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11 - Marinapark Revenue Study
DATE: TO: FROM: SUBJECT: CITY OF NEWPORT BEACH OFFICE OF THE CITY MANAGER August 25, 1997 Honorable Mayor and Members of the Peggy Ducey, Assistant to the City Manager Marinapark Revenue Study Agenda Item 11 BY THE CITY COUNCIL CITY OF NEWPOR i BEACH F EAUG51997 BACKGROUND On August 1st, the City Council Finance Committee reviewed the Marinapark economic analysis by Keyser Marston Associates. Attached is the staff report which gives background on the Marinapark property, as well as an overview of the findings by Keyser Marston. Also attached are the draft minutes of the Finance Committee meeting. After taking testimony from representatives of Marinapark Mobile Home Park and the American Legion, the Finarice Committee approved the following motion: • Receive and file the Marinapark Revenue Study; • Authorize staff to begin negotiations with the American Legion to renew their lease; • Authorize staff to prepare a Request for Proposals for development of the City - owned property between 15th and 19th Streets, excluding the American Legion property; • Direct that the existing lessees be given the opportunity to respond to the RFP and propose to remain on the site. • Direct staff to prepare a legal opinion on relocation benefits for Marinapark residents. • Direct staff to prepare an ordinance establishing the tidelands boundary as recommended by Boundaries Unlimited. • Review the financial analysis presented by Marinapark representative Stewart Berkshire and calculate the capital costs necessary for Marinapark if the mobile home lease is renewed. Attachment I is the legal opinion regarding relocation benefits for the mobile home residents. The conclusion of the City Attorney is that the City would not be obligated to pay relocation benefits to Marinapark residents. Agenda Item CITY OF NEWPORT BEACH OFFICE OF THE CITY MANAGER DATE: August 1, 1997 TO: City Council Finance Committee FROM: Peggy Ducey, Assistant to the City ManagerP SUBJECT: Marinapark Revenue Study BACKGROUND The City currently owns 10.71 acres between 15th and 19th Streets, north of Balboa Boulevard. Originally acquired from the Pacific Electric Land Company in 1919, the property currently hosts the Marinapark Mobile Home Park, the American Legion, the Girl Scout House, and the Balboa Community Center, which houses the Power Squadron. There is also a tot lot, four tennis courts, and a metered parking lot. All leases will expire on March 31, 2000. The City does not own the southeasterly corner of the property, which is occupied by an Edison sub -station and a commercial building. Specific background on each lease is as follows: MARINAPARK MOBILE HOME PARK: Upon acquisition in 1919, the City operated the property as a visitor campground. In 1945, the City Council approved conversion to a travel trailer park, and ten years later, the conversion to a mobile home park. A City charter amendment was also approved in 1957 mandating that the beach in front of Marinapark would always remain open to public use. In 1972, the Parks, Beaches, and Recreation Commission recommended that the property be converted to public use, thereby eliminating the mobile home park. The reasons cited in the report include the need for consistency with the Tidelands Trust Agreement the City has with the State. Beginning in 1973, the City Council granted two lease extensions that included greater public access provisions to address the need for increased public use. In 1985, the current lease was signed, which contains the following language that acknowledges the City's intent to convert the mobile home park to another use at the end of the lease: SECTION D. The City Council presently intends to convert Marinapark to a public recreation area upon expiration of the lease; SECTION E. The City Council finds that it is in the best interests of the City of Newport Beach to enter into this Lease because Leasees have agreed that City has the right to convert Marinapark into a public recreation area upon the expiration of this Lease, or revert to the City at the termination of the lease, and either party can terminate the lease with twelve months prior written notice. The 3,500 square foot building contains a large meeting room, a fully equipped kitchen, bathroom/shower facilities, storage space, a small office space, and parking. The facility is currently used for troop and adult volunteer meetings, summer day camps, and overnight camping on weekends. BALBOA COMMUNITY CENTER: This building formerly housed the Nautical Museum. Currently, the City provides recreation classes at the Center, as well as a small office for the Balboa Power Squadron, a small community based group. TOT LOT/TENNIS COURTS/PARKING LOT: In the late 1950s, the City constructed Las Arenas Park and two of the public tennis courts. Over the years, an additional two tennis courts and a "tot lot" were constructed. There is a metered parking lot at the southwest corner of the property. The lot has 49Airp spaces and generates $22,000 annually. DISCUSSION The City's Income Property Policy requires that prior to beginning lease negotiations, an analysis of the highest economic use for the property be conducted. Based on this policy, the City retained Keyser Marston Associates to perform an economic analysis of the entire City -owned area. The City also retained Fuller and Associates to perform an appraisal on the property. To complete the appraisal, the question of whether the property was tidelands needed to be resolved, since a tidelands designation would restrict sale of the property, per current State law.. The City retained Boundaries Unlimited to review the tidelands boundary issue. Using accepted boundary determination practices and based on an analysis of historical surveys, maps, photographs, deeds and other records, the final report recommends the 1889 U.S. General Land Office meander line by S.H. Finley as the tideland boundary for the subject property. This line travels east to west across the length of the property, dividing it into approximately two-thirds tidelands and one- third uplands. State Lands Commission staff has reviewed the report, but has not taken formal action to establish the tidelands boundary. Once the tidelands report was complete, both the appraisal and the economic analysis were based on the proposed boundary line. The most significant tidelands - related issue is the existing residential use by Marinapark. Tidelands regulations require visitor serving uses on tidelands property. State Lands Commission has interpreted permanent residential uses as inconsistent with tidelands regulations. Barring special State legislation, Marinapark cannot remain on the property. State Lands Commission staff will be available to answer questions about tidelands regulations at the Finance Committee meeting. RECOMMENDATION That the Finance Committee recommend to the City Council to: 1. Receive and file the Marinapark Revenue Study; 2. Authorize staff to begin negotiations with the American Legion to renew their lease; 3. Authorize staff to prepare a Request for Proposals for development of the City - owned property between 15th and 19th Streets, excluding the American Legion property; 4. Direct that the existing leasees be given the opportunity to respond to the RFP and propose to remain on the site. Finance Committee Minutes Page 2 z A �•FT estimated present value of revenues per square foot for the land uses considered, three scenarios were developed (status quo, partial reconstruction and major redevelopment) and the revenues for each scenario were reviewed. Redevelopment would maximize the City revenues. Curtis Fossum, Senior Counsel for the State Lands Commission, discussed the tidelands boundary issue, stating that it is currently unresolved. Boundaries Unlimited prepared a report on the Recommended Tideland Boundary and concluded that the 1889 Finley meander line is the best evidence of the ordinary high water mark and tideland boundary. He recommended that the City get a clear title policy by initiating a hearing with the State Lands Commission. Tidelands must be used for public purposes, either regional, or better - statewide. Written questions were answered from the audience. Bob Wynn was then given the opportunity to speak on behalf of the Marinapark residents. He provided a Position Summary from the Marinapark Association, and went over the five points it addressed. He discussed the financial return to the City from Marinapark, and the different present value per square foot that their analysis revealed. He also provided other information on the benefits of not replacing Marinapark - that it is guaranteed revenue compared to a hotel, and that it is consistent with the general plan. Mr. Hollis briefly referred to Tables 8 and 12 of the Keyser Marston study to clarify some of the findings of their report. He stated that the mobile home park was not included in either the partial reconstruction or the major redevelopment scenarios, because the study assumed that housing is not a permitted use of tidelands. Stewart Berkshire then spoke as a continuation of Mr. Wynn's presentation. Mr. Berkshire provided the detail behind his analysis that the Marinapark mobile home park has a present value per square foot of $55.14, not $24.00 as concluded in the Keyser Marston study. Don Donaldson with the American Legion Corporation spoke briefly about their relationship with the City. He stated that the American Legion Corporation agrees with the staff recommendation that the City Council approve that the City begin negotiations to renew their lease. Councilmember John Hedges made a motion that the Finance Committee recommend to the City Council to: • Receive and file the Marinapark Revenue Study. • Authorize staff to begin negotiations with the American Legion to renew their lease. Attachment I CITY OF NEWPORT BEACH OFFICE OF THE CITY ATTORNEY August 20, 1997 TO: Mayor and Members of the City Council FROM: Robert H. Burnham, City Attorney RE: MARINAPARK RELOCATION BENEFITS The Finance Committee has asked this office to provide a legal opinion on the obligation, if any, of the City Council to pay relocation benefits or other consideration to Marinapark residents assuming the property is converted to another use upon expiration of the current lease (March 15, 2000). In our opinion, the City Council would not be obligated to pay relocation benefits. The sole statutory provision relevant to the issue of relocation benefits is Section 65863.7 of the Government Code. That Section requires an entity proposing to convert a mobile home park to another use to prepare and file: "...a report on the impact of the conversion, closure, or cessation of use upon the displaced residents of the mobile home park to be converted or closed." (65863.7(a) of the Government Code) The City Council is required to review the report prior to any conversion of the mobile home park and "may require" mitigation of adverse impact on the residents. The mitigation "shall not exceed the reasonable cost of relocation." In summary, Section 65863.7 of the Government Code authorizes, but does not require, the City Council to mitigate the impact of conversion so long as the mitigation does not exceed the reasonable cost of relocation. The Marinapark lease contains a specific waiver of the lessee's right to receive "relocation benefits, or any other form of relocation assistance or other payment or consideration" related to a number of factors including (1) the conversion of the premises to a public recreational use, (2) the termination of lessee's tenancy pursuant to the lease,(3) the displacement of lessee from his/her primary residence, or (4) any Federal, State or local law which requires mitigation of impacts caused by displacement. The lease also clearly states that the City's commitment to preserve the residential use of the A—achment II RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH ESTABLISHING THE TIDELANDS BOUNDARY ALONG THE BAYWARD SIDE OF BALBOA PENINSULA BETWEEN 15TH STREET AND 18TH STREET. WHEREAS The City owns the property between 15th Street and 18th Street, bayward of Balboa Boulevard, which is currently occupied by the American Legion, Marinapark Mobile Home Park, the Girl Scout House, the Balboa Community Center, along with some recreational facilities; and WHEREAS, tidelands and submerged lands of Newport Bay were granted in trust by the State Legislature to Newport Beach in 1919; and WHEREAS, the City retained Boundaries Unlimited to recommend a location of the tideland boundary, based on accepted boundary determination principles and practice; and WHEREAS, the tideland boundary in Newport Beach is the ordinary high water mark as set forth in Section 830 of the California Civil Code and the ordinary high water mark in the tidal estuary under natural conditions corresponds to the intersection on the ground of the tidal height of mean high water; and WHEREAS, Boundaries Unlimited has recommended the 1889 Finley meander line as the tidelands boundary for the subject area. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Newport Beach that the 1889 Finley meander line be established as the tidelands boundary for the property between 15th Street and 18th Street, bayward of Balboa Boulevard. ADOPTED this day of ,1997. MAYOR ATTEST: CITY CLERK ATTACHMENT III PENDING - WILL BE AVAILABLE 8/22/97 Attachment IV Cost Estimates for Capital Improvements for Marinapark: Relocation of Gas/Electric Utilities $200,000 Park Outdoor Lighting 1 111 Sidewalks/Parking Lot and Street Pavement 40,000 Manager's Mobile Home/Park Office 50,000 Repair of Laundry Room 15,000 TOTAL $345,000 REVENUE STUDY MARINAPARK NEWPORT BEACH, CALIFORNIA Prepared for: THE CITY OF NEWPORT BEACH J U LY 1997 REVENUE STUDY MARINAPARK NEWPORT BEACH, CALIFORNIA Prepared for: THE CITY OF NEWPORT BEACH July 1997 Prepared By KEYSER MARSTON ASSOCIATES, INC. 55 Pacific Avenue Mall 500 South Grand Avenue, Ste 1480 1660 Hotel Circle North, Ste 716 San Francisco, CA 94111 Los Angeles, CA 90071 San Diego, CA 92108 TABLE OF CONTENTS EXECUTIVESUMMARY...............................................................................................................................1 PURPOSE AND BACKGROUND...........................................................................................................................I METHODOLOGY...............................................................................................................................................I LAND USE RESTRICTIONS................................................................................................................................1 USES CONSIDERED AND REVENUE CONCLUSIONS.............................................................................................2 ILLUSTRATIVE DEVELOPMENT SCENARIOS.........................................................................................................2 LEASEVERSUS SALE ISSUES............................................................................................................................3 INTRODUCTION...........................................................................................................................................4 BACKGROUND............................................................................................................................................4 ORGANIZATION...........................................................................................................................................5 MAJORASSUMPTIONS..............................................................................................................................5 SECTIONI - SITE OVERVIEW...................................................................................................................8 1. ENVIRONS.............................................................................................................................................8 2. EXISTING USES..................................................................................................................................10 3. LAND USE LIMITATIONS....................................................................................................................12 SECTION II - REVIEW OF POTENTIAL USES..........................................................................................14 1. EATING AND DRINKING FACILITIES.................................................................................................16 2. HOTEL..................................................................................................................................................18 3. CONVENIENCE RETAIL......................................................................................................................20 4. OFFICE................................................................................................................................................22 5. PARKING.............................................................................................................................................22 6. OWNERSHIP HOUSING......................................................................................................................24 7. RENTAL HOUSING..............................................................................................................................26 8. MARINAPARK (CURRENT USE)........................................................................................................28 CONCLUSION OF POTENTIAL USES AND VALUE OF REVENUES.....................................................30 SECTION III - DEVELOPMENT SCENARIOS............................................................................................31 1. BASELINE SCENARIO........................................................................................................................31 2. SCENARIO A Partial Reconstruction...............................................................................................31 3. SCENARIO Major Redevelopment...............................................................................................32 CONCLUSION OF POTENTIAL USE.........................................................................................................34 EXECUTIVE SUMMARY Purpose and Background This study prepared by Keyser Marston Associates, Inc. (KMA) is designed to assist the City of Newport Beach in its evaluation of alternative land uses for the 10.71 acre Marinapark property. The property is currently the site of a mobile home park, American Legion Hall, Girl Scout meeting facility, a marina operated by the American Legion, and Balboa Community Center. Additionally, portions of the site are used for City recreational activities and public parking. The various leases for all the properties at the site are scheduled to terminate at the same time, on March 31, 2000. Methodology KMA has examined a range of residential and commercial land uses for the site, determined the extent of market support for each, and has estimated the land rent and tax revenues (collectively the "revenues") which would accrue to the City as a result of each land use. Given that the site could be developed with a mix of several uses, the revenues for each land use are expressed as the per square foot, present value of the sum of the revenues over the term of an assumed long term lease. The various components of the revenues (base rent, percentage rent, sales tax, etc.) are discounted at varying rates to reflect KMA's conclusions as to the risk associated with each revenue category. From these unit values, an illustrative mix of uses for the site have been developed to derive a likely range of values. Land Use Restrictions The potential reuse of the property is limited by a number of regulatory restrictions, including the following: Revenue Study July 31, 1997 Marinapark Site 1 Tidelands Designation: Approximately two-thirds of the property is subject to State Tidelands Trust restrictions, eliminating any residential use from that portion of the site. Charter Restrictions: The City Charter permanently restricts a portion of the site to public use. Local Coastal Plan: The plan requires coastal views and designates the area as Recreational and Environmental Open Space. General Plan: Also designates the area as Recreational and Environmental Open Space. Uses Considered and Revenue Conclusions Based upon KMA's evaluation of local market conditions, KMA has identified a set of uses for which near term development is indicated. Chart A presents the uses and compares the value of per square foot revenues (ground rent and tax revenues) over the assumed lease term. Generally, residential and hotel uses represent the highest total revenue potential. The extent of commercial development on the Tidelands property can negatively impact the value of the non -Tidelands property by obstruction of the views from this portion of the property. Illustrative Development Scenarios KMA has developed three illustrative development scenarios portraying the range in revenue, which could be generated by the property. These are summarized on Charts B and C and include the following: Revenue Study Marinapark Site 2 July 31, 1997 CHART A SUMMARY OF USES REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH ESTIMATED PRESENT VALUE OF REVENUES PER SQ. FT. LAND USE GROUND RENT OTHER REVENUE TOTAL REVENUES 1 HOTEL $25.80 $37.20 $63.00 2 OWNERSHIP 43.90 3.60 47.50 HOUSING 3 RESTAURANTS 34.40 11.10 45.50 4 CONVENIENCE 39.60 1.40 41.00 RETAIL 5 RENTAL 23.20 1.80 25.00 HOUSING 6 EXISTING USES 24.00 0.00 24.00 7 PARKING 7.80 0.20 8.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 SUMMARY OF POTENTIAL USES PRESENT VALUE PER SQ. FT. w a w mo O U) Z ¢ w Z N j Y 0 Of Z 0 w� a: z d o N Z O ®OTHER REVENUE ® GROUND RENT KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues, CHART A, DATE: 7/31/97. JJL L CHART B ESTIMATED NET REVENUES -ANNUAL REVENUE ESCALATING AT 2.5% PER YEAR REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH ESTIMATED DEVELOPMENT SCENARIO NET REVENUES BASELINE SCENARIO $821,000 SCENARIO A - PARTIAL RECONSTRUCTION $1,044,000 SCENARIO B - MAJOR REDEVELOPMENT $1,378,000 $2,400,000 $2,200,000 $2.000,000 $1,800,000 $1, 600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600.000 I*A iPT_` 14a]F—I I LTIFT-1 q -.4 =0 =Vk III *I I I I I I I I I I I I I I I I I I I I I 1 I I I 1 I I I I I I I I I I 1 I I I I I I 1 I I I I I I I I 1 I I I I I I I I I I 1 I I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I 1 I I I I I I I i I I I I I I 1 I I I I 1 I I I I I I I I I I I I I I f I I I I I I I I I I I 1 I I I I I I I I I 1 1 I I I I I I I I I I I I I 1 I I I I I I I I I I I I - - - - - - - - i I I I I I I - I I I I I I I I I I I I I I I I I I I I I I I 1 I 1 I I I I I L _ _ L _ _ L _ - L _ _ J_ _ _ _ _ _ _ 1 _ _ J - _ J _ _ J _ _ J _ _ J _ _ _I_ I I I I I I I I I I I I I I I I I I I I 1 I I I I I I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I L__L_____-__�__I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I 1 I I I I I I I I I I I I I I I I I 1 I I I I I I I I - _ } _ _ + _ _ } _ _ _ - - - - - - - - - - - - - - _ - _1 I I I I I I I I I I 1 1 I I I I I I I I I I I I I 1 I I I I I I I I I I 1 I 1 I I I I I I I I I I I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I 1 I I I 1 I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 —0 BASELINE SCENARIO --W-SCENARIO A —A SCENARIO B KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; CHART B; DATE: 7/31/97; JJL L r m:L•\:ilup ESTIMATED NET REVENUES - PRESENT VALUE REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH OWNERSHIP TOTAL DEVELOPMENT DEVELOPMENT SCENARIO EXISTING HOTEL RESTAURANT RESIDENTIAL REVENUES AND MARKETING NET REVENUES BASELINE SCENARIO $9,000,000 NONE NONE NONE $9,000,000 ($200,000) $8,800,000 SCENARIO A - PARTIAL RECONSTRUCTION $3,400,000 $4,700,000 $4,000,000 NONE $12,100,000 ($500,000) $11,600,000 SCENARIO B - MAJOR REDEVELOPMENT $3,100,000 $5,500,000 $2,000,000 $7,300,000 $17,900,000 ($2,000,000) $15,900,000 $18,000,000 $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 ESTIMATED REVEUES BY REVENUE SOURCE BASELINE SCENARIO SCENARIO A - PARTIAL SCENARIO B - MAJOR RECONSTRUCTION REDEVELOPMENT O OW NERSHIP RESIDENTIAL O RESTAURANT M HOTEL ® EXISTING KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; CHART C; DATE: 7/31/97, JJL Baseline Scenario: Assumes current uses and lease terms with mobile home park and marina rents increased to market. The scenario represents approximately $821,000 annually in estimated net revenues and a net present value of $8.8 million. Scenario A: Assumes partial reconstruction in which the mobile home park is eliminated and replaced with hotel and restaurant uses. All other uses are maintained. The marina operation is transferred to the City for operation and brought to market. The scenario represents approximately $1.04 million annually in estimated net revenues and a net present value of $11.6 million. Scenario B: Assumes all existing uses except the American Legion uses are eliminated. Non -Tidelands property (Balboa Boulevard frontage) is ownership housing and Tidelands is developed with a hotel and restaurant. The marina and boat storage operation is transferred to the City for operation and is brought up to market. This scenario represents approximately $1.38 million annually in estimated net revenues and a net present value of $15.9 million. Lease versus Sale Issues The analysis revealed that there is a significant value discount in the market for residential lots leased as compared with the fee value if sold. The City may wish to consider sale of the non -Tidelands property. The analysis concludes that reinvestment of a portion of the sales proceeds and investment earnings may more than offset the appreciation in the value of the property, and generate an equal or greater amount of annual revenue. Revenue Study July 31, 1997 Marinapark Site 3 INTRODUCTION This report summarizes Keyser Marston Associates, Inc. (KMA) analysis of the 10.71 acre property owned by the City of Newport Beach (City) commonly referred to as Marinapark. Marinapark is located on the Balboa Peninsula on the bay side of Balboa Boulevard between 15th and 19th Streets in the City of Newport Beach. The purpose of the analysis summarized herein is to analyze the City's revenue potential generated by leasing the site under various land use alternatives. As used herein, revenues related to the leasing of the subject site include both anticipated ground lease revenues as well as tax revenues accruing to the City, including transient occupancy tax, sales tax, and property tax, where applicable. BACKGROUND Pursuant to City Council policy, prior to entering into negotiation to renew or extend any ground lease, a revenue study for alternative uses of the property is to be undertaken. The subject site is currently leased to a number of entities including the American Legion, the Girl Scouts, the Power Squadron, a community group that occupies the Balboa Community Center, and individual lessees in the Marinapark Mobile Home Park. All the leases expire in the year 2000 with the exception of the Power Squadron, which is currently on a month -to -month lease. The City has requested that KMA undertake a study in order to identify total revenues the City could reasonably expect from alternative uses. Revenue Study July 31, 1997 Marinapark Site 4 4 ORGANIZATION The report is organized as follows. Following the introduction, which includes the major assumptions used in the analysis, is Section I of the report. Section I presents an overview of the site, including a description of the site, its environs, and land use limitations. Section II presents a discussion of the potential uses for the site. The analysis of the uses involves both an overview of market demand, potential revenues generated by each use, and the appropriate size requirements (or constraints) for each use. Based on the results in the previous sections, Section III presents three illustration reuse alternatives with revenue projections and conclusions as to each. MAJOR ASSUMPTIONS It was necessary to make certain assumptions in completing this assignment including: 1. It is assumed that the property will be made available only under a long-term lease (up to 55 years) where the sale of the property is not to be considered and that neither the fee interest in the land nor the ground lease payments will be subordinated. It should be noted that additional voter approval may be necessary, as the City Charter only grants leases of up to 25 years. Should the 25 year restriction apply, the value for all uses will be materially reduced. 2. It is assumed that for those alternatives that involve a mix of land uses, that the City, and not a developer, (lessee) would undertake the necessary parcelization and construction of common infrastructure, i.e., access roads, on -site utilities, etc. Appropriate deductions from finished land value have been made to reflect those infrastructure costs. Revenue Study Marinapark Site , 5 July 31, 1997 3. The beach front area immediately in front of Marinapark must remain a public beach in accordance with Section 1402 of the City Charter which states: "there shall be reserved forever to the people use of a strip of bay front land above mean high tide not less than 85 feet in depth of City -owned waterfront property..." KMA has assumed, for its analysis, that 83,335 square feet (1.91 acres) of the site must remain as public beach. Thus, the maximum leaseable area of the subject site is 8.8 acres. 4. All necessary off -site infrastructure (storm drain, sewer, etc.) is in adequate capacity at the site to meet the needs of the identified uses. 5. No new development fees impacting potential uses at Marinapark will be enacted by the City of Newport Beach. 6. None of the uses proposed herein are assumed to result in an increased traffic flow sufficient to require additional improvements to Balboa Boulevard or other arterials serving the area. 7. The relocation of existing tenants will not impede the development of the subject site for any of the uses identified herein. No relocation costs have been assumed. 8. Maps found in this report are provided for reader reference purposes only. No guarantee as to their accuracy is expressed or implied. 9. The analysis contained in this report is based, in part, on data from secondary sources. While KMA believes that these sources are accurate, KMA cannot guarantee their accuracy. Revenue Study Marinapark Site 6 July 31, 1997 10. The analysis and conclusions in this report assumes that neither the local nor national economy will experience a major recession. If an unforeseen change occurs in the economy, the conclusions contained herein may no longer be valid. 11. The analysis, opinions, recommendations and conclusions are our informed judgment based on market and economic conditions as of the date of this analysis. Due to the volatility of market conditions and complex dynamics influencing the economic situations and conditions of the development industry, conclusions and recommended actions contained within this report should not be relied upon as sole input for final business decisions regarding current and future use of the property. Revenue Study Marinapark Site 7 July 31, 1997 SECTION I - SITE OVERVIEW This section of the report presents an overview of the site environs, existing uses and land use controls that ultimately impact the selected land use alternatives analyzed by KMA. 1. ENVIRONS The subject site is located in the southwestern portion of the City on the Balboa Peninsula. Local access to the site is provided by Newport Boulevard, which turns into Balboa Boulevard and is the main connection with the Costa Mesa Freeway (California State Highway 55) and Pacific Coast Highway. The site fronts Newport Bay between 15th and 19th Streets and is in a transition zone between residential and commercial uses. Immediately adjacent are small commercial uses, a 10 unit apartment complex and a small Southern California Edison facility. The general location of Marinapark is illustrated in Figure 1. Fronting Newport Bay, Marinapark commands sensational views of the Newport Harbor to the north and, when at the top of a two or three story building, views of the Pacific Ocean are possible to the south. Within the Peninsula, Marinapark is centered between two commercial concentrations, the commercial/eating and drinking complex encompassing the Newport Pier located approximately two blocks to the west, and the Balboa Fun Zone located approximately one-half mile from the end of the Peninsula near the Balboa Pier. This area of the Peninsula is a major tourist attraction with its proximity to the Balboa Pavilion and Balboa Ferry. A third small commercial complex has been identified on 15th Street, which abuts the subject site. The majority of the retail stores adjacent to the subject site are tourist oriented, comprised of bathing suit shops, beach equipment rentals, clothing stores, surf shops, etc., with the neighborhood serving retail located further to the west. The property is unique in that it Revenue Study July 31, 1997 Marinapark Site 8 Y � Q Z °- 0 W Q J � Z W_ ` M fehil LLJ O Q Z a a z a a � z Odo LU F_ � V is potentially one of the last major undeveloped pieces of property on the Balboa Peninsula. In reviewing potential uses for Marinapark, KMA compared the demographics on the Peninsula with the demographics of the City as a whole (Table 1). In general, the Peninsula is composed of younger residents with a small household size and a per capita income 10% lower than the City as a whole. The Balboa Peninsula has approximately 10,000 full-time residents, which are nearly 15% of the City's full-time population of 67,000. Per capita income on the Peninsula is $51,100, while per capita income in the City is $56,900. Household income is over $106,000 per year. The Balboa Peninsula has a large renter population compared to the rest of the City of Newport Beach. Approximately 63% of the units on the Peninsula are renter occupied. Comparatively, the City is only 44% renter occupied. The large proportion of renter occupied households coincides with the younger median age of 33 that is prevalent on the Peninsula. This compares to a median age of 35 in the City. The Balboa Peninsula's economy is highly seasonal, with peak levels of activity occurring during the summer months and on prime non -summer holidays. While the permanent resident population base for the City is 67,000, the summer population base is estimated at approximately 100,000. Although precise figures are not available, it is safe to assume that a large percentage of the additional 33,000 summertime visitors to the City spend some time on the Peninsula. Permanent residents, part-time residents and visitors all contribute to booming restaurants, lack of parking, and crowded sidewalks on the Peninsula during the summer. In contrast, during the winter months as part-time residents and visitors leave the Peninsula until the following summer, business closures and reduced operating hours are common. Revenue Study July 31, 1997 Marinapark Site t:] TABLE 1 1995 DEMOGRAPHICS REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH POPULATION BALBOA PENINSULA 10,000 CITY EXCLUDING PENINSULA 57,000 CITY OF NEWPORT BEACH 67,000 40,000 POPULATION ENINSULA CITY EXCLUDING CITY OF I• PENINSULA BE/ MEDIAN AGE BALBOA PENINSULA 33 CITY EXCLUDING PENINSULA 40 CITY OF NEWPORT BEACH 35 25 20 MEDIAN AGE .BOA CITY EXCLUDING CITY OF VSULA PENINSULA NEWPORT BEACH PER CAPITA INCOME AVERAGE HOUSEHOLD INCOME BALBOA PENINSULA $51,100 BALBOA PENINSULA $106,200 CITY EXCLUDING PENINSULA $57,917 CITY EXCLUDING PENINSULA $130,605 CITY OF NEWPORT BEACH $56,900 CITY OF NEWPORT BEACH $126,400 PER CAPITA INCOME AVERAGE HOUSEHOLD INCOME $60,000 $140,000 $58,000 - - $120,000 - - - - - - - - - - - - - $56,000 ___ ________ _ _____ :: - - $100,000 - - ;::•: �:•::•:;:• - - - - - - - $52000$60000 - - - - - - - - - - - - ..�::::::::.. .: �::.: _. �: _ _ _ _ _ _ _ _ _ _ $50,000 .:....::::.: $48,000 SO $46,000 BALBOA CITY EXCLUDING CITY OF BALBOA PENINSULA CITY EXCLUDING CITY OF NENfPORT PENINSULA PENINSULA NEWPORT BEACH PENINSULA BEACH AVERAGE HOUSEHOLD SIZE BALBOA PENINSULA 2.1 CITY EXCLUDING PENINSULA 2.2 CITY OF NEWPORT BEACH 2.2 AVERAGE HOUSEHOLD SIZE X.'.: j r ti ,BOA CITY EXCLUDING CrrY OF N 4SULA PENINSULA BEA SOURCE: URBAN DECISIONS SYSTEMS, INC. AND NEWPORT BEACH VISITORS BUREAU KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; DEMOGRAPHICS; DATE : 7/31/97; JJL FIGURE 2 All o.� Z___� N O R T H _ 11 AMERICAN LEGIO�y f 1 1 ...• �sfLOA1 GARLI--our -- _ — — -� �...� - R larE • F. 1 house _ _ _ _ H STREET ■ • ��"'• ••...•1l TENNIS _ PARK COUR tS Bq L Rn . •� •• • K 4 W E, - •���•''•••..■,��•��. Arm BL I,D M�o W ,&S T 2. EXISTING USES The existing uses at Marinapark are described below and illustrated in Figure 2. A summary of current lease term is included in the appendix. The uses are as follows: Mobile Home Park (4.27 acres, 49% of net site area) The Marinapark Mobile Home Park is composed of 60 mobile home spaces, 58 of which are individually leased and the balance occupied by the on -site managers. Within the mobile home park there is limited parking for residents and visitors. Approximately 25 mobile home spaces have unobstructed views of the Bay, the remainder of the spaces have either no view or partial views. It should be noted that only 17 of the 58 available spaces are occupied full-time by the lessees. All other lessees use their mobile homes as "second" homes. Metered Parking (70 parking spaces, .52 acres, 6% of net site area) There are two city -owned metered parking lots at Marinapark. At the main entrance to the mobile home park (located at the intersection of Balboa Boulevard and 18th Street) is a 23 space city parking lot and at the western end of the subject property is a 47 space city lot. This lot provides direct access to the Newport Harbor and is located along West Bay Avenue between 18th and 19th Streets. American Legion (1.35 land acres, 15% of net site area) The American Legion parcel, immediately east of the mobile home park, contains the American Legion Hall, a 62-space parking lot, a marina with 47 slips and a Revenue Study July 31, 1997 Marinapark Site , 10 52-space dry boat storage facility. The slips and dry storage spaces are made available for lease to the general public by the American Legion. Las Arenas Park and "Veterans Memorial Park" (2.11 acres, 24% of net site area) Located at the east end of the property fronting Balboa Boulevard is Las Arenas Park, operated by the City of Newport Beach. The park provides four lighted tennis courts, a half basketball court and a playground area. A paved sidewalk bisects the Park and extends toward Newport Bay and separates the mobile home park from the American Legion, both of which are at the back (waterfront) side of the property. This sidewalk also leads to storage for several small boats parked on the sand, which are used by the 16th Street Sailing Base. The 16th Street Sailing Base provides weekend sailing lessons throughout the summer. In addition, there is an open space area immediately behind the American Legion Hall on 15th Street known as the Veterans Memorial Park which is sometimes used for parking. Other (.55 acres, 6% of net site area) Abutting the mobile home park are two buildings on Balboa Boulevard, the Balboa Community Center, which formerly housed the Nautical Museum, and is currently used for Community Services classes and by the Power Squadron, a community group that currently has a month -to -month lease with the City, and the Neva B. Thomas Girl Scout House. The two buildings are separated by a remote parking lot designated for Girl Scout House parking. Both buildings are single story, in average to above average condition and total 24,000 square feet. Other recreational activities taking place on the subject site include sailing Revenue Study Marinapark Site 11 July 31, 1997 lessons, tennis, recreational programs, Balboa Community Center classes, and Power Squadron activities. There is also a public restroom near 19th Street that serves the strip of public beach between 16th and 19th Streets. 3. LAND USE LIMITATIONS The potential uses to which the subject site can be used are controlled (or influenced) by the numerous State and City regulatory restrictions. The major factors that govern the uses are as follows: ■ Tidelands - Fundamental to the assessment of use opportunities is the fact that a recent study undertaken by Boundaries Unlimited for the City revealed that nearly two-thirds of Marinapark is located within the Tidelands. Per state law, Tidelands property is owned by the people of the State of California and granted to the City to administer. The Tidelands Trust Agreement states that the property must remain accessible to the public. As such, certain private' uses such as housing, are not permitted on the portion of the site considered to be Tidelands property. Furthermore, KMA's discussions with the State Land Commission advise that the State clearly views timeshares, although often used by visitors, as a residential use. Therefore, KMA assumes that the development of timeshares and the continued use of the mobile home park will not be permissible on the designated Tidelands portion of the subject site. ■ Local Coastal Program (LCP) - The LCP must be taken into account in determining land use patterns along the coastline. Marinapark is currently designated for Recreational and Environmental Open Space. The LCP specifically states that the existing mobile home park will be allowed until Revenue Study Marinapark Site 4 12 July 31, 1997 the end of the lease, at that time the City can decide if the lease should be renewed or if the property should be changed over to a public use. The LCP also has designated the subject site as a Coastal View Area. This policy is designed to maximize and protect coastal views from private development that restricts views from the roadway. Therefore, KMA assumes that special design measures will be considered for development on the subject site in order to protect its coastal views. It is assumed that the local coastal plan would be amended as necessary, and that commercial use on Marinapark would be allowed so long as coastal views and open space concepts were implemented. ■ General Plan - Consistent with the Tidelands designation and the LCP, Marinapark is designated as Recreational and Environmental Open Space in the City of Newport Beach General Plan. However, this is inconsistent with the zoning for the subject site, which is described below. ■ Zoning - Lastly, the potential uses of the subject site are influenced by the zoning designation of the site. Portions of the property are zoned as follows: Multi -family Residential, Multiple Residential, and Planned Community. It is assumed for purposes of this analysis that the property will be rezoned as necessary to allow a change in use. ■ City Charter - As described earlier, the Charter reserves 1.9 acres, the area dedicated to expanded beach, for public use. Revenue Study Marinapark Site 13 July 31, 1997 SECTION II - REVIEW OF POTENTIAL USES In developing land use scenarios and revenue projections for Marinapark, KMA initially identified potential uses that could be appropriate for the subject site based upon its location and physical characteristics, and reviewed the potential market support for such uses. Based on this review, KMA then established the revenue characteristics (both ground rent and tax revenues) for each use that appeared feasible by projecting the revenues the City could expect to receive over a typical commercial ground lease period (assumed to be 55 years). The revenues are presented in present value terms, i.e., the future anticipated revenues were discounted to determine their present worth. This present value is then expressed in a value per square foot of land area by dividing the estimated present value of the potential revenues by the required land area for each use using typical density ratios. It should also be noted that the projection of revenues have included, where appropriate, an allowance for transfer of sales. "Transfer" refers to revenues from sales generated elsewhere in the City which would be transferred to the site would not produce new revenues to the City. As such, the revenues shown are net of KMA's assessment of the transfer. In calculating the present value, the following assumptions have been made: 1. Revenues such as transient occupancy tax, sales tax, and ground lease payments which are based on sales or gross rent have been escalated at 3% annually to reflect an assumed inflation rate over the projection period. 2. Residential ground lease payments related to ownership housing are assumed to increase only a modest 1 % per year over a 55-year period (as discussed below). Revenue Study July 31, 1997 Marinapark Site 14 3. Ground lease payments from commercial uses that are not based on sales or rents are assumed to increase 15% every 10 years. 4. Property tax revenues have been escalated at 2% per year. 5. In determining present value, the revenues have been discounted at the following rates. The variation in the discount rates reflects the uncertainty associated with future value of revenues based on sales. ■ Ownership housing ground lease revenues (Fixed) 9% ■ Rental housing and commercial - ground lease revenues (Gross Revenue Based) 10-1/2% ■ Other revenues (Productivity Based) 12% ■ Parking revenues (Use Based) 10% It should be noted that the Newport Harbor is clearly lacking a feature that could attract additional visitors to the Peninsula: a visitor serving marina. Currently, all visiting boats must either anchor (or tie up) to one of the buoy's in the Harbor. The concept of a visitor serving marina allows a place for boats to dock overnight, while providing bathrooms, showers, electricity, and other amenities on site. Similar facilities are found in both San Diego and Dana Point charging rates between $12 to $15 per night. With the majority of a visitor serving marina use being located on the water, only a small amount of land area is required to accommodate this use. KMA has assumed that no more than 1,000 to 2,000 square feet would be required for the necessary on shore facilities. Thus, to the extent that such a visitor serving marina is constructed, it should Revenue Study July 31, 1997 Marinapark Site 15 not limit or restrict the development opportunities on the subject properties for other uses. The decision to add such a marina should then be based on the relative merits and cost of such a facility. The economics of such a use have been omitted from this analysis. The potential uses and evaluation of the uses considered for Marinapark are as follows. 1. EATING AND DRINKING FACILITIES a. Market Considerations The current eating and drinking facilities on the Peninsula offer, for the most part, moderate dining that appeals primarily to the younger population and visitors to the Peninsula. There are numerous establishments that provide entertainment as well as dining. The strong economic health of the eating and drinking facilities located on the Balboa Peninsula is a reflection of tourism, the beach/ocean environment and the perception that the Peninsula is an entertainment "place to be." An analysis of the restaurants located on the Peninsula suggest sales productivity substantially above industry norms. Based on the current sales volumes and lack of significant vacant restaurant space, there appears to be adequate support for restaurant expansion at the subject site. While somewhat removed from existing commercial concentrations, the excellent views of the water from the property clearly suggest that destination type restaurants are likely candidates for the subject site. Revenue Study July 31, 1997 Marinapark Site , 16 b. Size Consideration While the site is uniquely located and has the necessary access characteristics for destination type restaurants, it is unlikely the entire site at 8.8 net acres could be developed for restaurant uses in the near -term. Assuming restaurant development and associated parking at a floor area ratio (FAR) of .16 to 1.0, i.e., 7,000 square feet of restaurant space per acre, in all likelihood, not more than 2 acres of land can be developed for restaurants in the near -term, i.e., a total of ±14,000 square feet of restaurant space. C. Land Revenues Typically, restaurant ground leases provide for a base rent against a percentage of gross revenues, generally 3% to 3.5%. The estimate of revenues assuming the City would receive 3% to 3.5% of gross sales are shown in Table 2. A range of sales is provided to reflect the minimum and maximum ground lease payment associated with this use. As indicated, based on the assumptions identified in Table 2, when the present value of the ground lease payments are estimated, the value is $28.80 to $40.00 per square foot of land designated for restaurant use. d. Other Revenue The main sources of 'other" revenue to be generated by an eating and drinking facility is sales and property tax revenue. As shown in Table 2, the present value estimate of sales tax revenue when allocated over the appropriate land area results in a value per square foot of $6.50 to $7.80. This is after deducting for an assumed 20% transfer of sales. Discounted at 12%, the present value of property tax revenues are estimated at $4.10 per square foot of land area. Revenue Study July 31, 1997 Marinapark Site MA TABLE 2 ESTIMATED PRESENT VALUE RESTAURANT USE REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS: RESTAURANT SIZE SALES PER SQ FT. SALES PER RESTAURANT PER YEAR GROUND LEASE INFLATION RATE DISCOUNT RATE - GROUND RENT DISCOUNT RATE - OTHER REVENUE ANNUAL GROUND RENT INCL. % RENT LOW ") HIGH (2) PRESENT VALUE PER SQUARE FOOT(') LOW HIGH OTHER REVENUES ESTIMATED SALES TAX LOW HIGH PRESENT VALUE PER SQUARE FOOT(5) LOW HIGH 4,000 SQ. FT. $500 TO $600 PER SQ. FT $2.0 TO $2.4 MILLION 3.0 TO 3.5% OF SALES 3.0% 10.5% 12.0% $60,000 PER SITE PER YEAR $84,000 PER SITE PER YEAR $28.80 PER SQ. FT. $40.00 PER SQ. FT. $16,000 PER YEAR $19,200 PER YEAR $6.50 $7.80 TOTAL REVENUE PER SQUARE FOOT OF LAND AREA PRESENT VALUE OF GROUND RENT PRESENT VALUE OF OTHER REVENUE PRESENT VALUE OF PROPERTY TAX(') TOTAL ROUNDED TO PER SQ. FT. PER SQ. FT. LOW HIGH $28.80 $40.00 6.50 7.80 $4.10 4.10 $39.40 $51.90 $39.00 $52.00 '; LOW ASSUMES $500/SQ. FT. SALES AND 3.0% ALLOCATED TO GROUND RENT �2 HIGH ASSUMES $600/SQ. FT. SALES AND 3.5% ALLOCATED TO GROUND RENT (3) VALUE REDUCED BY 5% TO REFLECT EFFECT OF STABILIZATION PERIOD (4) PRESENT VALUE DIVIDED BY 25,000 SQ. FT. OF REQUIRED LAND AREA, ROUNDED TO NEAREST $.25, AND REFLECTS INCLUSION OF PERCENTAGE RENT (e) PRESENT VALUE DIVIDED BY 25.000 SO. FT. OF REQUIRED LAND AREA; VALUE REDUCED BY 5% TO REFLECT EFFECT OF STABILIZATION PERIOD, INCLUDES A 10% TRANSFER ALLOWANCE ce) ASSUMES PROPERTY TAXES ON $250 PER SQUARE FOOT ROUNDED TO THE NEAREST $.25 KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; VALUE -RESTAURANTS; DATE: 7/31/97; JJL la e. Total Revenues The estimated present value of the anticipated ground lease payments, and City's share of sales and property tax revenues results in a revenue value of between $39.00 and $52.00 per square foot. 2. MOTEL a. Market Considerations While there are no major hotels on the Peninsula, KMA identified five smaller motel/hotels. These hotels have an average "published" (or rack) room rate of over $200 per night during the summer months. The most popular lodging facilities on the Peninsula are the bed and breakfasts located on the oceanfront. KMA field surveys revealed extremely high demand during the peak summer months of June through September. In addition, weekends throughout the year remain at high occupancy levels. In the non -peak periods both occupancy level and published room rates are substantially lower, with room rates often under $100 per night. The annual room sales for the hotels on the Peninsula is estimated by KMA at $30,000 per room. b. Size Considerations There are no specific size constraints to hotels, with facilities in the market place ranging from bed and breakfasts often under 10 units, to larger hotels in excess of 250 rooms. On the Peninsula, with the lack of available land and seasonal demand, the hotels tend to be small, between 10 and 34 rooms. Even with the excellent views afforded by the property, it is unlikely that the entire property completely could be Revenue Study July 31, 1997 Marinapark Site , IN devoted to hotel use (±500 room capacity), given access, view considerations, and height restrictions. For projection purposes, it is assumed that 75 to 100 hotel rooms could be developed at the subject site. This would require up to ±2 acres of land and could take the form of one moderate size hotel or two or three small hotels. C. Land Revenues The estimated land (ground lease) revenues generated by hotels on the subject site, is based on an allocation of between 5.0% to 7.5% of room sales to ground rent. This range assumes a good quality hotel but with only limited amount of common areas and no food and beverages served. Based on an assumed annual room sales of $30,000 per room that could result with a bay front location and at a density of 50 rooms per acre, the present value of the anticipated ground lease revenue is estimated at between $20.70 and $30.80 per square foot of land area as shown in Table 3. d. Other Revenues Table 3 also presents an estimate of the present value of other revenues which consist of transient occupancy tax revenues and sales tax revenues generated by hotel guests; and property tax revenues. For projection purposes, a 20% transfer allowance has been made in projecting transient occupancy tax revenues and other revenues. The present value estimate of the transient occupancy tax revenues and the sales tax revenues total $31.00. Property tax revenue is estimated to have a present value of $6.30 per square foot. Revenue Study July 31, 1997 Marinapark Site 4 19 TABLE 3 ESTIMATED PRESENT VALUE HOTEL USE REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS HOTEL SIZE SALES PER ROOM SALES PER HOTEL PER YEAR GROUND LEASE DISCOUNT RATE - GROUND RENT DISCOUNT RATE - OTHER REVENUE INFLATION RATE ANNUAL GROUND RENT INCL. % RENT LOW I'1 HIGH I�1 PRESENT VALUE PER SQUARE FOOTI31 LOW HIGH OTHER REVENUE ASSUMPTIONS TAXABLE SALES GUEST PARTY SIZE ASSESSED VALUE TRANSIENT OCCUPANCY TAX RATE TRANSIENT OCCUPANCY TAX SALES TAXI'' TOTAL 50 ROOMS PER ACRE $30,000 PER ROOM PER YEAR $1,500,000 PER HOTEL PER YEAR 5.0 TO 7.5% OF SALES 10.5% 12.0% 3.0% $75,000 PER HOTEL PER YEAR $112,500 PER HOTEL PER YEAR PRESENT VALUE PER SQUARE FOOT AREA") $20.70 PER SQ. FT. $30.80 PER SQ. FT. TOTAL REVENUE PER SQUARE FOOT OF LAND AREA PRESENT VALUE OF GROUND RENT PRESENT VALUE OF OTHER REVENUE PRESENT VALUE OF PROPERTY TAX TOTAL ROUNDED TO $75.00 PER PERSON PER DAY 2 PEOPLE PER ROOM $75,000 PER ROOM 10% $150,000 PER HOTEL PER YEAR 16,000 PER HOTEL PER YEAR $166, 000 $31.00 PER SQ. FT. LOW HIGH $20.70 $30.80 31.00 31.00 6.30 6.30 $58.00 $68.10 $58.00 $68.00 LOW ASSUMES 5% ALLOCATED TO GROUND RENT (2) HIGH ASSUMES 7.5% ALLOCATED TO GROUND RENT (') PRESENT VALUE DIVIDED BY 43,560 SQ. FT OF LAND AREA, ROUNDED TO NEAREST $.25, AND REFLECTS INCLUSION OF PERCENTAGE RENT, VALUE REDUCED BY 5% TO REFLECT EFFECT OF STABILIZATION PERIOD (4) ASSUMES 60% YEAR ROUND OCCUPANCY AND INCLUDES ALLOWANCE FOR EXPENDITURES OUTSIDE OF THE CITY (5) PRESENT VALUE DIVIDED BY 43,560 SQ. FT OF LAND AREA; VALUE REDUCED BY 5% TO REFLECT STABILIZATION PERIOD; INCLUDES 20% TRANSFER ALLOWANCE ON HOTEL ROOM SALES KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; VALUE -HOTEL; DATE: 7/31/97; JJL e. Total Revenues KMA's estimate of total revenues generated by hotel use is presented in Table 3. As shown, the present value of total revenues is estimated at $58.00 to $68.00 per square foot of allocated land area. 3. CONVENIENCE RETAIL a. Market Considerations A survey of retail space on the Peninsula reveals a relatively low vacancy level. Retail space on the Peninsula is leasing in the range of $1.25 to $1.75 per square foot per month on a triple net basis. Both retail concentrations on either side of Marinapark are tenanted with markets, coffee houses, laundromats, ice cream shops, beachwear and beach equipment shops, etc. While low vacancies suggest that the Peninsula has a strong retail base, the rental rates do not suggest a strong demand. In addition, KMA's field survey reveals that the Peninsula is well served by a plethora of retail uses. KMA has not identified any significant missing retail tenant types suitable for the subject site. b. Size Considerations It is unlikely that the market is strong enough to support retail development on the entire site although limited development may be possible along the Balboa Boulevard frontage. Furthermore, there appears to be no minimum size limitation. KMA has assumed that 1.0 acre of land could be devoted to retail use. This would result in the development of ±10,000 square feet of retail area at a FAR of .23 to 1.0. Revenue Study July 31, 1997 Marinapark Site 20 C. Land Value KMA found few recent commercial land sales that would be a good indicator of land value. An upper range is, however, established by the recent land sale for the construction of a McDonalds restaurant at slightly under $50 per square foot. This site's location is, however, superior to the subject property. In determining the land revenues for retail use at the subject site, KMA assumed that under a ground lease, the City would receive an amount equal to 15% of rents. Using this as a basis, the estimated ground lease revenues (in present value terms) is estimated at approximately $39.60 per square foot of land area. d. Other Revenues KMA would not expect that small retail development at the subject site would generate much in new sales tax revenues, i.e., the majority of sales tax revenues would be transferred from existing uses. The City would, however, receive a limited amount of property tax revenue values at approximately $1.70 per square foot. e. Total Revenues Based on the above consideration, the total revenues, in present value terms, total approximately $41.00 per square foot of land area. Revenue Study Marinapark Site 21 July 31, 1997 TABLE 4 ESTIMATED PRESENT VALUE CONVENIENCE RETAIL USE REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS RENT SIZE INFLATION RATE DISCOUNT RATE - GROUND RENT DISCOUNT RATE - OTHER REVENUE INITIAL ANNUAL GROUND RENT PRESENT VALUE PER SQUARE FOOT") TOTAL REVENUE PER SQUARE FOOT OF LAND AREA PRESENT VALUE OF GROUND RENT PRESENT VALUE OF OTHER REVENUE PRESENT VALUE OF PROPERTY TAX(2) TOTAL ROUNDED TO $1.75 PER SQ. FT PER MONTH 12,000 SQ. FT. PER ACRE 15% EVERY 5 YEARS 10.5% 12.0% $37,800 PER ACRE PER YEAR $39.60 PER SQ. FT. $39.60 0.00 1.70 $41.30 $41.00 (1) ROUNDED TO THE NEAREST $.25 (2) ASSUMES PROPERTY TAX ES OF $100 PER SQUARE FOOT FOR 12,000 SQ. FT. OF REQUIRED LAND AREA; ROUNDED TO THE NEAREST $.25 KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; VALUE -RETAIL; DATE : 7131/97. JJL 4. OFFICE KMA also reviewed the market demand for office space. Although not typically characterized as a location for office space, limited amount of local serving office space is located on the Peninsula. Office space leases for the same rate as retail space, between $1.25 and $1.75 per square foot per month on a triple net basis. Most office space can be found on the west end of the Peninsula near Lido and Cannery Village where tenants are normally small and entrepreneurial in nature. In KMA's opinion, it is unlikely that the market is strong enough to support any office development at the subject property. 5. PARKING a. Market Considerations The ability of the Peninsula to attract visitors and its relatively high density often results in a high demand for the limited number of parking spaces, particularly during the summer months when daytime beach and weekly rental occupancy is at its highest. There are approximately 21 City -owned parking lots and metered parking stretches on the streets located on the Peninsula. Free parking or curb -side parking can be found along the residential streets in the densely populated areas of the Peninsula. In these areas it is even difficult to find non -metered parking during the winter months. KMA's analysis shows that City -owned parking on the Peninsula is generating approximately $800,000 annually before allowances for expenses in collecting revenues. Parking has been noted to be particularly difficult for patrons using the Catalina Flyer; the subject site could be used for such parking, by shuttling people to and from the Catalina Flyer located at the east end of the Peninsula. Revenue Study July 31, 1997 Marinapark Site 22 b. Size Considerations While the entire property could be devoted to a parking use, demand for parking on the Peninsula is highly seasonal and tends to be concentrated at the commercial hubs near the two piers. Thus, while the entire site could be used for parking, it would likely not be fully utilized. On the other hand, there are no minimum size constraints. C. Land Revenues In determining the value for parking use at the subject site, KMA assumed that the lot would be operated by the City as metered parking and that the parking at the subject site would not be used by patrons of the Catalina Flyer. As presented in Table 5, based on anticipated net revenues, (gross revenue less collection and maintenance expenses) the present value of future revenues (net of collection costs) is estimated at $7.80 per square foot of land area. d. Other Revenues KMA would expect that most parking demand would be generated by the nearby beach traffic and visitors to the Peninsula. Thus, the users of the parking would generate limited sales tax revenues to the City. As indicated in Table 5, KMA has estimated sales tax revenue at $2,000 annually. In present value terms, this is approximately $.50 per square foot. e. Total Revenues Based on the above, the total revenues, in present value terms, total $8.00 per square foot of land area. Revenue Study July 31, 1997 Marinapark Site 23 TABLE 5 ESTIMATED PRESENT VALUE PARKING USE REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS: AVERAGE REVENUE(') SQ. FT. PER SPACE MANAGEMENT & COLLECTION SIZE ESTIMATED SALES TAX REVENUE DISCOUNT RATE ANNUALREVENUE METER REVENUE LESS: MANAGEMENT & COLLECTION NET REVENUE PRESENT VALUE PER ACRE PRESENT VALUE PER SQUARE FOOT(') OTHER REVENUE ESTIMATED SALES TAX REVENUE PRESENT VALUE PER SQUARE FOOT TOTAL REVENUE PER SQUARE FOOT OF LAND AREA $310 PER SPACE PER YEAR 325 SQ. FT. 20% OF GROSS REVENUE 130 SPACES PER ACRE $2,000 PER YEAR 10% $40,300 (8,100) $32,200 PER ACRE $341,600 PER ACRE $7.80 PER SQ. FT. $2,000 PER YEAR $0.50 PER SQ. FT PRESENT VALUE OF PARKING FEES $7.80 PRESENT VALUE OF OTHER REVENUE 0.50 PRESENT VALUE OF PROPERTY TAX 0.00 TOTAL $8.30 ROUNDED TO $8.00 BASED ON 1995 REVENUE COLLECTION AT THE SUBJECT SITE ($310 PER SPACE) m ROUNDED TO THE NEAREST $.25 KEYSER MARSTON ASSOCIATES, INC. a FILENAME: Nbvalues; VALUE -PARKING, DATE : 7/31/97, JJL 6. OWNERSHIP HOUSING a. Market Considerations Ownership housing on the Peninsula is popular with waterfront views extremely desirable. There are a wide -range of housing styles and designs on the Peninsula that results in wide variances in market price. Recent home sales range between $200,000 to over $2.0 million, depending on views, size and improvements. In addition, it is not uncommon for homes to include a small one bedroom apartment to produce income. Notwithstanding the region -wide softness in the residential market over the last several years, the residential market on the Peninsula remains strong. The only limitation foreseen for ownership residential use is the fact that the land (lots) are assumed to be leased rather than sold. Construction of single family or ownership units on leased land has met with market resistance and will require a substantial discount in the value of the land from fee ownership in order to be successful. b. Size Considerations Other than the limitation created by the fact that the subject property land is assumed to be leased rather than sold in fee, there are no market constraints on the amount of ownership residential development that could be developed on Marinapark. However, there are other factors that will limit the size of development. These are primarily Tidelands and open space/view corridor issues. For purposes of this analysis, KMA has assumed that all residences would have to be developed on the "upland" portion of the property and such development would have to provide for view corridors from Balboa Boulevard. Assuming the development of the uplands portions of the property to R-2 standards that would include one ownership as well as one rental unit Revenue Study July 31, 1997 Marinapark Site L 24 (determined as the highest and best use in the July 3, 1996 appraisal report by Fuller & Associates) the number of units (lots) that could be developed is estimated at 30. C. Land Revenues The analysis presented by Fuller and Associates establishes fair market rents for R-2 lots at Marinapark. This analysis, dated July 3, 1996, indicated an annual fair market rent from $25,200 annually for improved lots with water views to $17,500 for improved rear lots with no (or limited) views. Assuming that residential development is limited to the uplands portion of property only, all of the units will have bay views. However, depending upon the extent of commercial development on the Tidelands portion of the subject property, some of the unit's view may be restricted. Thus, the high estimate shown on Table 6 assumes the views are not restricted while the low estimate assumes development on the Tidelands portion of the site will restrict views. As shown on Table 6, on a per square foot basis the present value of the anticipated ground lease revenue per square foot of the area allocated to residential, i.e., the upland area is $35.40 to $52.40. This estimate is net of a 5% discount for assumed absorption period of three years, and an assumed $500,000 cost to improve the 30 lots. d. Other Revenues In addition to the ground lease revenues, residential development should increase taxable retail expenditures within the City that should result in enhanced sales tax revenues. Assuming that 75% of new sales are retained in the City, the present value of the anticipated sales tax revenue amounts to under $.80 per square foot of land area. Property tax revenues are estimated at $3.20. Revenue Study July 31, 1997 Marinapark Site 25 TABLE 6 ESTIMATED PRESENT VALUE OWNERSHIP HOUSING REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS ANNUAL RENT PAYMENT(') LOW (2) $17,500 PER LOT HIGH $25,200 PER LOT DEVELOPMENT SIZE (UPLANDS PORTION) 30 LOTS INFLATION RATE 1% DISCOUNT RATE 10.5% ANNUAL GROUND RENT LOW HIGH PRESENT VALUE PER SQUARE FOOT(3) LOW HIGH OTHER REVENUES ASSUMPTIONS PER CAPITA INCOME(4) PEOPLE PER UNIT TAXABLE EXPENDITURES INFLATION RATE DISCOUNT RATE SALES TAX REVENUE PRESENT VALUE PER SQUARE FOOT131 TOTAL REVENUE PRESENT VALUE OF GROUND RENT PRESENT VALUE OF OTHER REVENUE PRESENT VALUE OF PROPERTY TAX(') TOTAL ROUNDED TO $525,000 PER YEAR $756,000 PER YEAR $35.40 PER SQ. FT. $52.40 PER SQ. FT. $51,100 4 PEOPLE 25% OF INCOME 3% 12% $11,500 PER YEAR $0.80 PER SQ. FT. LOW HIGH $35.40 $52.40 0.80 0.80 3.20 3.20 $39.40 $56.40 $39.00 $56.00 FULLER & ASSOCIATES, JULY 3, 1996 APPRAISAL REPORT (2) 30% REDUCTION OF HIGH ESTIMATE TO REFLECT RESTRICTED VIEW AND INTRODUCTION OF USES ON TIDELANDS PORTION OF THE PROPERTY 13) REFLECTS NET SITE IMPROVEMENT COSTS OF $500.000. REDUCED BY 5% TO REFLECT STABILIZATION PERIOD; ROUNDED TO THE NEAREST $.25; ASSUMES LAND AREA IS UPLAND PORTION OF THE SUBJECT PROPERTY OR 3.53 ACRES (4) SOURCE: URBAN DECISIONS SYSTEMS l5) BASED ON $1,000,000 VALUE PER IMPROVED LOT AND INFLATED BY 2% ANNUALLY AND DISCOUNTED AT 9%, ROUNDED TO THE NEAREST $.25 KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; VALUE -OH; DATE: 7/31/97, JJL I- e. Total Revenues As shown in Table 6, when all major revenue sources are taken into account, the estimated value of the upland portion of the subject site, if leased for ownership residential use, is $39.00 to $56.00 per square foot of land area. The higher value can be achieved if the Tidelands portion of the property is developed with commercial uses so as to not restrict views and that are not conflicting with residential development. 7. RENTAL HOUSING a. Market Considerations The 1990 U.S. census indicates that the Peninsula contains upwards of 1,400 rental units. KMA's survey of rental housing inventory identified a limited number of traditional apartment complexes on the Peninsula, all with few units. These are in addition to the rental units that are often included as part of an ownership unit. Most rental units are available only under a short-term (nine month) lease, in order to remain accessible as summer weekly rentals. There is virtually no inventory of land on which to expand the supply of rental housing. An analysis of the summer rental market confirmed that, during the months of June through September, there is an extremely high demand for housing. These short-term rentals command rents of $1,200 - $2,000 a week for a two to three bedroom unit. During the rest of the year, nine month rental units lease for $850 - $1,250 per month for a low to moderate quality apartment. Revenue Study July 31, 1997 Marinapark Site 4 26 b. Size Considerations Against the perceived demand for housing on the Peninsula, it is possible, in KMA's opinion, to develop the entire uplands portion of the subject property with rental housing. Discussions with the City Planning Department and 30th Street Architects suggest that the site could be developed with residential units at a density of 18 units per acre, upwards of 64 residential units could be added which represents less than a 3% expansion of the existing rental housing inventory. It is also KMA's opinion that given the range of amenities found in proximity to the site and the excellent regional accessibility to the employment centers located in Irvine and Newport Beach, the uplands portion of the subject property could be developed in one phase. C. Land Revenues In projecting the ground lease revenues, KMA has assumed that the annual per unit gross ground rent will be between $20,000 and $26,600. The low range projection assumes in part that the Tidelands portion of the property is developed with commercial uses in a manner that will restrict views, while the high range assumes unrestricted views. The land revenues are based on the City receiving 20% of gross rents, an allocation that KMA believes is supported by the market. Table 7 presents the present value of the ground rent between $20.00 and $26.40 per square foot of land area. d. Other Revenues The development of residential units will generate additional retail sales in the City and property tax revenues. The present value of these revenues are estimated at $1.90 per square foot and $1.70 per square foot of land area, respectively. Revenue Study July 31, 1997 Marinapark Site 4 27 TABLE 7 ESTIMATED PRESENT VALUE RENTAL HOUSING REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS EFFECTIVE GROSS RENT RATE MONTHS ANNUALLY LOW $1,250 12 WKS. $12,000 $1,000 9 MOS. 8,100 121 $20,100 HIGH $1,500 12 WKS $14,400 ... $1,500 9 MOS. 12,200 121 $26,600 SIZE 64 RENTAL UNITS GROUND LEASE 20% OF EFFECTIVE GROSS RENT DISCOUNT RATE 10.5% INFLATION RATE 3.0% ANNUAL GROUND RENT LOW $257,280 PER YEAR HIGH $340,480 PER YEAR PRESENT VALUE PER SQUARE FOOT"' LOW $20.00 PER SQ. FT. HIGH $26.40 PER SQ. FT. OTHER REVENUE ASSUMPTIONS PER CAPITA INCOME(4) PEOPLE PER UNIT TAXABLE EXPENDITURES LEAKAGE ALLOWANCE DISCOUNT RATE INFLATION RATE SALES TAX REVENUE PRESENT VALUE PER SQUARE FOOT13) TOTAL REVENUE $43,400 3 PEOPLE 25% OF INCOME 25% OF SALES TAX REVENUE 12% 3% $13,020 PER YEAR $0.90 PER SQ. FT. LOW HIGH PRESENT VALUE OF GROUND RENT $20.00 $26.40 PRESENT VALUE OF OTHER REVENUE 0.90 0.90 PRESENT VALUE OF PROPERTY TAX(') 0.70 0.70 TOTAL $21.60 $28.00 ROUNDED TO $22.00 $28.00 ASSUMES 20% VACANCY FACTOR (2) ASSUMES 10% VACANCY FACTOR (3) REDUCED BY 5% TO REFLECT STABILIZATION PERIOD; ROUNDED TO THE NEAREST $.25 (4) PER CAPITA INCOME VALUE FROM TABLE 6 REDUCED BY 15% TO REFLECT TYPICAL RENTER (" BASED ON $100,000 VALUE PER UNIT AND INFLATED BY 2% ANNUALLY AND DISCOUNTED AT 9%; ROUNDED TO THE NEAREST $.25 KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; VALUE-RH, DATE : 7/31/97; JJL e. Total Revenues The total revenue generated from the development of 64 units of rental housing on the upland portion of the subject site, is estimated at $22.00 to $28.00 per square foot of land area, depending upon what assumptions are made with respect to development on the tideland portion of the site. 8. MARINAPARK (CURRENT USE) As a basis of comparison, the following describes the current use and land revenues achievable for such uses. Tidelands restrictions may inhibit continued mobile home park use. a. Market Considerations i. Mobile Home Park Currently, Marinapark Mobile Home Park is at full occupancy, which is a reflection of both high demand for housing in the area and current lease rates for spaces. The spaces are currently renting between $743 and $1,053 per month with the average space rent of $896 per month. Other mobile home parks within the City have monthly rents between $600 and $1,800 depending on location and view. Marinapark Mobile Home Park differs from its nearest direct competitor (the mobile home park on Lido Island) in that it has more parking, better beach frontage, and more open space between trailers. Lease rates on Lido currently range between $1,100 and $1,850 per month. Even with an increase in monthly rent to market levels at the subject property, in KMA's opinion, the demand for spaces will remain high. Revenue Study Marinapark Site 28 July 31, 1997 ii. American Legion KMA field surveys indicated high demand for boat slips and dry storage at the marina operated by the American Legion on the subject site. There is a waiting list for both wet and dry storage. This high demand is accounted for by both the general shortage of well located available slips on the Peninsula and the current low rental charges. Spaces at the American Legion marina currently rent for $11 a lineal foot per month, while other marinas in the Newport Beach area charge between $6 and $14 per foot. KMA is of the opinion that there would be demand for these boat slips even if the rental rates were increased to $14 per lineal foot per month. iii. Municipal Parking KMA reviewed the City records regarding the revenues generated by the two public parking lots at the subject property. This review would suggest that the lots are not in high demand, a conclusion verified by numerous visits to the site. b. Land Revenues Table 8 presents KMA's estimate of the probable land revenues resulting from continuing the current uses on the subject property, after rental adjustment to market. The anticipated land revenues for the major components at the subject site range between $20,000 to $650,000 annually.' As shown in Table 8, of the existing uses, the mobile home park generates the highest revenues at $650,000 annually. When the present value of the estimated revenues from all uses is allocated over the entire subject property, the resulting value is $24.00 per square foot of land area. This low For comparison purposes, assumes the Marina is operated by the American Legion. Revenue Study Marinapark Site 29 July 31, 1997 TABLE 8 ESTIMATED PRESENT VALUE EXISTING USES REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND USE SO. FT. EXISTING ADJUSTED EXISTING ADJUSTED MAJOR INCOME PRODUCING USES AMERICAN LEGION 58,700 $107,000 $159,000 01 $22.90 $34.00 MUNICIPAL PARKING 22,700 22,000 20,000 (2) 12.20 7.80 MARINA PARK MOBILE HOME PARK 186,000 535,000 650,000 c3) 36.20 43.90 SUBTOTAU/WEIGHTED AVERAGE 267,400 $664,000 $829,000 $31.20 $38.70 OTHER USES VETERANS MEMORIAL PARK 18,200 $0 $0 $0.00 $0.00 LAS ARENAS PLAYGROUND 12,900 0 0 0.00 0.00 LAS ARENAS TENNIS COURTS 60,600 0 0 (2) 0.00 0.00 GIRL SCOUT HOUSE 12,000 0 0 0.00 0.00 COMMUNITY SERVICES 12,000 6,000 6,000 (2) 6.30 5.60 PUBLIC BEACH 55,800 0 0 0.00 0.00 SUBTOTAUWEIGHTED AVERAGE 171,500 $6,000 $6,000 $0.00 $0.00 PRESENT VALUE PER SQUARE FOOT ROUNDED $23.90 $24.00 "' INCREASED BY KMA TO REFLECT KMA'S REVISED RENTAL SCHEDULE AND CONT. OPERATION BY THE LEGION, SEE APPENDIX TABLE A �2 INCOME ADJUSTED FOR EXPENSES RELATED TO PUBLIC USES c31 INCREASED BY KMA TO REFLECT KMA'S REVISED RENTAL SCHEDULE, SEE APPENDIX TABLE B FOR ESTIMATION OF REVISED INCOME KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; EXISTING; DATE : 7/31/97; JJL value reflects the fact that approximately one-third of the site is assumed to be non - revenue generating. C. Other Revenues The main source of 'other revenue" being generated by the subject site are minor amounts of possessory interest property tax and sales tax revenues. The present value estimate of these revenues when allocated over the entire subject property is less than $.25 and, therefore, insignificant. d. Total Revenues Based on the above, the land revenues range between $6,000 and $650,000 annually. When the total land revenues of $835,000 are allocated over the entire site, the resulting value is $24.00 in present value terms. CONCLUSION OF POTENTIAL USES AND VALUE OF REVENUES Table 9 presents a summary of the KMA analysis of individual land uses including the existing use of the subject property. As indicated, the highest value is generated by hotel use primarily due to the revenues generated by transient occupancy tax. Revenue Study July 31, 1997 Marinapark Site 30 r TABLE 9 DEVELOPMENT OPPORTUNITIES REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH MARKET DEMAND DEMAND ADEQUATE DEMAND MIN. ACREAGE GROUND LAND USE ASSESSMENT ENTIRE SITE FOR TIDELANDS ONLY REQUIRED LEASE TOTALIZE RESTAURANTS STRONG NO NO 1.0 - 2.0 $34.40 $45.50 HOTEL ABOVE AVERAGE TO STRONG NO POSSIBLY 1.0 25.80 63.00 CONVENIENCE RETAIL AVERAGE TO BELOW AVERAG NO NO NONE 39.60 41.00 PARKING POOR (STRONG IN SUMMER) UNLIKELY UNLIKELY NONE 7.80 8.00 OWNERSHIP HOUSING STRONG YES NA NONE 43.90 47.50 RENTAL HOUSING ABOVE AVERAGE TO STRONG YES NA NONE 23.20 25.00 EXISTING USES ABOVE AVERAGE TO STRONG YES YES NONE 23.60 24.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 DISTRIBUTION OF REVENUE TYPE .............. ............... .............. ............... .............. ............... ..... ......... ® - tik..... .. ..... 4A 4 4 �� '0 ����h� I a No v <" RESTAURANTS HOTEL CONVENIENCE PARKING OWNERSHIP RENTAL EXISTING USES RETAIL HOUSING HOUSING © GROUND LEASE MOTHER REVENUE O PROPERTY TAX " VALUE PRESENTED IS AVERAGE OF HIGH AND LOW REVENUE ESTIMATE m ROUNDED TO THE NEAREST $1.00 KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; DEVLOPP; DATE : 7131/97; JJL SECTION III - DEVELOPMENT SCENARIOS In projecting potential city revenues from Marinapark, KMA has created two development scenarios. These development scenarios are based on KMA's understanding of both the land use constraints, i.e., coastal zone, tidelands, etc. as well as the characteristics of each use in terms of market demand, absorption limitation and revenue characteristics. For comparison purpose, a baseline scenario has been developed projecting revenues with the continued use, with lease rates brought to market for the mobile home spaces and marina/dry storage uses. The description of the scenarios is as follows: 1. BASELINE SCENARIO The baseline scenario assumes that (1) all of the uses remain, (2) that the market rents are revised for both the trailer park spaces and the American Legion boat slips, and (3) that the cost to complete necessary site upgrades totals $200,000. No revenue is assumed for the Girl Scout House or former museum building. Based on the data and projections presented in Section II, the estimated net annual revenues and present value of anticipated revenues over a 55-year period is presented in Table 10. The present value of these revenues is estimated at $8.8 million. 2. SCENARIO A Partial Reconstruction This scenario involves replacing the trailer park with uses that are consistent with the restriction applicable to tidelands property on which the majority of the mobile home park is located. Under this scenario, the other uses on the site, i.e., public parking, Girl Scouts, American Legion, parks, etc., would remain. The trailer park site totaling 4.27 Revenue Study July 31, 1997 Marinapark Site 31 TABLE 10 BASELINE SCENARIO REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH USE LAND AREA ACRES TOTAL REVENUE( ) ---------------------------------- ANNUAL ------------------------------------------ EXISTING USES(') 8.8 $835,000 LESS: AMORTIZATION OF SITE (14,000) DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES $821,000 -------------------------------PRESENT VALUE ----------------------------------------- EXISTING USES1�1 8.8 $9,000,000 LESS: AMORTIZATION OF SITE ($200,000) DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES $8,800,000 ALL REVENUE IS ASSUMED TO BE LAND REVENUE rn ASSUMES AMERICAN LEGION CONTINUES TO OPERATE MARINA AT MARKET RATES AND MOBILE HOME PARK SPACE RENTS ARE AT MARKET KEYSER MARSTON ASSOCIATES, INC. a FILENAME: Nbvalues; BASELINE; DATE : 7/31/97; JJL acres would be developed with a major restaurant(s) using ±2.0 acres with the remainder of the land (±1.7 acres) devoted to a hotel. The land area devoted for a hotel would be suitable for ±85 rooms. It is assumed that the City will take over the operation of the marina. Under this scenario the new uses would not have Balboa Boulevard frontage. Thus, signage must be provided for the restaurant and hotel along Balboa Boulevard and that existing access to the portion of the site reconstructed would be upgraded. This, in turn, may require the reconfiguration/ elimination of some of the existing uses along the Balboa frontage. Table 11 presents KMA's estimates of net annual and present value revenues under this partial redevelopment. As shown, the initial annual net revenues should increase over the baseline scenario by $223,000 (from $821,000 to $1.04 million). The net present value over the 55-year projection period shows a $2.8 million increase (from $8.8 million to $11.6 million). 3. SCENARIO B Major Redevelopment Under this scenario, the Tidelands portion of the subject property would be developed with visitor serving uses that are consistent with state law covering use of tidelands. The uplands portion of the site would be developed with residential use, as residential use presents the highest and best use of the uplands portion. Inasmuch as the value of the uplands property will be impacted by the extent of development occurring on the Tidelands portion of the property, under the major redevelopment alternative, the value of the entire site is enhanced by limiting the development on the Tidelands portion of the property, thereby, enhancing the value of the uplands portion of the subject property. Thus, KMA has assumed that the American Legion facility would remain and that the Tidelands portion of the property would be used only for a small hotel, one restaurant and open space. Under this Revenue. Study July 31, 1997 Marinapark Site , 32 TABLE 11 SCENARIO A - PARTIAL RECONSTRUCTION REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND AREA USE (ACRES) LAND REVENUE TOTAL REVENUE --------------------------------------- ANNUAL ------------------------------------------ RESTAURANT 2.00 $280,000 $370,000 HOTEL 1.70 180,000 440,000 OTHER EXISTING(') 5.10 270,000 270,000 TOTAL 8.80 $730,000 $1,080,000 LESS: AMORTIZATION OF SITE (36,000) (36,000) DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES $694,000 $1,044,000 ------------------------------------ PRESENT VALUE ----------------------------------------- RESTAURANT 2.00 $3,000,000 $4,000,000 HOTEL 1.70 1,900,000 4,700,000 OTHER EXISTING') 5.10 3,400,000 3,400,000 TOTAL 8.80 $8,300,000 $12,100,000 LESS: AMORTIZATION OF SITE ($500,000) ($500,000) DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES $7,800,000 $11,600,000 ASSUMES REPLACEMENT OF MOBILE HOME PARK, THEREFORE REVENUES GENERATED FROM AMERICAN LEGION, PARKING AND COMMUNITY SERVICES REVENUES REDUCED BY 15% TO REFLECT FRONTAGE IMPROVEMENTS. KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; SCENARIOA; DATE : 7/31/97. JJL a scenario. It is also assumed that the City will take over the operation of the marina. The anticipated revenues under this scenario are presented in Table 12. As shown, it is assumed that the uplands portion of the property would be used for ownership residential. The annual net revenues should increase over the baseline scenario by $557,000 (from $821,000 to approximately $1.38 million). The net present value over the 55-year projection period shows a $7.1 million increase (from $8.8 million to $15.9 million). This scenario has a projected net present value of $4.3 million over partial reconstruction (Scenario A) of Marinapark. Development of ownership residential through a ground lease of the uplands property raises a number of economic and public policy issues. First, a substantial discount has been applied to the fee value of the property (30%). Secondly, reappraisals to market value are not assumed over the term of the lease, reflecting the experience of the Irvine Co. and others who have met substantial political public opposition to such increases. Rents are allowed to increase only 1 % annually. Finally, public agency's who are landlords face continued exposure to tenant complaints, particularly from residents. Given the inherent problems with ownership housing on leased land, it may be appropriate for the City to consider other housing types including time shares. Time shares on the uplands property may be a logical extension of the hotel located on the Tidelands portion of the site and produce additional transient occupancy tax revenues to the City. It should be noted that given the demand for beachfront property, the City might want to consider joint use of the American Legion building for community meeting space. Revenue Study July 31, 1997 Marinapark Site 33 TABLE 12 SCENARIO B - MAJOR REDEVELOPMENT REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND AREA USE (ACRES) LAND REVENUE TOTAL REVENUE ---------------------------------------- ANNUAL ------------------------------------------ RESIDENTIAL (30 LOTS)('( 3.53 $570,000 HOTEL 2.00 210,000 RESTAURANT 1.00 140,000 OTHER EXISTING(2) 2.27 246,000 TOTAL 8.80 $1,166,000 LESS: AMORTIZATION OF SITE (175,000 DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES $991,000 $610,000 510,000 187,000 246,000 $1, 553, 000 (175,000) $1,378,000 -------------------------------------PRESENT VALUE ----------------------------------------- RESIDENTIAL (30 LOTS)('( HOTEL RESTAURANT OTHER EXISTING(21 TOTAL LESS: AMORTIZATION OF SITE DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES 3.53 $6,800,000 $7,300,000 2.00 2,200,000 5,500,000 1.00 1,500,000 2,000,000 2.27 3,100,000 3,100,000 8.80 $13,600,000 $17,900,000 ($2,000,000) ($2,000,000) $11,600,000 $15,900,000 "' REFLECTS THE MIDPOINT VALUE BETWEEN LOTS WITH VIEWS AND LOTS WITH LIMITED OR NO VIEWS a) ELIMINATES ALL EXISTING USES EXCEPT THE AMERICAN LEGION; REVENUES REDUCED BY 15% FOR FRONTAGE IMPROVEMENTS KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; SCENARIOB; DATE: 7/31/97; JJL L CONCLUSION OF POTENTIAL USE KMA's analysis of potential City revenues clearly suggests that the City revenues can be maximized by redevelopment of the entire site. Specifically, KMA would conclude: 1. The upland portion of the subject property should be used for residential. This analysis would suggest that housing create the highest revenue for this portion of the site. 2. The City would be best to limit development on the tideland portion of the subject property so as to maximize the value of the upland portion of the property. While either hotel or restaurant use is viable, hotel use and limited restaurant space may be more compatible with the residential nature assumed to take place on the upland portion of the site, and would limit potential noise impact to properties on Lido Island. 3. As previously mentioned, the value of the upland portion of the property has been impacted by the assumption to lease rather than sell the uplands portion of the subject property. The City, however, may want to consider selling the fee interest in the uplands portion, especially if there is a desire by the City to see ownership housing development. Based upon conclusions as to value contained in Fuller and Associates' appraisal report, KMA believes the annual reinvestment earnings the City could expect from sale proceeds for the uplands portion of the property alone is significantly higher than annual revenues the City would receive from leasing the uplands property. KMA has estimated that the City could enhance the present value of the revenues by $1.8 to $3.1 million compared with leasing the land, even after taking into consideration the loss of land appreciation resulting from a site. Revenue Study July 31, 1997 Marinapark Site 34 Revenue Study Marinapark Site APPENDIX 35 July 31, 1997 TABLE A AMERICAN LEGION SLIP DRY STORAGE FEE ADJUSTMENT ESTIMATED NET OPERATING INCOME REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH AVERAGE CURRENT SLIP AND SPACE RENT $11 PER FOOT PER MONTH ADJUSTED SLIP AND SPACE RENT $14 PER FOOT PER MONTH CITY OPERATES MARINA SLIP SPACE ADJUSTED ANNUAL INCOME(') $237,000 $122,000 VACANY AND COLLECTION AT 5% ($12,000) ($6,000) EFFECTIVE GROSS INCOME $225,000 $116,000 (LESS): OPERATING EXPENSES AT $715 PER SLIP AND $350 PER SPACE ($34,000) ($18,000) NET OPERATING INCOME $191,000 $98,000 TOTAL REVENUE $289,000 AMERICAN LEGION CONTINUES TO OPERATE MARINA EFFECTIVE GROSS INCOME CITY SHARE AT TOTAL CITY SHARE SLIP SPACE $225,000 $116,000 50% 40% $113,000 $46,000 $159,000 BASED ON 47 SLIPS WITH AN AVERAGE BOAT SIZE OF 30 LINEAL FEET AND AND 52 SPACES WITH AN AVERAGE BOAT SIZE OF 14 LINEAL FEET. KEYSER MARSTON ASSOCIATES, INC. ` FILENAME: Nbvalues; AMLGADJ; DATE : 7/31/97; JJL TABLE B MOBILE HOME PARK LEASE RATE ADJUSTMENT ESTIMATED NET OPERATING INCOME REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH AVERAGE CURRENT SPACE RENT) $896 PER MONTH ADJUSTED SPACE RENT $1,071 PER MONTH INCOME SPACE RENT $745,200 UTILITY CHARGES 15,312 TOTAL SCHEDULE INCOME $760,512 LESS: ASSUMED VACANCY DUE TO RATE INCREASE @ 2%(2) $15,210 ($15,210) OPERATING EXPENSES(3) REPAIRS & MAINTENANCE $1,200 JANITORIAL SUPPLIES 240 MAINTENANCE -LANDSCAPE 12,000 TRASH 6,600 UTILITY -GAS 18,000 TOTAL OPERATING EXPENSES ($38,040) GEN. & ADMIN. EXPENSES(3) COMPUTER SERVICE $876 INSURANCE -WORKERS COMP 1,816 CONSULTING FEES 6,000 LEGAL FEES 6,000 MANAGEMENT FEES 25,548 OFFICE SUPPLIES/EXP. 240 POSTAGE & DELIVERY 180 SALARIES 16,666 TAXES -PAYROLL 1,991 TOTAL GENERAL & ADMINISTRATIVE EXPENSES ($59,317) N B -OP;. TOTAL NET OPERATING INCOME $647,945 ROUNDED TO $650,000 SPACE RENT RANGES FROM $743 TO $1,053 PER MONTH; AVERAGE SPACE RENT @ $896 PER MONTH R THE MOBILE HOME PARK IS CURRENTLY AT FULL OCCUPANCY; THE VACANCY RATE REFLECTS NATURAL VACANCY DUE TO RATE INCREASE 3 EXPENSES BASED ON 94/95 FISCAL YEAR ACTUALS KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; MHPADJ, DATE : 7/31/97; JJL REPORT ON RECOMMENDED TIDELAND BOUNDARY FOR PROPERTY IN LOWER NEWPORT BAY LOCATED ALONG THE BALBOA PENINSULA BETWEEN 15TH AND 18TH STREETS NEWPORT BEACH, CALIFORNIA PREPARED FOR THE CITY OF NEWPORT BEACH DUNE, 1996 SUBMITTED BY BOUNDARIES UNLIMITED 6840 PINE CONE RD. LOOMIS, CA 95650 (916) 652-5167 TABLE OF CONTENTS SUBJECT PROPERTY................................................1 PURPOSE.........................................................1 RESULT..........................................................1 METHOD..........................................................1 PROPERTY OWNERSHIP..............................................2 LIMITATIONS OF REPORT...........................................3 DEFINITION OF TIDELAND BOUNDARY.................................3 CONFORMITY WITH NEARBY TIDELAND BOUNDARY DETERMINATIONS ......... 4 ELEVATION OF MEAN HIGH WATER....................................4 BIOLOGICAL TIDELAND DETERMINATIONS ..............................7 EARLY UPLAND PROPERTY SURVEYS...................................8 EARLY TOPOGRAPHIC SURVEYS.......................................9 FINLEY MEANDER SURVEY..........................................12 OTHERSURVEYS..................................................13 ACCURACY OF EARLY SURVEYS......................................14 ARTIFICIAL CHANGES TO SHORELINE........ ......................14 STATE LEASES OF ADJACENT TIDELAND PROPERTY.....................15 ANALYSIS AND RECOMMENDATION.....................................16 LOCATION OF THE RECOMMENDED TIDELAND BOUNDARY..................16 APPENDICES 1. Recommended Tideland Boundary 2. Historic Shoreline Positions 3. Portion of 1875 Topographic Survey 4. 1889 Finley Survey, U.S. General Land Office 5. 1905 Section B Subdivision 6. Portion of 1912 Corps of Engineers Survey 7. Portion of c. 1920's Hillyard-Browning Survey 8. Official Map No. 108 Showing Finley Meander Line Position RECOMMENDED TIDELAND BOUNDARY FOR CERTAIN CITY -OWNED PROPERTY LOCATED IN THE CITY OF NEWPORT BEACH NEWPORT BAY, CALIFORNIA SUBJECT PROPERTY This report deals with the tideland property boundary along the bayward side of the Balboa Peninsula between 15th street and 18th street in Newport Beach. PURPOSE The purpose of this report is to recommend a location of the tideland boundary in keeping with accepted boundary determination practice. This recommendation will be based upon an analysis of historical surveys, maps, photographs, deeds, and other records. No field survey was conducted for this study. T?T; CTTT_T This report recommends the 1889 U.S. General Land Office meander line by S.H. Finley as the tideland boundary for the subject property. The location of the line is shown in Appendix 1. METHOD Historical information shows that the natural bay was filled at the subject location, probably during the late teens or early 1920's. As a result of the filling, the shoreline was moved some 200 to 250 feet further bayward. This report will attempt to determine where the line of mean high water was located on the ground just before the time of the filling. PROPERTY OWNERSHIP The city acquired title to most of the adjacent upland property, together with other off -site lands, by deed dated August 12, 1919, from the Pacific Electric Land Company. The deed is recorded in Book 342 of Deeds, page 329, Records of Orange County. The part of the Pacific Electric deed treating this property describes it as unsubdivided land bounded on the north by the part of the U.S. Government Meander Line included between Station 68 and Station 72, as surveyed by S.H. Finley, on the east by the west line of 15th street, on the south by the subdivision known as Section B, and on the west by the east line of 19th street. Without evidence to the contrary, this report treats the deed reference to the Government Meander Line for the north boundary as carrying title to the ordinary high water mark of Newport Bay. The city gained title to the remainder of the adjacent upland property by deed dated April 24, 1956 from the Pacific Electric Land Company. This was a conveyance of certain lots in Blocks 115, 116, and 117 in the Section B subdivision. Additional nearby lots in Block 115 were also deeded to the city the same day by the Pacific Electric Railway Company. The abutting tidelands and submerged lands of Newport Bay came to state ownership upon California's admission to the Union in 1850. Tidelands and submerged lands of the bay that fronted on lands owned or later acquired by the city were granted in trust by the State Legislature to the City of Newport Beach in 1919. This was pursuant to Chapter 494, Statutes of 1919, in effect July 25, 1919. On that date, the upland property at this location was not yet owned by the city, therefore title to the abutting tidelands and submerged lands did not transfer immediately. Title to most of the frontage passed to the city a month later when the city was deeded the land by the Pacific Electric Land Company. The remaining tidelands and submerged lands, involving frontage on two upland lots, passed when the 1919 legislative grant was amended by 2 subsequent legislation, Chapter 70, Statutes of 1927. The city now administers the tidelands and submerged lands in trust pursuant to Chapter 74, Statutes of 1978. LIMITATIONS OF REPORT This report is based upon information taken from historic surveys, records, and maps prepared by federal, state, and local agencies. Unless otherwise noted, it assumes the information shown on these records is accurate. The necessary research materials were obtained from both current and prior searches of the files of the City of Newport Beach, County of Orange, California State Lands Commission, and records of this firm. Some of the data was previously assembled for earlier Newport Bay tideland boundary studies, and for litigation involving Upper Newport Bay. Upland property titles for this report were researched only to the extent of requesting ownership information from the city. No independent investigation was conducted on the subject, and the report does not advance any opinions of upland property ownership. Comments appearing in the report merely reflect information furnished by the city. Within the city, Mr. Paul Medina provided valuable aid in furnishing copies of maps, deeds, and other records. Mr. Paul Cuomo, a former supervisory employee with the County of Orange, assisted in the research of historical survey records. DEFINITION OF TIDELAND BOUNDARY The tideland boundary in Newport Bay is the ordinary high water mark as set forth in Section 830 of the California Civil Code. The ordinary high water mark in a tidal estuary under natural conditions corresponds to the intersection on the ground of the tidal height of mean high water. That height is determined by averaging the twice -daily high tides over a full tidal cycle of 19 years. When the available measurements of tide heights do not extend over the full 19 year cycle, the short-term result is 3 reduced, or extrapolated, to the 19-year mean value. This is done from a comparison with simultaneous tide observations made at a tide station that does have a full 19 years of measurement. In instances where the position of the line of mean high water has changed gradually over time due to the natural action of water, the boundary moves with the changing location of that feature. The tideland boundary moves with these changes as long as they are natural, gradual and imperceptible. When the changes are sudden or avulsive, or result from dredging or filling, or from accretions to land caused by nearby artificial means, the boundary does not continue to follow the day-to-day line of mean high water. CONFORMITY WITH NEARBY TIDELAND BOUNDARY DETERMINATIONS Tideland boundary determinations involving both court action and state legislation have be made to neighboring property located both to the east and west of the subject property. To the west the boundary was adjudicated in SCC ##23682. To the east the boundary was adjudicated in SCC ##23681. The ordinary high tide lines adopted in these two cases were later further established by an act of the state Legislature, Statutes of 1929, Chapter 142. The lines determined by those actions do not comport with the tideland boundary location recommended in this report. The reason for the disparity is that the prior determinations were not done according to the same property boundary guidelines that were used in this report. ELEVATION OF MEAN HIGH WATER The correct 19-year average tide height of mean high water for property boundary purposes is somewhat uncertain in Newport Bay. Changes in the tide elevations have occurred artificially as a result of harbor improvements such as dredging and filling operations, and stabilizing the entrance channel. Measured mean high water elevations in a nearby area of the bay range from historic government figures as low as 4.0 feet to a recent value of 4.6 feet above the level of mean lower low water. The elevations are measured above the lower low water reference level, sometimes called mean lower low water datum. This reference is the same as 4 that used in published tide tables. Thus if the height of mean high water is determined to be 4.4 feet for boundary purposes, the line of mean high water could be directly seen on the ground during still water conditions by noting the edge of the water's surface at the time of a 4.4 feet tide. Tide height measurements taken after the harbor was built found mean high water to be at 4.5 feet beginning in the 19201s. The most recent known value is 4.6 feet. The correct elevation for historic boundary purposes, however, is the elevation determined under natural conditions before the harbor improvements. The National Ocean Survey publishes a value of 4.4 feet above mean lower low water at Newport Landing for this historic elevation. The figure is based upon readings made in 1875, 1887 and 1889. Newport Landing is located near the highway bridge separating the upper and lower portions of Newport Bay. It is the nearest historic tide station to the property. While 4.4 feet is the official government height for mean high water, that value is not without some question. In reviewing the historical records of the National Ocean Survey, it was found that 4.0 feet was the actual mean height as determined from the 19th century tide measurements. The Chief of the Tidal Datums Quality Assurance Section wrote in 1991 that the historic Newport Landing values were altered to be consistent with other nearby locations. This was to avoid the appearance of an anomaly. The disturbing element in this alteration is that the historic hydrographic conditions in Newport Bay may have been quite different from those in other nearby locations and a true anomaly may have existed. This would result in the 4.0 feet figure being a better value for boundary purposes than 4.4 feet. One possibility that could lead to an anomalous situation is that Newport Bay could have different entrance conditions than other nearby estuaries. In support of the possibility that an anomaly existed, an early government letter by a person familiar with such matters mentions the unstable nature of the Newport entrance channel. - - The lumber merchant of the place informed me that he had 5 recently been to San Francisco to secure a steamer to run to Newport Landing but although they would dispatch her that no insurance could be obtained until the place or rather the entrance was surveyed by the Coast Survey. A small schooner with a cargo of 50 [?] lumber entered the bay a few days since and reports 15 feet of water in the channel. The entrances to these small estuaries and bays are constantly changing so that I do not suppose that any survey can do more than give the general depth of water on the bar. It will be entirely accurate at time of survey and be inaccurate six hours later owing to changes. The approaches and inside work though will be always available for the use of vessels. On the other hand, the tide experts of the U.S. Coast & Geodetic Survey analyzed the available data and arrived at the 4.4 feet figure. While questions are raised here, it is beyond the scope of this investigation to modify the government's established tide values. Information from an early non -government source was also reviewed for information on tide heights. Several tide measurements were made at 3 different locations in Newport Bay during 1920 and 1921 by the office of Leeds and Barnard, Consulting Engineers. These measurements were done in conjunction with the project for harbor development. The value for mean high water at the county bridge at the west end of the turning basin was 4.24 feet, at the Palisades Pier was 4.30 feet, and at the Balboa Pavilion was 4.24 feet. These figures were not used in this report for boundary purposes because some were measured after changes were made to the entrance channel. Also, there was no statement that the determinations were reduced to mean values (extrapolated to a 19 year period). If it was certain that the Leeds and Barnard figures had been reduced to mean values, they would have been further considered for use by this report. One other tide height factor arises because of a note appearing on the 1912 U.S. War Department survey of Newport Bay. In this note is a statement that the elevation of high water mark 1 Letter from A.W. Chase to C.P. Patterson, February 27, 1875, U.S. Coast & Geodetic Survey, Superintendent's File, 1866- 1910, Assistants, C, 1866-1875, RG 23, National Archives. A is constant between Promontory Point and the bridge at the Arches, although the plane of lower low water is inclined upward from Promontory Point to the bridge at the Arches by 0.9 foot. High water mark was defined in the note as the physical mark left by the preceding spring tide. Because we are here concerned with high water heights rather than low water heights, the effect of this low water difference could be substantially reduced. Also, it is not known if the relationship between the high and low water planes is linear. It was also noted that the area of the bay described in the note could involve differing hydrologic factors than the subject property. Because of the uncertainty of how to apply the information shown on the War Department map, no attempt was made to adjust the values that were determined for boundary purposes. The elevation of 4.4 feet is used in this report for boundary determination purposes because it is the official historic government figure for Newport Bay. It also has been previously accepted by the County of Orange in its efforts at tideland boundary determination . If either the government's original 4.0 feet, or the 4.24 to 4.30 feet Leeds and Barnard figures had been used, the tideland boundary would be located somewhat waterward of the 4.4 feet height. BIOLOGICAL TIDELAND DETERMINATIONS Salt marsh vegetation was historically located along the margin of the bay at this location. One factor that some investigators rely upon in locating the line of mean high water is that it supposedly coincides with the waterward margin of the marsh. Research done previously by this writer in this and other nearby areas shows that the principal marsh grasses are pickleweed (Salicornia) and cord grass (Spartina). Pickleweed typically grows at slightly higher elevations than does cord grass. The upper elevation of the pickleweed is usually a foot or two above the elevation of mean high water. The lower elevation of that plant is usually at or slightly below the elevation of mean high water. Cord grass is usually found at elevations ranging from mean high 2 Board of Supervisors action authorizing a 4.4 survey of Newport Bay, May 12, 1925. 7 water to a foot or two below that height. Typically in an established marsh such as this the band of pickleweed is much wider than that of cord grass. Thus the intersection of the line of mean high water along the shore of the bay is usually somewhat landward of the outer or lower limit of the marsh. For this reason, topographic maps that show the edge of marsh vegetation without supporting evidence of the line of mean high water are not accurate indicators for determining the tideland boundary. EARLY UPLAND PROPERTY SURVEYS U.S. General Land Office 1889 The United States became the owner of the upland property following the war with Mexico and the 1848 Treaty of Guadalupe Hidalgo. In 1889, the U.S. General Land Office contracted with Solomon H. Finley to survey the swamp and overflowed within Newport Bay. Finley's original survey included lands that were determined not to be in government ownership, so changes in his results were ordered. An official government plat was approved in 1890 that, among other things, subdivided the peninsula at the location of this investigation. The adjacent upland property is located within Lot 4, Section 33, and Lot 4, Section 34, T. 6 S., R. 10 W., S.B.M. The swamp and overflowed lands within Newport Bay were bounded by irregular lines called meanders. Details of how Finley surveyed the meander lines are given later in this report. Section B Subdivision Plat, 1905 This plat represents a subdivision of a parcel of upland property made by the Newport Beach Company. The map of the subdivision was made by S.H. Finley, the same surveyor who did the government meander survey 16 years earlier. The plat shows a heavy freehand shoreline fronting on Newport Bay, and lighter water lines to the north. The shoreline is not identified as to what it specifically represents. It is considered unlikely that it was run as a contour of 4.4 feet elevation. E3 The Orange County Engineers Office has the original field book collection of S.H. Finley. The field books were researched to determine if they contained additional information on the heavy freehand line, or on the location of the line of mean high water at the time the subdivision survey was made. Unfortunately no clarifying information was found. Without some indication of what the freehand line represents, how it was determined, and whether the conditions under which it was made represent natural shoreline conditions, the S.H. Finley freehand drawn line was determined unacceptable for recommendation as a tideland boundary by this report. EARLY TOPOGRAPHIC SURVEYS U.S. Coast & Geodetic Survey, 1875 The first detailed topographic survey of Newport Bay was made by the U.S. Coast and Geodetic Survey in 1875. This work was part of a comprehensive survey and was one of the elements needed in preparing a navigation chart of the bay. The 1875 survey is recognized as the first accurate topographic representation of Newport Bay. Unfortunately, there are not enough land elevations shown for locating the line of mean high water. The survey does show certain visible features, including the upper and lower limits of the salt marsh vegetation. While some investigators consider the solid black line located at the outer limit of the marsh vegetation as the line of mean high water, that is generally not the case. Any congruency between the two is coincidental. The bayward limit of the marsh shown on the 1875 topographic map intrudes well into the Section B subdivision of 1905 between 16th St. and 18th St. Since the marsh line is most usually located waterward of the line of mean high water, it is probable that between those two streets the tideland boundary in 1875 was also located within an area that in 1905 became the Section B subdivision. As the line proceeds easterly of 16th St., it swings waterward of the Section B limit. This survey was used for background information as to the earliest approximate location of the tideland boundary. It did not play an important role in recommending the location of the tideland 9 boundary. Also, no independent evidence supports the outer marsh line to be the line of mean high water. Corps of Engineers 1912 The next important topographic survey was done by D.E. Hughes for the U.S. Army Corps of Engineers in 1912, and is depicted on Orange County surveyors map no. 6883. Another version of the same survey with harbor lines added is identified as county surveyors map no. 6885. Unfortunately, no line of mean high water at elevation 4.4 feet above mean lower low water was surveyed. A 5 feet contour line appears on the map, but that line is at too high an elevation to be useful for boundary purposes. Spot ground elevations are shown on transects spaced 450 feet apart that correspond with the extensions of the upland streets. Using these spot elevations with the line of 5 feet elevation, an approximate location for the 4.4 feet contour can be determined by interpolation. Use of this procedure requires that the ground surface be at a constant slope between the various elevation points, a condition that may not actually exist. The spot elevations were taken at spacings of 150 to 250 feet apart along the individual transects. These spacings are too great for accurate work. Also, all of the spot elevation points are located on tide flats bayward of the marsh while the 5 feet line is back in the marsh. Experience has shown that berms or ridges oftentimes exist at the bayward edge of the marsh, and also within the marsh itself. Thus the ground between the spot elevations and the 5 feet line may not lie along a constant slope. The 450 feet transect spacing of the spot elevations is also less than adequate to define the sinuosities of the line. An additional problem with the map is it's relatively small scale of 1" = 833 feet, which makes the approximate mean high water line subject to even more error. One other feature of the Corps 1912 survey data raises further doubt about its reliability. Both the high water mark and the spot elevations that are so important to this tide line determination differ in some respects between the two different versions of the Corps' map even though they are both based upon the same field 10 survey. For all of these reasons the correctness of the 4.4 feet contour line as determined from the 1912 Corps map is considered suspect. W.K. Hillyard - C.R. Browning 192O's Orange County Surveyor, W.K. Hillyard, and the Irvine Company surveyor, C.R. Browning, appear to have both conducted surveys in Newport Bay during the 1920's for locating the tideland boundary line. Existing in the county records are three plats identified by Orange County surveyors map file numbers 6881, 6892, and 6909. Another unnumbered version was obtained some years ago from the Irvine Company files. These plats are believed to be slightly different depictions resulting from the same field survey, and all appear to have certain information superimposed upon the same base map. There is no clear identification of who performed the original work, and it is possible that both Hillyard and Browning contributed to the information shown. This report will refer to this work as the Hillyard - Browning survey even though no evidence proves that deduction. The topographic information shown on the maps corresponds to efforts made in the 1920's to locate the tideland boundary in the county areas and in a few city areas of Newport Bay. It is evident there was some uncertainty in knowing the correct elevation of the boundary line as on two of the plats many spot elevations were measured as well as contours of 4.4 feet, 4.6 feet, and 5.1 feet. Difficulty is met in determining the dates of the field work. For the most part the shoreline features correspond to those expected immediately prior to the dredging of the harbor during the early 1920's. The dates that are customarily used for the Hillyard and Browning tideland boundary surveys are mid-1920's, or after the dredging was well underway. This report considers the actual field measurements to have been made immediately prior to the county dredging because that is the situation shown on the maps. In the subject area of this report the only mapping symbol shown on the plat that is representative of a shoreline feature is a single freehand -drawn line. It is not identified on the map as to elevation, or in fact as to what it purports to represent. Its 11 position closely corresponds to the heavyweight freehand line shown on the 1905 Section B subdivision map. The freehand line on the county map only appears westerly from 16th street and does not extend easterly to 15th street. The Hillyard-Browning freehand line is located well landward of the bulkhead line, which suggests it might reflect the shoreline position prior to final dredging and filling operations. Further to the northwest in the channel area known as The Rhine, the freehand line configuration shows a straight channel with parallel sides that appears to reflect a post -dredging condition. A similar condition appears at another channel labeled The Hudson. The line in all these general areas seems to have been done during the time the dredging was in progress, with some areas already dredged and filled and others not. The problem is that the freehand line appears in locations that are not otherwise known to have ever been shorelines of the bay. It is possible that the lines may reflect planned shorelines or lines taken from other maps. Even if the line was known to be a 4.4 feet contour, without other evidence it could not be completely relied upon to reflect natural conditions of the shoreline prior to placement of artificial fill. At first glance, the freehand lines shown on the Hillyard- Browning maps appear to be of significant potential value to this report. Research was therefore conducted in both county and private records to locate additional data on the survey that formed the basis of the line. Extant field books of both Hillyard and Browning were examined. Despite the concerted effort, no clarifying information was found on what the line represents, how it was determined, and whether the conditions under which it was made represent natural shoreline conditions. Therefore, the Hillyard-Browning freehand line was determined unacceptable for consideration or recommendation as a tideland boundary by this report. FINLEY MEANDER SURVEY As stated before, S.H. Finley in 1889 performed a meander survey and subdivision of the swamp and overflowed lands in Newport Bay, including the Balboa Peninsula. Meander surveys run by 12 government contract surveyors were not expected to closely follow the mean high water line as are boundary surveys done specifically for that purpose. Tide heights were not measured, and no contour line of 4.4 feet elevation, or other constant elevation, was determined by the survey. The government surveying instructions in force at the time of Finley's survey (1881 Instructions) directed that meanders of swamp and overflowed lands should be run at the ordinary low-water mark. It is believed that Finley did not have a copy of these out -of - print instructions.3 In fact, his meanders in the marsh areas more closely followed what would have been the approximate mean high water mark. This bears out the experience of the writer that the tidal low-water mark in marsh areas is oftentimes located in unvegetated tide flats where the footing is very difficult and unstable. It is much easier to run a meander line up on the marsh vegetation, which is closer to the mean high water line. An individual performing a meander survey would run a line by course and distance that approximated an on -the -spot visual determination of the shoreline or bank. The purpose of a meander survey was to provide information on the amount of acreage in the upland rather than determine an exact property boundary. Nonetheless, in some instances government meander lines have been adopted as tideland boundaries when they were determined to be the best evidence as to the location of the historic shoreline. OTHER SURVEYS Some other surveys were reviewed as part of this study. They were judged to be of historical interest but for various reasons did not have a particular bearing on the location of the tideland boundary. These include the following: 1. Corps of Engineers' Newport Harbor Survey of 1887. 2. Finley's 1889 survey - Santa Ana and Newport Railroad. 3. Finley's 1891 alignment survey of Newport Avenue. 3 Executive Document of the House of Representatives, Session of Congress 1889-90, Annual Report of the Commissioner of the General Land Office (1889). 13 4. U.S.G.S. topographic surveys of 1894 et seq. ACCURACY OF EARLY SURVEYS Surveys of the 19th and early 20th century were not made according to the same standards of accuracy that are used today. Nineteenth century surveying standards set by the government expected the meander courses such as those surveyed by Finley to agree within 99 feet of the corresponding upland measure between two points located about one mile apart. The survey by Finley appears to have much less than the maximum allowable error, but some inaccuracy is still to be expected. Nineteenth century surveys of the U.S. Coast & Geodetic Survey are reported by that agency to be accurate to within plus or minus 10 meters, but are often better than that. That distance corresponds to about 33 feet. Surveys by the Corps of Engineers were probably done to a slightly lower standard of accuracy than those of the U.S. Coast and Geodetic Survey. This latter statement is based on 40 years personal experience in working with surveys by both agencies. These accounts show that it is impossible to locate a historic line of mean high water with a high degree of accuracy from the types of historic surveys available here. All due care was exercised in the relative positioning of the old lines during this study, but the accuracy of the results are nonetheless hampered by the early survey limitations. ARTIFICIAL CHANGES TO SHORELINE Based upon an inspection of historical maps and other records, the shoreline in the subject area appears to have remained in a state of nature and was generally stable in position until the time of the filling that probably occurred in the late teens or early 1920's. There is some variation in shoreline positions between the late 19th and early 20th century surveys, but they all fell within a roughly 100 feet wide, swath. In combination with the nearby channel construction, dredger spoils were placed along the shoreline to fill in parts of the natural bay. In this manner the 14 shoreline was moved about 200 to 250 feet further bayward. According to statements in the 1973 book, Newport Bay, A Pioneer History, by Ellen K. Lee, page 82, dredging and filling operations at the subject property were conducted by the City of Newport Beach. The city's work in dredging the city channel was finished in April, 1920. A measure of confirmation on the date of the filling operation appears on promotional letter paper of the local Parkinson Syndicate. The paper is dated 1921 and notations indicate that a [city] channel 10 feet in depth extends a similar distance [31 miles] to the City turning basin located in the western arm of the Bay. This is interpreted to mean that the city channel was already constructed beyond the subject area in 1921. Since shoreline filling was an adjunct of the dredging, statements in the Lee history appear to be affirmed. STATE LEASES OF ADJACENT TIDELAND PROPERTY At the time of the dredging of the city channel and filling of the peninsula shoreline, the tidelands and submerged lands fronting privately owned property within the city limits were still under the jurisdiction of the state. Only tidelands fronting city -owned lands were granted to the city by the state Legislature in 1919. The ungranted filled tidelands remained under state ownership and control despite the fact they were now of an upland character. Interest grew in putting the new lands to use, and the Legislature in 1925 passed an act providing for leasing of the filled property (Chapter 121, Statutes of 1925). The act applied only to land adjacent to subdivisions along the south shore of Newport Bay. Leasing rates were determined by the State Board of Control and the Surveyor General. The rates were based upon frontage along the Bulkhead Line, and no attempt was made to define the ordinary high water mark boundary dividing uplands from tidelands. Ultimately the boundary along most privately -owned uplands was established by court and legislative action as previously alluded to. The new boundaries were set in such position that all of the leased lands wound up being in private ownership. 15 ANALYSIS AND RECOMMENDATION The location of the legal ordinary high water mark, or tideland boundary, has been unknown along the city property since the natural shoreline was obliterated by filling operations. The California State Surveyor General in 1925 expressed his views on the difficulty or impossibility of locating the actual high tide line as it existed at the time of making the fill.4 Research into federal, state, and local records did not turn up any survey of the 4.4 feet contour prior to the filling operations. Thus it is impossible to determine with certainty where the ordinary high water mark boundary is located. In such a case, other evidence is studied to determine the location that best represents the position of the line of mean high water prior to the shoreline filling. The 1889 Finley meander line through the subject area is considered an approximation of the high water mark boundary. The line appears to be located slightly landward of both the c. 1920 Hillyard-Browning freehand line and the 1905 Section B heavy freehand line, and yet noticeably bayward of the 4.4 feet contour as determined from the Corps' 1912 survey. It is also bayward of the outer or waterward edge of marsh as shown on the 1875 USC&GS topographic map. It is the opinion and recommendation of this report that the 1889 Finley meander line is the best evidence of, and most closely reflects the location of the ordinary high water mark and tideland boundary. LOCATION OF THE RECOMMENDED TIDELAND BOUNDARY The 1889 Finley line is mathematically defined in relation to three government section corners also placed by Finley. Because the meander and section line surveys both contain some error, alternative positions of the Finley meander line relative to the subdivision and pierhead lines can result depending on how the error is distributed. The mathematical or coordinate locations of two of these government section corners are shown on the 1912 4 Letter dated September 14, 1925 from W.S. Kingsbury to Mr. C.T. Peabody, c/o The Parkinson Syndicate, Newport Beach. 16 Corps' survey, as are positions later adopted for the 1916 Pierhead and Bulkhead lines. The two section corners located by the Corps' survey are for sections 27, 28, 33 and 34, and sections 20, 21, 28 and 29. Thus there is an ability to locate the Finley meander line relative to the 1916 Pierhead and Bulkhead line. The distance and direction between the two section corners positioned by the Corps agree exactly with the Finley record dimensions. This condition could only result if both Finley and the Corps measured with absolutely no error. Such a situation is virtually impossible considering the surveying methods and accuracies attained a century ago. Thus, of the two section corners shown, it is believed that only one is positioned by field survey and the other determined by calculation using Finley's dimensions. Based upon a review of the available data, the Corps' location for the corner to sections 27, 28, 33 and 34 is believed to be the result of field measurement, while the corner location for sections 20, 21, 28 and 29 is believed to have been determined by calculation from Finely's measurements. The U.S. government land office method for reestablishing the position of a meander line involves using two or more section corner positions. This affords a check on the accuracy attained. In this instance, there is only one section corner position that is felt reliable for position determination. Therefore, the location for Finley's meander line using only Corps of Engineers' data lacks the check afforded by using two corner positions as provided by government land office standards. An alternative location for the Finley meander line appears on Official Map No. 108 on file in the City of Newport Beach Public Works Department. The location shown on this official map agrees within about one foot with the approximate method using the Corps of Engineers survey. The meander line location shown on Official Map No. 108 agrees well with the alternative method employed here, and has the benefit of prior adoption by the city. The Map No. 108 position of the Finley meander line is therefore adopted for recommendation by this report. 17 Prepared by: Co. ZAM — Francois D. Uzes Professional Land Surveyor My License Expires 6/30/96 L,,f /11� D to �/ LAND S�j�` OS D. G Fro � 1 � 18 L � 3175 OF CAL Ft APPENDICES O >1 x, N. 60-17- 09'W. /V&O-/7'09'kv. 1571,91 . ....... .. 60 17'09',V 11.;4 xf Recommended O� lor4 JISC. J-P Tideland P� IWI 1 el 'R Boundary 14. 1889 Finley j 7 1 117 15 4 At-elVi CeIV 7-RA L I AVENUE RIGHT1*, OF W/jY AA' C1,17C ELECTRIC I RAILWAY Co. RIGHT WAY 1 �- .+bEcoo--s.. I Neo-Lc:7o•w ___ _. .__ _: n I F. 1 Recommended Tideland Boundary As Presently Indicated on a 1928 Exhibit Map prepared by Paul E. Kressly City Engineer Historic Shoreline Positions As Presently Indicated on a 1928 Exhibit Map prepared by Paul E. Kressly City Engineer N 00' /7' 09' W. 1571,91 I I i�•I l it I y I IW of— . I I R 1905 •. •.l. /O.CT/ON of LOT 4JL'C.JJ .........-_. ......... N BO' /7'09'W IG4 iIC !/4 ZI . I 4�, LEGEND - - - - - - - - - - - 1875 Bayward Limit of Marsh, U.S. Coast & Geodetic Survey 1889 Finley Meander Line, U.S. General Land Office - 1905 Finley Freehand Line, Section B Subdivision - - - - 1912 Approximate Line of 4.4 Feet Elevation from Corps of Engineers Survey - - - - - - - c. 1920's Hillyard-Browning Freehand Line - - - - • ' ---- .ram_ - - -- - -- ------ r AA. OL ----�= _ - • _ .ice_`_ Ar Ah vA :NTH:: .. •. :,,:`�• �r _---- ___ .. ' .. •�Cy�i - � ,..::; .� ti ^:, „ , =;, � •: , :- .;� Portion of 1875 Topographic Survey by the U.S. Coast & Geodetic Survey h r Nacre. cn✓..>i er..r: <rnr.,i N� pr, Ahrrn rwri «r aiyr... o<r, wr/«'r,«,r .: rnwrFpA5c iA/nu I.r l r%y re�rrrr✓ �j Ar.'✓r<p / U•<rF fenyrr P. ocron/1nM �F y rr.errrdl h.cM Nrw / Brr<b G:vr`,. �, r/wr, a.. MaP cf SeGT/ON B IVEY WP O R T BEACIT By 5 H Finley co--,, -- r-syw Scc% zoofl./-/mA f/ //.. /6,, 6/ /6c Boo,J'ofs„�rr.,,or. ofO,�vy C .. Co✓ uro /, / /d /X ",9oJ Or, ASi, J/'d. oflu/ A. D. /90.f &-f — C.G Wool o No%y A.6/,c ,n on,/lrZoo Anycka (_e.,nJ Co%� n.,t r<„d, yns.r<:. dui �aT,n,,,,a„<dond�nar,;Pr no� e,<J Lov„ B e/; H.a,. A. MJio A..7w/Tolx and Via. CJ/o sf L,//,e.Ano..n !o n,e A.AZ //,< .roen. ..•,sue. ne,n o� ,u6 <r 6cJ� ncr �,/�.n n��mrnre,.J i ra<„ rs.r<,!/I.r s<. ,d .con 1 and nff..,, r, d f�, f rA. /u ,6 Cc,6f a� //.,J ui„ ,n'P ..o, mooE hJ' 9 H F--ky '�� y✓,�a IN< p rI B<orl, C:o'/o y o J—cc f rCo.e o il,k ofC'hf-- C—n/ o C}. //+.,J.�• Jr .;, A D /904 6</o,c ,,:.. C.G W...' o ^6/ y P 6/, 1/t 7 na A;.k, C C /,f c ,.1.. Ar,<n •/ // i 0711. Line of 5 Feet Elevation --- �` — Oc ea .) Portion of 1912 Corps of Engineers' survey of Newport Bay, California Scale 1" = 200 feet, approximately •,1 - • Freehand LineOEI r A N 10=D r� pCCAf•1 _ ` 1•�pO - 1 1 1 1 1 1 1 Z 1 1 1 1 ------- r � ' VV =eE Ar r�— OL_j E= 1 9 V Portion of c. 1920's Hillyard-Browning Survey L oIIYP3 y h/O ,q G c DE S�9NT,q i �+ ,'r (Sec�.•2O Sec.2/ Sec.22 �'ec2 •. ��. `Sfi 67L i no �l R19WC17'0 C%49: `' s C. I .• e i �� � .rats t o ...e. •� r �,d. •rJ 1i, J.�rt• b.�,►a,. ,-�, � A,rt� � .S 4 p Cy ~�r/sa��. •� Saivey,T LLB no11�t�! A%!�e►.rSuioe a' llo7b otC-on>ioct. .v. ,; e�.:r 7U. Y/w�A•+�iI..1.M..�/J4.,..� .�,.,,y ranoocf- fie...e /J:� /OJ,t• �••�iey'i��li+, . �.�....�..7to..r,:.e«�.�..�.n.. .yr�," Mr%rrb ?ny)•.r• osJ /DJd. c • �L ��611issw7 /SQO 7 Q ., /:.rya • _ F'hr'"i' f +Abet oo. Portion of U.S. General Land Office Plat for T.6 S., R.10 W., S.B.M. Showing 1889 Shoreline Meanders by S.H. Finley 54 189 -n ca�., Official Map No. 108 Sheet No. 2 A City of Newport Beach eparLI11CIlL 01 1 UL)IIC VVOrKS 7 1889 Finley Meander Line 14 y L 1,7L L IE V) V CEIVT,4E'IqL /VO,-//7 Drive 4�,-:7- TeRL- ,South Ori re 4.1 "7 4- LE Y 4 IqL Lf Y /7 -T 41 I 'A 7 71 OCZANAVZ,' [A —Hy FRONT /-,.:v 0,10 lol/a Al� 0. 7 f I 7: 18 A. 6r7i--- 1:77, Z LSEfT R. - --Nv- t-�qjm Ch MI 61V IfIl 6 1;1 -83- C;,y 11,e A&Y -S� Z" yyp 0 R -ION PO.Q7 .4 T6.5, AP. /0 W 1889 Finley Meander Line 21' 1/ C Pac -rl ov Or I or Q en t % "--Yer in geL.dC-w A C// -5ZC 33. 7.764.4>10W. (j V) —j--j3 .9.7c JWX 76 -:•b-76 Ja4 .3.7 3474' 3e.76' F�79. 3.7 -74'1.3o.aj' 7 � Z 3 /Z -/0 9 6 7 16 I S 1 3 2 116,. La�jL .1-11 1 1.71- 9-M' i 3.7e- I I—,;'i 40' /3 A? /"//0 -9 7 6 115 4o' 7.9 .7. 145 /7 AY /3 20 22 25 74 26- 27 Zd 2 0 677 .6 20 V 22 23 24 27 Zd A 7 N 44 3 . 0 C-CRly d7-7-,f-e - Official Map No. 108 Sheet No. 25 PA C J jr-- J- C City of Newport Beach Department of Public Works "RECEIVED AFTER AGENDA PRINTED:" _ � I I RECEIRECEIVED NATHANIEL L. AND JUDITH K. GORMAN VED id 6� 1 770 WEST BALBOA BLVD. #4A NEWPORT BEACH, CA 92663 DNZr I�4A&o August 18, 1997 oWuhwaltewr le ems at Marinapark for 211/ years. We ask that at your August 25"" delays action on the Tidelands issue. There is plenty of time for you to resolve this issue. Nothing should be done at this time to rule out the possibility of extending our lease. Please be reminded that the Keyser -Marston Report was not made available to us until two days before your recent Finance Committee meeting. As Mr. Berkshire and Mr. Wynn have pointed out, it is our opinion that the Keyser -Marston Report is flawed. It would be a grave injustice to us if the Council does not allow enough time to thoroughly revisit the figures on both sides before a precipitous action is taken on the Tidelands. Please think about these issues: 1. We understand that we will have to pay whatever is found to be the fair market level for any future lease that you may consider. 2. The City of Newport Beach has allowed Tidelands exceptions to be made for the Balboa Bay Club and for Beacon Bay. 3. The Tidelands issue has been erased by court cases east of Marinapark and west of Marinapark. 4. We have been isolated, and now the Council is considering this "rush to judgment" for Marinapark. 5. During summer weekends, the traffic on the Balboa Peninsula is already a severe problem. Residents of the Peninsula will not welcome a vote that maroons them from emergency care as well as the simple ability to get in and out. A hotel and restaurant will certainly exacerbate that problem. This traffic issue should be studied before you take any action on Tidelands that would rule out your option to extend our lease. 6. Hotels and restaurants have proven to be risky ventures at best. After the Orange County bankruptcy, the mood of the citizens in this area is for their officials to take a conservative approach. The income from Marinapark is a sure thin 7. The vast majority of residents on the Peninsula prefer Marinapark to any other use. We urge you to delay any action on Tidelands at this time Thank you for your consideration. Nathaniel L. Gorman and Judith K. Gorman "RECEIVED AFTER AGENDA NT CC,-��/ l RECEIVED -C,- *97 AUG 25 A10 :57 :ICE OF THE CITY CLERK TY OF NLWPORT BEACH I IIIIIIIIIIIIIIIIII] III JIMIIIIIIIII11I11IUIII111i ..':ao "RECEIVED AFTER AGENDA RECEIVED '97 AUG 25 A10 :57 OFFICE OF THE CITY CLERK F H CITY 0 I WPORT BEACH AGI& LT A �� 7--Q-) W� djy"A • r 1p� fr i Beverley & David Shonhoitz� 1770 W. Balboa Blvd., #5A Newport Beach, CA 92663 " "EIVED AFTER AGENDA PRINT , y._,. . - IJ Communi '97 AUG 25 P 2 :21 P.O. Box 884 • Newport Beach, California 92661 OFFICE OF THE CITY CLERK CITY OF !�1'WPORT BEACH The City Council 3300 Newport Boulevard Newport Beach, CA 92663 Marinapark Revenue Study Honorable Mayor and Members of the Council; .association August 25, 1997 The Central Newport Beach Conununity Association represents the large majority of community minded citizens who live or own property between the two ocean piers on the westerly half of the Balboa Peninsula. Each year, as they have for many years, our members reaffirm their position that you continue, for the long term, the current uses on City land at both the Marinapark and American Legion properties. We are supported on that issue, as you will hear, by the residents on the easterly half of the Peninsula, represented by the Balboa Peninsula Point Association. We are appalled by the continuing lack of consideration given local residents, demonstrated here again by another of the recent, resident -unfriendly actions propounded by your consultants, with the encouragement of our so-called economic development branch of government, in consort with Bureaus and Chambers of This -and -That, hell-bent on revitalizing us, redeveloping us, beautifying us and bringing us to that level of quality and revenue production they have determined to be appropriate. We have a recent newspaper quotation attributed to one Councilperson. While commiserating with the Marinapark lessees, the Councilperson says, "But we have the responsibility to receive the highest return on our city property." Revenue is not the only issue here. Highest and best use includes public benefit from public recreation, from use by non -profits such as the Girl Scouts, Sea Scouts, Orange Coast College, the American Legion and others. Where in the Keyser Marston report does the consultant address the value of the amenities which will be lost by converting Marinapark's present 120+ bedroom community to 85 hotel rooms? Where is there mention of our loss when you scrape away four tennis courts, basketball court, public parking, public beach access, girl scout house, children's play park, and replace it allwith more party -time duplexes on the Boulevard which will be low market property on a noisy street, property backing up to a hotel restaurant complex? Where in the report does the consultant address the lost value of Marinapark's unique tranquillity, its law abiding, revenue contributing residents who make few demands on City services? August 25, 1997 Page 2 Let's take a look at our purported responsibility to receive the highest retain on our ('itV property. Here arc some dollar returns to the City which are contributions by its other tidelands occupants. 'I'lic American Legion at L5 acres contributes S58.000 per acre; the Balboa Bay Club at 15.6 acres contributes $59,000 per acre, Beacon Bay at 12 acres contributes $110,000 per acre. Marmapark, with new leases at market value will contribute � 1C4.000 per acre. We suggest you do indeed He this report, but only after careful, thud parr scrutiny of consultant's figures and those subsequently submitted by Marinapark's resident economist, Dr. Stewart Berkshire. In the wink of an eye, in the few short days between the release date and Revision 2 of the Keyser Marston report there has been an 180/'0, upward adjustment in consultant's value of Marinapark. And there has yett to be a search for downward adjustments to the conjectural, hypothetical values of consultant's alternative uses in this study; a study which dragged on for more than a year, yet carelessly understates by 6% something as basic as the City's population. We suggest you resume recently discontinued lease negotiations with Mannapark residents as well as the American Legion Post, instead of letting them respond in a vacuum to your consultant's Request for Proposal. We sut cyst you ignore any atternpt to fix a mean high tide line. Bay Club and Beacon I31av leases seem to have been navigated through Sacramento's legislative swampland with not rnuch attention to that historic albatross. In closing, we ask the all important question. In your scheme of things here, who will respond to your RFP on behalf of us residents for the purpose of proposing that our public facilities and access to the Cittiy's largest lower bay beach remain as they are?" Very truly yours Thomas E. Ilyans. President Central New,por( Beach Community Association "RECEIVED AFTER AGENDA PRINTED;" August 20, 1997 Newport Beach City Hall 3300 Newport Blvd. Newport Beach, CA 92663 Attention: Peggy Ducey RE: City Council Meeting for Marina Pacific It would be a great disappointment to myself and my family if The Marina Pacific were no longer around. It has provided so much enjoyment for family & friends since the opening of the facility. Marina Pacific is a very quiet and safe environment. That is very important to people who have children. We have always enjoyed the beach and all its many opportunities it provides. We come to stay for any length of time and we have a place to stay and park our cars & boat. If Marina Pacific is closed my family & friends will no longer have a place to grow and pass. on traditions. Newport Beach has plenty of Hotels and houses to rent for anyone interrested. As you drive around or walk you always see vacant/rent signs, pluse isn't the trafic & parking bad enough? Please help my family keep its traditions and a place to go any time of the year. Sincerely, "RECEIVED AFTER AGENDA PRINTED:" % f - August 20, 1997 Newport Beach City Hall 3300 Newport Blvd. Newport Beach, CA 92663 Attention: Peggy Ducey RE: City Council Meeting for Marina Pacific It would be a great disappointment to myself and my family if The Marina Pacific were no longer around. It has provided so much enjoyment for family & friends since the opening of the facility. Marina Pacific is a very quiet and safe environment. That is very important to people who have children. We have always enjoyed the beach and all its many opportunities it provides. We come to stay for any length of time and we have a place to stay and park our cars & boat. If Marina Pacific is closed my family & friends will no longer have a place to grow and pass on traditions. Newport Beach has plenty of Hotels and houses to rent for anyone interrested. As you drive around or walk you always see vacant/rent signs, pluse isn't the trafic & parking bad enough? Please help my family keep its traditions and a place to go any time of the year. Sincerely, �X.J "RECEIVED AFTER AGENDA PRINTED:" August 20, 1997 Newport Beach City Hall 3300 Newport Blvd. Newport Beach, CA 92663 Attention: Peggy Ducey RE: City Council Meeting for Marina Pacific It would be a great disappointment to myself and my family if The Marina Pacific were no longer around. It has provided so much enjoyment for family & friends since the opening of the facility. Marina Pacific is a very quiet and safe environment. That is very important to people who have children. We have always enjoyed the beach and all its many opportunities it provides. We come to stay for any length of time and we have a place to stay and park our cars & boat. If Marina Pacific is closed my family & friends will no longer have a place to grow and passon traditions. Newport Beach has plenty of Hotels and houses to rent for anyone interrested. As you drive around or walk you always see vacant/rent signs, pluse isn't the trafic & parking bad enough? Please help my family keep its traditions and a place to go any time of the year. Serely, ZEIVED AFTER AGENDA PRINTED:" August 20, 1997 Peggy Ducey City of Newport Beach 330 Newport Blvd. Newport Beach, Ca. 92663 Dear Ms. Ducey As a frequent visitor to Marina Park at 1770 Balboa Blvd., I have to strenuously object to the City's plan not to renew the lease for Marina Park residents. My wife, two sons and I enjoy many weekend visits to the family house in the park. We find it a safe environment away from the heavy traffic on the beach side of Balboa Blvd. With no surf to contend with my youngest son can enjoy the water without worry of being swept away or knocked down by waves. Many of the homes here have been in the same family for decades. Families who take pride in being apart of the Newport Beach Community. Families who spend many a tax dollars in Newport Beach and who spends many dollars and time in the maintenance of their homes. It's easy to lose sight of how far the effect of a decision as this reaches. A decision to displace so many established full and part time residents for the sake of "progress" or for "the public interest" is not necessarily the best decision. A decision to redevelop "ride lands" to be accessible to the public, which is already accessible to the public is selfish and short sighted. Please feel free to contact me if you have any comment or questions of my opinion. You may contact me by phone at (909) 782-5717 or by mail at; 4292 Tenth St. Riverside, Ca. 92501 ectfiilly Don Hull August 20, 1997 Newport Beach City Hall 3300 Newport Blvd. Newport Beach, CA 92663 Attention: Peggy Ducey RE: City Council Meeting for Marina Pacific It would be a great disappointment to myself and my family if The Marina Pacific were no longer around. It has provided so much enjoyment for family & friends since the opening of the facility. Marina Pacific is a very quiet and safe environment. That is very important to people who have children. We have always enjoyed the beach and all its many opportunities it provides. We come to stay for any length of time and we have a place to stay and park our cars & boat. If Marina Pacific is closed my family & friends will no longer have a place to grow and pass.on traditions. Newport Beach has plenty of Hotels and houses to rent for anyone interrested. As you drive around or walk you always see vacant/rent signs, pluse isn't the traf is & parking bad enough? Please help my family keep its traditions and a place to go any time of the year. Sincerely, "RECEIVED AFTER AGENDA PRINTED." tl August 20, 1997 Newport Beach City Hall 3300 Newport Blvd. Newport Beach, CA 92663 Attention: Peggy Ducey RE: City Council Meeting for Marina Pacific It would be a great disappointment to myself and my family if The Marina Pacific were no longer around. It has provided so much enjoyment for family & friends since the opening of the facility. Marina Pacific is a very quiet and safe environment. That is very important to people who have children. We have always enjoyed the beach and all its many opportunities it provides. We come to stay for any length of time and we have a place to stay and park our cars & boat. If Marina Pacific is closed my family & friends will no longer have a place to grow and pass. on traditions. Newport Beach has plenty of Hotels and houses to rent for anyone interrested. As you drive around or walk you always see vacant/rent signs, pluse isn't the trafic & parking bad enough? Please help my family keep its traditions and a place to go any time of the year. Sincerely, COMPARATIVE REVENUES (Revenue Study by Keyser Marston Associates) Referring to Table 11, Scenario A: Land Total Use Size Revenue * Revenue ----------------------------------- Annual --------------------------- Restaurant 14,000 sq. ft. $280,000 $370,000 Hotel 85 rooms 180,000 440,000 --------------------------- $460,000 $810,000 Less: Amortization of site develop- (36,000) (36,000) ment and marketing. --------------------------- Estimated net revenues $424,000 * $774,000 --------------------------- --------------------------- * Note that this revenue will not start until at earliest 2002. By comparison, Marinapark revenues, today: Total net operating income (From recent City records) $530,000 Plus: Sales tax recapture $13,015 Motor vehicle license fees 853 Parking and fines 1,553 Library fines 130 Gasoline tax 451 Property tax ? State HCD fees ? Total other revenue 16,002 Total net revenues (plus property tax and HCD fees) $546,002 By accepting Marinapark's offer of "fair market" rents, plus other lease provisions we anticipate, the revenue to the City will be in the range of $900,000 to $1 million, some of which could begin as early as 1998. 08/25/1997 11:32 2136225204 KEYSER YARSTON LA PAGE 02 K ►y Y 5 E R MA RSTO N A S S O C I ATE 5 1 N C. AilV1iDR5 I,N R,�EAL ESTATE l\EDLVELOPME^lT 5100 Sourl-1 GRANII AVI;NUC, 5UITE 1480 LA,F,FOROABG LE HOUSIN Ur, ANCQIX!9, CALIFORNIA 90071 ECONOMIC DEvELO"AIE,. PI w-.: 213/622-6095 FISCAL IMPACT l Ax 213/62Z-5204 kmalADknnainc.(om INFRASTIiUCTIIFE FINANCE Nil:I15rra: http://www.kmninccom VALUATION AND LITIGATION SUPPORT Los ANcrf Es CALVIN E. HOLLIS, II KATHLEEN H. HEAD JAMES A. RASE SAN Dazo GEXALO M. TRIMELE RODSRT J. WETMOFE PAUL C. MARRA SAN FFANCISCO MEMORANDUM A.JERKYER TtMOT1lY CKa KATE EARLE FUNK DEMISE E. CONLEY DERRIE M. KERN TO: Ms. Peggy Ducey MARTHA N. PACKARC City of Newport Beach FROM: Keyser Marston Associates, Inc. SUBJECT: Marinapark Mobile Home Rent Proposal DATE: August 24, 1997 You have asked that we review and comment upon the rent proposal offered by representatives of the current mobile home park tenants. The proposal was presented in a meeting you held with the tenants representatives on Friday, August 22. We understand the proposal to be as follows: 1. Lease to be extended for a term to be negotiated. 2. Total rent to be increased a total of $400,000 over the period 1998 to 1999. 3. Beginning in 2000, rent to be equal to $900,000 plus reimbursement of City - incurred operating expenses. 4. Rent to be increased by the CPI annually, plus reimbursement of operating expenses. 5. Upon transfer of any lease, the City will be paid a transfer fee of $20,000 (currently the fee is $2,500). AUG-25-1997 12:37 2136225204 9e% P,02 08/25/1997 11:32 2136225204 KEYSER MARSTON LA PAGE 03 Analysis The proposal would increase average monthly rents from $896 per space to $1432, a nearly 60% increase. If the rents are increased proportionately among the 58 spaces, the rents would range as follows, compared with current and competitive rents: Type of Space Marinapark Current WaterNiew Lots $1053 Non View Lots $ 743 Marinapark Lido Proposed Current $1685 $1850 $1189 $1100 Given the number of non -view spaces at Marinapark, and the superior view spaces at Lido, we would consider these rents to be above market. comparison with Alternative Use, Scenarios A and 4 Table 1 presents an annual and present value comparison of the proposal and the Alternative Scenarios Baseline, A and B presented in KMA's August Revenue Study report. The analysis suggests the revised baseline would generate revenues in excess of those shown for the original Baseline and Alternative A, and equivalent to Alternative B. It should be noted that this assumes the residential rents on the Balboa frontage in Alternative B will not increase at the rate of inflation. We have omitted any income to the City from the proposed increased transfer fee. We understand there have been very few transfer over the last several years and there is no way to accurately project such fees. Considerations In reviewing the proposal, you may want to consider the following: • The proposal results in rents for the mobile home spaces above current competitive market rates. While the existing tenants may be in a position to pay such rents to avoid displacement, there is no assurance that replacement tenants in the future will be willing to pay above market rents. • The analysis assumes the tenants will pay additional rent equal to the City's operating expenses in the future. No deduction has been made for future capital replacement costs which may be the City's responsibility. KEYS E R M A R S TON ASSOCIATES INC AUG-25-1997 12:37 2136225204 9Rx P.03 08/25/1997 11:32 2136225204 KEYSER MARSTON LA PAGE 04 We believe the continued use of the 4.27 acres along the bay front as a mobile home park will preclude the use of the Balboa frontage as residential due to the resulting views. This analysis has assumed continued use as a mobile home park will be permitted by the State Lands Commission. We hope this review is helpful and are available to discuss the above at your convenience. CEH1kjr 97549, 16093.0001 K E Y S E R MARSTON ASSOCIATES IN ( AUG-25-1997 12:3e 2136225204 9gi P.04 a8/25:,;997 11:32 2136225204 KEYSER MARSTON LA PAGE 05 TABLE 1 RENT PROPOSAL COMPARISON(" MARINAPARK MOBILE HOME PARK MARINAPARK REVENUE STUDY rrrry nc nIFWPnRT REACH Baseline Proposed Baselinetz Mobile Home Park Other Sources Total Scenario A Scenario 9 Years 1 - 10 Years 1 - 25 Years 1 - 52 Cumulative Present Cumulative Present Cumulative Present Revenue Value Revenue Value Revenue Value $9,000,000 $5,400.000 198,301000 $8,800,000 $10.700,000 $6,200,000 �100.000 1,200,000 S12,80,000 $7,400,000 $11,000,000 $6,100,000 $14,000,000 $7,700,000 $35,200.000 $10,500,000 6,500,000 2,001000 $41,7001000 $12,500,000 $35,500,000 $9,800,000 $46,400,000 $12,900,000 $94,200,000 $10,400,000 $118,600,000 $12,600,000 21.800�000 2,400,000 $140,400,000 $15,000,000 $119,300,000 $11,300,000 $157,100,000 $15,100,000 Assumes 50 year lease beginning in 2000. (2� Assumes total mobile home park rent increased $150,000 In 1998, and an additional $100,000 in year 1999. Beginning in 2000, rent is $900,000 increased by CPI plus all operating expenses• Prepared By: Keyser Marston Associates, Inc. Filename: Proposal, Table 1; Date: 8125t97; JJL AUG-25-1997 12:38 2136225204 99Y. P.05 Supplemental Agenda Item 11 CITY OF NEWPORT BEACH" NcVvt t.„rCncw OFFICE OF THE CITY MANAGER" AUG 2 51997 DATE: August 25, 1997 TO: Honorable Mayor and Members of the FROM: Peggy Ducey, Assistant to the City Manager SUBJECT: Marinapark Revenue Study BACKGROUND At the Finance Committee meeting, Marinapark representative Stewart Berkshire presented the Park's own analysis of the economic value that Marinapark provides to the City. The Committee directed Keyser Marston to review the Marinapark analysis and report back to the City Council. Keyser Marston representative, Cal Hollis, met with Stewart Berkshire to review the financial analysis and clarify the assumptions used in the analysis. Based on these discussions, Attachment III is Keyser Marston's evaluation. The Marinapark analysis calculates the following per square foot values for three land uses, as compared to the Keyser Marston study: Marinapark Keyser Marston Mobile Home Park $123.85 $43.90 Restaurant 5.28 45.50 Hotel 26.32 63.00 Keyser Marston concludes that the difference between the two calculations is due to the following differing assumptions: 1. Different Discount Rate Applied to Each Use: Marinapark uses a discount rate of 6% for the Park, and 21 and 24% respectively for a hotel and restaurant. Keyser Marston uses a discount rate of 10.5 - 12% for these uses. In Keyser Marston's experience, the discount rates in the Keyser Marston report reflect actual market conditions. 2. Market Rents for Mobile Home Sites: Marinapark uses a market rent that is $200-$300 higher per month than Keyser Marston. 3. Analysis of Entire Property: The Marinapark analysis only focuses on the tidelands portion of the site, and does not take into account the impact that continued mobile home land use would have on the value of the remainder of the site. Keyser Marston concludes that the Marinapark analysis substantially overstates the value of the ground rents and other revenues for Marinapark. Also attached to this supplemental report is a request by Marinapark that action on the tidelands resolution be postponed until the residents can more fully review the Boundaries Unlimited study and conduct research on the tidelands issue. This report also includes five letters the City received from current Marinapark residents. ATTACHMENT TII / KEYSER M ARSTON A S S O C I A T E S I�iV\!� `�\ ADVISORS IN: REAL ESTATE SOO SOUTH GRAND AVENUE, SUITE1480 "-. ? 9•' h �� �� REDEVELOPMENT Los ANGELES, CALIFORNIA 90071 �', Fi �� AFFORDABLE HOUSING PHONE: 213/622-8095 •� i1 _: ,� �j ECONOMIC DEVELOPMENT FAX: 213/622-5204 /� 1:_ 'i (' �'/. is FISCAL IMPACT E- 1Au.: kmalaQkmainccom „ ,'' �. INFRASTRUCTURE FINANCE WEB SITE: http://www.kmainc.conl 'R''•f � VALUATION AND ��`� ///``` LITIGATION SUPPORT �~ Los ANGELES CALVIN E. HOLLIS, II MEMORANDUM KATHLEEN H. HEAD JAMES A. RABE SAN DIEGO GERALD M. TRIMBLE TO: Ms. Peggy Ducey, ROBERT J. WETMORE Assistant to the City Manager PAUL C. MARRA City of Newport Beach SAN FRANCISCO A. JERRY KEYSER TIMOTHY C. KELLY FROM: Keyser Marston Associates, Inc. KATE EARLF FUNK DENISE E. CONLEY SUBJECT: Marinapark Reuse DEBBIE M. KERN MARTHA N. PACKARD Review of Analysis Submitted by Marinapark Tenants DATE: August 20, 1997 As requested we have reviewed the analyses prepared by the representatives of the Marinapark Mobile Home Tenants ("Tenants' Analysis"). Additionally, we met with representatives of the Tenants on August 20th to discuss their analysis. The Tenants' Analysis seeks to provide an estimate of the value to the City of ground lease and other revenues which may result from the continued operation of the mobile home park. The conclusions reached in the Tenants' Analysis are at variance with the conclusions found in the Keyser Marston Associates, Inc. draft report dated July 1997 ("KMA Report")' . The following summarizes our understanding of the Tenants' Analysis. VALUATION The Tenant's Analysis concluded the revenue present values for the identified components are as follows: ' It should be noted that the KMA Report and the subsequent Tenants' Analysis projected revenues over an assumed 55 year ground lease. Subsequently, it has been determined that the maximum permitted ground lease term will be 50 years and the final KMA report has been revised accordingly. The reduction in lease term does not materially affect the conclusions of either the Tenants' or KMA's analyses. Page 2 Mobile Home Use $123.85 per sq. ft.2 Restaurant $5.28 per sq. ft. $229,997 Hotel $26.32 per sq. ft. 2,292,998 Total $23,036,248 $2,522,995 This compares with the KMA Report conclusions which were presented as shown below: Mobile Home Use $43.90 per sq. ft. $8,165,4533 Restaurant $45.50 per sq. ft. $1,981,980 Hotel $63.00 per sq. ft. $5,488,000 Total $7,469,980 The extreme variance in valuation is principally due to differing assumptions related to 1) the appropriate discount rate to apply to the revenues, 2) the appropriate market rental rate for the mobile home spaces, and 3) the analysis of the reuse of the entire property compared to analysis of merely the Tidelands (Mobile Home Park) portion of the site. The following discusses each of these areas. 2 The Tenants' Analysis includes certain locally generated taxes not considered in the KMA report. While we question certain of the assumptions utilized by the Tenants Analysis, these revenues account for less than 1 % of the estimated mobile home park revenue value and thus are not discussed in this memorandum. 3 The KMA Report correctly depicted the per square foot value of the mobile home park revenues but at several points in the analysis expressed the present value of the total existing uses revenues as being $8.8 million rather than the correct figure of $10.3 million. The lower number was based upon an incorrect discount rate of 12% while the per square foot value and the $10.3 million figure is based upon a discount rate of 10.5%. KEYSER MARSTON ASSOCIATES I N C. 91 Page 3 DISCOUNT RATES To account for the fact that the City will receive economic benefit from its ownership of the site over a long period of time, is appropriate to project the revenue resulting from the site over the term of the assumed ground rent and to discount the revenue stream to a cash equivalent. The key variable in this calculation is the discount rate applied to the revenue stream. The lower the discount rate used, the hi her the value of the revenue stream. The choice of the discount rate is a function of the current investment market conditions (interest rates) and the relative risks associated with the projected revenues. The benchmark rate which is typically used to build a discount rate is the comparable term federal bond rate, approximately 6.6% today. This rate is perceived to have zero payment risk. Additional basis points are added to reflect both collection risks and a penalty for less market liquidity. For purposes of establishing the proper discount rates, we have utilized current market rate returns for non -subordinated ground leases, which currently range between 8% and 12%. The low end of the range is used where the rent is triple net (i.e. the tenant pays all expenses ), there is substantial capital investment by the tenant at risk if rent is not paid, and none of the rent is dependent upon the operating success of the tenant. The higher end of the range is used where the landlord bears operating costs not passed on to the tenant, or where the tenant has little capital investment at risk, or where all or a portion of the rent is dependent upon the successful operation of the tenant's business (i.e. percentage rents). Given these considerations, the KMA report utilized the following rates, as contrasted with those utilized by the Tenants Analysis: Tenants' Analysis Land Use Revenues KMA Discount Rate Discount Rate Mobile Home Park 10.5% 6.0% Hotel Ground Rent 10.5% 21.0% Hotel Tax Revenues 12.0% 21.0% Restaurant Ground Rent 10.5% 24.0% Restaurant Tax Revenues 12.0% 24.0% Ownership Housing 9.0% Not Addressed KEYSER MARSTON ASSOCIATES I N C. Page 4 The discount rates utilized by KMA for the mobile home use are higher than the minimum 8% due to the fact that the rents are not triple rent (the City has ongoing maintenance and capital replacement costs, potential changes to regulations dealing with mobile home park relocation) and the fact that the tenants have relatively limited capital investment at risk in the event of a default. Additionally, given the individual nature of the leases, there is a reuse risk should a portion of the tenants default; the City would be precluded from changing the use as long as a portion of the leases remained in place. The discount rates for the hotel and restaurant uses are higher than a more typical 8% to 9% given the fact that it is assumed a portion of the rent would be from participation or percentage rents and thus dependent upon the economic success of the tenant. The discount rate applied to ownership housing is higher than what would be otherwise called for given the assumption that inflation adjustments to the rent would be minimal. Based upon the relative ground rent and other revenues projected by KMA, the conclusions drawn from the Tenants' Analysis is that the value attributed to the restaurant ground rent portion of the revenues is $4.00 per square foot and the hotel ground rent is valued at $11.00 per square foot. These values are substantially below the values supported by comparable Orange County sales without any regard to the premiums associated with bay view property. In KMA's experience, we see no justification for the Tenants' Analysis use of either a 6% rate for the mobile home income (a rate lower than a Federally guaranteed Treasury Bond), or the 21 % to 24% discount rates used for the restaurant and hotel revenue, particularly given the assumption that the ground lease will be senior to any debt placed on the leasehold interest. The Tenants' Analysis may have confused equity return requirements with ground rent returns. The difference in assumed discount rates account for approximately 2/3rds of the difference in value assigned to the mobile home park income and 100% of the difference between the KMA and Tenants estimated hotel and restaurant valuations. MOBILE HOME PARK RENTS The Tenants' Analysis states "...our estimate of fair market rents is that an increase of about 70% will be required in our rents." The Tenants' representatives have clarified that this was meant to increase the City's net income by 70%. KMA's Report estimated fair market rents would be increased on average 19.5%. This increase is based upon a survey of existing mobile home rents in competitive locations. The following compares the projections with existing rents at Marinapark and the park at Bayside. KEYSER MARSTON ASSOCIATES I N C. Page 5 Marinapark Tenants' Marinapark Projected Bayside Analysis Existing (KMA) Existina Projected Waterfront/ $1053 $1450 $1100-$1600 $1663 View Non -Waterfront $ 743 $ 875 $660 - $1100 $1174 Weighted Avg. $ 896 $1071 NA NA The differing assumptions as to the market rents for the mobile home park accounts for approximately 1/3�d of the valuation difference of the mobile home park. We believe the rents projected by KMA are representative of market conditions. ANALYSIS OF THE ENTIRE PROPERTY The Tenants' Analysis focuses on the 4.27 acre portion of the site occupied by the mobile home park. In doing so, the analysis fails to reflect the impact that the continued use of that portion of the site would have on the value of the remaining portion of the site. The KMA report presents as one alternative (Scenario B) the redevelopment of the entire site, utilizing the non -Tidelands portion for residential development. Development on the Tidelands portion of the site is purposefully kept to a minimum in order to maximize the value of the residential lots. The residential component generates, conservatively, $7.3 million in present value for the City. Continued operation of the mobile home park would preclude development of the Balboa frontage in this manner, given the impact on views and the resulting residential environment. CONCLUSION Given this review, we must conclude the Tenants' Analysis substantially overstates the value of the ground rent and other revenues which would be generated by the continued operation of the mobile home park, while understating the value of the Tidelands site developed with visitor serving uses. We continue to believe that a mixed use development of the site, with residential uses along Balboa Boulevard and visitor serving hotel and restaurant uses on the Tidelands portion of the site, together with the continued operation of the marina, will generate the highest revenues to the City. KEYSER MARSTON ASSOCIATES I N C. Page 6 CEH:jjl 97541.NPB 16093.0001 August20,1997 KEYSER MARSTON ASSOCIATES I N C. PRESENT VALUE OF REVENUES (Referring to KMA Report Revised 7/31/97) From Scenario A (Table 11): Use Restaurant Hotel PV of Rev. per sq. ft. $45.50 63.00 Area Occupied (Acres) 2.00 1.70 Total value of revenues By comparison: Marinapark 77.59 4.27 (present rents) Actual Total Pres. value Area of Revenue Occupied -------------------- $3,963,960.00 4,665,276.00 ------------------ $8,629,236.00 4.27* $14,431,833.11 4.27 Figures for the hotel and restaurant are from the KMA Report. All figures for Marinapark are arrived at using the same methods as those used by KMA. They are reasonable and accurate. Revising the above to present as realistic a picture as we now can: First, the discount rates used for the hotel and restaurant are 10.5% and 12%, respectively, for ground rents and other income. For such risky ventures, these are very low rates of return. More realistic rates would be about twice that, or 21% and 24%. These rates will now be used. The effect is to lower Present Value. Second, our estimate of fair market rents is that an increase of about 70% will be required in our rents. This increase will now be used in this analysis. The discount rate used is still 6%. Use Restaurant Hotel PV of Rev. per sq. ft. 5.28 26.32 Area Occupied (Acres) 1.00 Total value of revenues 2.00 Marinapark 123.85 4.27 (Estimate of market rents) Actual Area Pres. value Occupied of Revenue (Acres) -------------------- $229,996.80 2,292,998.40 ------------------ $2,522,995.20 4.27* ----------------- ----------------- Actual Present Value per sq. ft. 46.39 77.59 Present Value per sq. ft. 13.56 $23,036,248.62 4.27 123.85 * The proposed hotel and restaurant will be the sole revenue producers for the area now occupied by Marinapark. Therefore, revenues must be divided by the same area as is now occupied by Marinapark. AAq�q%A 9p homeowner ASSOCiatio r�: C, E I V E D Park Manager (714) 723-0206 - Fax: (714) 723-053997 AUG 18 A10 '40 13 August 1997 OFFICE OF THE CITY CLERM CITY OF P'l:WPORT BEACH To: Honorable Mayor and City Councilpersons From: Stewart Berkshire, President Marinapark Homeowner Association I am writing to each member of the City Council to enlist your vote on one paragraph of the motion from the Finance Committee to be considered at the meeting of 25 August 1997. The subject, of course, is the future of this land on which our homes are situ- ated. Paragraph #4 in the motion directed "that the existing lessees be given the opportunity to respond to the RFP and propose to remain on the site." This part was recommended by Staff. The Committee, on Councilman Hedges' motion, added "Direct the City Attorney to prepare an Ordinance establishing the Mean High Tide Line as recommended by the Boundaries Unlimited Report." If RFP's will be issued, we have no objection to paragraph 4, but do request the City Council to postpone adopting an ordinance. We would like the opportunity to review the Boundaries Unlimited Report and to conduct some research on the Tidelands Issue. The City Council would still have the opportunity to evaluate our findings and adopt an ordinance at a later date. Our current lease goes to March 2000, so the City would not risk anything if the ordinance was not adopted until we complete all research. If the Mean High Tide Line is set in concrete with an ordinance at this time, it may negate paragraph 4 of the Finance Committee recommendation directing "that the existing lessees be given an opportunity to respond to the RFP." We believe nothing would be lost by the City if you defer action on the ordinance until you receive proposals and know more about the economic returns to the City and of our tidelands research before you adopt such an ordi- nance. Therefore, we respectfully ask that you do not support such an ordinance at the 25 August meeting. 1 .7 7 0. WEST BALBOA BLVD. NEWPORT BEACH, CA 9 2 6 6 3 n c, my A. A.UG 2 A-ocrurrM Lol cipmoirvill—, rtil 17 7 0 � M�'►ORt BfAL�I .. �'^ `rC Ua W � } - t dc �a A-t . .. �L S S f 1770 West Balboa Blvd. Unit 8B Newport Beach, CA 92663 TO; Honorable Mayor Janice Debay Mayor Pro Tem Thomas Edwards Councilperson Norma Glover Councilperson John Hedges Councilperson John Noyes, Jr. Councilperson Dennis O'Neil Councilperson Tom Thomson Assistant City Manager Peggy Ducey FROM: Tom Wood RECEIVED OFFICE OF THE CITY CLERK CITY OF NEWPORT BEACH In fairness to the residents of Marinapark I respectfully request that the Newport Beach City Council refrain from taking any action on the tidelands issue until the Board of Directors of Marinapark has had ample opportunity to make its proposal to the full City Council. JA Tom Wood 1770 West Balboa Blztd. #8B Newport Beach, CA 92663 N ARINAPARK SUPPLEMENTAL CORRESPONDENCE COUNCIL A` .FDA N0. 1 I RECEIVED CUQLw—j %&,icp7 '97 &W IPP c t 1 w- ds l ab� Re: qua ndt,� 4 auq aiT as-0)1� OFFICE OF W'WRK C+ CITY OF N K�cQ, VYr�sisiar� t� C�1t�aCio� . i h sty o�� h cf E 1 �rr� (ka7iGt it�zvS Go Thy .M r tincad vas-�t�s tsn+ w-T, T ! o ,Yrts Q,1Q N cic tv►4 Q. -[ fiilrz �pcc�l i� q ,IQi z� bu11 t i� t� er i�c (SrxK p. bt) I ness k avr ,�� vn rk r is `� � ►dam l'c;xmdS b �,tm �`�'"1 �,ir •� ian ��� tn'.i-t; i-t'► Ur►•�10� . mco plc. �v1� ^ iCCy.�C� it '��: t. GLv C'c ,p( ,r. �—. Z) UZ2 � UMO �n l �-tK�v� GtCAN i C-cI c, RQ `P6, . LA a,c cv-a d tnq t.c}ifiha, lOT wCam �Xl0- Can M",rq �Vim� 10 y es, 4cu, meal -thQ Un P� mw-Ti an W�?Q, rtha `CZ�a�►c. c�pdd bun-7 C�c�n �Na C-y sad t CL5s ua o� wt�s- W� rnj-0 Cc h u ns uy+ P 1ice? lu Ica dl-, t(vlL +i ►nK Q1V- qb1 nT 0--) � Qbourt yc c �' 'ra`'r' Woos , QvncWWI q� ,Ar Riga Pda►r- Sf Barn Mo�rcno, CA- 51108 11 Q, r1 4 By HOPE HAMASHIGE SPECIAL TO THE TIMES NEWPORT BEACH —Stewart and Betty Berkshire, like many of their neighbors, moved to Marina Park Mobile Home Park to live in retire- ment in what they consider one of the most beautiful places on earth. Indeed, the spot is idyllic. The park lies on a peaceful stretch of sand along Balboa peninsula, and all the homes have stunning views of Newport Har- bor. From the front porch of the home where they have lived 10 years, the Berkshires watch brown pelicans and other sea birds fish and swim. There is a daily parade of picturesque boats that cruise the channel, which is just yards from their home. Now, however, the Berkshires and their neighbors are worried that they may lose their bay -side homes. The city, which owns the property, is considering what to do with the land when the lease expires in 2000. On Monday, the City Council will hear a consultant's report that says the city would make more money if the park were replaced by a hotel and restau- rant. "I really don't understand why they are trying so hard to get rid of us," said Stewart Berkshire, 73. Uncertainty regarding the park's future arises as the city undertakes a massive rehabilitation of Balboa. The goal is to clean up the area, draw more tourists and increase city revenue. The city earns about $525,000 an- nually by leasing the 10.7-acre parcel to Marina Park residents, whose rents range from $730 to $1,034 a month. The land, north of Balboa Boule- vard between 15th and 18th Streets, is also occupied by an American Legion COWNCIL 1�t111 Pen" Bay -Side Mobile Home Residents Fear Eviction After Lease Expires that the council is simply exploring its options and that no decisions have been made regarding the future of the mobile home park. The residents can't believe the city is even considering evicting them. They say that getting rid of the mobile home park wouldn't move the city any closer to its goal of revitaliz- ing the area. The park has been there 40 years and in that time has been a consistent revenue source for the city, they say. Hotels and restaurants, they point out, are not a guaranteed source of income for the city because many of them fail, including many recent ven- tures on Balboa. "I really believe this casts some doubt on the validity of the report," said Stewart Berkshire, a retired ac- counting professor. "That is the part that is really upsetting." Furthermore, the residents say, the park is one of the few quiet spots on the peninsula, which over the years has gained a reputation as Newport Beach's party destination. In recent years, the city has cracked down on both the noisy bars and loud house parties that have characterized life on Balboa. In con- trast, the mostly senior citizens who live at Marina Park are quiet and involved in the community, residents said. They clean the beach and recently ,organized a fund drive that raised $2,400 for new books at Newport. Elementary School. "One thing the city would be losing if they lose Marina Park is a bunch of volunteers, people who care about the community," said Betty Berkshire. "They wouldn't get that with a hotel." 0 Marina Park Mobile Home Park Bounded by: Balboa Boulevard on the south, 18th Street on the west, 15th Street on the cast and Newport Harbor on the north. Population: About 58. Hot topic: The lease on the city - owned park expires in 2000 and city officials are considering evicting the mobile home tenants to make way for new development. LOS A119CICS 1 IITICS hall and a Girl Scout center. The hall rents for $300 a month and the Scouts pay a nominal $1 per year. A consultant who studied the land concluded that the city could more than double its lease proceeds, to $1.38 million a year, if a hotel and restaurant were built on the site. Councilman John W. Hedges said "Ic .,f �U� E�rTjv :-,, ',4ewport HarOor from riei( Inonic ir.- -1. yet:; 'L , � %srilre ; , I 3 An Orange County Register publication RECEIVE ., A8: I ITY C ac COUNCIL AGENDA N0. DIGGING IN LAND BATTLE: Marin— apark residents tn! to save lx>mes as cite looks for best financial deal. By 10HN WESTCOTT The Newport Beach Light i tewart Berkshire could be strolling in the sand by his front door, commun- ing with the willets and marbled godwits that congregate along the surf, occa- I sionally screeching into the bliss- ful quiet. Instead, Berkshire, 74 and as- sociation president of Marina - park Mobile Home Park, is shut inside his manufactured home, crunching numbers on his com- puter and trying to solve a puz- zle: How will the park survive into the next century? The question looms larger with every month, as the March 2000 termination date approaches for the 15-year lease signed with the city in 1985. Most of Berkshire's noodling these days is over a 56-page re- port produced for the city by Keyser Marston Associates Inc., analyzing the mobile home park's financial benefit to the city compared with hotels, res- taurants and other possible uses. Its conclusion: Marinapark is a financial loser for the city, and should be replaced after its lease runs out. The property could produce from $39 to $56 per square foot, with the lower figure represent- ing Marinapark and the higher a major hotel, according to the study. MAOINAPARK "BLUES' Residents at Marindpark Mobile , Home Park are fighting to have their lease with the city extended beyand,� as a hotel hotriss or .-A city hired study says iuld prbiiucemare revenue and the stl d6ls i Want tidelands' I Foci{ic s � t>ce�rr It's a conclusion Berkshire and other Marinapark residents dis- pute. So the 10-year resident churns out figures that show what a financial benefit the mo- bile home park is to the city, throwing $525,000 annually in monthly rents ranging from $750 to $1,000 a month. The Keyser Marston report was hashed out at the Finance Committee level, and goes to the City Council oil Monday. The council is not expected to take a stand on the recommendations, but will ask for proposals from firms interested in developing the property. The council also will welcome proposals from Marinapark, the Girl Scouts and other nearby ten- ants on why the park should re- main on the site. Berkshire is convinced the city wants Marinapark out, and that AUGUST 21, 1997 ilbor ; , N a BM,L West 'Playground Newport Beach Lignt the city doesn't understand the park's true benefits to Newport Beach, both financial and other- wise. "From all signs, they're tnov- ing very efficiently to kick us out," he said. He also can claim some moral support from the Peninsula Point and Balboa Communities home- owner associations, which hoth support keeping Marinapark as it is. "It seems they're going against the wishes of the Penin- sula," he said. City officials say the\ haven't made up their minds about Alau•- inapark's future. But they sad they have to look out for the city's finances and the city's overall interests. "I know that I've not made up Please see DIGGING/Page 3 r STEVE ZYLIUS/The Newport Beach Light HOMEOWNER FIGHTS MOVE: Stewart Berkshire, Marinapark Mobile Home Park homeowner's association president, is leading a fight to keep the park where it is on Balboa Boulevard. • I I •• • FROM PAGE 1 m\• mind," said Councilman Dennis O'Neil. "It's a difficult si- tuaton, where you have people who've lived there a long long time, and we need to take that into consideration. "But we have the responsibility to receive the highest return on our city proper- ty_ ." Ultimately, Marinapark's big- gest obstacle is not the city. It's the state, which has the final say- so over what may go and what may not go on tidelands proper- ty. Defining tidelands isn't easy. Generally they're marked by the historical median tide in a given area. The state says they must be open to the public. Marinapark's neighbor, the American Legion Hall, is also in tidelands, but probably not in jeopardy because it is a public use. 'rile Keyser Marston study assumes the legion hall will re- main. City officials have said that Marinapark could seek state leg- islation to make an exception, just as a 12-acre housing develop- ment on Newport Harbor called Beacon Bay did in 1978. O'Neil was city attorney then, and said the city sponsored the legislation. He said the city should consider special legisla- tion for Marinapark only if it turns out the park benetrts the city financially. Curtis Fossum, counsel for the State Lands Commission, said the city is moving in the right direction by looking at alterna- tive uses for the land. He said the commission would likely frown on allowing Marinapark to stay. "They're basically living on public property, because that's what tidelands are," he said. Berkshire says he's not sure he sees the point of seeking legisla- tion unless the city carries the park's cause. "We feel we can't do it if the city won't back us on this," he said. "It really would require the active participation of the city." Peggy Ducey, assistant to the city manager, said there's a big difference between Beacon Bay and Marinapark: The former is permanent housing; Marinapark began as a mobile home park, although it is mostly manufac- tured housing now. She also points out Marinapark has long had fair warning on its probable fate. The 1985lease said the city intended to convert the property into a public recreation area after it expired. Most of the residents in Marin- apark's 58 units have other homes, but about 17 do not, Berk- shire said. As a whole, the park's residents are quite elderly, rang- ing from the 50s to low 90s. "Many of us are quite old, and they're afraid they're going to get kicked out," Berkshire said. "At our age that really keeps you up nights." Marinapark is essentially low- cost elderly housing, something very scarce in Newport Beach, he added. It's not clear yet what kind of relocation benefits residents would get if the city did move them out. Berkshire said the lease doesn't provide for such benefits if the land is put to recre- ational use, but does if it be- comes a hotel. The city is study- ing the issue. In the meantime, Berkshire says the park's residents are girding for a fight. Their motiva- tion lies in the blissful quiet Mar- inapark is known for. "Everyone says, 'This is such a peaceful place. Where do you get off living in a place like this in Newport Beach?' " Berkshire smiled. "But it's perfect for peo- ple my age." couNciLr-!---yna NO. ri bx-v elvV4 /,47x� &ep� RECEIVEF—b-f7 Laz IAI 19�lwkjlpw WORlt VZ� Q 4v19 Ivry/W 41/4- As 10- COVII-L" Pd /L S40?11,,5 15 A-Atgv14 y alo,v iC- cvll7 7� awte- zo e c� CZ �i /N S / . �0"k+•-a� � . �.G h��r_� o� �3' � �f .Rp �.,/z-G��.�. ,�.�-ice ..5� COUNCIL AGENDA ) P.O. BOX 826, BALBOA, CALIFORNIA 92661 RECEIVED TO: Honorable Mayor Janice Debay Mayor Pro Tem Thomas Edwards Councilperson Norma Glover Councilperson John Hedges Councilperson John Noyes, Jr. Councilperson Dennis O'Neil Councilperson Tom Thomson FROM: The Balboa Peninsula Point Association SUBJECT: Marina Park Revenue Study Dear Mayor Debay and Councilpersons, '97 AUG 22 P12 :27 OFFICE OF THE CITY CLERK CITY OF HEWPORT BEACH August 22, 1997 This letter is to reiterate the position of the Balboa Peninsula Point Association as addressed in our position paper of July 14, 1997 in regards to the future of the Marina Park area. The Board of Directors and members of the BPPA are strongly in favor of the retention of the current uses for the Marina Park property. The long term stability and nature of the Mobile Home Park and its residents is in line with the type of environment our membership desires to see increased on the peninsula as opposed to facilities that will increase traffic, tourists and enforcement costs. While cognizant of the city's desire to explore all avenues of additional revenue and to meet tideland restrictions, our residents feel that the additional development of hotel facilities could cause a deterioration of quality of life that may outweigh any financial benefits. It is our hope that the City Council will allow current lessees to meet the criteria for continued use. Sincerely, � A 44,-� Mary Moyer, President Balboa Peninsula Point Association 1�1