Investors spending millions to develop Calistoga resorts

CALISTOGA - On ground once owned by millionaire pioneer Sam Brannan and former governor Leland Stanford, John Merchant highlights both the history of his family’s Indian Springs Resort and the 75 new lodging units that his family just opened near the heart of Calistoga.

Part of what links those bygone leaders with the new Mission Revival rooms and cottages are the property’s age-old geothermal features, including a geyser that Merchant estimates could continuously shoot a five-inch column of scalding water 50 feet into the air.

“It’s the mother lode of water,” said Merchant. He pipes and captures that unending, mineral-tinged flow to fill the resort’s Olympic-sized pool and to supply its spa and mud baths.

Indian Springs’ $23 million expansion is the latest milestone in the efforts of Calistoga’s civic and business leaders to bring in more visitors willing to pay $300 to $1,200 a night in a town where Wine Country and spa culture intermingle. On the drawing board are two luxury resorts, one that the Four Seasons hotel chain reportedly will manage, and a second that was recently purchased by one of Hong Kong’s wealthiest families with a history in lodging properties.

“We’re shifting to more emphasis on the high-end, luxury tourists,” said Calistoga’s City Manager Richard Spitler.

The new direction was hammered out in familiar small-town fashion, with contentious civic meetings and two separate ballot measures in which Calistoga voters approved the two upcoming projects.

But the genesis of the efforts is ascribed partly to desperation and a widespread belief that the town of 5,200 could no longer muster the money needed to pave roads, replace aging sewer lines and pay police and other city workers.

What’s unique about Calistoga, a town with about 17 spas, is that slightly more than half the city government’s general revenues come from lodging taxes. That amounted to about $4.75 million last year.

But in the Great Recession the bed taxes plunged, dropping to $2.75 million in 2009.

Four years ago Calistoga’s general fund reserves contained barely more than $17,000, officials said. In the worst of the downturn, the city laid off more than a dozen workers as part of painful budget cuts.

“Our town was headed toward bankruptcy,” recalled City Councilman Jim Barnes.

In contrast, this year the reserves are expected in July to contain $4.3 million. Some of those funds came from $3.2 million that the two proposed resorts already have prepaid in development impact fees.

Even more striking, Spitler estimated that in five years the total of new taxes from Indian Springs and the two resort developments could amount to $7.6 million a year - roughly doubling the current general fund budget.

“The resorts really represent long-term security and some degree of peace of mind,” said Michael Dunsford, a council member and owner with his mother Rosie Dunsford of the Calistoga Inn. As a business owner, he said, the extra bed taxes and visitors will provide “some confidence that our local economy is going to remain strong looking forward.”

Calistogans seem to relish certain off-kilter aspects of their heritage. It’s not every civic booster who calls his town’s first citizen a “drunken, thieving” founder. But that’s how Chris Canning, both the town’s mayor and the head of its chamber of commerce, described the mercurial Brannan.

Similarly, Canning happily noted that the town’s name may be unique among American cities because “it means absolutely nothing.” History says that an inebriated Brannan once tried to declare that he wanted to make the town the Sarasota Springs of California, but instead it came out “the Calistoga of Sarafornia.” The name stuck, and today the town even boasts a Cafe Sarafornia.

But residents took seriously the debate about Calistoga’s future, including how to best pay for an estimated $60 million in long-deferred maintenance projects that need to be addressed in the next decade.

Some called for diversification and the attraction of new businesses, perhaps manufacturing. But Canning, the former manager of the shuttered Calistoga Mineral Water plant on Silverado Trail, said manufacturers would be hard to bring in because of the relatively high cost of production there.

Instead, he and other civic leaders favored sticking with the sector that the town was founded upon: lodging and resorts.

“This is our industry,” he declared.

A little more than four years ago the council hired Spitler as city manager. He has lived in Calistoga over a quarter century but for most of those years he worked for other small cities in Sonoma County. Among them was Healdsburg, where as a planning and redevelopment official he helped bring to completion the Hotel Healdsburg, a key ingredient in the makeover of that town’s square and environs.

“The lesson we learned in Healdsburg is to go after the overnight accommodations,” Spitler said. In contrast, he said, nearby St. Helena has chosen not to add many lodging units but still finds itself filled with day visitors.

“They’re getting all the impact but not the revenue,” he said.

Spitler soon argued that the best bang for the buck would come from luxury resorts because they would generate the most new taxes and the fewest number of new visitors.

Developers eventually stepped forward with two projects. One wanted to build a resort at Silverado Trail and Rosedale Road named Silver Rose, which would include 85 rooms and 21 residences. Another proposed developing a resort on a forested hillside at the southeast end of town above Highway 29. That project, formerly called Enchanted Resorts and now named Calistoga Hills Resort, would include 110 rooms, 13 estate homes and 20 private villa residences.

Silver Rose wants to charge up to $900 a night, Canning said. Calistoga Hills is looking at rates around $1,200 a night.

Critics soon argued that more resorts would bring too much traffic, use too much water and forever change the character of Calistoga. After the council approved each project, opponents collected signatures and were able to place separate ballot measures that asked the town’s voters to decide the fate of the two developments.

The elections, in November 2012 for Silver Rose and March 2013 for Calistoga Hills, each resulted in project approvals with 55 percent support or better. For Canning, that ended the debate by showing that “clearly a majority of voters believe that we needed to do something in a controlled manner to save the town.”

The first project to come to fruition was the expansion of Indian Springs, which has been a resort of various kinds since Brannan opened one there in the 1860s. Brannan eventually sold the land to Stanford, who reportedly considered but eventually decided against building Stanford University there.

The Indian Springs expansion brought the resort’s room count to 116. The upgrade includes nine new two-story buildings, each containing eight rooms, each with balconies and some with views of Mount St. Helena. The lodging units were opened last fall and within the past month Indian Springs opened its new 90-seat restaurant, Sam’s Social Club, complete with its own microbrewery and outdoor dining area.

Indian Springs General Manager Brian Rios last week showed off the restaurant’s interior and noted that all but three tables were taken for lunch.

“Not bad for a Thursday afternoon,” he said.

Like the nearby Solage Calistoga resort, Indian Springs provides its guests with scores of bicycles to make it easy to get around town without a car. Or patrons can sign up for a classic mud bath, made with Indian Spring’s own volcanic ash and hot mineral water.

Room rates range from $199 per night in winter for a lodge room to $1,300 in summer for a three-bedroom house, Rios said.

Merchant said he bought the resort 27 years ago after years of renovating all sorts of properties in San Francisco. He now employs 200 resort workers, including about 100 hired within the last six months for the new restaurant and extra lodging units.

And this summer he expects to offer a new feature: weddings.

Neither the developers for Silver Rose nor Calistoga Hills responded to repeated requests for comment about their projects. But Mayor Canning estimated that each would cost roughly $300 million.

Silver Rose, owned by Aspen, Colo.-based Bald Mountain Development, is expected to break ground this summer, Spitler said. Four Seasons is slated to manage that property, Canning said.

Also this summer, the city will undertake a $5 million sewer main replacement project, which Spitler said will be paid completely by the Calistoga Hills developers.

In December, the Calistoga Hills project was taken over by CTF Development International, which city records describe as a private investment arm of the Hong Kong-based Cheng family. Cushman & Wakefield announced the sale in February, but didn’t state the price and described the buyer simply as “an Asia Pacific-based international development and investment firm.”

The Cheng family and its patriarch, Cheng Yu-tung, control one of Hong Kong’s largest conglomerates, according to Forbes magazine, which placed the elder Cheng 71st on its list of the world’s wealthiest individuals with an estimated net worth of $12.7 billion.

Cheng’s son, Henry Cheng, is the chairman and executive director of New World Development, whose assets include transportation, property and retail businesses.

Henry Cheng’s daughter, Sonia Cheng, recently visited Calistoga to review the family’s project, city officials said. She is described on the New World website as the chief executive officer of the Rosewood Hotel Group and the overseer of the group’s project management division.

Calistoga Hills is expected to begin construction in about a year, Spitler said.

Even if only one of the two projects ever gets built, he said, Calistoga should have the tax revenues it needs to keep the city running smoothly. If both get built, the city likely would overtake Yountville as the California city with the highest portion of its revenue from bed taxes.

Canning noted the city’s growing popularity with tourists means some things have changed. These days he can’t find a $10 hamburger, and the city has “an enormous housing problem” - so much so that he spoke about the possibility of providing shuttles for workers who now spend hundreds of dollars a month commuting to work from homes in Napa, Santa Rosa and Lake County.

As well, he regularly hears business owners tell him how hard it is find employees.

“You can’t pay minimum wage in this city,” said Canning, “because you can’t find anyone to do the work.”

You can reach Staff Writer Robert Digitale at 521-5285 or robert.digitale@pressdemocrat.com. On Twitter @rdigit.