When the owners of a $480-million seaside luxury resort said they needed more money to ensure it would open, they turned to Rancho Palos Verdes.
The City Council last week unanimously agreed to give Terranea Resort what amounted to an $8-million loan by allowing Lowe Enterprises to defer payment of its hotel tax for several years. The vote came despite concerns from city staff members who said the loan was "not fiscally prudent."
The 102-acre resort is scheduled to open June 12 where the Marineland of the Pacific oceanarium once stood. It will include three restaurants, a nine-hole golf course, a 360-room hotel and 20 bungalows. Also on the grounds are 82 casitas and villas that range in price from $2 million to $4 million.
Mayor Pro Tem Steve Wolowicz said the city, which has few businesses, has never provided an economic stimulus package like this one, or dealt with a project like Terranea.
"We have not had anything like it before, and our city is not likely to encounter something like this again," he said.
According to the deal, Terranea will be allowed to keep the 10% hotel tax customers pay. The resort will receive $8 million or collect the taxes for 27 months, whichever comes first.
The loan will be repaid by 2013 at the London interbank offered rate, plus 8 percentage points. LIBOR is a benchmark used globally, similar to the prime rate. The deadline can be extended for a year at a higher interest rate. The rate for three-month LIBOR loans last week was .66%.
The council made its decision Wednesday morning at a special meeting that ended around 1:30 a.m.
Robert Lowe, chairman and chief executive of Lowe Enterprises, said in an interview that he was forced to go to the city for the funds because of the credit crisis.
Asked what would have happened if the city had turned him down, he said, "I don't want to speculate. It's not going to happen."
He said the resort should provide the city with $7 million to $8 million in taxes annually once it reaches "stabilization" in three to four years.
Among the resorts and hotels the company owns are the Resort at Squaw Creek in Lake Tahoe, Stowe Mountain Lodge in Vermont, Sheraton Universal Hotel in Hollywood and the Miramonte Resort and Spa in Indian Wells.
Lowe first approached the city in April with a deal that would have provided the company with about $35 million of hotel taxes over 10 years.
"It was problematic whether the city would be repaid," Wolowicz said. "An outright gift by the government we didn't think was right."
Still, there was opposition to the deal that the council approved. The city's Finance Director, Dennis McLean, wrote that it was "not fiscally prudent."
Wolowicz said the council seldom goes against city staff recommendations.
The councilman said the city had not made plans yet to spend the hotel tax money, so the deal would not require budget cuts.
He said the city has reserves of about $19 million.
The city is low on the list of creditors who would be repaid in case of default.
"We made this decision understanding there is a certain element of risk, but feeling the benefits and safeguards and economic substance of the city's position warrant the decision that we made in granting the request," he said.