Breakers Hotel developer granted $13 million tax-sharing deal by City Council

The developer renovating the historic Breakers Hotel in Downtown Long Beach was granted a $13 million subsidy from the City Council in the form of a tax-sharing agreement that will let the developer keep 80 percent of occupancy taxes over the first nine years of its operation.

Hotels in Long Beach are charged a 12% transient occupancy tax that is assessed for every night a room is booked. Half of that revenue is deposited into the city’s general fund while the other half goes into funding special advertising and promotional activities.

However, under the approved tax-sharing deal, Pacific6, the developers of the hotel, will keep 80% of that tax for the first nine years of the hotel’s operation. Pacific6 is also the parent company of the Long Beach Post.

Developers behind the Breakers Hotel project could receive millions in tax relief

The tax-sharing deal was struck to help the developer close a $37.7 million “economic gap” in the cost of construction and the value of the future development, according to city documents.

The cost gap has been attributed to the adaptive re-use of the historic building, which upped construction costs and led the developer to ask the city to assist in the project, which was projected to cost more than $135 million. An economic analysis showed that the supportable investment for the property was about $97 million.

The Breakers will still be subject to a separate 3% tax charged to hotels that are located within the city’s Tourism Business Improvement Area, and the total revenue sharing take for the developers is capped at $13 million. After the deal sunsets, the city’s share of the tax revenue is projected to jump from about $400,000 annually to about $2.2 million annually.

Several council members pointed out that any tax revenue generated by the hotel is new revenue because it previously served as a senior care facility which generated zero transient occupancy taxes.

In order for Pacific6 to stay in compliance with its agreement it is required to spend at least $70.7 million in direct construction costs and maintain a 4-diamond status as rated by AAA for 20 years, a distinction that would have to be certified annually.

While The Breakers is an independent hotel it will be affiliated with Preferred Hotels and Resorts and will be required to fly that brand’s flag, or better, in order for the agreement to stay in place. If the developer does not meet those standards the City Council has the authority to change the tax-sharing agreement at any time during the first nine years of its operation.

Councilwoman Jeannine Pearce, who represents the area where The Breakers is located, said that previous hotel subsidies came with far fewer requirements on developers. She pointed to the nearly $80 million given to the Hyatt with “no strings attached” and said the The Breakers, with its union agreements and local developers was something that would improve the city though local investment.

“What we have here is a project that is a cornerstone of our downtown and a project that is a historic building that is gorgeous and everyone that drives by it wants to go inside, experience it, go inside the rooftop nest that’s been up there,” Pearce said.

The city recently approved a similar deal with yet-to-be-constructed American Life Hotel, a 30-story structure that’s been proposed for the southeast corner of Ocean Boulevard and Pine Avenue. In that tax-sharing deal the city is splitting occupancy taxes over the course of 20 years, which will give the developers a subsidy of $27 million.

The Breakers opened in 1926 as a luxury oceanfront resort but had more recently served a senior care facility for nearly three decades before being briefly transitioned to a behavioral health center after the building’s operators lost their elder care license in 2015.

Pacific6 purchased the historic building in 2017 for just over $40 million. The Breakers is tentatively scheduled to open in 2021.

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Jason Ruiz has been covering City Hall for the Post for nearly a decade. A Long Beach resident, Ruiz graduated from Cal State Long Beach with a degree in journalism. He and his wife Kristina and, most importantly, their dog Mango, live in Long Beach. He is a particularly avid fan of the Dallas Cowboys and the UCLA Bruins, which is why he sometimes comes to work after the weekend in a grumpy mood.