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HomeMy WebLinkAbout19 - Future Use & Development of Marinapark1EW PORT CITY OF NEWPORT BEACH Hearing Date: May 9, 2000 O COMMUNITY AND ECONOMIC Agenda Item �= DEVELOPMENT No: 19 `'OCR PLANNING DEPARTMENT Staff Person: Sharon Z. Wood 3300 NEWPORT BOULEVARD (949) 644 -3222 NEWPORT BEACH, CA 92658 (714) 644 -3200; FAX (714) 644 -3250 REPORT TO THE MAYOR AND CITY COUNCIL SUBJECT: Economic Analysis of Proposals for Future Use /Development of Marinapark SUGGESTED ACTIONS: 1. Continue to consider proposals, and request additional information from: a. Terra Vista Management b. American Legion c. Ayres Group d. Sutherland Talla Hospitality 2. Provide direction to these proponents on the following issues: a. Retention of public and quasi - public uses on site b. Goals for marina c. Minimum ground lease d. Land use entitlements On March 14, 2000, the City Council reviewed a summary of the eight proposals in response to the Request for Proposals (RFP) for Marinapark, and gave staff direction on review of the proposals. This report provides the economic analysis of the proposals, as well as their estimated traffic impacts and the land use entitlements that would be required. The relocation impact report has been started, and is expected to be complete by Economic Analysis Staff retained the firm of GRC Associates, Inc. to perform the economic analysis. This firm has extensive experience in reviewing development proposals for redevelopment agencies, and is very familiar with the development potential of property, development costs, proformas, and financing. The report from GRC is attached and Stephen Copenhaver, who prepared it, will be at the meeting to answer questions from the Council. Staff is providing this report to all the parties who responded to the RFP. GRC contacted or attempted to contact those proponents from whom additional proposal information was needed for analysis. Even with this effort, GRC found that three of the proposals do not satisfy all the RFP requirements, and was unable to analyze them further. The PB &R Commission's proposal is in this category because it does not have economic impacts for the City. However, staff recommends that the City still consider this proposal, as the Commission's intent is to retain the City's recreational facilities along with other use of the remainder of the site. GRC placed the remaining proposals into two categories for further analysis: those that accommodate existing uses, and those that propose to redevelop the site. The analysis concludes that a combination of the two proposals to accommodate existing uses, Terra Vista Management (mobile home park) and the American Legion, could significantly increase City revenue with very low risk to the City. The redevelopment proposals could generate higher revenue, but with greater risk. GRC believes the Ayres Group and Sutherland Talla Hospitality proposals have a reasonable level of risk associated with their revenue potential, and should be considered further by the City, along with the existing use proposals. For the City's further consideration of this shortlist of proposals, GRC is recommending that the City request more detailed proposals, to include more evidence of market support for the proposed uses, specific lease terms, more accurate site plans, more detailed budgets, financing plans, equity investment and lease guarantees. GRC also is suggesting that the City provide additional direction to the proponents for the next phase of consideration. The areas in which additional City guidance would assist in the preparation of more detailed proposals are the need to retain the public and quasi - public uses on site, the City's goals for a visitors' manna and marina facilities, establishment of a minimum ground lease payment, and resolution of the land use questions associated with the tidelands boundary. Traffic Impacts Public Works staff has done a preliminary analysis of the traffic impacts that would result from each of the proposals, which is included as Attachment 2 to this report. The net number of average daily trips ranges from a reduction of 286 with the PB &R Commission proposal and no new uses, to an increase of 7,031 with the Bendetti proposal. For all of the proposals, the majority of trips would occur outside of the a.m. and p.m. peak hours. Citv Land Use Entitlements Planning staff reviewed the proposals to determine their requirements for City land use entitlement, and a summary of those is shown on Attachment 3. Only building permits would be required for the American Legion and PB &R Commission proposals. All other proposals would require amendments to the General Plan and Local Coastal Program, as well as approval of a Planned Community development plan. The proposals involving redevelopment of the site rather than continuation of existing uses also would be subject to the Traffic Phasing Ordinance. SHARON Z. WOOD Assistant City Manager Attachments: 1. Report from GRC Associates, Inc. 2. Traffic Projections 3. Entitlement Process 4. Proposals Summary Page 2 A1TAC- NMEVT l Memorandum To: Sharon Wood, Assistant City Manager ECONOMIC DEVELOPMENT from: Stephen Copenhaver, GRC Associates REDEVELOPMENT Date: April 27, 2000 REAL ESTATE CONSULTING (SubieCl_ Marinapark Proposals AFFORDABLE HOUSING Pursuant to your direction, GRC has reviewed the Request For Proposals prepared by your office and the responses received from the entities expressing interest in the property. Our review also included inspecting the subject property and the surrounding property in the field, securing comparables for the various land uses addressed in the proposals and reviewing past analysis of the property prepared for the City. We reviewed the summaries of the proposals prepared by the City staff. We also attempted to speak to the companies submitting proposals when further explanation or detail to reasonably interpret the results was required. Businesses in the immediate vicinity of the subject property were also contacted. Our review did not consider property factors pertaining to the Local Coastal Plan or the exact boundaries of the developable land. The Tidelands issue is currently being reviewed by an engineering firm for the City and it is beyond the scope of our review. Our basic assumption is that with sufficient effort, the appropriate plans could be amended and approvals secured for the chosen development.and if approvals were not forthcoming that development plans could be amended while keeping the basic concept intact. Review of the subject proposals presents an interesting challenge because the level of detail addressed in the proposals varies dramatically and suggested land uses ranged from institutional to residential uses. This outcome should be expected because the RFP was structured to be a flexible document not designed to limit the creativity of the project proponents but encourage the "highest and 1340 VALLEY VISTA DRIVE best use" analysis from each perspective. As a consequence, proposals SUITE 120 Were submitted by developers, property management entities, leasehold interests, a municipal department, and institutional uses. DAMOND BAR, CA 91765 This range of interests in the property provide the City a broad range of alternatives to consider. None of the proposals provided a sufficient T: (909) 396.7714 F: (909) 396-7913 E: gicassoc @earfhlink.nef Sharon Wood April 27, 2000 Page 2 level of detail, nor the required tenant and financial commitments to be selected on the basis of the materials presented. Consequently, we envision that this review will assist in narrowing the options, and helping to define the shortcomings of each proposal. Our approach to the review consisted of first separating those proposals which were not responsive to the requirements of the RFP. Three of the proposals fell into this category. Following this determination, the remaining proposals were divided into those proposals that revolved around restructuring existing or expired leases with some redevelopment and the third category were proposals that set forth development schemes that would introduce new uses to the majority of the site. Responses Deemed Unresponsive to RFP Requirements The following submittals were judged as not having sufficient detail to be considered responsive to the intent of the RFP requirements. 1. Ficker & Stevens. This proposal is very conceptual and outlines a public/private partnership between the City and the private entities. However, the proposal does not attempt to define square footages, revenues, and financing methods. The proponents suggest that the appropriate use for the property would be a combination of public and marine uses including a visitors marina; public shipyard, marine oriented retail, restaurants and service facilities to support the visitors marina. The proponents point out that they are very qualified in the management of complex projects and that they would serve as the general partners and assume responsibility for securing the necessary partners and financing for the project. The venture addresses the need for a 50 -year lease and that net profits would be allocated with the City receiving one -half of all revenues generated by the development. The proponents bring with them very impressive design, development and marine experience, but the proposal does not reflect the effort and detail of the other proposals and, in our judgment, it does not begin to meet the minimum requirements of the RFP.' H 1PROJ ECTS W E W PORTIFINALDOC Sharon Wood April 27, 2000 Page 3 2. RHC Communities. This proposal is based on a concept of a boutique hotel, retention of the mobile home park, construction of new building spaces for the American Legion, Girl Scouts and the Balboa Community Center, a parking structure, park uses for children and adults, community boating facilities and even low income housing if desired by the City. The proposal sets forth the obligations of RHC and the City but does not address the development and financing of several of the project elements including the hotel, the marina improvements, institutional buildings and certain public facilities. The project proponents have attempted to develop a "plan" more than a development concept. The plan addresses a very wide range of the potential interests in the subject property, but it does not provide any indication of how the plan would be implemented and paid for. The only financial provision within the proposal is for a 55 -year ground lease with a base rent of $1.1 million per year. Additionally, there is a reference to a potential for .transient occupancy tax of $280,000 and restaurant sales tax equal to $80,000 per year. The base rent has a relationship to the revenue produced by the mobile home park lease, but lease rates per space are not addressed in the proposal. The economics of the hotel and other project elements or the responsibility for developing these elements are not addressed. RHC is a very experienced manager of mobilehome parks and is becoming increasingly active in the apartment community. In total, they own several thousand units. The background documents do not indicate any non - residential development experience. Overall, this proposal was deemed unresponsive to the minimum requirements of the RFP because the proposal was very conceptual and did not include specific budgets or adequate detail on projected costs and revenues. 3. Newport Parks, Beaches and Recreation Commission. This proposal from a municipal entity saves the institutional uses and expands the park and public uses on the site. The proposal states that approximately 2.5 acres of the site would be used for the park uses, but the conceptual site plan and the text don't appear to be totally consistent. The site plan indicates that the proposed public uses and MTROJECTSW EW PORTNFINALDOC Sharon Wood April 27, 2000 Page 4 the modified American Legion property occupy all of the site between 15th Street and 17th Street which is approximately two- thirds of the available property. A detailed budget is included in the proposal and financing for the park improvements, estimated at $2.0 million, is based on anticipated revenues from Proposition 12 recently approved by California voters. Operating costs are not addressed. This proposal, although containing elements that the City may wish to pursue, is not consistent with the goal set forth in the RFP to identify a secure future revenue stream from the property even though it addressed only a portion of the site. Proposals Accommodating the Existing Uses Two proposals were submitted that essentially restructure prior leases at current market rates. These two proposals provide some additional enhancements to the existing development with options for minor expansion. Neither proposal reflects significant new investment in comparison to the proposals calling for redevelopment of the site. Also, these two proposals could be based on shorter term lease commitments from the City. and they reflect substantially less risk than the proposals that call for the redevelopment of the site that would require significant financing, pre - leasing, entitlements and outside management companies. The following summarizes the two proposals. Although not planned for by the proponents of the two proposals they could work together to address the entirety of the property. 1. Terra Vista Management. This proposal is based on two alternative plans. The first is simply the maintenance of the existing uses with certain other specified uses. These include the expansion of the public restroom facilities, improvements to the boat launch, landscaping, the adoption of new standards for upgrading the mobile homes and approximately 40 new metered parking stalls on the American Legion site and 18th Street and Balboa Boulevard, improved public access to the bay and minor improvements to the Boardwalk. The second alternative provides for the reconstruction of the tennis courts, elimination of the City Community Services and the Girl Scout buildings and the addition of 12 new home sites. HAPROMCTS NEWPORTFINALDOC Sharon Wood April 27, 2000 Page 5 Terra Vista met the requirements of the RFP through the provision of detailed operating budgets and development plans. The company also characterized their proposal as a joint proposal with the mobile home park homeowners association and the proposal included a letter of support from the president of the organization. The proposal effectively doubles the rent to the homeowners and provides for annual increases equal to the full percentage change in the CPI. The specific proposal for the first alternative plan is to ground lease the mobile home site for an amount equal to the greater of 75% of the gross lease revenue or $1,000,000 per year plus 5% of sales price of all mobile homes sold in the park. The proposal sets forth a rental schedule of $2,300 for waterfront as opposed to the current rate of approximately $1,150. Water view lots are $1,800 and tennis view lots would be $1,600 per month. Both the minimum rent and the percentage rents would increase with the CPI. No term is set forth in the proposal. The projected monthly rental rates were based on the rents charged by Terra Vista at the Bayside Village mobile home park which are $100 less per month than those proposed. The Maririapark facility has a superior location. Private investment required to achieve the first alternative is $25,000 and the second alternative, which includes rebuilding the tennis courts, would require an investment of $400,000 to accomplish. The development provides that the proponents would receive a credit against lease payments for this additional investment. This proposal provides for minimum private investment but also minimum return to Terra Vista. The proforma indicates that the park operating costs plus the ground lease rate to the City equal the gross rents of the park except for 5% off -site management fees and Terra Vista's participation in resale values which is approximately 7% to 8% of the sales price. This level of operating costs is consistent with our experience in reviewing the operation of mobile home parks. The second alternative increases the cost of the project but also increases the base ground rent approximately $80,000 per year due to the increased number of home sites. The credit for the $400,000 in leasehold improvements for this second alternative would consume the increased ground lease revenue for 7 years at a 9% interest rate. HAPROIECTSW E W PORTTIN ALDOC Sharon Wood April 27, 2000 Page 6 Terra Vista agrees that a significant number of the mobile homes require upgrades. Their proposal indicates that they are willing to adopt standards for upgrading the homes upon re -sale or upon entering into a new lease with the homeowners once they take over the park and the existing two -year extension expires. The company appears to be very qualified to manage mobile home communities and they currently manage oven 1,500 units in California and Nevada. 2. American Legion Post 291. This proposal is very straightforward. The American Legion desires a long term lease or the relocation to a comparable facility in close proximity. They are willing to invest up to $500,000 in the existing building improvements to bring them up to current codes and they are willing to make lease payments based on the appraised value of the site which apparently would take into consideration some of the public benefits offered by the Legion. The proposal gives no indication of value and only points out that Post 291 continues to grow 5% to 10% per year and that because of their large membership basis that they are financially capable of fulfilling a new lease with the City. We would anticipate that an appraisal of fair market value that disregards the "public benefits" would be equal to the -value of the marina at market lease rates plus the value of the 1.35 -acre site. Based on the projected revenue for these facilities in a prior City sponsored study, the value would be approximately $1.5 million; however, the real estate market has improved in the last two years and an appraisal could easily exceed this amount. The preceding two proposals represent significantly less risk to the City than redeveloping the site. Revenues are effectively assured, the terms could be less than one -half the term required to finance new development and the uses do not require any additional financing. Proposals to Redevelop Marinapark The following proposals are unique in that they take a much more aggressive look at the site and essentially look to redevelop all or major portions of the Marinapark with a range of new and existing uses. KU'ROJECTSNEW PORTNFINALDOC Sharon Wood April 27, 2000 Page 7 Three proposals fall within this category and they address developments with hotel, restaurant, retail and residential uses. The proposals all were deemed to meet the minimum requirements of the RFP. Although meeting these minimum requirements, they vary significantly in detail and quality, particularly with respect to the substantiation of values utilized, property comparables and project economics. The three proposals range from a low- density hotel and marina proposal to a proposal for a small hotel and residential development to a proposal that has retail, residential, hospitality, office and marina uses. Each of these proposals vary from the preceding proposals in that they address secondary income from transient occupancy tax and sales tax as an additional attraction of their proposals. The following summaries address the specifics of each of the three proposals. 1. Ayres Hotel Group. This proposal incorporates a 83 -room boutique hotel on the bay front plus 49 residential lots to be located on the bay front or Balboa Boulevard. The hotel would include a restaurant and lobby area fronting on Balboa Boulevard for visibility and exposure. The proposal does not attempt to capture any land from the American Legion, expand the marina facilities nor eliminate the municipal park or tot lot, but it does eliminate the tennis courts, the Community Services and Girl Scout buildings in favor of residential lots. The proposal provides alternatives for the purchase of the residential lots at $15.75 million or annual lease payment equal to $1,102,360. Ground lease payments for the hotel are noted as negotiable. However, the hotel proforma included in the proposal indicates an escalating ground lease payment of approximately $230,000 annually during the first five years of the project. Average daily room rates are estimated at $170 per night the first full operating year. Lease rates during the 10 -month construction period are not addressed and the term of the required ground lease is not addressed. A very detailed operating budget is provided for the hotel, but development proformas for the residential development and the hotel were not provided. The proposal makes reference to a hotel development budget of $20 million. This is substantially in excess of the amount that would be required to develop the proposed project. H VROIECTSXNEW PORTTINALDOC Sharon Wood April 27, 2000 Page 8 Combining the different revenue generating elements of the proposal indicates that municipal ground lease revenue, room tax revenue, restaurant sales tax revenue (GRC estimate) is approximately $1.75 million per year. The proposal is not sufficiently detailed to precisely define the specific terms of the proposal and additional information needs to be provided by the developer. This is especially true with respect to the proposed restaurant use. If the residential lots were sold, the proposed project generates additional one time value and less ground lease value; however, if the sale proceeds were invested at the approximate City reinvestment rate of 7 %, the lease rate and the for -sale value are equivalent. We believe the valuation of the residential lots is appropriate based on our review of housing values in the area. With respect to development experience, the Ayres Group lists five hotels developed in the last three years in southern California and a total of 14 projects that they have completed. Several of the projects are located in Orange County. They also have two hotels currently under construction. They manage their own projects. Although the proposal does not address the firm's residential experience, the Ayres family and business entities have developed large residential developments throughout southern California. 2. The Bendetti Company. This proposal is by far the most complex of the proposals and it addresses the full range of land uses including: a) maintaining 52 of the 58 mobile homes on the site; b) developing 17 new single - family residences (2,400 sq. ft.) and 24 new townhouses (1,500 sq. ft.); c) 34 boat slips for a visitor marina; d) on- shore facilities for showers, restrooms and laundry; e) a .44 -room luxury inn; f) .12,000 square feet of conventional, marine and seaside oriented retail; g)_9,000 square feet of office space; h) a 5,400- square foot restaurant; i) 2,400- square foot coffee shop; j) a new 8,600- square foot American Legion facility; k) 200 parking spaces; and 1) an enhanced bay front boardwalk, street furniture, theme lighting, large theme based architectural features at the boarders of the project along the waterfront. To accomplish the proposed development, the developer believes that it will require a 65 -year lease and a 40 -month timeline. The proposed ground lease payment to the City is $2.0 million per year with H VROJECTSW EW PORT TINALDOC Sharon Wood April 27, 2000 Page 9 payments commencing upon the completion of construction. The City is to receive all revenue from the mobile home park and marina during the construction period. Following completion of the development, the proposal offers in addition to the $2.0 million ground lease payment, 60% of the net cash flow generated by the proposed development. This is estimated by the developer to be just shy of $1.0 million to the City per year. A third source of revenue to the City consisting of one -half the one -time profit generated by selling the homes and the townhomes estimated at nearly $3.0 million will also go to the City. The proposal contains a number of drawings illustrating homes, commercial buildings and architectural features with a strong Cape Cod and cottage design theme. The proforma indicated that the cost of the project would be approximately $41.0 million including the residential components and $24.0 million without the residential uses. After the ground lease payments, the proforma submitted by the developer provides for nearly a 16% return on costs and net cash flow the first stabilized year of $1.62 million. Lease rates for the mobile home park are very similar to the rates found at the Bayside Village mobile home park. Residential prices are approximately $302 per square foot for the single family on leased land and $283 per square foot for the townhouse and stacked units. Ground lease payments for these units are 3% of the sales price per year or approximately $1,813 for the single family and $1,063 for the attached housing. Boat slip revenues are based on $15 to $18 rates per lineal foot for the private marina and approximately $2.00 per foot per day for slips for visiting yachtsmen. Restaurant space is estimated at a lease rate of $1.95 triple net. Bay front office space at $1.95 per square foot triple net ($2.25 gross). Retail is estimated at $1.75 triple net. American Legion rental rates are set at $0.00 and no contribution towards construction costs of the 8,500- square foot facility is required under the proposal. The qualifications statement for Bendetti indicates that they have been in business for 51 years and have developed over 3.5 million square feet of commercial space. The developer's recent experience includes a 1.02 million square foot industrial park in Cerritos built in 1971; a 305 -unit mobile home park built in Cypress in 1968; Fernwood mobile home park in Stanton built in 1975; Americana mobile home park in Downey; a 248,000- square foot business center in Ontario built HAPROJECTSW E W PORT%MNAL DOC Sharon Wood April 27, 2000 Page 10 in 1989; and a 262,000- square foot business center in Paramount built in 1970. Two current projects including a golf course with 641 units in Cathedral City is in the planning stage for the company and a 221,000 square foot distribution center in Ontario is under construction. This proposal is very difficult to review because the site plan needs to be developed.further, particularly with respect to the American Legion proposal and the parking solution for both the commercial/hotel/office and residential sections of the project. It is our opinion that the retail development proposed without Balboa Boulevard frontage may not be feasible. Retail areas on the Peninsula have not been that strong and with limited visibility and premium rental rates it would be even more difficult to have a viable development. The developer informed us that they are willing to undertake a market study to determine the demand for retail space. An operator for the hospitality element of the project is another step that the developer would identify in the future if selected by the City. With respect to the potential revenues, the developer is definitely on the aggressive side. For instance, the room rates exceed the prior proposal by $43 per room night but the capital cost of the hotel is substantially less. Restaurant space is at relatively low cost and the residential components at a direct cost of between $165 and $200 are at a very high cost even for smaller units. The ground lease rate for the single - family homes is equivalent to adding $243,000 to the acquisition cost which would bring the cost of the single - family homes up to slightly less than $975,000 for a 2,000 to 2,400 square foot home on Balboa Avenue but probably with a second story view to the Bay. The attached housing is also priced on the aggressive side at the equivalent of approximately $569,000 and the interior units are stacked units. The highest value residences in the immediate vicinity of the site are directly to the east on Bay Avenue. Realtors in the area informed us that Waterfront values are from $1.2 million and up and the second tier homes are from $800,000 and up. These are for larger homes some with second units. In comparison, the Bendetti proposal is suggesting a higher sales price per square foot in an environment not as attractive as Bay Avenue. 3. Sutherland Talla Hospitality. This proposal takes a very different approach than the mixed -use proposals. The proposal HAPROJECTSWEWPORTTINALDOC Sharon Wood April 27, 2000 Page 11 suggesting a higher sales price per square foot in an environment not as attractive as Bay Avenue. 3. Sutherland Talla Hospitality. This proposal takes a very different approach than the mixed -use proposals. The proposal describes a five star hotel use complemented by marina facilities for visiting yachtsmen and two restored vintage yachts to be added to the guess room count. The proposed resort requires the entirety of the site and is a very low- density project configured in 18 Italian style villas. Two restaurant spaces are provided, hospitality rooms for visiting yachtsmen and a modest amount of hotel serving commercial is included. The project also includes a meeting and banquet area of 7,600 square feet and a spa. The proposal relocates the playground and park to the 18th Street side of the property and reconfigures the tennis courts into a Racquet Club for the use of the hotel guests and Newport Beach residents. The proposal does contain one alternative to construct a new American Legion hall on the 18til Street frontage at no cost to the Post and at a ground sub -lease rate of $1.00 per year. The proposal reserves the right to dedicate up to 20 of the 156 guestrooms for fractional ownership as long as the City receives compensation for the loss of room tax. The proposal identifies the hotel operator as Regent International Hotels, an operator of high line resort hotels. Regent International included a letter in the proposal indicating their interest in the project. The term of the proposed lease is 60 years and the developer is offering the City ground lease payments of $800,000 for the first two years, $1.2 million for the third lease year and $1.4 million for years 4 through 10. The lease is to be adjusted every 10 years thereafter based on the CPI increase but it is capped at 2% per year. The proposal also defines the potential transient occupancy tax and the sales tax that the City may receive from the development of the project. Over the first 10 years of the project, the developer estimates that the City's 9% share will vary between $1,222,000 and $2,151,300 per year and that sales tax will vary between $46,000 and $71,600 per year. The developer's commitment to implement the project is conditioned upon the completion of an acceptable market feasibility study. The proposal also indicates that the developer will be seeking undefined concessions towards the cost of building permits and fees. CAW INDOWSITEMPTINAL.DOC Sharon Wood April 27, 2000 Page 12 relocation of the park facilities, or the tennis courts. These costs may be addressed in the overall site costs but the costs do not appear to be a complete summary of potential hard and soft development and financing costs. With respect to average daily room rates, the project is structured at between $325 per room night for the junior suites and double queens and $425 per night for the suites. The visitor's marina projects 10 yachts in transit for 50% of the year at an average of $225 revenue per yacht. The projected average room rates for the hotel exceeds the rates of any local hotels by a very wide margin. The developer included correspondence from the Four Seasons, Ritz - Carlton and the Beverly Wilshire to illustrate that the proposed room rates are in -line with the best hotels in southern California. A subsequent letter submitted by the developer points out that the proposed room rates are actually low because they were based on off - season rates and that the Four Seasons is a four star rather than a five star hotel which is reflected in the lower room rates. The proposal contained yearly gross revenue projections but did not include a traditional hotel operating statement for the project. The project proponents consist of Stephen Sutherland, the owner of an architectural, engineering and construction management firm that has been involved in a wide range of resorts in Mexico, San Francisco and Texas. Michael Talla is the financial partner in Sutherland Talla Hospitality. Mr. Talla is the majority stockholder in the Sports Club Company, Inc. noted in the proposal as a $160.million company that is involved in the development of athletic clubs throughout the nation. A letter of interest from Burham Capital Markets was also included in the proposal as a potential loan broker. This firm represents a, wide range of insurance companies and underwriters and they secured funding for two Orange County hotels in the past year. Analysis Implementation and Market Risks The proposals represent a wide range of landlord risks to the City. Principally, these include the strength of the market demand for the proposed projects, the risk of implementing the proposals and securing entitlements. H1PROJECTSWE WPORTNRNALDOC Sharon Wood April 27, 2000 Page 13 We suggest that any analysis of the subject proposals would eliminate the three proposals that were not responsive to the requirements set forth in the RFP. Of the remaining two categories of proposals, the City is facing an interesting risk- reward equation. The combination of the existing mobile home park and a rent - paying American Legion could generate significantly more income than currently received by the City and the term of the lease could be limited to a relatively short period of 10 to 20 years depending on negotiations. Lease revenue would be easily administered and any default could be readily cured through cancellation of the lease. The market risk of implementing this revised lease structure with the existing uses is very low because there is a direct comparable to indicate the market lease rates for a mobile home park on the Peninsula. The development proposals on the other hand vary in risk from the Ayres proposal which incorporates conservative product to the other two proposals by Bendetti and Sutherland Talla which contain very unique products. The Ayres proposal values waterfront lots at approximately $625,000 and Balboa Boulevard lots at $200,000 and includes a hotel to be developed by a group with significant local hotel experience in both building and operating developments. This proposal carries with it a significant entitlement risk because of the waterfront homes and the tidelands issue but a modest market demand risk. The value of the residential lots was based on data that . the firm secured from local realtors active in the local market and it appears to be consistent with residential values in the area. The proposal from the Bendetti Company carries with it a design risk because the site plan is not sufficiently developed and a development risk that the proponents can achieve the project. The submitted qualifications did not indicate that they have any experience in the implementation of mixed -use projects. This project also has market risk, due to the commercial development included in the proposal. The one significant area where the Bendetti Company proposal minimized risk is that the majority of the mobile home park remains so that it is unlikely the tenants would attempt to mount a legal effort similar to what has occurred in other locations. The strength of this proposal is the treatment of the marina facilities and the weakness is the commercial component which consists of substantial square footage in MTROJEMWEW PORIIRNALDOC Sharon Wood April 27, 2000 Page 14 a secondary location with poor visibility. The parking solution needs additional design work. The Sutherland Talla Hospitality proposal, although well prepared and perhaps as comprehensive as any of the proposals, is based on a five star hotel concept. This proposal also needs additional work in order to address project costs, parking and the market for such a project at Marinapark. The drawings in the proposal for a low- density very high - quality project are extremely attractive. We reviewed room rates at the Surf and Sand in Laguna, the smaller hotels on the Peninsula and received some guidance from PKF on appropriate comparable hotels and we are not comfortable with the proposed room rates. Even at lower room rates this project is very attractive. However, we feel that the project needs to evolve and the issue of the American Legion needs to be resolved. Furthermore, budgets need to be prepared with greater precision. The development team appears to be very strong from the design and financial capability perspectives but they are not an established development company and this would be the first project with the proposed partners. In terms of market demand and the difficulty of implementation, disregarding tidelands issues, we feel that Ayres' proposal would represent the lowest risk and the Bendetti project would represent the highest risk. Municipal Revenue The projected municipal lease and tax revenue projected by the developers varies significantly with the specific proposals. Assuming that each project proponent would be successful in implementing the proposed developments, the City would approximately receive the following revenues illustrated in Table 1. These projections are based on the developer's estimates as provided in their proposal. In general, we do not believe that the proposals have evolved to the point that meaningful revenue projections can be made except in a couple of instances. The proposals do clearly indicate that a hospitality use will generate the maximum amount of tax revenue per acre. The proposals vary in occupancy rates and room rental rates but assuming a conservative 72% occupancy and $175 average room rate each hotel room HAPROIECTMNEWPORWINALDOC Sharon Wood April 27, 2000 Page 15 potentially would generate approximately $4,140 in transient occupancy tax per year. Additionally the property tax valuation of a hotel room per square foot of building area is substantially higher than other commercial and office uses. With respect to ground lease revenue, residential uses appear to generate the highest value per square foot of available land. The new residential units in the proposals average ground lease payments of slightly less than $19,500 per unit and the mobile home park generates approximately $16,500 per unit per year after operating costs. We are not convinced that retail other than strong destination retail uses (i.e. the kayak store on Balboa Boulevard) can be successful at the subject location. The hotel and marina uses support only a modest amount of retail square footage and the limited off -peak population base presents difficulties in supporting existing retail areas on the Peninsula. The Marina income is not being maximized by many of the proponents and this can be a source of additional municipal revenue if operated as part of an overall development or if operated by the City. The addition of the visitors marina as suggested by two of the developers appears to be a good revenue source that could look forward to generating significant public and private revenue with the proper management. Recommendations Secure More Detailed Proposals From Developer Shortlist The proposals at this stage are in very rough form. This is understandable from the perspective of companies not wishing to invest too much time and effort into a process open to any interested party. It would be our recommendation to narrow the list of developers and to secure more detailed proposals. The one proposal that is essentially in final form other than the specifics of the lease terms and the .issue of two -story mobile homes is the Terra Vista proposal to maintain the existing uses at current market rates. The other proposals need to be developed further with more evidence of market support for the proposed uses, specific lease terms, far more accurate site plans and more detailed budgets. It is our recommendation to invite the Sutherland Talla Group and the Ayres Group to continue in HIPROJEMINEW PORTPINALDOC Sharon Wood April 27, 2000 Page 16 the process and develop more detailed submittals and to have the Terra Vista Group clarify some of the offered lease terms. A reasonable time frame for developers to submit adequately detailed proposals would be not less than 90 to 120 days. Requirements for a subsequent proposal round would include dimensioned site plans, detailed financing plans, hotel operator commitments and additional feasibility analysis in support of proposed development. Additionally, it would be expected that offered lease terms and. conditions would be more comprehensive than the City received in the first round. Clarify Need for Public and Quasi Public Uses We believe that the City would get the best results from clarifying certain policy issues on the need to maintain the public and institutional uses currently on the site. This would permit consistent proposals that can be more readily compared. We also believe that the American Legion should be paying a reasonable rent which they state they can afford based on their extensive membership. Several of the proposals were based on the assumption that the American Legion needs to be located in the existing building or even a new building at effectively no rent. Define Potential Marina Options and Goals The quality of the proposals would also increase if the marina options were more well defined in terms of municipal goals for a visitors' marina and the scope of the marina facilities that could be added adjacent to the site. Clarify Financing Plans, Subordination Issues and Lease Guarantees Topics that received very little attention from the developers were the method of financing the developments, the level of equity investment required, the ability to achieve the desired development on the basis of an un- subordinated ground lease and the offered lease guarantees. These are all very important topics that should be addressed before any developer selection occurs. The City may also wish to consider a minimum annual ground lease payment on the order of $1.2 million to $1.3 million for the site which would serve as the base rent. H VROJECTSWEW PORTEINALDOC Sharon Wood April 27, 2000 Page 17 Entitlement Issues Some of the more difficult entitlement issues need to be clarified with respect to the tidelands boundaries and the status of the various plans that impact use of the site. This work is currently in progress by the City. Any level of clarification would help in the process of defining the best alternative for the property. These issues could alter the proposals significantly and consequently the revenue available to lease the site. 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(949) 7" -1662 Pax(949)660-1252 R E CE i V - 0 Facsimile Transmission '00 MAY -9 P 1 :26 �Fc rir CFiiY C1_Fi l' DATE: May 10, 2000 FAX NUMBER 675 =5.87I TO: Mayor John Noyes COMPANY: City of Newport Beach FROM: Stephen Sutherland MESSAGE: Re: Regent Newport Beach Proposal 6 pages Dear John, I am sending to you a copy of a correspondence sent to Sharon Wood on March 17, 2000. In my Regent Resort Proposal, I have used an initial Average Daily Rate (ADR) for guestroom sales of $325.00 for Jr. Suites and Double Queen Rooms and a rate of $425.00 for Full Suites (6 only). Please note that these are average rates. If you would look at the three Guestroom Quotes enclosed in this fax you will notice that of all the rooms listed, only one is lower than $325.00. This is for $295.00 for a non -water view room at the Ritz Carlton on a Wednesday night in March. Thank you for reviewing this information. Sincerely, Stephen Sutherland March 17, 2000 Sharon Wood Assistant City Manager CITY OF NEWPORT BEACH 3300 Newport Blvd, Newport Beach, CA 92663 Re: "REGENT" NEWPORT BEACH RESORT SUPPORT DATA FOR 10 YEAR OPERATING PROFORMA Dear Sharon, In support of the operating proforma outlined in Sutherland Talla Hospitalities proposal to the City of Newport Beach, dated February 4, 2000, you will find on page 50 two PKF Consulting studies that support the levels of occupancy used to determine TOT revenue for the City of Newport Beach. I am sending to you this day documentation to support the Average Daily Rate utilized in my calculations. This comes in the form of Room Quotes from the Four Seasons Hotel Newport Beach, the Ritz Carlton Laguna Niguel and the Regent Beverly Wilshire. Please keep in mind the fact that Regent Hotels and Resorts are all rated at the "Five Star" level. While the Ritz Carlton is also a "Five Star" hotel the Four Seasons Newport Beach has a lower rating of "Four Stars ". The rating of a hotel has a large degree of importance when setting guestroom prices and in attracting guests that can afford those prices. Further please note the date for the Four Seasons is March 15, 2000. This is a Wedensday eveing in the winter season. The nignt before, March 10, the hotel was 100 percent occupied. The rate for an Excutive Suite (Jr. Suite) is $465.00. A Delux King is $400.00. The quote from the Ritz Carlton is also low season and gives prices for various room types and dates. March 4500 Campus Drive, Suite 500, Newport Beach, CA 92660, (949) 757 -1662 Fax (949) 660 -1252 Pg.2 22nd is a Wedensday. You will notice the rate for an Exective GardenView Suite (Jr. Suite) is $495.00. Their Ocean View .Executive Suite is at a higher rate but none are available for this night. It is important to point out that of the 156 guestrooms that the Regent proposes, 110 (71%) are Jr. Suites. In light of this I have to say that if anyihing, the Average Daily Rates utilized in our projections are quite low. I would also like to point out that the percentage rate 1 used to determine the TOT revenue for the city is 9- percent That is the amount actuality realized by the city (the other ]- percent goes to the Conference and Visitors Bureau). The balance of the proposals used the 10-percent rate. Therefore, the TOT figure on page 49 of the proposal, $16,784,850 over 10 years, should be $18,649,833, when being compared to TOT revenue generated by the other proposals. The total 10 year revenue to the city would increase to $31,830,176. The Ritz Carlton Room Quotes for April 1, 2000 is for a Saturday evening and are for typical rooms only; no Jr. Suites are available for that niv. I also requested rates for Saturday March 18"' and Saturday March 25 but they are 100 percent occupied both of those nights. 'Finally I am enclosing the rate schedule for the "Regent' Beverly Wilshire Hotel, located in Beverly Hills, California. I believe this will give further strength to my projections. I hope this information will be useful in determing the economic aspects of of the proposed "Regent" Newport Beach Resort. Sincerely, Stephen . Sutherland Encl. *"At'* o1% PO 4%fto FouR SEAsms HOTEL � FAX TRANSMITTAL SHEETr��� 690 NEWPORT (!ENTER DRIVE, NEWPORT BEACH, CALI)FORNIA, U.S .A. 91660 Dote sent May 9, 2000 Tu: Mr Stephen Sutherland Company/Dept'. Fda Number: 949 -660 -1252 This message io from: Betlt Rickm, Reservations Sales Agent PotmSCAeOxsHors LNBttRORTEGnru Number of pages hngluding cover sheet): 1 Dear Mr Suthaland, It was a pleasure to speak with you this morning. For the tri ht of Mav 9, we have a Double accommodation available which runs at o would be my pleasure to confirm a rNaltional Corporate rate of $340.00 or s evetung. Please let me know if I Can be of further assistance to you. Find Rcg /nrds, Beth Rickers Peservations Sales Agent if transmission is incomplete, please 6871: Tolophone Number: 949- 759 -0808 extension #4283 Fax Number: 949 -720 -1718 This communication is intended only foe the use of the indlvldual or emits to WhIGh it is Addressed afro may coatein information that Is privllegeo and confidential if you are not the imanded recipient, or the employee or the agem: responsible for delivering 06 communication to the imended recipient, you are hereby notified that any dissemination, distribution of copying of @de curnmuniution is atdntly prohibited without the express consent of the Ganef Of the intended raclPlent. It you receive this communication in arroe, pieasa Adtlly ue immediatety by telephone. The only Five Diamond Hotel in Newport Beach lII17f.. ..a CW�8i► T t Lr: rev rzntr,u rN�a: MHX- Ita'ee �'a'y r tKUM : r`aUK ytH5 UM1 MUItL a FOUR SEASONS HOTEL -Irw yza -V&zaf F A X M E M O R A N D U M 690 NEWPORT CENTER ]DRIVE, NEWPORT $EACH, CALIFORNIA, U.S.A. 92660 [rate: March 10, 2000 To: Mr. Steven Sutherland Location: Fax Number 949- 660 -1252 subie-t: Room Quote for March 15, 2000 Dear Mr. Sutherland, Page t of: From: Edward Goff Assistant Reservations Manager Location: Four Seasons Newport Beach Fax Number: 949- 720 -1718 Thank you for your inquiry regarding rooms for March 15, 2000. As discussed, we are able to offer your client a Four Seasons Executive Suite at the rate of $465.00 plus tax per night. Our Executive Suite is 600 square feet, contains a king size bed with a living room separate from bedroom and an all marble bathroom with glass enclosed shower. This Executive Suite also offers a small furnished patio in addition to a step out balcony. We are also able to otter our Deluxe ijing bed accommodation. The Deluxe Icing is 435 square feet and also has an all marble bathroom and step out balcony. This accommodation is located on the upper floors of the hotel (8th ,floor and above) and offers a panoramic ocean or Back Bay view. The rate is $400.00 plus lax per night. Please note that at this time, our pool and tennis courts are under renovation, however, our fitness facilities and health spa are still fully operational. Mr. Sutherland, if I may be of any further assistance, please contact are directly. 1 look forward to hearing from you once again. c: incomplew phase contact sender. Name: l;dward doff Telephone: 949 -759 -0$08 This commumcanon 's intended only for the use of The individual or entity to whiCh his addressed and may Contain informatiort that is privileged and Confidentlal. If you are not the intended recipient. or the emptoyto or the agent responsible for delivering %ho communicauon to the intended mCiplent. you are hereby notified that any diseemination, distribution or copyinf7 of this Communication is strictly pn;,hlblted without the express Consent of The Bender or the intended recipient. if you receive this communication in error, p''.ease notify us immediately try telephone. 1,IHK_1 r— ,9yjWU Y,. JJ THE RrMCAkaw frnutaA Mlaht One Rio- Carlton Drive Dana Point, CA 92629 (949)240 62000 Administrative Office FAX (949) 240 -0929 Guest Fat Directed to (949) 240 -1061 J4J C4'{.UC'4J Uv Ua FACSIMILE TRANSMISSION FORM This meatago s intended only for tho ate of the individual or entity to which it is addltsted ad my contain inform7Rion :hat is prlvfte d. confidential and excrivt 8nm disclosure coda applicable law. If the Mader of this n+eauge n not the intruded rccip:eut 'ur the ". loyce in agent raspors:ble for delivering the message to the intended mc.pient, you ate hereby notified that any di,seminehon, diycibutlon or copying of this communication it aWctiy prohibited. if you have mceived thus ovmrnonieation in Mvr picaae Monty us immediately by telcphune and retUm The algtnal message to us at the shove addseas via the US. Portal Service Trunk You. DATE: March 17, 2000 TO: Stephen Sutherland COMPANY: FAX NUMBER: 949- 660 -1252 FROM: Christine / Room Reservations SUBJECT: Availability Number of P_ eluding this cover sheet: 1 For arrival March 22, 2000 1 n we have the following availability... Garden View Room $295.00 Direct Ocean View Room $395,00 Executive Garden View Suite $495.00 For arrival April 01, 2000 lnt we have the following available... Garden View Room $355.00 Direct Ocean View Room $455.00 As our availability does change please contact as soon as possible to guarantee room reservations. If you have any Maher questions please do not hesitate to contact ua. TOTAL P.01 Mar 17 00 11.59a RBW - RESERVATIONS DEPT 310 - 275 -5986 P,1 C>�egcnl C%YcZ `66b _ BE;vF.RLY WIL511IRL 2000 Room Rates and Categories Room Categories Superior Room (1 K. ug or 2 Doubles) Superior Pool View (1 King or 2 Doubles) Deluxe Room (I King or 2 Doubles) Regent Deluxe (1 King or 2 Doubles) Regcrtt Deluxe w/ Two Bathrooms Single Double $345 $385 $375 $415 $425 $400 nnl MM•I�fnI1R Mf.t• $475 $515 $505 $545 �o: mnnrcn p• ono The superior rooms can be connecting to another Superior room and the Regent Deluxe may be connecting to another Regent Deluxe room. These rates do not include breokfzf. Suites Regent Suite $570 Regent Suite View $610 Regent Executive Suite $610 Rogent hxecutive View $660 One Bedroom Suite, Wilshire $775 One Bedroom Suite w/2 Bathrooms $850 Ambassador Suite 59(0 Ve -anda Suite $1000 Two Bedroom 5uito, Rcvcrly $970 Two Bedroom Suitc, Wilshire $1500 ' Ali rooms are .mhject to availability 'Please provide a credit card to guarantee yoar reservatia. for lots arrival * All rates are .subject to CoWurnia sales tar and city room tax of IS.3 7% WAX-Plan There is no charge for children 16 years or under when they occupy existing bedding in the Same room as their parents. Baby cribs are available at no charge. Rollaways can be furnished at an additional $30 per night. Rollaways canpot be placed in Superior Rooms. Check -in time 3:00pm /Cbeek -out time 12 noon AII'Dort TranapOClathw Chauffeured Limousine or Sedan one way from /to LAX is $94 for domestic flights (tax and gratuity included) and international flights are $116. The above rates and rooms are sub /eel to change without notice. GOOD EVENING COUNCIL MEMBERS I am Dr. Patricia Frostholm of 1805 W. Bay Ave. and Woody and I are the nearest to the trailer park and therefore stand to be most affected by a change from the quiet residential zoning to to a big hotel with its concomitant increase in traffic, delivery trucks, pollution, noise, police activity from transients parrying, lose of peaceful enjoyment of our property Now we suffer the loud noise from Best Western Hotel in back of us. Car alarms go off at all hours. People coming and going all night. The ice machine is incredibly loud and interrupts sleep. The hotel has put tables and chairs outside the rooms and people parry there loudly all night. It's a terrible nuisance. kwas a big mistake to permit Best Western to add two units next door. The hotel chain bought a two unit building and put 5 units in there with only room for 2 parking spaces. Now for some constructive criticism. This property should be reserved for the residents and property owners who pay the taxes. It should be a community center and public park. A place for senior citizens to meet so that their needs are attended to in their community. Flu shots and other health checks to improve the quality of life for them. But other uses for this center. In one room children take a ballet classes. In another a string quartet practices. Clothing could be recycled here for homeless veterans and others. Meetings could be held here focusing on cleaning the Bay and ways to improve the area for the people who live here and also those who come for the day with their children to play one the shallow Mother's Beach. They can't afford to stay at an expensive hotel. So please work to keep this special place free for all to enjoy -not just the wealthy. Consider this decision seriously and remember what you decide will affect the soul of this community forever. Remember the people who live here. We are the stewards. Preserve its peaceful, beneficience for all.