Montage Healdsburg builder seeks to renegotiate deal with city as resort nears opening

Initial discussions are underway between the builder of a long-planned luxury hotel just months away from completion in Healdsburg and city officials over public benefits in the original development deal that the builder wants to forgo, including on-site construction of affordable housing.

Montage Healdsburg, touted as the city’s first five-star hotel, is set to open by December, about 15 years after the previously named Saggio Hills project was put forward on 258 wooded acres on the north side of town. It includes 130 rooms and suites ranging from $695 to $1,695 a night, and plans for up to 70 villa-style homes.

But as the finishing touches on the hotel are put in place, the Robert Green Company, the Encinitas-based developer, and project subsidiary Sonoma Luxury Resort, are seeking to renegotiate some of the public amenities called for in the 2011 approval that paved the way for the project, previously estimated to cost up to $310 million.

In exchange for a $7.25 million cash payment to the city, Robert Green Jr., the company’s president and chief executive officer, wants to forgo on-site development of affordable housing and other public amenities he was required to provide, including a fire substation, construction of a community park, a trail network and two public roadways meant to aid emergency evacuation and link with the nearby Parkland Farms subdivision.

On the 14-acre affordable housing site, which Green was to grade for the city before handing over for construction, the developer instead wants place an open space easement, barring future building. The cash payment would be intended in part to help finance equivalent housing elsewhere in the city.

Green also put up $1 million held in escrow for the housing project and said he would not seek reimbursement for another $1 million already spent on housing infrastructure — utilities, according to the city.

“The finalization of these components will enable (Sonoma Luxury Resort) to move our focus to making the opening of the hotel a success for us and the community,” Green said in the June 30 letter, which cited financial and construction challenges amid the pandemic that have affected the project. “We are hopeful this approach is received with the desired intent to support the community, while allowing both (parties) to fulfill our respective obligations …”

Under the present agreement with the city, each of the public commitments must be met before April 2023, though the bulk of their completion was not tied to the opening of the resort before that date. None have been met so far, in part because the city also has failed to meet certain deadlines, interim City Manager Dave Kiff acknowledged.

“We certainly share in the struggles of getting elements completed in the time that they were expected,” Kiff said. “I do think the conditions on the ground, in particular COVID, blocked us from doing the kind of robust planning process with the community with elements like the park.”

City finances stand to benefit significantly from the resort’s opening, with Montage expected to account for more than half of Healdsburg’s annual hotel tax revenue, pegged at about $7.7 million three years from now. But for now, those revenues have plunged amid the dropoff in hotel stays during the pandemic and related shutdown. The downturn resulted in a projected 7% hit to the city’s general fund, which forced the city to freeze two police positions and eliminate three executive staff jobs, in addition to cuts to the community services department that oversees parks.

Still, that doesn’t mean the city is poised to immediately accept the new terms Green has laid out, Kiff said.

The implications for affordable housing development, a pressing issue in Healdsburg, are a big concern on their own. Based on the number of homes that could ultimately be built on the 14-acre parcel ― a maximum of 150 units ― the affordable housing site at Montage is valued at $5.3 million to $7 million, according to a recent city-funded study by consultant Economic & Planning Systems.

That land and the promise of affordable housing has been a linchpin of the existing deal, said Vice Mayor Shaun McCaffery, the City Council’s longest-serving member. Its future will factor heavily into new negotiations and direct what else happens with several of the other planned public amenities, he said.

“All that stuff hinges on that one thing, whether or not to build affordable housing out there,” McCaffery said. “I know where I am on it. I just think that that property is too valuable to trade for something else.”

During the City Council’s regular meeting last week, residents emphasized the importance of several other elements of the deal, urging council members and city staff to hold Green to the current agreement. Those concessions were hard-won, they said, and giving them up now also could establish a bad precedent with developers in future agreements.

“It is very attractive to see $9.25 million dangled in front of the city by a developer,” Charlie Duffy, a City Council candidate, told the council Tuesday. “What this says if we accept this deal is, ‘Go ahead, promise the city anything in the development agreement, ignore the terms as much as possible, then throw a bunch of money to get out of (it).’”

Potentially complicating matters is a $4.9 million proposed fine for Sonoma Luxury Resort from the North Coast Water Quality Control Board, which documented dozens of environmental violations between October 2018 and May 2019 during Montage’s construction.

A member of the Santa Rosa-based board’s prosecution team in January called the work that led to those violations “grossly negligent.” The two sides have been in settlement talks for months, with a final word on the penalty expected as soon as this week, according to a water board spokesman.

Green did not return phone calls or emails over two days seeking comment about his bid to renegotiate the development deal with Healdsburg and the pending water quality fines.

In neighboring Windsor, he holds an exclusive negotiating agreement with the town to build its future civic center and a boutique hotel near the Town Green, a project estimated to cost $280 million. The town approved a yearlong extension of that deal in June, postponing a final decision on its development partner amid economic fallout from the pandemic.

City staff in Healdsburg continue to hold weekly meetings with Green and his team for updates on the progress of the Montage resort, Kiff said. Discussions about the related public amenities, which he called “friendly,” are ongoing as well, with the issue formally scheduled to come before the City Council for more direction at its next regular meeting, on Sept. 21.

“It’s certainly been explained to me how important these elements are to the community. To me, they’re all of fairly significant importance,” Kiff said. “We’re not a place that gives things up, nor should we. Ultimately we all want to get it done, and it’s just a matter of what time and what manner.”

You can reach Staff Writer Kevin Fixler at 707-521-5336 or kevin.fixler@pressdemocrat.com. On Twitter @kfixler.