Though the Fairfield Inn by Marriott at 390 Gateway Drive in Hollister opened at the end of 2017, the management company is already hoping to build a second hotel across the street.
A future deal is dependent on if San Jose-based Lotus Management Inc. and the Hollister City Council can come to an understanding regarding the city’s Economic Development Subsidy (EDS), which is part of the Hotel Incentive Plan (HIP).
In January 2018, the council approved a 70/30 subsidy agreement, even though the 77-room Fairfield Inn had already been built. The HIP provides a 70% rebate of the Transient Occupancy Tax (TOT) to Lotus Management for 10 years, with a cap of $2 million.
When this newest resolution came before the City Council on June 3 proposing a similar EDS for a 93-room Holiday Inn Express, Councilman Marty Richman said that he wanted to look into the details of the proposal before taking a position. The resolution was tabled until after the council’s July recess.
After completing his research, Richman told BenitoLink he was in favor of the proposal if Lotus Management was receptive to a 50/50 EDS agreement, rather than the 70/30 split negotiated for the Fairfield Inn. He said he would also propose a referendum to raise the city’s TOT rate of 8% initially to 10% and eventually to 12%, to be in alignment with the 12% rates of San Benito County and San Juan Bautista.
Since opening, according to City Manager Bill Avera, the Fairfield Inn has generated $467,371.98 in TOT, of which $327,371.96 will be reimbursed to Lotus Management. To date, the city has reimbursed $239,502.38.
The hotel, valued at $9.6 million last year according to the San Benito County Assessor’s Office, paid $118,000 in property taxes in 2018. Using the same assessment, it will pay approximately $120,000 in 2019, much of which will go to local school districts.
Richman said he looked into where Hollister stands on its TOT compared to other communities.
“Hollister’s TOT is at 8% and that went into effect in 1998,” Richman said. “The city tried to raise it around 2012. The measure failed because the city did not do a good job explaining what the tax is and who pays it. Eighty-two percent of over 400 cities in the state have TOTs higher than 8%. The majority of them are at 10%, 78 cities are at 12%, and some are as high as 15%.”
According to Richman, Gilroy’s TOT is 9%, with Los Banos, Monterey, King City, Pacific Grove, Salinas, San Jose, and Morgan Hill at 10%. Santa Cruz and Watsonville are at 11%, and Marina is at 12%.
Councilwoman Carol Lenoir said another hotel could be good for the city, but thinks the current 70/30 EDS is much too generous. When told of Richman’s idea for a 50/50 split, she agreed with him. She also said the TOT should be raised to 12%.
“What we really need to do is educate the folks so they understand they aren’t paying the tax. It’s people staying at the hotels who pay the tax and it’s good for Hollister,” she said.
Rakesh Patel, director of development at Lotus Management, did not respond to BenitoLink for this article. However, Richman spoke with him and said he believes Lotus Management sees the value in investing in Hollister because the occupancy rate of the Fairfield Inn was apparently far higher than the 64% that was originally anticipated.
“I don’t know how it breaks out on a daily basis, but there is a lot of business traffic,” Richman said.
Richman also said he hoped Lotus Management would work more closely with the San Benito County Chamber of Commerce. The chamber did not respond to a request for comment.
“The hotels don’t have restaurants,” Richman said. “The city provides the restaurants and the entertainment, while the hotel provides a place to stay. It’s synergistic. So they need to work very closely with the chamber of commerce in developing this opportunity.”
Richman said he discussed with Patel the numerous construction problems and difficulty in obtaining city approvals that caused delays in opening the Fairfield Inn.
“Although Lotus did eventually get it done, we have to be better prepared to do it right the first time,” he said, “and for people concerned about costs, Patel told me they paid $650,000 in fees for the Fairfield Inn, and his estimate for the new hotel is $800,000. Our fees have gone up significantly in the past two years, so it could be much more than that.”
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