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The Real Deal Los Angeles

Wanda’s Beverly Hills project crosses City Council hurdle with record-breaking $60M development agreement

Meanwhile, Silver Lake discusses how to emulate such negotiations

November 10, 2016 08:30AM
By Julie Walmsley

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Beverly Hills Mayor John Mirisch and Rohan a'Beckett of Wanda Properties (Adam Southard)

Beverly Hills Mayor John Mirisch and Rohan a’Beckett of Wanda Properties (Adam Southard)

Some cities pay developers in incentives to come build. But in Beverly Hills, where the streets are paved in Tiffany’s gold, a developer is shelling out megabucks to the city. There, a project that agreed to pay $60 million has come one step closer to the finish line.

The Beverly Hills City Council voted 4-1 Wednesday to prepare a resolution on Wanda Properties’ One Beverly Hills project. The Council will present its resolution on Nov. 21.

If approved, the developers — the Beverly Hills subsidiary of China’s Wanda Group and partner Athens Group — would pay the city a whopping $60 million upfront to construct a combination of 193 residential units and 134 guest rooms at the intersection of Wilshire and Santa Monica boulevards.

The initial payout, termed a Public Benefit Contribution, is twice the $30 million attached to the previous development in 2008 on the same site, known as 9900 Wilshire. The Wanda Group acquired the parcel in 2014.

Combined with a percentage of profits, One Beverly Hills will funnel $560 million in revenue to the city over the course of 30 years, with $3 million set aside for affordable housing. The agreement, negotiated by Beverly Hills Mayor John Mirisch, Beverly Hills City Council member Lili Bosse, and Century City-based law firm Greenberg Glusker, was presented at hearings this week.

The deal is so substantial that even before the agreement is final, nearby cities are strategizing to emulate such negotiations. The Silver Lake Neighborhood Council’s Urban Design and Preservation Committee agendized a discussion on the deal in its last meeting, according to its Nov. 7 agenda, to consider “Beverly Hills’ recent financially lucrative agreement with Wanda Group, and how it might be utilized in Silver Lake.”

Even with over half a billion dollars to pad the city’s coffers for decades to come, and the construction of park space, Mirisch told The Real Deal last week that he and the City Council would still be considering the development’s capacity to improve the community overall.  

“No amount of money should be enough for a project so that our quality of life is irreparably changed,” he said.

Separately from the up-front payment, Wanda would contribute $1 million to public schooling, build a sign with a “Gateway Statement” to welcome new visitors to the prestigious city, contribute a separate $250,000 to public art, and commit eight tenths of an acre to a public garden. An additional fee to offset environmental impacts would be derived from a 2 percent tax on sales.

While Wanda would pay a premium, so would its future guests. The tax attached to each hotel guest’s bill, called the Transient Occupancy Tax, will be 19 percent rather than the Beverly Hills’ city standard of 14 percent.

The first iteration of the mammoth development wedged between the Beverly Hilton and the Los Angeles Country Club, called 9900 Wilshire, committed to $30 million upfront for 235 residential units and $1 million to public schooling, and only .45% tax on sales to offset environmental impacts. Still, it was the priciest development agreement the city had seen until Wanda came along.

The third-place record is held by One Beverly Hills’ rival and next door neighbor, Beny Alagem. The Beverly Hilton owner’s firm, Oasis West Realty, agreed to pay $10.2 million upfront when it signed its contract with the city in December 2008 for two condo towers and the Waldorf Astoria hotel. Like One Beverly Hills, it was to attach an extra 5 percent to guest room taxes, and agreed to an even higher payout — $1.7 million — to the local school district. That project also had a higher maximum contribution to a “Gateway Statement” of $1 million, which could not be offset by the $500,000 it paid to a public art fund.

Since Alagem’s attempts to revamp that plan and build a 26-story condo tower were axed by voters, he will proceed with the 2008-approved development and its original terms. 

In fourth-place for Beverly Hills priciest development agreements is the seven-story, 214-room Montage Hotel, at the time a topic of controversy for its size, its placement in the center of the city, and because the city paid the developers, rather than the other way around.

Beverly Hills shelled out $32 million, to be recouped by the same extra 5 percent premium on transient occupancy tax, and by rents at the 27,000-square-foot commercial building Montage and its development partner the Athens Group constructed next door. The city also acquired a 30,000 square foot public park in what was once a defunct space at the center of Beverly Hills’ most walkable hub in the package that was finally determined in 2005, after negotiations and a public challenge in the form of a ballot initiative.

Bruce Baltin, Senior Vice President at hotel consultancy PKF, said he had not seen the specifics of other local hotels’ negotiation packages and thus could not compare them in detail, but had not seen one as high as Wanda’s One Beverly Hills.

“Obviously Wanda wouldn’t do It if they didn’t think it was feasible,” he said. “It’s a lot of money, but it’s a huge development. So I think they both got a good deal.”

Baltin noted that Beverly Hills is a different market.  “Some cities are giving incentives for hotels to develop, but fortunately Beverly Hills, like Santa Monica, is a luxury market.”

Jay Newman, chief operating officer at Athens Group, which also brokered the Montage’s dealings with the city, told TRD that 90210 is its own universe.

“There is clearly a premium on being located in Beverly Hills,” he said. “And the city is clearly capitalizing on it. Basically it’s the cost of doing business.”

Mirisch suggested other cities ought to negotiate harder to attract projects that benefit their residents.

“There is generally a case of municipalities being out-negotiated by developers,” he said. “This [development agreement] is unprecedented. We drove a very hard but a very fair bargain.”

Hannah Miet contributed reporting. 

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