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HomeMy WebLinkAboutA- 6 Disposition and Development Agreement SUMMARY REPORT PURSUANT TO SECTION 33433 OF THE CALIFORNIA HEALTH AND SAFETY CODE on the 613-615 NORTH AZUSA AVENUE (REYES) DISPOSITION AND DEVELOPMENT AGREEMENT By and Between REDEVELOPMENT AGENCY OF THE CITY OF AZUSA And DR. RALPH and JEANNINE REYES, Husband and Wife Prepared by Kosmont Partners For the REDEVELOPMENT AGENCY OF THE CITY OF AZUSA April 7, 2003 INTRODUCTION The purpose of this report, with respect to the First Amended Disposition and Development Agreement (“DDA”) which provides for the conveyance to Dr. Ralph and Jeannine Reyes, husband and wife (“Developer”), developer of an approximately 7,000 square foot property (“613-615 Parcel” or “Property”) from the Redevelopment Agency of the City of Azusa (“Agency”), is to describe the cost of the DDA to the Agency, the purchase price paid by the Developer, and the value of the property conveyed. This report contains six sections as summarized below: I. DESCRIPTION OF THE PROPOSED DDA This section includes a brief description of the site to be conveyed, the proposed development and the major responsibilities of both the Agency and the Developer. For more detailed information, please refer to the DDA. II. NET COST/ BENEFIT OF THE DDA TO THE AGENCY This section describes the cost of the DDA--land acquisition, maintenance, and clearance of existing buildings and site improvements to the Agency. Also summarized are the estimated revenues generated from the Property and the purchase price to be paid by the Developer to the Agency. All costs and revenues are then considered to arrive at the “net” costs / benefit to the Agency. III. VALUE OF THE SITE CONVEYED This section presents the estimated market value of the 613-615 Parcel in its highest and best use under as permitted under the Redevelopment Plan. Also provided is the reuse value of the Property with consideration for the conditions, covenants, and development costs as imposed by the DDA. IV. PURCHASE PRICE This section describes the purchase price to be paid by the Developer to the Agency for the Property. V. ELIMINATION OF BLIGHT This section explains how the sale of the property will assist in the elimination of blight in the Redevelopment Project Area. VI. CONFORMANCE WITH AB 1290 IMPLEMENTATION PLAN This section describes how the DDA is in conformance with the Agency’s Five-year Implementation plan. I. DESCRIPTION OF THE PROPOSED DDA A. Site to be conveyed The total site covered by the DDA is approximately 7,000 square feet located at 613 and 615 North Azusa Avenue (Assessor Parcel No. 8611-004-908) and within the City of Azusa’s Merged Central Business District/West End Project Area (“Project Area”). The site is presently improved with a 3,256 square foot single story building and the entire property is owned by the Agency. The legal description of the Property is contained in the DDA. B. Proposed Development The Proposed Development (“Development”) consists of a single-phase construction of a two-story, mixed-use medical office and multifamily residential building containing approximately 7,787 square feet of gross building area. Net rentable space is estimated to be 7,557 square feet. The Development will contain 3,862 square feet of medical office space on the first floor. The second floor will contain three residential rental units ranging in size from 890 to 910 square feet and exterior balconies for each unit ranging from 30 to 45 square feet. Also included on the second floor is a large conference room and administrative office space serving the first floor medical office uses. Onsite carport parking for the apartment tenants is provided at the rear of the property at the rate of one space per unit. C. Developer Responsibilities The Developer is obligated to accept conveyance of the site and to construct the proposed development in accordance with the Schedule of Performance contained within the DDA. Principle responsibilities of the Developer are: 1. Accept conveyance and pay the all-cash Purchase Price of $75,000 for the Property. 2. Obtain all applicable permits necessary to develop the Property for the intended use under the DDA. 3. Pay ½ of the escrow fees, recording fees, and notary fees attributable to the conveyance of the Property, and 100% of the ALTA policy. 4. Pay the prorated amount of ad valorem property taxes, if applicable, upon the Property with respect to the period subsequent to transfer of title. 5. Prepare and submit to the Agency, concept and site plans, and related Development documents consistent with the Scope of Development for review and approval. 6. Furnish to the Agency satisfactory evidence of the Developer’s ability to finance the acquisition, construction, and operation of the Development. 7. Bear the cost and liability of undertaking and completing the subject Development as provided in the DDA Scope of Development and Schedule of Performance. 8. Provide periodic reports to the Agency on the progress of construction. 9. Assume sole responsibility to determine whether this Project constitutes a public works project as defined under California Labor Code Sect 1770 et seq., including without limitation SB 975, which requires payment of prevailing wage rates and performance of other requirements thereof. Assume all risk of liability arising from any decision not to pay prevailing wages for work required by the DDA. 10. Maintain comprehensive general liability insurance naming the City and the Redevelopment Agency as additional or co-insured. 11. Covenant and agree for himself and all voluntary and involuntary successors in interest to the Property that for any period that the Agency is allocated property taxes pursuant to Health and Safety Section 33670 or successor statute, the Developer shall not contest the assessed valuation of the Property or any part thereof, as established by the San Bernardino County Assessors Office. 12. Complete in a timely fashion all of its obligations as defined in the DDA and the Schedule of Performance. 13. Obtain approval from the City’s Building Department that all improvements required under this DDA have been satisfactorily completed. D. Agency Responsibilities The Agency’s responsibilities under the DDA are as follows: 1. Conveyance of the Property to the Developer, including clearing title to the site, under the terms of the DDA. 2. Pay for and cause the demolition and clearance of all building structures and improvements presently on the Property. 3. Pay ½ of escrow fees, recording fees, and notary fees, and 100% of the premium for the Title Insurance Policy attributable to the conveyance of the Property. 4. Pay the prorated amount of ad valorem taxes, if applicable, upon the Property with respect to the period prior to transfer of title. 5. Approve of the Developer’s financing commitments for acquisition and development of the Property. 6. Approve of concept and site plans, and related documents for the Development. 7. Furnish of a Certificate of Completion evidencing the Developer’s satisfactory completion of obligations under the DDA. II. COST OF THE DDA TO THE AGENCY The cost of the DDA to the Agency is defined as the net cost that may be expressed in terms of cost or benefit. A. Estimated Expenditures As shown below, the total Property expenditures related to the terms of the DDA for are acquisition, maintenance, and clearance etc. These costs have been estimated by the Agency to be $211,676 (See Exhibit 4 Reuse Valuation Report for details). The Agency will pay for the demolition and clearance of all building structures and improvements presently on the Site estimated to be $ 26,421 which figure is included in the above total Property cost of $211,676. Expenditures Related to the DDA Description Estimated Cost Property Acquisition Cost $ 150,372 Other Site Costs $ 61,304 Land Write-Down $ 137,000 TOTAL EXPENDITURES $ 348,676 B. Estimated Revenues The Agency will sell the 7,000-square foot Property to the Developer and receive payment of $75,000 (all cash). During the past period of ownership of the Property by the Agency, it has earned revenue in the amount of $78,127. It is estimated that the Project when completed will generate approximately $11,000 in total property tax revenues in the first year. Over twenty years the total amount of property taxes will amount to $265,910 assuming a 2% escalation per year. Of this total, the Agency is obligated to pass-through or revert 33.53% of these taxes to other taxing agencies. The present value therefore of the total net tax increment revenues to the Agency over 20 years is $97,601, assuming a 6% discount rate. C. Estimated Net (Cost) / Benefit to the Agency The estimated revenues and expenditures needed to calculate the estimated (cost) / benefit or gain of the DDA to the Agency are shown below. The Agency’s total estimated cost of the DDA is approximately $212,000 (See attached Exhibit 4 Reuse Valuation Report). The amount of additional assistance provided to the Developer not including the land component of the projects is zero dollars ($0.00). The amount of the Developer’s land payment to the Agency based upon the reuse valuation is $75,000. The amount of revenue generated from the property including rents and the present value of property tax increments over a 20-year period is $175,727. The net (cost) / benefit of the project to the Agency is therefore a positive $38,727. This figure does not include other fiscal or economic benefits generated by the project. Estimated Net (Cost)/ Benefit Related to the DDA Description Estimated (Cost)/Benefit Total DDA Expenditures $ 212,000 Plus: Additional Developer Public Assistance $ 0 Less: Developer’s Land Payment to Agency $ 75,000 Less: Estimated Revenues and Tax Increments $ 175,727 TOTAL (COST) / BENEFIT $ 38,727 III. ESTIMATED VALUE OF SITE CONVEYED A. Highest and Best Use Value of the Interests to be Conveyed As Determined at the Highest use Permitted Under The Redevelopment Plan Boznanski & Company (“Appraiser’s”) has determined the fair market value of the Property at its highest and best use to be $300,000 under the existing Redevelopment Plan. B. Value of Interests to be Conveyed Determined at the Use Required By the DDA The value of the Property, determined by the uses contained in the DDA considering the development costs, market rents, and the covenants, conditions and restrictions of the DDA, is estimated to be seventy-five thousand dollars ($75,000). The value of the interest conveyed or the “reuse valuation” is documented in an attached report provided by Kosmont Partners. IV. PURCHASE PRICE The DDA provides for a net land purchase price by the Developer in the amount of $75,000. This total compensation to be paid to the Agency is consistent with and not less than the reuse value. V. ELIMINATION OF BLIGHT A. Redevelopment Goals and Conditions of Blight Key relevant Redevelopment Project Area goals related to the proposed development are: • To develop convenient commercial facilities which offer residents a wide variety of good and services. • To ensure an economically strong and balanced commercial sector of the community, promoting an accessible and attractive public meeting place. • To achieve strong investment and consumer support for the community’s downtown commercial sector. • To revitalize the Central Business District. The current conditions of Physical Blight in the Project Area are: • Incompatible Land Uses • Substandard Design and Physical Obsolescence • Unsafe Buildings, Deterioration and Dilapidation • Existence of Parcels of Inadequate Shape and Size for Modern Development The current conditions of Economic Blight in the Project Area are: • Depreciated Values and impaired Investments • Inadequate Public Improvements • Depreciated Property Values B. Redevelopment Plan Goals and Elimination of Blight For years, the City of Azusa has sought new development and investment in the project Area. In particular it has sought mixed-use commercial and multifamily residential development on Azusa Avenue, but without success. The proposed construction and completion of the mixed-use retail and multifamily residential facility by the Developer represents an opportunity to help meet downtown revitalization goals and alleviate blight. Specifically, blight would be eliminated by removal of the existing obsolete dilapidated building structure and replacement by a new modern mixed-use commercial and residential structure. In the process issues of substandard design and compatibility of land uses would be remedied. The Project will also serve to enhance property values, provide employment opportunities within the Project Area, and potentially attract new investment beneficial to the entire City of Azusa. Therefore, the proposed DDA will directly assist in furthering the objectives of the Redevelopment Plan V. CONFORMANCE WITH AB 1290 IMPLEMENTATION PLAN Pursuant to AB 1290 the Redevelopment Agency has adopted a Five Year Implementation Plan 2000-2004 for the Project Area. The proposed DDA helps carry out the primary objective of the Redevelopment Plan and Five-Year Implementation Plan. REUSE VALUATION REPORT 613-615 NORTH AZUSA PARCEL PURSUANT TO SECTION 33433 OF THE CALIFORNIA HEALTH AND SAFETY CODE on the 613-615 NORTH AZUSA PARCEL (REYES) DISPOSITION AND DEVELOPMENT AGREEMENT By and Between REDEVELOPMENT AGENCY OF THE CITY OF AZUSA and DR. RALPH REYES and JEANNINE REYES, husband and wife Prepared by Kosmont Partners For the REDEVELOPMENT AGENCY OF THE CITY OF AZUSA April 7, 2003 SUMMARY REPORT PURSUANT TO SECTION 33433 Redevelopment Agency of the City of Azusa 613-615 North Azusa Ave (Reyes) Parcel 1 I. INTRODUCTION The Redevelopment Agency of the City of Azusa (“Azusa”) and Dr. Ralph and Jeannine Reyes, husband and wife (“Developer”), have entered into an amended Development and Disposition Agreement (“DDA”), dated April 7, 2003, by which Developer will purchase a property known as the 613-615 North Azusa Parcel (“Property”) from Azusa. The purpose of this report is to describe the reuse value of the Property to Developer and the value of the interest conveyed by Azusa as determined by the conditions of sale. This report is to be incorporated into a document prepared by Azusa in accordance with the State of California Health and Safety Code, Section 33433 which must be available for public inspection. Data for this report has been obtained from Azusa, Developer, Milonopoulos Associates, Boznanski & Company, and a variety of other real estate industry sources. II. SUMMARY OF FINDINGS Highest and Best Use Value Under Redevelopment Plan The market value of the Property at its highest and best use as permitted under the Redevelopment Plan was determined by Boznanski & Company (appraisers) to be $300,000. Reuse Value The reuse value of the Property under the DDA is based on the preliminary development cost estimate provided by Developer and review by cost engineers Milonopoulos Associates (“Milonopoulos”), the Agency and it’s economic consultants. The reuse value and price for the proposed sale of the Property to Developer therefore is calculated to be $75,000. III. PROPERTY TO BE CONVEYED AND THE PLANNED DEVELOPMENT The Property, located at 613 and 615 Azusa Avenue (Assessor Parcel No. 8611-004), contains approximately 7,000 square feet or 0.16 acre of land in size. It is currently improved with a two-story, unreinforced masonry building structure and is owned by the Redevelopment Agency of the City of Azusa. The Developer will purchase the Property cleared of any improvements from the Agency. The Agency will take responsibility for demolition and clearance of all existing structures and improvements on the site. The Developer proposes to acquire the Property to construct a two-story, mixed-use commercial and multi-family residential building containing approximately 7,787 square feet of gross building area (“Development”) also known as the “613-615 North Azusa Parcel (Reyes)”. The Development will contain 3,862 square feet of medical office space on the first floor. The second floor will contain three residential rental units ranging in size from 890 to 910 square feet and exterior balconies for each unit ranging from 30 to 45 square feet. Also included on the second floor is a large conference room and administrative office space SUMMARY REPORT PURSUANT TO SECTION 33433 Redevelopment Agency of the City of Azusa 613-615 North Azusa Ave (Reyes) Parcel 2 serving the first floor medical office uses. Onsite carport parking for the apartment tenants is provided at the rear of the property at the rate of one space per unit. Developer has obtained a development cost estimate and preliminary conceptual drawings for the New Reyes Building from GENESIS Architectural Engineering, Inc. (“Architect”). Developer intends to commence construction in late 2003 following acquisition of the Property from Azusa. IV. ESTIMATED REUSE VALUE Boznanski & Company (“Boznanski”) recently completed a valuation of the fair market value of the Property at its highest and best use as permitted under the Redevelopment Plan. Boznanski estimated the value of the Property at $ 300,000. That value would be for a cash sale. When a redevelopment agency sells land, the effective price received by the agency must not be less than the “reuse value” to the purchaser. Reuse Value is defined, as the amount the purchaser would be willing to pay for the land for the use that the purchaser would actually put the land. In the case of an acquisition by a purchaser who will put the property into a specific use to earn a fair market rate of return on the total investment, the reuse value of the land can be calculated by subtracting the purchaser’s development costs and fair investment return from the total economic value in the proposed use. This is typically referred to as a residual land value based on a specific use in a particular market. This approach is valid in the case of an acquisition in which the land to be acquired is being evaluated on the basis of its own discrete economic value, taking into consideration all the various economic costs and benefits. In addition, the reuse value of the site must be viewed evaluated in light of restrictions, requirements, conditions, covenants, and development costs required by the terms of the DDA. These conditions and requirements of the DDA generally increase the cost of development, often diminish long-term value, and increase investment risk. Key Assumptions Development Costs As estimated by the Architect with adjustments by the Agency and its economic consultants, the total development cost for the Development is approximately $761,000 excluding land and construction period financing costs. Adding loan points and construction period interest estimated at $37,000 by Kosmont Partners to the above figure brings the total development cost excluding land to approximately $798,000 or $102.48 per square foot of gross building area (see Exhibit 1 attached). SUMMARY REPORT PURSUANT TO SECTION 33433 Redevelopment Agency of the City of Azusa 613-615 North Azusa Ave (Reyes) Parcel 3 Revenues Operating revenues for the Development include rental income from the medical office space (on the ground and second floor) and from the apartment units located on the second floor. Rental rates for the medical office space are estimated at $1.65 per square foot per month, triple net. Total gross annual rental income for the commercial space is estimated to be $96,000. The three apartment units are estimated to rent for $1.00 per square foot per month and will have separately metered utilities paid by the tenants. The monthly rents will range from $890 to $910 per unit. The units feature a small balcony and onsite carport parking (see Exhibit 2 attached). Total gross annual rental revenue from all uses is therefore estimated to be $122,000. Expenses The landlord’s operating expenses include real estate taxes, insurance, common area utilities, trash service, general & administrative, elevator and apartment unit maintenance, and a reserve fund for capital improvements. These operating expenses are estimated at $2,167 per month, or $26,000 per year representing 21% of gross revenues. In addition, a 5.0% vacancy factor is also assumed (see Exhibit 2 attached). Net Operating Income and Required Return on Cost Based on the revenue and expense assumptions described above, the Development generates stabilized net operating income (“NOI”) of approximately $96,000 annually (see Exhibit 2 attached). This NOI figure, when divided by an 11% return on cost factor (considered appropriate for this type of development), produces a total supportable development cost of approximately $873,000. Supportable cost is defined as one that accommodates all development costs and a fair return or profit to the developer (see Exhibit 3 attached). Reuse Value The estimated residual land value is calculated by subtracting the total development costs including developer return from the estimated total supportable cost (not including land). In this exercise, the residual land figure totals seventy-five thousand dollars ($75,000). This product of the analysis is referred to as the Reuse Value of the Property. SUMMARY REPORT PURSUANT TO SECTION 33433 Redevelopment Agency of the City of Azusa 613-615 North Azusa Ave (Reyes) Parcel 4 In tabular form, the above calculation is as follows: Estimated Residual Site Value Item Estimate Stabilized NOI $ 96,000 Total Supportable Cost at 11% Return on Cost $ 873,000 Less: Project Development Costs w/No Land $ (798,000) Estimated Residual Land Value $ 75,000 It is concluded therefore that the $75,000 transaction price for the Property is not less than the Property’s Reuse Value.