HomeMy WebLinkAboutCorrespondenceNEWPORT BEACH CI^" 'OUNCIL MEETING PUBLIC COMMENT"
Uomments made by Harol<. Jasper PhD, Co -Chair NEWPOR_
1 11 / 94
.SAYERS ALLIANCE
Good evening Mr. Mayor and Honorable City Council Members.
My name is Harold Jasper. I am here tonight on behalf of the NEWPORT TAXPAYERS
ALLIANCE to describe how NB can increase income from city owned real property
by up to $8-10,000,000 EACH YEAR and to request your action in response to our
recommendations.
NTA was stimulated to study the implications of the report of the "Income from
City Owned Property" workgroup at the City of Newport Beach "Strategic Planning
Workshop" on March llth. That report included a summary stating that NB earned
$22300,000 on $150,000,000 of City owned property last year (excluding the
yacht basin, oil wells, moorings and parking lots).
Based on that report, application of simple arithmetic told us that we were
earning only a 1.5% return on the value of our property.
Since then we have obtained written and verbal information from the Ass't City
Manager informing us that the 1993 return on real property was $2,700,000, and
confirming that his $150,000,000 "Estimated Fee Values" is correct, for a 1.8%
return.
Except for the "recent" Beacon Bay appraisal, the City has no factual basis for
each of the other "Estimated Fee Values" supplied, so we constructed a rational
basis for the City's owned real property values by using the Beacon Bay value
as the base. The resulting "Estimated Fee Values" are included in the 2nd
column in the 3rd page of the material I will give to Ms. Raggio this evening
for distribution to you. Using this rational basis, the return on real
property value in 1993 was less than 1%, which return we all might agree is
totally unsatisfactory.
It is therefore quite clo--. that the reported "Estimated _tee Values" used by
the City in its management of our real property need to be corrected. Such
correction will provide a basis for proper analysis of fair and equitable
return(s) which we should receive as earning from our real property assets.
Such correction can also serve as a basis for correcting current inequities in
existing rents and lessee fees_ad- and as a basis for orderly planning for
potential future income.
So as to be perfectly clear, this recommendation isn't merely a clerical
correction issue. The proper return on hundreds of millions of dollars of real
property assets is completely dependent on understanding of the actual current
worth of our "family jewels" — our real property assets! It is impossible to
know what rent or lease rates are equitable and/or market rate without knowing
the actual real property value(s). This issue is further complicated by City
managment assuming that a 3% return on real property value(s) is the most that
ever can be earned on City owned real property and that it is perfectly alright
for "Estimated Fee Values" to be computed by capitalizing the return(s), by
off —the wall guess and/or by guessing updated current values from very old
in formation.
In short, it is quite clear that we are in some disarray in recognition of the
actual current value of our City owned real property assets and in under—
standing the true potential return which should be realized from such value.
The City's "Estimated Fee Value" of $150,000,000 in real assets, if correct,
should provide a market rate return of approximately $10,500,000/yr. We are
currently earning only $2,700,000 on our real property and approximately
$2,200,000 on other property, resulting in a shortfall of $5,600,000/yr. IF,
HOWEVER, THE PROJECTION OF THE RECENT BEACON BAY APPRAISAL IS PROPERLY
COMPUTED, THEN OUR REAL PROPERTY IS WORTH MORE THAN $295,000,000, WITH A
POTENTIAL RETURN OF UP TO $20,000,000 EACH YEAR!
In discussion with City . _agment about these issues we _ _i stubborn adherance
to the "we can't earn more than 3% return" and the "actual values of our
property are not material" interfering with the need to professionally look at
improvement in the return on City owned real property as a serious topic for
management attention, especially in view of the serious revenue shortfall.
At today's interest rates, if we had 75% (loan to value) mortgages on our real
property, we would need a return of at least 8-10% for the 75% portion in order
to pay the interest on the loan, and a return of at least 4-7% for the 25%
investment portion, totaling an average of 7-9.25%, with no allowance for
taxes, etc.. Experienced real estate investors and real estate bankers report
that real property should provide a return of 10-13% on actual value; with
discounted cash flows for leasehold generally resulting in 6.5-9% total NET
return. THUS, REQUIRING A MINIMUM OF 7% RETURN ON THE CITY OWNED REAL PROPERTY
APPEARS TO BE A DUTY OF THE CITY COUNCIL.
Since we are aware that some of our real property is under long term contract,
that some of our real property is subject to statutory limitations, that some
of our real property is so valuable that placing it all on the market at one
time could seriously depress market values and that reasonable time is needed
to establish the actual values upon which equitable market rates can be set, we
propose the following:
1. That professional appraisals be made ASAP on our real property; (with 2
or more made on real property estimated to be worth $9,000,000 or more,
with a 3rd appraisal if the 1st-2 are more than 5% apart; and with one
appraisal for properties worth less than $9,000,000).
2. That professional consultation take place (with money center real
estate bankers and with professional real estate portfolio managers) to
ascertain the proper return the City should target for the NB owned
real property.
3. That the City of Newport Beach City Council adopt acceptable minimum
rate(s) of return on City owned real property (based upon professional
consultant prepared reports/recommendations).
4. That forthwith a— existing agreements on City ow-ed real property be
examined and compared to the mandated rate of return adopted by the
City Council and that the City staff be directed to get every rental/
lease agreement in conformance ASAP.
5. That if the City staff is unable to get particular real properties in
conformance with the adopted minimum acceptable rate(s) of return
within 5 years, that the property be sold, (with the proceeds placed
in a restricted Trust, with the earned interest used for operations).
6. That the City Council review and enact the NTA proposed Resolution
regarding these issues handed to you now through Ms. Raggio.
NTA 4/11/94
This PROPOSED RESOLUTION is offered for the consideration of the Newport
Beach City Council by the NEWPORT TAXPAYERS ALLIANCE on 4/11/94 by Co —Chair
Harold S. Jasper, PhD.
P R O P O S A L
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF NEWPORT BEACH ESTABLISHING A
POLICY FOR THE ECONOMIC RETURN ON CITY
OWNED REAL PROPERTY (94— )
WHEREAS, the City of Newport Beach has rights to tidelands properties
rented/leased to users having an "Estimated Fee Value"* of $420,000; and
WHEREAS, the City of Newport Beach owns unimproved land rented/leased to users
having an "Estimated Fee Value"** of between $7,000,000 and $67,057,000; and
WHEREAS, the City of Newport Beach owns land rented/leased to users with
leasehold improvements having an "Estimated Fee Value"*** of between
$89,105,000 and $227,155,000; and
WHEREAS, the City of Newport Beach owns pier space, slips and docks rented/
leased to users having an "Estimated Fee Value"**** of $1,832,000; and
WHEREAS, the City of Newport Beach received an income of $2,694,469 from these
real properties in 1993, for an approximate high return of 2.7% to an
approximate low return of 0.9% on the various estimated fee values; and
WHEREAS, the City of Newport Beach has rights to the Balboa Yacht Basin, 16 oil
wells, an unknown number of moorings and an unspecified amount of parking lots,
rented/leased to users, having an "Estimated Fee Value"***** of $29,750,000;
providing an approximate 1% return on the estimated fee values; and
WHEREAS, the City of Newport Beach has experienced a significant reduction in
revenue each year over the past three years and has consequently had to
increase fees and reduce services in each of those years; and
WHEREAS, the City of Newport Beach needs to enhance revenue collection in any
way acceptable to the citizenry, so as to prevent further reduction in services
and/or increases in fees and/or taxes; and
WHEREAS, the City of Newport Beach City Council has a Duty to see that a market
return is earned on city owned property; and
WHEREAS, the City of Newport Beach recognizes that market return on city owned
real property is at least 7%;
NOW, THEREFORE, BE IT RESOLVED that the Newport Beach City Council hereby
instructs the City Manager to forthwith make and carry out plans to increase
the return on city owned real property so as to reach a 7% return on fee
value(s) as soon as possible; and
BE IT FURTHER RESOLVED t._-c the City Manager forthwith eu.,,ioy appropriate
professional consultants to properly establish the fee values and minimum
acceptable returns upon which the herein stated percentage of required return
is to be based; and
BE IT FURTHER RESOLVED that the City Manager plan and carry out, in so far as
it is legally possible, to bring existing contractual agreements and leases
into conformance with the policy requirement of a 7% return on fee values as
soon as possible; but at least within five (5) years by recovering 20% of the
deficiency in payment(s) collected each year as compared to what should be
collected by application of the herein described required return; and
BE IT FURTHER RESOLVED that wherever the best effort of the City Manager fails
to bring the return up to the required 7% return on fee values, that the
referenced real property(s) be placed on the market, as soon as is practical
and consistent with good market conditions, for sale to the highest bidder;
with the proceeds of sales being invested in a restricted "City Investment
Fund" (principle held in perpetuity), with the interest earned placed in the
City general operating fund; and
BE IT FURTHER RESOLVED that in those cases where there is a Deed or other valid
statutory or other legal restriction on the sale of the real property, that
plan(s) be instituted on passage of this RESOLUTION to bring such property into
conformance with this RESOLUTION as quickly as possible, and that no
contractual agreement extensions and/or lease extensions be negotiated and/or
executed without bringing the return on value into conformance with the
requirements of this Resolution, unless a vote of more than 66.67% of the
electorate voting in a regular City election approves such exception; and
BE IT FURTHER RESOLVED that the City Manager establish a routine procedure for
the regular re -appraisal and valuation of city owned property, with appropriate
adjustment(s) to the required payments based upon the required 7% return on fee
values made annually; and
BE IT FURTHER RESOLVED that the required 7% return on fee value described
herein be annually adjusted by reference to the CPI or other objective
equivalent update technique, so as to keep the return consistent with objective
economic factors and that all agreements have provision for periodic
adjustment; and
BE IT FURTHER RESOLVED that no real property be acquired by the City, by gift
or otherwise, unless there is reasonable expectation that the return on fee
value will at least reach the required return stated herein.
ADOPTED this day of , 1994
MAYOR
ATTEST:
CITY CLERK
*
*** See attached page titled "CITY OF NEWPORT BEACH PROPERTY" for
**** explanation of these references
*****
OF NEWPORT BEACH PROPERTY NTA 4/11/94
Estimated Fee Values Estimated Fee Values
(obtained from Ass't. City Manager) (based upon projection of MAI
Beacon Bay Appraisal)
* Tidelands
Balboa Yacht Club $ 40,000
Harbor Island Leases 380,000
** Unimproved Real Property
38th & Lake Triangle
Lido Bayfront
420,000
57,000
7,000,000
$ 7,057,000
*** Real Property, with Tenant Improvments
$ 40,000
380,000
$ 420,000
57,000
67,000,000
$ 67,057,000
Beacon Bay
58,000,000
58,000,000
Marina Park
10,000,000
21,500,000
American Legion
2,500,000
8,0001000
Balboa Angling Club
250,000
800,000
Balboa Ferry
720,000
720,000
Balboa Bay Club
12,500,000
133,000,000
Balboa Pier (Ruby's)
1,200,000
1,200,000
CDM Beach (Snack Bar)
1,400,000
1,400,000
Newport Pier
(Fisherman's)
1,500,000
1,500,000
44 St House
400,000
400,000
Girl Scout House
300,000
300,000
Nautical Museum
300,000
300,000
Radio Tower
35,000
35,000
$89,105,000
**** Pier Space, Slips and Docks
City/County Docks 1,775,000
Pier telescopes 57,000
$ 1,832,000
***** Yacht Basin, Oil Wells, Moorings and
Parking Lots
Balboa Yacht Basin 10,000)000
Oil Wells (16) 7,250,000
Moorings (unknown no) 7,500,000
Parking Lots 5,000,000
-5ly,/7U,000
$227,155,000
1,775,000
57,000
$ 1,832,000
10,000,000
7,250,000
7,500,000
5,000,000
$ 29,750,000
TOTAL ESTIMATED VALUE $128,164,000 $326,214,000
The values for the Oil Wells, Moorings and Parking Lots are Off —The —Wall
Guestimates, because of lack of information; with no conclusions made
regarding these properties. There is also no accounting for the Ackerman
property.
RECORDING REQUES'
FY S EWART TITI
J
TITLE ORDER NO. 115984-002
ESCROW NO. 8151-J
WHEN RECORDED MAIL TO:
City of Newport Beach
3300 Newport Boulevard
Newport Beach, CA 92658
L I
MAIL TAX STATEMENTS TO:
LCity of Newport Beach
3300 Newport Boulevard
Newport Beach, CA 92658
L
I
J
7.
City Clerk
Deed C. Pl1Gd lli A,f 1;_1 _i n; N;'_i F i_R
No,
i1T a--- _
SPACE AB0VE THIS LIRE FOR RECORDER'S USE
THE UNDERSIGNED GRANTOR(S) DECLARE(s)
DOCUMENTARY TRANSFER TAX is $ 880.00
[XI computed on full value of nrope.rty
conveyed, or.
[ ] computed on full value less value of
liens or encumbrances remaining at time
of sale.
I C O R P O R A T I O N G R A N T D E E D
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
e
WELLS FARGO BANK, NATIONAL ASSOCIATION, a National Banking Association
hereby GRANT(s) to: a.
CITY OF NEWPORT BEACH, a California Municipal Corporation
the real property in the city of Balboa county of Orange, State of California,
described as:
Lots 1 through 6 inclusive in Block 7 of Balboa Tract, in the City of Newport
Beach, County of Orange, State of California, as per map recorded in Book 4, Page
1! of ilisceiianeous i°iaps, in cite office of the County Recorder of Orange l,ouni:y,
California.
More Particularly described as Parcel 1, as shown on a map thereof recorded
in Book 117 page 24 of Parcel Maps in the Office of the County Recorder of
Orange County, California.
ALSO KNOWN AS: 600 East Balboa Boulevard, Balboa, CA 92661
SUBJECT TO THE "PERMITTED EXCEPTIONS AS DEFINED IN THAT CERTAIN
AGREEMENT OF SALE AND PURCHASE OF REAL PROPERTY DATED JUNE 6, 1994,
BY AND BETWEEN GRANTOR AND GRANTEE, AND ALL OTHER 14ATTERS OF PUBLIC
RECORD.
DATED ° -1 1 r / .
STATE OF CALIFORNIA
COUNTY OF Los Angeles
On Yvette Marie Luna, Notary Public
beioit Lue, lL1C uitllC"L�1�nE 1, E1�"St�iLaii� a( �ca.i�u
Barbara Reeve -Bailey and
Mark Addison Ingram
personally 11r:nowll .Ev iir� �o, poi a �� me un ire
basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me
that he/she/they executed the same in
his/her/their authorized capacity(ies), and
that by his/her/their signature(-) on the
instrument the person(s) or the entity upon
behalf of which the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
n! _
Signature Ui �_.,�// �`��°'''✓
WELLS FARGO BARK, NATIONAL
ASSOCIATION, a National Banking
Association
B
MARK ADDISON !NC?�,'^
B MANACING VICE F;E;i-.1.RLET
Y'vEi_TE NUARIE LUNA
rL ' , COMM. #991075
ti] x NOTARY PLI°LIC CALIFORNI.A�p
U LOS AN LES COUNTY
My Co XpirPs April 11, 1997
(This area for official notarial seal)
CERTIFICATE OF ACCEPTANCE
Corporation Grant Deed
This is to certify that the interest in real property conveyed
by the Corporation Grant Deed dated September 7, 1994, from Wells
Fargo Bank, National Association, a national banking association to
the City of Newport Beach, a municipal corporation, is hereby
accepted by the City of Newport Beach, City Manager, on behalf of
the City of Newport Beach, pursuant to authority conferred by
Resolution No. 6773 of the City Council, of the City of Newport
Beach, adopted May 13, 1968, and the Grantee consents to
recordation thereof by its duly authorized officer or agent.
IN WITNESS WHEREOF, I have executed below this ��• day
of September, 1994.
CITY OF NEWPORT BEACH
A Municipal Corporation
By:
K / n Murphy, ity Manager
ub\agr\certaccp.agt
GOVr-PNMENT CODE 27361.7
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NOTARY SEAL ON THE
DOCUMENT TO WHICH THIS STATEMENT IS ATTACHED, READS AS FOLLOWS:
NAME OF NOTARY: va &
DATE COMMISSION EXPIRES: y --// ,
COMMISSION NO.: C 9 /o / �
VENDOR NO.:
% 0�1/
COUNTY WHERE BOND IS PILED:
PLACE OF EXECUTION: IRVINE,
S EWART TITGB COMPP Y
OF CALIFORNIA
CALIFORNIA DATE:
GOVERNMENT CODE 27361.7
I CERTIFY UNDER PENALTY OF PERJURY THAT THE ILLEGIBLE PORTION OF
THE DOCUMENT, TO WHICH THIS STATEMENT IS ATTACHED READS AS
FOLLOWS:
BEFORE ME, THE UNDERSIGNED, PERSONALLY APPEARED
PLACE OF EXECUTION:
STEWART TITLE C(
OF CALIFORNIA
a
VINE, CALIFORNIA
DATE: