TO: CITY COUNCIL
FROM: ADAM PIRRIE, CITY MANAGER
DATE: MARCH 10, 2026
Reviewed by:
City Manager: AP
SUBJECT:
Title
OPERATING COVENANT AGREEMENT FOR THE OPERATION OF A 120-ROOM RESIDENCE INN BY MARRIOTT BY SUSHIL CAPITAL LLC, AND THE PAYMENT OF A TRANSIENT OCCUPANCY TAX REBATE TO SUSHIL CAPITAL LLC. (FUNDING SOURCE: GENERAL FUND)
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SUMMARY
To support the viability and success of the Residence Inn by Marriott that will be operated in the City of Claremont by Sushil Capital LLC, staff recommends executing an Operating Covenant Agreement that would secure the long-term operation of the hotel as a Residence Inn through the payment of a Transient Occupancy Tax (TOT) rebate.
The proposed Operating Covenant Agreement (Attachment A) would include a rebate of fifty percent (50%) of collected TOT revenues from the operation of the Residence Inn for a period of ten years. The maximum amount of rebate payments over the ten-year period is proposed to be capped at $4,500,000, with a minimum guarantee of TOT receipts to the City beginning at $250,000 in the first year of the hotel’s operation, increasing annually by a cost-of-living factor.
RECOMMENDATION
Recommended Action
Staff recommends the City Council authorize the City Manager to execute the proposed Operating Covenant Agreement, subject to minor, non-substantive modifications as may be necessary or appropriate to implement the purposes of the Agreement.
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ALTERNATIVES TO RECOMMENDATION
In addition to the recommendation, there are the following alternatives:
A. Do not authorize the execution of the proposed Operating Covenant Agreement.
B. Request additional information.
FINANCIAL REVIEW
Hotels and motels in the City of Claremont are subject to Claremont Municipal Code Section 3.28, requiring the collection of a ten percent (10%) Transient Occupancy Tax for hotel stays of thirty days or fewer.
The proposed Operating Covenant Agreement provides for payment to Sushil Capital LLC, the operator of the Residence Inn by Marriott, of an amount equal to fifty percent (50%) of the Transient Occupancy Tax generated by the Residence Inn for a period of ten years. The maximum cumulative payments to Sushil Capital LLC under the agreement are proposed to be limited to $4,500,000 over the ten-year term of the Agreement. The Agreement also requires that the City receive a minimum of $250,000 in TOT revenues in the first year of the Agreement, with this minimum increasing by a cost-of-living factor in each subsequent year of the Agreement. Pursuant to the Operating Covenant Agreement, TOT rebate payments will be made monthly to support the ongoing operation of the Residence Inn.
Entering into the Agreement will result in new Transient Occupancy Tax revenues to the City of at least $250,000 per year. These revenues will be deposited into the City’s General Fund and may be used to support the operations of the City without restriction. Since the closure of the former Knights Inn in September 2022, the City has not received any TOT revenue from this location.
For the Agreement to remain in place and for Transient Occupancy Tax rebates to be paid to the operator, the property must be operated as a licensed, branded Residence Inn by Marriott, or similar quality licensed, branded hotel for the term of the Agreement.
The staff cost to prepare this report and administer this project is estimated at $8,500 and is included in the operating budget of the Administrative Services Department.
ANALYSIS
The Residence Inn by Marriott is located at 721 South Indian Hill Boulevard on the site formerly occupied by the Knights Inn. Sushil Capital LLC constructed a 120-room hotel to operate under the Marriott brand. Marriott has strict corporate requirements for the design and operation of franchised hotels to ensure high-quality experiences at all properties.
Residence Inns require larger guest rooms (400 to 750 square feet) that include full kitchens. Most guests use Residence Inn properties for transient stays (1-4 nights) with the average stay being two nights. Extended stays (5 or more nights) make up a smaller percentage of guests and average 14 nights. Long-term guests (staying longer than two weeks) represent less than five percent of overall stays at Marriott’s Residence Inn properties. Typical long-term guests may include visiting professors, businesspersons on temporary work assignments, visitors caring for local family members, and local residents having construction work performed on their homes.
Marriott requires the following amenities at all Residence Inn properties:
• Complimentary breakfast buffet.
• Pool and outdoor patio.
• High speed internet in all rooms and available printers.
• Small market space selling incidentals, food, and drinks.
• A continuously staffed front desk that includes concierge services.
• Safe, brightly lit parking areas and sidewalks.
• Security cameras at all entries and common areas, monitored by front desk staff.
The operation of the Residence Inn by Marriott will provide much-needed options for overnight accommodations in the City. City staff has been aware that the previous lack of quality accommodations has resulted in guests visiting the City, and in particular, the Claremont Colleges, staying at hotels in other cities such as Ontario. The Residence Inn by Marriott will provide a high-quality local option that serves the visitors to City and the Colleges.
The elimination of redevelopment agencies in California in 2012 took away important economic development funding from cities, leaving them with few options to support economic revitalization efforts. Tax sharing agreements remain one of the few tools cities have at their disposal to encourage the successful operation and viability of tax-generating businesses in their communities. The City has taken advantage of opportunities to enter into tax sharing agreements in the past and has an existing sales tax sharing agreement with Premier Automotive Group, the original owner of the Claremont Chrysler Dodge Jeep Ram dealership on Auto Center Drive. That agreement has helped that auto dealership remain viable and continue to contribute to the City’s sales tax base.
Ashok Patel, President of Sushil Capital LLC, is an experienced hotel operator with a proven track record of developing and operating hotels throughout California. His company has owned and operated more than a dozen Hilton and Marriott branded hotels. Mr. Patel has obtained a license to operate the hotel under the Residence Inn by Marriott brand. Sushil Capital has invested heavily to bring a quality hotel to the southern part of Claremont, that, beyond the immediate generation of tax revenue for the City, will provide additional economic benefits.
Staff has determined that the operation of the Residence Inn by Marriot will provide the following benefits to the City and the community:
1. Provide an additional option to the community for hotel accommodations, supporting the City as an overnight destination for visitors to the Colleges and community attractions such as the Claremont Village, California Botanic Garden and the Claremont Lewis Museum of Art;
2. Generation of Transient Occupancy Tax and Business License Tax revenue to support the City’s General Fund;
3. Creation of approximately 20-25 new, permanent full-time equivalent jobs in the City; and
4. Increase property values and support the revitalization of the surrounding neighborhood by drawing customers and employees to the area, stimulating the local economy.
AB 562 and California Government Code Section 53083 require the City Council to hold a noticed public hearing to consider the proposed Agreement. An additional requirement of the Government Code is the preparation of a report that includes the following information:
1. The name and address of the beneficiary of the economic development subsidy.
2. The start and end dates for the economic development subsidy.
3. A description of the economic development subsidy, including the estimated total amount of the expenditure of public funds by, or of revenue lost to, the local agency as a result of the economic development subsidy.
4. A statement of the public purposes for the economic development subsidy.
5. Projected tax revenue to the local agency as a result of the economic development subsidy.
6. Estimated number of jobs created by the economic development subsidy, broken down by full-time, part-time, and temporary positions.
This AB 562 Report is included as Attachment B to this staff report.
LEGAL REVIEW
The City Attorney has reviewed the Operating Covenant Agreement and approved it as to form.
RELATIONSHIP TO CITY PLANNING DOCUMENTS
Staff has evaluated the agenda item in relationship to the City’s strategic and visioning documents and finds that it applies to the following City Planning Documents: Council Priorities, Economic Sustainability Plan, and the 2024-26 Budget.
CEQA REVIEW
This item is not subject to environmental review under the California Environmental Quality Act (CEQA).
PUBLIC NOTICE PROCESS
Notice of the public hearing required by California Government Code Section 53083(b) was published on February 27 and March 6, 2026, in the Claremont Courier. Copies of the proposed Agreement and the AB 562 Report were also made available at the City Hall public counter and on the City website. The agenda and staff report for this item have been posted on the City website and distributed to interested parties. If you desire a copy, please contact the City Clerk’s Office.
Submitted by:
Adam Pirrie
City Manager
Attachments:
A - Proposed Operating Covenant Agreement
B - AB 562 Report