LTC 310-2008 Property Appraisals and Pro Forma for the Purdy Avenue Garage Site~l-.~'~ il~Ff)
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OFFICE OF THE CITY MANAGER
NO. LTC # 310-2008 LETTER TO COMMISSION
TO: Mayor Matti Herrera Bower and Members of the City mmission
FROM: Jorge M. Gonzalez, City Manager
DATE: December 2, 2008
Sus1ECT: Property Appraisals and Pro Forma for the Purdy Avenue Garage Site
The purpose of this LTC is to provide the Mayor and City Commission with the attached
appraisal report and pro formas regarding the site for the proposed Purdy Avenue Garage.
On November 18, 2008, the Finance and Citywide Projects Committee considered the
proposed transaction between the City and the Scott Robins Companies (SRC) for the
development of a parking garage in the Sunset Harbor neighborhood. At the meeting, a
motion made by Commissioner Weithorn was adopted to present the proposed project to the
Commission, as it is currently contemplated in the draft agreement and subject to final
negotiations. The Agreement will be presented for consideration at the December 10, 2008
City Commission meeting.
Additionally, at the request of the Finance and Citywide Projects Committee, the
AdminisVation solicited an appraisal from J.B. Alhale & Associates, to determine the market
value of the project site and its various parts, as well as prepared the attached pro fonnas
for the proposed garage.
The appraiser made a physical inspection of the subject sites, reviewed the site surveys
dated July 26, 2008, and the building plans dated August 1, 2008 and prepared by
Arquitectonica. He also analyzed market data and parking revenue statistics for the City's
South Beach garages. The estimate of market value of Fee Simple Interest in the project site
is $13,050,000, and the estimate of the market value of lhesir-rights is $6,045,000.
Summary of Market Value Estimates Fee Simple Air Rights
Project Site $13,050,000 $6,045,000
Non-Tremont Parcels $5,925,000 $2,745,000
Tremont Site without the Out-Parcel $6,800,000 $3,150,000
Tremont Site $8,100,000
Tremont Out-Parcel $930,000
Fee Simple Interest
Proiect Site -The market value of fee simple interest in the project site (excluding the
Tremont Out-Parcel), is $13,050,000. This market value was determined via the sales
comparison approach, in which 9 recent property sales, and 6 properties currently listed for
sale, were analyzed. The Sales Comparison Approach is based on a comparison between
recently sold comparable sites and the subject site, utilizing the price per square foot of
buildable area method of comparison. Based on the appraiser's analysis, $200 per square
foot of buildable area is a reasonable value estimate for the 43,500 square foot site:
43,500 SF x 1.5 FAR = 65,250 SF Buildable Area x $200/SF = $13,050,000
Lefter to Commission
December 2, 2008
Purdy Avenue Garage Site Appraisal
Page 2 of 3
The Administration also requested that the appraiser provide the market value of fee simple
interest in the Tremont Parcel in its entirety ($8,100,000), and also of the Tremont Out-
Parcel ($930,000) and the balance of the site ($6,800,000).
Tremont Site - Based on the appraiser's analysis, $200 per square foot of buildable area is a
reasonable value estimate
27,000 SF x 1.5 FAR = 40,500 SF Buildable Area x $200lSF = $8,100,000
Tremont Out Parcel -Based on the appraisers analysis, $165 per square foot of buildable
area is a reasonable value estimate, due to the inferior physical development potential of the
3,750 square foot site as a stand-alone site.
3,750 SF x 1.5 FAR = 5,625 SF Buildable Area x $165/SF = $928,125
Balance of Tremont Site -Based on the appraisers analysis, $190-200 per square foot of
buildable area is a reasonable value range for this parcel.
23,250 SF x 1.5 FAR = 34,875 SF Buildable Area x $190/SF = $6,626,250
23,250 SF x 1.5 FAR = 34,875 SF Buildable Area x $200/SF = $6,975,000
The difference between the sum of the Tremont Out Parcel and the balance of the Tremont
site ($7,730,000) and the market value of the entire site ($8.1 million) is $370,000, which
represents a premium for the land assemblage, as well as a discount due to the market
value of the Out-Parcel as a stand-alone site.
Non-Tremont Parcels -Based on the appraiser's analysis, $190-200 per square foot of
buildable area is a reasonable value range for this parcel.
20,250 SF x 1.5 FAR = 30,375 SF Buildable Area x $190/SF = $5,771,250
20,250 SF x 1.5 FAR = 30,375 SF Buildable Area x $200/SF = $6,075,000
The difference between the sum of the market value of the Non-Tremont Parcels plus the
Tremont Site w/o the Out-Parcel ($5,925,000 + $6,800,000 = $12,725,000) and the market
value of the entire project site ($13,050,000) is $325,000, and represents a premium for the
land assemblage.
Alr Rights
The Administration also requested that the appraiser provide a value of the Air Rights
related to the project site.
After arriving at estimates of the market value of the Fee Simple Interest in the site, an
Income Capitalization approach was utilized to determine the value of the Air Rights. As part
of the Air Rights Valuation, the appraiser analyzed the parking revenue and operating
expenses for the municipal parking garages located in South Beach, as well as the Parking
Department's proforma for the Purdy Avenue Garage in order to project the revenue and
operating expenses for the proposed garage. For Year 1, parking revenue per space was
estimated to be $2,000, with an operating expense of $1,250 per space. The parking
revenue space was projected to increase at an annual rate of 12.5%, while the operating
expenses were projected to increase at an annual rate of 3%.
The appraiser utilized Discount Rates that ranged from 8.5% to 9.5%, along with a terminal
capitalization rate of 6.25% applied to Year Six net operating income to estimate the
Prospective Market Value of the Fee Simple Interest in the subject parking garage upon
Letter to Commission
December 2, 2008
Purdy Avenue Garage Site Appraisal
Page 3 of 3
completion of construction. According to the appraisal, the selected discount rate range
reflects current investors' yield requirements from similar type properties. Based on this
analysis, the estimated Prospective Market Value, utilizing the Discounted Cash Flow
Method was as follows:
Market Value with a Discount Rate of 9.0% $12,085,000
Less the estimated construction cost as oer Marshall 8 Swift Cost Guide - $6.040.000
Equals the Residual Value attributable to the Land/Air Rights = $6,045,000
The estimated Air-Rights value of $6,045,000 represents 46.32% of the estimated fee
simple value of $13,050,000. According to the appraisal, "while the ground floor area with
31,850 SF of retail space utilizes only one of the five floors, the ground floor is the most
valuable component of the 'development envelope' as retail rental rates are reported to be
$25 per square foot on a triple net basis for a'vanilla box' finish to be built-0ut by the tenant,
while parking spaces (approximately 330 SF of garage area per parking space) are
projected to generate an estimated $2,155/year or $6-7/SF of netoperating income atfuture
stabilized operations:'
Garage Oaerations !Pro Formas
The Administration has prepared two pro-formas for the initial five years of operation, which
are attached. Both proformas take into account the initial start-up costs that will occur in the
first year. Additionally, the proformas assume that the retail component of the facility will
reach 90% occupancy at the end of year 1, with 100% occupancy during years 2-5. Finally,
both proformas assume 2% growth in annual revenues for years 3, 4 and 5.
The first profonna accounts for the spaces in the garage that will be utilized for City
operations, and therefore, will not generate revenue. During the firstfroe years, the profortna
indicates that the facility will operate at a loss, although the amount of the loss diminishes
each year:
Year 1 Year 2 Year 3 Year 4 Year 5
ProfiULoss -$415,072 -$109,284 -$102,665 -$96,269 -$89,799
Since the City's use of 120 spaces in the garage is a unique circumstance that supports
additional benefits related to this project, the Administration prepared a second proforma to
analyze the viability of this project as if it were a normal parking garage with ground floor
retail. In this scenario, the "city spaces" were not accounted for, and therefore were included
as revenue-generating spaces. Under this scenario, following the first year which includes
start-up costs, the garage would generate revenue:
Year 1 Year 2 Year 3 Year 4 Year 5
ProfiULoss -$142,650 $253,946 $267,830 $281,490 $295,370
Conclusion
The agreement between the City and SRC will be considered by the City Commission as
part of the December 10, 2008 City Commission meeting agenda. In the meantime, please
do not hesitate to contact me with any questions or comments regarding the appraisal.
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