Item Number: 5
Title: Review, consideration and possible approval of a two month extension of the Exclusive Negotiating Agreement between the City of Sparks, the Redevelopment Agency of the City of Sparks and 1864 Real Estate Development LLC for the redevelopment of 916 and 918 Victorian Avenue
Petitioner/Presenter: 1864 Real Estate Development LLC/Community Services/Armando Ornelas, City Planner
Recommendation: Staff recommends that the City Council and Redevelopment Agency Board approve the proposed two month extension of the Exclusive Negotiating Agreement
Financial Impact: None
Business Impact (Per NRS 237):
A Business Impact Statement is not required because this is not a rule.
Agenda Item Brief: On March 26, 2012 the City Council and Redevelopment Agency Board approved a six month Exclusive Negotiating Agreement (ENA) with 1864 Real Estate Development LLC. The ENA granted 1864 Real Estate Development an exclusive opportunity to prepare a proposal to redevelop the two parcels at 916 and 918 Victorian Avenue owned by the Redevelopment Agency for a restaurant and bar use and, if the proposal is approved by the Agency Board and City Council, to acquire and redevelop the property accordingly. This agenda item asks the City Council and Agency Board to consider and approve a two month extension of the ENA.
Background: On March 26, 2012 the City Council and Redevelopment Agency Board approved a six month Exclusive Negotiating Agreement (ENA) with 1864 Real Estate Development LLC (the “Developer”). The ENA granted the Developer an exclusive opportunity to prepare a proposal to redevelop the two parcels at 916 and 918 Victorian Avenue (the “Property”) owned by the Redevelopment Agency for a restaurant and bar use and, if the proposal is approved by the Agency Board and City Council, to acquire and redevelop the property accordingly. The term of the ENA can be extended only with the approval the Agency Board and City Council. This agenda item asks the City Council and Agency Board to approve a two month extension of the ENA.
Analysis: The ENA requires that the Developer submit a proposal and that a Disposition and Development Agreement (DDA) be negotiated and presented to the Agency Board and City Council for consideration within six months. The six month period runs through September 26, 2012. In preparation for City Council and Agency Board consideration of the DDA, and in accordance with Nevada redevelopment law and the Agency’s adopted policies for the disposition of land, Agency staff commissioned a new summary appraisal of the Property to establish the market value of the Property. The appraisal, prepared by the firm of Johnson-Perkins & Associates, was delivered to Agency staff at the end of August and provided to the Developer the following week. The new summary appraisal opines that the market value of the Property is $90,000, which is less than half of the $200,000 value attributed to the property in the previous appraisal, prepared in May 2011, also by Johnson-Perkins & Associates. The summary appraisal must still be reviewed by a second appraiser.
While the Developer has submitted a project proposal as required by the ENA, the Developer was assuming the Property would have a market value of approximately $200,000. The sharply lower appraisal is of concern to the Developer, who has already been through the underwriting process for a SBA loan guarantee. For loan underwriting purposes, the market value of the property is considered equity, enabling the Developer to leverage debt and reserve their cash equity for development costs. The lower appraisal value may thus affect the Developer’s loan-to-value ratio, the amount of cash equity the lender may require and ultimately the Developer’s ability to obtain sufficient financing for the project.
Based on their previous analysis, the Developer was going to request that the Agency provide them the Property for less than market value (i.e., “write down” the Property’s value). The lower appraised value raises the question for the Developer of whether to still ask the Agency Board and City Council to write down the value of the property to a nominal amount. As per NRS 279.500, if the Agency provides property for development at less than the fair market value of the property, the Agency must include a prevailing wage requirement in the development agreement. This can potentially significantly increase the Developer’s construction costs. The Developer has indicated they need to do additional analysis of their construction cost estimates to determine whether asking for the land write down and paying prevailing wage rates still enhances the project’s feasibility or whether, alternatively, the project is more feasible if the Developer pays the Agency the fair market value for the Property and is not subject to prevailing wage requirements.
The two month extension of the ENA’s term is therefore requested to enable the Developer to: (a) determine the effect of the lower appraised value on loan underwriting for the project; (b) further analyze the effect on project feasibility of seeking a land write-down from the Agency; and, (c) revise their project proposal and complete negotiations with Agency staff for a DDA.
Alternatives: Alternatives to the staff recommendation including modifying the terms of the proposed extension to the ENA or rejecting the amendment and terminating the ENA.
Recommended Motion: I move to approve a two month extension of the Exclusive Negotiating Agreement between the City of Sparks, the Redevelopment Agency of the City of Sparks and 1864 Real Estate Development LLC for the redevelopment of 916 and 918 Victorian Avenue.
ENA extension 9-24-12.pdf
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