Has the City of Boca Raton offered to pay your ad valorem real estate taxes for the next 45 years? No???

That’s exactly what the City is offering one of your competitors.

On June 9, 2016 the City Staff recommended approval of a double net lease agreement for the Intracoastal Waterfront site, the Wildflower site, to the Hillstone Group, a California based restaurant group, where the will City pay Hillstone’s real estate taxes for 45 years on the new restaurant that Hillstone is proposing for the Boca waterfront.

City Staff estimates that these taxes are $121,560 per year for the first two years. The taxes would jump to $162,716 for the third year of the lease when the restaurant building is included in the appraisal. Taxes are estimated to increase a 1.5% per year thereafter. City taxes are included in the annual tax estimate since the City must provide services, yet receives no ad valorem tax income from the property.

The total benefit to Hillstone over the 45-year term of the lease is almost $10M. There is no cap on the amount of taxes the City will pay in the lease agreement, so Hillstone has no inflation risk regarding ad valorem real estate taxes over the next 45 years. That risk is assumed by the City.

Hillstone is receiving a significant, sustainable competitive advantage over all other restaurateurs with this lease agreement. With this large reduction in occupancy costs, the occupancy cost as a percentage of sales ratio will decline and yield higher profits and increased working capital.  With this competitive advantage, Hillstone will be in a better position to compete for local restaurant customers.

A financially large chain restaurant operator like Hillstone can use their competitive advantage to create significant awareness among existing Boca Raton restaurant customers. Also, the competitive advantage can be used to attract staff from existing Boca Raton restaurants, which will be available as customers leave existing restaurants for Hillstone’s new waterfront location in Boca Raton.

An irony in this situation is that existing Boca Raton restaurants are partially subsidizing Hillstone’s operations through their own ad valorem real estate tax payments. Existing restaurant operators in the City of Boca Raton should request that the City also pay their ad valorem real estate taxes for the next 45 years to level the competitive playing field with Hillstone.

Another recommendation, perhaps the most immediate action available to you, is to encourage your family, your patrons and your staffs to VOTE YES on the Boca Raton Question, the last question on the November 8th ballot; a vote to keep City-owned lands along the Intracoastal Waterway used for recreation and boating purposes only.

As popular recreation-oriented amenities are implemented along the Intracoastal Waterway, new restaurant customers will be attracted to the area and all existing restaurants will benefit.