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HomeMy WebLinkAbout4/11/2001 - STAFF REPORTS (2) DATE: 12001 TO: Community Redevelopment Agency FROM: City Engineer and Redevelopment Director APPRAISAL OF DESERT FASHION PLAZA PROPERTIES, APN 513-560-002, 004, 007, 008, 009 RECOMMENDATION: That the Community Redevelopment Agency award a contract to Dozier Appraisal Company of Palm Desert, California, in the amount of$15,000.00, for Appraisal to determine "as is" market value of the Desert Fashion Plaza. BACKGROUND: In March, 1998, the Desert Fashion Plaza was purchased by AZ Partners and Excel Legacy Corporation to be revitalized and remarketed as a new entertainment center venue. Agency and City staff negotiated with AZ Partners from that time through May, 1999 on a package of Agency assistance. At that time, AZ Partners' position in the project was replaced by Excel Legacy, and a new cycle of negotiations began. These negotiations ceased in May, 2000, when Excel withdrew its project and decided to place the project for sale to a new developer. Excel prepared an RFP seeking developers to purchase the mall in "as is" condition and return it to a stabilized occupancy level. The $20 million price they are seeking, however, is far in excess of what they actually paid for the property, and has forced interested developers to continue to seek Agency assistance for what are now comparatively modest redevelopment plans. Because a windfall profit to Excel would probably take the form of a higher request for Agency financial assistance, Agency legal counsel notified Excel in June that whatever proposed offer of Agency assistance that was under consideration was "off the table." Excel has acknowledged this, all interested developers have sought some public assistance in the project, given its scale and complexity. Whether the Agency entertains those requests seriously should be a function of the financial viability of the project, which is, in part, a function of what the buyer pays for the property. The question is, then, what should a new developer pay for the property and what's a reasonable amount of investment to return it to stabilized occupancy? Over the past eight months, the Agency has been approached by several developers with a variety of revitalization plans for the center. None are as ambitious (financially, anyway) as Excel's, yet each one would likely be more profitable than the Excel plan. The common thread in all the proposals the Agency has seen has been to reduce the amount of retail square footage in the rear of the mall; such space, left in place, would require the largest subsidy on the part of the owner. (The space in the rear, according to staff's projections, could actually produce a negative cash flow to the overall project.) ;; , A solid estimate of the "as is" market value, based on a reasonable investment necessary to return the project to profitability, is essential at the very beginning of the negotiations. The desire to undertake the appraisal reflects the unique opportunity the Agency has now to be proactive in the project, rather than merely responding to an established owner's request for assistance. The City Engineer undertook an informal bid process in August, 2000 seeking appraisers. There was one addendum to the bid which, after further discussion about appraisal techniques, clarified the techniques and process staff wanted to see in the appriasal. There were two bidders: 1. Dozier Appraisal Company $15,000.00 Palm Desert 2. MacKenzie, Wagner&Associates, Inc. $24,000.00 Palm Desert Dozier Appraisal Company of Palm Desert is the low bidder; the principal of the firm is Ray Dozier. Sufficient funds are available in account No. 811-8191-50000 (Community Redevelopment Agency, Merged Project Area #1, Unscheduled Capital Projects.) j3U—, APPROVED: DAVID J. BARAKIAN John aymond City Engineer Re velopmen irector APPROVD�'-� !l. � Executive Director ATTACHMENT: 1. Resolution 2. Contract RMEW BY DO.OF FINANCE CONTRACT SERVICES AGREEMENT FOR APPRAISAL SERVICES RELATED TO DESERT FASHION PLAZA PROPERTY THIS CONTRACT SERVICES AGREEMENT (herein "Agreement"), is made and entered into this _ day of , 2000, by and between the CITY OF PALM SPRINGS, (herein "City," a municipal corporation and Dozier Appraisal Company, a real estate appraisal firm (herein "Contractor"). The parties hereto agree as follows: 1.0 SERVICES OF CONTRACTOR 1.1 Scope of Services. In compliance with all terms and conditions of this Agreement, the Contractor shall provide those services specified in the "Scope of Services" attached hereto as Exhibit "A" and incorporated herein by this reference, which services may be referred to herein as the "services" or"work" hereunder. Contractor warrants that all services will be performed in a competent, professional and satisfactory manner in accordance with the standards prevalent in the industry, and all materials will be of good quality, fit for the purpose intended. 1.2 Contractor's Proposal. The Scope of Services shall include the Contractor's proposal or bid which shall be incorporated herein by this reference as though fully set forth herein. In the event of any inconsistency between the terms of such proposal and this Agreement, the terms of this Agreement shall govern. 1.3 Compliance with Law. All services rendered hereunder shall be provided in accordance with all ordinances, resolutions, statutes, rules, and regulations of the City and any Federal, State or local governmental City having jurisdiction in effect at the time service is rendered. 1.4 Licenses Permits. Fees and Assessments. Contractor shall obtain at its sole cost and expense such licenses, permits and approvals as may be required by law for the performance of the services required by this Agreement. Contractor shall have the sole obligation to pay for any fees, assessments and taxes, plus applicable penalties and interest, which may be imposed by law and arise from or are necessary for the Contractor's performance of the services required by this Agreement, and shall indemnify, defend and hold harmless City against any such fees, assessments, taxes penalties or interest levied, assessed or imposed against City hereunder. 1.5 Familiarity with Work. By executing this Contract, Contractor warrants that Contractor(a) has thoroughly investigated and considered the scope of services to be performed, (b) has carefully considered how the services should be performed, and (c) fully understands the facilities, difficulties and restrictions attending performance of the services under this Agreement. If the services involve work upon any site, Contractor warrants that Contractor has or will investigate the site and is or will be fully acquainted with the conditions there existing, prior to commencement of services hereunder. Should the Contractor discover any latent or unknown conditions, which will materially affect the performance of the services hereunder, Contractor shall immediately inform the City of such fact and shall not proceed except at Contractor's risk until written instructions are received from the Contract Officer. 1.6 Care of Work. The Contractor shall adopt reasonable methods during the RESOLUTION NO. OF THE COMMUNITY REDEVELOPMENTAGENCYOFTHE CITY OF PALM SPRINGS, CALIFORNIA, APPROVING A CONTRACT WITH DOZIER APPRAISAL COMPANY OF PALM DESERT, CALIFORNIA, IN THE AMOUNT OF $15,000.00, FOR APPRAISAL SERVICES ON THE DESERT FASHION PLAZA PROPERTY,APN 513-560-002,004,007, 008, 009 BE IT RESOLVED BY THE COMMUNITY REDEVELOPMENT AGENCY of the City of Palm Springs, California, that a contract with Dozier Appraisal Company of Palm Desert, California, in the amount of$15,000.00, forAppraisal Services on the Desert Fashion Plaza Property, is approved and the Executive Director or his designee is authorized to sign any documents related to the Contract. ADOPTED this day of , 2000. AYES: NOES: ABSENT: ATTEST: COMMUNITY REDEVELOPMENT AGENCY By Assistant Secretary Chairman REVIEWED & APPROVED EXHIBIT "A" SCOPE OF SERVICES Contractor shall provide the City appraisal services related to the Desert Fashion Plaza property, APN 513-560-002, , 007, 008, 009. Such services shall include, but shall not be limited to: 1. Estimating the "as is" market value of the property's real property interest as if sold to a single buyer as of the date of the appraiser's inspection. The result will allocate the contributory values of the land and existing building improvements. The Agency has requested that the Contractor make an extraordinary assumption that the property's highest and best use is to rehab the existing building improvements into essentially the same concept and configuration as was originally designed. 2. Analyze the "as is" market value from three viewpoints: (1) the Sales Comparison Approach, (2) the Cost Approach, and (3) the Property Residual Approach, The Residual Approach will estimate the costs of rehabbing the mall using its existing configuration and design as it was originally intended up to the point where the mall is ready for tenancy. These costs include hard and soft costs, interest carry, builder's profit, and developer's incentive. Once the mall is ready for tenancy, additional holding costs will be incurred in the form of engative cast flows until the mall reaches stabilized occupancy. These additional costs will include interest carry; fixed, variable, and reserves/replacement costs; leasing costs; basic tenant improvements; and developer's profit. 3. Once stabilized occupancy is achieved, the total project can be valued in an "as if complete" market value to be used in a Discounted Cash Flow Analysis (DCF). Applying the DCF to the rehab costs, carrying costs to stabilized occupancy at market rents, and the As If Complete market value (also known as the Reversion Value) will answer the question of "what can a developer pay for" the "as is" property and produce a financially feasible result. 4. Produce a report to the City Manager and/or Redevelopment Director summarizing Contractor's analysis, and estimate of"as is" value. 5. Presenting the findings, conclusions and recommendations to the City Council at a minimum of one (1) City Council meeting or study session. 12 EXHIBIT "B" SPECIAL REQUIREMENTS Section 5.3, "Performance Bond," is hereby waived. The Contractor has requested the following materials before work commences: (A) A current survey, if any; (B) Preliminary title report, if any; (C) Plans and specifications of existing mall; (D) Historic P & L's and balance sheets; (E) Itemized list of trade equipment to be included; (F) Survey of deferred maintenance; (G) Requested retainer The Agency does not warrant to it possesses all of the information requested above (item G is discussed in Schedule of Compensation) but shall endeavor to obtain the requested items. If the lack of information creates a gap in the analysis that is filled by an assumption, Contractor shall make explicit in the report where the assumption was used, what the assumption was, and how different data (if it became available at a later date) would affect the appraised value. ads' 13 EXHIBIT"C" SCHEDULE OF COMPENSATION Contractor shall be compensated in an amount not to exceed $15,000. The total compensation paid to Contractor, inclusive of expenses, shall not exceed the Contract Sum. Unless some other method of payment is specified in the Schedule of Compensation (Exhibit C), in any month in which Contractor wishes to receive payment, no later than the first (1st) working day of such month, Contractor shall submit to the City in the form approved by the City's Director of Finance, an invoice for services rendered prior to the date of the invoice. Except as provided in Section 7.3, City shall pay Contractor for all expenses stated thereon which are approved by City pursuant to this Agreement no later than the last working day of the month. .may EXHIBIT "C" TO CONTRACT SERVICES AGREEMENT EXHIBIT "D" SCHEDULE OF PERFORMANCE The finished appraisal report shall be delivered within four (4) weeks of the date of the receipt by the Contractor of the requested items detailed in Exhibit "B". EXHIBIT "D" �4' R TO CONTRACT SERVICES AGREEMENT