Kenwood Development appeals approval of its own hotel project

In a strange twist, Kenwood Development has appealed the recent approval of its Sonoma hotel — a project it has fought 12 years to win an OK from the city. The Sonoma Planning Commission approved the master plan for the 62-room luxury property just off Sonoma Plaza on October 31. 

As a condition of the approval, the Commission required that $2 million be paid into the city’s Affordable Housing Trust Fund, a condition consistent with the City’s development code. An objection to that provision is the basis of the Kenwood appeal, which was filed on the 31st. 

“The Housing Fees associated with the use permit approval are jeopardizing the financial feasibility of the project,” contends Bill Hooper, the Kenwood official that signed the appeal document. 

When introduced in 2012, plans called for an 80-room hotel in the 100 block of West Napa Street, with a restaurant and underground garage. But zoning codes dictated that the parcel include an element of housing, and despite strenuous objections from Kenwood, a number of condominiums were incorporated into the design. The revised, final plan includes eight housing units, two of which — the legal minimum — will be Affordable Housing.

It was that plan and its underlying Environmental Impact Report approved by the Planning Commission on October 19.

But in it’s approval of the project, the Planning Commission required that $2 million be paid into the city’s Affordable Housing Trust Fund, with annual payments extending over a five year period, to include a payment of 5% annual interest on any unpaid balance. It’s that stipulation that triggered the Kenwood appeal 

The city’s current development code allows for payment to the Affordable Housing Trust Fund if it finds that building the required housing on site is not feasible. Under the current code, roughly 60,000 square feet of housing would be required, matching the square footage of the commercial component. The $2-million in-lieu fee is based on the balance of housing that is currently required.

The application for this project, however, was filed under the terms an earlier version of Sonoma’s development code that provided the opportunity to ask for a complete waiver on any housing requirements whatsoever. Kenwood Development did so, indicated that it was interested in a complete waiver from any housing requirements, and continues to pursue that objective, although its latest plan includes eight condominiums, two of which must be Affordable.

The City Council will hear the appeal — not the Planning Commission — and the date of that meeting has not been set.

Kenwood estimates the project would generate for the city $1.5-million in Transient Occupancy Tax). Of that amount, one-thirteenth (equal to 1% of the TOT or $115,385) must be paid into the city’s Affordable Housing Trust Fund.

The total project area approved by the Commission is approximately 65,000 square feet, and includes an underground parking garage. Using an average of $1,000 cost per square foot for construction, the Hotel Project Sonoma will require funding of $65-million or more. A fee of $2-million would represent 3% of the projected total construction cost.

Whether this 3% does indeed “jeopardize the financial feasibility” of the project will be up to the five-member City Council, which will hear the appeal. It can choose to waive the fee, change the terms, or deny the appeal. 

The applicant could decide to walk away from the project altogether, sell the approved project as approved to another developer, and/or sell the parcels involved in the project. Given its zoning designation, if the parcels are sold, the buyer could propose another commercial project for the site, such as second and third story apartments with retail shops and restaurant on the ground floor or another hotel altogether.

Twelve years in the making, most people assumed the matter was finally settled with the Planning Commission voted 5-1 in favor. (Chair of the commission, Larry Barnett, recused himself from the deliberations and vote; Commissioner Donna Dambach was absent). 

Now the city faces the odd circumstance of an applicant appealing a decision in its favor.