HomeMy WebLinkAbout01 - CorrespondenceAgenda Item No. 1
Brown, Leilani September 12, 2012
From:
Harp, Aaron
Sent:
Friday, September 07, 2012 1:26 PM
To:
Brown, Leilani
Subject:
FW: Commercial Tidelands Lease /Fee Increase
Attachments:
wnb docks tideland fees settlement letter to city council 120904.pdf; wnb George Jones - Newport
Tidelands Appraisal Report 120904.pdf
Follow Up Flag:
Follow up
Flag Status:
Flagged
From: Robert Lounsbury [mailto:RLLounsburvCalmsn.com]
Sent: Wednesday, September 05, 2012 12:39 PM
To: Gardner, Nancy; Curry, Keith; Henn, Michael; Rosansky, Steven; Hill, Rush; Iesliedaiole(o)aol.com; Selich, Edward
Cc: Kiff, Dave; Harp, Aaron; Miller, Chris; Tom Purcell; Michael Curci; Gary Pickett; John Vallely; George Jones; Casey Jones
Subject: Commercial Tidelands Lease /Fee Increase
Mayor Nancy Gardner
Mayor Pro Tern Keith D. Curry
Council Member Michael F. Henn
Council Member Steven Rosansky
Council Member Rush N. Hill, II
Council Member Leslie Daigle
Council Member Edward D. Selich
Re: Commercial Tidelands Lease /Fee Increase
Dear Honorable Mayor and Honorable Members of the Newport Beach City Council,
Please accept and consider the following summary of negotiations, comments and the attached appraisal, as
part of the public comments regarding above matter.
Thank you.
Robert Lounsbury
Waterfront Newport Beach, LLC
WATERFRONT NEWPORT BEACH, LLC
2901 West Coast Highmay, Suite 200, Newport Beach, CA 92663
Tel: (206) 619 -5332 Fax: (949) 258 -4374 rllounsburv(@msn.coin
September 4, 2012
Mayor Nancy Gardner
Mayor Pro Tem Keith D. Curry
Council Member Michael F. Henn
Council Member Steven Rosansky
Council Member Rush N. Hill- 11
Council Member Leslie Daigle
Council Member Edward D. Selich
3300 Newport Boulevard
Newport Beach, CA 92663
Re: Commercial Tidelands Lease / Fee Increase
Dear Honorable Mayor and Honorable Members of the Newport Beach City Council,
Please accept and consider the following summary of negotiations, comments, and the
attached appraisal, as part of the public comments regarding above matter.
On about April 5, 2012, the Committee on Harbor Charges (COHC) proposed the
following increases to the Commercial Tidelands Stakeholders.
(1) Rent is the higher of "Base Rent (method a)" or "Percentage Rent (method b)."
(2) Phase -in between 2012 and 2015.
(3) All permittees transition to leases (30 -50 years mentioned, with CPI increases).
(4) Lease document sample template to be provided
(5) Master Fee Resolution as follows:
2012(Esstg) 2013 2014 2015
(a) Base Rent (per SF /year) $0.36 /SF 50.72/SF 51.00 /SF S1.20 /SF
(b) Percentage Rent ($ /year) NA 10% of gross 15% of gross 20% of gross
Result (A): On roughly 1,000,000 sf of commercial tidelands, the fee increase raises
about $840,000 /vr (base rent method) up to an Sunknown amount (percentage rent
method). Note that over 90% of this is to be burdened on only 15 stakeholders.
2
Mayor Nancy Gardner, et at
September 4, 2012
Page 2 of 4
BB) On about May 24, 2012, the Commercial Tidelands Stakeholders (CTS) wrote the
following counterproposal to the Committee on Harbor Charges.
(1) Rent is the higher a Base Rent (method a)" ^- "o° °° ° °° °° * (_ethed b)."
a
(2) Phase -in between 2012 and 2015. (increasing with CPI per below).
(3) All permit ees tfansitien t°'°^^ °° Rent charged without leases, as ongoing fees.
(5) Master Fee Resolution as follows
Result (B): On rouglily 1,000,000 sf of commercial tidelands, the fee increase raises
about $440,000 /yr (base rent method).
On August 29, 2012, the Committee on Harbor Charges (COHC) posted its revised
proposed increases on its website, with the following terms:
(1) Rent is the higher of "Base Rent (method a)" or "Percentage Rent (method b)."
(2) Phase -in between 2012 and 2015.
(3) Alt permittees transition to leases (no years mentioned, but "less years" is rumored,
CPI increases assumed).
(4) Lease document sample template to be provided
(5) Master Fee Resolution as follows:
(a) Base Rent (per SF /year)
(b) Percentage Rent($ /year)
2012 (Exstg)
$0.36 /SF
NA
2013 2014
$0.75 /SF 51.15 /SF
10% of gross 15% of gross
2015
$1.45 /SF
20% of gross
Please note that the Base Rent is actually increased ( —eoinu backward in
negotiations) from $1.20 /sf to $1.45 /sf). This shows outright disregard and bad faith
on the part of the Committee on Harbor Charges towards the negotiations / public
input process, and utter contempt to the taxpavers attempting to resolve this issue
amicably and in good faith.
Result (Cl: On roughly 1,000,000 sf of commercial tidelands, the fee increase raises
about $1,090,000 /yr (base rent method) up to an $unknown amount (percentage rent
method).
3
2012(Exstg)
2013
2014
2015
(a) Base Rent (per SF /year)
$0.36/SF
$0.75 /SF
$0.77 /SF
$0.80 /SF
(b) Percentage Rent ($/year)
NA
NA
NA
NA
Result (B): On rouglily 1,000,000 sf of commercial tidelands, the fee increase raises
about $440,000 /yr (base rent method).
On August 29, 2012, the Committee on Harbor Charges (COHC) posted its revised
proposed increases on its website, with the following terms:
(1) Rent is the higher of "Base Rent (method a)" or "Percentage Rent (method b)."
(2) Phase -in between 2012 and 2015.
(3) Alt permittees transition to leases (no years mentioned, but "less years" is rumored,
CPI increases assumed).
(4) Lease document sample template to be provided
(5) Master Fee Resolution as follows:
(a) Base Rent (per SF /year)
(b) Percentage Rent($ /year)
2012 (Exstg)
$0.36 /SF
NA
2013 2014
$0.75 /SF 51.15 /SF
10% of gross 15% of gross
2015
$1.45 /SF
20% of gross
Please note that the Base Rent is actually increased ( —eoinu backward in
negotiations) from $1.20 /sf to $1.45 /sf). This shows outright disregard and bad faith
on the part of the Committee on Harbor Charges towards the negotiations / public
input process, and utter contempt to the taxpavers attempting to resolve this issue
amicably and in good faith.
Result (Cl: On roughly 1,000,000 sf of commercial tidelands, the fee increase raises
about $1,090,000 /yr (base rent method) up to an $unknown amount (percentage rent
method).
3
Mayor Nancy Gardner, et al
September 4, 2012
Page 3 of 4
(D) On September 4, 2012, the Commercial Tidelands Stakeholders obtained an
appraisal report from George Hamilton Jones, Inc. (copy enclosed). George Jones was
the appraisal company that completed the appraisal for the City in 2001 concluding with
a S0.53 /SF base rent valuation.
It is self evident that the Percentage Rent Method is less appropriate for Newport Harbor
because, unlike other comparable tidelands owners /managers, the City does not own the
adjoining land in Newport Harbor (i.e. the City does not have "joinder" and thus will face
ongoing problems because of continuing difficulties in allocating the gross between the
tidelands and the uplands in each particular property).
The new September 4, 2012 George Jones appraisal is summarized as follows:
2012 (exst2) 2013 2014 2015
(a) Base Rent (per SF /year) 50.36/SF $0.64/SF $0.92 /SF $1.20 /SF
(b) Percentage Rent ($ /year) NA 5% of gross 7.5% of gross 9.5% of gross
Result (D): On roughly 1,000,000 sf of commercial tidelands, the fee increase raises
about $840,000 /yr (base rent method) up to an $unknown amount (percentage rent
method).
On September 4, 2012, as a compromise settlement, the Commercial Tidelands
Stakeholders are proposing the following terms:
(1) Rent is the "ib� a "Base Rent (method a)" eF Pereei age Dent (F fteth6d b
(2) Phase -in between 2012 and 2015.
(3) All pennittees transition to leases (30 years plus 20 years option, with CPI increases).
(4) Lease document sample template to be provided
(5) Master Fee Resolution as follows:
2012(Exstg) 2013 2014 2015
(a) Base Rent (per SF /year) 50.36/SF $0.64/SF 50.92/SF 51.20 /SF
(b) Pereentage Rept (S /years` NA NTA 'NA NA
Result (E): On roughly 1,000,000 sf of commercial tidelands, the fee increase raises
about $840,000 /vr (base rent method).
As shown above, rve are willinQ to increase the base rent from 80.36 to 81.20 (i..e.
accepting 100% of the original COPIC Plan (A) proposal above raising 8840.0001vr from
last about 15 stakeholders). In return, ive respectfidly reatiest that the Citv forego the
percentage rent method and let us nun our own businesses without City interference,
audits, negotiations, lawsuits, challenges, renegotiations, fines, threats, second - guessing
on business decisions on leasing, improvements, maintenance, etc.
Mayor Nancy Gardner, et al
September 4, 2012
Page 4 of 4
Despite the arguably obvious bad faith treatment given to us by the COHC [e.g. please
see item (C) above. Another bad faith negotiations example is that the COHC & staff
informed many of us that there will be no votes taken prior to the election, and that it will
probably be next year before the matter is re- visited. However, a few days ago, we were
suddenly informed that they have been secretly working on possibly soliciting action on
September 11, 2012], we still have faith in the Newport Beach City Council. We are all
neighbors in our small Newport Beach community and we do see each other once in a
while. Therefore, we do not see ourselves as adversaries in this negotiations process, and
we definitely do not want the process to force us into being adversaries. We were told
that the City needs help financially and we are stepping up to lift a big share of the weight
($840,000 /yr increase over 15 stakeholders for 50 years, plus CPI).
Again, in summary, we are i,villim,, to increase the base rent from $0.36 to the $1.20 that
the COHC orieinally proposal in plan (A) above increasing city revenues by $840 000/vr
fi`orn hest 15 stakeholders. In return, all we ask basically is to be allowed to run our oven
businesses that we have been runnine for decades and decades, without "percentage
rent" interference. second 2uessine of business decisions and all the complications it
entails. We think the percentage rent complications would actually increase the
administrative costs (e.g. administrative head count, litigations, etc) and may not result in
greater revenues to the City, resulting in possible negative net revenues.
Thank you all for your consideration.
Very truly yours,
Robert Lounsbury
encl. George Hamilton Jones, Inc. appraisal dated 9/4/2012
Nancy Gardner:
Keith D. Curry:
Michael F. Henn:
Steven Rosansky:
Rush N. Hill, H:
Leslie Daigle:
Edward D. Selich:
Dave Kiff:
Aaron C. Harp:
Chris Miller:
NGardner(cD,NewportBeachCa. gov
currvk a pfm.com
iMHenn(@,Newi)ortBeachCa.gov
S RosanskVOwNewportBeachCa. gov
Rhill ,NEwportBeachCa.vov
lesliedaigle a,aol.com
EdSelich(@,roadrunner.com
City Manager
City Attorney
Harbor Resources Manager
dkiffcnewportbeachca. gov
ahai-p(@,newportbeaclica.gov
cmiller ct,newportbeachca.eov
5
GEORGE HAMILTON JONES, INC.
APPRAISAL CONSULTANTS
GEORGE HAMILTON JONES, MAI 717 LIDO. PARK DRIVE, SUITE D
STUART D. DuVALL, MAI NEWPORT BEACH, CALIFORNIA, 92663
CASEY O. JONES, MAI
August 31, 2012
Mr. Robert Lounsbury
Waterfront Newport Beach, LLC
2901 W. Coast Hwy. # 200
Newport Beach, CA 92663
Dear Mr. Lounsbury:
TELEPHONE (949) 673 -6733
FAX NO. (949) 673 -6924
Re: Appraisal of Market Rental Value
City of Newport Beach Tidelands
In accordance with your request and authorization, by signed proposal dated
June 6, 2012, we have made an investigation and analysis of various tideland parcels
in Newport Harbor for the purpose of rendering an opinion of the market rental value
of those State of California Tidelands, currently held in Trust by the City of Newport
Beach, ( "City Tidelands ") and proposed to be leased to the adjacent private upland
owners for marina purposes.
The date of value for this appraisal is July 15, 2012.
The proposed lease conditions considered in this valuation include:
Term: 50 Years
Rent: Based on percentage rent of gross revenue and
price per square foot of tidelands
Rent Adjustment: Annually by C.P.I (L.A- Riv.- O.C.)
Adjust to market rental value by appraisal
every ten years.
In forming an opinion of market rental value for the subject City Tidelands, the
following facts, among other pertinent information, was established and considered in
order to develop a fully supportable conclusion:
L The City Tidelands is unimproved, vacant tidelands containing water
area only. The right of access to the tidelands from the adjacent land
(littoral rights) is held by the upland property owners.
0
Mr. Robert Lounsbury
August 31, 2012
Page 2
In order to carry out a meaningful analysis of the subject tidelands for
marina purposes, it is an extraordinary assumption of this assignment
that the subject tidelands has access to and from the uplands.
2. Legal restrictions upon the use of the tidelands for marina purposes
(city, state, and federal regulations) include minimum requirements for
the dedication of portions of the adjacent privately held uplands to
support the marina operation. These land area requirements include, but
are not limited to, vehicle access and parking, storage and restrooms,
and marina office space.
For the purpose of this assignment, we based the valuation of market rent for
the subject tidelands upon a "typical" commercial marina. This theoretical amalgam
of tidelands area; uplands area, and marina and upland improvements is intended to
be representative of standard commercial marina tidelands use throughout Newport
Harbor. The specific configuration and characteristics of this "typical' marina were
based upon our investigation, inspection and analysis of existing marinas within the
harbor; reference to current city, state and federal construction regulations; as well as
a market analysis designed to judge prevailing boat - owner /tenant demand.
The definition of market rent used in this assignment is consistent with that
set out in the Dictionary of Real Estate Appraisal, Fifth Edition:
The most probable rent that a property should bring in a competitive and open
market reflecting all conditions and restrictions of the lease agreement,
including permitted uses, use restrictions, expense obligations, term,
concessions, renewal and purchase options, and tenant improvements (TIs.)
As requested, the market rent conclusion is expressed in terms of both a
percentage of gross revenue and an annual rental per square foot of tidelands.
As a result of our investigations and analyses, we formed the opinion, that, as
of July 15, 2012, market rent for the subject tidelands was 9.5% of gross revenue, or
$1.20 per square foot of tidelands per year.
MARKET RENT CONCLUSI ®N:
9.5 % of gross revenue, or
S 1.20 per square foot of tidelands per year
7
Mr. Robert Lounsbur%
August 31.2012
Page 3
Your attention is directed to the following appraisal report which sets forth, in
brief; premises and limiting conditions, descriptions, exhibits, factual data,
discussions, computations, and analyses which form, in part, the basis of our value
conclusion. Supporting documentation and analyses are retained in our files.
Respectfully submitted,
Gcorge 1-t on Jones, MA[
(State Certified General Real Estate
Appraiser No. AG005632)
(State. Certifie C{efieral Real Estate.
Appraiser AG041862)
0
TABLE OF CONTENTS
Introductory:
Page
Letter of Transmittal I
Table of Contents 4
Introduction to the Appraisal Problem:
Purpose of the Appraisal 6
Date of Value 6
Client 6
Intended Use 6
Property Rights Appraised 6
Definitions 6
Lease Term 8
Scope of the Appraisal 9
Property Description:
Location
12
Apparent Owner
13
Parcel Size and Shape
13
Utilities
14
Land Use Regulations
15
Current Improvements
17
Market Analysis and Highest and Best Use:
Property Productivity
18
Marina Demand Factors
19
Competitive Supply
21
Residual Demand
25
Subject Capture
26
Highest and Best Use — Introduction 26
Highest and Best Use — Defined 27
Highest and Best Use — As Though Vacant 28
Highest and Best Use — As Improved 31
Valuation:
Introduction 32
Approach 1 33
The Tidelands as an Independent Site 34
The Uplands as an Independent Site 35
Return to the Uplands as an Independent Site 38
-4-
GEORGE HAMILTON JONES, INC. 9
TABLE OF CONTENTS — continued
Marina Revenue in Joinder
39
Percentage Rent of a Marina (in Joinder)
41
Allocation of Rent Between Uplands and Tidelands
43
Approach I — Conclusion
45
Approach 2
46
Approach 2 — Indicated Conclusion
52
Test Through Capitalized Value Analysis
53
Approach 2 — Conclusion
54
Approach 3
54
Approach 3 — Conclusion
59
Reconciliation:
Addenda:
Certification
Limiting Conditions
Land Sales Market Data
Other Tidelands Users
Qualifications
59
-5-
GEORGE HAMILTON JONES, INC. 10
GEORGE HAMILTON JONES, INC. 11
INTRODUCTION TO THE APPRAISAL PROBLEM
Purpose:
The purpose of this appraisal is to render an opinion of the market
rent for those State of California tidelands currently held in trust by the
City of Newport Beach ( "City Tidelands ") for the State of California
proposed to be leased to adjacent upland private owners for marina
purposes.
The opinion of market rent shall be expressed in terms of
percentage rent of annual gross revenue and annual rent per square foot
of tidelands.
Date of Value:
July 15, 2012
Client/Intended User:
Waterfront Newport Beach, LLC
c/o Mr. Robert Lounsbury
Intended Use:
The intended use of the report is to assist in setting the rental. rate
for the commercial use of the tidelands.
Property Fights Appraised:
The market rent of the fee simple interest of the tidelands within a
representative commercial marina situated within the lower bay of
Newport Harbor.
Definitions:
Tidelands:
For the purpose of this study the public tidelands are
considered to consist of that water area extending from the
established U.S. Bulkhead Line to the Pierhead Line.
0
GEORGE HAMILTON JONES, INC. 12
INTRODUCTION — continued
Market Rent' (Fair Rental Value):
The most probable rent that a property should bring in a
competitive and open market reflecting all conditions and
restrictions of the lease agreement, including permitted uses, use
restrictions, expense obligations, term, concessions, renewal and
purchase options, and tenant improvements (TIs).
Description used in the San Diego Union Port District for
Long Term Lease.
"Rent, which the lessor would derive from the lessor's
property if it was vacant land, without any improvements there on,
and made available on the open market for new leasing purposes
at the commencement of the rental period."
Market Value':
The most probable price that a property should bring in a
competitive and open market under all conditions requisite to a
fair sale, the buyer and seller each acting prudently and
knowledgeably, and assuming the price is not affected by undue
stimulus. Implicit in this definition is the consummation of a sale as
of a specified date and the passing of title from seller to buyer
under conditions whereby:
• Buyer and seller are typically motivated;
• Both parties are well informed or well advised, and
acting in what they consider their best interests;
• A reasonable time is allowed for exposure in the open
market;
• Payment is made in terms of cash in U.S. dollars or in
terms or in terms of financial arrangements comparable
thereto; and
' The Dictionary of Real Estate Appraisal, The Appraisal Institute, Fifth Edition, 2010.
'- This definition of market value is used by agencies that regulate financially insured
financial institutions in the United States.
-7-
GEORGE HAMILTON JONES, INC. 13
INTRODUCTION — continued
• The price represents the normal consideration for the
property sold unaffected by special or creative financing
or sales concessions granted by anyone associated with
the sale. (12C.F.R. Part 34.42(g); 55 Federal Register
34696, August 24, 1990, as amended Federal Register
12202, April 9, 1992; 59 Federal Register 29499, June 7,
1994.)
Leasehold Estate (Leasehold Interest)':
The tenant's possessory interest created by a lease.
Leased Fee Estate 4:
A freehold (ownership interest) where the possessory
interest has been granted to another party by creation of a
contractual landlord tenant relationship (i.e., a lease).
Fee Simple Estate (Fee)5:
Absolute ownership unencumbered by any other interest or
estate, subject only to the limitations imposed by the governmental
powers of taxation, eminent domain, police power, and escheat.
Lease Term:
This appraisal of market rent considers the subject tidelands to be
available in the open rental market as of July 15, 2012, under a lease
contract briefly described as follows:
Term of Lease: Fifty (50) years
Rental Adjustment:
(a) Annually by C.P.I. (L.A. — Riv. — O.C.)
3 The Dictionary of Real Estate Appraisal, Appraisal Institute, Fifth Edition, pg. 1.11.
4Ibid., pg. 111.
s Ibid., pg. 78.
ME
GEORGE HAMILTON JONES, INC. 14
INTRODUCTION — continued
(b) Adjust base rent to fair market value (market
rent) every 10 years, as established by
appraisal, in accordance with an agreed
resolution process.
Rent: Base rent expressed annually per square foot of
tideland parcel.
Scope of the Appraisal:
The subject of this appraisal is considered to be a 56,000 square
foot portion of the total City Tidelands within Newport Harbor to be used
for marina purposes. In our judgment, this allocation of tidelands is
representative of the water area that would be used in a "typical"
commercial marina operation and was employed in an effort to reflect
common harbor -wide conditions.
It is recognized that the actual marinas, commercial tidelands
users, and the nature of the commercial operations throughout Newport
Harbor differ, often substantially, from the "typical' marina standard.
Accordingly, our conclusion as to market rent for the City Tidelands that
is the subject of this appraisal will be expressed in terms of price per
square foot of water.
As will be shown in this report, our conclusion as to the highest
and best use of the subject tidelands property is development of the site
in joinder with the adjacent uplands to a commercial marina consistent
with market demand and the configurations and uses of existing
commercial berthing facilities within Newport Harbor.
Our analysis of market rent is based, in part, upon a market data
approach that studies percentage rent of income generated by standard
marina/boat berthing uses throughout Southern California. In our
judgment, a critical component in determining the appropriate data to
rely upon in forming an opinion of subject value is that the data conform
to key definitions of market value. In particular, it is essential to confirm
that the buyer and seller were "each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus." This is
consistent with the California Code of Civil Procedure (126.320) which
states that a determination of fair market value requires that the seller be
"willing to sell but under no particular or urgent necessity for so doing,
-9-
GEORGE HAMILTON JONES, INC. 15
INTRODUCTION — continued
nor obliged to sell, and a buyer, being ready, willing, and able to buy but
under no particular necessity for so doing, each dealing with the other
with full knowledge of all the uses and purposes for which the property is
reasonably adaptable and available."
These criteria are critical because our investigations have revealed
that certain potential tidelands data items in Newport Harbor are, in our
judgment, not reflective of market value. This is due to the fact that they
were not open market transactions in that the buyers /lessees were
"affected by undue stimulus" and "under particular necessity" for
accepting the terms of the lease by virtue of the fact that they had made
large capital investments in the marina improvements, the land was
already dedicated to marina use, and the operation was serving an
established tenancy. The potential data items that fail to meet these
standards of market value are Bayshores Marina and Swales Anchorage
and will be discussed more fully in the report.
The vast majority of the data providing empirically supported
indications of market rent for the typical marina included water area
(tidelands) and land combined. However, the subject property (City
Tidelands of a hypothetical marina) includes water only. Accordingly,
appropriate adjustments of these market data items were required to
reflect the subject condition of being water area only. As will be seen,
these adjustments were based upon empirically supported economic
criteria.
The scope of work for determining market rent for the subject
property will include, but not be limited to, the following:
Consider and analyze the highest and best use of the City
Tidelands as an independent site.
Consider and analyze the highest and best use of the privately -
owned uplands that must be devoted to marina support uses in
order to uti.lize the independent City Tidelands for marina
purposes.
Obtain and verify information regarding public leases for
marina purposes in Orange County, Los Angeles, Ventura and
San Diego Counties. The analysis of this rental information
will include, but may not be limited to:
-10-
GEORGE HAMILTON JONES, INC. 16
INTRODUCTION — continued
i. The terms and conditions of the leases;
ii. The basis of rent calculations and adjustments;
iii. Determine if the lease was a new lease or a renewal of
an existing lease.
Undertake a market survey to form a supportable opinion of the
retail rental rate of slips (amount per lineal foot per month),
prevailing occupancy levels, and the economics of the operation
of a standard marina in Newport Harbor. This will be applied
to the subject property as determined by the aforementioned
criteria and result in a stabilized gross income estimate.
° Analyze the economic impacts of leasing water only (as
opposed to water and land together). This will be accomplished
by the following:
a. Analyze recently established leases of tidelands being
employed to offshore mooring. Compare rates per square
foot of tidelands devoted to typical moorings.
b. Form an opinion of the market value of the uplands that
must be devoted to marina support uses.
c. Analyze an appropriate level of return and the
opportunity cost that would be anticipated by the well -
informed owner of the uplands in order to devote such
land to marina uses.
d. Allocate the income stream generated from the marina
use considering the respective value contribution of the
tidelands area and the upland area in accordance with
their respective highest and best use.
e. Reconcile the value indications to equalize the rate of
return to each.
f. Investigate, review and analyze leases in lower Newport
Harbor and other harbors in Southern California
involving tidelands only.
-11-
GEORGE HAMILTON JONES, INC. 17
GEORGE HAMILTON JONES, INC. 18
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PROPERTY DESCRIPTION
Introduction:
The subject property is a hypothetical tidelands parcel in Newport
Harbor that is intended to represent the water area that would be required
for a typical commercial marina operation. It is an extraordinary
assumption that this tidelands parcel has access to the adjacent uplands
for access to utility services and the supporting land area necessary to a
marina operation.
A number of factors were considered in forming an opinion of both
the physical characteristics of the independent tidelands parcel itself and
the size, configuration, and economic potential of the marina with which
it could be improved based upon the hypothetical assumption.
In order to arrive at an empirically supported basis for our
conclusion as to the key characteristics defining the subject property, we
performed a survey of the existing marinas in Newport Harbor, analyzed
the operative land use regulations and guidelines impacting marina use of
the tidelands at both the local and state level, and performed a market
analysis in order to judge highest and best use of the subject property.
As a result of these investigations and analyses, our judgment of
the pertinent property characteristics for the hypothetical tidelands parcel
that is the subject of this valuation analysis were developed and are
described below.
Location:
The subject tidelands property is considered to be adjacent to
commercially oriented land in the northwesterly portion of Newport
Harbor in the general vicinity of Mariner's Mile.
-12-
GEORGE HAMILTON JONES, INC. 20
PROPERTY DESCRIPTION - continued
Apparent Owner:
Fee Interest:
The subject tidelands are held in fee by the City of Newport
Beach for the State of California. There has been no change in the
ownership of the fee interest for in excess of 10 years.
Leasehold Interest:
The leasehold interest in the subject tidelands is considered
to be held by a well - informed marina operator who is capable of
developing the property to its highest and best use. The subject
tidelands are considered to be vacant, unencumbered by existing
lessee improvements or any real property right restrictions beyond
those inherent in the police powers to which it is naturally subject
and the lease itself.
Parcel Size and Shape:
The subject property consists of unimproved tidelands only. Our
survey of the existing marinas focused on marinas with 30 or more slips.
As a result of that study, the following empirical information relative to
the tidelands for those marinas was developed:
Frontage along U.S Bulkhead Line:
Range: 430 to 3,350 Feet
Median: 700 Feet
Example: Ardell Marina, 700 Feet
We have used 700 feet for the water frontage of the
subject parcel along the U.S. Bulkhead line.
Depth from U.S. Bulkhead Line to U.S. Pierhead Line:
Range:
50 to 100 Feet
Depths from the U.S. Bulkhead line to the U.S.
Pierhead Line differ throughout Newport Harbor due to
1.3
GEORGE HAMILTON JONES, INC. 21
PROPERTY DLSCRIPT10N - continued
variations in channel widths and other factors; however,
reference to City of Newport Beach mapping of the main
harbor area indicates that the preponderance of the depths
from the U.S Bulkhead Line to the U.S. Pierhead Line is 80
feet. There is an area in the northwest portion of the harbor
(Lido Marina Village) where a Harbor Permit allowed an
extension out an additional 20 feet to the Project Line
wherein marina improvements were permitted. This is not
considered to be representative of a "typical' commercial
marina. Accordingly, we have used the standard 80 -foot
depth in considering the size and shape of the subject
tidelands parcel.'
As a result of this study, our judgment of a subject property that
appropriately represents a "typical' marina within Newport Harbor has
the following physical characteristics:
Frontage along U.S Bulkhead Line: 700 feet
Depth from U.S. Bulkhead Line to U.S. Pierhead Line: 80 feet
Total Area: 700 feet x 80 feet = 56,000 square feet
Utilities:
As an independent parcel, the subject tidelands has no access to
public utilities because it has no legal access to the adjacent uplands from
whence the utilities can be obtained. In order to value the subject
property for marina purposes, it is an extraordinary assumption of this
appraisal that access to utilities from the adjacent uplands is permitted.
Access:
The subject property possesses legal rights of access from the
bayward water area only. Littoral rights of access to the water from the
1 It should be noted that the U.S. Pierhead Line defines the limit within which marina
improvements are permitted to be constructed. In practice berthed vessels are allowed to
extend beyond the Pierhead Line as a "sidetie ", or to the beam of a vessel. This "overhang"
has been considered in our valuation analysis.
14
GEORGE HAMILTON JONES, INC. 22
Zoning Map
���Ij ��i; � �"a��: ��.'� My •
4%
NPl�. 114
� r
GEORGE HAMILTON JONES, INC.
23
PROPERTY DESCRIPTION - continued
uplands reside within the property rights of the upland property adjacent
to the subject. Again, in order to develop a meaningful indication of
subject value for marina purposes, it is an extraordinary assumption of
this appraisal that the subject tidelands parcel will have access from the
uplands.
Land Use Regulations:
The subject tidelands is under the regulatory supervision of several
entities in addition to the City of Newport Beach. These include the State
of California Department of Boating and Waterways, the California
Coastal Commission, as well as oversight by the Army Corps of
Engineers, the California Department of Fish and Game and others.
The standards of development for the tidelands is set out in Section
17 of the City of Newport Beach Municipal Code. However, in order to
the develop the subject tidelands with a commercial marina, it is
necessary for the tidelands area to be supported by uplands dedicated to
parking, restrooms, showers, and office use.
Section 20.40 of the Municipal Code under Transportation
Communities and Infrastructure Uses describes required parking for
marinas as 0.75 parking spaces per slip, or 0.75 spaces per 25 feet of
mooring space. However, our investigations have indicated that there is a
reasonable probability that this uplands parking requirement could be
reduced to 0.60 per slip to conform with other relevant jurisdictions.
Section G1.2.1 of the Department of Boating and Waterways
guidelines requires 0.60 single vehicle parking spaces per recreational
berth. Additionally, On December 12, 2010 the Dana Point Harbor
Revitalization Plan Commission approved the minimum designated
boater parking for the 2,409 boat slips of the project at 0.60 parking
spaces per slip or side tie.
In November 2011, the California Coastal Commission approved
0.60 parking per slip ratio for the marina portion (parcel 43) of the
Marina Del Rey Hotel and Marina project. This designation is to serve a
proposed 277 -slip project. In an interview with Tom Hogan, the
developer of this project, it was reported that 0.60 parking to slip ratio is
being approved throughout the state.
15
GEORGE HAMILTON JONES, INC. 24
PROPERTY DESCRIPTION - continued
It is recognized that the City of Newport Beach offsite parking
code currently requires a minimum of 0.75 parking spaces per marina slip.
However, in recognition of the fact that the subject tidelands and adjacent
uplands are considered to be unimproved and available for their highest
and best uses, it is our judgment that the well - informed potential
developer of the subject property would believe there to be a reasonable
probability that the City and Coastal Commission would, upon proper
application, approve marina parking on the 0.60 spaces per slip rate.
In addition to the parking requirement, development of a
commercial marina requires restroom facilities which "typically include
toilet compartments, urinals, lavatories, mirrors, showers,
interior /exterior lighting, drinking fountains, benches and walkways" per
Section G2.1 of the Department of Boating and Waterways guidelines.
Beyond a regulatory requirement, provision of these facilities /amenities
is a generally accepted market standard. We have allocated 550 square
feet to serve this portion of the uplands requirement.
Because the estimated value of the uplands independent of the
tidelands is a required step in the valuation methodology to be presented
in the following sections of this report, the zoning standards applicable to
those uplands must be considered when analyzing the highest and best
use of the upland property as an independent site.
For the purposes of this analysis, the uplands adjacent to the
representative subject property is considered to be zoned either MU-W1
or MU -W2, which are both mixed -use water - related zones. This
designation applies to waterfront properties in which non - residential and
residential units may be intermixed. Marine - related and visitor serving
land uses are encouraged.
The standards of development differ markedly between MU -1 and
MU -2, with minimum lot sizes significantly larger in the MU -1 zone that
is found primarily along Mariner's Mile. Both have a minimum Floor
Area Ratios of 0.35 and maximums of 0.50. MU -1 has a maximum of
50% residential use, whereas MU -2 permits a 0.75 residential FAR.
It should be noted that the land uses for the uplands adjacent to the
existing commercial marinas throughout Newport Harbor range from R -1,
Iral
GEORGE HAMILTON JONES, INC. 25
PROPERTY DESCRIPTION - continued
to mixed -use, to strictly commercial land use designations. In our
judgment, the general mixed -use water - related zone is most appropriate
to consider for the representative subject property.
Current Improvements:
The representative subject tidelands is considered to be
unimproved water area only. It is an extraordinary assumption that the
subject property is adjacent to an uplands parcel with an existing
bulkhead. This bulkhead is considered to be an improvement of the
uplands parcel.
17
GEORGE HAMILTON JONES, INC. 26
AND HIGHEST AND BEST USE
GEORGE HAMILTON JONES, INC. 27
REGIONAL MAP
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GEORGE HAMILTON JONES, INC.
M
MARKET ANALYSIS
AND HIGHEST AND BEST USE
Property Productivity:
Under the extraordinary assumption that the subject tidelands will
have access to the adjacent uplands, the property is considered to be well
suited to a commercial marina development. It has 700 feet of bulkhead
frontage and a depth from the U.S Bulkhead Line to the U.S. Pierhead
Line. The total area of the subject tidelands is 56,000 square feet, which
offers reasonable marina design flexibility.
The subject property is considered to be situated in a mixed -
use /commercial portion of Newport Harbor. Located on the central coast
of Orange County, this landmark destination is one of the largest pleasure
boat harbors in the world, with more than 2,200 marina slips, 1,200
offshore and onshore moorings, and 1,200 private residential piers. There
are 25 miles of frontage in Newport Harbor. Tourism is an important part
of the economy with estimates of daily visitors from the summer months
ranging form 20,000 to in excess of 100,000.
Newport Harbor traditionally has the highest slip rents of any of
the harbors of Southern California. Nonetheless, despite ever increasing
rates, occupancy has remained generally steady at 95% to 1.00% for
decades, with lengthy waiting lists for slips 35 feet and greater. The
demand is due to the beauty of the harbor itself, the proximity to a wide
range of amenities and yachting support services, as well as the affluence
of the surrounding communities that can afford involvement in boating.
Unfortunately, the past several years have shown a downturn in
occupancy, in part due to rising prices in the harbor and more
competitive rates in other harbors, as well as the general downturn in the
economy.
Once in the ocean, the yachtsman from Newport is within easy
reach of a variety of destinations and safe harbors; Santa Catalina lies
approximately 30 miles to the southwest, on the coast Dana Point is 14
miles to the southeast, Huntington Harbor and Long Beach are 8 and 20
miles to the northwest respectively.
Jf:2
GEORGE HAMILTON JONES, INC. 29
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
Marina Demand Factors:
' Ibid
The table below shows boat registration by size category for the
last five years in California. While the economic downturn may have
slightly slowed boating activity, the table shows a general stability over
time.
Year
20' - 26'
26'-40'
40'-65'
Over 65'
2007
1.85,719
41,442
5,335
1,605
2008
172,684
37,744
4,934
1,436
2009
181,094
39,705
5,143
1,565
2010
166,296
35,897
4,789
1,405
2011
174,518
37,826
1 4,976
1,516
Source: California Department of Motor Vehicles
One phenomenon that has become apparent, as the boating
community has evolved over the past 30 — 40 years, is that vessel size has
steadily increased, with a corresponding demand for larger slips, in terms
of both length and beam. Over time, portions of various marinas have
been repaired and reconstructed to meet this changing character in slip
demand, with the result that the average slip length in most marinas has
increased. The table on the following page shows the impact of this
development in several marinas throughout Southern California as well
as two in Northern California.
The demand for larger slips has been driven by increased vessel
size, but also by the fact that dry storage, some stacked, has become an
increasingly viable alternative for boats less than 30 feet in length. This
shift in demand is underscored by the following table', which shows the
vacancy rate by boat size in Marina del Rey from 2003 — 2008.
-19-
GEORGE HAMILTON JONES, INC. 30
Marina
Total _Slips
Average Slip Length
Cabrillo Isle Marina, San Diego
1976
406
38.0
2005
404
39.4
Dana Point Marina, Dana Point
1969
1,467
33.0
Proposed
1285
33.4
Sunset Aquatic Park, Hunt. Beach
Before Reconfiguration
252
30.5
After Reconfiguration
237
32.8
Peter's Landing Marina, H. B.
Before Reconfiguration
300
39.0
After Reconfiguration
28.6
40.5
Long Beach Downtown Marinas
Existing
1,769
35.9
Proposed
1,679
36.7
Alamitos Bay Marina, L.B.
Existing
1,997
31.5
Proposed
1,647
35.8
Cabrillo Way Marina, San Pedro
Existing
625
34.3
Proposed
697
45.6
Marina del Rey
2008
4,731
33.9
Proposed
4,255
36.4
Anacapa Isle Marina, Oxnard
1974
504
30.2
1987
389
33.4
Bahia Marina, Oxnard
1973
70
38.0
2009
82
52.8
Peninsula Marina, Oxnard
1970
341
33.7
2009
292
47.3
Ventura Isle Marina._ Ventura
1973
625
31.5
1992
519
38.8
Treasure Isle Marina, San Francisco
1950
105
31.5
2009
403
38.8
Ballena Isle Marina, Alameda
1974
442
34.5
2010
373
43.8
Total All Marinas (ex. MdR)
Before
8,903
33.6
After
8,293
38.0
Source: Marina del Rey Slip Sizing Study, Noble Consultants, Inc., 3/1.1/09.
George Hamilton Jones, Lnc.
31
MARKET ANALYSIS AND HIGHEST AND BEST USE - continued
2Ib1d
This trend toward increasing boat size is supported by the tablet
below that shows the percent change in boat registration by size category,
from the base year of 1996 through 2007.
Yew
under 16'
16- to less than 2G
26 to less than 4I7
4p and larger
r
2007
0.5%
24.5%
75.3%
68.3%
14.6%
2006
4.1%
23.3%
52.2%
61.5%
13.0%
Y
2.9%
24,3%
Si.O%
63.8%
14.9%
2004
4,1%
20.9%
40.0%
59.9%
13.7%
2003
6.0%
19.9 %.
44.6%
46.9%
14.0%
2002
7.2%
18.1%
57.6%
43.8%
14.1%
2001
145%
1 17,2%
40.7%
43.5%
15,8%
2000
7A%
1 114%
35.0%
36.6%
11.2%
1999
11.1%
13.4%
31.8%
24.2%
12.9%
1998
11.7%
i0.2%
26.5%
19.3%
mat m>; u4z Liar; xa: :.m
vw
This trend toward increasing boat size is supported by the tablet
below that shows the percent change in boat registration by size category,
from the base year of 1996 through 2007.
Yew
under 16'
16- to less than 2G
26 to less than 4I7
4p and larger
Total
2007
0.5%
24.5%
75.3%
68.3%
14.6%
2006
4.1%
23.3%
52.2%
61.5%
13.0%
2005
2.9%
24,3%
Si.O%
63.8%
14.9%
2004
4,1%
20.9%
40.0%
59.9%
13.7%
2003
6.0%
19.9 %.
44.6%
46.9%
14.0%
2002
7.2%
18.1%
57.6%
43.8%
14.1%
2001
145%
1 17,2%
40.7%
43.5%
15,8%
2000
7A%
1 114%
35.0%
36.6%
11.2%
1999
11.1%
13.4%
31.8%
24.2%
12.9%
1998
11.7%
i0.2%
26.5%
19.3%
11.4 %.
1997
13.7%
7.5%
22.5%
16.5%
11.0%
4996
0.0%
010%
0.0%
0.0%
0.0%
-20-
GEORGE HAMILTON JONES, INC. 32
MARINA RENTAL RATES
HARBOR TOWER MARI
20 to 29 Feet
$22.00
30 to 39 Feet
$33.00
40 to 49 Feet (inside slip)
$37.00
40 to 49 Feet (outside slip)
$46.00
50 to 59 Feet
$46.00
60 to 69 Feet
$48.00
L.F.
BELLPORT LIDO YACHT ANCHORAGE
Newport Beach
Slip Length Lineal Feet
Monthly Rent/L.F.
6 to 15 Feet
$18.25
16 to 20 Feet
$19.00
„
21 to 31 Feet
$19.50
20 to 32 Feet
32 to 33 Feet
$21.50
$24.00
34 to 44 Feet
$25.00
37 to 39 Feet
$25.00
40 to 44 Feet
$30.00
50 to 59 Feet
$31.50
60 to 63 Feet
$35.00
73 to 79 Feet
$35.00
83 to 86 Feet
$43.20
110 to 135 Feet
$43.20
VILLA COVE MARINA
Newport Beach Shp Length Lineal Feet Monthly Rent /L.F.
22 Feet $25.25
$-
r eei Kr a
30 Feet $30.15
6Yt. i����aaI
45 Feet $40.95
60 Feet $44.45
GEORGE HAMILTON JONES, INC.
33
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
Competitive Supply:
There are thirteen marinas in Newport Harbor with over thirty
slips. The primary elements of comparison that distinguish the different
commercial marinas in Newport Harbor from one another are location,
the physical features of the marina, and access to amenities. For example,
the subject's theoretical location in the mid -to- northwesterly portion of
the harbor requires more running time to the harbor entrance than might
some other marinas, yet the immediate surrounding influences, with a
variety shore -based amenities, is of considerable appeal to many users
who come from outside the immediate Newport Beach area and use the
boat and slip for weekend and holiday accommodation without setting
sail.
Our judgment of those marinas that would most directly compete
with the subject are presented below. These facilities are strictly
commercial marinas, without the influences of club membership, or
other, non - market issues.
HARBOR TOWER MARINA:
Number of slips:
Occupancy:
Time to Harbor Entrance:
Amenities:
Remarks:
BELLPORT LIDO YACHT ANCHORAGE:
Number of slips:
Occupancy:
Time to Harbor Entrance:
Amenities:
Remarks:
51
98%
45 minutes
Restrooms
Adjacent PCH. Impacted by
traffic noise and pollution.
Positive adjacency to
amenities in Mariner's Mile.
265
97%
45 minutes
Dock box, showers, and
restrooms, free parking.
Adjacent to Lido Peninsula
amenities. Includes some
very large ( >90') slips.
_21-
GEORGE HAMILTON JONES, INC. 34
MARINA RENTAL RATES
BAYSHORES MARINA
Newport Beach Slip Length Lineal Feet Month l Rent /L. F.
15 Feet $26.25
17 Feet $26.25
20 Feet $26.25
23 Feet $26.25
26 Feet $28.60
32 Feet $34.85
39 Feet $37.00
60 Feet $56.60
�S 68 Feet $56.60
83 Feet $59.00
BALBOA MARINA
Newport Beach Slip Len th Lineal Feet Monthi Rent/L.F.
25 Feet $29.65
28 Feet $34.20
30 Feet $36.75
32 Feet $34.70
,\ 34 Feet $36.75
36 Feet $39.20
40 Feet $43.95
50 Feet $50.45
58 Feet $55.65
DE
51
20 Feet (inside side tie)
$21.90
15 Feet (outside side tie)
$26.35
20 Feet (outside side tie)
$26.35
22 Feet (side tie)
$26.35
30 Feet
$35.60
35 Feet
$37.35
42 Feet
$45.40
45 Feet
$48.15
60 Feet
$55.65
65 Feet
$59,00
74 Feet
$62.20
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
VILLA COVE MARINA:
Number of slips:
40
Occupancy:
No Information, not 100%
Time to Harbor Entrance:
20 - 35 minutes (power —
Amenities:
sail)
Amenities:
Dock box, showers, and
restrooms, free parking.
Remarks:
Adjacent to Balboa Island
amenities. West side of
bridge, so longer travel time
to harbor entrance if sail.
BAYSHORES MARINA:
Number of slips:
134
Occupancy:
No Information, Not 100%
Time to Harbor Entrance:
30 minutes
Amenities:
Dock box, showers, and
Amenities:
restrooms, free parking.
Basic but well maintained.
Remarks:
Located in gated
community. Off -site
amenities not within
walking distance.
BALBOA MARINA:
Number of slips:
132
Occupancy:
No Information, Not 100%
Time to Harbor Entrance:
25 - 35 minutes (power —
sail)
Amenities:
Dock box, showers, and
restrooms, free parking.
Remarks:
Adjacent to PCH Bridge/
Linda Isle. Airport over
flight.
_22-
GEORGE HAMILTON JONES, INC. 36
MARINA RENTAL RATES
31 to 39 Feet
40 to 49 Feet
50 Feet and Over
0
6
$23.23 to $25.21
$27.64
$33.15
NEWPORT WNES RE50RT WIARINA
Newport Beach Sl Length Lineal Feet Month! Rent/L.F._
29 Feet & Under $23.75
30 to 33 Feet
.$29.00
34 to 39 Feet $31.25
40 to 45 Feet $39.50
46 Feet & Over $42.00
®EAN7A BAYSIDE. VILLAGE MARINA
,Newport Beach. Slip Length Lineal Feet Month9 Rent /L; F.
12 to 19 Feet $21.00
�• , '��' 20 to 29 Feet $25.00
30 to 35 Feet $35.00
36 to 39 Feet $35.00
40 to 45 Feet $45.00
46 to 50 Feet $45.00
Super Slips $45.00
Double Loaders $45.00
GEORGE HAMILTON JONES, INC.
37
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
BAYSIDE MARINA:
Number of slips:
102
Occupancy:
No Information, Not 100%
Time to Harbor Entrance:
10 -15 minutes
Amenities:
Dock box, showers,
Amenities:
restrooms, free parking.
Remarks:
Good street access, close to
Remarks:
Balboa Island amenities.
BALBOA YACHT BASIN:
Number of slips:
173
Occupancy:
90%
Time to Harbor Entrance:
20 - 35 minutes (power —
sail)
Amenities:
Dock box, showers, and
restrooms, free parking.
Remarks:
Good land access, adjacent
marine supply store and
boatyard. City owned and
operated. Bridge forces
longer journey to harbor
opening for sail and many
powerboats.
NEWPORT DUNES RESORT MARINA:
Number of slips:
450
Occupancy:
97 %
Time to Harbor Entrance:
40 minutes (must pass under
bridge)
Amenities:
Dock box, showers, and
restrooms, free parking.
Remarks:
Clubhouse, pool /spa, boat
launch, dry storage and
wash rack. Good parking
and security. Major negative
influence of being inland of
the bridge.
-23-
GEORGE HAMILTON JONES, INC. 38
MARINA RENTAL RATES
LIDO MARINA VILLAGE
New ort Beach Slip Len th Lineal Feet)- Mdnthl "Rent /L.F.
30 to 39 Feet $35.00
40 to 49 Feet $38.00
50 to 59 Feet $41.00
�' 60 Feet & Over
+'? $45.00
ire
r 4Cwa Y:i ".
ARDELL
Nevis ort Beach Slip -Length Lineal Feet Month Rent .F.
Under 30 Feet $20.00
42 Feet $32.50
43 Feet $36.00
47 Feet $36.25
s , 50 Feet $37.50
\ 59 Feet $38.00
60 to 69 Feet $38.50
70 Feet $40.00
a,
GEORGE HAMILTON JONES, INC.
39
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
DEANZA BAYSIDE VILLAGE MARINA:
Number of slips:
Occupancy:
Time to Harbor Entrance
Amenities:
Remarks:
LIDO MARINA VILLAGE
Number of slips:
Occupancy:
Time to Harbor Entrance:
Amenities:
Remarks:
ARDELL
Number of slips:
Occupancy:
Time to Harbor Entrance:
220
85%
40 minutes (must pass under
bridge)
Dock box, showers, and
restrooms, free parking.
Limited amenities, standard
features. Inland side of
bridge.
60
88%-90%
45 minutes
Restrooms, showers,
parking in multi -story
structure at tenant's
expense.
With 100 feet pierhead lines,
marina includes four 100 -
foot cruise ships, one 80 -foot
cruise ship, 21 spaces
exceeding 50 feet in length.
Various lagoon slips. Dock
and pier in poor condition.
Close to restaurants, theater
and retail.
53
88%
30 minutes
Amenities: Dock boxes, restrooms, free
parking. Well landscaped.
-24-
GEORGE HAMILTON JONES, INC.
.N
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
Remarks: Attractive, well - maintained
slips and uplands. Close to
many restaurants, retail and
marina shops.
Residual Demand:
In the context of this assignment, residual demand is best reflected
by the occupancy levels at the various marinas. It should be noted that
many marina operators and other professionals active in the marine
industry have described an exodus of many boaters from Newport Harbor
to Dana Point to the south and Huntington Harbor and Long Beach to the
north. This is due to the generally lower slip rates available at these
locations. Whether due to this factor or the general downturn in the
economy, which has reduced discretionary spending for recreational
activities such as yachting, it had become apparent that as of July 2012
there had been a decrease in occupancy in most Newport Harbor marinas
since 2010. Availability of slip space is evident by street signs,
magazines, and other publications.
Although difficult to verify, informed persons have indicated that
incentives are being offered to tenants in the form of free rent, reduced
terms for extended commitments, and other enticements geared towards
maintaining a high occupancy rate.
In contradiction to this condition, we have noted an increase in
rates at some marinas since 2010. The following table reflects this
circumstance.
Marina
2010 Rate
2012 Rate
Harbor Tower
$41.00
$40.00
Lido Peninsula
$31.50
$31.50
Villa Cove (45')
$36.46
$39.00
Bayshores (60')
$50.34
$53.40
Balboa Marina
$44.73
$47.80
Balboa Yacht Basin
$23.00
$26.71
25
GEORGE HAMILTON JONES, INC. 41
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
Even with recognition of the slip rate increases on some marinas,
the current general atmosphere of the marina industry locally is not
optimistic. Activity of boat sales, shipyards and other marina services of
the boating industry are down. The Balboa Yacht Basin experienced a
significant drop in occupancy when the prices where last raised. It has
been reported that another price hike is planned by the City. Many
observers anticipate that this will result in another decrease in occupancy.
Subject Capture:
As an unimproved tidelands site with assumed access to the
adjacent uplands, the subject property is available for development to a
commercial marina facility that could be most efficiently designed to
meet prevailing market demands. The following highest and best use
section will set out our analysis leading to our conclusion of the
configuration of the marina which, in our opinion, would be the
maximally productive utilization of the subject site for marina purposes.
From our review of the data and interviews with well- informed
persons involved in the commercial marina industry, it appears
reasonable that a well - informed lessee at the subject property would
anticipate an occupancy rate of 90% to 95% as of the July 15, 2012, date
of value.
As will be seen further on, we used a 93% occupancy rate at the
subject property in our valuation analyses.
Highest and Best Use - Introduction:
The highest and best use of the subject tidelands, as an
independent site, is severely restricted by its lack of access to the uplands
for support of any commercial use. It would be available for swimming,
boating, or fishing as an extension of the main channels in Newport
Harbor. The tidelands could potentially be used for offshore moorings;
however, lack of uplands parking, restrooms, and dingy launching
facilities would present problems of approval from local citizens' groups
and certain regulatory agencies. Therefore, as an independent site, the
subject property is considered to be of limited economic value.
-26-
GEORGE HAMILTON. JONES, INC. 42
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
Accordingly, its highest and best use is considered to be in joinder
with the adjacent uplands to create an integrated unit that could be
developed to a commercial marina. Because the subject does not possess
the property right of joinder with the adjacent uplands, it is an
extraordinary assumption of this appraisal that it has obtained rights of
joinder and can be developed to a commercial marina consistent with
prevailing development standards of the affected regulatory agencies, the
physical characteristics of the site, and with current market forces.
Highest and Best Use — Defined:
The reasonably probable and legal use of vacant land or an
improved property that is physically possible, appropriately supported,
and financially feasible and that results in the highest value.
(Source: The Appraisal of Real Estate, Thirteenth Edition, Appraisal Institute)
Highest and best use is appropriately analyzed through the filter of
the four following criteria:
Physically Possible:
The subject property's overall size and dimensions must be
of sufficient magnitude to accommodate the proposed use. For
improved properties, the size, design, and condition of the structure
must be able to accommodate the use without unjustified expense.
Legally Permissible:
The proposed use must conform to existing land use
regulations such as general plan designation, zoning ordinances,
environmental restrictions, building codes, or other governmental
regulations. The use must also be compatible with private
limitations such as deed restrictions, easements, leases, and any
Covenants, Conditions and Restrictions (CC &R's), if applicable.
_27_
GEORGE HAMILTON JONES, INC. 43
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
Financially Feasible:
Uses that first meet the above criteria of physically possible
and legally permissible are then tested for financial feasibility.
Uses that are expected to produce a positive return are considered
financially feasible. A positive return is generated when income
exceeds the amount required to pay operating expenses, financial
obligations, and capital amortization expenses.
Maximally Productive:
The highest and best use is that financially feasible use,
which is both physically possible and legally permissible, and
which produces the highest value as of the effective date of the
appraisal.
Highest and Best Use of the Tidelands as Though Vacant — Analysis:
Potential marina configurations for the subject tidelands were
tested against the above criteria. The purpose of this study is to determine
what, given a vacant tidelands site, the appropriate marina use would be
that would yield the greatest return, considering factors such as slip size,
potential rent, and vacancy.
In order to perform this analysis, the following matters had to be
investigated and considered:
1. Determine the total lineal slip length potential of the subject
tidelands based upon empirical water area per lineal foot rates
established within other marinas within the harbor.
2. Estimate number of potential slips from empirical water area
per slip ratios.
3. Estimate the maximally productive mix of slip sizes (marina
configuration) based upon physical constraints, empirical
evidence, and market demand.
4. Compute the upland land area requirement based on 0.60
parking spaces per slip plus area for restrooms, showers and
other marina support amenities.
Bill
GEORGE HAMILTON JONES, INC. 44
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
As indicated previously, we performed a survey of the existing
marinas in Newport Harbor with 30 or more slips. Some examples of
water and improvement area allocations within these data are as follows:
Bahia Corinthian Yacht Club — new marina 1993
Water Area: 87,325 sq. ft.
79 Slips: 1,105 sq. ft. water area per slip
3,017 lineal feet: 38.2 lineal feet per slip
Water area/ lineal foot: 28.9 sq. ft.
Balboa Marina:
This marina facility was recently upgraded. The total
number of slips was reduced from with 132 spaces to 105
spaces in order to accommodate increased boat beams and
handicap mandated improvements.
Water Area: 122,000± sq. ft.
105 Slips: 1,162 sq. ft. water area per slip
3,486 lineal feet: 33.2 lineal feet per slip
Water area/ lineal foot: 35.0 sq. ft.
Bayside Marina:
Water Area: 129,000 sq. ft.
102 Slips: 1,265 sq. ft. water area per slip
3,732 lineal feet: 36.6 lineal feet per slip
Water area/ lineal foot: 34.6 sq. ft.
Ardell Marina:
Water Area: 56,000 sq. ft. (tidelands), 84,746
gross (fee interest in water area
53 Slips: 1,599 sq. ft. gr. water area per slip
2,544 lineal feet: 48 lineal feet per slip
Water area/ lineal foot: 33.31. sq. ft.
WO
GEORGE HAMILTON JONES, INC. 45
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
Villa Cove Marina:
Water Area: 49,080 sq. ft.
42 Slips: 1,169 sq. ft. water area per slip
1,438 lineal feet: 34.2 lineal feet per slip
Water area/ lineal foot: 34.1 sq. ft.
As a result these analyses we formed the opinion that a well -
informed lessee of the subject tidelands parcel, under the extraordinary
assumption of joinder with the uplands, would consider the following
marina configuration reflective of the highest and best use of the parcel
given the physical characteristics of the site; prevailing land use
regulations and market demand.
U.S. Bulkhead Line Length: 700 Feet
U.S.Pierhead Line Depth: 80 Feet
Total Tidelands Area: 56,000 Square Feet
Subject Marina Configuration
Size of Slips
Number of Slips
Total Lineal Feet
Up to 20'
4
72
20' to 29'
6
150
30' to 39'
12
420
40' to 49'
15
638
50' to 59'
5
270
60' and Lareer
V
3
195
Totals
45
1,745
Water Area: 56,000 sq. ft.
45 Slips: 1,244 sq. ft. water area per slip
1,745 Lineal feet: 38.8 lineal feet per slip
Water area/ lineal foot: 32.1 sq. ft.
This opinion of the highest and best use configuration of the
subject tidelands carries with it an implicit uplands land area requirement
to support the marina operation. As set out in the discussion of parking
requirements presented earlier, it is our judgment that a well- informed
-30-
GEORGE HAMILTON JONES, INC. 46
MARKET ANALYSIS AND HIGHEST AND BEST USE — continued
lessee of subject tidelands would anticipate that there is a reasonable
probability that the current City of Newport Beach zoning code parking
ratio requirement of 0.75 parking spaces per slip could be reduced to 0.60
spaces per slip. This is consistent with approvals in a variety of
jurisdictions through the State.
Therefore, under the highest and best use marina configuration
presented above, the uplands land area requirement can be computed as
follows:
45 slips x 0.60 = 27 parking spaces required
27 parking spaces @ 350 sq. ft./ space = 9,450 sq. ft.
Bathrooms, showers, storage, office, walkways = 550 sq. ft.
Total uplands land area required: 10,000 sq. ft.
Highest and Best Use as Improved:
The subject is considered to be a vacant tidelands parcel with no
improvements.
-31-
GEORGE HAMILTON JONES, INC. 47
VALUATION
GEORGE HAMILTON JONES, INC. 48
VALUATION
Introduction:
The property that is the subject of this market rent valuation analysis
is an independent, vacant tidelands parcel. As an independent site, it has no
access to the uplands for utilities or marina- supporting land uses such as
parking, restrooms and showers. In order to develop a meaningful analysis
of the market rent of the subject tidelands as dedicated to commercial
marina use, we have invoked the extraordinary assumption that this vacant
tidelands site has joinder with the adjacent uplands.
The economic motivations for and implications of joinder for both
the uplands owner and the tidelands owner must be analyzed in order to
appropriately address fair market rent for the tidelands as part of an
integrated commercial marina operation. This process begins with an
understanding of the value of each as independent sites.
As the following pages will show, the value (and anticipated annual
return) of the uplands as an independent site dramatically exceeds that of
the tidelands as an independent site. It is one of the key tenets of highest
and best use that the well - informed owner of a property will seek the
maximally productive use of his property. Therefore, it is implicit in any
well- informed joinder of properties that both parties should benefit by this
joinder in the form of an enhancement on their annual return as
independent sites. If either of the properties did not benefit by the joinder,
there would be no motivation for the property to engage in joinder.
The unique set of circumstances pertaining to this particular
assignment creates interdependence between a specific independent
tidelands owner and an equally specific adjacent uplands owner. This
interrelationship between parties is termed a bilateral monopoly.' If the
joinder of two properties creates an increment in value that is greater than
the sum of the two parts as independent sites, then the allocation of that
increment becomes the reasonable nexus of negotiations between the
parties.
' "A market in which a single seller (a monopoly) is confronted with a single buyer (a
monopsony). Under these circumstances, the theoretical determination of output and price will
be uncertain and will be affected by the interdependence of the two parties" The Dictionary of
Real Estate Appraisal, 5 °i Edition.
-32-
GEORGE HAMILTON JONES, INC. 49
VALUATION — continued
A thorough analysis of these fundamental dynamics of the market is
critical in forming a credible opinion of market rental value of the subject
property. This will be addressed in Approach l of this valuation.
Approach 2 is a method of estimating market rent for the tidelands
designed to recognize the fact of the ongoing existence of commercial
marinas in Newport Harbor and the established partnership between the
uplands and tidelands. This approach allocates the rent between the land
and water based on an equalized rate of return for each, considering the
highest and best use of each.
Both Approach 1 and Approach 2 are based upon empirical market
evidence of rents paid for the uplands and tidelands in joinder, the uplands
as an independent site, and the tidelands as an independent site. These are
then adjusted by appropriate elements of comparison to reflect the specific
conditions of the subject property in this analysis.
Approach 3 considers market evidence of rents for tidelands only.
Because the vast majority of the tidelands leases in Southern California are
by jurisdictions which control both land and water, there is a limited
supply of this tidelands -only data. In this phase of the valuation, we will
discuss the pertinent data available and analyze the relevance of each item
as true open market indicators and their appropriateness in shedding light
on market rent for the subject.
Finally, we will analyze the indications developed from the three
approaches to subject market rent and reconcile them to a final value
conclusion based upon the relative reliability of each approach.
Approach 1:
In order to form an opinion of the market rent for the tidelands in
joinder with the adjacent uplands, it is appropriate to first analyze the
market rent for each parcel as an independent site. This step is required to
provide a basis for judging whether joinder is, in fact, the highest and best
use for each property. This, in turn, will provide an indication of the level
of return in joinder that it would be reasonable for each property to expect
to warrant the act of joinder and all that is attendant to such a commitment.
-33-
GEORGE HAMILTON JONES, INC. 50
MOORING FIELD "F"
h
416.16' --
r� � Fi of 9 v 1286
F Fiel Moorin s
aa, r r l rn
oo:�.ncim. -
Area, 228354 hl
GEORGE HAMILTON JONES, INC. 51
VALUATION — continued
The Tidelands As an Independent Site
As was discussed in the Introduction to the Highest and Best Use
Section of this report, the subject tidelands as an independent site has
limited economic utility because it has no access to the uplands. It could be
used for recreational activities such as swimming, boating or fishing, but
this would simply be an extension of general harbor uses.
The subject tidelands does have some potential to generate an
offshore mooring fee as an independent site. While its utility for that use
may be somewhat constricted by its narrow dimensions (80 feet wide by
700 feet in length) and the need for a public dinghy launching site for
access, a review of the City of Newport Beach offshore mooring fee
schedule offers an economic measure of the subject tidelands value if put
to such a use.
Between 2012 and 2015, the average mooring fee will be
approximately $50.00 per lineal foot per year. The average boat length in
these mooring fields is approximately 40 feet. Therefore, average rental
income to the city would be $2,000 per year per boat. In field F, which has
a generally analogous shape to the subject, each boat requires
approximately 10,000 square feet of tidelands space.
Therefore, the $2,000 rental income per year for each boat requiring
10,000 square feet of tidelands reflects an income of $0.20 per square foot
per year.
The theoretical subject tidelands site has 56,000 square feet of water
area. It follows that if the subject tidelands were put to its highest and best
use as an independent site by providing offshore mooring space, it would
return approximately $11,200 per year.
56,000 sq. ft. x $0.20/ sq. ft. = $11,200
Therefore, the maximally productive utilization of the subject
tidelands as an independent site is represented by an annual return of
$11,200, or $0.20 per square foot.
-34-
GEORGE HAMILTON JONES, INC. 52
George Hamilton .tones, Inc.
53
SUMAIARYOF PERTINENT SALES. DATA
Sale No.
Location
APN
Size (S. F.)
Date of Sale
Price
Price per Sq. Ft.
Remarks
WATERFRONT
049- 150 -01:
1
2623 W. Coast Hwy.
049 - 130 -I1
18,200
1/18/11
55.800,000
5318.68
Older resturant and retail. 20 older slips. Bulkhead recessed
68 feet 6,800 square feet of fee water: 8.000 square feet of
City tidelands.
2
2607 W. Coast Hwy
049 - 150 -27
27,103
1/14/10
$8,030,000
$29628
Crab Shack Restaurant plus 400 lineal feet of marina.
Sold in (12/07) for $10,750,000 but received by
The Securities and Exchange Commission.
3
341 Bayside Dr.
050 - 451 -08
17,816
12/18/09
55,500.000
$308.71
Sold as an improved property with a dated two -story
commercial building being renovated /remolded.
No water access rights; shared parking.
4
2300 Newport Blvd.
047 - 120 -31
104,980
2/14/04
$18,000,000
5171.46
5 yr. entitlement process with planned demolition of
existing improvements and redevelopment with commercial
(office) and 2nd floor residential. Old sale - lesser weigh.
A'OAI -W ITERFRONT.'
5
50531st Street
047- 031 -03
8,370
7/29/10
$1.901,000
$227.12
Cannery Village: three 30' -90' lots, Opposite
corner 047 - 032 -08 sold 4/23/09 for $16124 PA.
6
209 Washington St.
048 - 216 -05
3,000
5/11/06
.$900;000
$300.00
Vacant; adjacent to Balboa Market.
'7
608. E. Balboa Blvd.
048 - 116 -04
11;0(10
4/12/06
.$2.900.000
5263.64
Abandoned market. Demolished Sold to City
of Newport Beach on 3116110; parking lot now.
George Hamilton .tones, Inc.
53
VALUATION — continued
Based upon a 5% capitalization rate, this represents a value for the
tidelands as an independent site of $224,000, or 56,000 square feet @
$4.00 per square foot.
Fee Value of The Uplands as An Independent Site
The uplands parcel adjacent to the theoretical tidelands is considered
to be vacant land with a zoning of MU-W1 or MU -W2, both of which
provide for mixed -use and water- related uses. The sales comparison
(market data) approach was used to form an opinion of the value of the
uplands adjacent to the subject property as a site independent from the
tidelands. Waterfront sites such as these upland properties are considered
to have littoral rights of access to the tidelands. The only improvements are
the bulkhead, which is the responsibility of the uplands owner to maintain.
Four of the seven sales set out on the facing page are situated with
frontage on the waterfront. The other three non - waterfront sales are in the
sphere of influence of the harbor. These data were selected from amongst
the limited supply of commercial sales in the harbor area because, in our
judgment, they were most helpful in shedding light on the value of
subject's required upland area.
A comparability analysis of this data relative to the subject uplands
was carried out. Adjustments were made for the differences between the
sale and the subject for elements of comparison such as date of sale
(trend), location, size, shape, zoning, and improvement contribution. The
inland data were considered useful as lower limit indicators.
Sale No. 1: 2623 West Coast Highway — January 2011
18,200 square feet net area @ $319 per square foot
This transfer is a Mariners Mile site in the mixed -use zone.
The gross area is 25,000 square feet with 7,000 square feet of fee
water area. The land was unencumbered by lease at the date of sale.
There is an additional 8,000 square feet of City tidelands with a total
of 20 to 21 older slips. The commercial improvements are in excess
of 50 years of age and of below average construction quality. The
recent mixed -use zoning enhanced marketability. The buyer also
acquired the adjacent parcel (Sale 2). A downward adjustment was
made for the interim contribution of the older retail /commercial
-35-
GEORGE HAMILTON JONES, INC. 54
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55
VALUATION — continued
building and the dock improvements. After adjustments, this sale
indicates subject value at $265 per square foot.
Sale No. 2: 2607 West Coast Highway —January 2010
27,103 square feet @ $296 per square foot
This sale is the Crabshack Restaurant site, which included a
5,100 square foot restaurant built in 1968 and remodeled in 2008.
The buyer reportedly improved lease conditions; the prior lease
returned less than 3% of sale price. The property includes 400 lineal
feet of older slips. In the sates comparison analysis, a downward
adjustment was made for the contribution of the restaurant
improvement. The revenue from the marina was considered to make
a limited enhancement to property value. No price trend adjustment
was indicated. After making adjustments for all elements of
comparison, the sale indicated subject land value at $250 per square
foot.
Sale No. 3 341 Bayside Drive — December 2009
17,816 square feet @ $308.71 per square foot
This property was substantially improved, but with an older
two -story office building that underwent substantial renovations after
purchase. No rights of water access are attendant to this property.
Allocation of an estimated improvement contribution of $1,000,000
develops an extracted land value indication on the order of $250 per
square foot. In the reconciliation, lesser weight was given to this sale
due to the uncertainties in estimating the value contribution of the
improvement. v
Sale No. 4 2300 Newport Boulevard — February 2004
104,980 square feet @ $171.45 per square foot
This sale occurred eight years prior to the date of value and
would typically not be included in a sales comparison analysis but for
the very limited number of transfers of waterfront commercial
property in Newport Harbor. The general market experienced a
substantial increase in value during the period from 2004 to 2007.
This was, of course, followed by a reversal and downturn in the
market. At the time of sale, the property was improved with an older
-36-
GEORGE HAMILTON JONES, INC. 56
VALUATION — continued
shipyard and office building which were intended to be demolished
to make way for a planned mixed -use development. Delays in
entitlement and changes in market conditions since receiving
approval resulted in no steps towards physical re- development of the
property occurring at the date of value. When construction of new
improvements finally do occur, it will be necessary to replace and
reconstruct portions of the bulkhead.
In comparative analysis with the subject upward adjustments
were required for trend, size on a unit basis (100,000 square feet for
the sale versus 10,000 square feet for the subject), and development
obligations. After considering all elements of comparison, this sale
indicates a range of subject value from $250 to $300 per square foot.
Sale No. 5 505 31st Street— July 2010
8,370 square feet @ $227 per square foot
This transfer was included to reflect the level of non -
waterfront lands in close proximity to the Harbor. The existing
structures are below average improvements with interim use value
only. The property has mixed -use zoning. No measureable price
trend occurred since date of sale in this area. This transfer is useful as
a lower limit indicator of the subject as a waterfront property.
Sale No. 6 209 Washington Street —May 2006
3,000 square feet @ $300 per square foot
This sale is a small vacant site adjacent to the Balboa Market.
On 3/1.6/10 this property was purchased along with Sale 7 (shown
below) by the City of Newport Beach to construct a parking lot. This
2006 transfer is primarily included for informational purposes in
order to give a perspective on the prices paid for non - waterfront land
in immediate adjacency to the Harbor.
-37-
GEORGE HAMILTON JONES, INC. 57
VALUATION — continued
Sale No. 7 608 E. Balboa Blvd. —April 2006
11,000 square feet @ $263 per square foot
At the time of sale this property was improved with the 70-
year old unoccupied Balboa Market Building. The structure was
5,275 square feet in size. As indicated above, it was purchased by
the City on 3/16/10 along with Sale 6. The building was demolished
and a parking lot constructed. This transfer also reflects the level of
prices paid for non - waterfront commercial land, and is included for
informational purposes only.
As a result of the investigation of these and other less pertinent data,
we concluded that the market value of the upland parcel adjacent to the
subject tidelands, as an independent site, is equivalent to $250 per square
foot.
Uplands as an Independent Site: $250 per square foot
Return to the Uplands as an Independent Site
Our review of recent sales of waterfront commercial land devoted to
restaurants, offices and associated purposes indicates that the return on
land value, based on price paid by the sales transaction, rarely achieves
more than a 3.0% annual return on the investment. We have observed this
phenomenon along the commercial waterfront in Newport Harbor over
several decades.
This is below the market return that the typical investor in
commercial land would anticipate; yet, in our observations, these
properties have been bought and sold by well- informed buyers and sellers
several times over the years. This phenomenon is explained by the fact the
finite supply of waterfront commercial land creates an underlying capital
appreciation over time. Therefore, the investor does realize an appropriate
return on his investment, albeit not primarily through the annual cash flow,
but, rather, through the capital appreciation in the land investment at the
time of resale. This is particularly true at the present time where the mixed -
use zoning holds out increasing prospects for redeveloping the land with a
significant residential component.
-38-
GEORGE HAMILTON JONES, INC. 58
VALUATION — continued
As was presented in the Highest and Best Use
Section of this report, our conclusion of the anticipated uplands area
required for marina support was 10,000 square feet. The value of this land,
based on the foregoing sales comparison analysis, was judged to be $250
per square foot.
1.0,000 sq. ft. x $250/ sq. ft. = $2,500,000
The anticipated annual return as an independent site would be
calculated as follows:
$2,500,000 x .03 = $75,000
Because the current level of annual cash flow to the investment in
the uplands as an independent site is relatively low, there does not need to
be a major increment in that return to reach the threshold of motivation for
considering an alternative highest and best use. After review of a number
of factors, we reached the conclusion that a level of enhancement to a 5%
return could interest the well - informed uplands owner in considering
joinder with the tidelands parcel to create an integrated marina operation.
This represents a 67 % increase (3% to 5 %) in returns over that which
would be anticipated with more traditional commercial uses.
This 5% return to the uplands, representing an appropriate level of
return to warrant joinder by a well. - informed uplands owner, was used in
the following analysis of market rent for the tidelands. As will be shown in
subsequent pages, we tested the appropriateness of this level of return by
considering the economic dynamics of the bilateral monopoly discussed
earlier.
Marina Revenue Estimate in Joinder
In forming our opinion of the highest and best use of the tidelands in
joinder we considered the physical constraints of the site, the appropriate
land use regulations, and the likely slip rental income that would create the
maximally productive marina operation. We reviewed prevailing slip rates
throughout the harbor and considered the market preference for larger slips
in the current environment. (The subject is considered to be vacant and
available to development to its highest and best use, which reflects the
market preference for slightly larger slips. It should be noted that existing
-39-
GEORGE HAMILTON JONES, INC. 59
Summary of Slip Rental Rates
June 2012
Summary of Slip Rental Rates
Per Lineal Foot Per Month
Marina Name
20-24 j
30-39
40-49
50-60
Larger
PCH and Newport Blvd. Influence
Harbor Tower
$22.00
533.00
$37.00 - $46.00
541.00
$45.00
Ardell
$20.00
S3250 - 536.00
537.00 - $38.00
$3850 - $40.00
Balboa Marina
$20.00 - $32.63
$34.50 - 537.35
$42.25
$47.80 - $53.00
$50.35 - 553.00
Lido Marina
Village
$35.00
$38.00
$41.00
$45.00
Secondary Streets
Ba shores
$25.00 - $27.25
533.00 - $36.25
$53.00
$55.90 - $57.00
Balboa Yacht
Basin
$19.04
$22.42
$26.47 - $27.98
Close to Jetty
Bayside Marina
$20.00 - $25.00
$33.90 - .$35.55
$42.00 - $45.75
$53.00
$56.25 - $59.35
GEORGE HAMILTON JONES, INC. 60
VALUATION — continued
marinas can and do perform renovations to replace older improvements to
more appropriately meet market desires.)
A summary of slip rental rates by harbor location is presented on the
page opposite. After review and analysis of this panorama of data, we
formed the following conclusions as to the likely slip rents to be obtained
at the subject property given prevailing market conditions as of July 15,
2012.
Potential Gross Income Estimate
Size of
Slip
Number
of Slips
Total
Lineal Feet
Rate per
Lineal Foot
Potenial
Gross
income
Up to 20'
4
72
$20.00
$1,440
20' to 29'
6
150
$23.50
$3,525
30' to 39'
12
420
$32.00
$13,440
40' to 49'
15
638
$35.00
$22,313
50' to 59'
5
270
$40.00
$10,800
Larger
3
195
$46.00
$8.970
45
t,745
$60,488
Additional 5% for overhang /sideties:
$3,024
Potential
Gross Income
per Month:
$63,512
Annual Potential Gross Income:
$762,143
Occupancy
Our investigation of previously discussed marinas disclosed vacancy
rates of 3% to 12 %. The most representative marinas reflected vacancies
between 5% and 10 %.
After analysis of this data, which prevailed at the date of value, as
well as discussions with marina operators and other professionals involved
in a wide range of marine related activities as to general perceptions of the
prospects for the industry in Newport Harbor in the future, we concluded
that a well- informed operator of the subject marina would anticipate a 7%
vacancy rate, which is equivalent to 93% occupancy.
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GEORGE HAMILTON JONES, INC. 61
VALUATION — continued
Potential Gross Income: $762,143
Less Vacancy (7%): ($53,350)
Effective Gross Income: $708,793
Accordingly, it is our judgment that the well- informed lessee of the
Subject tidelands would anticipate that, at highest and best use in joinder
with the adjacent uplands, a marina operation would generate an effective
gross income of $708,793 per year.
Effective Gross Income:
$708,793 per year
Percentage Rent of a Marina (Uplands and Tidelands in Joinder)
In Southern California, most marina developments are constructed
as part of publicly owned projects under the jurisdiction of a governmental
entity, such as City, County, or Port District, that controls both land and
water. The improvements are typically built by the lessee pursuant to long -
term leases of the land and water in joinder.
We made an extensive investigation of these existing leases, the
details of which provided empirical evidence of the level of percentage
rent accepted by the market for land and water in joinder for marina
purposes throughout Southern California. The marina projects and
governmental jurisdictions that were surveyed are:
PROJECT
JURISDICTION
San Diego Bay
Port of San Diego
Mission Bay
City of San Diego
Oceanside Harbor
Oceanside Harbor District
Newport Harbor
Private/ City/ County
Sunset Aquatic Park
County of Orange/ Private
Long Beach Marina
City of Long Beach
Downtown Shoreline Marina
City of Long Beach
Los Angeles Harbor
Port of Los Angeles
Marina del Rey
County of Los Angeles
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GEORGE HAMILTON JONES, INC. 62
VALUATION — continued
King Harbor
City of Redondo Beach
Channel Islands Harbor — Oxnard
County of Ventura
Ventura Marina
Ventura Port District
Santa Barbara Harbor
City of Santa Barbara
The survey data for specific marina percentage rents found at various
harbors throughout Southern California are summarized below. This market
information was confirmed with managers, lessors and operators.
]urisdiction Slip Rents I
San Diego Port District
22%
City of San Diego
25 %; Some 20%
Dunes, Newport Beach
25% Bridge Restricted
Bay Club Newport
31% (Pt. Bay Club Lease)
Huntington Harbor
Graduated 25% to 35%
Marina del Rey
25%
Redondo Beach
25%
Ventura Harbor
23.5%
Channel Islands Harbor
25%
These market data items represent negotiated transactions in which
both lessee and lessor were acting prudently and knowledgeably and neither
was under any undue compulsion to consummate the lease. Recent
interviews with participants active in lease negotiations indicated that San
Diego Port District, City of San Diego and Ventura Harbor are all
attempting to establish a consistent rate of 25 %.
In Redondo Beach, a recent arbitration determined a percentage rate at
25 %, even though an older lease remains at 27 %. A recent interview of
James Allen of King Harbor in Redondo Beach indicated that in the
upcoming revaluation of the Portofino Marina they will lower the current
27% rate to 25 %. Of the 23 marinas in Marina Del Rey, at the date of value
all but three were at 25 %. The others were at 20 %.
There is no evidence that these percentage rents will be adjusted in the
near future even though slip rates in the newer projects are currently at levels
approaching those found in Newport Harbor. The proposed Marina del Rey
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GEORGE HAMILTON JONES, INC. 63
VALUATION — continued
Hotel Marina will reportedly be subject to a rental at 25% of the gross
revenue.
From the panorama of empirical data presented above, it is apparent
that 25% of slip revenue is almost universally accepted as an appropriate
percentage to be applied to leases of marinas with uplands and tidelands
operating in joinder. Accordingly, we concluded that a rental rate of 25% of
gross revenues at the subject property would be well supported if the
tidelands and appropriate uplands were available in joinder.
Percentage Rental Rate — Tidelands & Upland in Joinder: 25%
Allocation of Market Rent Between Uplands and Tidelands
The foregoing discussions have set out the pertinent criteria, based
upon market evidence, in forming an opinion of the market rent for the
subject tidelands under the extraordinary assumption of joinder with the
adjacent uplands. The appraisal problem is to develop a supportable
estimate of what portion of total revenue generated by the marina should
be appropriately allocated between the uplands and the tidelands.
The procedure to achieve this end involves the following steps:
1. Form an opinion of the Effective Gross Income of the
marina operation (land and water in joinder).
2. Determine the market rent due for land and water in
joinder by application of the market - derived percentage
rent factor of 25 %.
3. Deduct the appropriate return to the uplands that would
reflect the enhancement that accrues to the property by
virtue of joinder (above the anticipated return as an
independent parcel).
4. The residual amount represents the market rent for the
tidelands at its highest and best use in joinder with the
uplands for marina use.
5. Express the market rent for the tidelands as a percentage
of the Effective Gross Income and as Price per Square
Foot of tidelands.
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GEORGE HAMILTON JONES, INC. 64
Marina Income Analysis
Size of
Slip
Number Total Rate per
of Slips Lineal Feet. Lineal Foot
Gross
Income
Up to 20'
4 72 S20.00
SL44(
20' to 29'
6 150 523.50
53,52`
30' to 39'
12 420 S32.00
S13,44(
40' to 49'
15 638 535.00
522.31:
50' to 59'
5 270 540.00
S10.80(
Larger
3 195 546.00
58_97(
552.198
45 1.745
S60,4K
Additional 5% for overhang /sideties:
$3,02,
Potential Gross Income per Month:
563,51:
Annual Potential Gross Income:
5762,14]
Occupancy: 93.00%
Effective Gross Income per Month:
$59,066
Annual Effective Gross Income:
5708,793
Percentage Rent to Land and Water @ 25 %:
S177,.198
Uplands Land Area (sq. ft.): 10,000
Value ol'Uplands per Sq. Ft. 5250.00
Indicated Total Value of Uplands: 52,500,000
Percent Return to Uplands: 5.00%
Indicated Return to Uplands: S125,000
Indicated .Allocation of Rent to Uplands:
S125,000
Indicated Residual Allocation of Rent to Tidelands:
552.198
Tidelands Rent as % of Effective Gross Income:
7.36%
Indicated Annual Tidelands Rent per Sq. Ft.: $0.93
Total Water Area (sq. ft.): 56,000
Total Water Area/ Slip: 1,244
Lineal Feet per Slip: 38.8
Water Area per Lineal Foot: 32.1
Average Price per lineal foot: 536.41
GEORGE HAMILTON JONES, INC. 65
VALUATION — continued
A summary of these steps is set out below. The details of this
analysis are presented on the page opposite.
1. Effective Gross Income:
$708,793
2. Market Rent for Uplands and
$11.200
Water in Joinder @ 25 %:
$1.77,198
3. Allocation Rent to Uplands:
$125,000
4. Residual Rent to Tidelands:
$52,198
5. Market Rent as % of Gross:
7.36%
Market Rent as $ /sq. ft. tidelands:
$0.93
As discussed earlier, the unique situation of having a single
seller /lessor (a monopoly) and a single buyer (monopsony) creates a
bilateral monopoly in which the price (market rent of the tidelands) will be
affected by the interdependence of the parties. It is assumed that, as in all
open market conditions, both entities are acting in their own best interests
with no undue compulsion to complete the transaction, which, in this case,
is joinder for marina purposes. The motivation for each party in joinder is
to obtain a return greater than they would have received as independent
sites.
To judge whether the indication of market rent for the tidelands
expressed above is reasonable in the light of these bilateral monopoly
dynamics, the follow analysis was undertaken.
First, the expected annual return for each parcel as an independent
site was determined. This has been discussed in the pages above.
Uplands Parcel:
$75,000
Tidelands Parcel:
$11.200
Total Both Parcels:
$86,200
The total enhancement by virtue of joinder was determined.
Total Revenue in Joinder:
$177,198
Total Both Parcels as Independent:
($86,200)
Indicated Enhancement:
$90,998
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GEORGE HAMILTON JONES, INC. 66
VALUATION — continued
Therefore, there is a $90,998 "pie" of enhancement to be divided
between the two parties. In the analysis above, $50,000 of that "pie" was
allocated to the uplands ($75,000 to $125,000). This was considered to be
a reasonable threshold level of motivation to entice a well- informed owner
of the uplands to commit to joinder for marina use.
This $50,000 represents 55% of the "pie" ($50,000/$90,998). It also
represents a 67% enhancement on the return for the uplands owner
($75,000 to $125,000).
Correspondingly, the tidelands benefits by sharing in 45% of the
"pie ". While this is less than a 50/50 split of the enhancement, the income
to the tidelands by virtue of joinder is increased 4.66 times, or 366 %.
Therefore, while a greater share of the total enhancement is
allocated, in whole number terms, to the uplands, the benefit to the
tidelands, relative to its value as an independent site, is proportionately far
greater than for the uplands.
As the definition of a bilateral monopoly states, there is no market -
based method for judging the appropriate allocation of enhancement; it is a
matter of negotiations between parties and is best analyzed through a test
of reasonableness, while acknowledging that both parties must benefit by
the transaction 2 In our judgment, most market participants would consider
the analysis above to be a fair and reasonable allocation of the total
enhancement by joinder between the two parties.
Approach I — Conclusion:
Based on the foregoing analyses, it is our judgment that the well -
informed lessor and lessee would consider the following rent for the
tidelands to be supported by market evidence and fair and reasonable:
Market Rent as a Percentage of Gross Income: 7.25% to 7.50%
Market Rent on a Price per Square Foot Basis: $0.90 to $0.95
' A 6% return to the uplands would result in a 100% proportional enhancement to the uplands
over its return as an independent parcel and a 143% proportional enhancement to the tidelands
over its expected return as an independent site. All other things being equal, this would reduce
the market rent to the tidelands to approximately 4% of gross revenue.
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GEORGE HAMILTON JONES, INC. 67
VALUATION — continued
Approach 2:
As discussed above, the methodology of Approach 2 is designed to
give weight to the fact of the ongoing existence of commercial marinas in
Newport Harbor and the established partnership between the uplands and
tidelands. This approach allocates the rent between the land and water
based on an equalized rate of return for each, considering the highest and
best use of each parcel.
This approach employs a 9 -step analysis which results in an
indication of market rent for subject tidelands generated by the marina at
its highest and best use. The first three steps in this process are the same as
those employed in Approach 1. The subsequent steps are designed to
reflect the established relationship between tidelands and uplands as joined
to a commercial marina use. In effect, this considers that joinder has
already occurred and is operative.
The steps are initially listed below, with an explanation of their
application following.
1. Estimate the value of the tidelands independent of the uplands.
2. Estimate the value of the uplands independent of the tidelands.
3. Estimate the market rent of the uplands and tidelands in joinder
as a marina.
4. Analyze the arithmetic distribution of that rental to the tidelands
by the relative area of the tidelands relative to the total area of
the tidelands and uplands in joinder (as a marina).
5. Estimate the market rent of the uplands at its highest and best
use, expressed as a dollar amount return on the value of the
property.
6. Determine the ratio of the arithmetically allocated market rent of
the tidelands considered in joinder to the combined market rent
of the tidelands and uplands at their respective highest and best
use values.
7. Develop a preliminary indication of the apportioned rent to
tidelands.
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GEORGE HAMILTON JONES, INC. 68
VALUATION — continued
8. Adjust apportioned rent in accordance with each component's
relative relationship to the actual total rent in joinder.
9. Allocate fair rental value (market rent) between uplands and
tidelands as a dollar amount.
1. Estimate the Value of Tidelands Independent of the Uplands:
This step was discussed in Approach 1, and the conclusion was as
follows:
56,000 sq. ft. @ $0.20 per sq. ft. = $11,200 annual rent
Capitalized @ 5% = $224,000, or $4.00 per square foot'
2. Value of the Tidelands Independent of the Uplands:
This step was discussed in Approach 1, and the conclusion was as
follows:
10,000 sq. ft. @ $250 per sq. ft. = $2,500,000
3. Market Rent of Uplands and Tidelands in Joinder as Marina:
This computation derives the total dollar amount of rental due
for the subject marina operation at its highest and best use based on
the market evidence presented earlier that the appropriate rent for the
land and water areas necessary to the operation of a modern marina
facility is equivalent to 25% of the total gross slip rental generated
within the project.
This step was presented in Approach 1 as well. It was derived
by multiplying the Effective Gross Income by the market -based
percentage rent of 25% as follows:
3 Note: The California Code of Regulations indicates that public lands shall be leased at a
percentage of annual gross income, or 9% of the appraised value of the leased land. Based on
the capitalized value of the tidelands as an independent parcel of $4.00 per square foot, this 9%
criterion would reflect rent of $0.36 per square foot per year.
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GEORGE HAMILTON JONES, INC. 69
VALUATION — continued
Effective Gross Income:
Percentage Rent (25 %):
Market Rent in Joinder:
$762,143
x .25
$177,1.98
4. Determine the Arithmetic Distribution of the Tidelands Relative to the Total
Area of Tidelands and Uplands in Joinder:
This is simply a mathematical calculation. It distributes the
rental to the tidelands in accordance with its area in relation to the
combined area of upland and tidelands. The subject tidelands
comprise 56,000 square feet of water area. It requires access to
10,000 square feet of uplands to accommodate the required 27
parking spaces and an additional 550 square feet of land for
bathrooms, showers, walkways /office to serve the marina use. The
total required area for the marina operation is 66,000 square feet.
Arithmetic proportion of tidelands = 56,000 = 85%
66,000
Relative distribution of rental to the tidelands as a proportion
of the total marina area (land and water) =
0.85 x $177,198 = $150,618
Arithmetic Distribution of Rental to Tidelands by Area: $150,618/yr.
5. Fair Rental Value Uplands In Joinder with the Tidelands:
The market indicates that in the Newport Harbor area the well -
informed investor can anticipate a far lower return on land value than
would be the case in many other locations. This is reasonably ascribed
to the capital appreciation potential of the sites, which arises from the
limited supply and the lack of comparable alternative locations.
Accordingly, based on market evidence, we believe a 5% rate
can be supported as market rent for the uplands as of the date of value
in joinder with tidelands. As discussed earlier, this reflects the
appropriate enhancement of the return to the uplands by reason of
joinder for marina use above the return as an independent site.
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GEORGE HAMILTON JONES, INC. 70
VALUATION — continued
The equation applicable to this step is:
Fair Rental Value Uplands = Value Uplands x 5%
Application to Subject Uplands:
$2,500,000 x .05 = $125 ,000 /year
Fair Rental Value Uplands in Joinder with Tidelands: $125,000/ year
6. Ratio of the Arithmetically Distributed Market Rent of Tidelands to the
Combined Market Rents of the Tidelands and Uplands at Their Respective
Highest and Best Uses:
As shown in Step 4 above, the maximum dollar rent allocation
that can be placed on the tidelands is that which can be calculated as
an arithmetic distribution of the rental value of the water and the
uplands in accordance with the area of each element. This requires
joinder of the two. Without joinder, the value of the tidelands
independently, as stated in Step I above, is limited.
The function of this step is to adjust this arithmetic relationship
between the parts so that the uplands receives an appropriate share of
the revenue that is reflective of its highest and best use, with the
residual apportioned to the tidelands. This requires an adjustment in
distribution of rental revenue from a strictly arithmetic basis to an
economic basis reflecting the uplands highest and best use.
In order to accomplish this, it is necessary to measure the
relationship (ratio), in terms of rent allocation, of the tidelands at its
highest and best use (in joinder) to the combined contribution of each
part at their individual highest and best uses.
The equation applicable to this step is as follows:
Ratio =
Tideland Rent Apportioned by Area
Tideland Rent Apportioned by Area + Upland Rent in Joinder
Ratio = $150,618 — $150.6 t8
$150,618x +$125,000 $275,618 = 54.7%
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GEORGE HAMILTON JONES, INC. 71
VALUATION — continued
Ratio of the Rental of the Tidelands by Area to Combined
Rental of Each Component at Highest and Best Use: 54.7%
7. Preliminary Indication of Apportioned Rental to Tidelands:
This step is simply the application of the above ratio to the
tidelands arithmetic portion of the total land and water (in joinder)
market rent indication (Step 4). In this way, the uplands receive a
return commensurate with its highest and best use while operating in
joinder with the tidelands. The equation for this step is:
Arithmetic Tidelands Rental by Area x Ratio
$150,618 x 0.547 = .$82,388
Preliminary Apportioned Rental to Tidelands: . $82,388/ year
This is not the final allocation, since an adjustment must be
made to further equalize the return to each component in relation to the
actual total revenue generated by the marina use (land and water in
joinder).
8. Adjustment of Apportioned Rent:
are:
Up to this point, we have three rental estimates available. They
a) Fair Rental Value Tidelands and Uplands in Joinder as a
Marina (Step 3): $177,198 /year.
b) Fair Rental Value of Uplands at Highest and Best Use in
Joinder (Step 5): $125,000 /year.
c) Preliminary Indication of Apportioned Rental to
Tidelands Reflecting Joinder (Step 7): $82,388/year.
It has been established that the tidelands and uplands in joinder
have a provable market rental value. That fair rental value was
$177,1.98 per year.
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GEORGE HAMILTON JONES, INC. 72
VALUATION — continued
This total rent must therefore be apportioned respectively so that
the tidelands and uplands each receive an adjusted portion of this
amount. The relative relationship of the rents should be equivalent to
the same proportion to their relative rental values as shown in Items (b)
and (c) above.
Saying it another way, the summation of the ultimate fair rental
values of each element, when in joinder and restricted to the use as a
marina, cannot exceed the $177,198 per year. This is the economic
rental value of the combined properties. Therefore, a factor must be
developed which will adjust each of the independent rental indications
so that combined values are equivalent to the total rent for the marina.
This is best shown through the following:
Total Fair Rental Value Uplands
and Tidelands in Joinder as a Marina: $177,198
Preliminary Tidelands Rent: $82,388
Market Rent Uplands at H & B Use: $125,000
Total: $207,388
Required Adjustment Factor = $177,198 - $207,388 = 0.8544
Equalization Adjustment Factor: 0.8544
9. Allocation of Fair Rental Value:
This penultimate step is carried out by applying the adjustment
factor to the two proportionate rental estimates previously calculated.
The equation is therefore:
Market Rental Value Tidelands = Adjustment Factor x
Preliminary Tidelands Rent
and
Market Rental Uplands = Adjustment Factor x Market
Rent of Uplands at H & B Use
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GEORGE HAMILTON JONES, INC. 73
VALUATION — continued
Market Rental Value Tidelands = 0.8544 x $82,388
and
Market Rental Value Uplands
Check:
= $70,392 per year
= 0.8544 x $1.25,000
= $106,800/ year
$70,392 + $106,800 = $177,192/ year
Tidelands Market Rent Conclusion: $70,392 per year
This is equivalent to:
9.93% of Effective Gross Income, or
56,000 square feet @ $1.26 per square foot per year
Test Through Capitalized Value Analysis:
Our interviews with active market participants
(buyers /sellers /operators) in the commercial marina business indicated
that, in the current market, operating marinas are typically purchased at a
capitalized value of 8 % to 1.0% of the net operating income.
Under the assumption that the income derived under the percentage
rent represents a portion of the fee owner's net operating income, we tested
the indications above by comparing the relative yields to each of the
investments (land and water). We did this by using a capitalized value for
the tidelands based upon its arithmetic contribution to market rent for the
total marina (land and water in joinder), and the upland investment based
upon the sales comparison analysis.
1. From Step 4 above, Arithmetic Rental of Tidelands by Area:
85% of $1.77,198 = $150,618
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GEORGE HAMILTON JONES, INC. 74
VALUATION — continued
2. Capitalized Value of Tidelands @ 9 %:
$150,618 - .09 = $1,673,533
3. Value of Uplands by Sales Comparison Approach:
$2,500,000
4. Equalized Rate of Return of Total Value at H & B Use:
Capitalized Value of Tidelands: $1,673,533
Value of Uplands: $2,500,000
Total Value: $4,173,533
Effective Return by Market Rent;
$177,198 _ $4,173,533 = 4.25%
5. Equalized Allocation of Return Between Tidelands and Uplands
at Highest and Best Use:
Tidelands:
$1,673,533 x .0425 = $71,125
Uplands:
$$2,500,000 x .0425 $106.250
$177,375
(Compares to $177,198 by rounding)
6. Indicated Tidelands Rental:
$71,125 — This is equivalent to:
10.0% of Effective Gross Income, or
56,000 square feet @ $1.27 per square foot.
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GEORGE HAMILTON JONES, INC. 75
VALUATION — continued
This test based on capitalized value supports the indication of
tidelands rent based upon an equalized rate of return for each, considering
the highest and best use of each parcel.
Approach 2 — Conclusion:
Based on the methodology of Approach 2, which was designed to
address the interrelationship between tidelands and uplands in terms of
equalizing the allocation of market rent for established marinas, it is our
judgment that the well - informed lessor and lessee would consider the
following rent for the tidelands to be reflective of prevailing market
conditions:
Market Rent as a Percentage of Gross Income: 10.0%
Market Rent on a Price per Square Foot Basis: $1.26
Approach 3:
As indicated in the Introduction to this Valuation Section of the
report, our search for market data of directly comparable leases of tidelands
only for marina use revealed only a limited number of potential data items
throughout all of Southern California. According to the records of the
Department of Navigation and Ocean Development, less than 10% of the
berthing spaces in Southern California involve privately owned uplands.
Most of these privately owned marinas are in Newport Harbor.
Our investigations uncovered only five leases that were potentially
appropriately comparable to the subject for meaningful. comparative
analysis. Three of these were in Newport Harbor, one in San Diego, and
one in Huntington Harbor. In our judgment, two of the leases in Newport
Harbor did not represent open market transactions where each party was
"acting prudently and knowledgeably, and ...the price was unaffected by
undue stimulus."' We will provide a short discussion of each of the leases
to be followed by analysis. We will begin with the three leases in Newport
Harbor.
a Definition of Market Value: The Dictionary of Real Estate Appraisal, Fifth Edition.
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GEORGE HAMILTON JONES, INC. 76
VALUATION — continued
Bahia Corinthian Yacht Club:
Date: May 7, 1998 .
Term: 35 Years — New Lease
Area of Tidelands: 76,550 Square Feet
Rental: 9% of Gross Slip Rental
This was a new lease based upon an appraisal prepared by an
independent appraiser. The lessor was the City of Newport Beach and the
lessee was the Bahia Corinthian Yacht Club. It is considered an open
market transaction with neither lessor nor lessee affected by undue
stimulus.
Bayshores Marina:
Date: December 7, 2004
Term: 20 Years with Option
Area of Tidelands: 2.297 AC — 100,057 Square Feet
Rental: 20% of Gross Slip Rental
This lease agreement is an outgrowth of an original lease, which was
entered into in 1974, between the County of Orange as lessor and The
Irvine Company as lessee. One of the undersigned, George Hamilton
Jones, MAI, has personal knowledge regarding the terms of the original
lease. In that agreement, rental value was based upon a formula, expressed
as percentage rent, that was to be adjusted to account for increasing upland
values. It has been reported to this office that there was confusion in
implementing these adjustments. As a consequence, by failing to make the
appropriate adjustments for increases in land value, the inflationary
increases in effective gross rental income (increasing slip rental rates) over
time resulted in ever increasing percentage rental rates for the tidelands,'
It has been reported that the 20% figure was reached through this
misunderstanding and had no basis in independent analysis or reference to
supporting market evidence. Our interviews with involved parties indicated
' This phenomenon was implicitly addressed in sensitivity analyses carried out in Approach I
and retained in our files. All other elements being equal, a decrease in uplands value results in
an increase in indicated percentage rent to the tidelands. Likewise, an increase in uplands land
value results in a lower indication in percentage rent for the tidelands.
-55-
GEORGE HAMILTON JONES, INC. 77
VALUATION — continued
that when the new (2004) lease was entered into, no independent appraisal
was performed to establish market rent and the prevailing rate of 20% was
simply continued.
In our judgment, this transaction does not represent an open market
exchange for several reasons. First, there was no independent appraisal
undertaken to provide an unbiased opinion of market rent. Second, the
lessee had a large capital investment in an operating marina; which it could
not readily walk away from, for both economic reasons and the fact that it
had an obligation to serve existing tenants.
Finally, the lessee was California Recreation Company, a subsidiary
of The Irvine Company, which, as most readers will know, is a very large
property owner with a wide range of business and property interests
throughout the Orange County community. This marina is a small part of a
very large operation. Therefore, this is considered to be a special
buyer /lessee, not reflective of the market generally. The uplands property
was purchased in excess of fifty years prior to entering the lease, and it has
been essentially dedicated to marina support use. Because of the nominal
effective investment in land for this particular lessee, the economic
considerations of the lessee are not equivalent to those of a well - informed
owner of vacant land at the date of value seeking to develop that land to its
highest and best use. In essence, the lessee was not "typically motivated"
per the definition of market value.
For the above reasons this lease transaction was judged not to meet
the standards of a "competitive and open market" and was given nominal
weight in this analysis.
Swales Anchorage
Date of Lease: November 25, 2011 .
Term: 3 -Year Interim Lease
Area of Tidelands: 1.15 AC — 50,094 Square Feet
Rental: $6,000 per Month
These tidelands were originally leased by the County of Orange to
the Falwell Family, which was leasing the uplands from The Irvine
Company, in 1.971. Shortly prior to the revaluation in 1991, the lessee had
made a substantial investment in upgrading the marina improvements.
-56-
GEORGE HAMILTON JONES, INC. 78
VALUATION — continued
When the County raised the percentage rent to 20 %, Mr. Falwell
actively challenged this level of rent; however, there was no established
forum or court for seeking adjudication by any third party entity. Legal
counsel was employed by Mr. Falwell in order to seek hearing in which an
independent opinion of market rent would be presented. These efforts went
up to the level of the County Board of Supervisors, but they refused to
consider the matter.
With no other legal recourse available, and given the substantial
investment in the marina improvements, the Falwell Family had no option
but to accept the rent terms. Prior interviews with the principal lessee and
his counsel indicated these circumstances created substantial economic
hardships that had negative long -term consequences. The 1991 revaluation,
which set the rent at 20% of the gross income, is not considered to have
had a willing lessee nor was it, in our judgment, reflective of an "open and
competitive market."
The current lease at Swales Anchorage is between the County of
Orange and Palmo Investments as lessee. It is an interim lease with a three -
year term, commencing July 1, 2011. The rent is a flat rate of $6,000 per
month and is not based upon a percentage rent. The lease indicates that the
tenant is challenging the ownership of the tidelands by the County.
Because of the conditions of the 1991 revaluation, with an unwilling
lessee who sought to challenge the 20% rent terms but could not have the
matter heard for independent adjudication (as is the case in other
jurisdictions), and the interim nature of the current lease agreement which
is based on a flat monthly rate and is concurrently being contested, this is
not judged to be an transaction that occurred in an "open and competitive
market" with a lessee in circumstances anywhere analogous to having a
vacant site available for its highest and best use. Thus, it is not judged to be
an open market data item and is given nominal consideration in the market
rent analysis.
-57-
GEORGE HAMILTON JONES, INC. 79
VALUATION — continued
Sunset Harbor Marina
Date of Lease: January 1, 2000
Term: 40 years
Area of Tidelands: A tidelands portion of substantially larger
(50± acres) Sunset Aquatic Marina project
Rental: 8.5% of gross revenue generated from boat
berthing.
This marina is located in the westerly portion of Huntington Harbor
adjacent to Anaheim Bay in Seal Beach. Access to the open ocean is from
Anaheim Bay. This is part of the much larger Sunset Aquatic Marina,
which includes a wide range water- oriented recreational activities and
services. In additional to the commercial marina, these uses include a
launch ramp, dry storage; RV storage, parks, and an on -site shipyard.
The lease was of the tidelands -only, for 40 years with the State of
California as lessor and County of Orange as lessee. The rent is 8.5% of
the gross revenue generated from marina berthing.
Glorietta Bay Marina
Date of Lease: July 1, 2012
Term: 40 years
Area of Tidelands: 140,780 sq. ft. of tidelands only
Rental: 11.0% of gross revenue generated from
slip rental with a three -year build -up at
$11,616 per year to a $95,000 per year
minimum against the I I% of the gross.
This forty -year lease agreement is of the tidelands only portion of
the Glorietta Bay Marina. The tidelands are occupied by a 100 -slip marina
at a density of approximately 1,400 square feet per slip. Because the water
area made up approximately 50% of the total marina area, the San Diego
Unified Port District prorated the Board - adopted rate of 22% (for land and
water) at 50% to obtain the I I% for the tidelands alone. The lease was
adopted at the San Diego Unified Port District Board Meeting August 1.4,
2012.
-58-
GEORGE HAMILTON JONES, INC. 80
VALUATION — continued
This new 40 -year lease was entered into in recognition of the fact
that the lessee would, in the near term, complete a total replacement of the
marina improvements. The lease specifically allows for a 40 -year term in
order to provide sufficient time for amortization of the $6,600,000 capital
investment over the term of the lease. This lease is considered a reasonably
negotiated instrument in which both parties were acting in their own best
interests, and with an understanding of the economic needs of both parties
in obtaining highest and best use.
Approach 3 — Conclusion:
As spelled out in the analyses above, our understanding of the
conditions of two of the leases reviewed — Bayshores Marina and Swales
Anchorage — preclude them from being considered appropriate market data
items in that they did not meet the standards of an open market transaction.
These are the standards of market value as defined by agencies that
regulate federally insured financial institutions in the United States and by
the Appraisal Institute, the standard of market rent as defined by The
Appraisal Institute; and California Code of Civil Procedure (1.263.320).
The other data indicated a range of 8.5% to 11.0% of gross revenues
for the tidelands only. Among these only one market rental rate was based
upon an independent appraisal. This was the 9.0% at the Bahia Corinthian
Yacht Club in Newport Harbor. Overall, it is our judgment that this data
indicates a range of percentage market rent for the tidelands only of 9.0%
to 10.0 %.
Market Rent as a Percentage of Gross Income: 9.0% to 10.0%
Reconciliation:
In this valuation analysis three approaches to judging market rent for
the subject tidelands were used. These studies recognized that the subject
property is an independent tidelands parcel with no rights of access to the
adjacent uplands. Because such access is necessary for the operation of a
commercial marina, this valuation invoked the extraordinary assumption
that the subject has access to the adjacent uplands. This allowed us to carry
G The Appraisal of Real Estate, The Appraisal Institute, I Th Edition, pg. 23.
-59-
GEORGE HAMILTON JONES, INC. 81
VALUATION — continued
out a meaningful analysis of the tidelands as dedicated to commercial
marina use.
Approach 1 used market evidence to consider the value of both the
tidelands and the uplands as independent. This was done in order to gain a
frame of reference of the economic benefits, if any, that joinder of the two
parcels for marina purposes would generate. Discussions were presented
regarding the economic considerations of a bilateral monopoly, and the
reasonable expectations of the two parties who undertake joinder. It was
recognized that, in joinder, both parties would require an enhancement in
the returns over what would be expected as independent sites.
The allocation of the enhancement, as set out in the analysis in
Approach 1, was shown to be reasonable and fair and consistent what
would be expected by well- informed participants acting without any undue
stimulus. Approach 1. resulted in an indication of market rent for the
subject property of 7.25% to 7.50% of the gross rental income, or $0.90 to
$0.95 per square foot of tidelands area.
Approach 2 employed the same fundamental economic principles as
did Approach 1, but also included analyses designed to equalize the return
to each parcel (at its highest and best use in joinder). This approach gave
increased weight to the subject tidelands as already effectively joined to
the uplands. This is recognized to be a benefit to the tidelands, especially
in light of earlier discussions regarding the relative value of the parcels as
independent entities.
This approach is judged to more closely reflect the condition of an
established marina, as opposed to the assumption of vacant land and
tidelands that is implicit in Approach 1.
The Approach 2 analysis reflected market rent for the subject
property of 10.0% of the gross rental income and $1.26 per square foot of
tidelands area.
Approach 3 involved analysis of tidelands -only leases.
Unfortunately, there are very few of these leases in the Southern California
region because the vast majority of tidelands leases for marina purposes
include joint lease with the supporting uplands. There were three leases in
Newport Harbor. One of these, which was given considerable weight in
-60-
GEORGE HAMILTON JONES, INC. 82
VALUATION — continued
this reconciliation, was based upon an independent appraisal of market
rent. It was a new lease (as opposed to a lease extension), and was entered
into by well- informed parties under no undue influence to consummate the
lease. This transaction was the BCYC lease and was based upon 9.0% of
the gross revenue generated by slip rentals.
A discussion of the conditions surrounding the other two leases in
Newport Harbor — Bayshores Marina and Swales Anchorage — led us to
conclude that neither one of these leases met the standards of an open
market transaction. Accordingly, they were not considered reflective of
market rent and were given nominal weight in this reconciliation.
Even though they were not based upon independent appraisals, the
leases at Glorietta Bay (l l % of gross) and Sunset Harbor Marina (8.5% of
gross) represent leases entered into by well- informed participants under no
undue influences. At Glorietta Bay, the lease specifically recognizes that
the tenant is fully replacing the improvements, and the 40 -year lease term
is in recognition of that fact.
In our judgment, the open- market tidelands -only lease data
represented a range of 8.5% to 11.0 %, with greatest weight given to the
BCYC lease at 9.0% because both parties were well- informed, acting in
their own best interests, and based their acceptance of lease terms on an
independent (3`d party) assessment of market rent.
Summary of Indications:
Approach 1: 7.25% to 7.50% of gross revenue
$0.90 to $0.95 per square foot of tidelands
Approach 2: 10% of gross revenue
$1.26 per square foot
Approach 3: 8.5% to 11.0% of gross revenue
In our opinion, Approach 1 most closely represents the theoretical
condition of the subject tidelands property as a vacant parcel with a
dimension of 700 feet x 80 feet (56,000 square feet) in joinder with 10,000
square feet of vacant adjacent uplands; however, in this reconciliation
slightly greater weight was given to Approach 2, which is designed to
-61-
GEORGE HAMILTON JONES, INC. 83
VALUATION — continued
more closely reflect the existing (and operative) joinder of tidelands and
uplands as was actually found in Newport Harbor at the date of value.
Approach 3 supported this weighting by virtue of the fact that the
low end of its indications was above Approach 1. Amongst these tidelands -
only data, the 9.0% indication of the BCYC lease was given greatest
priority because it was based upon an independent appraisal that was
accepted by both parties acting without any undue stimulus for a particular
market rent conclusion.
In light of all the foregoing, and other less pertinent factors, we
formed the opinion that market rent for the subject tidelands property, as
dedicated to marina use and considering the extraordinary assumption of
joinder with the adjacent uplands parcel, was, as of July 15, 2012,
equivalent to:
9.50% of the gross slip rental revenue, or
$1.20 per square foot of tidelands.
MARKET RENT CONCLUSION
9.50% of gross revenues, or
$1.20 per square foot of tidelands
-62-
GEORGE HAMILTON JONES, INC. 84
GEORGE HAMILTON JONES, INC. 85
CERTIFICATION
The undersigned hereby certify that:
I . Mr. George H. Jones and Mr. Casey O. Jones have inspected the Newport Harbor tidelands
and adjacent uplands on numerous occasions over several decades. The most recent was in
the several weeks before and after the date of value.
2. 'ro the hest of our knowledge and belief, the. statements of fact contained in this report.
upon which the analyses, opinions, and conclusions expressed herein are hosed. are true
and correct.
3. The reported analyses. opinions, and conclusions are limited only by the assumptions and
limiting conditions stated herein, and are the personal. unbiased professional analyses.
opinions. and conclusions of the undersigned. Those limiting conditions (imposed by the
terms of the assignment or by the undersigned) considered to affect the analyses, opinions.
and conclusions are contained in this report.
4. We have no present or prospective interest in the property that is the subject of this report.
We have no personal interest or bias with respect to the subject matter of this report or the
parties involved. We have appraised the subject site on a quarterly basis during the three -
year period immediately preceding the acceptance of this assignment.
i, The engagement of our Jinn and the. compensation for this assignment are. not contingent
upon the development or reporting of a predetermined value or result; or direction in value,
that favors the cause of the client, the amount of the value estimate, the attainment of a
stipulated result. or the occurrence of a subsequent event directly related to the intended use
of this appraisal.
6. "["his report is not conditioned upon a requested minimum valuation. a specific, valuation, or
the approval of a loan.
7. ' )'his report. and the analyses, opinions, and conclusions contained herein, have been made
in conformity with and are subject to the requirements of the Code of Professional Ethics
and Standards of Professional Practice of the Appraisal Institute, and the Uniform
Standards of Professional Appraisal Practice.
8. No one other than the undersigned prepared the analyses. conclusions, and opinions, or
provided other significant professional assistance concerning the real property interests than
arc. the subject of this report.
Y. The Appraisal Institute conducts a program of continuing education for its designated
members. As of the date of this report. Mr. George Jones and Mr. Case%. Jones have
completed the requirements of the continuing education program of the Appraisal Institute.
George Hamilton.lones. MAi
(State Certified General Real Estate
Appraiser No. AG005632)
ascv O.Jones i I
(Sta le Certilie General Real Estate
Appraiser No. AG041862)
GEORGE HAMILTON JONES, INC.
86
LIMITING CONDITIONS
The Code of Professional Ethics and the Standards of Professional
Practice of the Appraisal Institute require that all assumptions and limiting
conditions that affect the analysis be clearly and accurately set forth. To
assist the reader in interpreting this report, the primary assumptions and
limiting conditions affecting the analysis of the subject properties are set
forth below. Other assumptions and conditions may be cited in relevant
sections of this report.
That the date of value to which the conclusions and opinions expressed in this
report apply is July 15, 201.2. Further, that the dollar amount of any value opinion
herein rendered is based upon the purchasing power of the American dollar
existing on those dates.
That the appraisers assume no responsibility for economic or physical factors
which may affect the opinion herein stated occurring at some date after the date of
value.
That the appraisers reserve the right to make such adjustments to the valuation
herein reported, as may be required by consideration of additional data or more
reliable data that may become available.
That no opinion as to title is rendered. Data related to ownership and legal
description was obtained from public records, and is considered reliable. Title is
assumed to be free and clear of all liens and encumbrances, easements and
restrictions, except those specifically discussed in the report. The property is
appraised assuming it to be under responsible ownership and competent
management, and available for its highest and best use.
Investigation of the property's history is confined to examination of recent
transactions or changes in title or vesting, if any, and does not include a "use
search" of historical property utilization.
That no engineering survey has been made by the appraisers. Except as
specifically stated, data relative to size and area was taken from sources
considered reliable and no encroachment of real property improvements is
considered to exist.
That maps, plats, and exhibits included herein are for illustration only as an aid in
visualizing matters discussed within the report. They should not be considered as
surveys or relied upon for any other purpose, nor should they be removed from,
reproduced, or used apart from this report.
As a premise of this report it is assumed that there is full compliance with all
applicable federal, state, and local environmental regulations and laws unless
noncompliance is stated, defined, and considered in the following analysis.
GEORGE HAMILTON JONES, INC. 87
LIMITING CONDITIONS - continued
That no opinion is intended to be expressed for matters which require legal
expertise or specialized investigation or knowledge beyond that customarily
employed by real estate appraisers. It is assumed that there are no hidden or
unapparent conditions of the property that render it more or less valuable. No
responsibility is assumed for such conditions or for the arranging of studies that
may be required to discover them.
The function of this report is to provide an opinion of the value of the real
property as herein defined. Under no circumstances should this report be
considered as providing any service or recommendation commonly performed by
a building inspector, structural engineer, architect, pest control inspector,
geologist, etc.
9. No soil report concerning the subject lot was available for our review. This
appraisal is based upon the premise that soil and underlying geologic conditions
are adequate to support standard construction consistent with highest and best use.
10. That no specific information was available for our review relating to hazardous
materials or toxic wastes that may affect the appraised property. Unless otherwise
stated in the report, we did not become aware of the presence of any such material
or substance during our investigation or inspection of the appraised property.
However, we are not qualified by reason of experience or training to identify such
materials or substances. The presence of such materials and substances may
adversely affect the value of subject property. This valuation is predicated on the
assumption that no such material or substance is present on or in the subject
properties or in such proximity thereto that it would prevent or impair
development of the land to its highest and best use or otherwise affect its value.
The appraisers assume no responsibility for the presence of any such substance or
material on or in the subject property, nor for any expertise or knowledge required
to discover the presence of such substance or material. Unless otherwise stated,
this report assumes the subject property is in compliance with all federal, state,
and local environmental Laws, regulations, and rules.
11. This appraisal and summary report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
12. Disclosure of the contents of this appraisal report is governed by the By -Laws and
Regulations of the Appraisal Institute.
Neither all nor any part of the contents of this report (especially any conclusions
as to value, the identity of the appraisers or the firm with which they are
connected, or any reference to the Appraisal Institute, or to the MAI designation)
shall be disseminated to the public through advertising media, public relations
media, news media, sales media, or any other public means of communication
without the prior written consent and approval of the authors.
GEORGE HAMILTON JONES, INC. 88
SALE 1
Location: 2623 West Coast Highway, Newport Beach
Assessor's Parcel: 049 -150- 01;049- 130 -11
Seller: Wells Fargo Bank, H.G. Trust, PCH Restaurant and Marina, LLC
Buyer:
Recording Data: Date Recorded: January 18, 2011
Document No.: 30551
Sale Price: $5,800,000 Price Per Sq. Ft. Land: $232.00
Price Per WFF: $319.00
Site Information:
Area:
Gross: 25,000 square feet
Net: 18,200 square feet
Parcel Shape:
Rectangular
Water Frontage:
100 feet
Depth to Pierhead:
80 feet
Water Area:
14,800 square feet (6800 square feet fee 8,000 square feet of city
tidelands
Zoning:
MU -W -I (Mixed Use Mariner's Mile)
Improvements: Older restaurant / retail building of limited value contribute. 20-
21 slips in water area.
Remarks: Same buyer of Sale No. 2. Hold for future mixed -use
development. Bulkhead recessed 68 feet.
Verification: Russ Fluter, Broker
GEORGE HAMILTON JONES, INC. 89
SALE 2
Location:
2607 W. Coast Highway, Newport Beach, CA
Assessor's Parcel:
049 - 150 -27
Seller:
Robert P. Mosier, Trustee GVECR 11 C Trust
Buyer:
Mike Moshayedi and Parto Moshayedi, Trustees
Recording Data:
Date Recorded: January 14, 20 10
Document No.: 21499
Sale Price:
$8,030,200 Price Per Sq. Ft. Land: $296.28
Price Per WFF: $71,062
Site Information:
Area: 27,103 square feet
Parcel Shape: Rectangular (113' x 240')
Water Frontage: 113 feet
Depth to Pierhead: 80 feet
Water Area: 9,040 between bulkhead and pierhead (city tidelands)
Zoning: MU -W 1 (Mixed Use Water Related)
Improvements: Improved with Joe's Crab Shack Restaurant (5,100 square
feet), originally constructed in 1968 and remodeled in 2008.
Remarks: This sale property was seized by the Securities and
Exchange Commission from prior owner. Sold at auction
for $7,300,000 plus 10% auctioneer's fee = $8,030,000.
GEORGE HAMILTON JONES, INC. 90
SALE 3
Location: 341 Bayside Drive, Newport Beach, CA
Assessor's Parcel: 050- 451 -08
Seller: Mile High Properties, Inc.
Buyer: THBK Investments, LLC
Recording Data: Date Recorded: December 18, 2009
Document No.: 679617
Sale Price: $5,500,000 Price Per Sq. Ft. Land: $308.71
Price Per WFF: $32,738
Site Information:
Area: 17,816 square feet
Parcel Shape: Rectangular (168' x 106')
Water Frontage: 168 feet
Zoning: CM 0.3 FAR (Recreational and Marine Commercial)
Improvements: Improved with 2 -story commercial office building (8,293
square feet), originally constructed in 1963 and
renovated /remodeled by purchaser after sale.
Remarks: A portion of the parking is shared with the adjacent
restaurant. This property excludes water rights.
GEORGE HAMILTON JONES, INC. 91
SALE 4
View southeasterly from Newport Blvd.
View southeast along waterfront.
Location:
2300 Newport Boulevard, Newport Beach, CA
Assessor's Parcel:
047 - 120 -31
Seller:
Blurock Investment A, LLC
Buyer:
ETCO Investment, LLC
Recording Data:
Date Recorded: December 26, 2004
Document No.: 150855
Sale Price: $18,000,000 Price Per Sq. Ft. Land: $171.46
Price Per WFF: $38,710
Site Information:
Area: 103,237 square feet
Parcel Shape: Irregular (465' x 225' average)
Water Frontage: 465 feet
Depth to Pierhead: 40 feet
Water Area: 18,600 between bulkhead and pierhead
Zoning: RMC at sale; MU -W2 (Mixed Use Water Related) current
Improvements: South Coast Shipyard and Design Center planned for
demolition after five -year entitlement process.
Building Size: 30,0 1 1 square feet
Remarks: The proposed development included 31,000 square feet of
retail and office space with 31 residential units on second
floor. This is generally comparable to proposed
development ideas at Lido Marina Village. Plans include
reconstruction and repair of the bulkhead, new boat slips,
subterranean parking, and improved public access with the
creation of a waterfront pedestrian path.
GEORGE HAMILTON JONES, INC. 92
SALE 5
�1
G� u�
View northeasterly of Sale I from 31" Street.
Location:
Assessor's Parcel:
Seller:
Buyer:
Recording Data:
Sale Price:
Site Information:
Area:
Parcel Shape:
Water Frontage:
Depth to Pierhead
Water Area:
Zoning:
Improvements
505 31" Street, Newport Beach, CA
047 - 031 -03
Ann B. McNamee Trust
Kerrageous I, LLC
Date Recorded: February 22, 2010
Document No.: 3631.88
$1,900,000 Price Per Sq. Ft. Land: $227.00
Price Per WFF: NA
8,370 square feet
Rectangular
NA
NA
NA
MU -CV (Mixed Use — Cannery Village)
Improved with old metal buildings (6,520 square feet) to be
occupied by the purchaser.
Remarks: Interior, non- waterfront, non -view site within Cannery
Village, on the west side of Via Lido and approximately
650 feet southwesterly from the southern end of the subject.
GEORGE HAMILTON JONES, INC. 93
SALE 6
c �
a
C2 i�l
� 7
y
Location:
209 Washington Street, Newport Beach CA
Assessor's Parcel:
048 - 216 -05
Recording Data:
Date Recorded: May 1.1, 2006
Document No.: 363188
Sale Price:
$900,000 Price Per Sq. Ft. Land: $300.00
Site Information:
Area:
3,000 square feet
Parcel Shape:
Rectangular
Water Frontage:
NA
Depth to Pierhead:
NA
Water Area:
NA
Zoning:
SP 8
Improvements:
Vacant
Remarks:
Purchased to add to Balboa Market.
GEORGE HAMILTON JONES, INC. 94
SALE 7
.�
emu} ? .� � °� 1 � •
w .
4 fj
-y Syr x:
5 -
.. �j(�",<<: pN�Sa,� �,� ��SBOy.' m � �IR� Q�if, `' �� ✓.r'
`ate (ry.-
Location:
608 E. Balboa Blvd., Newport Beach, CA
Assessor's Parcel:
048 - 1.16 -04
Recording Data:
Date Recorded: April 12, 2006
Sale Price:
$2,900,000 Price Per Sq. Ft. Land: $263.00
Site Information:
Area:
1 1,000 square feet
Parcel Shape:
100 feet X 100 feet
Zoning:
SP 8
Improvements:
5,275 square foot year old market building. 20 parking
spaces
Remarks:
Building unoccupied at sale. This site and Sale 6 sold to
city on 3/16/10 (Doc 124953) — now parking lot.
GEORGE HAMILTON JONES, INC. 95
QUALIFICATIONS OF GEORGE H. JONES, MAI
Member of the Appraisal Institute
Certified General Real Estate Appraiser, State of California, No. AGO05632
Certified General Real Estate Appraiser, State of Nevada, No. 04192
Educational:
High School: Pomona High School
College: Pomona Jr. College - 1941 . - 1942
Stanford University - 1942 - 1943
University of California at Berkeley (U.S.N.R. transferee) - June 1943 to
June 1944
Graduated Bachelor Applied Science (Engineering) - June 1944,
University of California at Berkeley
(non - interrupted four -year curriculum in three years).
Advanced Study: American Institute of Real Estate Appraisers - Candidate Study Courses I and
II, August - September, 1950; U.S.C. Engineering School, 1949 -1950
Professional:
10/51 to Date: Independent fee appraiser, primarily serving general Southern and Central
California areas, but with experience in Nevada, Arizona, Utah, and Honolulu.
Valuation of all classes of real property, residential, residential income;
commercial, industrial, agricultural and special purpose.
Experienced in problems of fair market value estimations, condemnation,
value of lease interest, fair rental estimates, economics of property utilization
and others.
1948 - 10151: Real Estate Appraiser, Bank of America, Los Angeles Headquarters.
Valuation of all classifications of real property for mortgage loan and fair
market value purposes throughout Southern California.
1946 - 1948: Estimator - Engineer and Chief Estimator - Engineer
Southern California area, Bank of America - Los Angeles Headquarters
Appraisal, secondary duty
1946 - 1946: Stress Group (Engineering) - Douglas Aircraft, Santa Monica
1944 - 1946: United States Navy, Structures Officer, U.S. Navy Air Corps
Qualified for court testimony as expert witness on real estate valuations in Superior Courts of Orange,
Los Angeles, Riverside, San Diego, San Bernardino, Santa Barbara, San Luis Obispo Counties and Salt
Lake City, Utah. Also U.S. Federal Court in Fresno and Los Angeles; U.S. Tax Court in Los Angeles;
GEORGE HAMILTON JONES, INC. 96
Qualifications of George H. Jones, MAI
Page 2
U.S. Court of Claims in Los Angeles and Honolulu. Appointed as court appraiser within Superior
Courts of Los Angeles and Orange Counties and Federal Courts of Los Angeles and Orange Counties.
Served as instructor atU.C.L.A. in 1952 -1959. Extension courses on Real Property Valuations, primary
and advanced.
Since 1963 -1985, Instructor for American Institute of Real Estate Appraisers at various campuses
throughout the United States Primary subject taught: Investment Analysis and Litigation Valuation.
Lecturer at various seminars for Appraisal Institute, International Right -of -Way Association
Representative appraisal clients include, in part, the following:
Industrial:
Union Pacific R.R., Las Vegas
Johns Manville Corp., Corona
Cabot, Cabot, and Forbes
Beeco Corporation
U.S. Motors, Anaheim
National Cash Register Co.
The Irvine Company
Los Angeles County Transit District
Commercial:
John B. Kilroy Company
Southern Counties Gas Co.
Frank H. Ayres and Son
Sheraton Hotel
Disneyland, Anaheim
Bank of America
Agricultural:
M.B.M. Farms, Cucamonga, Etiwanda
Bell - Pitzer Groves, Claremont
Agro Phosphate Co., Imperial Fresno Counties
Residential, Residential Income, Subdivision Acreage:
Yellow Cab Company, Los Angeles
Ford Motor Co.. Newport Beach
LAX Intercontinental Airport, Palmdale
Bixby Ranch Company
Southern Pacific Company
American Can Company
Orange County Transit Company
Los Angeles Community Redev. Agency
Beverly Hills Develop. Co., Beverly Hills
Southern California Edison Company
The Irvine Company
East Anaheim Shopping Center
Rancho Mission Viejo, Orange County
George Kinsey, Antelope Valley
The Irvine Company
Hercules Powder Co., San Fernando Southern California Gas Company
General Motors Real Estate Division The Irvine Company
Southern California Edison Co. Crown Zellerback Company
Pacific Electric Co. - S.P.R.R. Gersten Corporation
Fritz Burns Foundation Estate of William Cagney
Citation Builders
GEORGE HAMILTON JONES, INC. 97
Qualifications of George H. Jones, MAI
Page 3
Governmental Bodies:
California State Attorney General's Office
State Department of Finance
County Counsel - Santa Barbara & Ventura
County Counsel - San Diego
Orange County Harbor District
San Diego United Port District
State Division of Hwys., Districts VII & VIII
Los Angeles Dept. of Water & Power
State Division of Beaches & Parks
County of Los Angeles -Dept. of Beaches
U.S. Department of Justice, Lands Division, So. District of California
County of Orange, Flood Control District, County Counsel, Right -of -Way Dept., G.S.A.
County of Los Angeles, Flood Control District, County Counsel
County of Los Angeles, Department of Beaches & Harbors
Governmental Bodies (cont'd):
City of Buena Park
City of Cathedral City
City of Corona
City of Costa Mesa
City of Fullerton
City of Hermosa Beach
City of Laguna Beach
City of Newport Beach
City of Redondo Beach
City of San Clemente
City of Santa Ana
City of Santa Barbara
School Districts:
Westminster School District
Newport City School District
Savanna School District
Fullerton School District
San Clemente School District
Lending Institutions:
Anaheim City Schools
Magnolia School District
Placentia School District
Capistrano School District
Chino Unified School District
Bank of America, Trust Depts. Security Pacific Bank
City National Bank and Trust Co. of Chicago Pico Citizens Bank
Newport - Balboa Savings and Loan Crocker - Citizens Bank
Union Bank and Trust Company of Los Angeles
GEORGE HAMILTON JONES, INC. 98
Qualifications of George H. Jones, MAI
Page 4
Attornevs:
Best, Best & Kreiger, Riverside - Barton Gaut
Santa Fe Southern Pacific Corp., Los Angeles - Anthony P. Parrille
Gibson, Dunn & Crutcher, Los Angeles - William Stinhart, Jr.
Gibson, Dunn & Crutcher, Beverly Hills - Robert D. Burch
Harwood, Adkinson and Meindl, Newport Beach - Don R. Adkinson
Latham & Watkins, Los Angeles - John C. Hall
O'Melveny & Myers, Los Angeles - Richard S. Volpert
O'Melveny & Myers, Los Angeles - Ed Szczepkowski
Nossaman, Guthner, Knox & Elliott - Alvin S. Kaufer
Rutan & Tucker - Clifford Frieden
Berger & Norton - Richard Norton
Robert Waldron - Santa Ana
Donald J. Drew - Pasadena
Other:
South Laguna Sanitation District
Laguna Beach Co. Water District
Specialized Assignments:
Orange County Irrigation District
Anaheim Union Water Company
In addition to the above general classifications, the undersigned has made valuations of less common
properties including, in part, the following:
Undeveloped Islands - Upper Newport Harbor, California
Beachfront Properties - excess of 200,000 l.f. of ocean or bay frontage involving over 1,000 parcels
between San Luis Obispo County and the Mexican border
Proposed Marinas - San Elijo Lagoon, Imperial Beach, San Diego County - Harbor Island, City of
San Diego
Existing Marinas - Newport Beach - Lido Peninsula Yacht Anchorage - 228 slips
Bayshores Marina - 134 slips
Balboa Yacht Club Marina - 72 slips
Balboa Corinthian Yacht Club Marina - 83 slips
Lido Marina Village Yacht Anchorage - 99 slips
Marina del Rey - Aggie Cal Marina - 113 slips
Parcel 44 Marina - 251 slips
Parcel I OR Marina - 198 slips
Tradewinds Marina - 157 slips
Holiday Harbor Marina - 196 slips
Catalina Marina - 160 slips
Marina del Rey Hotel Marina - 377 slips
Villa del Mar Marina - 209 slips
GEORGE HAMILTON JONES, INC. 99
Qualifications of George H. Jones, MAI
Page 5
Windward Yacht Center Marina - 53 slips
Marina Harbor Marina - 614 slips
Marina City Marina - 339 slips
California YC Marina - 307 slips
King Harbor- King Harbor Marina - 852 slips
County of Ventura - Anacapa Isle Marina - 483 slips
Lyon Copley Corona Assoc. - 950 acre planned community
Rancho Mission Viejo - 52,000 acre ranch
Santa Cruz Island, California - 58,000 acres
108,000 acres - portion Twenty Nine Palms Marine Base
Montana de Oro Ranch - 4,450 acres - Morro Bay Area
Eight cemeteries - Los Angeles, San Bernardino, Orange County, Honolulu
Dry lake bottom land and desert properties, Antelope Valley
Tidelands: Newport Beach, San Diego County, Santa Barbara County
Duck Clubs - Antelope Valley
Wildlife Habitats, Wetlands - San Diego County, Orange County, Padilla Bay, Washington
Sanitary Landfills - Monterey Park, Huntington Beach, Dairyland
Real Property Damages: Soil subsidence, slippage, critical soils
Division Lessor - Lessee Interests - Oil producing properties
Valuation of stock in closely held corporations, Orange, Los Angeles Counties, and Honolulu
Estimated damages to residential, commercial, industrial, and park land arising from Santa Barbara
offshore oil spill (excess of 500 parcels)
Rights -of -Way; power transmission lines, sewer, drainage, avigation easement, railroads
(operating, abandoned)
Golf Courses: Riverview, Irvine Coast, Newport Beach, South Laguna Hills, Hillcrest, Los Angeles
Country Clubs, Rancho Mirage Country Club, Cresta Verde Golf Course
Chandler's Sand & Gravel Mine - Corona
Membership in Professional Organizations:
The Appraisal Institute (formerly the American Institute of Real Estate Appraisers)
President - Southern California Chapter No. 5 (1978)
Governing Counselor (1980-1983)
International Right -of -Way Association
The Appraisal Foundation:
_Member Board of Trustees (1987 -1992)
Vice Chairman (199 1)
Revised 07/28/03
GEORGE HAMILTON JONES, INC. 100
QUALIFICATIONS OF GEORGE H. JONES, MAI
Member of the Appraisal Institute
Certified General Real Estate Appraiser, State of California, No. AGO05632
Certified General Real Estate Appraiser, State of Nevada, No. 04192
Educational:
High School: Pomona High School
College: Pomona Jr. College - 1941 - 1942
Stanford University - 1942 - 1943
University of California at Berkeley (U.S.N.R. transferee) - June 1943 to
June 1944
Graduated Bachelor Applied Science (Engineering) - June 1944,
University of California at Berkeley
(non-interrupted four -year curriculum in three years).
Advanced Study: American Institute of Real Estate Appraisers - Candidate Study Courses I and
II, August - September, 1950; U.S.C. Engineering School, 1949 -1.950
Professional:
1.0151 to Date: Independent fee appraiser, primarily serving general Southern and Central
California areas, but with experience in Nevada, Arizona, Utah, and Honolulu.
Valuation of all classes of real property, residential, residential income,
commercial, industrial, agricultural and special purpose.
Experienced in problems of fair market value estimations, condemnation,
value of lease interest, fair rental estimates, economics of property utilization
and others.
1948 - 10151: Real Estate Appraiser, Bank of America, Los Angeles Headquarters.
Valuation of all classifications of real property for mortgage loan and fair
market value purposes throughout Southern California.
1946 - 1948: Estimator - Engineer and Chief Estimator - Engineer
Southern California area, Bank of America - Los Angeles Headquarters
Appraisal, secondary duty
1946 - 1946: Stress Group (Engineering) - Douglas Aircraft, Santa Monica
1944 - 1946: United States Navy, Structures Officer, U.S. Navy Air Corps
Qualified for court testimony as expert witness on real estate valuations in Superior Courts of Orange,
Los Angeles, Riverside, San Diego, San Bernardino, Santa Barbara, San Luis Obispo Counties and Salt
Lake City, Utah. Also U.S. Federal Court in Fresno and Los Angeles; U.S. Tax Court in Los Angeles;
GEORGE HAMILTON JONES, INC. 101
Qualifications of George H. Jones, MAI
Page 2
U.S. Court of Claims in Los Angeles and Honolulu. Appointed as court appraiser within Superior
Courts of Los Angeles and Orange Counties and Federal Courts of Los Angeles and Orange Counties.
Served as instructor at U.C.L.A. in 1952 -1959. Extension courses on Real Property Valuations, primary
and advanced.
Since 1963 -1985, Instructor for American Institute of Real Estate Appraisers at various campuses
throughout the United States Primary subject taught: Investment Analysis and Litigation Valuation.
Lecturer at various seminars for Appraisal Institute, International Right -of -Way Association
Representative appraisal clients include, in part, the following:
Industrial:
Union Pacific R.R., Las Vegas
Johns Manville Corp., Corona
Cabot, Cabot, and Forbes
Beeco Corporation
U.S. Motors, Anaheim
National Cash Register Co.
The Irvine Company
Los Angeles County Transit District
Commercial:
John B. Kilroy Company
Southern Counties Gas Co.
Frank H. Ayres and Son
Sheraton Hotel
Disneyland, Anaheim
Bank of America
Agricultural:
M.B.M. Farms, Cucamonga, Etiwanda
Bell - Pitzer Groves, Claremont
Agro Phosphate Co., Imperial Fresno Counties
Residential. Residential Income. Subdivision Acreage:
Yellow Cab Company, Los Angeles
Ford Motor Co., Newport Beach
LAX Intercontinental Airport, Palmdale
Bixby Ranch Company
Southern Pacific Company
American Can Company
Orange County Transit Company
Los Angeles Community Redev. Agency
Beverly Hills Develop. Co., Beverly Hills
Southern California Edison Company
The Irvine Company
East Anaheim Shopping Center
Rancho Mission Viejo, Orange County
George Kinsey, Antelope Valley
The Irvine Company
Hercules Powder Co., San Fernando Southern California Gas Company
General Motors Real Estate Division The Irvine Company
Southern California Edison Co. Crown Zellerback Company
Pacific Electric Co. - S.P.R.R. Gersten Corporation
Fritz Burns Foundation Estate of William Cagney
Citation Builders
GEORGE HAMILTON JONES, INC. 102
Qualifications of George H. Jones, MAI
Page 3
Governmental Bodies:
California State Attorney General's Office
State Department of Finance
County Counsel - Santa Barbara & Ventura
County Counsel - San Diego
Orange County Harbor District
San Diego United Port District
State Division of Hwys., Districts VII & VIII
Los Angeles Dept. of Water & Power
State Division of Beaches & Parks
County of Los Angeles -Dept. of Beaches
U.S. Department of Justice, Lands Division, So. District of California
County of Orange, Flood Control District, County Counsel, Right -of -Way Dept., G.S.A.
County of Los Angeles, Flood Control District, County Counsel
County of Los Angeles, Department of Beaches & Harbors
Governmental Bodies (cont'd):
City of Buena Park
City of Cathedral City
City of Corona
City of Costa Mesa
City of Fullerton
City of Hermosa Beach
City of Laguna Beach
City of Newport Beach
City of Redondo Beach
City of San Clemente
City of Santa Ana
City of Santa Barbara
School Districts:
Westminster School District
Newport City School District
Savanna School District
Fullerton School District
San Clemente School District
Lending Institutions:
Anaheim City Schools
Magnolia School District
Placentia School District
Capistrano School District
Chino Unified School District
Bank of America, Trust Depts. Security Pacific Bank
City National Bank and Trust Co. of Chicago Pico Citizens Bank
Newport - Balboa Savings and Loan Crocker - Citizens Bank
Union Bank and Trust Company of Los Angeles
GEORGE HAMILTON JONES, INC. 103
Qualifications of George H. Jones, MAI
Page 4
Attorneys:
Best, Best & Kreiger, Riverside - Barton Gaut
Santa Fe Southern Pacific Corp., Los Angeles - Anthony P. Parrille
Gibson, Dunn & Crutcher, Los Angeles - William Stinhart, Jr.
Gibson, Dunn & Crutcher, Beverly Hills - Robert D. Burch
Harwood, Adkinson and Meindl, Newport Beach - Don R. Adkinson
Latham & Watkins, Los Angeles - John C. Hall
O'Melveny & Myers, Los Angeles - Richard S. Volpert
O'Melveny & Myers; Los Angeles - Ed Szczepkowski
Nossaman, Guthner, Knox & Elliott - Alvin S. Kaufer
Rutan & Tucker - Clifford Frieden
Berger &'Norton - Richard Norton
Robert Waldron - Santa Ana
Donald J. Drew - Pasadena
Other:
South Laguna Sanitation District
Laguna Beach Co. Water District
Specialized Assignments:
Orange County Irrigation District
Anaheim Union Water Company
In addition to the above general classifications, the undersigned has made valuations of less common
properties including, in part, the following:
Undeveloped Islands - Upper Newport Harbor, California
Beachfront Properties - excess of 200,000 I.f. of ocean or bay frontage involving over 1,000 parcels
between San Luis Obispo County and the Mexican border
Proposed Marinas - San Elijo Lagoon, Imperial Beach, San Diego County - Harbor Island, City of
San Diego
Existing Marinas - Newport Beach - Lido Peninsula Yacht Anchorage - 228 slips
Bayshores Marina - 134 slips
Balboa Yacht Club Marina - 72 slips
Balboa Corinthian Yacht Club Marina - 83 slips
Lido Marina Village Yacht Anchorage - 99 slips
Marina del Rey - Aggie Cal Marina - 113 slips
Parcel 44 Marina - 251 slips
Parcel ]OR Marina - 198 slips
Tradewinds Marina - 157 slips
Holiday Harbor Marina- 196 slips
Catalina Marina - 160 slips
Marina del Rey Hotel Marina - 377 slips
Villa del Mar Marina -209 slips
GEORGE HAMILTON JONES, INC. 104
Qualifications of George H. Jones, MAI
Page 5
King Harbor
Windward Yacht Center Marina - 53 slips
Marina Harbor Marina - 614 slips
Marina City Marina - 339 slips
California YC Marina - 307 slips
King Harbor Marina - 852 slips
County of Ventura - Anacapa Isle Marina - 483 slips
Lyon Copley Corona Assoc. - 950 acre planned community
Rancho Mission Viejo - 52,000 acre ranch
Santa Cruz Island, California - 58,000 acres
108,000 acres - portion Twenty Nine Palms Marine Base
Montana de Oro Ranch - 4,450 acres - Morro Bay Area
Eight cemeteries - Los Angeles, San Bernardino, Orange County, Honolulu
Dry lake bottom land and desert properties, Antelope Valley
Tidelands: Newport Beach, San Diego County, Santa Barbara County
Duck Clubs - Antelope Valley
Wildlife Habitats, Wetlands - San Diego County, Orange County, Padilla Bay, Washington
Sanitary Landfills - Monterey Park, Huntington Beach, Dairyland
Real Property Damages: Soil subsidence, slippage, critical soils
Division Lessor - Lessee Interests - Oil producing properties
Valuation of stock in closely held corporations, Orange, Los Angeles Counties, and Honolulu
Estimated damages to residential, commercial, industrial, and park land arising from Santa Barbara
offshore oil spill (excess of 500 parcels)
Rights -of -Way; power transmission lines, sewer, drainage, avigation easement, railroads
(operating, abandoned)
Golf Courses: Riverview, Irvine Coast, Newport Beach, South Laguna Hills, Hillcrest, Los Angeles
Country Clubs, Rancho Mirage Country Club, Cresta Verde Golf Course
Chandler's Sand & Gravel Mine - Corona
Membership in Professional Organizations:
The Appraisal Institute (formerly the American Institute of Real Estate Appraisers)
President - Southern California Chapter No. 5 (1978)
Governing Counselor (1980-1983)
International Right -of -Way Association
The Appraisal Foundation:
_Member Board of Trustees (1987 -1992)
Vice Chairman (199 1)
Revised 07/28/03
GEORGE HAMILTON JONES, INC. 105
Brown, Leilani
From:
Harp, Aaron
Sent:
Wednesday, September 05, 2012 12:13 PM
To:
Kiff, Dave; Houston, Rob; Torres, Michael
Cc:
Brown, Leilani
Subject:
FW: Committee on Harbor Charges
Attachments:
Newport Harbor Rent per SF Analysis.xlsx
Importance: High
Good Afternoon,
Attached is Exhibit B to Gary's letter that I forwarded to you this morning. I have blind copied the City Council via this email.
Thank you.
Aaron C. Harp
City Attorney
City of Newport Beach
3300 Newport Blvd.
Newport Beach, CA, 92658
Phone: (949) 644 -3131
Fax: (949) 644 -3139
Email: aharp @newportbeachca.aov
CONFIDENTIALITY NOTICE: The information in this e-mail message is intended for the confidential use of the addressees only. The
information is subject to the attorney - client privilege and /or may be attorney work - product. Recipients should not file copies of this
e -mail with publicly accessible records. If you are not an addressee or an authorized agent responsible for delivering this e -mail to a
designated addressee, you have received this e -mail in error, and any further review, dissemination distribution, copying or
forwarding of this e -mail is strictly prohibited. Moreover, such inadvertent disclosure shall not compromise or waive the attorney -
client privilege as to this communication. If you received this e-mail in error, please notify us immediately at (949) 644 -3131. Thank
you.
From: McKitterick, Gary [ mailto: amckitterickCalallenmatkins.com]
Sent: Wednesday, September 05, 2012 11:53 AM
To: Harp, Aaron; Torres, Michael; Brown, Leilani
Cc: Gary Pickett; Tom Purcell; McKitterick, Gary
Subject: Committee on Harbor Charges
Importance: High
Aaron,
I have attached a better copy of Exhibit B to the letter I sent to you last night. This is a
sensitivity analysis, based on the Rasmuson formula, that illustrates the significant
impact of different factual assumptions and the value of water parcels. Each property
in the Harbor has different characteristics and has a unique value. My letter identifies
the factual errors in the appraisals and this exhibit shows what the appropriate fair
1 106
market rent is for the water parcel(the use of tidelands) using the proper facts. Of
course another major issue is a lease form which we have not seen.
We are prepared to meet and discuss this matter.
Gary S. McKitterick Esq.
Partner
Allen Matkins Leck Gamble Mallory & Natsis LLP
1900 Main Street, 5th Floor, Irvine, CA 92614 -7321
(949) 553 -1313 (main)
(949) 851 -5432 (direct)
(949) 751 -8270 (mobile)
(949) 553 -8354 (fax)
www.allenmatkins.com
Allen Matkins
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, please be advised that
any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to
be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal
Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed
herein.
Confidentiality Notice: The information contained in this electronic e -mail and any accompanying attachment(s) is
intended only for the use of the intended recipient and may be confidential and /or privileged. If any reader of this
communication is not the intended recipient, unauthorized use, disclosure or copying is strictly prohibited, and may
be unlawful. If you have received this communication in error, please immediately notify the sender by return e -mail,
and delete the original message and all copies from your system. Thank you.
107
Economic Residual Rent Analysis for Sample Marinas
No. of Slips
Average LF /Slip
Average $ /LF /MO.@ 10016
Average 5 /Slip /Month
Tideland Area- Leased(5F)
Tideland Area - Fee (SF)
Total Tideland Area - Marina Use ($F)
Tideland Area per Slip (SF)
Tideland Area per LF(SF)
Land Area Estimate
land to Water Ratio:
Effective Gross Marina Revenue @
Total Rent@ 25% of EGI
Land Rent(LV @ SIBS /SF x 5%)
Residual to Water
Percentage of EGI
Water Rem/SF
90.09
Ba share
Ba side S.
Swales
Ardell
132
45
54
50
32.3
36.5
35,2
45.0
$36.52
$45.39
$34.45
$34.48
$1,180
$1,657
$1,213
$1,552
100,057
63,400
50,094
56,000
24,243
35
39
26,075
124,300
63,400
50,094
82,075
942
1,409
928
1,642
29
39
26
36
35,000
17,952
14,105
23,110
28.2%
28.2%
29.2%
28.2%
$1,681,632
$805,173
$707,212
$837,864
$420,408
$201,293
$176,803
$209,466
(5323,750)
5165,131
($130,474 )
{5213,771
$96,658
$36,163
$46,329
(54,305)
5.7%
4.5%
6.6%
-0.5%
$0.78
$0.57
$0.92
(50.05)
I Slips
50
50
go LF /Slip
40.0
35.8
go $/LF /MO. @ 100%
$40.00
$28.00
go $/Slip /MOmh
$1,600
$1,002
and Area Leased(SF)
70,000
70,000
end Area - Fee (SF)
0
0
Tide)and Area - Marina Use (SF)
70,000
70,000
Ind Area per Slip (SF)
1,400
1,400
and Area per LF(SF)
35
39
Area Estimate
11,800
19,740
to Water Ratio
16.9%
28.2%
3 %Vacaney
$931,200 EGI @10% Vacancy
$541,2961
Rent@ 25% of EGI
$232,800
$135,324
Rem 0 @ $185 /SFx 5 %)
($109,150) Land Rent(LV @ S275/SF x 5 %)
5271,425
ual to Water
$123,650
($136,101)
ntaee of EGI 13.3% -25,1%
M.
Newport Harbor -- Economic. Analysis
Sensitivity Study
Rasmuson_
Scenario 1
Scenario 2
_
Hypothetical
_ _
10% Vacancy
_
6% Vacancy
50
50
50
No. of Slips
Average LF /Slip
40.0
40.0
40.0
Average $ /LF /Mo. @ 100%
$40.00
$40.00
$40.00
Average $ /Slip /Month
$1,600
$1,600
$1,600
Tideland Area - Leased (SF)
70,000
70,000
70,000
Tideland Area - Fee (SF)
0
0
0
Total Tideland Area - Marina Use (SF)
70,000
70,000
70,000
Land Area
11,800
11,800
11,800
Land to Water Ratio
16.9%
16.9%
16.9%
Land Value per SF
$185
$185
$185
Total Land Value
$2,183,000
$2,183,000
$2,183,000
Vacancy Rate
3.0%
10.0%
6.0%
Gross Scheduled Income
$960,000
$960,000
$960,000
Less Vacancy
($28,800)
($96,000)
($57,600)
$931,200
$864,000
$902,400
Effective Gross Income
Total Rent @ 25% of EGI
$232,800
$216,000
$225,600
Land Rent @ 5% of Land Value
($109,150)
($109,150)
($109,150)
$123,650
$106,850
$116,450
Residual to Water
Percentage of EGI
13.3%
12.4%
11.9%
Water Rent /SF
$1.77
$1.53
$1.66
Note: Highlighted cells indicate inputs that differ from the Rasmuson analysis
109
Scenario 3
Scenario;4
Scenario 5
Scenario 6
$27S /SF Land Value
$230 /SF Land Value
Slip Size /Refit
28.2% Land Area
50
50
50
50
40.0
40.0
35.8
40.0
$40.00
$40.00
$28.00
$40.00
$1,600
$1,600
$1,002
$1,600
70,000
70,000
70,000
70,000
0
0
0
0
70,000
70,000
70,000
70,000
11,800
11,800
11,800
19,740
16.9%
16.9%
16.9%
28.2%
$275
$230
$185
$185
$3,245,000
$2,714,000
$2,183,000
$3,651,900
3.0%
3.0%
3.0%
1 3.0%
$960,000
$960,000
$601,440
$960,000
($28,800)
($28,800)
($18,043)
($28,800)
$931,200
$931,200
$583,397
$931,200
$232,800
$232,800
$145,849
$232,800
($162,250)
($135,700)
($109,150)
($182,595)
$70,550
$97,100
$36,699
$50,205
7.6%
10.4%
6.3%
5.4%
$1.01
$1.39
$0.52
$0.72
110
Scenario 7
Scenario ,8
Scenario;9
Scenario 10
Land Value & Vac
..
Land Value,& Vac 6 %,_
_, , _
Land Area & Land'. Value
Land Area &.Land Value;. ,
50
50
50
50
40.0
40.0
40.0
40.0
$40.00
$40.00
$40.00
$40.00
$1,600
$1,600
$1,600
$1,600
70,000
70,000
70,000
70,000
0
0
0
0
70,000
70,000
70,000
70,000
11,800
11,800
19,740
19,740
16.9%
16.9%
28.2%
28.2%
$275
$230
$275
$230
$3,245,000
$2,714,000
$5,428,500
$4,540,200
10.0%
6.0%
3.0%
3.0%
$960,000
$960,000
$960,000
$960,000
($96,000)
($57,600)
($28,800)
($28,800)
$864,000
$902,400
$931,200
$931,200
$216,000
$225,600
$232,800
$232,800
($162,250)
($135,700)
($271,425)
($227,010)
$53,750
$89,900
($38,625)
$5,790
6.2%
10.0%
-4.1%
0.6%
$0.77
$1.28
1 ($0.55)
$0.08
111
50
40.0
$41.00
$1,640
70,000
0
70,000
19,740
28.2%
$185
$3,651,900
6.0%
$984,000
($59,040)
$924,960
$231,240
( $182,595)
$48,645
5.3%
$0.69
112
Brown, Leilani
From: Harp, Aaron
Sent: Wednesday, September 05, 2012 3:21 AM
To: Kiff, Dave
Cc: Brown, Leilani; Torres, Michael; Houston, Rob
Subject: FW: Commercial Marinas
Attachments: 20120904163249077.pdf
Importance: High
Good Morning,
Attached, please find correspondence from Gary McKitterick related to the Commercial Harbor Fees matter to be
considered by the City Council on September 12, 2012. To avoid any Brown Act issues, I am providing this
correspondence to the City Council via a blind copy.
I also spoke to Gary yesterday and he emphasized that his clients would vigorously oppose any change that included a
percentage rent formula. (See, attached letter.) He did, however, state that his clients would be willing to enter into
leases but would only be interested in a 10 year term.
In his letter, Gary also raises several questions related to the appraisals. Our office will coordinate with the City Managers
Office to analyze the questions raised in the attached correspondence so that the appraisers are in a position to respond
to these concerns.
Please let me know if you have any questions. Thank you.
Aaron Harp
- - - -- Original Message---- -
From: McKitterick, Gary fmailto: gmckitterick(a)allenmatkins.coml
Sent: Tue 9/4/2012 6:08 PM
To: Harp, Aaron; Torres, Michael
Cc: Brown, Leilani; Dennis D. O'Neil; Tom Purcell; Gary Pickett; McKitterick, Gary; Saulus, Mary
Subject: Commercial Marinas
Aaron,
The City Council has announced it will evaluate the Commercial Harbor Charges on September 12, 2010. 1 am submitting
a letter which outlines significant concerns about errors in the City appraisals and the Committee's proposal. Error
examples include, but are not limited to, understated land value, understated vacancy, overstated average slip size,
overstated average slip rent, understated land to water ratio. These facts have huge impacts on value and are illustrated in
the Sensitivity Study attached to my letter. As you know we have an expert appraiser assisting us in our review who is
highly recognized among his peers. Aaron the facts and assumptions in the City reports need to be corrected and
reviewed by the public before a meaningful discussion on rent can be conducted. We are available to meet and discuss
the facts in more detail.
Gary S. McKitterick Esq.< http:// www .allenmatkins.com /attorney.asp ?gmckitterick>
Partner
Allen Matkins Leck Gamble Mallory & Natsis LLP
1900 Main Street, 5th Floor, Irvine, CA 92614 -7321
(949) 553 -1313 (main)
(949) 851 -5432 (direct)
(949) 751 -8270 (mobile)
(949) 553 -8354 (fax)
www.aIIenmatkins. com <http: / /www.aIlenmatkins.com>
113
Allen Matkins
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, please be advised that any
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delete the original message and all copies from your system. Thank you.
114
Allen Matkins Leck Gamble Mallory & Natsis LLP
1900 Anomeys at Law
Allen Maddns
1900 ain Street, 5'° Floor I Irvine, CA 92614 -7321
Telephone: 949.553.13131 Facsimile: 949.553.8354
www.allenmalkins.wm
Gary S. eMcKilterick
E- mail: gmekiaerick rr allenmatkins.com
Direct Dial: 949.851.5432 File Number: 372184- 00002/OC963365.02
Via Electronic Mail
August 30, 2012
Aaron Harp, Esq.
City Attorney
City of Newport Beach
3300 Newport Boulevard
Newport Beach, CA 92658 -8915
Re: Newport Harbor - Market Rent Determination
Appraisal Process
Dear Aaron:
As a follow -up to our recent meetings and conversations regarding Newport Harbor
Charges, we are concerned about the most recent information posted on the City website on
August 29, 2012. As we have discussed, the changes being proposed by the Committee on Harbor
Charges will have far reaching impacts and potentially very negative consequences. Each decision
made by the City should be based on a thorough evaluation of facts, a sound analysis of impacts
and unintended consequences and a commitment by the City of Newport to achieve a fair and
balanced resolution.
As you are well aware, the current economic environment both locally, statewide and
nationally is severely challenged. The marine industry is depressed and the adverse economic
climate shows little signs of recovery. It is therefore troubling that the Committee on Harbor
Charges is recommending an increase of over 420% in rent at a time when the economics of the
Harbor are fragile. Furthermore, the City intends to impose new lease agreement which my clients
do not want and to require new and increased fees on commercial and residential owners in the
Harbor. We are very concerned about the direct and indirect adverse impact by such City actions
on the viability of the Harbor. Newport Harbor is the jewel of the City and it is essential that the
City support the businesses and residents who own land adjacent to the Harbor or who own or
operate marine related businesses. We strongly believe there is a fair and rational rent adjustment
which can satisfy the City's desire to charge fair market rent for the use of tidelands and at the
same time be sensitive to the marina operators and soften the impact of the significant rent
increase.
In our numerous discussions and in the most recent City publications, it is agreed by
everyone that Newport Harbor is unique among harbors in Southern California. One of the
significant differences in Newport, unlike other harbors, is the land adjacent to the tidelands is
Los Angeles I Orange County I San Diego I Century City I San Francisco I Walnut Creek
115
Allen Matkins Leek Gamble Mallory & Natsis LLP
Artomeys at Law
Aaron Harp, Esq.
August 30, 2012
Page 2
privately owned and controlled. This important unique Harbor characteristic must be taken into
consideration and evaluated thoroughly before rent is proposed. The methodology used to
determine fair market rent for the use of tidelands in Newport Harbor for more than 30 years has
been to analyze information on an economic basis allocating value between land and water. The
fair market value has always been paid by the marina operators through a permit using a per square
foot formula. The City has proposed changing annual permits to leases with percentage rent,
which my clients will vigorously oppose. We do not want the Government intruding in private
books and records. A short term lease (provided the terms of the lease are acceptable) with a per
square foot rent is a reasonable approach, however under no circumstances will we accept rent
based on a percentage of revenue.
The City of Newport Beach recently commissioned 2 appraisers to complete an analysis of
the Harbor; however, only the Gary Rasmuson report provided a formula to conduct an economic
analysis. Mr. Netzer failed to conduct the economic analysis which is essential to determine value
in this unique Harbor. This omission is particularly troubling after numerous meetings with the
City on the type of analysis necessary to achieve a fair and accurate conclusion on value. The
Netzer report seems to be limited in scope and is only an update from 2006 and is not a complete
and thorough analysis of the current market conditions in Newport Harbor. The Netzer appraisal
lacks a depth of analysis, includes incorrect facts and its conclusions are flawed. We believe that
Netzer's scope of work was inadequate and falls below the minimum professional standard. The
City should not allow shortcuts in economic reports that may be the basis of rent.
The Rasmuson appraisal utilizes the economic method to estimate fair market rent for the
commercial use of tidelands. Rasmuson uses a "residual technique" to allocate value to water and
land. The formula components are proper for determining value. It is therefore imperative to
review carefully the components of the formula and understand and test the sensitivity analysis for
each component. This sensitivity review is critical to understanding the impact of each assumed
fact on value. By way of example, Rasmuson concludes the average vacancy rate in the current
Newport Harbor market is in between 5% and 10% percent and that for every 1% percent change
in vacancy rate, the average residual rent per square foot changes by about $0.035. He goes on to
say he used a "stabilized vacancy" of 3% in reaching a conclusion of value. The actual vacancy
which reflects current conditions must be used to determine current fair market value. The impact
of not using the actual Harbor average vacancy of 10% is a swing of $0.245 per foot reduction in
rent. Attached as Exhibit "B" is a sensitivity analysis in which the Rasmuson formula is used. It is
abundantly clear the significant impact on value when the correct facts are used in the formula.
It is essential that the basis of any decision by the City Council be founded on accurate
facts. We have identified several factual and methodology errors in the City appraisals which need
to be corrected. I have attached as Exhibit "A" a copy of my letter from June 25, 2012 which
describes appropriate methodology, Exhibit "B" is a sensitivity analysis for various formula
components and Exhibit "C" is a summary of comments to the Netzer and Rasmuson appraisals.
116
Allen Matkins Leek Gamble Mallory & Natsis LLP
Atmmeys at Law
Aaron Harp, Esq.
August 30, 2012
Page 3
I would like to meet with you to discuss the errors in the City process.
Iruy yours,
- &N
(: rS \QrtKittnrir4
GSM:mms
Enclosure
cc: David Kiff (w /encls.)
Dennis O'Neil, Esq. (w /enels.)
Tom Purcell (w /enels.)
Gary Pickett (w /encls.)
117
Exhibit "A"
Allen Matkin
s Leck Gamble Mallory & Natsis LLP
etLaw Allen Ma;kins 1900 Main
Svect, 5" Floor I IrvinS CA 92614-7321
Telephone; 939.553.1313 1 Feesimfle: 999.553.8359
www.ellenmatklmxom
Gary S. McKitteriek
&maih gmcdtterick@allenmaLtins.com
DlrW Dial: 949.851.5432 File Number. 372184-00002K 0958341.01
Via Electronic Mail
June 25, 2012
Aaron Harp, Esq,
City Attorney
City of Newport Beach
3300 Newport Boulevard
Newport Beach, CA 92658 -8915
Re: Newport Harbor - Market Rent Determination
instruction to Appraisers
Dear Aaron:
We appreciate the City's cooperation to conduct a transparent appraisal process for the Marina's
operators in Newport Harbor. My clients felt the meeting atNewport Beach City Hall on June 13, 2012,
was a positive event which will help ensure a fair and balanced analysis by the selected appraisers. We
have enclosed a copy of the meeting notes which summarizes the points discussed in our meeting. We
would appreciate your confirmation that the meeting notes will be delivered to both appraisers retained by
the City. The appraisers should consider these points together with other factors they determine to be
relevant as they conduct their economic analysis. The City appraisers have been asked to determine the
market rental value of the Cities water parcels to be leased to private marina operators. As we have
discussed, the basis of the appraisal analysis must meet the "competitive and open market assumption" and
estimate the market rental value on the basis of "new leasing purposes ". My clients are available for
follow -up discussions with the appraisers including tours of the various commercial Marinas and interviews
with the dock managers to understand the Harbor economics.
Please contact me with any questions.
Very truly �yours, l i" w
Gary S. bitAtt�cck
GSM:mms
Enclosure
cc: David Kiff(w /encis.)
Dennis O'Neil, Esq. (w /ends.)
Tom Purcell (w /encls.)
Gary Pickett (w /encls.)
Los Angeles I orange County I San Diego 'I Cenhvy City I San Francisco I Walnut Creak
Exhibit "A"
118
Newport Harbor- Market Rent Determination Page 1
Newport Harbor - Market Rent Determination
Meeting Notes
The following items summarize the discussions presented at the meeting at Newport Beach
City Hall on June 13, 2012.
1. It was reported that the appraisers have been tasked with valuing a "generic" water
parcel, as opposed to performing site- specific valuation analyses. We discussed the fact
that the appfaisers would therefore have to select a hypothetical location within the
Harbor and hypothesize a marina configuration, including the amount of privately -
owned uplands that would have to be devoted to support the marina. In addition, we
discussed that the resulting value conclusion would not necessarily apply directly to
other water parcels having different locations and /or configurations,
2. We discussed the need to estimate the market rental valuer of the City's water parcels
on the basis of "new leasing purposes" (under the assumption thatthere is not an
existing marina), not underthe assumption that the current permittee /lessee would be
obligated to lease the water parcel In order to retain control and use of their existing
marina improvements, including docks, upland improvements, etc. This appraisal basis
is required to meet the "competitive and open market" assumption inherent in the
cited definition of market rent. Further, we discussed this issue in light of an obligation
on the part of the appraisers to analyze any market rental data in terms of whether any
lease was a new lease, or a renewal /extension lease.
3. We discussed that the determination of market rent for the water parcels should
include an analysis of the costs necessary to bringthe water parcels into use (bulkhead,
docks, service utilities, upland improvements, etc.).
4. We discussed that the determination of market rent for the water parcels should
include an analysis of the factthat private uplands must be devoted to marina support '
uses in.order to use the City's water parcels, and to analyze the opportunity cost of
devoting these upland uses to marina support uses as opposed to potential alternative
uses. Further, we discussed the need to perform economic analyses regarding the
operations of the hypothetical generic marina in the context of the opportunity cost of
using private uplands to support this use and'the resulting impact on market rent.
The definition of market rent was discussed at the meeting, and the following common definition from
The Dictionary of Real Estate Appraisal, Fifth Edition, was read:
`"rhe most probable rent that a property should bring in a competitive and open market
reflecting all conditions and restrictions of the lease agreement, Including permitted uses, use
restrictions, expense obligations, term, concessions, renewal and purchase optlons, and tenant
Improvements (ns)."
Exhibit "A"
-2-
119
Newport Harbor- Market Rent Determination Page 2
5. We discussed the need to consider that there are instances where there are privately -
owned water parcels located between the uplands and the City's water parcels.
6. We discussed that the determination of market rent for the water parcels should
Include an analysis of the utility and market rent for water only (without the use of
adjacent uplands or intervening private water) through an analysis of the City's rent for
water -only moorings (recognizing total effective water area required for mooring use).
We noted that, as a practical matter, this Is the City's only potential-revenue- producing
use of their water parcels If the upland owners devote their property to a different use.
7.. In addition to analyzing available lease Information within Newport Harbor, we
discussed that the appraisers should analyze marina lease information in other
Southern California harbors (we discussed harbors from Santa Barbara to San Diego),
with due consideration through economic analysis of the differences between a marina
operator leasing both the uplands and the water parcels based on a single percentage
rent and the private uplands /public water ownership situation present in Newport
Harbor.
8. We discussed that the appraisers would determine the market rent based both on a
percentage of slip rental revenue basis and on a rent per square foot basis.
9. Several of the marina owners noted that they are well aware of the economic .
alternatives to devoting their privately -owned uplands to marina support uses, and that
they understand the economic impact of continuingto devote their uplands to marina
support uses. They also noted that they would be unlikely to devote their property to
such use if "starting from scratch" due to the relative values of the property for marina
versus non - marina use, but that they currently have extensive investment in property
improvements that have yet to be fully amortized,
Exhibit "A"
120
Exhibit "B"
Exhibit "B"
121
Newport Harbor- Economic Analysis Sonsltivity Study
_nnmatern
_ $ Mol__
S xena_ibz__
Xanold3
G[ened04
sanaro5_
Su'nted
5nn AA. 2
_ Yanatlo8
Son.".9
10
soenodo]1_
.$130 /lp Wml Value
_
Mp Lae/Rent
Mz %Imd Ama
land Value B Var 1M
land VOTO8:VACWt
lardnea84n6Valoe
_$r.9119
Lend Area A land Value
lend NU B VeeG%'
ol6dlml
1Ptv.arY
6%Veta,
$)15 /SF.IOnd Value
N0. of 55,
50
50
50
0
50
50
50
50
50
50
SO
00
9vea8218 /Slip
40.0
40.0
40.0
Alto
40.0
35.8
40.0
40.0
40.0
40.0
40.0
40.0
Average SAF /Md. @10014
VON
54000
$40.00
540.00
$400D
$28.00
540,00
54oW
540.00
$40.00
54000
$4190
Average 5 151tp /Mond,
511600
$1,600
$1,60
$1,600
$11600
$1,002
$1,60
$1,600
S1,M0
51,690
$1,600
$1,640
Tideland Area - leased(Sej
20,000
90,06
70,900
20,000
70,000
7owo
70,000
]0,(100
70,0110
201000
70,611
70,60
❑delandaea Fee(SF)
0
0
0
0
0
0
0
0
0
0
0
a
Total Tldeland Area - Marina are(SH
70,000
70,000
70160
70,000
90,000
70,000
70,06
70,000
20,000
70,00
70,000
7'000
Land Area
IL800
]1,800
11,800
11,810
111800
11b00
19,240
10100
11,86
19,740
19,740
19,740
land ,.Water Ratio
16.9%
16^%
16.9%
16.9%
16.9%
16.9%
2812%
16.9%
16.9%
281%
281%
282%
land Valueper SF
$165
$185
$165
$275
$230
$185
$185
$275
$130
$275
$230
5185
otaltand Value
$2,183,000
52,163.000
52.183,00)
53,245.000
$2J14,a0
$2163,06
53,651.96
$3,745,000
$2,714,100
$5,426 }00
$4seo2M
53,51,900
VaaA,Rxta
39%
10.0%
6A%
10%
3,4
3.0%
3.0%
10.0%
6.0%
3.0%
3.0%
6.0%
Gr.ee %oeduled Intom¢
$96,60
$96,000
$96,0o0
59Go uo
$980,000
561,440
$96,000
$9F0o00
596,000
$960,00
596,00D
5984,000
lessvaancy
($20,8001
06,000)
$57,600)
520 800
529,86
($38,043)
($28,800)
594000
557,66)
($28,800)
5)8800
1$59,0401
ElfeellveGle55lnWine
59911200
5064,000
596.400
$931,200
59311200
5583,397
$931,200
5064,000
5902,400
$931,200
5931,200
$910,96
Total Rent @15%01 Ear
$232,800
$216,00D
$225,600
$232,800
$232,13DO
1145,649
$232,800
$216,00
$225.600
$232,MO
$232,800
$231,240
Land Rent@ 5 %0f land Value
5109150)
$16,]50)
($]09,150 )
I$167,2501
$135.7D0
(5109,150)
($182,595 )
(5162,250 )
(SUS,700)
($271,425 )
(5212.010
15182,595
Reldual to Water
5123,650
$106,850
5116,450
$70.550
$97,10D
536,699
$50205
553,M
589,900
(538,625)
SS,790
548.645
Tar Merge aJ EM
13.3%
22.49
22.9%
1,69
100%
631E
5.4%
61X
10.0%
a.l%
0.6%
5.3%
Water Henf /SF
$I."
$2.53
$1.66
$1.01
$1.39
$0.52
$0.R
$O.A
$1.28
($0.55)
$0.08
Nate: Hi9M1RRMed cell; hnfirate cereal, that d(/ferfmm Ilia Rmmwon analysis
122
Economic Residual Rent Analysis for Sample Marinas
No. of Slips
Average LF /Silp
Average VLF/M.. @.100%
Average$ /Slip /Month
Tideland Area- Leased (SF)
Tideland Area - Fee (SF)
Total Tideland Aida- Marina Use (SF)
Tideland Area per Slip (5F)
Tideland Area per LF(SF)
Land Area Estimate
Land to Water Ratio
Effective Gross Marina Revenue .@
Total Rent@ 2S% of EGI
Land Rent ILV.@ $185 /SF x5 %)
Residual to Water
Percentage of EGI
Water Rent /SF
10.0%
Bnyshore
gayside S.
Swales
Ardeil
132
45
54
So
32.3
36.5
35.2
45.0
$36.52
$45.39
$34.45
$34.48
$1,180
$1,657
$1,213
$1,552
100,057
63,400
50,094
SQ000
24,243
70,000
70,000
26,075
124,300
63,400
50,094
82,075
942
1,409
928
1,642
29
39
26
36
35,000
17,852
14,305
23,110
28.2%
28.2%
28.2%
28.2%
$1,681,632
$805,173
$]0],212
$837,864
$420,408
$201,293
$176,803
$209,466
($323,750)
($165,131)
($130,474)
($213,T71)
$96,658
$36,163
$46,329
($4,305)
5.7%
4.5%
6.6%
-0.5%
$0.78
$0.57
$0.92
($0.05)
entage of EGI 13.3% -25.1%
123
Rasmuson
Modified
Hypothetical
Hypothetical
ofslips
50
50
'age LF /Slip
40.0
35.9
'age $ /LF /Mo. @ 100%
$40.00
$28.00
'age $ /Slip /Month
$11600
51,002
land Area - Leased SF)
70,000
70,000
land Area - Fee (SF)
0
0
d Tideland Area - Marina Use ISF)
70,000
70,000
land Area per Slip (SF)
1,400
1,400
land Area per IF ($F)
35
39
1Area Estimate
11,800
19,740
1 to Water Ratio
16.9%
?3 %Vacancy
$931,200 EGI @30%Vacancy
$591,296
I Rent@ 2S% of EGI
$232,800
$]35,324
1 Rent(LV @ $185/SF x 5 %)
($109,150) Lantl Rent(LV @ $275 /SFx 5 %)
($2]1,4251
dual to Water
$123,650
($136,101)
entage of EGI 13.3% -25.1%
123
Exhibit "C"
Exhibit "C"
-i-
124
Newport Harbor- Market Rent Determination Page 1
Newport Harbor - Market Rent Determination
Comments on the Rasmuson and Netzer Appraisals
The City of Newport Beach ( "City ") retained Mr. Gary L. Rasmuson, MAI, SRA of Rasmuson
Appraisal Services and Mr. lames B. Netzer, MAI of Netzer & Associates to perform appraisals
of the market rental value of various City -owned water parcels in Newport Harbor. The
appraisers were asked to conclude the market rental value of the City's parcels on both a
percentage basis and a rent per square foot basis. Mr. Rasmuson's appraisal report addresses
only commercial marina parcels and is dated August 8, 20121 Mr. Netzer's report addresses
commercial marina parcels as well as fuel docks and parcels leased by yacht clubs, non - profit
organizations, and other parcels; this report is dated August 10, 2012. The following items
summarize comments regarding the two appraisals of the commercial marina parcels; the
remaining uses in Mr. Netzel's report are not addressed.
Gary Rasmuson, MAI, SRA
1. Mr. Rasmuson did not value any particular property. Rather, he valued two "generic
benchmark tidelands" properties. The first is a "larger" parcel, which he defined as a
water parcel located near the upper - middle of Newport Bay, near Mariner's Mile, and
containing 70,000 square feet with a depth' of 100 feet. The second is a "smaller"
parcel which was presumed to contain 15,000 square feet. The Rasmuson appraisal
report does not state the presumed depth of the smaller water parcel.
Mr. Rasmuson's analysis is subject to the extraordinary assumption= that'an upland
parcel is available through joinder for future development of the water parcel as a
marina (the presumption is that required parking and an office /restroom building
would be provided on the upland parcel). The report states at least three times
(including on pages 16, 18, and 49) that, absent an available upland parcel, the highest
and best use of the water parcel would be different, and the resulting market rent
would be "significantly reduced ". However, the treatment of this issue by Mr.
Rasmuson is of great concern. Although Mr. Rasmuson's report repeatedly states that
the water must be combined with the land parcel in order for it to be devoted to its
most valuable use, the report also states that the highest and best use of the upland
parcel'may not be as a marina (page 49). At best (from the perspective of the water
parcel), this situation creates a bilateral monopoly', a situation in which both parties
have to compromise to reach an equitable result. Unlike in a true bilateral monopoly,
however, Mr. Rasmuson concluded that the upland parcel may have the same value, or
The depth is the distance that the parcel Is presumed to extend bayward from the bulkhead line.
An extraordinary assumption is defined as, "An assumption, directly related to a specific
assignment, as of the effective date of the assignment results, which, If found to be false, could
alter the appraiser's opinions or conclusions."
A bilateral monopoly is defined as a situation where there is both a monopoly (a single seller) and
monopsony (a single buyer) in the some market.
Exhibit "C"
-2-
125
Newport Harbor - Market Rent Determination Page 2
even a higher value, without the attachment of the water parcel and the necessity to
devote it to marina support use. The result is that there is a tremendous increment In
the rental value of the water parcel if it is devoted to marina use in conjunction with an
upland parcel, but no increment in value to the upland parcel. Stated another way, Mr.
Rasmuson has effectively concluded that the water parcel needs the upland parcel, but
that the upland parcel does not need the water parcel. The problem is that, rather than
analyze the impact on market rent of this situation, Mr. Rasmuson simply assumed it
away by imposing the referenced extraordinary assumption. in so doing, Mr, Rasmuson
reallocated 100% of the economic benefit of the doubt regarding the availability and
economic significance of an upland parcel to the water parcel; none of this benefit was
allocated to the upland parcel. This is a highly significant factor of the Rasmuson
appraisal' - as it states on page 18, "A mooring field was considered and may be a
possible use if joinder with an adjacent land parcel is not available; however the rental
rates and density of boats per square foot is less than as a marina use and therefore has
not been considered in this benchmark valuation as a primary use," The conclusion
does not follow from the statement made - it is precisely because the water parcel has
far lower utility as an independent parcel (but not vice versa) that the benefits of the
combination to the water parcel should be allocated in part to the upland parcel.
3. Mr. Rasmuson's valuation analyses were based in part on his review of a "sample lease
agreement ". This agreement was not provided for review, but It was described as
containing "42 pages plus addendums and exhibits ". While it is unclear what Is
contained in the bulk of the document, there are several elements of Mr. Rasmuson's
description of the supposed lease (and his assumptions regarding its terms) that are
highly significant to value:
Mr. Rasmuson assumed that the lease agreements would be at least 20 years
and no longer than 50 years in length. Although Mr. Rasmuson did not address
the impact on rent if the lease term is shorter than 20 years, it is obvious that
the rent would have to be lower to permit amortization of the required marina
improvements in this shorter time period.
b. Mr. Rasmuson's description of the assumed rent adjustments (page 17) is
unclear. The report contains two headings, "Periodic Base Rent Adjustments"
and "Fair Market Adjustment of Rent ", but the report does not describe the
relationship between these two items. Although the former describes a five -
year term, there is no mention of what methodology would supposedly be used
to adjust the rent or the length of time between the market rent adjustments.
In addition, the report notes that the "Lessee shall pay for all Lessor's cost of
market rent adjustment "; this is a highly unusual lease provision. As written, the
tenant would be exposed to market rent adjustments at undisclosed in
based on an undisclosed methodology, and would be responsible for unlimited
costs incurred by the lessor to impose these adjustments. This lease provision
would reduce the market rent of any property subject to its terms.
Exhibit "C"
-3-
126
Newport Harbor - Market Rent Determination Page 3
C. The lease contains a restriction on transferring or assigning the use of the
adjoining upland parcel separately from the leased water parcel. As described,
this restriction could preclude redevelopment of the upland parcel during the
entire lease term, even assuming that the marina support facilities would be
maintained. Mr. Rasmuson described this as a "unique condition ".
4. Mr. Rasmuson used two valuation approaches, a market data (comparison) approach
and an economic analysis. The market data approach relied on two categories of
marina leases. The first group Is leases of combined upland /water parcels in San Diego
Bay, Mission Bay, Newport Harbor, Huntington Harbor, Port of Los Angeles (San Pedro
and Wilmington), and Marina Del Rey. The second group is water -only parcels located
in San Diego Bay, Newport Bay, Huntington Harbor, and at Santa Catalina Island. While
some of the upland /water parcel leases are for new or rebuilt marinas, all but one of
the water -only leases are renewals of prior leases where the tenants have extensive
investment to protect. On page 31, Mr. Rasmuson described the two Newport Harbor
leases from the County of Orange (Bayshore and Swa(es, both of which are reportedly
leased at 20% of revenue) as the "best market data ". These leases were further
described as renewals where the tenants had "significant Investments in leasehold
improvements ". The report states several times, including on pages 31 and 49, that
there was "little room for negotiation" given this fact, and that these leases "require
consideration for the circumstances under which the leases were negotiated" (page 31).
In fact, these leases fail the requirements of the definition of market rent Included by
Mr. Rasmuson on page 3, which requires a "competitive and open market ". They also
violate the definition of market value included on page 2, which requires that the
parties be "typically motivated ".
5. In the analysis and reconciliation discussion on page 31, Mr. Rasmuson described a
pending lease renewal for a water -only parcel leased to Glorietta Bay Marina in San
Diego Bay. This deal is reportedly at 11% (half of the typical 22% figure for land /water
parcels), but it suffers from the same concerns regarding the tenant's investment in
leasehold improvements. Missing from this analysis, however, is a discussion of the
only new water -only lease found by Mr. Rasmuson. As described by Mr. Rasmuson on
page 20, the Coronado Yacht Club is proposing to redevelop its facilities and expand the
marina into a water -only property that is not currently leased (and not currently under
the jurisdiction of the San Diego Unified Port District). The proposed transaction
involves leasing the water parcel to the Port District from the State of California, then
subleasing the parcel to the yacht club. The report states that the State has not
determined what rent it will charge the Part District, but the sublease for the new
water parcel will "start at 8.25 percent of slip rental income and step up to 11
percent°." This transaction is highly significant in that it demonstrates the actions of
the market in a situation where the adjacent user desires to use, but does.not need, a
water parcel. It is unclear why Mr. Rasmuson failed to analyze this transaction in the
summary and reconciliation discussion.
Mr. Rasmuson did not disclose the schedule or timing of the increase from 8.25% to 11 %.
Exhibit "C"
-4-
` #22
Newport Harbor - Market Rent Determination Page 4
6. In,the economic analysis, Mr. Rasmuson repeated the "key assumption" that an
adjacent water parcel will be available for combined use with the water parcel (page
31). He further stated, "Key to this formulas is that the uplands and tidelands are
assumed to have a common highest and best use, which In this case is as a commercial
marina" (page 32). This Is a highly significant and questionable assumption, particularly
given his statement on, page 49 that the highest and best use of the upland may not be
as a marina. Again, however, Mr. Rasmuson just assumed away this problem.
Mr. Rasmuson's economic analysis starts with the conclusion that the total market rent
for the combined upland parcel and water parcel would be 25% of slip rental revenues.
Mr. Rasmuson then assumed that the generic larger marina would have 50 slips with an
average length of 40 feet. After analyzing published rental rates, he concluded that the
average rate would be $40.00 per linear foot per month. The then analyzed the implied
revenue necessary to provide an adequate return on the value of the upland parcel;
this amount is deducted from the total rent to indicate the residual rent to the water
parcel. When divided by the collected income, a percentage rent for the water parcel
only is indicated. While this analysis is appropriate and necessary', there are significant
problems with its application by Mr. Rasmuson, as noted in the following paragraphs.
a. Mr. Rasmuson's average slip length of 40 feet is longer than three of the four
marinas he analyzed (Bayshore, a portion of Bayside, Swales, and Ardell); the
weighted average length of a slip at these marinas is about 35.8 feet. This is
significant due to the clear trend toward higher rents with larger slip lengths.
While Mr. Rasmuson's concluded average slip size may be achievable on his
optimally -sized and shaped generic parcel, it may not be achievable on many of
the actual water parcels to be leased.
As stated in the report, Mr. Rasmuson relied on published rental rates. It is well
known that marina owners are competitive, and frequently offer free rent or
other concessions, especially in soft markets like the one currently being
experienced. As an example, a quick search of the Web site for the Newport
Dunes marina discloses that they were offering 15 %- 20% off their published
rates earlier this summer for full -year leases. As such, It appears that Mr.
Rasmuson overstated the actual slip rental that could realistically be achieved.
C. Mr. Rasmuson stated that the current vacancy rate range for the Newport
Harbor marinas is about 0% to 15 %, with most in the range of 10%. Despite this
fact, he used a vacancy rate of 3% in his analysis'; this analysis is,unreasonable,
The formula referenced in this sentence is Tidelands Rent = Total fair Market Rent - Upland Rent
Mr. Rasmuson obviously agrees that the economic analysis is appropriate and necessary, as he
states that it was given "about equal weight" with the comparable market Indicators,
While Mr. Rasmuson later tested the impact of 5% and 10% vacancy rates, he did so only in the
context of analyzing, the market rent per square foot, not in determining the market percentage
rent.
l MA IWI l
-5-
128
Newport Harbor - Market Rent Determination Page 5
especially in light of the overstated slip rent noted above. The vacancy rate he
used in this analysis is particularly improper in light of his statement on page 44
that, "The average vacancy rate in the current Newport Harbor market is
between 5 and 10 percent. In my opinion,.the current market rent rate should
reflect these conditions (emphasis added) ". The use of a higher vacancy rate
significantly affects the results of the economic analysis, as will be demonstrated
later.
To determine the implied land rent that must be deducted in the analysis, Mr.
Rasmuson first estimated the size of the land parcel that would be needed to
support the hypothetical marina. The methodology he used understated the
land area needed by a considerable margin. First, despite stating that the
average land area needed for a parking space is 290 to 350 square feet, Mr.
Rasmuson used only 300. in addition to being at the low end of the range, this
figure does not include buffer.areas and landscaping. Mr. Rasmuson then added
400 square feet for an office / restroom building. Again, however, no buffer area
was included. The result of Mr. Rasmuson's analysis is a supposed necessary
land area of only 11,800 square feet; which equates to 236 square feet per slip
and 5.9 square feet per linear foot of slip space. These figures can be compared
with the actual figures for Bayshore Marina, a larger, efficient marina with no
office space or other non - marina uses'. Based on measurements taken from an
aerial photograph using Google Earth, Bayshore Marina has about 35,000 square
feet devoted to parking, landscaping, and restrooms; this equates to 265 square
feet of land area per slip (12% higher than the figure used by Mr. Rasmuson) and
8.2 square feet of land area per linear toot of slip (39% higher than the figure
used by Mr. Rasmuson). Finally, on page 38, Mr. Rasmuson notes that his
conclusions result in a land area to water area ratio for the hypothetical marina
of 17 %. This figure should be compared with Bayshore, where the figure is
actually 28.2 %, including both owned and leased water areas. Using the actual
Bayshore figures results in indications of the actual required land area for the
hypothetical subject marina as follows:
Item
Bayshore (Actual)
Indicated Land Area for Subject
Area per slip
265
13,250
Area per LF of slips
8.2
16,400
Land to water ratio
28%
19,600
The required land area indicated by this analysis ranges from about 12% to 66%
higher than the area used by Mr. Rasmuson. Using the rounded average of
these three figures, 16,400 square feet, and accepting all of the other inputs
used in Mr. Rasmuson's analysis solely for purposes of this computation, results
in a residual market rent to the hypothetical water parcel of $81,100, more than
A less efficient marina would have ratios that are even higher than those for Bayshore, making
the Rasmuson calculations even less appropriate.
r,Xnioit
-6-
129
Newport Harbor- Market Rent Determination Page 6
34% below the figure concluded by Mr. Rasmuson. This results in an indicated
market rent for the water parcel of 8.7% of collected income (compared to the
133% figure determined by Mr. Rasmuson) and $1.15 per square foot of water
area (compared to Mr. Rasmuson's conclusions of $1.77 based on his economic
analysis and his ultimate concluded market rent of $1.50 per square foot). The
appraiser is clearly aware of the size inconsistency regarding Bayshore, as the
Issue is noted on page 42 of the Rasmuson appraisal reports.
e. One of the inputs to the Rasmuson economic analysis that was not changed for
the adjusted economic analysis described above Is the land value per square
foot for the assumed upland parcel used for joinder by Mr. Rasmuson. While his
conclusion of land value was $185 per square foot, Mr. Netzer, the appraiser
who, performed the second appraisal for the City, concluded that the
appropriate land value was actually $275 per square foot. Applying a higher
land value in the Rasmuson economic analysis would significantly lower the
indicated market rents, both on a percentage basis and a rent per square foot
basis.
Mr. Rasmuson performed a second analysis to determine the market rent per
square foot (see page 42 of the report). First, it should be noted that there is a
significant error in the Rasmuson calculations regarding the Bayshore Marina.
While the analysis in the report shows that the indicated water rent for this
marina is $1.75 per square foot, he incorrectly divided by only the leased
tidelands parcel and ignored the owned tidelands parcelta. The correct figure
indicated by the Rasmuson analysis for Bayshore is $1.41 per square foot.
g. Far more significant than Mr. Rasmuson's computational error is two other
errors in the analysis, the assumed associated upland area and the vacancy rate.
The land area figures used in Mr. Rasmuson's analysis on page 42 are
determined by calculating the required number of parking spaces at 0.75 space
per slip, rounding up to the nearest whole number, multiplying by 300 square
feet per parking space, and adding 400 square feet for an office /restroom
building. The flaws in this analysis are discussed above, particularly in light of
the actual figures for Bayshore Marina, which are far higher than what is
indicated by Mr. Rasmuson's analysis. The vacancy issue was also discussed
above - despite Mr. Rasmuson's statement that most marinas are operating
near '10 %vacancy, and despite his statement in the report that current
economic conditions should be considered in determining the market rent for
water parcels, he inexplicably used a 3% vacancy figure in the rent per square
foot analysis. This Is particularly egregious given that Mr. Rasmuson was aware
Mr. Rasmuson stated the size of the land area for Bayshore Marina to be 32,800 square feet In
the table on page 42; this size appears.low based on measurements taken from Google Earth.
Mr. Rasmuson performed the calculation correctly in the analysis of Ardell, where he divided by
both the leased and owned water parcels.
Exhibit "C"
-7-
130
Newport Harbor- Market Rent Determination Page 7
of and reported the actual vacancy rate for three of the four marinas included in
this analysis earlier in his report (on page 34) to be 10 % ". Mr. Rasmuson's
analysis was recreated with changes made only in the two analysis parameters
described in this paragraph. For purposes of this revised analysis, the actual size
of Bayshore Marina was used, and the actual vacancy rates of Bayshore,
Bayside, and Ardell were used.. Because the land areas of Bayside, Swales, and
Ardell are not known, the actual Bayshore land to water ratio (about 28.2 %) was
applied to all four marinas. Because Mr. Rasmuson did not report the actual
vacancy rate for Swales, the 10% rate reported by Mr. Rasmuson for the other
three marinas and stated by him to be typical was used for this analysis. The
following table summarizes the results,of this revised analysis.
As shown, the impact of Mr. Rasmuson's land area and vacancy rate
methodologies are highly significant; the 10% to 14% percentage rent range
calculated by Mr. Rasmuson falls to essentially 0% to 6.6 %, while the rent per
square foot range of $1.41 to $1.87 falls to essentially $0.00' to $0.92:
h. Page 43 of the report contains a sensitivity analysis in which Mr. Rasmuson
applied vacancy rates of 3 %, 5 %, and 10% to the prior rent per square foot
analysis. While it is reasonable for Mr. Rasmuson to have performed an analysis
recognizing that the 3% rate used in the original analysis is far too low to reflect
current economic conditions, and that the market rents should reflect the actual
current conditions to determine a current market rent (that would be subject to
adjustment over time), the figures shown by Mr. Rasmuson are still significantly
overstated due to the land area issue. Further, it is unclear why Mr. Rasmuson
performed this sensitivity analysis for the rent per square foot, but not in the
The fourth marina Included In the analysis on page 42, Swales, Is not shown In the survey on page
34 of the report.
As noted, Mr. Rasmuson's reported figure of $1.75 is incorrect.
'rhe indicated figures of essentially zero for Ardell Marina result from slip rental rates that appear
to be at the lower end of the range. However, these figures also point out that associating a
marina with upland properties that have an alternative highest and best use option may make
little or no economic sense for the owner of the upland parcel. Mr. Rasmuson further noted (on
page 43). that he used published rates at Ardell, not the actual discounted rates given for use of
yacht brokerage slips. Use of the actual rates would further lower the indicated market rents.
Exhibit "C"
-8-
131
Bayshore
Bayside
Swales
Ardell
Rasmuson conclusion - % of EGI
10.0%
14.0%
10.0%
13.0%
Corrected calculation - Yo of EGl
5,7%
4.5%
6.6%
-0.5°°
Rasmuson conclusion - Waterrent /SF
$1.41"
$1.87
.$1.46
$1.44
Corrected calculation -Water rent /SF
$0.78
$0.57
$0.92
($0.05)
As shown, the impact of Mr. Rasmuson's land area and vacancy rate
methodologies are highly significant; the 10% to 14% percentage rent range
calculated by Mr. Rasmuson falls to essentially 0% to 6.6 %, while the rent per
square foot range of $1.41 to $1.87 falls to essentially $0.00' to $0.92:
h. Page 43 of the report contains a sensitivity analysis in which Mr. Rasmuson
applied vacancy rates of 3 %, 5 %, and 10% to the prior rent per square foot
analysis. While it is reasonable for Mr. Rasmuson to have performed an analysis
recognizing that the 3% rate used in the original analysis is far too low to reflect
current economic conditions, and that the market rents should reflect the actual
current conditions to determine a current market rent (that would be subject to
adjustment over time), the figures shown by Mr. Rasmuson are still significantly
overstated due to the land area issue. Further, it is unclear why Mr. Rasmuson
performed this sensitivity analysis for the rent per square foot, but not in the
The fourth marina Included In the analysis on page 42, Swales, Is not shown In the survey on page
34 of the report.
As noted, Mr. Rasmuson's reported figure of $1.75 is incorrect.
'rhe indicated figures of essentially zero for Ardell Marina result from slip rental rates that appear
to be at the lower end of the range. However, these figures also point out that associating a
marina with upland properties that have an alternative highest and best use option may make
little or no economic sense for the owner of the upland parcel. Mr. Rasmuson further noted (on
page 43). that he used published rates at Ardell, not the actual discounted rates given for use of
yacht brokerage slips. Use of the actual rates would further lower the indicated market rents.
Exhibit "C"
-8-
131
Newport Harbor - Market Rent Determination Page 8
determination of percentage rent; as was shown in the adjusted analysis
described above, the vacancy rate affects both figures.
While not discussed here in detail because the issues are essentially the same,
Mr. Rasmuson's economic analysis of the market rent for a smaller marina is
similarly flawed and results in an overstated market rent.
8. Mr. Rasmuson performed no analysis of the market rental value of the water parcels as
freestanding facilities (for open -water mooring purposes). As noted, Mr. Rasmuson
instead overtly assumed that adjacent uplands are available for use with every water
parcel. In doing so, he further inherently assumed that the highest and best use of
those adjacent uplands was to devote it to marina support use, despite his statement
that this may not be the case.
9. The Rasmuson appraisal ultimately concludes that the market rent for water parcels is
17 %19 of collected slip revenue, or $1.50 per square foot per year ($1.40 for a smaller
marina). In reaching the percentage rent conclusion, Mr. Rasmuson stated on page 50
that the economic analysis was given "about equal weight to the comparable market
data method indicators ". Given the noted flaws in both approaches (both of which
overstated the results), the actual market rent on a percentage basis is significantly
below 17%. Given the noted flaws and the error in Mr. Rasmuson's analysis of the rent
per square foot, the stated conclusions are similarly overstated.
James Netzer, MAI
1. The Netzer appraisal of the market rental value of the commercial marina parcels is
more remarkable for what is missing than for what is present. The analysis relies purely
on a comparison approach to reach the conclusion that the market rent is 20% of
collected slip revenue, Despite attending a meeting at City Hall where the need for an
economic analysis was discussed, despite being presented with written material
documenting the rationale for such an analysis, and despite the conclusion by Mr.
Rasmuson that such an analysis was not only necessary but that it warranted equal
weighting with the comparison analysis, Mr. Netzer performed no such analysis
whatsoever. This fact alone invalidates the Netzer appraisal as support for a reasonable
'determination of the market rent for the City's water parcels. It is disconcerting that
the "Scope of Work - Bullet Points" noted in the Netzer appraisal report beginning on
page 70 includes many of the items raised by the marina owners and their
representatives at the meeting attended by Mr. Netzer, but conspicuously excludes any
mention of the following points discussed at the meeting: the need for an economic
analysis of marina operations, the need to study the impact of the highest and best use
It should be noted that the Rasmuson appraisal report concluded on page 52 that the market
percentage rent would have to be allocated between the public and private water parcels in
cases where there is prIvately-owned water and publicly -owned water Included in a marina
operation. '
Exhibit "C"
-9-
132
Newport Harbor - Market Rent Determination Page 9
of the adjacent uplands, the need to study the opportunity cost of using these uplands
for marina support uses, and the need to study the economic impact of independent
use of the water parcels for open -water mooring.
2. The Netzer report contains materially different information regarding several items of
market data. For example, Mr. Netzer states that the pending lease transaction in
Glorietta Bay in San Diego County between the Port District and the Cityyof Coronado
was based on 22 %,'then wilt be adjusted pro rata based on land area (in his example, if
the land area is one - fourth of the total combined area, the rent for the water would be
reduced by one - fourth to 16.5 %). Not only does this make no sense whatsoever due to
the value difference between the land and the water parcels on a unit basis, it Is
inconsistent with Mr. Rasmuson's statement that the actual water rent in this
transaction is 11 %, half of the total 22% figure for combined land /water marina leases.
Mr. Rasmuson reported that the second pending water -only lease deal in San Diego Bay
(Coronado Yacht Club) is also at 11 %; Mr. Netzer states that no such deal has been.
reached. Based on the discussion in the Rasmuson report, it appears that Mr. Netzer
may be confusing the lease between the State of California and the Port District with
the sublease between the Port District and the Yacht Club; the latter is the 8.25% (start
rate) to 11% (step -up rate) indication described by Mr. Rasmuson, and it is the relevant
indicator as the Yacht Club would be the end user.
The Netzer appraisal report contains no recognition that the County of Orange leases in
Newport Harbor (Bayshore and Swales) were both a continuation of prior leases where
the tenants had extensive investment in improvements, that would have been lost had
the leasehold been awarded to another operator. While this issue was discussed
repeatedly in the Rasmuson report, it was ignored in the Netzer report. As such, it
appears that the impact of this fact on the resulting percentage rent was not
considered in any way by Mr. Netzer.
4. Mr. Netzer's analysis of the market rent per square foot is a purely circular
computation, where he starts with his concluded 20% water parcel rent figure and
applies it to several marina operations". For this reason, this analysis is not helpful.
However, it should be noted that Mr. Netzer made a material error in his calculation
regarding Bayshore Marina; he divided the indicated rent figure by only the area of the
leased parcel and ignored that there is a significant privately -owned water parcel
included in the marina operation. His analysis reallocates all of the revenue away from
the owned water parcel and gives it to the public water parcel.
is This differs from the Rasmuson analysis, which calculated the impact of using adjacent uplands
on the actual operations of four actual marinas in Newport Harbor based on a combined
land water percentage rent, then deducting the implied market land rent.
Exhibit "C"
-10-
133
Brown, Leilani
From:
Harp, Aaron
Sent:
Friday, September 07, 2012 1:10 PM
To:
Brown, Leilani
Subject:
FW: Commercial Marinas
Attachments:
ATT8590991.htm
Follow Up Flag: Follow up
Flag Status: Flagged
Hi Leilani,
Communication to City Council regarding Commercial Marinas.
From: "Tom Purcell" <tom @curcicompanies.com>
Date: September 6, 2012 2:06:14 PM PDT
To: <NGardner @NewportBeachCa:eov >, <curryk @pfm.com >, <mhenn @NewportBeachCa.gov >,
<srosanskv @NewportBeachCa.gov >, <rhill @NewportBeachCa.gov >, <leslieidaigle @aol.com >,
<edselich@ roadrunner.com>
Cc: <dkiff @NewportBeachCa.go >
Subject: Commercial Marinas
Hon. Mayor and Members of the City Council,
As owners of two of the major commercial marinas in the Newport Harbor, we have been following the actions of
the three members of the City Council Ad Hoc Committee with interest and great concern as they work towards
recommending an extreme increase in the rental rate for the tidelands areas in our marinas. We were
somewhat relieved in this process when the City agreed to retain a second appraiser to evaluate the fair
market rental rate. Unfortunately, the appraisal reports prepared by Netzer & Associates and Rasmuson
Appraisal Services contain many errors and as pointed out in the attached letter from our attorney, Gary
McKitterick, there are many facts in the two appraisal reports that are inaccurate and do not support the findings
and conclusions justifying the increase in fair market rental rates.
We have suggested to the Ad Hoc Committee a compromise which has been rejected by the Committee. We
hope to continue in our effort to work through this difficult issue to arrive at a settlement which result in a
significant increase in the fees we pay but is fair and reasonable to both the City and commercial marina
owners.
Sincerely,
Thomas H. Purcell
Lido Anchorage
Gary Pickett
Ardell Marina
Aaron,
The City Council has announced it will evaluate the Commercial Harbor
Charges on September 12, 2010. 1 am submitting a letter which outlines
significant concerns about errors in the City appraisals and the Committee's
proposal. Error examples include, but are not limited to, understated land
value, understated vacancy, overstated average slip size, overstated
134
average slip rent, understated land to water ratio. These facts have huge
impacts on value and are illustrated in the Sensitivity Study attached to my
letter. As you know we have an expert appraiser assisting us in our review
who is highly recognized among his peers. Aaron the facts and assumptions
in the City reports need to be corrected and reviewed by the public before a
meaningful discussion on rent can be conducted. We are available to meet
and discuss the facts in more detail.
Gary S. McKitterick Eso.
Partner
Allen Matkins Leck Gamble Malloy & Natsis LLP
1900 Main Street, 5th Floor, Irvine, CA 92614 -7321
(949) 553 -1313 (main)
(949) 851 -5432 (direct)
(949) 751 -8270 (mobile)
(949) 553 -8354 (fax)
www.allenmatkins.com
Allen Matkins
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, please be
advised that any U.S. federal tax advice contained in this communication (including any attachments)
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of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or
recommending to another party any transaction or matter addressed herein.
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2 135