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