Disneyland Puts 4th Hotel On Hiatus After City Threatens To Pull Incentives

The Walt Disney Co. has put plans to develop a fourth hotel at Disneyland Resort on an indefinite hold after the city of Anaheim told the company that it would not be qualified to receive a city pre-approved tax rebate.

Anaheim City Attorney Robert Fabela sent Disney a letter on Aug. 6 stating there is an inconsistency in the pre-approved project and the current 31-acre site the company had chosen to build the 900K SF, 700-room luxury hotel. The site where the company wants to build on the west end of the Downtown Disney outdoor shopping district, where the now shuttered ESPN Zone, Earl of Sandwich, AMC Theatre and Rainforest Café were located, would not be eligible for the city’s hotel incentive program, the letter states. 

The city and Disney had initially approved the plans for the hotel and an adjacent parking structure to be built on 25 acres on a parking surface at the north end of the Downtown Disney strip at 1401 Disneyland Drive.

A Disneyland spokeswoman said change in the planned location was to create further connectivity to Downtown Disney and embrace the theme park experience, similar to Disney’s Grand Californian Hotel & Spa. The monorail station that takes visitors to Disneyland is on the west end of Downtown Disney.

“It is the city’s position that Disney would not be entitled to the tax rebate were it to move forward under its current hotel construction plans,” Fabela wrote.

In a lettered response to the city, Disneyland Resort and International Parks & Resorts Chief Counsel David Ontko said Anaheim’s turnabout puts at risk 1,500 construction jobs, 1,000 permanent jobs and $25M in additional revenue the project would have generated for the city in the hotel’s first five years of operation.

“The city’s inexplicable delay in raising the hotel’s location as an issue despite knowing about the location for more than eight months and participating in multiple project meetings, coupled with the city’s unwillingness to work together in a cooperative fashion to address it, further demonstrates the ongoing challenging business environment in Anaheim,” Ontko wrote.

The back-and-forth is the latest ongoing feud between a majority city council seen as anti-Disney and its largest employer and biggest tourist draw, Disneyland. 

The controversial hotel incentive program and other tax breaks in favor of Disney have been seen as the center of the conflict.

Passed in June 2015, Anaheim’s hotel incentive program allowed developers of four-diamond-quality — according to AAA standards — hotels to receive 70% of the transient occupancy tax generated by a new ground-up hotel for 20 years. 

The city would reimburse the developer 70% of the bed tax and keep the rest. After 20 years, the city would keep all of the bed tax revenues. Anaheim has a 15% nightly bed tax rate.

The purpose of the economic program was to spur luxury developments to attract high-end tourists and conventioneers, who in turn are believed to spend more shopping at stores and eating at local restaurants. Anaheim only has two four-diamond luxury resorts: The Disneyland Hotel and Disney's Grand Californian Hotel & Spa. High-end tourists and visitors usually stay along the resorts in Newport Beach, Huntington Beach and other locations that line Orange County's coast.

However, several residents and local union leaders claimed the incentives were corporate handouts to big and profitable businesses.

The following year Anaheim’s then-pro-business city council approved Disney and the Wincome Group’s proposal to build three new luxury hotels under the incentives program. Several reports suggest the developers would receive $550M in tax rebates in the course of 20 years. 

The city estimated it would reimburse Disney about $267M. In that time frame, the city’s share would be $133M.

When a new city council took office in 2016, it shifted the balance of power and the council majority immediately voted to end the incentive program.

The local hotel union is using the tax rebate program as an example of why their workers should have a living wage. There is a ballot measure to increase minimum wage for hotel employees that work for companies that receive city incentives in the upcoming local election.

Disney and Wincome said the passage of the ballot measure would harm their businesses and they would halt all future projects if the measure passes.

Wincome broke ground last year on its first hotel under the program. The $250M, 600-room Westin Anaheim is next to the Anaheim Convention Center. Wincome’s second luxury hotel will be built on the site of the company’s The Anaheim Hotel across the street from Disneyland.

The new Disneyland hotel, which was not yet themed, was slated to break ground this summer.

Disney was slated to appear in front of the city’s planning commission on Aug. 20 to finalize the plans and begin construction. 

But those plans are now suspended, Ontko wrote.

A city spokesman had no comment on the issue. Disneyland officials referred Bisnow to their attorney's letter.

UPDATE, AUG. 16, 10:55 A.M. PT: The story has been updated with insight from a Disney spokeswoman on why the company changed its planned location for the hotel.