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Home My WebLink AboutC35550 - Hotel Feasibility AnalysesCONTRACT NO. C35550 CITY OF PALM DESERT STAFF REPORT REQUEST: APPROVE PROFESSIONAL SERVICES AGREEMENT WITH KEYSER MARSTON AND ASSOCIATES FOR HOTEL FEASIBILITY ANALYSES SUBMITTED BY: Justin McCarthy, Interim City Manager DATE: July 14, 2016 Recommendation By Minute Motion, that the City Council approve the professional services agreement with Keyser Marston and Associates for Hotel Feasibility Analyses in an amount not to exceed $50,000. Funds are available in account number 1104159-4309000. Executive Summary Within the current improving economy, staff is consistently approached with economic development opportunities from developers in the hotel industry. Many of these developers are seeking some sort of assistance in order to accommodate their projects in our city. Keyser Marston and Associates (KMA) have previously and continue to be instrumental in assisting staff on many feasibility analyses, and provide the tools necessary for staff to accurately evaluate and make responsible recommendations on potential developments and their needs, as they relate to the needs of the City. Background Within the City of Palm Desert, there are multiple locations where hotel developments can potentially be built. Of primary focus is the Quicksilver proposal and various hotel opportunities and including the numerous properties currently owned by the Successor Agency to the Palm Desert Redevelopment Agency, which are required to be sold pursuant to dissolution law. The North Sphere alone contains well over 300 acres that will need to be disposed of by the SARDA in the near future. The public is well aware of this requirement and consistently contacts staff with opportunities for development. In order to evaluate the viability of the projects, staff would like to enlist the services of Keyser Marston and Associates (KMA) to assist with the in depth analysis of these proposals. KMA has extensive expertise in this area, as well as familiarity with the City based on their past experience with many successful projects. Their work will at minimum consist of the following types of analyses: G VWVeron.ca TaOsa%Wofa FleSlSlah ReoorwKeyser Manson ammo Assoc ales 7 14 16 aoc Staff Report Approve Professional Services Agreement with KMA July 14, 2016 Page 2 of 2 • Review proposals • Meet with the developers to confirm understanding of project • Consider project quality and market demographics • Consider mix of rooms, meeting space, and public areas • Identify similar projects in region • Review and evaluate projections and development cost assumptions • Prepare a project proforma and financial analyses including; o Review of Project costs compared to similar projects o Evaluate Project operating parameters o Identify appropriate return requirement o Identify Project feasibility gap or project surplus • Estimate local TOT revenues for a ten-year period • Summarize findings With the Quicksilver Project at the forefront, staff requests the approval for KMA's services to be approved for a not -to -exceed amount of $50,000. Fiscal Analysis Approval of the professional services agreement would cost the General Fund $50,000; however, depending on the project, funds may be reimbursed from SARDA through ROPS or sales proceeds for any SARDA properties. Submitted by: •e _� - >UC4 MCarthy, Interi 7 Manager G vaa,Ve,o,,•ca rao.a IWO,a F,esS1an ReDons"yse, Manson ar,a •ssoua[es 7 14 6 aoc CONTRACT NO. C35550 KEYSER MAILS I'(-)N ASSOCIATES A DVISOIt%IN 1't, It 1 lt.Pit IVA I I It AI IIIAII DI VI ItII'ntI NI \,,,,,, June 30, 2016 Rini L,iAii R•ui �i i,n �u ui F, wwui Ih ",I.—, „ Ms. Veronica Tapia \ J-1 K.-1, Senior Management Analyst ` K"" F City/ of Palm Desert KN.. F\RIB h��" 7 o, ,.,,.i \I ti — 73-510 Fred Waring Drive RrT KILL Palm Desert, California 92260 D. /'\" I" "" Re: Palm Desert Hotel Evaluations K, v-11 H,.\n I-" A Rva (, • "' 1) S...II Dear Ms. Tapia: 1- , I R, nu . Pursuant to your request, Keyser Marston Associates, Inc. (KMA) prepared the following P„ t ki.... scope of services for the City of Palm Desert (City). As KMA understands the situation, the City requires assistance evaluating the potential feasibility of a number of hotel projects. To this end, KMA is pleased to submit this letter proposal to the City. The KMA proposal is organized as follows: 1. KMA's relevant qualifications are summarized; 2. The proposed scope of services is described; and 3. The proposed budget and timing for the engagement are provided. STATEMENT OF QUALIFICATIONS Description of the Firm KMA is a full service real estate, financial, redevelopment and economic consulting firm specializing in real estate advisory and evaluation services. KMA is a privately held corporation that was incorporated in 1973. KMA has one of the largest real estate advisory practices on the West Coast. The majority of KMA assignments involve long- standing client relationships. 500 CULL I H GRAND AVFNI IF, 1,11111 Id90 - I Oti AN(,LL.LS. CAI IFORNIA 90071 , PHONE 21 3 622 ROy\ , FAX 213 622 5204 WWW KEYSI:RMARSTON C'OM 1606022 KMA JAR em 99900 000 002 CONTRACT NO. C35550 Ms. Veronica Tapia June 30, 2016 City of Palm Desert Page 2 KMA has 19 professional staff members in offices located in Los Angeles, San Francisco and San Diego. The downtown Los Angeles office provides consulting services to government agencies and private sector clients throughout Southern California. KMA's services fall within the following general areas: • Real Estate Evaluation and Transaction Services • Strategic Planning and Economic Development Services • Affordable Housing • Valuation and Litigation Support • Fiscal Impact Analyses • Infrastructure and Public Finance Structuring The increased complexities of real estate transactions demand a strong technical understanding of market opportunities and constraints. KMA can provide services that are grounded in a fundamental understanding of the Southern California real estate market, valuations and investment financing. Unique characteristics possessed by KMA include: Experience KMA has 40 years of experience assisting clients throughout the West in real estate market and evaluation services; negotiation services; structuring public/private transactions; and project implementation services. Cost Effectiveness KMA is able to be cost effective for our clients given our ability to provide comprehensive services relating to market and financial feasibility, economic analysis, direct implementation experience and public finance without the need for multiple consultants. Commitment KMA offers the commitment of principals who are recognized leaders in real estate advisory services throughout California. The philosophy and structure of KMA results in clients having maximum direct contact with the firm's principals. 1606022 KMA JAR emm 99900 000 002 CONTRACT NO. C35550 Ms. Veronica Tapia City of Palm Desert Relevant Areas of Expertise June 30, 2016 Page 3 KMA provides a full range of real estate advisory services and economic development services to our clients. Descriptions of the firm's services that are pertinent to this engagement follow: Feasibility Assessment KMA has undertaken feasibility studies for clients including public agencies at all levels of government, institutional investors, and national shopping center developers. While the purpose of these studies varies considerably, the essence is to identify the basic demand for the use being tested, which is an essential component in the decision making process. KMA has broad experience in commercial, retail and residential market opportunity assessments, and has assisted clients in identifying mid- to long-term development strategies. To this end, KMA has prepared market, financial and implementation studies for downtowns and corridors throughout Ventura, Los Angeles, San Bernardino, Riverside and Orange Counties. Financial Evaluation The use of pro forma financial analyses to evaluate the financial feasibility of a wide range of projects is a strength of KMA. These financial feasibility analyses are typically geared toward providing KMA's perspective on the development economics for proposed projects. Disposition Consulting KMA services in this area include preparation of developer solicitation documents, proposal review, developer selection, participation in developer or owner negotiations, and analysis of pending agreements. KMA has taken an active role in the negotiation process leading to numerous Ground Leases, Disposition and Development Agreements, and Owner Participation Agreements. Strategic Plans for Residential, Retail, Commercial and Industrial Uses KMA's economic development services include identifying optimal mix of retail, commercial and industrial uses. KMA's services have assisted public sector clients in formulating policies that maximize revenue potential. 1606022 KMA JAR emm 99900 000 002 CONTRACT NO. C35550 Ms. Veronica Tapia City of Palm Desert Fiscal Impact Analysis June 30, 2016 Page 4 As a full service land economics consulting firm specializing in real estate predevelopment and evaluation services, KMA has developed extensive experience in assessing the revenue and cost impacts to be generated by proposed developments or implementation of plans. These analyses evaluate capital costs, and annual ongoing revenue and service cost impacts, as well as the employment and income effects. PROPOSED SCOPE OF SERVICES KMA will review developer submittals and other information to determine whether the proposed hotel projects have a feasibility gap, which would necessitate the need for City assistance. To evaluate the projects, KMA will undertake the following tasks: • Review proposal information. • Meet with the developer to confirm our understanding of the project, and receive additional project information. • Review and evaluate the project, including: o Consider project quality and target market including brand and rating. o Identify similar projects in the region. • Review and evaluate developer's market projections and development cost assumptions. • Prepare a project pro forma and financial analysis of the hotel including: o Review of project costs compared to similar projects. o Evaluate project operating parameters. o Identify appropriate return requirements. o Identify project feasibility gap or project surplus. • Estimate local TOT revenues. • Summarize findings in a brief memorandum and series of tables. • Attend meetings with the City's negotiating team on an as -needed basis. • Provide input on negotiating strategies to the City team. 1606022 KMA ,JAR emm 99900 000 002 CONTRACT NO. C35550 Ms. Veronica Tapia City of Palm Desert June 30, 2016 Page 5 • Prepare financial models illustrating the ramifications of proposed agreement terms. As part of this effort, KMA will prepare multiple scenarios, demonstrating the impact of alternative market conditions and/or deal points. • Assist the City's negotiating team to prepare and review the proposed agreement, and provide appropriate language in support of the agreement. • Be available to provide briefings or public presentations, summarizing the key financial assumptions. • Prepare any necessary State of California required reports (e.g. AB 562). INFORMATION NEEDS To conduct the analyses, KMA will require the following information from the developers: • The most recent site plan for the project. • Detailed construction cost budget. • Ten-year operating projections including both revenues and expenses. • Target return and estimated feasibility gap. • Any third party market studies conducted for the project, or any other related market information. PROJECT BUDGET AND SCHEDULE The analyses would be prepared on a time -and -expense basis in accordance with the rate schedule below. Given our understanding of the situation and the unknown number of hotel projects, KMA requests an initial not -to -exceed contract of $50,000. For each proposal received by the City, KMA would prepare a brief scope of services, schedule and budget for the specific project. The KMA rate schedule is detailed below. 1606022 KMA iAR e- 99900 000 002 CONTRACT NO. C35550 Ms. Veronica Tapia City of Palm Desert Keyser Marston Associates, Inc. Hourly Rates A. Jerry Keyser' Managing Principals' Senior Principals" Principals' Managers' Senior Associates Associates Senior Analysts Analysts $280.00 $280.00 $270.00 $250.00 $225.00 $187.50 $167.50 $150.00 $130.00 June 30, 2016 Page 6 We hope the above meets your needs, and are available to discuss the above at your convenience. Sincerely, KEYSER MARSTON ASSOCIATES, INC. James Rabe Kevin Engstrom 1606022 KMA JAR emm 99900 000 002