Ukiah City Council Members respond to charges of an “ill conceived and unrealistic land development scheme”

Ukiah City Council Members

August 6, 2009 Ukiah Valley, Mendocino, North California

We are writing this letter in response to Robin Collier’s column of August 2 in the Ukiah Daily Journal [A cleverly disguised bailout – see below], which criticized the Ukiah City Council for its purchase of property at the Airport Business Park (ABP). We do not want to take the space here to respond to each point raised in Ms. Collier’s letter because her points focus solely on the technical aspects of the deal. In this letter, we, as individual council members, want to make a much larger, significant point about the deal and why the city council supported it.

Suffice it to say here, in response to the specifics of Ms. Collier’s letter, that the council worked for approximately six months to put this deal together. We consulted with experts in assembling projects using redevelopment funds. We consulted with financial advisors. We used sound market data as a basis for determining the purchase price and we believe that we will be able to turn around and sell the land at a price that is attractive to developers. Since the City Council voted to approve the purchase, the City has received an average of one inquiry per week from commercial real estate agents and developers. Our belief in the soundness of our deal appears to be supported.

Our cost/square foot estimates of sales tax revenue derived from the project are available for review by the public. We believe these figures are prudent and realistic. In regard to Ms. Collier’s criticism of the City’s purchase option, we structured that aspect of the deal to stimulate development of the land as soon as possible—discouraging owners from sitting on their property.

The bigger point that we wish to make here is that the city council got behind this idea because we want to be proactive in determining how this community grows, in retaining successful businesses, and in securing a stable future for the City. We did not want to sit back and let outside forces determine our future. Of course there is risk in being proactive like this! But there is also a risk, and we felt a much greater risk, in doing nothing.

Redevelopment funds exist for cities to be able to assemble land to catalyze economic development. Cities do this all the time, but it will be a first for Ukiah. Kudos to our staff in seeing the opportunity at the Airport Business Park and for consummating this extremely complicated deal. We are hopeful that the California Redevelopment Association is successful in protecting cities’ redevelopment funds from State raids. Regardless of the outcome of this State-level dispute, the council is committed to focus our redevelopment funds on the downtown core. The anticipated success of the land purchase at the ABP will give us broader financial footing from which to proceed.

A cleverly disguised bailout

By Robin Collier
Another Voice

SUNDAY, AUG. 2, 2009, p. A-7

Ukiah Daily Journal

The Ukiah City Council has once again puffed it’s collective chest and said “We know what is best” and has this time entered into a foolhardy and potentially disastrous agreement to purchase land on Airport Boulevard using RDA (taxpayer) funds. This purchase agreement contains “buy back” provisions and expensive “options” that primarily benefit the current owners/sellers of the property (some of whom are professional developers). Additionally, the entire agreement has been structured in such a way that it will be virtually impossible for the City to perform its development obligations under the contact and will most assuredly result in the loss of valuable RDA money.

Citizens of Ukiah need to wake up and ask their City Council, “Who structured the terms of this agreement and why in the world do you think this is a good use of RDA funds that will benefit the taxpayers?”

Most Ukiah citizens believe that the City Council/RDA is simply buying land to accommodate 250,000 square feet of future retail development on Airport Blvd. What the public doesn’t realize and the City/RDA has failed to adequately disclose is that if the City/RDA is not successful in getting at least 120,000 square feet of space developed (to the point of permits) within the next three years, the City/RDA potentially loses not only the property (at a loss, in a buy back provision given to the current owners) but also a significant amount of additional taxpayer money will be lost in the form of an overpriced, non-refundable option to purchase additional land.

In effect, the City/RDA is wagering as much as $1.4 million dollars on the chance that they can accomplish in three years what it takes seasoned, professional developers years to accomplish. And, City Manager Jane Chambers admitted at the June 17, 2009 City Council/RDA meeting that the city doesn’t even have a prospective tenant for the site!

Here are some important issues with the agreement that citizens need to understand and question:

1. The price the City/RDA is paying for the purchase of the initial 18 acres comes in at $4.43 per sq ft, not the $3.50 per square foot reported by City Manager Jane Chambers in the Ukiah Daily Journal.

2. Under the repurchase agreement, if the City/RDA has failed to develop at least 120,000 sq ft of retail building space within three years, the City/RDA could be forced to sell the land back to the sellers for $3.50 per square foot (a loss of $.93 per square foot. This will result in a loss to the City/RDA of $733,537. This option alone meets the definition of high risk and makes the entire purchase agreement a very speculative land development deal at best. At worst, this purchase agreement is a foolhardy and potentially wasteful expenditure of public funds.

3. The City of Ukiah/RDA has also purchased an “option” to buy (within the next 3 years) an additional 14.75 acres on the west side of Airport Blvd. The cost of the option is $705,126 and is nonrefundable. Additionally, the $705,126 “option” will not be applied towards the purchase price of the land on the west side of Airport Blvd IF and when the City/RDA chooses to buy it. The current owner will keep this extra $705,126 whether or not the City/RDA ultimately decides to purchase the additional land. The City/RDA cannot exercise this option unless it has developed to the point of permits that same 120,000 square feet of retail space listed above. Even then, if the City/RDA exercises that option, they have agreed to pay “Market Price” for the land based on an independent appraisal at the time of the purchase (assumably in three years). This likely will be the same $4.43 per sq ft they are paying for the 18 acres on the east side of Airport Blvd. since the City/RDA will, in essence, be establishing the comparable sales price that will be used in any future appraisal.

4. Where will the additional nearly $3 million for this future land purchase come from? If the State of California (as part of the compromise to settle the budget crisis) raids the unused RDA monies to help meet it’s budget short fall, there may not be enough RDA money left to purchase this property on the west side of Airport Blvd. If this happens, the $750,000 “option” will be gone and the City/RDA will have nothing (not even the land) to show for it.

5. The tax revenue projections estimated by the City/RDA for this potential retail development are far in excess of what is realistic in this market. Retail averages $300-$500 per square foot. It is assumed by many in town that the City is purchasing the property in an [to] attempt to attract Costco to Airport Blvd. It should be noted that only an average of 65% of Costco’s sales are taxable. So, in order for the City’s tax revenue projections to be accurate, all additional retail projected for the Airport Park will have to generate over $1,000 per square feet in taxable sales. What are the chances of that happening? The City’s “projections” are grossly exaggerated. Even D D R / M e n d o c i n o Crossings (who the Ukiah City Council has criticized as making exaggerated claims) is not projecting this kind of sales tax revenue and it should be noted that they are proposing over 550,000 square feet of retail while the City/RDA is proposing only 250,000 square feet of retail.

6. At the close of escrow, the City/RDA has included an agreement to “share” with the sellers on a 50/50 basis any future profit on the sale of this land over $3.50 per square foot. With this agreement, the chances of the City/RDA recouping their original investment goes down even further. Here is a scenario: Let’s say the City is able to sell the land to a third party for $4.00 a square foot. They will still have to “share” half of that $.50 per square foot “profit’ with the original seller. In this case, the seller will make an additional $.25 per square foot (over and above what he or she has already been paid) and the City (even after making a $.25 per square foot “profit”) will still have a loss of $.68 per square foot on their original investment. The City/RDA is paying over market value for the land, taking on ALL the potential for loss and offering the sellers an opportunity to make even more money (thru the 50/50 sharing provision) even as the City/RDA loses money. Who’s idea was this and would the members of the Ukiah City Council be willing to enter into this agreement using their own money?

Despite tremendous public concern including that of Mendocino County Tomorrow) at the special meeting of the Ukiah City Council/RDA on Monday night, the City Council chose to move ahead with this ill conceived and unrealistic land development scheme. With a nod of agreement from their pal, County Supervisor John McCowen, the Ukiah City Council showed it has no problem with the reality that the tax payers will likely wake up three years from now and find that over $1.4 million dollars of RDA funds were wagered and lost by their City Council/RDA.

Mendocino County Tomorrow applauds the City for looking at ways to generate additional revenue and appreciate their efforts to this end. We also are very much in favor of the development of the Airport Parkway, however, this proposed purchase by the City/RDA amounts to little more than a “bail out” of the current property owners/developers and will, in all likelihood, primarily benefit the current owners/developers not the taxpayers of Ukiah.

Since the City/RDA is reluctant to fully disclose this to the taxpayers, it is important that the taxpayers review the terms of the purchase and question their City Council on what motivated them to enter in to such a monstrously unfavorable agreement and the citizens need to do it prior to the close of escrow on August 7, 2009. That is less than one week from now.

The bottom line is simple: Speculative commercial development should be left to the professional developers. The current owners of the property have been unable to get the necessary 120,000 square feet of retail space developed in the 15 plus years they have owned it. Why does the City think it can be successful within 3 years where the current property owners/developers have failed? The City should focus on using RDA monies to assemble land in our blighted downtown rather than wasting it on bailouts for Airport Blvd. developers.

Whether you like the Mendocino Crossings project or not, this proposed RDA purchase is a BAD DEAL for the citizens of Ukiah.

Robin Collier is on the board of Mendocino County Tomorrow, a group of local residents formed to promote the Mendocino Crossings project

One Comment

As they say, “The devil is in the details”, and Ms. Collier’s letter gives us plenty to think about. Her points are specific and raise some disturbing questions. For instance, who are the current owners?

Of course “outside interests” will play a large part in determining our future. Ukiah doesn’t exist in a vacuum. The City Council’s decision to reply with a statement defending their noble intentions, rather than addressing the actual issues, is apparently par for the course at this point in our collective disintegration (As above, so below). But it doesn’t inspire much confidence in the ultimate wisdom of this particular deal.