01-0417_BRANDON, MILES D._C1_Agenda ReportCommunily Redevelopment Agency April 17, 2001
Agenda Item
To: George Scarborough, Executive Director
From: Douglas D. Dumhart, Principal Management Analyst
Subject: Consideration of Owner Participation Agreement - Capistrano Volkswagen
Recommendation:
By motion, approve the Owner Participation Agreement with Capistrano Volkswagen.
Summary:
Capistrano Volkswagen ( Capo VW) currently operates on a 2.4 acre parcel at the end of
Interstate 5. A location map is provided as attachment #1. Capo VW has indicated that
its existing sales volume is approximately $29 million. The owner wishes to expand the
facility leasing an additional 1.2 acres and building a new showroom and service area.
Capo VW anticipates that the expansion will allow sales to increase by approximately $9.5
million.
Capo VW has requested that the Community Redevelopment Agency of San Juan
Capistrano provide $500,000 of assistance for off-site improvements, permits and fees.
The Agency's financial consultant, Keyser Marston Associates (KMA) has received Capo
VW's request and has opinioned that the request for assistance is warranted. KMA's
analysis is provided as Attachment #2.
Staff has prepared an Owner Participation Agreement with Capo VW to reimburse the
owner through Property tax increment. A copy of the agreement has been provided as
Attachment #3 to this report. The amount of the increment reimbursed to the owner is tied
to an incremental sales tax performance measurement.
Background:
The Volkswagen Store was the city's first new car dealership established in 1963 by Bill
Yates. Yates operated the dealership for thirty years until its bankruptcy in 1993. From
1993 to 1997 the store was run as a factory dealership. In 1997 new ownership added a
full time, hands on, local operator. In the first two years under the new ownership sales
jumped from 36 to 121 cars per month. Employees rose from 23 to 50+ and service and
parts have doubled.
The almost 40 year old facility is antiquated, outgrown, and hinders continued prosperity.
The existing facility has an area of 8,300 s.f. on a 2.4 acre site. The owner proposes to
e.P.a
FOR CITY COUNCIL. ADEN 0,1
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Community Redevelooment A-gency: -2- April 17, 2001
Capistrano Volkswagen
add the adjacent 1.2 acre parcel and construct a building addition of 6,800 s.f. This will
bring the store to a total of 15,100 s.f. on 3.6 acres, typical of today's dealerships. The
cost of the expansion necessary to bring the dealership up to competitive standards is
prohibitive. The owner has requested financial assistance from the Agency to make the
project feasible.
This project represents an expansion of operations, not a new development. In that
context, it is traditional to evaluate the incremental costs against the incremental revenues.
KMA utilized this methodology, as well as the supportable costs based on the total sales
given the magnitude of the redevelopment. KMA's calculation of total incremental
development costs including indirect and financing costs are estimated at $2,500,000.
Both the incremental revenues and supportable costs analysis show the project does have
a feasibility gap that justifies the request for assistance.
Financial Consideration:
The $2.5 million dollar expansion will not soley generate enough property tax increment
to cover the feasibility gap. Other property tax revenues from the project area will be
needed to service this agreement. The annual amount of reimbursement to the owner is
tied to a sales tax performance measurement.
Sales Tax Revenues for 1999 and 2000 were $192,411 and $224,262 respectively. Year
2000 results were an all-time record year in the auto industry. Thus, a $225,000 sales tax
benchmark was established. An amount equal to 50% of sales tax revenues above
$225,000 will be reimbursed, but a cap of $35,000 for any one year is the maximum
eligible amount. The reimbursement obligation terminates at the end of 22 years or at
$500,000, whichever occurs first.
Notification:
Mr. Miles Brandon, Capistrano Volkswagon
Alternate Action:
By Motion, approve the Owner Participation Agreement with Capistrano
Volkswagen.
By Motion, approve the Owner Participation Agreement with Capistrano Volkswagen
subject to modifications.
3. By Motion, deny the Owner Participation Agreement with Capistrano Volkswagen.
Community Redevelopment AQenCy: -3- April 17, 2001
Capistrano Volkswagen
Recommendation:
By Motion, approve the Owner Participation Agreement with Capistrano Volkswagen.
Respectfully Submitted,
ooe I *4w�
41as'6umhart
Principal Management Analyst
Attachment 1. Location Map
2. KMA Analysis
3. OPA with Capo VW
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C:\AGENDAS\2001\CRAG pom.pt.3.8.wpd
ATTACHMENT?
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KEYSER MARSTOIV ASSOCIATES INC
500 SOUTH GRAND AVENUE, SUITE 1480
LOS ANGELES, CALIFORNIA 90071
PHONE-. 2131622-8095
FAX: 213/622-5204
MEMORANDUM
To: Mr. Douglas Dumhart,
Principal Management Analyst
City of San Juan Capistrano
From: Keyser Marston Associates, Inc.
Date: February 28, 2001
Subject: Review of Capistrano Volkswagen
Assistance Request
Los Angeles
Calvin E. Hollis, 11
Kathleen H. Head
James A. Rabe
Paul C. Anderson
Gregory D. Soo -Hoo
San Diego
Gerald M. Trimble
Robert J. Wetmore
Paul C. Marra
SAN FRANCISCO
A. Jerry Keyser
Timothy C. Kelly
Kam Earle Funk
Debbie M. Kern
Pursuant to your request, Keyser Marston Associates, Inc. (KMA) has reviewed the request for
financial assistance from Capistrano Volkswagen (Capo VW). Capo VW has requested that
the Redevelopment Agency of the City of San Juan Capistrano (Agency) provide
approximately $500,000 of assistance for off-site improvements and permits and fees.
BACKGROUND
Capo VW currently operates on a 2.4 -acre parcel on the east side of Interstate 5. Capo VW
has indicated that its existing sales volume is approximately $29 million. Capo VW plans to
expand its operation to the adjacent 1.4 -acre site and to build a new showroom and service
area. Capo VW anticipates that the proposed expansion will allow sales to increase by
approximately $9.5 million.
ANALYSIS
The proposed development program is a more intense development of the site than was
proposed by Capo VW in 1999. As we noted in our 1999 analysis, the sales projections, both
for the existing dealership and for the expanded dealership, appear reasonable. These new
sales projections also appear to be reasonable.
ATTACHMENT 2
0102043. SJC.JAR'. gbd
19085.001 006
4DrLSoRs IN:
REAL ESTATE
REDEVELOPMENT
AFFORDABLE HOUSING
ECONOMIC DEVELOPMENT
FISCAL IMPACT
INFRASTRUCTURE FINANCE
VALUATION AND
LITIGATION SUPPORT
Los Angeles
Calvin E. Hollis, 11
Kathleen H. Head
James A. Rabe
Paul C. Anderson
Gregory D. Soo -Hoo
San Diego
Gerald M. Trimble
Robert J. Wetmore
Paul C. Marra
SAN FRANCISCO
A. Jerry Keyser
Timothy C. Kelly
Kam Earle Funk
Debbie M. Kern
Pursuant to your request, Keyser Marston Associates, Inc. (KMA) has reviewed the request for
financial assistance from Capistrano Volkswagen (Capo VW). Capo VW has requested that
the Redevelopment Agency of the City of San Juan Capistrano (Agency) provide
approximately $500,000 of assistance for off-site improvements and permits and fees.
BACKGROUND
Capo VW currently operates on a 2.4 -acre parcel on the east side of Interstate 5. Capo VW
has indicated that its existing sales volume is approximately $29 million. Capo VW plans to
expand its operation to the adjacent 1.4 -acre site and to build a new showroom and service
area. Capo VW anticipates that the proposed expansion will allow sales to increase by
approximately $9.5 million.
ANALYSIS
The proposed development program is a more intense development of the site than was
proposed by Capo VW in 1999. As we noted in our 1999 analysis, the sales projections, both
for the existing dealership and for the expanded dealership, appear reasonable. These new
sales projections also appear to be reasonable.
ATTACHMENT 2
0102043. SJC.JAR'. gbd
19085.001 006
To: Mr. Doug. sumhart, City of San Juan Capistrano February 28, 2001
Subject: Review of Capistrano Volkswagen Assistance Request Page 2
As we noted in our previous analysis, this project represents an expansion of operations not a
new development. In that context, it is traditional to evaluate the incremental costs against the
incremental revenues. We have utilized this methodology again, however, given the
magnitude of the redevelopment we also comment on the supportable costs based on total
sales.
Development Costs
KMA's estimates of development costs are provided in Table 1. We have estimated $60.00
per square foot for the shell costs for the showroom and service area. We have also
estimated $18.00 for dealership FF&E. We have utilized the developer's assumptions for off-
site improvements and demolition and grading. Direct development costs are estimated at
nearly $1,850,000. Capo VW's estimate is approximately $2.35 million. As we noted in our
previous memorandum, Capo VW's costs appear high. We believe that much of the higher
costs relate to creating a branded store concept.
The City should review Capo VW's estimates for permits and fees ($200,000) and off-site
improvements ($297,000 including general conditions, overhead and fee).
Total incremental development costs including indirect and financing costs are estimated at
approximately $2,500,000.
Rent Factor
As we noted in our previous memo, dealerships typically allocate a portion of their gross sales
or a specific dollar amount for each vehicle sold toward occupancy costs. Typical factors are
1.25% of gross sales, $400 per new vehicle sold or $250 per new and used vehicle sold.
These factors are for the dealership as a whole, when looked at on an incremental basis, KMA
still believes that 2.5% of incremental sales or $500 per incremental vehicle sold are
appropriate factors for the expanded dealership.
As shown in Table 2, incremental stabilized sales amount to $9,500,000. Assuming that 2.5%
of sales represent supportable occupancy cost, then the dealership can afford to pay $237,500
for occupancy costs. As shown in Table 2, the annual occupancy costs total $379,000
including debt service on the improvements, land lease for the new parcel and taxes and
insurance. The result is an annual gap of $141,500 and a feasibility gap of $1,400,000.
If examined on a per vehicle basis, the gap is considerably larger. Capo VW estimates that
they will sell an additional 280 vehicles per year. At $500 per vehicle this provides a
supportable rent factor of $140,000. Measured against $379,000 of costs, the project has an
annual gap of $239,000, which translates to a feasibility gap of $2,369,000.
0102043.3JG.JAR:gbd
19085.001 006
To: Mr. Doug�fbumhart, City of San Juan Capistrano February 28, 2001
Subject: Review of Capistrano Volkswagen Assistance Req#t Page 3
Looking only at the incremental revenues, the project has a gap of between $1,400,000 and
$2,369,000. KMA believes that the gap is closer to the lower end of the range rather than the
upper end of the range.
ALTERNATIVE GAP ANALYSIS
Another way to look at this project is to look at the overall sales and rent factor to determine
what the total supportable occupancy cost is. From this amount, the incremental occupancy
costs are deducted to estimate the rent factor that remains to support the existing
improvements. In this case stabilized sales are estimated at $47.5 million. At this level of
sales, supportable occupancy costs at 1.25% of gross sales are $593,750, as shown below.
Stabilized gross sales $47,500,000
Supportable occupancy cost @ 1.25%
$593,750
Less incremental occupancy cost
($379,000)
Revenues to support existing improvements
$214,750
Less existing property taxes and insurance
($35,750)
Supportable existing occupancy cost
$179,000
Supportable existing improvements @ 10.1% $1,772,000
Deducting the $379,000 of incremental occupancy costs leaves $214,750 to support existing
occupancy costs. Deducting an additional $35,750 for existing property taxes and insurance
leaves $179,000 for amortization of existing improvements. This amount supports
approximately $1,772,000 of existing improvements and rehabilitation costs.
KMA has not reviewed the existing facility in detail, however we make the following
observations:
• Rehabilitation of the existing building, excluding indirect and financing costs, is
estimated at approximately $415,000.
The existing facility is approximately 18,700 square feet and may have a cost basis of
$50 per square foot or $935,000.
• The 2.4 acres of land has a minimum value of $9.00 per square foot based on the new
lease or $941,000.
0102043. SJC. JAR gbb
19085 001.006
To: Mr. Dougi eumhart, City of San Juan Capistranc, February 28, 2001
Subject: Review of Capistrano Volkswagen Assistance Req#1t Page 4
The existing facility and its rehabilitation is likely to have a cost basis of more than $2,300,000.
This amount is more than $500,000 greater than the supportable occupancy cost for the
existing improvements. From the perspective of the overall facility, the project has a feasibility
gap of somewhat more than $500,000.
CONCLUSIONS
Capo VW has requested financial assistance from the Agency in the amount of $500,000 to
offset extraordinary development costs for their expanded facility. KMA's analysis indicates
that the project has a feasibility gap that is somewhat greater than this amount. The
incremental development costs, as measured against incremental sales, would suggest a
significantly higher feasibility gap. It is KMA's opinion, however, that the existing sales are
sufficiently high to support a portion of the incremental costs. Therefore, KMA believes that
$500,000 of assistance is warranted for this project.
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TABLE 1
ESTIMATED DEVELOPMENT COST ("CRE SITE) - KNA ESTIMATE
VOLKSWAGON AUTOMOBILE DEALERSHIP DEVELOPMENT
SAN JUAN CAPISTRANO. CALIFORNIA
41
I. Land
156,816 Sq. Ft
$0.00 I Sq. Ft
$0
U. okw coma
OIISite Improvements
Allowance'
$297,000
Demctllon & Grading
Allowance'
53,700
OnSde Improvements
23,000 Sq. Ft
$3.50 I Sq. Ft
81,000
Building Shells
18,121 Sq. FL
$60.00 / Sq. Ft
1,087,000
FF & E
18,121 Sq. Ft
$18.00 / Sq. Ft
326,000
Total Direct Coats
$1,844,700
AIL
Architecture & Engineering
6.0% Direct Costs
$111,000
Public Permits & Fees
10.8% Direct Costs
200,000
Tams, Inwrance, Legal & Accounting
3.0% Direct Costs
55,000
Development Management
2.0% DireclGosa
37,000
Contingency
5.0% Direct Costs
92,000
Total Indirect Coats
$495,000
N. Financism Costs
Construction Financing
Land SO Financed @ 9.50% Interest' $0
Building $2,339,700 Financed@ 9.50% Interest 3 133,000
Financing Fees (Con & Perm) $2,339,700 Loan 2.50 Points 58,000
Total Financing Costs $191,000
V. Total DOW10imnent Coats $2,530,700
Includes 15% for general conditions and contractor overhead
' Assumes 12 month cantructlon period end 100% average barn balance.
' Assumes 12 month ountruceou period and 60% average loan balance.
Prepared By: Keyser Marston Associates, Inc.
Filename: Bwlauderiele\ ValksWagon 4.Ids; Ina PnNorma K; 2/15/01; JAR
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TABLE 2
WARRANTED ASSISTANCE (Based on Incramsntal Saba Increase)
VOLKSWAGON AUTOMOBILE DEALERSHIP DEVELOPMENT
SAN JUAN CAPISTRANO, CALIFORNIA
EsOmeletl Sale Volume
41
RENT FACTOR AS A % INCREMENTAL INCREASE IN GROSS SALES
Percentage of Sales Available for Occupancy Cads
Supportable Ocoupaay Coat
it. Occuuanev costs
Annual Debt Service $2,530,700 Total Costs
Plus: Lend Lamm New Parcel
Plus: Real Estate Tams at 1.0%
Plus: Insurance at 0.25%
Tots, Occupancy Costs
IV. Stabilized Year Occupancy Cost Surplusl(Shor9alq
$9,500.000
2.5%
$237,500
10.1% MC$255,000
84,000
34,000
8,000
$379,000
($141,500)
RENT FACTOR PER INCREMENTAL INCREASE IN CARS SOLD
I. Number of New Cars Sold 280
Rent per Car' $500
II. Mapamum Occupancy Casts
$140,000
(Less)'Land' Lease on New Parcel
(84,000)
(Less) Real Este* Tams at 1.0%
(534.000)
(Less) Insurance at 0.25%
($3,000)
III. Rent AV*Wge to Amortize Cost
$18,000
(Less) Annual Cost 2
($255,000)
IV. Stabilized Year Occupancy Cost Surplus/(Shortfall) ($239,000)
V. Warranted Assistance 10.1% ($2,309,000)
' Assumes cost of money at 9.5ortization period.
2 Rent per car is based on a weighted average of newand used car sales. We acsumvdtlwt a two-Nutls of total a go sales
came fresh new cars and the other one-third from used car sales.
Prepared By: Keyser Marston Associates, Inc.
Filename: I:Avlauderdalel VotksWagon 4.xls; Incr Proforma K; 2/15/01; JAR