HomeMy WebLinkAbout08- Development Department I VELOPMENT DEPARTME T
OF THE CITY OF SAN BERNARDINO
REQUEST FOR COMMISSION/COUNCIL ACTION
FROM: KENNETH J. HENDERSON SUBJECT: FREEWAY HOME CENTER
Executive Director
DATE: February 2, 1994
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Synoasis of Previous Commission/Council/Committee Action(s):
On December 9, 1993, the Redevelopment Committee forwarded the subject proposal to the Community
Development Commission without a recommendation and instructed staff to complete its due diligence so the
matter could be favorably considered by the Community Development Commission on December 20, 1993.
Synopsis Continued to Next Page
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Recommended Motion(s):
(Community Development Commission)
(Redevelopment Committee Recommendation)
MOTION: That the Community Development Commission authorize and direct staff to submit a $2.5
million loan application to a private lender for the purpose of reloaning such loan proceeds to
Allan Steward, Inc., subject to review and approval of Allan Steward's financial capacity,
approval by the Community Development Commission of an Owner Participation Agreement,
execution of a personal guarantee by Allan Steward and close of escrow within ninety (90)
days of Commission approval.
<17 A"
nistrator KENNET J. HE ERSON
Executive Director
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Contact Person(s): Kenneth J. Henderson/Emily Wong Phone: 5081
Project Area(s): Southeast Industrial Park Ward(s): Three (3)
Supporting Data Attached: Staff Report; Attachments I; II; III
FUNDING REQUIREMENTS: Amount: $2.500.000 Source: Tax Increment
Budget Authority: Requested
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Commission/Council Notes:
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KJH:DJN:lag:fwyhoml.edc COMMISSION MEETING AGENDA
MEETING DATE: 02/07/1994
Agenda Item Number: _
REQUEST FOR COMMI, _ON/COUNCIL APPROVAL
Freeway Home Center
February 2, 1994
Page Number -2-
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Synopsis of Previous Commission/Council/Committee Action(s) Continued:
On December 20, 1993, the Community Development Commission approved a $2.5 million
dollar loan guarantee to Allan Steward, Inc., for the purchase and development of the Freeway
Home Center project subject to review and approval of Allan Steward's financial capacity,
approval by the Community Development Commission of an Owner Participation Agreement
and close of escrow within ninety (90) days of Commission approval. Further, if directed,
that staff be authorized to pay to the Resolution Trust Corporation (RTC) a deposit in the
amount of $85,000 with said funds being placed in escrow on a non-contingency basis albeit
100% reimbursable from Al Steward if the property is acquired or not acquired (see
attachment II).
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KJH:DJN:lag:fwyhoml.cdc COMMISSION MEETING AGENDA
MEETING DATE: 02/07/1994 94
Agenda Item Number: O
DEVELOPMENT DEPARTMENT
STAFF REPORT
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Freeway Home Center
PROPERTY DESCRIPTION
The Freeway Home Center, located at 1408-1680 South "E" Street, is a showroom retail
center specializing in home furnishings and accessories. The property consists of seven (7)
concrete tilt-up buildings constructed in 1985 with 144,503 net rentable square feet on 8.43
acres. The City of Riverside has a long term ground lease on sixty-one percent (61%) of the
land and a private party has the remaining thirty-nine percent (39%). The site contains 693
parking spaces and is zoned commercial general. All buildings are currently under the control
of the Resolution Trust Corporation (RTC).
The Freeway Home Center is generally attractive and in good condition with minor deferred
maintenance items. It is conveniently situated near the intersection of the I-215 and I-10
freeways and has good visibility directly from the freeway. It is also located within close
proximity to the Inland Center Mall.
ORIGINAL PROJECT PROPOSAL
On December 20, 1993, the Community Development Commission approved a 2.5 million
dollar loan guarantee to Allan Steward, Inc., subject to review and approval of financial
capacity and an Owner Participation Agreement. The proceeds of the loan would be used to
purchase the buildings from RTC at a total cash price of $1,700,000. The remaining
$800,000 would be used to improve the properties and provide working capital. In return, the
Agency would participate in receiving twenty-five percent (25%) of the project's net operating
income as well as twenty-five percent (25%) of the net proceeds from any eventual sale of the
property. The key terms, conditions and deal points are summarized below:
Loan Amount: $2,500,000
Proposed Financing: Nine percent (9%) interest rate amortized over twenty
(20) years, due in seven (7) years. The monthly debt
services is calculated to be $269,917 with a balance of
$2,064,214 due at the end of year seven.
RTC Purchase Price: $1,700,000
ImprovementsAVorking Capital: $ 800,000
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KJH:DJN:1ag:fwyhom1.cdc COMMISSION MEETING AGENDA
MEETING DATE: 02/07/1994
Agenda Item Number: �_
DEVELOPMENT DEPARTMENT STAFF REPORT
Freeway Home Center
February 2, 1994
Page Number 4
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Deposit: Agency submitted a five percent (5%) deposit (85,000) on
behalf of Allan Steward, Inc. to open escrow. Should
escrow fail to close, Allan Steward, Inc., will refund one-
hundred percent (100%) of the Agency's $85,000. If
escrow closes, the Agency will be reimbursed its full
$85,000 deposit from the loan proceeds. (see attachment
IV)
Security: Allan Steward, Inc., would execute both a quit claim
deed and an assignment of rents in favor of the Agency
with a condition subsequent which will not go into effect
unless and until such time as Allan Steward, Inc. defaults
on the loan.
GROUND LEASES
The use of the land is provided by the following ground leases:
1. City of Riverside - 5.133 acres with an original term of fifty (50) years which
terminates on April 30, 2035. The current annual lease payment is $226,374. The
lease payment is to be adjusted every ten (10) years to reflect fair market rents.
2. D. & E. Teakell and B. & S. Barrad - 3.3 acres with an original term of fifty-five (55)
years which terminates on November 10, 2040. The current annual lease payment is
$188,573. Annual CPI increases are scheduled to begin on November 11, 1988,
subject to a five percent (5%) minimum. At the end of twenty (20) years (2005) and
forty (40) years (2025), the annual rental payment is to be adjusted to the fair market
rent with continued annual CPI increases.
The total ground lease payment for Year 1 is $414,947 with continued annual increases.
APPRAISAL VALUATION
According to the "due diligence" report provided to RTC dated August 6, 1993 (see
Attachment I), a recent appraisal dated March 11, 1993 valued the leasehold estate at
$3,000,000. This was based on an assumed market rent of $.60 per square foot, triple net and
a sixty-two percent (62%) vacancy rate.
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KJH:DJN:lag:fwyhom l.cdc COMMISSION MEETING AGENDA
MEETING DATE: 02/07/1994
Agenda Item Number: _ P
DEVELOPMENT DEPARTMENT STAFF REPORT
Freeway Home Center
February 2, 1994
Page Number 3
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VACANCY RATE
The project's current vacancy rate is approximately seventy percent (70%). According to a
rent roll dated September 25, 1993, submitted by Allan Steward, Inc., indicates that 72,461
square feet is currently under lease. However, four (4) of the eight (8) tenants are delinquent.
A portion of those tenants have vacated or are in the process of vacating the premises.
Actual rents collected are estimated to be $24,282 per month or $291,384 per year, which is
insufficient to pay the $414,947 ground lease.
FINANCIAL ANALYSIS
Staff submitted an optimistic cash flow projection (see Attachment III) based upon the
following key assumptions:
1. 144,503 square feet @ $.70/square foot
2. Twenty (20) year amortization of the loan.
3. Vacancy rate projected at fifty percent (50%) (year 1), thirty percent (30%) (year 2),
fifteen percent (15%) (year 3) ten percent (10%) (year 4 - 7).
4. Staff projections show a negative cash flow of<$239,217> for year 1. Years 2
through 7 show a positive cash flow of $18,175 (year 2) $204,995 (year 3) $251,656
(year 4) $227,638 (year 5) $202,420 (year 6) $175,940 (year 7).
The summary of operations detailed in the RTC Report indicates a negative Net Operating
Income (NOI) of <$63,000> in 1992. The NOI for the six (6) months ending June 30, 1993
was approximately breakeven.
CONDITIONS FOR DIRECT LOAN
According to Mr. Steward, his company must have opened escrow with a good faith earnest
money deposit of $85,000 no later than December 22, 1993 (this has occurred). After
December 22, 1993, the RTC will invite purchase offers from the general public. Public
bidding could result in a higher or lower sales price, but would not appear to preclude Allan
Steward, Inc. from the process.
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KJH:DJN:lag:fwyhoml.cdc COMMISSION MEETING AGENDA
MEETING DATE: 02/07/1994
Agenda Item Number:
DEVELOPMENT DEPARTMENT STAFF REPORT
Freeway Home Center
February 2, 1994
Page Number 4
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Due to time constraints and lack of financial documentation, staff has not had the opportunity
to evaluate Allan Steward, Inc.'s adequacy in regards to financial capacity. It would be
prudent to execute an Owner Participation Agreement specifying all conditions as well as
establishing proof and documentation of financial capacity and pledges of security, if any,
prior to finalizing the proposed loan.
CURRENT LOAN STATUS
To date, Mr. Steward has been unable to obtain financing based upon a guarantee by the
Agency. He has requested that the Agency apply for a loan with a financial institution, which
in turn would be made directly to Allan Steward, Inc., by the Agency. This would result in
the Agency being responsible for the loan and monthly payments will be provided by Allan
Steward Inc., presumably from a positive cash flow generated by the center.
Loan requests were submitted to the following lending institutions:
1. Chino Valley Bank, Riverside
2. Union Bank, Irvine
3. Riverside National Bank, Riverside
4. Bank of the West, Newport Beach
5. Western Bank Company, Riverside
6. Bank of America, Riverside Real Estate Center
7. Bank of California, Real Estate Center - Los Angeles
Chino Valley Bank, Union Bank and Riverside National Bank formally reviewed the loan
package and denied the loan request based upon three (3) major factors:
1. Insufficient cash flow
2. Low Occupancy Factor
3. Non Fee Simple Property (land leased by City of Riverside, Teakell and Barrad)
The remaining four (4) lending institutions are not interested in formally reviewing Mr.
Steward's loan package due to the type and size of the loan as well as the leased land status
of the property.
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KJH:DJN:lag:fwyhomLcdc COMMISSION MEETING AGENDA
MEETING DATE: 02107/1994
Agenda Item Number: _�
DEVELOPMENT DEPARTMENT STAFF REPORT
Freeway Home Center
February 2, 1994
Page Number 5
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CONDITIONS FOR DIRECT LOAN
The current state of the subject property has, to a great extent, resulted from the recession and
the consequences of very little, if any, property management as a result of foreclosure. Proper
management, coupled with an aggressive marketing/leasing campaign, may help to remedy the
situation. However, a continued recessionary decline may result in decreasing fair market
rental values and a change in retail uses.
Attachments I through III are provided for your information.
Based upon the foregoing, the Redevelopment Committee recommends adoption of the form
motion.
"L&I
KENN TH J. ENDERSON, Executive Director
Development Department
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KJH:DJN:1ag:fwyhom1.cdc COMMISSION MEETING AGENDA
MEETING DATE: 02/07/1994
Agenda Item Number: L
FREEWAY HOME CENTER
1409.1680 E Strait RTC REPORT
823994935
REOMS #i
San Bernardino, California
Control N 8
IDENTIFICATION
The subject property,known as Freeway Home Center("Center"), is a showroom retail center specializing in
home firraMings and accessories. It is located on the west side of"E" Street it1 the City of Satz Befnafdino,
California. The site is immediately north of tllo intersection of Interstates 215 and 10 (I-215 and I.10), with
prominent freeway exposure along the easterly side of I.215. The site is centrally located in the "Inland
Empire" area. within a quarter mile of the Orange Show Convention Center.
The property consists of 7 buildings of Class "C" concrete tilt-up constriction, completed in 1985 and
comprises about 144,503 net rentable square feet on 8.43 acres of leased land. The site contains 693 pecking
spaces including 125 compact and 14 handicapped spaces. according to the on-site tnanaget. Other sources
quote considerably fewer total spaces but this may result ftm a large number Of compact spaces being added.
Per the most recent appraisal, the concluded laud size of 8.433 acres was obtained from the summation of sizes
indicated on the subject's two land lease agreements. In addition, an ALTA Survey dated 12/28/92 indicates
the size of the parcels to total 8.76 acres. These t3gures differ from the size according to both the Orange
County Assessor Parcel !vise and these provided by Homa Fed, which both indicate the size of the land area
to be approximately 9.3 acres. This analysis assumes a. size of 8.433 acres per the appraisers review of the
ground lease documents.
GROUND LEASES
The use of the land is provided by two ground leases. One lease is with the City of Riverside for 5.133 acres
with an original term of 50 years, beginning on 511185 and terminating 4130/2035. There are approximately
42 years remaining on this lease agreement. The original lease payment was at established$186,988 per annum
with annual CPI increases eRpped at a maximum of 6 percent. Tie lease payment is to be adjusted every 10
yeah to market rent, based on the then fair market value of the land, by negotiations between the lessor and
lessee subject to arbitration. The first such adjustment is 4/30/95. Current annual lease payments are 5226,374.
The other lease is with D. mid E. Teakall and B. and S. Barred. Each couple is a 1/2 owner in the property
subject to this ground lease. The lease encompasses 3.30 acres and has an original tarns of 55 years beginning
on 1 li 11185 and terminating 11/1012040,leaving approximately 47 ye-VS remaining until maturity, The original
lease p°;s;Mr was $132,000 annually. Annual CPI Inmeasw wem scheduled to begin 11/11188 subject to a
5 percent minimum. At the end of 20 yeas (2005) and 40 years (2025). the annual rmW payment Is to be
adjusted to the fair market rental value based on the fair market value of the land. Within each of those
Periods,th.annual CPI recreates continue with the 5 Pe-cent annual minimtun. Current annual lease payments
are 5188,573.
LEASINGr
Based on discussions with the asset and property managers and review of the liailted file Information as of July
28, eleven of the twelve tenants (except for GTEL) are in the process of either vacating the premises or
renegotiating their leases to the current market fens. Five have physically vacated and a sixth has given verbal
nodc4. The-%a tenants are in various stages of litigation with Horne Fed regarding past due amounts. Tbm
ate two renegotiated lease proposals which have been i:ntadvely agreed upon; both of which are under review
by the RTC. RTC anticipates that other renegotiations are possible.
Real Estate Recover?, Inc. t 1/&193
ATTACHMENT I
FREEWAY HOME CENTER
14081680 E Street
823994935
REOtifS # San Bernardino, California
Control #8
A tenant-by-tenant review based on the above information indicates a potential remaining occupancv of the
center migbt be about 38 percent at an average base rent of S.71 PSF, triple net. The remaining tenant's would '
consist cf the following.,
Z4Il�-t1I Potential Status (based on antiCloated setttements)
Waterbed Gallery 9,022 SF renegotiated to $0.613 PSF
Lamps Plus 11,166 SF rm. egodated to $0.75 PSF
Behr Window Fashion 6,931 SP renegotiated to S0.57 PSF
Furniture Mart 8,065 SF renegotiated to$0.62 PSF
GTE.' 3,466 SF as is at$1.56 PSF
"GTEL signed a five year lease in October 1990 acid is expected to continue to honor it.
LOCATION
Iba subject's neigbbcrhucd is well developed and located in the south central section of San Bemardino where
the bulk of the development is. industriallservire related along secondary roadways, with coun,ercial
development along the major thoroughfares. No new construction appears to be underway in tho immediate
area and many of the structures are relatively rew and in good condition. The area appears to be stable with
future development anticipated to be limited as a result of lack of demand in the area.
TLe focal point of the sub-market and major influtxtc:e in the neighborhood is the Inland Center Mall, located
at the interaction of 1.213 and Inland Center Drive, which coatams 900,000 squint feet. Surrounding the
immediate subject area are a number of automobile dealerships and, to the south, a small retail miter whim
appears m be fully occupied rind in good condition. Them is also a vacant 12 acre parcel available for sale.
GENERAL MARKET CONDITIONS
Historically. the WTA madcet for this type of center has been good; however, the subject center is occupied
primarily by tenants in the AmAsbin0ome improvement business which is particularly sensidve to recessions.
Consequently, the recession and the phase out of two local Air Force Bases had a significant impact on this
C=km ThC subject's 10=100 at the intusection of two freeways with cxcellenc visibility and access, as well
as excellent visibility and access from street traffic, make it one of the best ctnters of its type in the market
area In the past.the torrent owner has discouraged the targeting of non-furniture/botsebold tenants. However,
there is an opporumity to seek other retailers sinar parking Is provided at approximately 4.5 spaces per 1,000
SF.
According to individuate familiar with Freeway Center, the current state of the subject property has resulted
from the recession and the consequences of non-intensive property management through foreclosure. They
believe that an extensive rmarkedagAming campaign at the current lower market rants through a local
aggressive brokerage could result in arhievtment of stabilized occupancy of 90 percent within one to two years,
even in today's economy.. .
Red Eststu Recovery, I=. = 9/6/93
X117( 67
FREEWAY ROME CENTER
1408-1680 E Street
San Bernardino, California
REOMS # 823994935
Control #8
RECENT AP1?RAISAU
The most recent appraisal,dated 3/11193.valued the Leasehold Estate at$3,000,000. The appraisal valued the
leasehold interest by subtracting the value of the Leased Fee from the Fee Simple value. The appralsees
conclusion was that, based on the subject's historical occupancy level and rental rates, it is still a desirable
center that may take four years to reach stabilized occupancy. The appraiser asawned the current market rent
to be S.60 PSF, triple net. (Some of the renegodated rents with current tenants are higher than that, possibly
due to the leverage of the lessor (ground lessee) with the tenants in default.) The appraiser also assumed a
cement vacancy of 62 percent with no rentals completed in the first year,
PFJYS[CAb QLNDITION
The center It in good condition with minor deferred maintenance Items. Work In progress includes rt-slurry
and re-striping of the parking lot. painting of the storefront signage areas where tenants have moved and
providing additional lighting throughout the complex. The center is generally attractive and the quality of the
impmvemena is comparable with most buildings of similar type in the area. All vacant tenant space Is second
genes bu space with the interior improvements in good condition-
A Phase I Environmental Site Assesment was performed by PRR Env'tronrnental Consultants, Inc., dated
12/12/92 which indicated that no contaminadoh was found. A Comprehensive Asbestos Survey/Report dated
6111193 also indicated that no asbestos containing material was found.
SUMMARY OF OPERATIQNS
Net Operating Income for 1992 was negative $63,000, and the NOI for the 6 months ended 6130/93 was
approximately breakeven. The recent operating history of the subject reflects the current situation with the
tenants and the impact of the above-market land leases on operating expenses.
Real Estxta Recovery, Inc, s 06193
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ATTACHMENT II 3
NARp��
City of San Bernardino
e e z
Timthy C.Stein
ECONOMIC DEVELOPMENT AGENCY Agency Administra sous
EID VS
� a
o
•Development Department
Redevelopment
Community Development
Housing
•San Bernardino Downtown
Main Street,Inc.
•Convention and Visitors
Bureau
•Office of Business
December 21, 1993 Development
Mr. Allan B. Steward
Steward & Associates
1887 Business Center Drive, Suite 3
San Bernardino, CA 92408
Dear Mr. Steward:
This letter will confirm the action taken by the Community Development Commission of the City
of San Bernardino ("Commission") on December 20, 1993 with regard to the Freeway Home
Improvement Center project acquisition and the proposed arrangement by and between Allan
Steward, Inc., and the Commission.
The Commission, through its consultant E. H. Wood & Associates, will attempt to obtain a
permanent loan in an amount equal to $2,500,000 on behalf of Allan Steward, Inc., for
acquisition of the Freeway Home Improvement Center. Such loan will be guaranteed by the
Commission in a form and substance satisfactory to the Commission in its sole discretion. The
Commission and Allan Steward, Inc., will enter into an Owner Participation Agreement subject
to approval thereof by the Commission together with your personal guarantee to the Commission
in form and substance satisfactory to the Commission.
The Commission has authorized the initial deposit of $85,000 into an escrow with The
Resolution Trust Corporation ("RTC') subject to your reimbursement of 100% of said escrow
deposit whether or not the subject property is acquired. In the event the escrow should fail to
close for any reason whatsoever and said amount is therefore subject to forfeiture to the RTC,
by your execution of the acceptance as herein after provided, you specifically agree to so
reimburse the Commission immediately upon demand by the Commission together with all cost
of collection including attorney fees, court costs, and interest at the rate of ten percent (10%) per
annum from and after the date of such demand. Upon a successful acquisition of the subject
property, said $85,000 amount will be returned to the Commission.
ATTACHMENT11f
201 North E Street, Third Floor • San Bernardino, California 92401-1507 • (909)384-5081 • (800)232-1267 • FAX(909)384-5135
Mr. Allan B. Steward
December 21, 1993
Page -2-
We appreciate the opportunity to work with you to improve an entryway into the City of San
Bernardino through the acquisition and revitalization of the Freeway Home Improvement Center.
incerely,
'Timothy C. Steinhaus
Agency Administrator
l
The above terms and conditions are hereby accepted and agreed to this day of December,
1993. i
By:
Allan B. S'feward