Subject: Status of Old City Buildings McLean House, Robinwood Station, Old City Hall, Bolton Station

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1 Memorandum Date: June 20, 2018 To: From: CC: Mayor and City Council Tim Ramis, City Attorney Eileen Stein, City Manager Tim Ramis, John Williams, Ken Worcester, Lauren Breithaupt Subject: Status of Old City Buildings McLean House, Robinwood Station, Old City Hall, Bolton Station Today, I finally had a chance to meet with staff and figure out where we re at with our various city buildings that have been the subject of much and discussion before and after the passage of the 2018 General Obligation Bond. This will be helpful for the Council Request Tracking Log discussion at your meeting on 6/25 and your 7/23 discussion on the bond project list. McLean House Use Agreement Master Use Agreement template provided to McLean House Board. The board has gone through a reorganization and we are waiting for this to be complete to further discussions about a new use agreement. Robinwood Station This is a status report on the list of needs from the November 30 meeting with FORS: Master Plan FORS will provide a final master plan for the site. City will take master plan to Council for approval. Originally scheduled for 1 st Qtr 2018, but it makes more sense to do this along with the building assessment. McKenzie is under contract and expects to complete the assessment by early August. We are targeting a September work session (9/17) to present to Council. Fees Schedule Robinwood Station rental/fee structure will be incorporated into the City s next master fee schedule update. Done. Approved on 6/15/18. Liability Insurance City will provide the amount for liability insurance (same as McLean House). Done. Rules of Use Rules of use will be scheduled for approval by City Council. Will be scheduled with Master Plan approval. Originally scheduled for 1 st Q Submitted but needs to be approved, will schedule for 8/6. Usage Fees Retained for Complete Future Use Will be incorporated into Use Agreement. See note below re Use Agreement. 1 of 3

2 Page 2 City of West Linn Memorandum WiFi City has provided WiFi equipment, FORS will pay for license. (City will arrange for same with Friends of McLean House.) Done. WiFi Activation City will activate. Done. Use Agreement A new Use Agreement will be prepared for approval by the City Council. Originally waiting to finish McLean House, but went ahead and gave same template to FORS. This occurred on 5/7/18. Waiting on response from FORS. FORS Request for $21,800 for building assessment by McKenzie City will evaluate McKenzie proposal and solicit two additional quotes from Todd Eisland and KPFF (Request for quotations is required by the City s procurement policies). KPFF and Eisland ultimately decided not to submit quotes. McKenzie s bid expired, but they resubmitted. McKenzie now under contract and will take approximately 6 weeks (August) Robinwood Station in City s Rec Guide FORS will send artwork. City will incorporate Robinwood Station. Done Repair Fair City will assist in advertising next Repair Fair at Robinwood Station. Done. Repair Fair Fall 2017 City will submit last Repair Fair for LOC Local Focus article. In progress. Acquiring new data from FORS and submitting to LOC. Old City Hall Following the completion of the City Properties Task Force process, the City issued two Requests for Proposals/Ideas (RFP/I) for the Old City Hall and for Bolton Station. It has been my understanding that the Council recognized we would work first on Old City Hall because of the timeliness of a grant opportunity with Clackamas County Tourism (CCT) to locate in the building along with other nonprofit partners. Lease to CCT and Other NonProfits CCT ultimately decided to lease elsewhere, but there has been some speculation about whether there is still a grant source to help the other nonprofits locate in the building. John Williams will follow up with Danielle at CCT. Commercial Appraisal Following the discussion last year, Ken was approached by a firm willing to do the work and a Statement of Value was recently completed. Attached. See also 6/20/18 4:40 p.m. from Ken. Gas Station Purchase There was a question about whether bond funds could be used to purchase the gas station next door. Bond counsel opined this would not be an appropriate use of bond funds. There is no other source of funding for this purchase, and no budget appropriation to do so. Use of Building for Costume Storage There has been a suggestion the Historical Society costume inventory could be moved to this building to make room for a preschool at Bolton Station. TBD depending on outcome of discussions about Bolton Station use.

3 Page 3 City of West Linn Memorandum Bolton Station The City s RFP/I process yielded one proposal to use Bolton Station for a relocated West Linn Community PreSchool and West Linn Food Pantry. As noted, this proposal was second in priority due to the emergent opportunity with the other building. PreSchool and Food Pantry Use I am working with staff to gather information to better understand the land use, regulatory, legal and financial issues associated with this use. The goal was to submit this information in time for the Council s July 23rd work session on the bond project list. Consistency with Other City Facilities Programmed by Private User Groups The proposal received to use Bolton is similar in nature to other private users of city buildings. Likewise, the same structure should be followed. This would involve the following: Partner NonProfit (e.g. McLean House Board, FORS) Master Plan Done. Needs approval by the City Council. Building Assessment We are looking into the possibility of McKenzie doing this also which will depend on the proposed use of the building. See above and 6/20/18 4:40 p.m. from Ken. Fee Schedule (incorporated into City s Master Fees & Charges Document) Liability Insurance Rules of Use Usage Fees Retained for Complete Future Use Use Agreement Other Needs/Issues Relative to the Specific Use Other than a Master Plan proposal which has been submitted, all of these other elements have yet to be worked on.

4 Mr. Ken Worcester City of West Linn Salamo Road West Linn, OR RE: BROKER OPINION OF VALUE FOR FORMER POLICE STATION AND CITY HALL AND FORMER BOLTON FIRE STATION SITES Dear Ken: Thank you for the opportunity to prepare a Broker s Opinion of Value (BOV) for both the former Police Station and City Hall site as well as the former Bolton Fire Station in West Linn. The intent is to estimate the probable sale or lease price of the properties if they were placed on the market for sale or lease today in their current, asis condition. As we are licensed realtors only in the State of Oregon, this BOV is not intended to meet the requirements set out in the Uniform Standards of Professional Practice; and, this BOV is not intended as an appraisal. If an appraisal is desired, the services of a competent professional licensed appraiser should be obtained, of which we are happy to provide a referral. The following pages provide a brief summary of the buildings and the current real estate market conditions. Based upon the physical inspection and reports provided, the total building areas are indicated at approximately 7,000 square feet for the Police Station and City Hall and 5,500 square feet for the Bolton Fire Station. These buildings occupy desirable locations near the intersections of Highway 43 and Willamette Falls Drive, and Highway 43 and West A Street, respectively. According to CoStar s 1 st Quarter 2018 Office Report, the overall office vacancy rate of 5.6% in the Lake Oswego/West Linn Submarket has decreased from 6.8% in the 4th Quarter The overall Portland Metro vacancy rate is reported at a startlingly low 6.7%. The immediate neighborhoods are primed for redevelopment and new investment due to the success of Oregon City Main Street, lack of office and land supply along Highway 43, as well as the redevelopment of the Oregon City side of the falls in the near term. Furthermore, business owners are seeking opportunities to provide a unique and different environment for employee recruiting and retention. We are confident that the market conditions are currently very favorable to bring both properties to disposition on the open market. For those companies that can meet current lending standards in today s available lending market interest rates are still at alltime near lows. In addition, part of the Federal Stimulus Package provides waivers of loan fees for SBA guaranteed loans, a functioning segment of the financial markets. The recovery is still strong and there is significant multifamily housing construction occurring throughout the region and rental rates for all commercial property types continue to trend upward. It is anticipated that this will continue as the business environment continues to improve, making ownership even that much more appealing. Methods of Valuation: The primary means of arriving at a marketing price include a comparison to other recent building and land sales, and using a rent analysis in conjunction with a capitalization rate. A third but generally less reliable method evaluates current land and building costs to duplicate the building and then application of depreciation based upon the building s age. The subject properties are somewhat unique in their locations and generous zoning uses allowed.

5 Page 2 of 13 Below, we will present each Opinion of Value separately as both properties will highly differ in their pricing strategy and audience of potential buyers FORMER CITY HALL AND POLICE STATION Direct Sales Comparison: We have reviewed a number of recent sales which occurred between January 22, 2015 and October 13, 2016 and which are reasonably comparable to the subject. The following four sales are considered the most similar with regards to physical features, use and are located within the same competitive market for office property sales. No. Address Price/SF Date of Sale Size (SF) Year Built Main St. Oregon City, OR $ /22/2015 5, Main St. Oregon City, OR $ /06/2016 6, rd St Lake Oswego, OR $ /26/2015 5, Holly St. West Linn, OR $ /13/2016 2, These recent building sales exhibit a wide range of $ to $ per square foot. Sale 1 is located in Downtown Oregon City and is the oldest and lowest priced transaction of the comparable sales available. While the building has a similar location to the subject property, adjacent to the Arch Bridgehead, the building is older, and the lot size is similarly sized to the subject property. Sale 2 is also in Downtown Oregon City and is most comparable in size, type and has the most relevant sale price to the subject property at $218.56/sf. Sale 3 is a Downtown Lake Oswego building that is used currently for financial management and is an architecturally unique building that our team sold in 2015 to an owner/user. While the date of the sale is more than two years old, this building also helps bring the price of the subject property up for the right buyer from the $215/sf pricing zone. Sale 4 is a smaller commercial building that is a converted residence that has a similar location to the subject property, but likely has a higher per square foot price due to the low square footage and less economies of scale. This sale will help establish the upper boundary for the subject property if the perfect owner/user prospect came along. Our conclusion based upon the available comparable sales, the specific features of the subject and the upward market trends is that the building should sell in the range of $ and $230.00/sf. Income Capitalization: Income Capitalization is an investmentbased method to establish value. The approach is based upon the current rent potential of a property and the value of that income stream to investors. It requires establishing the current market rent, making appropriate deductions to arrive at a net operating income which is then capitalized to develop a marketing price. Available similar spaces lease for $12.00 per square foot per year on a NNN basis. These rent figures could be achieved in the space as it currently sits without any major investment to the space, except carpet and paint upgrades. Keeping this in mind, it is typical to make deduction for vacancy and credit loss (5%) and owner expenses (5%) an approximate net annual income (NOI) of $75,600. The current low interest rate environment has resulted in a market with general low capitalization rate. An appropriate range which is supported by the comparable sales is 6.5% to 7.5%. This results in a range of $1,008,000 to $1,163,077 ($144 to $166 per square foot). Cost Approach: The cost methodology is generally considered to be less reliable for older buildings given the need to account for depreciation and functional obsolescence. Furthermore, the cost approach is highly reliant upon establishing a market value for the land as if vacant.

6 Page 3 of 13 Conclusion: Primarily we have relied upon the sales comparison approach with secondary reliance and weight placed upon the capitalization approach due to the potential for leasing up the building by putting it on the leasing market. We conclude to a price of $ per square foot or an estimated sales price of approximately $1,575,000. The current market environment is highly negotiated, and we suggest an offering price of $1,610,000 to achieve a negotiated price of approximately $1,585,000, as well as leave room for the potential owner/user buyer willing to pay a premium for a building of similar size and necessary location in the general area. The appropriate marketing time is estimated at nine to twelve months; 30 days to prepare the property and develop marketing materials, 60 days to 180 days to expose the property to the market, 30 days for negotiation, 45 days for buyer s due diligence and 30 to 45 days for closing. Property Summary Former Police Station and City Hall ADDRESS GENERAL DESCRIPTION: OWNER: WILLAMETTE DRIVE, WEST LINN OREGON The property consists of a single building constructed in The construction type is wood frame and unreinforced masonry. The total leasable gross building area is 7,000 square feet. City of West Linn Salamo Road WEST LINN, OR ASSESSED VALUE: $1,127, $1,367, Assessors Market Value of Improvements $94, Assessors Market Value of Land $1,462, Assessors Total Market Value YEAR BUILT: 1936 BUILDING SIZE: SITE SIZE: FOUNDATION: ROOF: EXTERIOR WALLS: HVAC: LANDSCAPING: ELECTRICAL: ZONING: ACCESS & EXPOSURE: Approximately 7,000 square feet of office/retail 5,567 square feet Concrete slab Wood frame construction with shiplap sheathing. Supported by interior steel posts. Unreinforced masonry backed by unreinforced concrete bearing walls Includes two packaged roof top units that serve the second floor, one splitsystem unit and large wall mounted unit serving the first floor. Little to none existing. (Need to clarify with ownership.) Standard commercial electrical GC (General Commercial) Hwy 43 daily traffic.

7 Page 4 of 13 ABUTTING USES: North: MultiFamily South: Paper Mill use and river East: Paper Mill West: Retail UTILITIES: The property is publicly served with all typical utilities including water, natural gas, electrical, sanitary and storm sewer.

8 Page 5 of 13 FORMER CITY HALL AND POLICE STATION PHOTOS

9 rd St SOLD Lake Oswego, OR Clackamas County Recorded Buyer: Johnstone Financial Properties LLC Recorded Seller: Williams, Zografos & Peck Properties LLC 334 3rd St Lake Oswego, OR (503) rd St Lake Oswego, OR (503) True Buyer: Johnstone Financial Advisors True Seller: Williams Zografos & Peck Map Page: Thomas Bros. Guide 656F6 Sale Date: Sale Price: Price/SF: PrFrma Cap Rate: 02/26/2015 (610 days on mkt) Bldg Type: $1,160,000 Confirmed Year Built/Age: $ RBA: Land Area: Zoning: Class C Office Built 1976 Renov 1999 Age: 39 5,201 SF 0.40 AC (17,424 SF) EC Parcel No: Financing: Comp ID: Down payment of $490,000 (42.2%); $670,000 from Bank of the West Research Status: Confirmed Holly St SOLD West Linn, OR Clackamas County Recorded Buyer: Tower Property & Acquisition Recorded Seller: LBLB LLC LLC 1595 Holly St West Linn, OR (503) Holly St West Linn, OR (503) True Buyer: Life Balance Northwest True Seller: Brandon S Jochim Sale Date: Sale Price: Price/SF: PrFrma Cap Rate: 10/13/2016 (206 days on mkt) Bldg Type: $659,950 Confirmed Year Built/Age: $ RBA: Land Area: Zoning: Class B Office Built 1927 Age: 89 2,280 SF 0.16 AC (6,970 SF) GC Parcel No: Financing: Comp ID: Down payment of $99,150 (15.0%); $560,800 from Wells Fargo Bank Research Status: Confirmed Main St Barclay Office Bldg SOLD Oregon City, OR Clackamas County Recorded Buyer: Kb & Pe Holding Llc Recorded Seller: T5 Equities LLC 701 Main St Oregon City, OR True Buyer: Mi Famiglia True Seller: Chris Edmiston Sale Date: Sale Price: Price/SF: PrFrma Cap Rate: Actual Cap Rate: 01/22/2015 Bldg Type: $825,000 Confirmed Year Built/Age: $ RBA: 7.50% Land Area: Zoning: Sale Conditions: Class C Office Built 1895 Age: 120 5,200 SF 0.08 AC (3,485 SF) CBD, County Map Page: Thomas Bros. Guide 687C7 Parcel No: Financing: Comp ID: Down payment of $82,500 (10.0%); $330,000 from Commerce Bank of Oregon$412,500 from Commerce Bank of Oregon Research Status: Confirmed The information contained herein is believed to be accurate but is not warranted as to its accuracy and may change or be updated without notice. Copyrighted report licensed to Capacity Commercial Group /9/2018 Page 6 of 13

10 2 820 Main St SOLD Oregon City, OR Clackamas County Recorded Buyer: John Hartung Recorded Seller: Terra Pacific Homes, LLC PO Box 63 Olympia, WA (360) True Buyer: John Hartung True Seller: Eric Jacobsen Sale Date: Sale Price: Price/SF: PrFrma Cap Rate: Actual Cap Rate: Parcel No: Financing: Comp ID: 01/06/2016 (254 days on mkt) Bldg Type: $1,460,000 Confirmed Year Built/Age: $ RBA: 8.43% Down payment of $1,460,000 (100.0%) Research Status: Confirmed Land Area: Zoning: Sale Conditions: Class C Office Built 1951 Renov 2005 Age: 65 6,680 SF 0.28 AC (12,197 SF) CBD Map Page: Thomas Bros. Guide 687C7 The information contained herein is believed to be accurate but is not warranted as to its accuracy and may change or be updated without notice. Copyrighted report licensed to Capacity Commercial Group /9/2018 Page 7 of 13

11 Page 8 of 13 BOLTON FIRE STATION SITE We have looked at both specialty building sales and land sale comps, which is a different value approach than the one we took on the Police Station and City Hall building given the current state of the Bolton Fire Station property. While we believe the building is reusable with major upgrades completed, we will primarily rely on land sale comparables and add additional value of $50/sf for the building. The seller should keep in mind that there exists a chance for the current building to devalue the property given the cost. Direct Sales Comparison: We have reviewed a number of recent commercial land sales which occurred between May 30, 2015 and November 11, 2016 which are reasonably comparable to the subject property. The following four sales are considered the most similar with regards to physical features, use and are located within the same competitive submarket for land sales No. Address Price/SF Date of Sale Size (SF) SW Pilkington Rd. Lake Oswego, OR $ /29/ , SW Rosewood Ln. Lake Oswego, OR $ /21/ , W. Arlington St. Gladstone, OR $ /25/ , SE Mcloughlin Blvd. Milwaukie, OR $ /6/ ,431 Conclusion: Primarily we have relied upon the sales comparison approach with secondary reliance and weight placed upon the capitalization approach due to the current leases in place. We conclude to a price for the land of $18.00 per square foot or an estimated sales price of approximately $282,276. The existing building is valued separately but will achieve an additional price of $50 per square foot or $289,000. The current market environment is highly negotiated, and we suggest an offering price of $575,000 to achieve a negotiated price of approximately $570,000. The appropriate marketing time is estimated at nine to twelve months; 30 days to prepare the property and develop marketing materials, 60 days to 180 days to expose the property to the market, 30 days for negotiation, 45 days for buyer s due diligence and 30 to 45 days for closing. Property Summary Bolton Fire Station ADDRESS 6000 FAILING STREET, WEST LINN, OR GENERAL DESCRIPTION: OWNER: The property consists of a single building constructed in the 1950 s. The construction type is wood frame with masonry facade. The total leasable gross building area is 5,500 square feet. City of West Linn Salamo Road West Linn, OR ASSESSED VALUE: $791, $850, Assessors Market Value of Improvements $257, Assessors Market Value of Land $1,108, Assessors Total Market Value YEAR BUILT: BUILDING SIZE: SITE SIZE: 1950 s (Estimated) Approximately 5,500 square feet of office/retail 16,072 square feet

12 Page 9 of 13 FOUNDATION: ROOF: EXTERIOR WALLS: LANDSCAPING: ELECTRICAL: ZONING: ACCESS & EXPOSURE: Wood framing reinforced with a supplemental string of girders added between the main girders after initial construction. Roof is hipped without end gables. Stick frame construction with three levels. Originally skip sheathed for wood shingle roof application, since reroofed and sheathed with 3/8 plywood overlay. Unreinforced concrete masonry on front side, with wood stud walls sheathed on exterior side with diagonally placed shiplap siding. Engine bays are unreinforced concrete masonry. Mature landscaping of lawn, bushes and trees along the North side of the property line, adjacent to 6050 Failing. Standard commercial electrical GC General Commercial Hwy 43 daily traffic ABUTTING USES: North: Tualatin Valley Fire & Rescue Station 58 South: Office and residential East: Retail and residential West: Retail and residential UTILITIES: The property is publicly served with all typical utilities including water, natural gas, electrical, sanitary and storm sewer.

13 Page 10 of 13 BOLTON FIRE STATION PHOTOS

14 3 W Arlington Rd Retail Pads Shadow Anchored by Walgreens SOLD Gladstone, OR Clackamas County Recorded Buyer: Seven Hills Properties 31 LLC Recorded Seller: Parker Landing LLC Lower Dry Creek Rd Milton Freewater, OR PO Box 2200 Oregon City, OR True Buyer: Seven Hills Properties True Seller: Parker Properties Inc. Sale Date: Sale Price: $/AC Land Gross: Density: Topography: Parcel No: Financing: Comp ID: 03/25/2016 (710 days on mkt) Land Area: $2,650,000 Confirmed Lot Dimensions: $539, ($12.39/SF) Proposed Use: , , Research Status: Confirmed Zoning: Sale Conditions: 4.91 AC (213,880 SF) Retail C SW Rosewood St SOLD Lake Oswego, OR Clackamas County Recorded Buyer: NWB/CSPP Lake Oswego LLC Recorded Seller: Peggy Brisbee th St SE Mill Creek, WA True Seller: PO Box 1120 Tillamook, OR Peggy Brisbee Sale Date: Sale Price: $/AC Land Gross: Density: Topography: Parcel No: Financing: Comp ID: 11/21/2016 (1320 days on mkt) Land Area: $995,000 Confirmed Lot Dimensions: $1,093, ($25.10/SF) Proposed Use: Down payment of $995,000 (100.0%) Research Status: Confirmed Zoning: Sale Conditions: 0.91 AC (39,640 SF) IPO SW Pilkington Rd SOLD Lake Oswego, OR Clackamas County Recorded Buyer: The Gallarus Group LLC Recorded Seller: O'Callaghan Estes Family Joint Quarry Rd Trust 2014 Lake Oswego, OR True Seller: 1429 Spruce St Lake Oswego, OR (503) O'Callaghan Estes Family Joint Trust 2014 Sale Date: Sale Price: $/AC Land Gross: Density: Topography: 04/29/2015 (748 days on mkt) Land Area: $830,000 Confirmed Lot Dimensions: $1,136, ($26.10/SF) Proposed Use: Level Zoning: Sale Conditions: 0.73 AC (31,799 SF) 110x260 Office IPO Redevelopment Project Parcel No: Financing: Comp ID: $880,000 from US Bank Research Status: Confirmed The information contained herein is believed to be accurate but is not warranted as to its accuracy and may change or be updated without notice. Copyrighted report licensed to Capacity Commercial Group /7/2018 Page 11 of 13

15 SE Mcloughlin Blvd SOLD Portland, OR Clackamas County Recorded Buyer: Goodwill Industries of the Recorded Seller: Jian Zhong & Xixian Huang Liang Columbia Willamette 1943 SE 6th Ave Portland, OR (503) SE Highgate Dr Portland, OR (503) True Seller: Jian Zhong & Xixian Huang Liang Map Page: Thomas Bros. Guide 687A1 Sale Date: Sale Price: Price/SF: PrFrma Cap Rate: 01/06/2016 Bldg Type: $1,150,000 Confirmed Year Built/Age: $ GLA: Land Area: Zoning: RetailRestaurant Built 1978 Age: 38 4,846 SF 1.02 AC (44,431 SF) C3 / AC Parcel No: Financing: Comp ID: Research Status: Confirmed The information contained herein is believed to be accurate but is not warranted as to its accuracy and may change or be updated without notice. Copyrighted report licensed to Capacity Commercial Group /7/2018 Page 12 of 13

16 Page 13 of 13 Please note that the prices reflect an offering of the properties in their current as is condition and make the primary assumption that the properties have no contingent environmental issues or significant structural and/or roof defects. If you require additional information or would like to review the supporting material, please give us a call to set up a meeting. Sincerely, CAPACITY COMMERCIAL GROUP, LLC P. McCoy Doerrie Vice President Jeffrey J. Falconer Principal