcel.
"If he drops out, the owner of the property might drop their price," he said. "That could create an opportunity for other people who have been sitting on their money."