RRA - Item 5 - Consideration of Proposal From JR Properties for THe DEvelopment of Northeast Corner Of Temple City Blvd and Valley Blvd as a Food 4 Less Shopping CenterROSEMEAD REDEVELOPMENT AGENCY
A 1 8838 VALLEY BLVD., ROSEMEAD, CA 91770 • (818) 288-6671 • Telecopier 8183079218
Q
TO: HONORABLE CHAIRMAN
AND MEMBERS
ROSEMEAD REDEVELOPMENT AGENCY
FROM: FRANK G. TRIPEPI, EXECUTIVE DIRECTOR
DATE: , MAY 3. 2001
RE: CONSIDERATION OF PROPOSAL FROM JR PROPERTIES FOR THE
DEVELOPMENT OF THE NORTHEAST CORNER OF TEMPLE CITY
BOULEVARD AND VALLEY BOULEVARD AS A FOOD 4 LESS
SHOPPING CENTER
For some time now, most members of the City Council have been extremely interested in
exploring the possibility of the development of a Supermarket within the city, preferably on
Valley Boulevard. Each of you is aware of the efforts of Mr. Robert McCoy to develop the
Eaton Village Center on Valley Boulevard between Temple City Boulevard and Rowland
Avenue. To date, not much has happened. A few weeks back, we were approached by JR
Properties inquiring about the feasibility of siting a Ralph's or Food 4 Less on the Northeast
comer of Valley Boulevard and Temple City Boulevard. Staff and JR Properties have been
working toward a Proforma so the Agency would at least have some idea as to how much
subsidy would have to be put up by.the Agency in order to make a blueprint into reality. I'm
afraid the figures are not too flattering.
Attached is a Proforma from JR Properties that was prepared by Kosmont Partners. They
propose to develop the 6.5 acre site with a 57,000 square foot Food 4 Less and two 3,000
square foot retail pads. As the Agency may recall, JR Properties secured the approval from the
Kroger Corporation (Ralph's & Food 4 Less) for a supermarket location. The developer has
valued the site at $8.00 per square foot and has requested that the Agency consider paying the
difference between the actual cost of the site and the $8.00 per square foot. Appraisals have not
been completed so an accurate estimate of the cost of the project is not available. It has been
estimated by the developer that the cost of acquiring the site would fall within the range of
$15.00 per square foot and $25.00 per square foot. Consequently, the cost of the project to the
RRA would be between $ 2.3 million and $5.8 million. This is illustrated in Exhibit I in the
attached Proforma from the developer. The projected revenue from the project is $104,000 per
year in combined sales and tax increment.
AGENCY AGENDA
MAY 0 S 2001
e ri%6 r~v~.
Food 4 Less Shopping Center
May 3, 2001
Page two
In conclusion, it is very evident that the Agency's/ Council's desire to have a supermarket for its
residents will be based solely on community convenience, not fiscal frugality. In effect, for 20
years, we would get no revenue from the project, that means no sales tax or tax increment. In
addition, the project would run at a deficit of $2.3 million to as much as $5.8 million depending
on which scenario is used for the acquisition. Inasmuch as we have just received an appraisal on
a piece of property on Valley Boulevard that has dictated a price of $45.00 per square foot, the
above cost of a supermarket could go even higher.
We can discuss this matter fully this Tuesday evening.
S 9 213 623 8288 05/03/01 16:01(5 :02/10 N0:847
Memo
1b: Jeff Rothbart, Richard Cisakowski - JR Properties
From: I.arryJ. Kosmont, Ross S. Selvidge and Ron Wade
Subject: Preliminary Analysis of Financial f~casibility and public Assistance Requirements for
Food-4-1.ess Center
Date: 5/3/2001
At your request, Kosmont Partners has prepared this summary of the essential economic
aspects of the proposed grocery-anchored retail center to be located at the northeast comet
of Temple City' Boulevard and Valley Boulevard in the City of Rosemead. The purpose of
this presentation is to provide the Redevelopment Agency with information on which to
base a preliminary policy decision with respect to public assistance for the project.
SUMMARY
ISxhibit 1 summarizes the cost, value and fiscal factors that should be weighed. The non-
land development costs, value upon completion and fiscal revenues to the City and Agency
have been estimated with some confidence. However, there is still a great deal of
uncertainty with respect to the potential cost of acquiring the site and making it available for
the project (e.g., land purchase, relocation, etc). To account for this uncertainty with
respect to the site acquisition cost, four cost scenarios (A, H, C and D) have been presented
for illustrative purposes.
In spite of the uncertainty over the ultimate cost of site acquisition, it is clear that even at
the lowest and must optimistic site cost, the project has a financial feasibility gap. In other
words, the cost of the project exceeds the value of the project when a normal rate of return
is applied to the investment income the project is expected to produce. 't'hat gap would
have to be bridged by some form of public assistance for it to be undertaken by any
developer. What Exhibit 1 illustrates is the possible range of the assistance that would be
required at several levels of total site acquisition cost.
Exhibit 1 also presents an estimate of the total of the two principal fiscal revenue streams
that the project could generate for the City and Agency (sales tax and property tax
increment respectively). As can be seen, however, the present value of the total stream of
project-generated fiscal revenues does not equal the financial feasibility gap for the three
highest site acquisition cost scenarios (B, C and D). If the total necessary amount of public
601 S. Figueroa Street Suite 3550 Lob Angeles California 90017 ph 217.813.8484 1x 213.623.8288 www.kosmont.com
369 Third Slreel Suite 219 San nalael Cailtornia 941101 ph 415.457.4433 h 415.458.7537 www.hosmont.com
ERS
T 213 623 8288 05/03/01 16:01 ~ :03/10 N0:847
assistance were to be provided for those three scenarios, it would require a commitment of
fiscal resources beyond those generated by the project alone. An estimate of the annual
fiscal revenue flows from sales tax and property tax increment generated by the project is
presented in Exhibit 2:
SITE ACQUISITION
The site acquisition cost will have two principal components. The first is the purchase price
from the current owners. Because several of the parcels are currently occupied, there will
also very likely be relocation costs associated with their moving their businesses to other
locations. Both the potential cost of purchasing each parcel and the cost of relocation arc
speculative at this time. Anecdotal information on recent transactions along Valley
Boulevard would suggest that the market for land is somewhat inflated.
DEVELOPMENT COST, VALUE AND TAX INCREMENT
In the scenarios in the Exhibit 1 illustration, the total cost of making the site ready for
ground leasing to the grocery and pad tenants (exclusive of the land purchase price and
relocation expenses) is estimated at from $2.6 million to $3.6 million. This range of costs is
due primarily to changes in carrying (i.e., financing) costs associated with the range of land
purchase prices. 't'hese non-land costs include the cost of a letter of credit in an amount
sufficient to cover the potential maximum expense of the site acquisition and relocation of
existing occupants.
Exhibit 3 presents the square footage of the site and a breakdown of the prospective
tenants in the project. Exhibit 4 presents a computation of the property tax increment
haled on an estimated value of $8.2 million upon completion and an estimated assessed
value of $2.9 million when the Project Area was created. The total value upon completion
is equivalent to approximately $130 per square foot for the entire 63,000 square foot center.
The breakdown of the property tax increment into the housing set-asides, pass-throughs
and unrestricted amounts for the Agency are presented in Exhibit 5.
It should be noted that the actual property tax increment figure will vary depending on the
new assessed value that ultimately appears on the tax rolls and verification of the assessed
value of the entire site when the Project Area was established. Either type of adjustment is
likely to be relatively small and unlikely to make a material difference in the policy
implications of this analysis.
Over the 20-year term of the projection, the total unrestricted property tax increment
estimate totals approximately $782,000.
SALES TAX
The project will generate sales tax revenue for the City equal to 1% of the taxable sales
occurring from the project. Exhibit 6 presents a projection of the sales tax revenues based
on typical levels of sales for tenants of the type contemplated. An allowance has been made
601 S. Fl9uer08 SOael Su110 3550 Os Angelas California 90017 ph 413.8718484 N213,623.9288 w-- kosmonl,com
369 Third Sireel Suite 219 San Rafaal California 94901 ph 415.457.4433 fr 415.456.7537 www. kosmoni.cmri
KOSMONT PARTNERS
kostannt
partaeer
T 213 623 8288 05/03/01 16:01 Q :04/10 NO:847
for the non-taxable component of the grocery store sales. For the 20-year projection, the
sales have been increased by a 2% annual factor. 'I'he sales tax revenues are estimated to
range from approximately $72,000 in the first year to $107,000 in the twentieth year.
CONCLUSIONS AND POLICY IMPLICATIONS
fR properties is prepared, on an exclusive basis, to negotiate and execute an agreement for
the redevelopment of the site. However, unless the Agency is willing and able to fund the
necessary public assistance, it is not sensible for the developer and Agency to proceed.
As indicated earlier, the amount of the financial feasibility gap is still uncertain. We have
included as Scenario 13 in Exhibit 1, what may be an overly pessittustic version of the site
acquisition costs. If the actual site acquisition costs are closer to those represented by
Scenario C, the total gap that would have to be bridged by public assistance would be
approximately $4.0 million. Net of the present value of the fiscal revenues that are
estimated to be generated by the project itself for the City and Agency over the first 20
years, the necessary commitment from other sources would equal approximately $2.9
million.
If the Agency considers the assistance levels indicated in Exhibit 1 to be manageable, JR
Properties and the Agency should proceed to the next step and reach agreement on terms
for an exclusive right to negotiate for the acquisition of the site.
601 S. Figueroa Speel Suile 3550
Los Angeles California
90017
ph 113.613.8484 Ix 211623.8288
www.kosmonl.com
369 Third SIrm Suite 219
San Rafael California
94901
P11415.457.4433 11415.456.75J7
www.kosmnm nom
KOSMONT PARTNERS
213 623 8288 05/03/01 16:01 N :05/10 NO:847
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Exhi it 2
ROSEMEAD FOOD 4 LESS CENTER
TOTAL ANNUAL REVENUE
Unrestricted Total
Agency Sales Tax
Year Fiscal Retail Sales Property Tax and Properly
No. Year Tax Increment Tax
1
2003
$72,000
$32,000
$104,000
2
2004
73,000
33,000
106,000
3
2005
74,000
34,000
108,000
4
2006
75,000
35,000
110,000
5
2007
77,000
34,000
111,000
6
2008
79,000
35,000
114,000
7
2009
81,000
36,000
117,000
8
2010
83,000
38,000
121,000
9
2011
85,000
37,000
122,000
10
2012
87,000
38,000
125,000
11
2013
89,000
39,000
128,000
12
2014
91,000
41,000
132,000
13
2015
93,000
40,000
133,000
14
2016
95,000
41,000
136,000
15
2017
97,000
43,000
140,000
16
2018
99,000
44,000
143,000
17
2019
101,000
44,000
145,000
18
2020
103,000
45,000
148
000
19
2021
105,000
47,000
,
152,000
20
2022
107,000
46,000
153,000
20-Year Total
$1,766,000
$782,000
$2,548
000
20-YrNPV@8,0%
821,000
365,000
,
1,186,000
Note: Taxes and revenues increased by 2% annually
Source: Kosmont Partners
KOSMONT PARTNERS
213 623 8288 05/03/01 16:015 :07/10 N0:847
Exhibit 3
ROSEMEAD FOOD 4 LESS CENTER
DEVELOPMENT PROGRAM
Land Area
Number of Acres 6.50
Number of Sq Ft 283,140
Building Area (SF)
Food 4 Less
57,000
Retail (pad)
3,000
Retail (pad)
3,000
Total Retail 63,000
Total Building Area 63,000
Source: Kosmont Partners
KOSMONT PARTNERS
213 623 8288 05/03/01 16:01 Q :08/10 NO:847
Exhibit 4
ROSEMEAD FOOD 4 LESS CENTER
ANNUAL PROPERTY TAX REVENUES
Assessed Value Upon Completion $8,200,000
Project Area Base Assessed Value 2,900,000
Incremental Assessed Value $5,300,000
Assessed
Total Tax
Year
Fiscal
Value of New
Increment @
No.
Year
-Development a
1.0123% . b
1
2003
$5,300,000
$54,000
2
2004
5,406,000
55,000
3
2005
5,514,000
56,000
4
2006
5,624,000
57,000
5
2007
5,736,000
58,000
6
2008
5,851,000
59,000
7
2009
5,968,000
60,000
8
2010
6,087,000
62,000
9
2011
6,209,000
63,000
10
2012
6,333,000
64,000
11
2013
6,460,000
65,000
12
2014
6,589,000
67,000
13
2015
6,721,000
68,000
14
2016
6,855,000
69,000
15
2017
6,992,000
71,000
16
2018
7,132,000
72,000
17
2019
7,275,000
74,000
18
2020
7,421,000
75,000
19
2021
7,569,000
77,000
20
2022
7,720,000
78,000
20-Yr Total
$1,304,000
a, Assessed value increased by 2% annually
b. Per Los Angeles County property tax assessor records
Source: Kosmont Partners
Rosemead DUA2
5/3/2001 11:42 AM
KOSMONT PARTNERS a 213 623 8288 05/03/01 16:01 (5 :09/10 NO:847
Exhibit S
ROSEMEAD FOOD 4 LESS CENTER
PROPERTY TAX COMPONENTS REVENUES
Total
Agency
Pass-Throughs
Unrestricted
Year
Fiscal
Property Tax
Housing
to Other
Agency
No.
Year
Increment
Set-Aside
Entities
Share
1
2003
$54,000
$11,000
$11,000
$32,000
2
2004
$55,000
11,000
11,000
33,000
3
2005
$56,000
11,000
11,000
34,000
4
2006
$57,000
11,000
11,000
35,000
5
2007
$58,000
12,000
12,000
34,000
6
2008
$59,000
12,000
12,000
35,000
7
2009
$60,000
12,000
12,000
36,000
8
2010
$62,000
12,000
12,000
38,000
9
2011
$63,000
13,000
13,000
37,000
10
2012
$64,000
13,000
13,000
38,000
11
2013
$65,000
13,000
13,000
39
000
12
2014
$67,000
13,000
13,000
,
41
000
13
2015
$68,000
14,000
14,000
,
40
000
14
2016
$69,000
14,000
14,000
,
41
000
15
2017
$71,000
14,000
14,000
,
43
000
16
2018
$72,000
14,000
14,000
,
44
000
17
2019
$74,000
15,000
15,000
,
44
000
18
2020
$75,000
15,000
15,000
,
45
000
19
2021
$77,000
15,000
15,000
,
47
000
20
2022
$78,000
16,000
16,000
,
46,000
20-Yr Total
$1,304,000
$261,000
$261,000
$782
000
Percent
Share
20.0%
20.0%
,
60.0%
Note: Percentages utilize AB 1290 allocation formula for pass-throughs and set-aside fund
Sources: Rosemead City staff, and Kosmont Partners
Rosemead DDA2
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