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HomeMy WebLinkAbout05/23/1994 Item #31Y TO: FROM: SUBJECT: -. So SUPPLEMENTAL AGENDA CITY OF NEWPORT BEACH OFFICE OF THE CITY MANAGER MAY 23, 1994 MAYOR AND CITY COUNCIL ASSISTANT CITY MANAGER C -.sa.5 cmr MAY 2 31994 ACTION: If desired, approve amendments to previously approved lease substituting CPI for Average Sales Value and requiring City to credit Tidelands Fund in an amount equal to tax advantage. BACKGROUND: The City Council previously approved the form of a new 50 year lease for Beacon Bay and sent it to the State Lands Commission for approval. Their staff raised several questions which required the negotiating teams for the City and the residents to re- negotiate some provisions and to travel to Sacramento for face -to -face negotiations. As a result, the staff of the State Lands Commission is prepared to recommend approval of the lease and place it on the consent calendar for May 26, 1994 if the proposed amendments are approved by the City Council. DISCUSSION: One proposed amendment is merely an accounting item to forestall a precedent which might prove detrimental to other negotiations pending before the State Lands Commission. It amounts to the City crediting $35,800 annually to our state supervised Tidelands Fund. Currently, tideland expenditures exceed revenues by approximately $1.2 million, so an additional $35,800 of revenue will have little impact. The credit is compensation for the "tax advantage" granted to current lessees. This amount reflects the additional property tax which some lessees will pay if they sign the new lease. The State Lands Commission believed this credit represented funds transferred to other governmental agencies such as schools which have no tidelands obligations. The proposed transfer into our Tidelands Fund satisfies this concern. Additionally, as properties are sold, this amount will steadily decrease and eventually be eliminated. The other amendment involves substituting a simple CPI calculation in place of "Average Actual Sales Value" to calculate periodic rental increases. Originally, an index was sought that tracked real estate values, and the method selected employed the average of the last three homes sold in Beacon Bay. Page 2 When this method was exposed to the marketplace, potential buyers and real estate brokers complained loudly that it was (a) difficult to understand, (b) capricious, (c) potentially discriminatory and (d) depressing interest and prices in Beacon Bay. The basic complaint was that rental adjustments were held hostage to whatever high or low priced homes most recently sold and that adjustments should fluctuate widely from year to year. To combat this problem, the negotiating teams requested, and the State Lands Commission staff approved replacing the method with a simple CPI increase. The use of CPI may actually increase the City's income. White CPI does not normally keep up with real estate values, it nevertheless rarely goes down. More importantly, the large rental adjustments are based upon sale prices, and the simpler index will create a more marketable lease which will result in higher overall rents to the City. Attached are proposed wording regarding the tidelands credit and a table showing how the amount is calculated. The rental adjustment index will be changed by substituting standard CPI adjustment language for those portions of the original lease dealing with "Average Actual Sales Value ". RECOMMENDATION: Over six and a half years have been spent in the negotiating of this lease. The lease provides for the many older, fixed income residents while allowing the City to achieve full Fair Market Rental Value in the shortest possible time. Approval of these amendments at this time will allow the new lease to take effect on July 1, 1994 and immediately increase City revenues by $350,000 annually. The new lease will promote turnover of homes in Beacon Bay to the benefit of those eager to sell. Resales in Beacon Bay can generate an additional one million dollars to the City. The proposed amendments are acceptable to the Residents Association, and approval by the City Council is recommended. enneth J. D lino KJD:mb Attachments Distribution of Rents and Tax Advantage between Tidelands and Uplands* Beacon Bay 5118/94 - Page 1 (lstyear) Proportionate Proportionate Annual Amort. Tidelands Effective % % Rent Rent of PV of Tax Tax Lot No. Net Rent Tidelands Uplands Tidelands Uplands Advantage Advantage Waterfront Lots A $31,940 100% 0% $31,940 $0 $0 $0 B $22,270 10090 0% $22,270 $0 $930 $93o C $22,480 100% 0% $22,480 $0 $1,410 $1,410 1 $15,030 100% 0% $15,030 $0 $2,080 $2,080 2 $17,950 100% 0% $17,950 $0 $2,260 $2,260 3 $24,110 100% 0% $24,110 $0 $1,890 $1,890 4 $21,260 100%. 0% $21,260 $0 $2,610 $2,610 5 $28,840 100% 0 % $28,840 $0 $1,620 $1,620 6 $34,260 100% 0% $34,260 $0 $0 $0 7 $19,260 95% 5% $18,297 $963 $3,230 $3,068 8 $43,480 50% 50% $21,740 $21,740 $0 $0 9 $44,350 5% 95% $2,217 $42,132 $0 $0 10 $33,540 0% 100% $0 $33,540 $0 $0 11 $17,020 0% 100% $0 $17,020 $3,200 $0 12 $22,190 0% 100% $0 $22,190 $1,130 $0 13 $29,450 0% 100% $0 $29,450 $0 $o 14 $19,690 0% 100% $0 $19,690 $2,880 $0 15 $20,240 20% 80% $4,048 $16,192 $2,980 $596 16 $16,480 95% 5% $15,656 $824 $2,640 $2,508 17 $21,750 100% 0% $21,750 $0 $2,420 $2,420 18 $16,480 100% 0% $16,480 $0 $2,640 $2,640 19 $19,500 100% 0% $19,500 $0 $2,880 $2,880 20 $17,910 100% 0% $17,910 $0 $2,470 $2,470 21 $21,170 100% 0% $21,170 $0 $1,180 $1,180 22 $37,880 100% 0% $37,880 $0 $0 $0 ES 1 $31,920 100% 0% $31,920 $0 $0 $0 ES 2 $29,220 100% 00/0 $29,220 $0 $0 $0 Waterfront Subtotal: $679,670 $475,928 $203,742 $40,450 $30,562 Beacon Bay 5118/94 - Page 1 Beacon Bay 5/18/94 - page 2 Distribution of Rents and Tax Advantage between Tidelands and Uplands" (lstyear) Proportionate Proportionate Annual Amort. Tidelands Effective % % Rent Rent of PV of Tax Tax Lot No. Net Rent Tidelands Uplands Tidelands Uplands Advantage Advantage Interior Lou 23 $6,297 0% 100% $0 $6,297 $550 $0 24 $8,897 0% 100% $0 $8,897 $390 $0 25 $6,977 5% 95% $349 $6,628 $630 $31 26 $6,942 99% 1% $6,873 $69 $710 $703 27 $7,102 100% 0% $7,102 $0 $660 $660 28 $7,785 100% 0 %a $7,785 $0 $740 $740 29 $15,470 0% 100% $0 $15,470 $0 $0 30 $7,102 0% 100% $0 $7,102 $580 $0 31 $10,515 30% 70% $3,154 $7,361 $660 $198 32 $7,217 100% 0% $7,217 $0 $620 $620 33 $7,307 I00% 0% $7,307 $0 $650 $650 34 $8,490 100% 0% $8,490 $0 $730 $730 35 $7,780 090 100% $0 $7,780 $580 $0 36 $7,672 0% 100% $0 $7,672 $590 $0 37 $15,005 5% 95% $750 $14,255 $0 $0 38 $7,967 99% 1% $7,887 $80 $0 $0 39 $11,557 100% 0% $11,557 $0 $0 $0 40 $13,572 100% 0% $13,572 $0 $0 $0 41 $7,300 0% 100% $0 $7,300 $510 $0 42 $7,672 0% 100% $0 $7,672 $590 $0 43 $13,232 090 100% $0 $13,232 $0 $0 44 $7,787 0% 100% $0 $7,787 $630 $0 45 $7,990 15% 85% $1,198 $6,792 $660 $99 46 $8,492 0% 100% $0 $8,492 $720 $0 47 $7,365 0% 100% $0 $7,365 $610 $0 48 $9,305 0% 100% $0 $9,305 $600 $0 49 $7,197 0% 100% $0 $7,197 $620 $0 50 $7,240 0% 100% $0 $7,240 $630 $o 51 $7,857 0% 100% $0 $7,857 $110 $0 52 $13,927 0% 100% $0 $13,927 $0 $0 53 $8,492 0% 100% $0 $8,492. $730 $0 54 $7,227 0% 100% $0 $7,227 $500 $0 55 $12,865 0% 100% $0 $12,865 $0 $0 56 $7,915 0% 100% $0 $7,915 $470 $0 57 $7,427 0% 100% $0 $7,427 $700 $0 58 $10,007 0% 100% $0 $10,007 $0 $0 59 $12,175 0170 100% $0 $12,175 $0 $0 60 $7,315 0% 100% $0 $7,315 $660 $0 Beacon Bay 5/18/94 - page 2 *Effective Net Rents consider tax advantage. Discount rate for present value of annual advantage is 6%. Rate for amortization of advantage was 7 %. Rent and advantage figures are from 1018193 appraisal. Beacon Bay 5/18/94 - Page 3 Distribution of Rena and Tax Advantage between Tidelands and Uplands* (1st year) Proportionate Proportionate Annual Amon. Tidelands Effective % % Rent Rent of PV of Tax Tax Lot No. Net Rent Tidelands Uplands Tidelands Uplands Advantage Advantage Interior Tots - continued 61 $8,482 090 100% $0 $8,482 $720 $0 ES 3 $10,325 100% 090 $10,325 $0 $320 $320 ES 4 $6,322 100% 0% $6,322 $0 $500 $500 ES 5 $11,415 85% 15% $9,703 $1,712 $0 $0 ES 6 $6,310 0% 100% $0 $6,310 $500 $0 ES 7 $6,057 0% 100% $0 $6,057 $650 $0 ES 8 $6,455 0% 100% $0 $6,455 $410 $0 Interior Lots Subtotal: $397,807 $109,592 $288,215 $19,930 $5,251 Add Waterfront $679,670 $475,928 $203,742 $40,450 $30,562 Grand Total: $1,077,477 $585,520 $491,957 $60,380 $35,814 % of Total: 100% 54% 46% 10090 59% *Effective Net Rents consider tax advantage. Discount rate for present value of annual advantage is 6%. Rate for amortization of advantage was 7 %. Rent and advantage figures are from 1018193 appraisal. Beacon Bay 5/18/94 - Page 3 of 00 month. No late payment charge applies to payments received by Lessor on or before 5W. P.M. on the fifteenth (15th) day of the month for which the paymerit is made ('Grace Period') . If a rent payment, or any portion thereof, is received by Lessor after 00'ation of the Grace Period, Lessee shall pay Lessor a late payment charge equal to four percent (4%) of each late payment or portion thereof. Rent payments shall be payable to the City of Newport Beach and sent, or delivered, to the Finance Director at the address specNW for service of notices. Rent shall be payable by Lessee to Lessor in such coin or currency to the United States as at the time of payment is legal tender for public and private debts. Lessor and Lessee agree that late charges specified in this paragraph represent a fair and reasonable estimate of the cost lessor will incur by reason of any late payment by Lessee. Any late or missed payment of rent constitutes a default pursuant to paragraph 13 of this Lease. Any failure by Lessor to declare a default and initlate termination of this Lease due to a We or missed payment shall not be considered a waiver of the right of Lessor to do so for that or any other late or gassed payment C TRANSFERS. A. Conditions Preoedent to Transfer. Lessee may transfer this Lease subject to the prior written consent of Lessor, which consent shall not be unreasonably withheld, delayed or conditioned. Lessor shall consent to any transfer when Lessee and the proposed transferee have complied with the following: (t) Lessee shall furnish Lessor with executed copies of each and every document used to effect the transfer. (2) Lessee or the proposed transferee shall pay to Lessor a transfer fee of one hundred dollars ($100.00); (3) Lessee shall execute a Termination of Leasehold Interest' for recordation; and (4) The proposed transferee shall execute a new lease and execute a "Memorandum of Lease' for recordation. which tease shall be identical to this Lease and have a term equal to the remaining term of this Lease at the time of the transfer. B. Transfer Inlonnation. The parties to any non- exempt transfer of this Lease shall pro-Me Lessor with all infom>ation relevant to a determination of the total consideration paid for the transfer. as well as an documents which are relevant to the total consideration paid for the transfer. Lessee M91- 1e13r1.V? 1 "120/94 situated parcels most recently transferred. Exempt transfers, as defined in Paragraph 3-B(3), shy not be used to calculate Average Actual Sales Value rent (3) 'CPI' shall mean the Consumer Price Index - Los Angeles Anaheim- Riverside Area. Ail Urban Consumers, All Items, published by the United States Department of Labor, 8urreau of Labor Statistics (1982.1984 =100). If the 1982 -1984 base of said Consumer Price Index should hereafter be changed, then the new base stall be converted to the 1982 -1984 base and the base as so converted shall be used. In the event that the Consumer Price Index a clad and ubfishe'shall cease to be published. then the successor " Index Shan be used vravided thatan aoororztiate cornrersion-[rom ltd irr ex to the (4) 'Current Lessee' shall mean the person or persons who, as of April 1, 1994 (the 'Cut -off 00tel, was or were the Lessee under the Preexisting Lease. (5) 'Deterred Rent shall mean the total rent that a Current Lessee would have paid had this Lease been executed on the Effective Date, through and including the date on which this Lease was first executed, less the rent actually paid pursuant to the Pre-existing L.easP— together with interest at the rate of eight percent (8%) per annum calculated on the balance due at the end of each Lease Year or portion thereof. (6) 'Effective Date" shall mean July 1, 1994. (7) 'Execution Date' shall mean the date when this Lease is executed by Lessee. (8) Initial Rent' shall mean the " ffg� net rent for the Leased Land as determined by the appraisal of George Hamilton Jones, with due consideration to the leasehold advantage created by the Pre - existing Lease, all as shown on Exhibit C attached hereto and Incorporated herein by reference. (9) 'Person' shall mean any natural person or natural person(s) and does not include any corporation, association, or business entity in any form except a financial institution or other bona fide tender acting in the capacity of a lender or an utter vivos or living trust. (10) 'Pre-exlstirig Lease shall mean the Lease for the Leased Land which was effective on January 1, 1988, and would, absent this Lease, expire on December 31, 2005. (11) 'Transferred` shall mean any sale, assignment, sublease or other transaction. other than an exempt transfer as defined in Paragraph 3.B(3), pursuant to whiter the right to possession of the premises and the right to sign a new lease identical to this Lease is transferred to another person. B. Rental Payments. Lessee shall pay annual rent in the sum of payable at the rate of ($ ) per month. Lessee shall also pay. it applicable, deterred rent in the sum of Upon execution of this lease. Rent shall - stall not (circle one) be adjusted every seven (7) years after the date of transfer in accordance with the provisions of Paragraph 3.8(4). Annual rent, deferred rent, and periodic adjustments are based upon the following: Ker- isrrrr.vz 3 oerzorvn 7K DIVE . ACTING IN THIS BUTAtF A STATE LANDS C61aI'..M HAi KRW CERTRIED, VAT THE NOEIED IS A WHOLE, TRUE AND CORRECT COPY ���QQQ��� lTff EWIOMAt AECORD COPY, CONSISTING OF PARTS, ON FILE IN THE OFFICE OF THE ATE RANDS COMMISSION; THAT SAID COPY HAS BEEN COMPARED BY THE UNDER- SIGNED WITH THE ORIGINAL AND IS A COR- RECT TRANSCRIPT THEREFROM. IN WmAS WHEREOF, THE UMTEISIWIED HAS ElEMIED TMS CFk11H0ATE AND AFFM THE SEAL OF THE STA LAND Cp1N64 'Syl J= 14"-' ON OF is It# MINUTE ITEM fits Calendar Item No. was os MMule Rem CALENDAR ITEM �• by the State Com by a vote orb ' C42 to atits_ri m A 70 05126/94 G 09 -02.6 S 35 Fossum Grimes A. Scott J. Smith REVIEW OF CITY OF NEWPORT BEACH PROPOSED LEASES INVOLVING GRANTED FILLED TIDE AND SUBMERGED LANDS - BEACON BAY PARTY: City of Newport Beach Attn: Kenneth q. Delino Deputy City Manager 3300 Newport Boulevard Newport Beach, California 92658 -8915 BACKGROUND The StateLands Commission, by its adoption of Minute Item #27 at its meeting of May 28, 1981, approved, among other things, a form of lease and schedule of rents to allow the City of Newport Beach to lease certain filled tide and submerged lands in Newport Beach for residential use. Of 72 lots to be leased by the City, 38 lots consisted partially or entirely of filled tide and submerged lands granted to the City by the California Legislature (see Exhibit A). The subject leases were specifically authorized by the California Legislature pursuant to Chapter 74, Statutes of 1978. SEC. 1. (g) of Chapter 74 authorizes leases for a maximum of 50 years. However, at the time of the Commission's 1981 approval, and because of a condition in the City Charter, the form of the leases submitted by the City provided for a term of 25 year. Subsequently, on November 3, 1967 and November 3, 1992, the City, pursuant to its charter, held elections at which the majority of voters authorized leasing the property for up to 50 years, thereby providing for the maximum term authorized by the Legislature. The City subsequently entered into negotiations with the homeowners (current tenants) to allow for termination of the existing 25 -year leases and entering into new 50 -year leases. The proposed new leases are modified as to form and process for rent calculation from the current leases. -1_ CALENDAR PAGE 192 11MINUTE PAGE E 0 CALENDAR ITEM NO. C42 (CONT'D) The City hired an appraiser, George Hamilton Jones, M.A.I., to conduct an appraisal of the Fair Market Rental Value and to calculate Net Rent for the lots. The Net Rent is the Fair Market Rent adjusted to reflect certain improvement costs and proration of the value of the current homeowners' leasehold advantage. A copy of the proposed lease form and the appraisal, dated October 3, 1993, are on file in the Office of the State Lands Commission in Sacramento, and are incorporated herein by reference. Staff has reviewed the appraisal and found it to.be comprehensive, complex and exhaustive. The rental rates for the existing leases, as well as Fee Lot Value, Fair Market Rental Value, Existing Contract Rent and First Year Effective Net Rent are shown on attached Exhibit B. The new leases initially proposed by the City adopted a rather complicated rent formula which" took the Fair Market Rental Value of a new 50 year lease as appraised by Jones and adjusted that amount for various "advantages" held by the current lease holders. .Those advantages include a reduction for value attributable to the lower current leasehold rental rates and what is termed a tax advantage based on taxes paid reflecting current lease contract values. The City approved those proposed lease forms and rental schedules last year. A summary of the major lease impacts is provided in the attached memo from the Deputy City Manager regarding City Council Agenda Item f8, dated June 28, 1993 (Exhibit C). An additional change from the existing lease form is the provision that rents could theoretically go down if the formula proposed to determine future rents, using certain future lease sales, reflects a lower rate. While this is considered unlikely, it should be noted that the existing leases provide (in paragraph 4. (d)) for the "greater" amount of either the base rental or the calculated rents following a lease sale. Staff believes that neither the statutory trust created by Chapter 74, nor Public Trust principles, allow the trustee local government to consider the property tax impact as a means of lowering the return to the trust. While neither the tax advantage nor the provision for eliminating the "greater" provision in the rental rate is likely to involve substantial sums and the City believes these sums will be more than compensated for by future lease sales and ICALENDAR PAGE 192.1 IMINUTE PAGE 0 0 CALENDAR ITEM N0. C42 (CONT'D) • recalculations of rent based thereon, the staff of the Commission urged the City to renegotiate the "tax advantage" and provision for possible lowering of rents based on averaging of future sales prices. The City and homeowners went back to the table and have resubmitted a new lease which eliminates the average of future sales for calculating 7 year rent reviews and instead adopts a Consumer Price Index escalator. The new lease will also ensure that the Tidelands Trust Account will not lose revenue based upon use of the tax advantage formula. The City has agreed that any reduced rental amount for tideland parcels impacted by the tax' advantage discount will be covered by a deposit or credit transfer to the Trust Account by the City (see Exhibit D). In the opinion of the staff, the actions taken by the City as trustee for the statewide public, with the above modifications, are based upon reasonable administrative and business judgments and the leases are comprehensive and equitable and adequately protect the public interest. Furthermore, staff believes, while the lease and its consideration do not necessarily reflect Commission practice as to provisions or means of rent calculation, based upon the above modifications and the additional provisions of the lease, the lease provides for . acceptable terms as to both form of lease and range of consideration and therefore submits it to the Commission with a recommendation for approval. OTHER PERTINENT INFORMATION: _ Pursuant,to the Commission's delegation of authority and the State CEQA`Guidelines (14 Cal. Code Regs. 15061), the staff has determined that this activity is exempt from the requirements of the CEQA as a categorically exempt project. The project is exempt under Class 1, 14 Cal. Code Regs. 15301. Authority: P.R.C. 21084 and 14 Cal. Code Regs. 15300. AS 884: N/A EXHIBITS: A. Location /Site Map. B. Summary of Values and Rents. C. City Memorandum. D. Recalculated Distribution of Rents and Tax Advantage between Tidelands and Uplands. E. City of Newport Beach Council Approval. CALENDAR PAGE 192.2 MINUTE PAGE 0 0 IT I8 RECOMMENDED THAT THE 1. FIND THAT THE ACTIVITY IS EXEMPT FROM THE REQUIREMENTS OF THE CEQA PURSUANT TO 14 CAL. CODE REGS. 15061 AS A CATEGORICALLY EXEMPT PROJECT, CLASS 11 MAINTENANCE OF EXISTING FACILITIES, (14 CAL. CODE BEGS. 15301). FIND THAT IN ACCORDANCE WITH CHAPTER 74, STATUTES OF 1978, THE CITY OF NEWPORT BEACH MAY ENTER INTO LEASES OF CERTAIN DESCRIBED FILLED AND RECLAIMED TIDE AND SUBMERGED LANDS FOR A PERIOD NOT TO EXCEED 50 YEARS. 3. APPROVE THE CITY OF NEWPORT BEACHES PROPOSED FORM OF LEASE AND THE RANGE OF CONSIDERATION AS REFLECTED IN THE RENTAL RATES AND PROVISIONS FOR RATE ADJUSTMENT AS PROVIDED IN THE REVISED LEASE AND SUBMITTALS, SUBJECT TO THE CITY'S AGREEMENT TO GUARANTEE THAT THE TIDELANDS TRUST FUND BE COMPENSATED AT FULL FAIR RENTAL VALUE, WITH NO TAX ADVANTAGE DISCOUNT FOR PROPERTY RENTAL CALCULATION IMPACTING TRUST PROPERTY, AS SHOWN ON EXHIBIT D. -4= Ask ICALENDAR PAGE 192.3 MINUTE PAGE \li N V1, m s + a 17 k . Ds�a �B. BBD'• r' f N °b }9 5 Ir 7r e�r� e L ,o0 ; D deer p 1 �`•�.�. o� -:� � `' sd . �� P ✓' Ord +, l` ��'`rlj^D�,, � y;A ol Via' GRANTED FILLED TIDELAND AREAS CU MAP OF BEACON BAY EXHIBIT A G -09 -02.6 EXHIBIT B - 1 OF 3 SUMMARY OF SALIENT FACTS AND CONCLUSIONS - continued SUMMARY OF VALUE INDICATIONS: Uarnaunhced Fair Market Lot No. Fee Lot Value Rental Value Water Front Lots A 8 C 1 2 3 4 s �6 7 8 9 10 11 12 13 `a* 15 16 17 18 19 20 21 22 ES 1 ES 2 7-'; $1,330.000 $1,200.000 $1,031,000 $947,000 $1,131,000 $1,263,000 $1,318,000 $1,341.000 $086,000 $1,210.000 $1,177,000 $1,298,000 51.342,000 51.122,000 $1,100,000 51,100000 $1,243,000 $1,265,000 $1.067,000 S1.067,000 $2,067,000 $1,243,000 51,147.000 51,058,000 SIM6,000 $1,037,000 $1,037,000 $31,563,000 $48,520 $43,320 S37,560 534,200 $41,640 $46,920 $49,120 $50,120 $51,680 $44,800 $43,480 $47,840 549,600 541,280 $40,400 $40,400 $43:640 $46,520 $39,080 $39,080 539,080 $45,640 542.320 $38,760 $37,880 $37,880 $37,880 $1,160.640 Existing Contract Rent $23,125.08 $12,506.85 $16,625.04 $8,020.80 $8,825.40 $14,875.08 $10,458.96 520,01204 525,000.00 $10,631.52 $43,750.00 $42,500.04 524,999.96 $9,020.52 $14,250.00 523,625.00 $10,31256 $10.836.47 $8.508.48 $16,250.04 $8,508.48 $10,070.02 $8.727.84 $13,625.04 $41,250.00 $28,749.96 $24,625.00 $489,640.18 (1st year) Effective Net Rent $31,940.00 $22,270.00 $22,480.00 $15,030.00 $17.950.00 $24,110.00 $21,260.00 $28,840.00 $34,260.00 $19,260.00 $43,480.00 544,350.00 $33,540.00 $17,020.00 $22,190.00 529,450.00 $19,690.00 $20,240.00 $16.480.00 $21,750.00 $16,480.00 $19,500.00 $17,910.00 S21,170.00 $37,880.00 $31,920.00 $29,220.00 $679.670.00 CALENDAR PAGE 192. MINUTE PAGE is 0 • EXHIBIT B - 2 OF 3 . . SUMMARY OF SALIENT FACTS AND CONCLUSIONS - continued Existing . (1st Year) Unencumbered Fair Market Contact Effective Lot No. Fee Lot Value Rental Value Rent Net Rent Interior Lott 23 $478,000 514,487 52,782.32 $6,297.00 24 5501,000 $15,237 S6,12S.04 $8,897.0D 2S $309,000 $15,537 $3,399.12 $6,977.00 26 $511,000 $15,612 $3,417.72 56,942.00 27 5519,000 S15,912 $3,436.44 $7,102.00 28 5542000 SIC775 $4,137.72 $7,785.00 29 $518,0DD 515,650 $15,375.00 515,470.00 30 55101000 $15,462 $3,551.16 57,102.00 31 $517,000 $15,725 $8,750.00 $10,515.00 32 $S7AoDD $15,837 $3,588.48 $7,217.00 33 $528,000 SIC137 $3,607.08 $7,307.00 34 5589,000 $18,200 54,454.64 SBA90.00 35 $5591000 $17,000 $3,77628 $7,780.0D 36 $548,000 WAR $3,795.00 $7,672.00 37 $517,000 $15,725 $14,625.00 $15,005.00 • 38 5520.000 515,837 - S3,780.36 $7,967.00 39 S528.OD0 $16,137 $9,125.04 $11,557.00 40 $588,000 5181162 $11,133.60 $13,572.00 41 5511000 $15,500 53,719.64 57,300.00 42 5548,000 $16,662 $3.795.00 17,672.00 -a $556,000 Sl_¢qt962 $11,250.00 $13,23200 44 5558,000 $17,037 $3,83210 $7.787.00 .45 $565.000 $17,300 $4,056.84 $7.990.00 46 Mow $18,162 $4,454.64 $8,492.00 47 5539.000 $16,475 $3,45936 $7.365.00 48 5551,000 $16,775 $6,24996 $9.305.00 49 S=000 $15,837 $3,551.16 57,197.00 50 $573.000 $15,950 $3,569.76 $7,240.00 51 5520.000 $15,837 $3,780.36 $7,857.00 52 $528,000 S16.137 $12,750.00 $13,927.00 53 MOOD $18,162 54,479.00 $8.492.00 54 smwo $15,987 $3.344.88 $7,227.00 55 $559,000 $17,075 $10,625.04 _ $32.865.00 56 $567.000 $17,375 $3,603.96 57,915.00 57 $546,000 $16,737 $3,551.16 57,427.00 58 552$000 $16.137 54750.00 $10.007.00 59 SSLSA00 $16,025 SlW25.0D $12,175.0D 60 $533.000 516325 $3,533.88 57,315.00 CALENDAR PAGE 192.6 MINUTE PAGE 0 0 I i 0 EXHIBIT B - 3 OF 30 SMAARY OF SALIENT FACTS AND CONCLUSIONS - continued Unw=unbemd Fairldatket Lot No. Fee Lot Value Rental Value Interior lots - continued S8,482.00 61 $588,000 $18,162 ES 3 $474,000 $14,225 ES 4 $467,000 $13,962 E4 5 $470,000 $14,075 ES 6 $468,000 $14,000 ES 7 $461,000 $13,737 ES 8 $471,000 $13,925 Subtotallnc: $23,786,000 $724,637 Subtotal W.F.: $31,563,000 $1,160,640 GrandTotalt: $55,349,000 $1,885,277 Existing (lstYear) Contract Effective Rent Net Rent $4,436.16 S8,482.00 $9,750.04 $10,325.00 $3,021.96 $6,322.00 $10,000.08 $11,415.00 52,982.96 $6,310.00 $7,966.04 $6,057.00 $3,118.08 $6,455.00 5254,617.16 $397,807.00 $489,640.18 $679,670.00 $744,257.34 $1,077.477.00 0 0 ' oW CALENDAR PAGE 992.7 MINME PAGE EXHIBIT E - 1 OF SUPPLEMENTAL AGENDA CITY OF NEWPORT BEACH OFFICE OF THE CITY MANAGER MAY 231 1994 TO: MAYOR AND CITY COUNCIL FROM: ASSISTANT CITY MANAGER SUBJECT: BEACON BAY ACTION: If desired, approve amendments to previously approved lease substituting CPI for Average Sales Value and requiring City to credit Tidelands Fund in an amount equal to tax advantage. BACKGROUND: The City Council previously approved the form of a new 50 year lease for Beacon Bay and sent it to the State Lands Commission for approval. Their staff raised several questions which required the negotiating teams for the City and the residents to re- negotiate some provisions and to travel to Sacramento for face -to -face negotiations. As a result, the staff of the State Lands Commission is prepared to recommend approval of the lease and place it on the consent calendar for May 26, 1994 if the proposed amendments are approved by the City Council. DISCUSSION: One proposed amendment is merely an accounting item to forestall a precedent which might prove detrimental to other negotiations pending before the State Lands Commission. It amounts to the City crediting $35,800 annually to our state supervised Tidelands Fund. Currently, tideland expenditures exceed revenues by approximately $1.2 million, so an additional $35,800 of revenue will have little impact. The credit is compensation for the "tax advantage" granted to current lessees. This amount reflects the additional property tax which some lessees will pay if they sign the new lease. The State Lands Commission believed this credit represented funds transferred to other governmental agencies such as schools which have no tidelands obligations. The proposed transfer into our Tidelands Fund satisfies this concern. Additionally, as properties are sold, this amount will steadily decrease and eventually be eliminated. • 0 The other amendment involves substituting a simple CPI calculation in place of "Average Actual Sales Value" to calculate periodic rental increases. Originally, an index was sought that tracked real estate values, and the method selected employed the average of the last three homes sold in Beacon Bay. CALENDAR PAGE 192.1 MINUTE PAGE • Page 2 EXHIBIT E - 2 OF 19 When this method was exposed to the marketplace, potential buyers and real estate brokers complained loudly that it was (a) difficult to understand, (b) capricious, (c) potentially discriminatory and (d) depressing interest and prices in Beacon Bay. The basic complaint was that rental adjustments were held hostage to whatever high or low priced homes most recently sold and that adjustments should fluctuate widely from year to year. To combat this problem, the negotiating teams requested, and the State Lands Commission staff approved replacing the method with a simple CPI increase. The use of CPI may actually increase the City's income. While CPI does not normally keep up with real estate values, it nevertheless rarely goes down. More Importantly, the large rental adjustments are based upon sale prices, and the simpler index will create a more marketable lease which will result in higher overall rents to the City. Attached are proposed wording regarding the tidelands credit and a table showing how the amount is calculated. The rental adjustment index will be changed by substituting standard CPI adjustment language for those portions of the original lease dealing with "Average Actual Sales Value ". . RECOMMENDATION: Over six and a half years have been spent in the negotiating of this lease. The lease provides for the many older, fixed income residents while allowing the City to achieve full Fair Market Rental Value in the shortest possible time. Approval of these amendments at this time will allow the new lease to take effect on July 1, 1994 and immediately increase City revenues by $350,000 annually. The new lease will promote turnover of homes in Beacon Bay to �= the benefit of t#6se eager to sell. Resales�n Beacon Bay can generate an additional one million dollars to the City. The proposed amendments are acceptable to the Residents Association, and approval by the City Council is recommended. A ino KJD:mb Attachments CALENDAR PAGE 192.14 MINUTE PAGE