Mountain View to replace downtown parking lot with hotel

After years of financial uncertainty, a developer is getting another chance to turn two public parking lots in downtown Mountain View into a hotel and office development.

In a unanimous vote, the City Council authorized city staff last month to execute an amended lease and development agreement with RGC Mountain View, a commercial real estate company.

For the past decade, RGC has been planning to develop a five-story hotel and four-story office building with ground floor retail on two municipal parking lots — Lot 4 and Lot 8 — across from the Mountain View Transit Center.

If the hotel gets built, it could add more than $433.6 million to the city’s coffers over a 55-year period, according to Assistant City Manager Dawn Cameron, who presented the item to the council on March 24.

“This is a conservative estimate,” Cameron said. “In addition to revenue for the city, a hotel will also provide some net significant economic benefits, with more foot traffic for downtown restaurants, shops and entertainment as well as job creation.”

But while a potential money-maker, the project struggled to get off the ground after the city council approved the planning permits in 2018, especially once the pandemic hit.

“The pandemic’s impact on the hotel industry and construction loan costs made proceeding into construction infeasible,” Cameron said.

The city council has held three closed door meetings over the past year to discuss how to get the project back on track by modifying the ground lease and making other changes, according to the city staff report. At the March 24 meeting, councilmembers signed off on an updated lease and development agreement. The specific project plans will come back for approval at a later date, Cameron said.

Several councilmembers expressed a strong desire to see the project move forward as quickly as possible, given the financial implications.

“The economics of hotels are very difficult,” Councilmember Pat Showalter said. “Currently, this developer thinks that the economics are a ‘go’ so we need to take advantage of that now while we have this opportunity.”

Timing and parking updates

The report presented to the city council identified three big changes to the ground lease and development agreement, starting with the project timing. RGC plans to first develop the hotel on Lot 4, followed by the office building on Lot 8, instead of constructing them concurrently as originally proposed.

The hotel could open as early as mid-2029 but no later than the spring of 2031, according to the city staff report. RGC also would need to submit a permit application for the office building no later than mid-2029. If it fails to do so, or the hotel was not constructed, then the agreement could be terminated.

The amended agreement also includes changes to the parking provided. RGC originally planned for the hotel and office building to each have a three-level underground garage, totaling 385 spaces. This would have included replacing 149 existing public parking spots, adding 76 more public spots and providing 160 hotel and office spaces. The city would have funded the 76 additional public parking slots.

RGC now intends to eliminate the hotel’s underground parking and rely on shared parking agreements with nearby properties using a valet system, according to the report. To help offset the loss of public parking at Lot 4, RGC also plans to pay the city $6.6 million towards the cost of a new parking garage at 230 Hope St., known as Lot 5.

Eliminating the three-level underground garage at the hotel would reduce the project’s cost by $35 million and shorten the construction timeline by at least six months, the report said.

To a lesser extent, RGC is modifying its parking plan for the office site as well. It is planning to build a two-level underground garage with 110 parking spaces.

Councilmember Alison Hicks viewed the terms favorably, describing the valet-parking as a good use of existing resources.

“We actually have a tremendous amount of parking downtown,” Hicks said. “It’s just underneath the offices and is not used a lot. So, I like the idea of the hotel using it.”

Financial updates

The city has also changed the terms of its financial commitment for the project.

In 2017, the hotel development was estimated to cost $80 million, with the city agreeing to provide $17.7 million in upfront capital funding, as well as transient occupancy tax rebates for up to 10 years not to exceed $7.8 million. Since then, the hotel’s estimated cost has shot up to $141.8 million, according to the city staff report.

The city is no longer going to provide capital funding, but will offer a reduced rent structure that begins with no rent for the first five years of the hotel’s operation and increases over time. Starting at 31 years, the hotel will partially pay back the earlier rent reductions, Cameron said. The city also will offer transient occupancy tax rebates for up to 15 years, but this will end sooner if hotel room revenue exceeds current projections.

The city’s total subsidy to RGC amounts to $47.5 million over the 55-year lease agreement, according to Cameron.

“This approach minimizes the city’s financial risks and eliminates the obligation to use any city funds on the project,” Cameron said.

Ultimately, the city is projecting to collect roughly $433.6 million from the hotel development, offsetting the $47.5 million subsidy over time.

“There’s some sacrifices we need to make now,” Councilmember Ellen Kamei said. “But we’ll be able to … recoup and hopefully gain some financial benefits on the other end for some of the things we need to do now.”