HomeMy WebLinkAboutR04-Redevelopment Agency
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REDEVELOPMEJT>AGENCY - REQUEST FOR COMMIS~~O~NCIL ACTION
~: MARCH 8. 1989
SUBJECT: RIALTO Il< "I" - PHILLIPS PROPOSAL
SvnoDsls of Previous Commission/Council/Committee Action:
08-15-88 Authorized the expenditure of up to $5.000 for security and clean up
and to give an exclusive listing to a local broker for the appraised
value ($455.000).
02-24-89 Committee reviewed the Phillips proposal.
(COMMUNITY DEVELOPMENT COMMISSION)
Recommended Motion:
That the Commission reject Mr. Darrell A. Phillips' acquisition
proposal for the Agency-owned property at 101 North "I" Street.
Contact Person: Steven H. Dukett Phone: 384-5081
SUDDortlnq data attached: Yes Hard: 3rd
FUNDING REQUIREMENTS: Project: UT
Date: MARCH 13. 1989
Council Notes:
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Agenda Item No.
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S T A F F R E P 0 R T
The purpose of this report Is to present a third proposal by Mr. Darrell A.
Phillips to purchase the Agency-owned property at 101 North "I" Street (Mental
Heath Bulldlng) . The proposal should be rejected because it is less than the
appraised value, It overencumbers the property, It would put the Agency Into a
long escrow while the buyer tries to work out his concepts with the City
departments and It would prevent the Agency from considering a reuse of the
property that would conform to the new General Plan.
BACKGROUND
The Agency-owned property at 101 North "I" Street, consists of two parcel s - a
12,648 square foot parking lot and a 36,061 square foot parcel Improved with a
structure containing 10,000 square feet on the main floor and a 3,000 square
foot basement.
The property Is a former elementary school building which has been
rehabilitated and converted to office use. The structure Is 61 years old, and
In overall poor condition.
In January 1985, the Redevelopment Agency purchased this property for $600,000
(based upon a contemporaneous appraisal of $590,000). The property was
purchased to facilitate the relocation of the Mental Health Association of San
Bernardino County (Mental Health) who were then located on property which was
to be developed for low-cost housing. The Agency entered Into a 5-year lease
with Mental Health In January 1985. Mental Health made only one lease payment
and, after extended negotiations, they vacated the premises on July 8, 1988.
On July 7, 1988, appraiser Edward G. Hill, Jr. appraised the property at
$455,000. This Is approximately $210,000 less than the Agency has Invested In
the building (see the attached expense analysis). On August 15, 1988 the
Commission authorized the Agency to list the property with a real estate
broker for the $455,000 fair market value. This was done and (separate from
the listing) two offers were received from Mr. Darrell Phillips. These offers
were unacceptable as they were substantially below fair market value and would
have resulted In a net cash outflow from the Agency.
Staff has concluded that the possibility of receiving an all cash offer seems
remote. Moreover, the present building does not conform with the adopted
Interim Plan Document. As an alternative, staff Is exploring the possibility
of securing a master developer to master plan the entire block between Rlalto
and Second Street. In an effort to determine the feasibility of such
development and the level of Agency assistance, we have requested Keyser
Marston Associates, Inc. to do an economic analysis. However, In recognition
of Mr. Phillips' past Interests, and In keeping with the concept of a
whole-block development, he was offered an opportunity to simultaneously
submit a proposal to develop the entire block.
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Based upon Mr. Phillips' January 12, 1989 letter In response to this offer, It
was apparent that he misunderstood the parameters of the proposed
transaction. As a follow-up, on January 27, 1989 a letter was forwarded to
Mr. Phillips to cl~rlfy the matter. On February 9, 1989, Mr. Phillips and a
representative of his broker, Ms. PeggyAnn Morley, appeared before the
Redevelopment Committee to discuss their previous offers.
On February 15, 1989, Mr. Phillips' third proposal was received (see attached)
from Ms. Morley. It Is Important to note that there Is a typographical error
In the second line of the first paragraph under "TERMS". The First Trust Deed
amount of $213,000 should read $273,000.
Staff has analyzed Mr. Phillips proposal (see attached summary) and
recommended rejection for the following reasons:
1. Sale Is not for all cash.
2. Broker/buyer has no equity Investment. The entire purchase price of
$455,000 Is financed by First and Second Trust Deeds totaling
$73,000 more than the sales prices and appraisal value.
3. The Agency has the potential of being liable for $105,300 more than
cash actually received.
4. The contingencies (Including "approval of all city agencies") cannot
be clearly Interpreted.
Mr. Phillips' broker, Ms. Morley, appeared at the February 24, 1989 Committee
meeting and represented that Mr. Phillips had a substantial net worth; that
he would provide audited financial statements to the Agency; and that he
would personally guarantee the first and second deeds of trusts. No
financial statements have been received nor has Mr. Phillips confirmed that
he would be willing to guarantee the two deeds of trust.
Ms. Morley also passed out the attached, undated "PROPOSAL FOR MENTAL HEALTH
BUILDING" at the February 24, 1989 meeting. It contains a number of errors,
Including:
a) "Cash to RDA" would only be $163,600 (not the $200,000 shown In the
proposal) because the broker's commission and escrow costs would be
deducted by the escrow company.
b) The second trust deed Is at 101 Interest with Interest only payments
made In arrears. Thus the loan earns $25,500 per year (not the
$27,500 shown In the proposal).
c) The present value of the total of all the payments on the second
trust deed Is $255,000 at 101 (not $550,000 as Implied by the
proposal).
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d) The return to the Agency Is:
$163,600 Sales proceeds
$255,000 Value of second trust deed
~418 600 Total return
Thus, the total return Is substantially less than the $750,000
Indicated In the proposal and Is even less than the sales price.
Moreover, the building would be encumbered with $528,000 In liens
leaving the Agency $110,600 short If It needed to redeem the
property shortly after the close of escrow.
Based upon all the above, it is recommended that the Commission reject Mr.
Phillips' third purchase offer.
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SUMMARY OF THIRD PHILLIPS OFFER
Offer by Phillips to Purchase Mental Health Building
Presented to RDA staff on February 15, 1989
Sales Price
$455,000
FINANCING
1st Trust Deed (Buyer to obtain)
2nd Trust Deed to RDA at 101 for 10 yrs., Interest
only with no payments for 1st yr.
$273,000
255,000
$528,000
CASH FLOW TO RDA
Cash from 1st Trust Deed*
Broker Commission
Closing Costs (estimated)
Cash Flow
Cash In
$200,000
Cash Out
Net Cash In
$27,300
9,100
$36,400
$200,000
$163,600
*Balance of $73,000 to be held In reserve
COMMENTS:
1. Actual offer Is at appraised Fair Market Value.
2. Building would be encumbered by $528,000 In loans which Is $73,000 above
Fair Market Value and sales price.
3. RDA's net cash received would be approximately $163,600.
4. Buyer/Broker Is obtaining the building with no equity commitment and Is
receiving $73,000 In proceeds from the 1st Trust Deed.
5. If buyer defaults on the 1st Trust Deed, RDA would have to cure any default
on 1st Trust Deed and would remain liable on 1st Trust Deed If RDA
foreclosed. Paying off the 1st Trust Deed could cost $110,600 more than RDA
would have received.
6. Broker/buyer would receive $100,300 In proceeds ($27,300 commission plus
$73,000 from 1st Trust Deed) with no obligation to make any payments to the
RDA for one year.
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101 N. "I" BUILDING EXPENSES
0 Through February 28, 1989
Acquisition of Building:
Deed of Trust $600,000.00
Escrow Fees 598.00
Taxes (Escrow) 2.352.99
$602,950.99
Interest on Notes:
Bunker/Swing 65,161.21
S.B.Clty Unified 6,075.00
71,236.21
Maintenance:
Insurance 3,217 .00
Clyde Thompson Con. 176.00
Locks & Keys 274.57
Grounds Maintenance 2,357.29
6,024.86
Utili tl es:
Hater 577 .91
Electric 1 ,537 .72
Trash 225.33
2,340.96
0 Legal:
City 737.59
Sabo & Deitsch 3.470.50
4,208.09
Adml nl stratlve:
Appraisal 2,500.00
Reconveyance Fee 80.00
Staff Tlme* 2.815.00
5,395.00
TOTAL EXPENSES $692 _ 156 _ 11
RENT RECEIVED:
July 1985 $ 3,900.00
September 1987 10,000.00
March 1988 13,750.00
TOTAL RENT RECEIVED ~ 27.650.00
NET EXPENSES ~664 506. 11
0 *Staff time Is calculated for the period 7/87 through 12/88.
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LOMA LINDA FINANCIAL SERVICES
JJ 306 Mountain View A ve., Suite D
Loma Unda, California 92354
February 13. 1989
Redevelopment Aaency
City of San Bernardino
300 Morth 'D' Street
San Bernardino. CA 92418
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Attn: Steven Dultett
Reference: Commercial property located on I Street. San Bernardino
The enclosed offer is being presented by PeggyAnn Morley. President of Lama Linda
Financial. Ma. Morley is acting as agent and representative for the Buyer. Mr.
Darrell Phillips.
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Offer to be at a total .alea price of................................$45S,OOO.OO
TE1lMS :
Buyer and property to qualify and secure a purchase money 1st Trust Deed in the
aaount of $213.000.00 of which $200.000.00 shall be applied to the down payment.
The remainder (approximately $73.000.00) shall be held in reserves for interest,
design. architecture and closing costs.
Buyer requests the Seller to carry a 2nd Trust Deed in the amount of spproximately
$255~000.00 at 10% interest only for 10 years. First years payments shall be
deferred for 12 aonths to allow redevelopment of subject property.
This offer shall include commission to be paid to Loma Linda Financial in the
amount of $27.300.00 or 6% of the total sales price.
Offer shall be contingent on:
1. Approval of all city agencies involved in this property.
2. Interior inspection by Buyer.
3. Approval of preliminary title report.
Buyer shall upon City approval open escrow with a good faith deposit of $5,000.00.
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Page 2 of 2
Offer 1 Street
Buyer wishes to work with the City of San Bernardino to return this comaereial
property baclt to the tax rolls as well as provide the City with . profitable
cosmercial structure.
aeapectfully
OJ
reggyAnD Morley
President
l1~
cc: AnD Harris
Main Street
Amended offer dated February 14. 1989
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LOMA LINDA FINANCIAL SERVICES
11306 Mountain View Ave., Suite D
Lorna Linda, California 92354
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PROPOSAL FOR MENTAL HEALTH BUILDING
COMMERCIAL PROPERTY LOCATED AT 101 NORTH "I" STREET
SALE OF PROPERTY
$455,000.00
200,000.00
DOWN PAYMENT
CASH TO RDA
200,000.00
NEW 1ST T.D.
273,000.00
IN RESERVES TO LENDER
73,000.00
RDA TO CARRY 2ND MORTGAGE
AT 10% FOR 10 YEARS
255,000.00
FINANCIAL BENEFITS TO CITY OF SAN BERNARDINO IF OFFER IS-ACCEPTED:
Property to be put back on tax rolls at the sales price of $455,000.00 which will
bring revenue tQ the City at an estimated tax rate of 1% annual tax return of
$4,550.00 (estimated tax return).
Second Trust Deed to earn interest at a rate of 10% per annum for 10 years which
should earn approximately $27,500.00 per year. Over the life of the loan should
earn approximately $275,000.00 with a balloon payment of $275,000.00 at the end
of its term.
Total return to the City should be $750,000.00. Allowing for a 6% sales commis-
sion of $27,300.00 plus an estimated closing cost of 2% or $9,100.00. Net return
to the City wouild be $44,600.00
FINANCIAL EFFECT TO CITY OF SAN BERNARDINO IF OFFER IS DECLINED:
1st Example: Allowing "the building to remain as is while studies are being
accomplished ~il1 cost the City per day approximately $183.20 on funds extended
previously at the legal rate of return of 10%, because the funds are extended and
the property would not be increasing in value in its current condition.
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Page 2 of 2
Offer I Street
2nd Example: If building is demolished reducing value to land only. Normal
value of industrial property is $2.75 to $3.00 per square foot, making the
property worth $146,124.00 at best case. Causing a loss of $522,509.37.
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