Agenda Section: Prepared By: Roger Reinke, Assistant City Manager Regular Department: City Manager Legislative Quasi-Judicial SUBJECT: A Resolution authorizing the Mayor to sign an agreement allowing temporary use of property, owned by a Neapolitan Enterprises entity and adjacent to the Municipal Dock, for staging during demolition and construction of the new Dock; accepting $250,000 cash payment from Neapolitan Enterprises and saving the City from expending $212,742 for use of a remote staging area; in exchange for transfer of title to an alley that is surrounded by and only services parcels owned by Neapolitan enterprises. SUMMARY: City Council is asked to consider approving a Resolution authorizing the Mayor to sign an agreement that includes the following: 1. A Temporary Use Agreement allowing the City to use property owned by a Neapolitan Enterprises entity for the purpose of staging during demolition and construction of a new Municipal Dock from April 15, 2017 until March 15, 2018, saving $212,742 in expenses for an alternate remote staging area; 2. Declaring the below described real property owned by the City as surplus property: An L shaped strip of land functioning as an alley adjacent to, south of, and west of, 800 12 th Avenue South, 20 feet wide connecting 12 th Avenue South with 8 th Street South, approximately 5,292 square feet, and approximately 170 feet long north to south and 70 feet east to west, as officially described in Exhibit B to the agreement (Legal Description); 3. Conveyance of the strip of land described in 2. above to Neapolitan Enterprises, in exchange for the staging rights under the temporary use agreement and a cash payment to the City from Neapolitan Enterprises of $250,000. BACKGROUND: In anticipation of approval to proceed with reconstruction of the Municipal Dock, staff approached Neapolitan Enterprises to inquire about the use of waterfront property owned by them (or an associated entity) as a staging area for the contractor engaged to rebuild the Municipal Dock. This Neapolitan waterfront property is unique and ideal for staging as it provides water access directly adjacent to the construction site, is unencumbered by structures, is surrounded by commercial property owned by Neapolitan Enterprises, has adequate vehicular access, and is already fenced and gated. The City does not own any significant uplands adjacent to the City Dock, so the entire demolition and reconstruction project must be done over water. A convenient storage and staging area on land that is also accessible by barge will be an asset to this unusual and challenging project.
Page Two During the process of receiving bids for reconstructing the Municipal Dock, staff required the bid price of an alternate staging area. The low bid included an alternate additional cost of $212,742 for utilizing a remote staging area if the Neapolitan site was not available. Use of the Neapolitan property for staging will therefore save $212,742. The additional funds for remote staging have been included in the contingency budget for the project, but will not have to be expended and will remain in the City controlled contingency if this agreement is approved, reducing the cost of the project by that amount. In addition to saving money, while not a guarantee, use of this property as the staging area provides the greatest assurance that a completed City Dock can be delivered on time. It is in the best interest of the City, City Dock tenants (including the Charter Boat Captains operating their small businesses), and Crayton Cove area business to accomplish the project as quickly as possible. The temporary closing of the City Dock for reconstruction, and other ongoing construction activities in Crayton Cove, may depress economic activity in the area. The shortest and least amount of disruption is in the best interest of all. Unexpected issues that may cause project delays include severe weather, transportation of construction materials over the water, and the peculiarities of constructing things under the surface of the water from vessels floating on the water. Use of a remote staging area does not necessarily mean completion will be delayed; however, it does increase the risk of delay. Based on projected revenues it is estimated that a month s delay in opening the City Dock would result in $65,000 to $75,000 of unrealized Dock revenue. An estimate of revenue lost by Charter Boat operators is not available. Neapolitan Enterprises has offered the City temporary use of the land for staging, plus $250,000, in exchange for conveyance of land resembling and used as an alleyway. This alleyway is owned by the City, surrounded by four parcels all owned by Neapolitan Enterprises, and not servicing property owned by any other landowner. Neapolitan undertook the required title search activities and determined that the City is the record owner of the alley parcel through a Quit Claim Deed to the City in 1956. However, Neapolitan Enterprises asserts they may have earlier rights of Ingress and Egress over the alleyway. The City most likely must continue to maintain the alleyway and provide access to the individual parcels unless it obtains agreement from Neapolitan Enterprises to do otherwise. If this alleyway was platted as a normal alley right-of-way, Neapolitan would have the right to request vacation of the right-of-way property and acquire title without any compensation to the City. The City Department of Streets and Stormwater has determined that it has no other use for the alleyway. Neapolitan has been actively planning to develop the four adjacent parcels and has an interest in acquiring the alleyway parcel to improve the development potential of the property. There may also be a public interest in maximizing the development potential of these properties from the perspective of improving the commercial viability of the Crayton Cove area, as well as increasing the value of the property from a property tax perspective.
Page Three The City engaged Carroll and Carroll Real Estate Appraisers and Consultants to prepare an appraisal of the alley parcel. The appraisal report includes a wealth of information, including: Considered alone, Subject strip has no market value. (page 6) The smaller parcel adjacent to the Subject strip has an assessed value of $30 per square foot, which would mean the value of the alleyway parcel is $158,760. The tax assessment is usually not a reliable indicator of market value. (page 16) Using the Sales Comparison Approach, the smaller parcel adjacent to the Subject strip was appraised at $145 per square foot. (page 37) Assuming the Subject strip is combined with the adjacent smaller parcel, and using the $145 per square foot value, the contribution value of the Subject strip was estimated at $770,000. (page 44) A hypothetical assemblage of the Subject strip with 800 12 th Avenue South and three other Fleischmann-entity owned parcels, including a rezoning as a Planned Development, could value the underlying land at $300 per square foot (pages 46 and 47). However, the assemblage does not meet the 5-acre minimum requirement in City Code for rezoning to Planned Development. At present, there are no good comparables for comparison. (page 46) The average land price of commercial property in the downtown area in March 2017 is $82 per square foot (page 35.) At $82 per square foot the value of the alleyway would be $433,944. Neapolitan Enterprises has reviewed the appraisal and informed staff that they are not in agreement with the estimated valuations in the appraisal. They agree that the Subject strip alone has no value, that appropriate recent sales comparisons are virtually non-existent, and assert the comparables used are inappropriate and do not properly account for the significant impact that differences in applicable zoning regulations and entitlements have upon value. They assert the Appraiser assumed the alleyway property to be owned in Fee Simple by the City and did not consider any encumbrances that might exist through other rights of access to the four separate parcels. The Carroll and Carroll appraisal was received on March 24, 2017 and the timing for designating the staging area does not allow sufficient time to obtain an alternative appraisal.
Page Four The $212,742 may provide the cost to the City for using a different staging area, and may approximate the value of leasing the requested property from Neapolitan for staging. However, this amount does not consider the risk and cost associated with lost revenue in the event the Dock construction is not completed according to schedule. The lost revenue includes loss of revenue from use agreements, transient rental users, and lost fuel and sundry sales. In addition, there is the additional economic cost of lost revenue suffered by the eighteen displaced charter businesses. The use of any different staging area some distance from the Municipal Dock increases the associated risks and potentially increases the value of leasing the Neapolitan property. If the City chooses to proceed with the proposed transaction, it will: 1) Reduce the cost of the Dock Reconstruction by $212,742; 2) There will be no additional cost for the use of the staging area for an 11-month period and the property will be immediately available; 3) The City will receive a cash payment of $250,000 for the purchase of the alleyway; 4) The City will no longer have to maintain the alleyway and it will be put back on the Tax Rolls of the City; 5) The City has the best chance of delivering the newly constructed Dock in the shortest possible period of time, with the least disruption in the Crayton Cove area. Alternatively, the City may authorize the contractor to utilize the alternate staging area and will then have to pay the contractor $212,742, increasing the cost of the project by that amount. In this event, Neapolitan Enterprises may decide not to proceed with their project, may proceed with their project building around the alleyway, or may request their own appraisal of the alleyway for the purpose of acquiring the property in a separate transaction. If there is no conveyance of ownership, the City may be required to maintain the alley to provide access to the parcels. FUNDING SOURCE: Funding for the demolition and reconstruction of the Municipal Dock has been appropriated in the FY2016-2017 budget as amended.
Page Five RECOMMENDED ACTION: Time is of the essence in determining the staging area for the City Dock demolition and reconstruction. To reach a mutually satisfactory conclusion to allow the City to use the Neapolitan property for staging, save the City $212,742 in expenses and receive $250,000 in revenue, a total of $462,742, while minimizing the risks of delay associated with a remote staging area, City Council may approve a Resolution authorizing the Mayor to sign an agreement that includes the following: 1. A Temporary Use Agreement allowing the City to use property owned by a Neapolitan Enterprise entity for the purpose of staging during demolition and construction of a new Municipal Dock from April 15, 2017-March 15, 2018 and saving $212,742; 2. Declaring the below described real property as surplus property: An L shaped strip of land functioning as an alley adjacent to, south, and west of, 800 12 th Avenue South, 20 feet wide connecting 12 th Avenue South with 8 th Street South, approximately 5,292 square feet, and approximately 170 feet long north to south and 70 feet east to west, as officially described in Exhibit B to the agreement (Legal Description); 3. Conveyance of the strip of land described in b. above to Neapolitan Enterprises, in exchange for the staging rights under the temporary use agreement and a cash payment from Neapolitan Enterprises of $250,000. Reviewed by Department Director Reviewed by Finance Reviewed by City Manager Roger Reinke, Assistant City Manager N/A A. William Moss City Council Action: