Review leads to justifying sale of St. Vincent de Paul building

Presentation on city-owned properties turns to St. Vincent de Paul sale
By: 
DARRELL JACKSON, Staff Writer
Photo courtesy of City of Glendale

Sale of St. Vincent de Paul building was justified during recent Council Workshop.

A council workshop presentation aimed at updating councilmembers on city-owned property and assets quickly turned into a justification for the recent sale of the former St. Vincent de Paul building.
The original presentation was to show councilmembers all the available properties the city owns and which were available for sale.
Nearly 10 years after purchasing the old St. Vincent de Paul building at 7018 N. 57th Ave., and more than four years of being empty, the city approved the sale of the structure Oct. 8 to C+D LLC for $25,000 with the caveat that the new owner pay nearly $500,000 for any and all improvements to the building.

Transparency and sale
come into question
During the Oct. 23 workshop, the sale again came to the forefront during discussion of selling city property and the eventual creation of an official council policy for selling city assets.
Currently, the council discusses the selling of city assets during executive sessions (which was done on the St. Vincent de Paul sale) and several councilmembers believe staff should list every city-owned property to the public.
“I think we could be the most transparent by putting a list of parcels on our website. That way, if there are any offers on the properties listed, then we could go into executive session to discuss how to proceed,” Yucca District Councilmember Joyce Clark said. “I would suggest we get them listed on our city website.”
While most councilmembers agreed, they also realized the reasons needed for executive sessions for specific discussions.
“There is a role for executive session for sale of property, and I think what is incumbent on council to determine if we are interested in selling property and the way we may do that,” Barrel District Councilmember Bart Turner said. “If we are dealing with a large retailer, we may want to do it in executive session so it is low profile and we don’t start a bidding war with another city for that type of business.”
Staff is working on a new policy that will show more transparency to the process of selling city-owned property, but councilmembers said more is needed to be done.
“That is what I am asking for and that we list property on the internet, which will be good for transparency,” Turner said. “That doesn’t mean we have to take the first offer, but it also is not one way or another. It is about if someone comes to us with an offer on a parcel of land we own, should we do an (request for proposal), list it with a broker or sell by owner? That is a decision we as a council need to discuss.”
But other councilmembers were quick to point to protecting the city as well as residents of Glendale.
“I would say, keep in mind, the reason for executive session if you have no idea who you are presenting the offer to,” Vice Mayor Lauren Tolmachoff said. “When we present offers in the public arena, we basically have turned over all our cards face up for everyone to see.”
Mayor Jerry Weiers added that while he dislikes being in executive sessions, he now understands what they are for.
“When I became mayor, I hated executive sessions because what people think is that we are working behind the scenes making sweetheart deals, and I quickly realized that is not the case,” Weiers said. “We are trying to protect the citizens’ interests and we all tried to do the best we can with the tools we have. I still don’t like executive sessions, but I understand the reason for having them.”
Council discusses St. Vincent de Paul property sale
Discussion quickly turned to the St. Vincent de Paul building sale, with City Manager Kevin Phelps explaining the complexities of the deal.
“Since we are talking about property and we may be putting other properties on the market, I want to discuss how property is valued,” Phelps said. “There are three ways you get appraisals on assets that they use when considering fair market value.”
Phelps pointed out that banks look at the value of commercial buildings differently than homes by looking at three options — full cost replacement value, comparable market analysis and capitalization rate (cap rate).
He said most commercial buildings are valued by finding the cap rate, which uses a mathematical measurement of how much income a property produces, divided by the amount buildings are acquired for.
“To get the cap rate, you take the net operating income divided by the acquisition price,” Phelps said. “So for example, if a property like the Bank of America building generates $100,000 income and someone were to buy it for $1.3 million, the cap rate would be 7.7 percent.”
Operating income includes what the gross rents received minus property taxes, building insurance, legal services used, management fee (if any), built-in vacancy assumptions and building repair and maintenance.
Phelps then used a “Hypothetical example for vacant building in Downtown Somewhere,” which was basically the same as the St. Vincent de Paul sale.
“You take a 6,500-square-foot building without a valid occupancy permit, on a side arterial road and nearby shops have had above average vacancies,” Phelps said.
To get the value of the building you take the upper range of current market of $6.50 per square foot ($42,250). You then subtract such things as assumed property tax ($6,500); insurance ($3,350); professional services ($500); vacancy rate of 5 percent ($2,275); building repair of 50 cents per square foot ($3,250) to get value of the building at $26,375.
“So you take everything into consideration, the owners would be into this building for north of $550,000 before they open the doors,” Phelps said. “So in the case of St. Vincent de Paul, the sale was tied to bringing the building fully up to code and if they went out to a bank appraisal, it would come in less than $300,000. So then it begs the questions, did we charge too much for the land?”

Talk turns to future sales
Turner was quick to point out that the sales depend on the buyers and what they planned to do with any property purchased from the city.
“I would contend there is no one user or investor who has the ability to refurbish a building at the estimated it at less than the $80 per square foot, who would have had interest in purchasing it at a higher price to some who may have outside contractors,” Turner said. “The point I and others have been trying to make in the community is, if the opportunity like this where not the risk of losing high-profile or sales tax producing business, the public will be better served in advertising in a better fashion and make it a more public process and possibly more offers.”
Phelps said the St. Vincent de Paul building had no certificate of occupancy, no air conditioning, and needed major electrical and building repairs before any business could open.
“We had a user who is willing to commit their own capital dollars in a short timeframe,” Phelps said. “They already had capital and don’t need to go to a bank. Maybe we could have found someone else, but with downtown facing major vacancy issues, we had to ask if there was value in bringing something to market sooner rather than later. In my mind, council made the right decision in that deal.”
Phelps then added that sales tax income for the downtown area is currently approximately $300,000 per year and staff estimates C+D LLC would bring in $30,000 per year alone.
“I think there is a lot of factors that have to come into play, and I get the fact that when citizens see a property sells for $25,000, that it sounds like a bad deal,” Phelps said. “But this one business will increase our collection from the downtown area by 10 percent in one project.”
Phelps said the new policy for assets sales, which is still in its infancy, would become the way council would use to consider assets sales in different situations.
“Take the BMW and Top Golf locations that were city owned properties,” Phelps said. “We may have been able to get more money for those properties, but with BMW, we knew there was north of a million dollars in sales tax that will come to the city for years.”
In reference to Top Golf, Phelps said while the property was not for sale, staff was looking for ways to improve the sports and entertainment district.
“The Top Golf site could have accommodated commercial or an apartment complex, but council has decided they wanted to build up the sports and entertainment district,” Phelps said. “Apartments or commercial may not have leveraged the arena and that property was not on the market, but we focused on a user that would fit in that district and Top Golf is perfect.”
 

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