On Wednesday, the Morgan Hill City Council narrowly approved a construction project to construct a four-star luxury hotel and restaurant in the center of town center, but not without opposition.
Although supporters say the hotel will herald revenue and attract tourists to the growing city, the deal includes tens of millions of dollars in tax breaks for the long run development. Some also expressed concern that the agreement was rushed to the City Council.
“I truly believe (this project) in Morgan Hill will be a game changer for downtown,” said Matthew Mahood, town's economic development director. “Private sector deals happen quickly, but they also fall apart quickly… We're trying to respond to the market and the opportunity.”
Planning for Hotel MOHI began in 2016 when town granted a permit for a hotel by local developer and restaurant owner Frank Leal. Since then, the project has moved forward at a brisk pace. While construction began in 2019, it was halted in early 2020 as a consequence of the COVID-19 pandemic. In 2022, the project was approved for 13 additional rooms and a fifth floor, and construction resumed in 2023.
In April of this 12 months, Leal approached town with chef and entrepreneur Charlie Palmer, proposing to rename the hotel and switch it right into a luxury hotel and restaurant. Palmer has over 20 Michelin stars and is co-founder of Appellation Hotels, which operates luxury hotels on the West Coast.
“We can make a difference in a city like Morgan Hill. We can be part of the community and move things forward,” Palmer said at Wednesday's meeting.
The updated design can be a four-star luxury hotel with 76 rooms, a Palmer restaurant, a spa, a swimming pool and space for events. Leal also said he envisions a bakery and cafe, in addition to a courtyard where farmers' markets might be held.
Due to the larger scope of the project, in addition to high borrowing costs and inflated material prices, the value of the hotel has increased from $16 million in 2016 to $75 million, and $40 million in 2022. Due to the extra costs, the developers expect a spot of $6 million to $9.5 million in available borrowing funds.
To make up the shortfall, the proposed contract provides tens of millions of dollars in refunds of the sales tax and transient occupancy tax that guests pay when staying at a hotel. Over 15 years, the hotel would pay a base amount of taxes to town after which be refunded the quantity it pays above that base amount. The base amount would start at $282,000 after which increase by 3 percent every year. Once the hotel has received $6 million in refunds, it will should pay 50 percent of the taxes above the bottom amount.
While council members and the general public were virtually unanimous of their support of the project, some feared that town administration had rushed right into a deal that gave the hotel an excessive amount of leeway for tax breaks.
“I'm excited about what I'm hearing about the (project). But that doesn't mean we can just settle for what we're given,” said Councilwoman Yvonne Martínez Beltrán, noting that she saw the agreement just days ago and that this council meeting is the last one before a two-month recess. “I'd like to look at this with more time.”
“I don't know if this is the fairest deal for our community and taxpayers,” said Councilman Rene Spring, asking city staff to think about capping the tax refunds at $6 million.
While some residents were skeptical, many urged the City Council to maneuver forward with the project full steam ahead. “I'm very disappointed in small-town politics… in your audience is one of the best American chefs of our time,” Michael Van Every said of Palmer. “This is an incredible opportunity.”
Mayor Mark Turner agreed that the matter was urgent, especially given previous delays within the hotel's development. “Now is the time. This building has been sitting around long enough… we need to get this hotel up and running,” Turner said.
After the discussions, the Council voted 3-2 in favour of continuous the agreement; Spring and Martínez Beltrán voted against.
The opening of the MOHI hotel is planned for the top of 2025.
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