Hotel Development Los Angeles

Disney Had No Choice but to Pull Back Plans for Anaheim Luxury Hotel - The Orange County Register

Excerpt from The Orange County Register

Disneyland’s luxury hotel in Anaheim wasn’t a financial no-brainer to start with.

So a last-minute pullback of a controversial city tax break would, at a minimum, obviously force Walt Disney Co. to recalibrate its plans.

Alan Reay, who follows the hotel industry at Atlas Hospitality in Irvine, says the latest twist in Anaheim’s quest to add four-star hotels is no surprise.

“I’d have been shocked if Disney did go forward for now,” Reay says. “They were thrown a huge curveball at the last minute.”

As part of Anaheim’s desire to add a luxury-hotel component to its tourism district, the city and Disney agreed in 2016 that if a four-star hotel was built the company could for 20 years keep 70 percent of the hotel tax it would have otherwise paid.

Last fall, Disney announced fresh plans for the 700-room hotel site, at the western end of Downtown Disney, that included shuttering several high-profile businesses including the ESPN Zone in the process.

The construction tax break, also awarded to another hotel developer Wincome, became a lightning road for critics of Disneyland and city government alike who thought luxury hotels didn’t need government assistance to be built. And on Aug. 6, Anaheim officially told Disney that because of those new plans the controversial tax subsidy was gone. Please note that the current city council is nowhere as wild about Disneyland as the group that previously approved the hotel deal.

That tax break, estimated to be valued at $267 million, comes from reduced hotel-room taxes generated by the new luxury lodge during its first two decades in operation. That means if the hotel’s never built, city coffers lose $113 million as well over 20 years, plus the chance to collect all hotel taxes thereafter.

The city’s change of heart put Disney — a publicly owned company with huge transparency requirements — in a tough spot, Reay says. So Disney executives had to step back quickly. Imagine a consumer being told just before closing a major purchase that a significant rebate was no longer valid; that shopper would likely walk away, too.

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