Memorandum 17-141 Ordinance 17-41 & Resolution 17-1095

Memorandum 17-141

TO:                        Mayor Zak and Homer City Council

FROM:                 Katie Koester, City Manager 

DATE:                   November 21, 2017

SUBJECT:          Ordinance 17-41 and Resolution 17-095

The purpose of this memo is to answer questions that came up during Council discussion regarding the purchase of Lot 42 via Ordinance 17-41 and bring forward additional information to facilitate Council discussion.

How did staff determine a net present value for Lot 42?

Since Lot 42 is adjacent Lot 41, staff used the 2016 Appraisal of Lot 41 (Derry and Associates) to extrapolate a potential market value for Lot 42.  The appraisal notes that the physical characteristics are similar, though Lot 41 is an irregular “T” shaped lot and “Any adverse impact due to the shape is reduced by the lot’s extensive road frontage which enhances overall usability…”

The appraisal also provides a ratio of annual land lease rates to market value.  In the summary the appraisal notes that annual lease rates are approximately 8% of the market value.  The appraised annual lease rate for Lot 41 is $0.54 per square foot resulting in an annual lease rate of $35,070, which is approximately 8% of the market value, or approximately $438,000.  Using the same formula for Lot 42 results in a value of $34,577 in annual rent or a market value of $432,000. This is the amount City staff used as a baseline for the true market value for Lot 42. Essentially, the Enterprise is overpaying for lot 42 by $118,600 in order to clear up the claims AMTHA is making on the baseball bat of land that extends out into the mouth of the harbor and other ‘core property’. However, it is important to note that AMTHA’s original offer only transferred a portion of Lot 42 (approximately 2/3) to the City of Homer.  Under their original offer the City would have had to negotiate separately for the 1/3 of Lot 42 owned by AKDNR (or $144,000 based on $0.54 per square foot).

Value of AMTHA claimed land + remaining 1/3 of Lot 42: $694,600

Assumed appraised value of Lot 42: $432,000

Purchase price for Lot 42: $550,600

In summary, the agreed upon purchase price reflects the City of Homer increasing their offer price from the value of Lot 42 by $118,600 and the state decreasing their asking price for all of Lot 42 and the associated lots by $144,000. In this way, I believe both entities compromised to come together and resolve the title issues with the ‘core property’.

Ordinance 17-41 proposes to pay for the lot half from the Enterprise and half with a loan from the general fund. Why not pay for the parcel outright from the Enterprise?

2017 ending estimate balance for Port and Harbor Reserves is $3,994,856, not including 2018 anticipated transfers or capital projects. Staff will have a better idea by Monday’s meeting the projects that have been approved but not spent to give Council an idea of how much this fund could absorb. The Port and Harbor Director and the Commission felt more comfortable splitting the difference between General Fund and Enterprise to avoid a onetime hit to reserves. However, purchasing the land 100% from reserves would still leave significant revenue in the fund.

What is the recommendation of the Port and Harbor Commission?

The Port and Harbor Commission met on October 25, 2017 and discussed the purchase of Lot 42 and the proposed financing mechanism (a loan from the general fund with revenue from the lease to pay back the loan) and approved the recommendation to purchase the lot with a loan from the general fund (see attached minutes).

Lease amendment with Icicle (Resolution 17-095)

In order for Icicle to continue operating seamlessly on Lot 42 once the title transfers from Alaska Mental Health Trust Authority (AMTHA) to the City of Homer, the City needs to enter into a lease agreement with Icicle and begin collecting revenue on the property. Resolution 17-095 authorizes the Administration to amend their lease for Lot 41 to include Lot 42 in order to guarantee a smooth transition.

Enc:

Port and Harbor minutes 10/25/2017