CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
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Consider the request to adopt the resolution authorizing the City Manager to execute amendments on behalf of the City to extend the existing hotel tax rebate agreements with Embassy Suites, Hotel Arista, Hotel Indigo, and Marriott for an additional two years
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DEPARTMENT: City Manager’s Office
SUBMITTED BY: Douglas Krieger, City Manager
BOARD/COMMISSION REVIEW:
N/A
BACKGROUND:
The City previously entered into development incentive agreements with the owners of four local hotels: Embassy Suites, Hotel Arista, Hotel Indigo, and Marriott. Each agreement was established during the development or redevelopment of the subject property. Each is a standalone agreement with unique terms and conditions. While the incentives granted under the agreements are similar, none have any direct relationship or dependency with each other.
The financial incentive common among all four agreements is a 20-year rebate by the City of Naperville of their local hotel/motel taxes and State of Illinois sales taxes received by the City of Naperville. The table below summarizes the four existing agreements.
|
Development |
Inception Year |
Term (years) |
Taxes Eligible for Rebate |
Maximum Incentive |
Expiration Year |
|
Embassy Suites |
2015 |
20 |
100% of hotel, 75% of sales |
$7.5M |
2035 |
|
Hotel Arista |
2008 |
20 |
100% of hotel, 50% of sales |
$7.5M |
2028 |
|
Hotel Indigo |
2017 |
20 |
100% of hotel, 50% of sales |
$7.5M |
2037 |
|
Marriott |
2012 |
20 |
100% of hotel, 100% of sales* |
$10M |
2032 |
*Rebate of annual amounts exceeding 2009 base revenue; rebate reduced to 50% after first $7.5M is paid
On a quarterly basis, the Finance Department analyzes tax receipts for each subject property and issues payments according to the terms of the agreements. Those payments are netted against the revenues collected. From April 1, 2020, to March 31, 2022, hotel revenue plummeted as the pandemic brought the hospitality industry to a near standstill. As a result, all four hotels experienced significant setbacks in recapturing revenues through the rebate agreements.
The owners have collectively requested extensions to the existing agreements based on the unprecedented nature of the global pandemic and its economic impacts.
DISCUSSION:
The Naperville Development Partnership (NDP) has taken the lead in negotiating extensions to the existing agreements. Based on those negotiations, NDP recommends the following for City Council consideration:
• A two-year extension on each of the four hotel incentive agreements.
• The two years would be added to the end of each agreement to address the COVID impact from April 1, 2020, through March 31, 2022, less the amount of any rebates the hotels received during that period.
• The extension would not increase the total incentive amount, and all other initial agreement terms would remain unchanged.
A letter from NDP is attached.
Staff analyzed each of the four rebate agreements, and the pandemic’s impact during the period noted above is undeniable. In 2020, hotel rebates averaged 70% less than the amount rebated in 2019. In 2021, rebates remained 40% lower than in 2019. As of December 31, 2023, rebates for all four hotels exceed the amount rebated in 2019.
Staff’s analysis indicates that two of the four hotels are likely to reach the full rebate called for in their agreement within the initial 20-year term, barring another unforeseen economic downturn; however, staff recommends that any extension be equitable across all agreements. The table below summarizes the agreements with the above extension reflected.
|
Development |
Inception Year |
Term (years) |
Current Expiration |
Extended Expiration |
|
Embassy Suites |
2015 |
20 |
2035 |
2037 |
|
Hotel Arista |
2008 |
20 |
2028 |
2030 |
|
Hotel Indigo |
2017 |
20 |
2037 |
2039 |
|
Marriott |
2012 |
20 |
2032 |
2034 |
*Exact dates as defined in the current agreement, plus two years
If the City Council supports the proposed extensions, staff recommends that the City Council adopt the proposed resolution authorizing the City Manager to extend the existing hotel tax rebate agreements between the City and the owners of the four hotels for an additional 24 months beyond the expiration period currently provided in each hotel’s respective hotel tax rebate agreement with the City, less the amount of any rebates from the City that the hotels received during the period of April 1, 2020 through March 31, 2022 and without increasing the maximum incentive amount or any other terms in the respective current incentive agreements.
FISCAL IMPACT:
There is no immediate fiscal impact to the proposed extension as the oldest of the agreements is not set to expire until 2028. However, as the agreements expire, the previously rebated taxes would be retained as revenue by the City. The four subject hotels generate approximately $2 million in rebateable taxes annually (in 2024 dollars). Any extension of the rebate agreements would result in a delay in the City realizing that revenue.