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ECONOMIC AND REVENUE IMPACTS OF CANNON BEACH HOTEL IN THE CITY OF MESA, AZ AUGUST 2026 11209 N. Tatum Boulevard, Suite 225 * Phoenix, AZ 85028 * 602-765-2400 tel * 602-765-2407 fax ii TABLE OF CONTENTS 1.0 INTRODUCTION ............................................................................................................ 1 PROJECT DESCRIPTION .................................................................................................. 1 APPLIED ECONOMICS BACKGROUND ............................................................................ 2 2.0 IMPACT SUMMARY ....................................................................................................... 3 3.0 ECONOMIC IMPACT ANALYSIS ...................................................................................... 5 CONSTRUCTION IMPACTS ............................................................................................. 5 OPERATIONS IMPACTS .................................................................................................. 5 VISITOR SPENDING IMPACTS ......................................................................................... 6 4.0 REVENUE IMPACTS ........................................................................................................ 8 GROSS PROJECT TAX REVENUES .................................................................................... 8 SALES TAX REIMBURSEMENT......................................................................................... 9 SUMMARY ..................................................................................................................... 10 1 1.0 INTRODUCTION The City of Mesa retained Applied Economics to perform an economic impact analysis of a proposed hotel at Cannon Beach. Cannon Beach is a mixed-use development built around the Revel Surf Park and will include a four-star hotel, restaurants, retail, and entertainment. This analysis is limited to the hotel. The project would be located on a 1.3-acre site on the east side of the Revel Surf Park, near the intersection of Power Road and Warner Road. The proposed development includes a 148-room hotel, lounge, and restaurant with a variety of amenities as required in the development agreement. The development agreement for this project requires a minimum of 130 rooms, various amenities including a rooftop deck and event space, a ground level pool, hot tub, and lawn area, a bar and lounge connected to an outdoor terrace overlooking the surf park, and a 7,000 square foot or larger upscale full-service restaurant. This analysis provides a framework for understanding the impacts that the project could have on the City, and a third-party review of the sales tax reimbursement terms. The development agreement includes a reimbursement of 100% of the non-dedicated 1.2% construction sales taxes, and 50% of the non-dedicated 1.2% retail sales tax on all other project sales tax up to a maximum reimbursement cap of $950,000 for specified public improvements completed by the developer and dedicated to the City. The economic incentive period begins at completion of construction and extends for ten years. State statutes require that any proposed tax incentive is expected to generate more revenues than the incentive amount over the duration of the agreement. Additionally, sales tax incentives offered to retail businesses must be only for reimbursement of public infrastructure construction. All calculations and estimates presented in the report are based on the project parameters provided by the City and the developer. Project Description The proposed hotel includes 108,000 square feet with 148 rooms. Total estimated construction costs are $51.7 million, including land, hard costs, soft costs, and FF&E. The developer has already spent approximately $10.3 million in site improvements and design costs that are not part of the reimbursement agreement. The hotel, lounge, restaurant, and event center could create 162 estimated full-time and part-time jobs, based on information provided by the developer (Figure 1). The hotel could reach a stabilized occupancy rate of 75% by the third year of operations, with an average daily rate (plus resort fee) of $257. Additional estimated taxable sales associated with the restaurant and events start at $99 per occupied room night. FIGURE 1 DEVELOPMENT ASSUMPTIONS Square Feet Stabilized Occupancy Estimated Jobs Construction Cost (millions) Hotel (148 keys) 108,000 75% 71 $51.7 Restaurant & Event Center 7,000 na 91 na Total 115,000 75% 162 $51.7 2 Applied Economics Background Applied Economics LLC is an economic consulting firm, based in Phoenix, Arizona, specializing in economic development, economic and fiscal impact assessment, incentive analysis, socioeconomic modeling and urban planning. Applied Economics is frequently called upon by local governments to provide a third-party evaluation of incentives, including sales tax reimbursement agreements. The principals at Applied Economics have worked together for more than 30 years and are very experienced in working with local and regional planning and development issues. 3 2.0 IMPACT SUMMARY The construction of a new hotel at Cannon Beach could create a variety of economic and fiscal impacts in the City. The developer is seeking a sales tax reimbursement for public infrastructure improvements to Warner Road. The following section describes the impacts of the project to the City of Mesa. The Canon Beach Hotel could create a total economic impact of $281.6 million on the Mesa economy over ten years (Figure 2). Economic impacts measure the effects of economic stimuli or new demand for goods and services in the local economy. The hotel could directly and indirectly support 223 jobs and $84.9 million of labor income in Mesa over ten years. The total economic impacts of these developments include direct impacts of jobs and payroll at the hotel and indirect and induced impacts elsewhere in the City. The guests at the hotel would spend money in the community on retail, food and beverages, local transportation, and recreation/entertainment. This spending could create an induced output impact of $58.6 million over ten years and support an estimated 52 jobs in Mesa and elsewhere in the County. The project would also generate construction impacts. Total estimated construction costs are $51.7 million, including $23.4 million in site work and hard construction not yet completed. This $23.4 million in construction activity at the site could generate a total economic impact of $57.9 million over approximately 15 to 18 months. Construction could directly and indirectly support 260 estimated total jobs and $21.8 million in total labor income. The new hotel could generate a sizeable amount of new city tax revenues estimated at $9.4 million over ten years. Estimated gross non-dedicated sales and hotel taxes could total $2.1 million over ten years, including sales taxes from both construction and operations. There could be additional dedicated sales and hotel taxes estimated at $7.0 million over ten years. The hotel could also generate $0.3 million over ten years in estimated secondary property taxes to the City. The City will reimburse the developer a portion of General Fund sales tax from construction and taxable sales at the site. The maximum cost of public infrastructure eligible for reimbursement is $950,000. The developer must obtain permits and begin construction on public improvements within 18 months of the effective date of the development agreement, complete the public improvements within 18 months of obtaining a permit, and the hotel must be operational within 36 months of the effective date of the agreement. The reimbursement could begin in 2028 based on the developer’s anticipated timeline, or upon completion of the Conditions Precedent. The maximum reimbursement could occur by 2035, based on the assumptions used in this analysis. The developer would receive 100% of the non-dedicated 1.2% construction sales tax and 50% of the non-dedicated 1.2% retail and hotel sales tax. 4 FIGURE 2 SUMMARY OF RESULTS CANNON BEACH HOTEL (Millions of Dollars) Project Details Hotel Rooms 148 Restaurant Space 7,000 Full and Part Time Employees 162 Economic Impact of Hotel Operations (10 Years) Output $281.6 Labor Income $84.9 Jobs 223 Economic Impact of Visitor Spending (10 Years) Output $58.6 Labor Income $20.8 Jobs 52 Economic Impact of Construction (1.5 years) Output $57.9 Labor Income $21.8 Jobs 260 Gross City Tax Revenues (10 Years) $9.4 Non-Dedicated Retail, Hotel & Construction Sales Tax $2.1 Dedicated Sales and Hotel Taxes $7.0 Secondary Property Tax $0.3 5 3.0 ECONOMIC IMPACT ANALYSIS The economic impacts of the proposed Cannon Beach hotel include both the one-time construction impacts and on-going operations impacts. These impacts are quantified in terms of direct, indirect, and induced jobs, labor income, and output that could be generated by the project. Indirect and induced impacts represent multiplier effects that capture supported supplier and consumer businesses in Mesa that could benefit from the new hotel. Construction Impacts The total capital investment for this project includes land, hard costs, soft costs, and FF&E totaling $51.7 million. The completed and projected hard costs and site work, estimated at $32.5 million, have the potential to generate local economic impacts. Construction is expected to occur over a period of approximately 15 to 18 months. The multiplier effects of this construction spending could result in a total increase in economic output of $57.9 million during the construction period (Figure 3). The construction activity could support an estimated 260 total jobs and $21.8 million in labor income. FIGURE 3 CONSTRUCTION IMPACTS Operations Impacts Once construction is complete, the hotel could create economic impacts through direct operations, local supplier purchases, and employee spending. Direct impacts include employment, labor income and output at the hotel. The hotel could make local supplier purchases, and its employees could make consumer purchases that are captured in the total impact estimates. The hotel could directly support 162 full-time and part-time jobs and $4.4 million in direct annual labor income starting in 2028, based on the assumptions used in this analysis. The multiplier effect of this increase in jobs and labor income could result in a total output impact of $281.6 million over ten years in 2026 dollars (Figure 4). The total output impact represents the annual gross revenues created by the hotel, plus the increase in sales at local suppliers and local establishments where employees shop. During the ten-year term of the development agreement, the hotel could directly and indirectly support an estimated 223 jobs and $84.9 million in total labor income. Construction Labor Labor Expenditures Jobs Income Output Jobs Income Previously Completed $9.0 41 $3.8 $16.1 72 $6.0 Projected Hard Costs $23.4 106 $9.8 $41.8 188 $15.7 Total $32.5 147 $13.6 $57.9 260 $21.8 Direct Impacts Total Impacts 6 FIGURE 4 ANNUAL ECONOMIC IMPACTS OF THE HOTEL The differences between direct and total economic impacts are called multiplier effects. Multiplier effects are a way of representing the larger economic effects on the local economy. The multiplier effects translate an increase in output or business sales/production into a corresponding increase in jobs and labor income. The total increase in output includes the impacts on other local supplier and consumer businesses. In essence, the multiplier effect represents the recycling of local spending. This process creates new business opportunities. The multipliers used in this analysis are from IMPLAN, a national vendor of economic impact software, and are specific to Maricopa County. Industry-specific multipliers were used for hotels and commercial construction. The output multiplier for this development is 1.79. This means that for every $1 million of annual output created by the hotel, an additional $790,000 in economic activity and 4 additional jobs are supported at other local businesses. Visitor Spending Impacts As the new hotel brings additional visitors to Mesa, guests at the hotel could create induced economic impacts through their local spending on restaurants, retail, attractions and local transportation. Based on a stabilized occupancy rate of 75%, the hotel could attract 85,082 guests per year, assuming 2.1 guests per room and 148 rooms. According to a report by Longwoods International for the Arizona Office of Tourism, the average visitor to the Phoenix metro area spends about $78 per day on lodging, retail, restaurants, entertainment, recreation and local transportation. These spending levels were adjusted to account for expected room rates and food and beverage spending at the hotel. On-site visitor spending is included in the operations impacts. The remaining spending that could occur elsewhere in the community, or “off-site,” forms the basis for the visitor spending impacts. Year Output Jobs Labor Income Output Jobs Labor Income 2028 $13.2 162 $4.4 $23.8 212 $7.8 2029 $14.4 162 $4.4 $25.9 216 $8.2 2030 $15.2 162 $4.4 $27.4 219 $8.4 2031 $15.8 162 $4.4 $28.4 221 $8.5 2032 $16.3 162 $4.4 $29.4 223 $8.7 2033 $16.3 162 $4.4 $29.4 223 $8.7 2034 $16.3 162 $4.4 $29.4 223 $8.7 2035 $16.3 162 $4.4 $29.4 223 $8.7 2036 $16.3 162 $4.4 $29.4 223 $8.7 2037 $16.3 162 $4.4 $29.4 223 $8.7 Total $156.8 162 $43.7 $281.6 223 $84.9 Direct Impacts Total Impacts 7 Total annual visitor spending at stabilized hotel occupancy rates in year 3 is estimated at $14.4 million at the hotel and $3.0 million in the community (off-site) (Figure 5). This would equate to $170 per person per day at the hotel and $35 elsewhere in the City or region. Per person spending is significantly higher than the regional average due to expected room rates. FIGURE 5 ANNUAL VISITOR EXPENDITURES Industry-specific economic multipliers can be applied to each category of off-site visitor expenditures. Over ten years, off-site visitor spending of $32.5 million could generate an induced output impact of $58.6 million in Mesa and throughout the County, supporting 52 jobs and $20.8 million in labor income at local businesses (Figure 6). FIGURE 6 OFF-SITE VISITOR SPENDING IMPACTS On-Site Spending Off-Site Spending Total Visitor Spending $14,447,419 $3,013,190 Lodging $10,423,294 $0 Food & Beverage $4,024,125 $225,657 Recreation & Entertainment $0 $876,082 Local Transportation $0 $955,725 Retail $0 $955,725 Total Visitors 85,082 85,082 Per Person Per Day Spending $170 $35 Note: Spending is for year 3 at stabilized rates. Source: Longwoods International, Travel USA Visitor Profile, Phoenix & Central Region, 2024. Year Visitor Spending Output Jobs Labor Income 2028 $2.7 $4.9 38 $1.8 2029 $2.9 $5.3 41 $1.9 2030 $3.0 $5.4 42 $1.9 2031 $3.1 $5.6 44 $2.0 2032 $3.2 $5.8 45 $2.1 2033 $3.3 $5.9 46 $2.1 2034 $3.4 $6.1 48 $2.2 2035 $3.5 $6.3 49 $2.2 2036 $3.6 $6.5 50 $2.3 2037 $3.7 $6.7 52 $2.4 Total $32.5 $58.6 52 $20.8 Induced Impact 8 4.0 REVENUE IMPACTS In addition to supporting jobs, labor income and output at related businesses in the City through the multiplier effects, the new hotel could generate new tax revenues, primarily from taxable room rentals and restaurant sales. In total, the hotel could generate $9.4 million in estimated gross sales and secondary property tax revenues over ten years. Gross Project Tax Revenues Sales taxes include non-dedicated retail, hotel, and construction sales tax taxes at 1.2%, and dedicated sales taxes at 0.8%.1 The project could generate estimated non-dedicated sales and use taxes from construction (65% of hard costs) and FF&E purchases of $246,000 (Figure 7). The city has also collected an estimated $78,000 on previously completed improvements that are not included in Figure 7 or in the reimbursement. There would also be annual sales tax revenues from the hotel and restaurant including $1.9 million in non-dedicated retail and hotel sales tax over ten years. Dedicated taxes on construction, retail and hotel sales could total $7.0 over ten years. Estimated dedicated and non-dedicated sales tax generated by the project could total $9.1 million over ten years. A portion of the non-dedicated construction, retail and hotel sales taxes would be eligible for reimbursement. The City of Mesa does not have a primary property tax, although new development does generate secondary property taxes used for bond repayment. The Cannon Beach Hotel could generate $0.3 million in estimated secondary property taxes to the City of Mesa over ten years. FIGURE 7 PROJECT TAX REVENUE IMPACTS 1 Dedicated taxes also include the 5% additional hotel tax. Year Construction Sales Tax (1.2%) Retail & Hotel Sales Tax (1.2%) Dedicated Taxes Secondary Prop Tax Total 2027 $246,371 $0 $164,247 $1,841 $412,459 2028 $0 $150,695 $545,858 $27,218 $723,771 2029 $0 $164,190 $601,959 $27,898 $794,046 2030 $0 $173,369 $636,744 $28,596 $838,709 2031 $0 $179,537 $656,495 $29,311 $865,342 2032 $0 $185,937 $676,866 $30,043 $892,847 2033 $0 $191,515 $697,172 $30,794 $919,482 2034 $0 $197,261 $718,087 $31,564 $946,912 2035 $0 $203,179 $739,630 $32,353 $975,162 2036 $0 $209,274 $761,819 $33,162 $1,004,255 2037 $0 $215,552 $784,674 $33,991 $1,034,217 Total $246,371 $1,870,508 $6,983,551 $306,772 $9,407,202 Note: Shaded rows represent construction sales tax and property tax on land. Non-Dedicated 9 Applied Economics collected data from the Maricopa County Assessor’s website on the limited property value and building square footage for new or recently renovated hotels in Mesa. The next step is to multiply building square footage for the hotel by the average limited property value per square foot to estimate the limited property value. The limited property value includes a 2.5% annual growth rate, which is half the statutory maximum growth rate of 5%, and is reflective of the real estate cycles that could occur over the next 30 years. The 2026-27 City secondary property tax rate is 0.85%. Property taxes include a 15% assessment ratio. Sales Tax Reimbursement Cannon Beach will require improvements to Warner Road to support new development. The City and the developer will enter into a development agreement to reimburse the developer for public infrastructure improvements. As a precedent for reimbursement, the developer must obtain permits and begin construction on public improvements within 18 months of the effective date of the development agreement, complete the public improvements within 18 months of obtaining a permit, and the hotel must be operational within 36 months of the effective date of the agreement. The reimbursement would begin upon completion of the public improvements. For the purpose of this analysis, the reimbursement begins in 2028. The term extends for up to ten years, or upon the lesser of the reimbursement of the maximum amount, or the reimbursement of actual construction costs for the public improvements. Public improvements include the dedication of right-of-way and construction of the southern portion of Warner Road from approximately Power Road to the Roosevelt Irrigation Canal. Road construction includes pavement, turn lanes, curb and gutter, sidewalks and landscaping, driveways, streetlights, signage, and store drains. The development agreement includes provisions for a sales tax reimbursement equal to 100% of the 1.2% non-dedicated construction sales tax, and 50% of the 1.2% non-dedicated sales tax generated by food and beverage sales, hotel room rentals, and any other taxable sales generated by the project. The maximum reimbursement would be equal to the lesser of the actual cost of public improvements constructed and dedicated to the city, or a maximum of $950,000 over a period of up to ten years. Per A.R.S. 9-500.11 (D), any proposed tax incentive must raise more revenues than the amount of the incentive within the duration of the agreement. We have reviewed the development agreement and prepared an analysis of projected taxable activities and the future sales tax revenue stream to the city during the Economic Incentive Period. Based on our review, we believe that the project would generate a significantly greater amount of sales tax revenues than the total amount of the reimbursement. The amount of tax revenues generated will likely be sufficient to reach the estimated maximum reimbursement of $950,000 within the ten-year term (Figure 8). 10 FIGURE 8 PROJECTED SALES TAX REIMBURSEMENT A.R.S. 42-6010 requires that sales tax incentives offered to retail businesses are provided only as reimbursement for public infrastructure dedicated to, and accepted and controlled upon completion of the project by a state or local government entity. All public improvements described above would meet these requirements, and the cost of such improvements forms the basis for the reimbursement amount per the development agreement. Summary The proposed Cannon Beach described in this analysis could create economic impacts and new tax revenue for the City of Mesa. The hotel could attract additional visitor spending within the Cannon Beach development and elsewhere in the city, supporting additional jobs and sales taxes. The project could generate $9.4 million in gross sales tax (non-dedicated and dedicated) and secondary property taxes over ten years, including $950,000 in non-dedicated sales taxes reimbursed to the developer. The project could generate significantly more sales taxes than the amount of the reimbursement within the term of the development agreement, and the cost of the reimbursement would be limited to the cost of public infrastructure dedicated to the city, thereby meeting the statutory requirements for retail sales tax reimbursements. Year Construction Retail/Hotel Total Reimbursement Schedule 2027 $246,371 $0 $246,371 $0 2028 $0 $150,695 $150,695 $321,718 2029 $0 $164,190 $164,190 $82,095 2030 $0 $173,369 $173,369 $86,685 2031 $0 $179,537 $179,537 $89,768 2032 $0 $185,937 $185,937 $92,969 2033 $0 $191,515 $191,515 $95,758 2034 $0 $197,261 $197,261 $98,630 2035 $0 $203,179 $203,179 $82,378 2036 $0 $209,274 $209,274 $0 2037 $0 $215,552 $215,552 $0 10Yr Total $246,371 $1,870,508 $2,116,879 $950,000 Note: Non-dedicated sales tax includes 1.2% of retail, hotel and construction taxes. Gross Non-Dedicated Sales Tax Collections