One scenario has the city giving the building away at no cost to
developer
Inching ever forward to seeing the current police building turn into a restaurant or brew pub, the City Council will hold a public workshop Wednesday to hear two proposals.
Both Page Holdings’ Rick Page and El Toro Brewing Company’s Geno and Cindy Acevedo will present their team’s marketing strategy, business plans, food, beverage and entertainment plans, financial statements, architectural drawings and vision to the council that will have to decide between them.
The council’s Economic Development Subcommittee will make its recommendation of which proposal is the most viable to the full council on Jan. 21; council will not discuss the merits of either proposal at the workshop.
Page and Acevedo previously submitted proposals to the city, which then asked for more details; both teams were interviewed twice by city staff.
The Page Holdings, LLC consortium includes Bob Stoddard of Sunnyvale’s Stoddard Brewing Co., Craig Kennedy and Ron Erskine of Gilroy’s Coast Range Brewing Co. and Mike Miller, who is in commercial real estate. Architect Charles Weston drew the plans for the Page renovation and Gilroy contractor Larry Kent (who renovated the Morgan Hill Community Playhouse) is on board to handle the actual remodel.
A rumor circulating around town over the weekend suggested that the city was considering essentially giving the building away or selling it for $1.
“It isn’t exactly true,” said Garrett Toy, director of Business Assistance and Housing Services. What the rumor is based upon, he said, is one of two proposals by Page.
“He says they can’t afford to both buy the building and put $1.5 million into improvements,” Toy said. “In their second proposal, they did offer some value for the building.”
THE PAGE PROPOSAL
The Page proposal considers three options, one where it secures the building at no cost; the others with a nominal cost and low interest loans from the city.
In option one, where the city does give away the building, the project would end up equaling the post-conversion value. Under this option, the property cost would be $0; building conversion: $1.2 million; city fees, documents, inspections and contingencies: $96,875. The city would get a newly renovated building adhering closely to the downtown plan but receive no money from selling the building.
In option two the city sells the building for $350,000. While the project would not be equal to the post-conversion value, the rehabilitated building would be valuable enough to allow refinancing with a local bank within five years. Under this option, the property cost would be $350,000; building conversion: $1.2 million; interest payments over five years: $125,400; city fees, documents, inspections and contingencies: $0; total cost excluding interest: $1.55 million; total paid to city including principal: $695,737.
Page Holdings said it could work with these figures if the city provides a $1.35- million loan at a 2 percent interest rate (with no payments for one year) for a five-year term and waves all permits and fees.
In option three, Page Holdings would pay $500,000 for the property, $1.2 million for reconstruction, no loan fees, $150,000 in five-year interest payments, $0 in fees, inspections and documents; for a total cost of $1.7 million and $650,000 paid to the city. The 2 percent, five-year loan arrangements remain the same as option two.
Calls to interested business owners around town found they were not yet ready to go public with comments on the building give-away.
Page mentions the importance of a balance between cost-per-square-foot for construction and price per square-foot an owner can lease space to restaurants and businesses in Morgan Hill’s economic environment.
“Currently there is still a serious imbalance,” he said.
Rick Page said the brew pub could open by May or June of 2005 if his plan is chosen, if the deal is negotiated by Feb. 29, 2004 and if the police department vacates the building by Aug. 31, 2004.
The Page proposal clearly denies having a “Plan B” if not chosen.
“If not selected for this opportunity,” the proposal states, “the partnership of Stoddard, Erskine & Kennedy is not interested in pursuing a second brewpub in Morgan Hill.” The market, he said, is not big enough.
THE ETBC PROPOSAL
El Toro Brewing Company is offering $20 per square-foot for the 7,500 square-foot building, an amount they secured from a “respectable local commercial real estate agent and developer.” The low amount – totaling $150,000 – they said, is off set by the costly improvements required to change the building from public/office to restaurant commercial, and upgrade its seismic, ADA, code and utility levels.
The ETBC proposal would not need Redevelopment Agency assistance if the purchase price were “favorable.” An alternative is for the RDA to finance the property with a low interest land loan and ETBC to make a 20 percent down payment.
ETBC also said a triple façade grant under negotiation would not be needed if the property sales price was favorable.
The current police building at West Main Avenue and Monterey Road will be vacated when the department moves to its new building at 16200 Vineyard Avenue, which is currently scheduled to happen in June.
Page is on the Parks and Recreation Commission; Acevedo is chair of the Planning Commission.
City Council and/or the Redevelopment Agency meets at 7 p.m. Wednesdays in City Hall Chambers, 17555 Peak Ave. Details: www.morgan-hill.ca.gov or 779-7271. Council meetings are broadcast live on cable access Channel 17.
