Demise of Cheval Blanc hotel project shrinks Beverly Hills budget 

The cancellation of LVMH’s Cheval Blanc Hotel project has delivered a blow to Beverly Hills’ budget, a recent session of the City Council showed, prompting a special committee to look into how the city could generate additional revenues to compensate for the loss of real estate development money.

But as it turns out, many of the alternatives also impact commercial real estate.

While the voters of Beverly Hills wanted to keep things just the way they are on Rodeo Drive by voting against the proposed luxury development last year, the city officials are eager for new ideas as the city faces a widening budget deficit in the near future.

The city — which projects an image of affluence around the world — is forecasting a surplus of $2.6 million for fiscal year 2024-2025, but it will then face “projected years of deficits, which do get considerably larger in 2026-2027 and 2027-2028.” The deficit is “due to the cessation of some of that significant one-time development revenue,” according to a presentation by Jeff Muir, director of finance for the City of Beverly Hills at the council session on March 18.

An overwhelming majority of the City Council voted in favor of the Cheval Blanc Development proposal, which was estimated to pay the city a $26 million public benefit contribution and an additional arts and cultural contribution of $2 million in addition to other fees, according to a Beverly Press article from November 2022. Also, transient taxes from the hotel would have contributed to the city on an on-going basis.

Last year, the City Council commissioned a so-called Blue Ribbon Committee to look into potential new sources of revenues. It included Mayor Julian Gold, Vice Mayor Lester Friedman, City Treasurer Howard Fisher, former Public Works Commissioner Joshua Greer, restaurateur Vicky Mense and real estate entrepreneur David Mirharooni. 

Mirharooni, as a Chamber of Commerce board member, was among the advocates of the Cheval Blanc development. The committee held seven meetings between August 2023 and March 2024, starting a month after the Cheval Blanc project fell apart.

Revenue generation was the main focus of the committee, “especially due to the loss of Cheval Blanc revenue,” according to one of the slides shown at the March 18 City Council session.

While sales tax was the primary recommendation (with estimated revenue potential ranging from $18.6 million to $27.9 million), there were a few other ideas including increasing transient occupancy tax. In this scenario, an additional 1 percent increase for all hoteliers would generate $3.5 million in revenue.

The city also may create a Real Estate Council Liaison Committee, with the idea that it would negotiate more directly with prospective tenants and brokers and expedite turnaround time for lease agreements brought to the City Council for approval.

Beverly Hills has provided subsidies to the 19 parking structures it owns, but it could turn them into a revenue source.

“Based on the number of free parking activity that occurs, we could potentially see an additional $3 [million] to $4 million a year in revenue for the parking fund,” Muir noted of the potential $1 per hour fee discussed by the committee.

In the immediate term, the city expects revenue from the One Beverly Hills development, which held a groundbreaking ceremony earlier this year.

“We’re assuming One Beverly Hills permit revenue continues through fiscal year 2025-2026, and then drops off as those are the one-time revenues,” Muir noted.

The city forecasts $11.3 million for FY 2023-2024 in terms of “one-time major development projects net revenue,” followed by $16 million for FY 2024-2025, $12.4 million for FY 2025-2026 and then zeros for the next two fiscal years.

“To the extent the projected deficits were to take place, the unassigned reserves we currently have are insufficient to cover them,” Muir summed up. “We currently are relying on some one-time major development revenues towards operating expenditures, and we will need to work to seek balance by reducing expenditures or increasing revenues.”