Palm Springs tells developers to finish their hotels

The construction of four hotels in Palm Springs has languished, leaving the city to threaten each developer with legal action if that doesn’t change. All four properties are hurting nearby businesses, according to city officials.

 

Palm Springs already has more than its share of hotels, and it’s trying to make sure a few more are built there.

City officials have ordered the developers of four unfinished hotels, one of which has been under construction for more than a decade, to finish their projects or risk having them fall into receivership.

Ultimately, ownership of the properties could change and what’s been built on them could be demolished.

Each project – the Andaz Palm Springs at 400 N. Palm Canyon Drive, The Dream Hotel at 450 N. Calle Alvarado, the Orchid Tree Inn at 261 Belardo Road and the TOVA Hotel & Beach Club at 1875 North Palm Canyon Drive – has been delayed for different reasons, none related to COVID-19, according to City Attorney Jeff Ballinger.

But all four developments, several of which have been in and out of bankruptcy, have deteriorated and are a potential threat to property values.

All four property owners have been told they have three months to work out a plan that will get construction resumed and their hotel completed.

That’s why the council last month ordered Ballinger to proceed with legal action against all four developers – each project has separate ownership and is being built by a different company – to get them to finish their hotels or face possible legal action.

In this case, “legal action” would mean going to court and having a receiver appointed to any of the projects that aren’t resumed within the city’s 90-day timeline. The receiver, and the city, would then decide whether to demolish what has been built on each site, or find a developer interested in purchasing and completing the project.

Any agreement reached during the receivership process – an alternative to bankruptcy, which is usually more complicated and expensive – would have to be approved in court.

Several developers have approached the city about possible takeovers, but no agreements have been reached, according to Mayor pro tem Lisa Middleton.

Palm Springs officials would prefer that each of the projects be completed by their original developer, for several reasons, Middleton said.

Much time, effort and money has been invested in each of them. Also, being a resort town, Palm Springs can always use more hotel space.

But Palm Springs officials are prepared to go into receivership, if they must.  If any of the buildings are torn down, demolition costs will be paid by the property owner.

“There are different issues on each property, but the city’s position is that any developer should finish what they start,” Middleton said.Mayor Christy Holstege echoed similar sentiments.

“The city of Palm Springs is always willing to work with our property owners,” Holstege said in a statement issued by the city March 19, right after the council issued its receivership threat.  “But, at some point, if those property owners don’t do what is right for their neighbors and the rest of the city, we are forced to use whatever legal tools are available to us in order to protect our residents, businesses and visitors.”

Cities don’t often threaten a developer with legal action if a project isn’t completed, but Palm Springs attracts tourists worldwide, and that makes four unfinished hotels a sensitive issue, said City Attorney Jeff Ballinger.

“This might not be as big an issue in some other cities,” said Ballinger, who has been Palm Springs’ city attorney for two years.

Reasons for the construction delays are varied.

The Dream Hotel had its financing blocked early in 2020 when it failed to pay subcontractors. Likewise, Andaz Palm Springs was delayed because of problems between its master developer and its subcontractors.

Orchid Tree, which was built in the 1930s, sustained damaged in several fires and has been vacant for 10 to 15 years.  TOVA Hotel & Beach Club lost its financing and has been stalled for about three years. Despite several fines – one reportedly $30,000 – and a bankruptcy filing, construction has not resumed.

Each site is surrounded by businesses and/or houses, and each could damage property values in their neighborhood.

Ultimately, how each site will be resolved is difficult to say.

“I think if we can’t get the developers to finish their projects then we find some who will,” Middleton said. “I don’t like to speculate, but I know that we have to protect the city and we have to protest our businesses. We can’t live with status quo.”

Karl Gottling, owner of Gottling Gallery at 388 N. Palm Canyon Drive, could not agree more.

Gottling sells abstract art and luxury home furnishings from his 1,200-square-foot business next door to the Andaz Palm Springs site. He moved there in March 2020 after a successful three-year run in Hawaii, and after a real estate broker assured him the problems associated with the hotel construction would be resolved soon.

“I knew there were other good businesses coming into the area, so I figured they had to fix it, but they haven’t,” Gottling said. “If I’d known how this was going to turn out, I wouldn’t have moved here. It looks like a disaster. It’s just a shell and some walls.”

When he moved to the downtown site, Gottinger expected 200 to 300 visits a day on weekdays and 500 a day on weekends.

Instead, he’s getting 10 visits on weekdays and maybe 50 visits a day on the weekends.

Since the council’s edict, more workers are at the site every day, leading Gottling to believe the city is serious about getting all four projects back on track.

“They’ve lit a fire under [the hotel developers] and I’m very encouraged by that, but the last year has been difficult,” Gotling said. “I moved in when COVID-19 started, so my timing wasn’t good, but this has been a lot worse than COVID-19.”