The Biggest Loser
Developers stand to make a killing on Marina’s The Dunes, while taxpayers get screwed.
Thursday, January 31, 2008
Marina Community Partners paid $6 million for roughly 130 acres of prime Fort Ord real estate. Although the developers of The Dunes on Monterey Bay had to tear down old barracks and build infrastructure, MCP made its money back on the hugely discounted land with its first sale. Target bought 10.9 acres for close to $7 million, according to the Monterey County Assessor’s Office.
Target, the shopping center’s anchor, represents only a sliver of The Dunes’ first-phase profits. The money that MCP receives from its leases with businesses like Kohls and REI hasn’t yet been reported to the Assessor’s Office. The shopping center is valued at $16.2 million, says Larry Downing, real estate appraiser for the Assessor’s Office. In all, Downing estimates the project’s first phase is worth more than $60 million—10 times Marina’s negotiated land price.
Yet MCP will pay less, not more, for the development’s next two phases. Under a recently approved agreement with the Marina City Council, MCP will pay $37 million for the remaining 158 developable acres, $5 million less than the original agreement.
Lance Monosoff, a real estate broker and owner of Central Coast Properties in Monterey, says the land price is a steal. “They are giving this property away at bargain-basement prices and ignoring that sooner or later the developer is going to make millions and millions of dollars,” Monosoff says.
Marina Mayor Ila Mettee-McCutchon strongly disagrees. Mettee-McCutchon says the land value has risen significantly only because of the improvements done by the developer, like building removal, utilities and sewer installation. “Of course the value of the land has gone up,” she says. “The developer had to put all that in.”
Downing appraised The Dunes’ first phase in August 2006 after the Assessor’s Office recorded the land transfer from the Marina Redevelopment Agency to MCP’s property management arm. The appraisal was done after MCP had removed numerous old barracks and made other improvements to the land. (The developer has spent $35 million on infrastructure and $50 million on construction contracts to date, according to Marina city staff.) Downing also put a value on the land before the real estate market plunged nationally. MCP recently filed an appeal with the county for a property value reduction. It’s too early to tell if the county will agree to it. One thing’s clear, however: The developers already have won over the City Council.
The deal enables construction to resume on project components, including the village promenade, hotel and business park. The Marina City Council approved the new business terms with one caveat, however: the Fort Ord Reuse Authority also would have to pony up an additional $12.7 million for the developer.
The controversial proposal didn’t receive a warm reception at the FORA Finance Committee meeting on Monday, Jan. 28. While the majority of the money would come from property taxes generated by The Dunes, Marina proposes taking $4.4 million from other FORA sources.
FORA staff warned that the authority couldn’t afford to front the money. Michael Houlemard, FORA’s executive officer, said that such an investment could restrict the authority’s ability to pay off its debt and open the door for other cities to ask for financial assistance.
Committee member Graham Bice agreed. “It is a slippery slope to start investing in one project over another,” he said.
City Councilman Gary Wilmot repeatedly tried to convince the committee to support Marina’s $12.7 million request, pointing to the $58 million in fees FORA will receive if Marina Community Partners pulls all the permits for the project’s 1,237 homes.
FORA would also be eligible to receive a share of the profits if investment returns exceed 9 percent. But housing development won’t commence until the market rebounds, and FORA staff said there is no guarantee that profits will reach 9 percent, especially in the authority’s limited lifetime.
Carmel Mayor Sue McCloud, who chairs the committee, cut off Wilmot several times, saying that the discussion shouldn’t be centered on what is best for Marina. “We have to think about what is good for FORA as a whole,” McCloud said.
Ultimately, the Finance Committee recommended the FORA board not approve The Dunes money. The Administrative Committee was set to review the item Jan. 30 (past the Weekly’s deadline). The FORA board is expected to take up the issue Feb. 8.
Mettee-McCutchon isn’t worried. She says Marina has new property tax projections, and the city may not need FORA’s contribution after all. Mettee-McCutchon says the redevelopment agency could end up pledging $80 million to the development.While homebuilders have taken a huge hit because of the sinking market, The Dunes developers aren’t small operations in need of handouts. Marina Community Partners includes Shea Homes, the nation’s largest private homebuilder, and Centex Homes, which earned more than $12 billion in revenue last year.
City officials have long justified the reduced land price with the increased costs—and risks—associated with building on Fort Ord, such as building deconstruction and affordable housing construction.
FORA has agreed to reimburse MCP for $46 million worth of building removal. The developer subsidy for the 248 units of affordable housing is expected to total $49.3 million, the exact amount the Marina Redevelopment Agency has agreed to reimburse the developer. Add the $46.3 million that the redevelopment agency will pay for future infrastructure and it’s clear that public dollars will cover a large share of the project’s costs. And what will the developer’s profits total?
MCP is expected to get about $24.5 million in profit, according to the project’s latest reuse valuation. At this rate of return, neither Marina nor FORA would get a share of the money.
Mettee-McCutchon still calls the redevelopment agency’s contribution a “prudent investment.” She touts the 4,700 new permanent jobs and $48 million in city impact fees, sales and transient occupancy tax that the project is expected to generate in the next five to seven years. “This is an investment in our future,” Mettee-McCutchon says.
But once the market recovers and families move into the homes, Monosoff says, the development will cost Marina and the region more in the long run. “We are going to get traffic jams and schools clogged with kids,” he says.