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HomeMy WebLinkAboutSS2 - Beacon Bay Home Owners Association Proposed Rate Change to Current Lease - PowerPointFebruary 12, 2019 Item No. SS2 City Council Study Session February:L2, 2019 Beacon Bay Home Owners Association Rent Proposal o � U y� cgCl FO aN�P A -C =I r N Q1, LUUJ Ce 0 a LLI cc LU D LLF z uj LI 4 Fr r • 72 single family residences -27 bay front lots - 45 interior lots • Homeowner's Association lease maintain common areas, streets, beaches TidelandelSubmerged Lands Uplands &Tidelands Community Development Department Mix of Ownership State Lands Commission Oversees PublicTrust Lands in Newport Harbor Approves lease agreements Approves changes to Fair MarketValue Rent Receives zo% of annual tidelands revenues from Beacon Bay rents collected I�J-17 ��LMI Community Development Department 1 Beacon Bay Histo 3 -gig — State grant of tide & submerged lands in Newport Harbor to be managed byCity— Beacon Bay Bill 1.927 — Leased to J.A. Beek for commerce and navigation 1.938 — City directed change in use to residential 1.940-1.950's —Subdivided & subleased by Beek, custom homes built 1.978 — Residential use ratified by State, must comply with Beacon Bay Bill 1.981.— City lease at fair market rent (2.5% of sale price) 1.987 — Beek leases expire 1.988 — City lease directly to residents, term through 2oo6 1.992 — Election amending City Charter, lease term up to 50 -years 1.994 — Lease approved by State, City, and Beacon Bay residents, leases terminate in 2044 201.2 — New lease form approved by State, City, and Beacon Bay residents Community Development Department 202.2 Amendment to Beacon Bay Lease (1 of 3 Versions Currently in Use) New rolling 5o -year lease term Rent still calculated at 2.5% of sale price Annual CPI Adjustment Approved bv State Lands Commission Approved by City Council Approved by Beacon Bay Residents Community Development Department Transfer Process Price negotiated on open market by buyer and seller Escrow notifies City to prepare new lease documents Signed by buyer, seller, City Documents recorded by escrow at closing Development Department Rent Calculation — zoiz Lease Example: Sale Price=$3,000,000 Annual Rent@ 2.5% _ X75, 000 /year Monthly Rent = s6,250 Community Development Department Lease Versions Currently Used IL re ses 1994 Lease 50 -years, (No CPI) Expires Zo44 2'S% 27 2.994 Lease From signing, (w/CPI) Expires Zo44 2.5% 22 2012Lease 50 -years 2.5% 23 from signing pw�- - '- Revenues General Fund Tidelands Fund Sub -Total: emitted to State Lands) Net Total: Community Development Department Oki Year 2018 $1,364,770 $1,270,893 $21635,663 ($127,o8q) $2, 5o8,, 574 HOA Proposed Rent Structure ForAll New Leases New sales — Rent to drop from 2.5% to 1% of sale price Remove CPI increase Assumptions: Sale of 5 homes per year (historically -2-5 sales /year) Home values increase by average of 5% per year Community Development Department HOA Proposed Rent Structure For Current 2012 Leases Automatically convert to a new lease • Rent reduced from 2.5% to 1% • Remove CPI Increase • 5 -year phase-into 1% of purchase price Lj Year 1- 2.5% of first $3million, 1% of remainder Lj Year2-2.5%offirst$2.5million, i% of remainder Year 3—z.5%offirst$zmillion, i% of remainder Year 4-2.5% of first $1.5million, 1% of remainder Year 5-2.5% of first slmillion, 1% of remainder Lj Year 6-1%of purchase price Community Development Department HOA Pro osed Rent Structure For Existin igqc, Leases Option to convert to a new lease 5o -year lease term Rent reduced from 2.5% to z% Remove CPI Increase No phase-in of rent reduction Community Development Department HOA Proposal — Revenue Modelin Total Revenues: (2019-2037) Net Loss: $72�93o�85o *Assumes no sales, and CPI at 2.5% per year $65�227�894 ($7,r702,F956) $41,F299,F156 ($31j 631,F 694) "City used Keyser Marston Associates, Inc. for revenue modeling Community Development Department Staff Concerns Existing Zosz leases — rent reduction to 1% of sale price Reduces City and Tidelands revenues Assumes turnover of 5 homes per year Lower rent may incentivize owners not to sell Historical sales for the last ten years was 2.5 / year No CPI adjustment May take longer between sales to adjust to market rate City will not be collecting fair market value rent Community Development Department Staff Concerns State Lands Commission approval Need appraisal to determine fair market value No CPI adjustment = City not complying with Beacon Bay Bill States Lands Commission expects "ironclad and indisputable justification and rationale" to prove fair market value Community Development Department Possible Next Steps Make no further changes or studies; or Staff to work with State Lands Commission to obtain an appraisal for fair market value. [Who should pay for any additional studies?] Community Development Department ThankYou Questions For more information contact: Community Development Department Lauren Wooding Whitlinger, Real Property Administrator 949-644-3236 lwooding@newportbeachca.gov www.newportbeachca.gov