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524-526 Lewelling OP A Amendment -Page 2 of3- November 20, 2006 These requirements were in response to the situation at The Islander Motel where a portion of the motel converted into what was essentially an apartment building. At the time of the OPA, it was not known that the hotel would operate under the Hilton Garden Inn flag. The flag effectively ensures operation of a quality hotel. The hotel is now operated as a three diamond, full-service Hilton Garden Inn. The Hilton Garden Inn initially experienced low occupancy rates. The hotel operator approached staff for relief from the prohibition on the TOT exemption in order for them to secure long-term corporate contracts with airlines operating at the Oakland International Airport for out-of-town airline flight crew layovers and airline employee training purposes. Following a temporary, one-year pilot program to determine if relief from the TOT exemption would generate additional business, the hotel reports strong occupancy levels and generates $250,000 in TOT annually. The airline contracts have had the added benefit of reinforcing the Agency's three diamond rating and requiring limited 24-hour room service and three hot meals per day. Hotel industry experts agree that airline contracts are positive overall for maintaining hotel quality and providing built-in incentives to maintain standards. Based on the results of the pilot program, staff recommends an amendment to the OP A to eliminate the requirement that all occupants are considered transient and include a provision that the developer agrees to forego future development incentives (which were scheduled to be paid at a rate of $14,000 annually through 2018) in lieu of the foregone TOT revenue owed to the City. The opportunity for exemptions for long-term transient contracts allows the hotel to compete on a regional basis for airline contracts. If the Hilton Garden Inn were not allowed this exemption, business would go to another hotel; thus, this change will not result in a revenue loss to the City as all other hotels in the area and in the City of San Leandro allow for TOT exemptions. Staff recommends Agency approval of the Resolution to Approve Amendment No. 1 to Redevelopment Agency of the City of San Leandro Owner Participation Agreement for 524-526 Lewelling Boulevard. Current Redevelopment Aeencv Policy - Not Applicable Previous Redevelopment Aeencv Actions - Adoption of Resolution No. 2000-27 of the Redevelopment Agency of the City of San Leandro Approving the Owner Participation Agreement Between the San Leandro Redevelopment Agency, Stanley Boersma, and Amin- Concord, LLC, for Construction of a Hotel and Self-Storage Facility Located at 524-526 Lewelling Boulevard on July 17, 2000. City Council Committee Review and Action ~ The City Council Business Development Committee discussed the proposed changes to the OP A for 524-526 Lewelling Boulevard at the October 12,2006 meeting and recommended Agency approval of Amendment No.1 to the OPA. G:\DEPTlAssistant TO CM\Cynthia CMO\HiltonGardenlnn\AmendmentCouncilMemoll-20-06 FINAL.doc