3:00pm | You would think that after the disastrous wetlands land-swap deal last year some folks in City Hall would have learned their lesson when it comes to selling city assets.
Well, the beat goes on, and in the latest episode of “Fire Sale Long Beach,” the City Council this week approved the sale of the ten-story City Hall East office building located on the northeast corner of Long Beach Boulevard and 1st Street.
By a 6-2 vote, the Council agreed to sell the nearly 150,000-square-foot 51-year-old City Hall East building and an adjacent 149-space parking structure for $4 million to Lyon Capital Ventures. Councilmembers Schipske and Johnson were the dissenting votes and Councilmember Gabelich was absent.
The terms of the sale would see Lyon pay $2.65 million in cash and City Hall would float the remaining $1.35 million in a ten-year note. Lyon is proposing to convert the office building into 99 residential rental units with ground floor retail.
Despite two members of the public speaking to the issue that the building was being undervalued, the discussion behind the dais focused solely on how the proceeds would be spent.
The proceeds from the sale, according to the agenda information, will go into the city’s personal black hole known as the General Fund.
Councilmembers DeLong, Johnson and Garcia raised questions about using the proceeds from the sale to close the city’s current budget shortfalls, apparently in contradiction of the city policy not to use one-time sources of revenue for operating expenses. City Manager Pat West and Councilmember Lowenthal both took exception to this (the building lies in Lowenthal’s jurisdiction), stating that the city had been trying to sell the building for some time and it was merely coincidence that the city will be afforded these funds in a desperate budget year.
However, neither West nor Councilmember Lowenthal denied that the funds would be used to close a portion of the budget shortfall, both merely stating that the sale was not designed as a budget shortfall solution. Mayor Foster supported this opinion.
The Council never returned to the questions raised by the public about the valuation of the property.
Oddly, the $4 million valuation on the City Hall East building appears to have been set by the developer who is purchasing the building. Sometime late last year or early this year, the city sent out a request for proposal seeking parties interested in redeveloping the City Hall East building. From the language of Tuesday’s agenda item, it appears that the developers that responded were allowed to set the purchase price as part of their bid. Lyon Capital Ventures was “determined to have made the best and highest offer to purchase the building,” according to Tuesday’s agenda item. There is no mention in the City Council documents of an appraisal being done on the property by the city.
The building and a parking lot just north of the parcel were valued at $9 million when the city bought the two parcels back in 2000. Using comparison data from the Los Angeles County Tax Assessor’s office, the parking lot was likely worth somewhere near $1.5 million.
In 2008, when the city contemplated selling the City Hall East building, an initial valuation of $5.1 million was considered for the building before the deal fell through.
It is worth noting that according to rating agency Moody’s Commercial Property Price Index, as of 2010 commercial real estate values nationwide have fallen back to approximately 2003 levels. A separate analysis released this year by the Federal Reserve Board also found that Los Angeles-area commercial real estate property values had fallen to late 2003 levels.
This would seem to indicate that the value of the property–even in light of the recent dramatic drops in property values–should still be at least equal to, if not slightly higher, than the 2000 valuation of roughly $7.5 million ($9 million minus $1.5 million for the separate parking lot), not the $5.1 million considered in 2008 and not the $4 million value agreed to Tuesday.
As additional support for the higher valuation, the Bank of America building immediately north of City Hall East–albeit with a roughly 15 percent larger land footprint–is valued by the County Assessor at close to $8 million based on a 2003 sale. To be fair, the bank building is 22 years newer than City Hall East, but City Hall East has seven more stories of space.
It seems someone at City Hall might have taken the time to look at these kind of rudimentary numbers. They may have realized that the City Hall East property has at least a little more value than the fire sale price being agreed to. Or, if using a calculator was too much, how about just calling a real estate agent?
It is also interesting to note that the three most vocal voices on the dais Tuesday supporting the sale were Mayor Foster and Councilmembers Lowenthal and Garcia, who by chance are the three largest recipients of campaign contributions from Lyon Capital Ventures and its related companies and personnel.
Councilmember Garcia has received $1,850 from Lyon-related entities and personnel, while Councilmember Lowenthal has received $6,500 for her various campaigns.
Taking the lion’s share of Lyon’s contributions, though, is Mayor Foster. Since his first term campaign, Mayor Foster has received $16,050 in contributions from Lyon companies and related individuals. The Lyon network of businesses have also contributed $50,000 to support three past ballot measures touted by the Mayor, including the failed Measure I and the successful 2007 charter amendments that vastly increased the power of the mayor in Long Beach government.
Only in Long Beach could you take a roughly $7.5 million city asset and convert it into a $4 million sale to politically-connected developers and only have two members of the public raise an eyebrow.
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