Garden Grove economic development officials promote their city in marketing materials as “Southern California’s undiscovered jewel.”
Orange County’s fifth largest city by population, with about 176,000 residents, has already been discovered in the past few years by one key sector of the real estate development world, though: builders of hotels and resorts.
City documents indicate nearly $1 billion worth of high-end projects have been proposed in and around the city’s Grove District, a roughly one-mile stretch along Harbor Boulevard connecting Garden Grove to Anaheim’s resort district. The latter is OC’s largest center of hotels and out-of-town visitors.
Projects under consideration include a second big water park-themed hotel property for Garden Grove; three hotels that combined would be the city’s largest-ever commercial development; and a 35-story hotel tower that would be among OC’s tallest buildings.
The projects, a few of which could get under way in the next year or so, would add nearly 2,300 hotel rooms to Garden Grove’s base of high-end hotel properties in the Grove District. The district today has 10 hotels totaling about 3,600 rooms.
Bed Tax Boost
The boom in hotel development and improving economic fortunes for Garden Grove’s established base of hotel properties have provided a seismic shift to the city’s finances, which have struggled in prior years with rising expenses, according to Garden Grove officials.
“For the first time in our history, transient occupancy taxes will exceed sales taxes as the city’s largest revenue source this year,” Mayor Steven Jones said during his latest state of the city address in February.
The trend is projected to continue “forever more,” said Jones, a former city planning commissioner.
Transient occupancy taxes—also known as bed taxes—are projected to total about $24 million in its 2016-17 fiscal year compared to the $21.6 million the city should receive in sales taxes, according to city figures from May.
Transient occupancy taxes now comprise about 22% of the city’s total revenues. That could rise to about 24% over the next five years if other hotel projects planned for the city come to fruition, according to city projections.
Garden Grove estimates hotel bed taxes will rise about 21% to $29.2 million and sales taxes increase about 5% over the next five years.
By comparison, Anaheim’s bed tax revenues, which were nearly $140 million in the city’s last reported fiscal year, make up about 48% of city revenue and are far and away the largest source of money.
Anaheim has nearly 150 hotels, about half of which are in its 1,100-acre resort district, and its nearly 21,000 hotel rooms are the most of any OC city by a wide margin.
Newport Beach hotels will take in about $22 million in transient occupancy taxes this year, distantly trailing the nearly $91 million in property taxes that’s the coastal city’s largest source of funds.
Irvine’s lodging taxes brought in $15.4 million last year, while property taxes totaled $58 million and sales taxes $62 million.
Home2 Suites On Way
One Garden Grove hotel that’s likely to move ahead in the next year is one of the more modestly priced developments in the city’s queue. It would be on 1.5 acres just south of the Garden Grove (22) Freeway on Harbor Boulevard.
The former used car lot was purchased from the city this year for a reported $2.8 million by Harvey, La.-based BN Group LLC, a hotel developer that’s done most of its business on the Gulf Coast.
BN Group plans to build a five-story, 124-room Hilton Home2 Suites, an extended-stay hotel that caters to business and leisure travelers.
Though no Home2 Suites currently operate in OC, at least one other has been proposed, a 76-room hotel in Laguna Hills that would be developed by locally based Elite Hospitality Inc.
Garden Grove officials put a $50 million price tag on the BN Group project, which is projected to bring in about $600,000 annually in lodging taxes, according to Jones.
BN Group has a business line that utilizes development funds raised through EB-5 visas, which permit foreign nationals to receive conditional resident status in the U.S. in exchange for making a capital investment here. It’s unknown whether the Garden Grove project would be financed through that means; numerous other hotel and apartment projects across OC have been built in the past few years using EB-5 funding.
A number of other hotel projects planned in Garden Grove have ties to foreign investors, in particular SCG America, the U.S. affiliate of Chinese developer Shanghai Construction Group. SCG paid a reported $137 million in 2015 for the 656-room Hyatt Regency Orange County, a 17-story hotel about a mile south of the Anaheim Convention Center.
The new owner, which operates the Hyatt Regency under Investel Harbor Resorts LLC, has proposed building a 35-story expansion tower with about 800 rooms next to the Hyatt. It would be among OC’s tallest buildings.
A time frame for the expansion project hasn’t been disclosed.
Last year, the city selected SCG America to develop the Grove District Hotel Resort Development, a stalled 5-acre resort project that would be built close to the Hyatt Regency just south of an existing Target store on the east side of Harbor Boulevard.
The three-hotel project would include a total of 769 rooms, 39,000 square feet of meeting space, and 45,000 square feet of commercial space.
It would generate an estimated $3.8 million to $4.9 million in additional annual city tax revenue.
The development cost is estimated to approach $450 million and would be the city’s largest-ever development, Jones said.
Santee, Calif.-based Land & Design Inc. would partner in the development, which the city approved in 2012. A groundbreaking under the latest ownership group hasn’t been announced.
Hotel operators also haven’t been announced. City officials said in June that they’ve been in talks with U.K.-based Intercontinental Hotels Group, which operates about 10 brands, about “new hotel brands available for the Grove Resort District.”
More Water Needed
The last big hotel that opened in the city was the Great Wolf Lodge Southern California, a 603-suite and 105,000-square-foot water park developed by Loveland, Colo.-based McWhinney Real Estate Services Inc. that opened last year.
It’s about three miles down Harbor Boulevard from Disneyland Resort and is the first indoor water park resort in the state.
The city estimated the project cost $285 million, which would likely be eclipsed by a similar project on the drawing board.
On a nine-acre site on the opposite side of Harbor Boulevard from the Grove District Hotel Resort Development, the city’s working with Arcadia-based Kam Sang Co. to develop the Nickelodeon Resort, a 600-room resort hotel whose many amenities would include a multiacre resort pool and water park.
The city estimates the proposed project, first announced last year, could cost $300 million to build.
Kam Sang, which has other commercial and residential developments planned in Garden Grove, entered into negotiations with the city for the project last year, when the company said construction could begin within two years. No updates have been given.
The resort has the potential to pump more than $8 million a year into the city’s coffers, according to Garden Grove records.
