Disneyland throws fourth hotel project into doubt

August 15, 2018, 11:02 PM · The Walt Disney Company is threatening to cancel plans to build its fourth hotel at the Disneyland Resort, following a dispute with the City of Anaheim over tax breaks for the project, Hugo Martin at the LA Times reports.

The Disneyland Resort had announced plans to build a 700-room, four-star hotel next to the Disneyland Hotel, on the site formerly occupied by several buildings on the western edge of the Downtown Disney shopping district. ESPN Zone, Rainforest Cafe, Earl of Sandwich, and the AMC movie theaters recently closed to make way for the project.

The trouble is that, when Disney originally applied for the tax break that Anaheim offered to developers of luxury hotels within the city, the resort said that the hotel would be built at 1401 Disneyland Drive, which is a site just north of the Disneyland Hotel. However, the project's current site has the address 1601 Disneyland Drive.

A minor detail? In contract law, no detail is minor. If Disneyland got the tax break specifically for a hotel at 1401 Disneyland Drive, it can't apply it to a hotel at 1601 Disneyland Drive any more than you can use a one-day ticket to Knott's Berry Farm to get into Disneyland.

That said, the City of Anaheim easily could amend the deal to swap the address for Disneyland's hotel. Except... the current Anaheim city council isn't the same one that approved the original tax break. The new council includes members who are more likely to see such tax deals as corporate welfare than community investments. The address discrepancy provides them the excuse they needed to kill a giveaway they won seats on the council by campaigning against.

And without the deal, worth a reported $267 million, Disney says it will not move forward with the project.

"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," Disney said in a letter to the city, which was provided to Theme Park Insider via a Disney spokesperson.

The location switch came after Disneyland killed its Eastern Gateway project, again after squabbles with the city and local businesses. That project would have seen Disney building the new parking garage on land east of the current resort and building a pedestrian bridge over Harbor Blvd.

Proposed fourth Disneyland Resort hotel

The Developing OC blog earlier this week reported on the City of Anaheim's environmental report for the project, which revealed additional details about the hotel, including that the architect of record for the project was Marnell Architecture and not WDI. Marnell is best known for several Las Vegas developments, including the Bellagio and Wynn Las Vegas.

The new hotel at Disneyland is part of ongoing development at the resort, which include the construction of a new parking garage next to the Mickey and Friends structure and, of course, the new Star Wars Galaxy's Edge and Marvel-themed superhero lands, coming to Disneyland next year and Disney California Adventure the year following, respectively.

Replies (16)

August 16, 2018 at 12:09 AM

This seems pretty simple- add up all the new taxes Anaheim would collect when disney builds this hotel (new jobs, occupancy taxes, retail, etc) and project if this amount is more then the tax break. If the city makes money then waive the technicality.

August 16, 2018 at 1:56 AM

Never mind the Angels - watch the next couple of Anaheim City Council elections if you’re a fan of hardball. I’m sure that the living wage initiative on the ballot for November will now have a Mouse-shaped target on its back, too. Heat up some popcorn and grab a chair, folks...

August 16, 2018 at 4:05 AM

Seeing if the math works would be great for Disney but horrible for Anaheim.

For Anaheim, the better approach is: How likely is it that Disney won't continue expanding and building even if not offered tax breaks. The answer: Disney might say they won't build, and they might delay projects for dramatic effect ("Anaheim is missing out on the jobs we would have created--vote these obstructionists out!"), or scale down the projects a little, but Anaheim is in the power position here--not Disney:

Disney's not going to move the entire resort out of Anaheim, and they're not going to stop expanding it (even if the pace is a little slower).

For Anaheim, the math is NOT "Can we break even with this deal?" For Anaheim, the math is: Without the tax break, we'll get tremendously more revenue when they eventually build whatever they end up building, even if it's a little smaller and delayed--but it'll come eventually and will be millions more in taxes for Anaheim than the city would get for Disney building something bigger, sooner in a deal where the city just breaks even."

August 16, 2018 at 7:00 AM

Pretty typical for Orange County politics. This current Anaheim city council was elected on a “no more corporate giveaways” platform and they’re grandstanding to show how they’re able to stand up to the mouse. In the end, the dance will go as these usually go down. Disney will threaten to cancel the project, a new, slightly smaller package of incentives will be offered, they’ll go back and forth, and, in the end, the deal will get done in a way where everyone can claim victory.

August 16, 2018 at 7:54 AM

This seems like a pretty big botch on Disney's part. As such, they must now weigh the costs of moving forward with the project without the tax breaks versus cancelling the project altogether and having a giant hole in the middle of their resort for who knows how long. My guess is that Disney would lose more money trying to rework and redesign the resort if the City doesn't apply the previously approved tax breaks to the new address. It sounds like Disney is posturing in an attempt to get the Council to cave because of a mistake Disney made. There are villains on both sides here (and I'm certainly glad I'm 3,000 miles away from California politics - we deal with enough nonsense here in Washington), but I would not support a City Council bowing down to a corporation to correct for the company's own mistakes (no matter how small or insignificant).

Cross your t's and dot your i's Disney!!!

August 16, 2018 at 9:58 AM

1401 Disneyland Drive is actually the parking lot where they are building the new structure. They never showed any hotel designs that actually use that location. They showed a contemporary high rise hotel at the north Downtown Disney parking lot, which wouldn't be at 1401 Disneyland Drive.

Sorry, this bungle is not Anaheim's fault. Disney's plans changed and they didn't anticipate the change of the city council. Plans were already in jeopardy with the new proposition that may get passed. So this is 3 bad things that make a trend.

I suggest Disney wait until after November, a mere 3 months away, when we know if the political environment will change. Then Disney can make the right decision for the entire Disneyland Resort that includes the new hotel resort, the revival of the Eastern Gateway, and Superheroes Land.

I suggest they redesign the new hotel as a deluxe, thus saving $267 million since 4 or 5 star hotels cost beyond $1 million per suite. Do it for half the price and charge near luxury prices, which Disney could easily.

August 16, 2018 at 10:17 AM

So when I go on vacation to Disney, stay in a obscenely overpriced hotel, buy obscenely low quality overpriced food in a high ticket price theme park, I make people have jobs and taxes are payed but I don't get a hand out.
Disney is building a luxury hotel to make tons of money and now they tread to not make any more because they don't get a tax break, pathetic.

August 16, 2018 at 11:32 AM

No one is to blame here but Disney. Anaheim asked for pedestrian access to their bridge on the eastern side of the park, Disney had a hissy fit about being told what to do, and responded by making their new plans not include a bridge at all with the new structure on the western side instead. This is what they get for being brats. The current Anahiem city council has every right to say no to Disney if that's what their constituents want.

August 16, 2018 at 11:55 AM

Russell - I'm not following your claim this is a mistake on Disney's part. The cause for the site change is linked to the council's refusal to approve the Eastern Gateway project. That's not a mistake, that's politics. Is there something I'm missing?

August 16, 2018 at 1:07 PM

@ Clayton - Disney made a mistake when requesting the tax breaks from the City Council. They identified the luxury hotel being built at 1401, and were subsequently approved for that development plan. Disney can't turn around and cry foul when they decide they want to now build a hotel at 1601. Whether that address change was a result of the cancelled Eastern Gateway project or a clerical error doesn't really matter, though my understanding is that the hotel project was planned and submitted AFTER Eastern Gateway was cancelled. If you're part of an HOA and get approval to build a 5' gazebo in your back yard, but later find out that you can only get a 6' gazebo, you've got to go back through the HOA. That's how permitting and neighborhood oversight works. It doesn't matter who or what caused the address of the hotel to change, Disney cannot claim tax breaks for a hotel at 1601 unless they go back through the approval process.

Disney is now pouting about it trying to get the City to overlook this mistake that Disney should have recognized long ago (not after they've kicked out tenants and broken ground on development). If the cancelled Eastern Gateway Project changed the hotel address, eliminating it from tax break consideration, Disney should have brought that up immediately, not almost a full year later. In all likelihood, Disney knew about this when the writing was on the wall about the demise of Eastern Gateway long ago, and deliberately ignored it expecting the City to simply rubber stamp the change or use the leverage of an unsightly hole in the ground to sway the City to cave to the address change. I felt that the City was pretty stupid and stubborn regarding the Eastern Gateway, but this hotel situation falls squarely on Disney's stupidity and stubbornness.

August 16, 2018 at 9:58 PM

the city of Anaheim needs to study case law. they waiting too long (legally) in making this interpretation. A similar thing happened in fresno calif last year. the city granted a business license to hustler inc, for a retail store with the provision that over 50 percent of the goods will be things other than sex toys. Hustler spent time, energy and money to plan the project and set aside the money vs the opportunity cost of already spending the money on other projects in other cities. Most of the residents in the city were not paying attention and the newspaper did not publish it for a long time. Pretty late the newspaper publishes a story about the approval. Residents call the city counsel people mad. City of fresno revokes the license, claiming a technicality. after the city attorney spend 2 months doing legal research fresno settled hustlers lawsuit--allowed the store to open and paid hustler's legal fees. Watch out Anaheim. you could end up paying massive legal fees and stiil have to abide by your agreement. such a minor change of address is not enough to invalidate the contract. it does not change any issue that affects a city resident. traffic congestion, crime etc.

August 16, 2018 at 10:13 PM

Russell--the is nothing like an HOA. the whole theory of why HOA's have power over owners is that the houses are close together. So. my gazebo being one inch taller could effect your enjoyment of your property or cause your property values to go down. Although, with a once inch difference, it may be hard to prove this in court. Here the entire property for 1/2 mile either direction is owned by Disney. the minor address change does not effect anything for city residents. NOTHING. this is no harm. I'm a lawyer. Many times, I have had a potential client come to me with a set of facts. I say ok. They were rude to you. What is your damages. It it's less than 7 thousand dollars, I tell them look. this is either not worth your time and not worth paying a lawyer (unless they want to get the case ready for a deposition on their own, before they hire me). or file in small claims court. Anaheim could file in small claims court and get maybe 5 thousand at best, and they would still have to abide by the contract. look at the fresno vs hustler articles in the fresno bee. the city lost and had to pay hustler. (I'm not defending hustler in the slightest. they just had legal precedent on their side)

August 16, 2018 at 11:18 PM

In the meantime Disney should go ahead and clear, tear down the closed DTD venues, get the dirty rotten Richfield fuel tanks out of ground, get the soil abatement done and tested - w/EPA review and approve (funny, one stall of the project recently, and then a complete shutdown of the project for a whole other reason - curious). They can turn it into a "nice" food truck park with an outdoor entertainment venue until they eventually get what they want.

August 17, 2018 at 8:11 AM

@davedisney - Disney applied for a tax exemption for a hotel built at 1401. However, Disney is now building a hotel at 1601. Whether that change of address occurred due to a mistake by Disney on the initial request, a change to the plans made after the fact, or a change forced on Disney by the cancellation of the Eastern Gateway project, it doesn't change the fact that the approval provided by the City does not match what Disney wants to do now. Also, whether that address changes has any financial or quality of life impact to the residents and businesses of the city is inconsequential to the fact that the tax exemption is now for the address of a parking garage, and not a hotel.

This is EXACTLY like an HOA. The City council is representing their constituents of the City of Anaheim by monitoring and controlling development within their jurisdiction. The City explicitly provided the tax exemption based on plans for a hotel at 1401, NOT 1601. Therefore, Disney can't simply cry poor or shrug their shoulders because the addresses don't match. They have to go back to the City to get an approval for the new address. They can certainly petition the city to change the original approval, but it sounds like the City is standing on procedure, which they have every right to do based on the Code. Whether citizens would be financially damaged on inconvenienced by the address changes or not, the City still needs to provide the proper approvals as written in the code for their constituents. Turning a blind eye here to what does just look like a minimal address change would set a dangerous precedent for the future where similar tax exemptions could be shifted blocks or miles away. It should have never gotten to this point, and if Disney had simply notified the City that there was a discrepancy from the get go, they wouldn't find themselves in their current situation.

I hate the bureaucracy of power-hungry local governments and city councils (and HOAs) more than anyone, but there are rules established and Disney clearly followed them to get the initial exemption for 1401. Whether the political climate has changed between that approval and now is their problem to navigate, and unfortunate for their bottom line, but does not lessen the need for Disney to follow the proper procedures as outlined in the City code.

August 17, 2018 at 12:14 PM

Just build a check-in desk @ 1401. Elevators lead to people mover, tram or some Star Wars themed transport that magically dumps you at your room that happens to be @ 1601. Probably not legal. But have how bout some Disney creativity !

August 18, 2018 at 3:02 PM

Very interesting discussion. It may sound like a simple clerical error but I just googled it and there is a 0.3 mile distance. That's a HUGE difference and I agree that it could set a bad precedent for other projects as well... Anyway, I really enjoy reading all the comments and forming an opinion...

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