Viewpoint on Chinatown Project: Price tag on parking lot sale is too low for SLO

A price higher than the $3.7 million proposal could have been negotiated if council majority city staff were willing to use a tougher stance

By Andrew Carter

I support the Copelands’ Chinatown Project in general. It will bring $1 million a year in net new tax revenue to city coffers. More importantly, it will help assure the ongoing economic vitality of our downtown.

I do not, however, support the $3.7 million price the city of San Luis Obispo has negotiated for the sale of city-owned property to the Copelands. That property includes the 6,000-square-foot former public works building and 52,370 square feet of city parking.

In my opinion, the $3.7 million price is too low. I believe a higher price could have been negotiated if only the council majority and city staff had been willing to be more hard-nosed in discussions with the Copelands.

What proof do I have the price is too low? The strongest is that the city suggested a price and the Copelands immediately accepted it. As The Tribune reported Wednesday, the Copelands’ architect, Mark Rawson, said the Copelands accepted the city price “without negotiation.”

The city based its $3.7 million offer on a reuse valuation performed on the Chinatown project. A reuse valuation is a financial analysis in which the revenue a project can produce is estimated and the cost to develop the project is estimated. The difference between those two numbers is the estimated reuse value of the land.

Note my repeated use of the word, estimate. A reuse value is an estimate. What particularly troubles me about this estimate is how sensitive it is to the assumptions made, particularly as regards the assumed cost to develop the project.

Reduce the estimated development costs by 1 percent, and the reuse value of the land increases to $4.1 million. Reduce those costs by 5 percent, and the reuse value increases to $5.8 million. Reduce the costs by 10 percent, and the reuse value increases to $7.8 million.

The city also had prepared a market rate appraisal of the city-owned land. That appraisal came in at $8.8 million. That’s an estimate, too. But the market rate appraisal was based on six recent comparable sales of commercial property downtown. It was also independently corroborated by four different local commercial real estate brokers.

Surprisingly, the council majority and city staff decided not to use the $8.8 million market rate appraisal at all in negotiations with the Copelands. The city decided only to use the $3.7 million reuse value.

I think most of us would expect that if there were two different estimates for the value of a piece of property — one high, one low — both estimates would be used in negotiations. We would probably also expect the final negotiated price to end up somewhere between those two numbers.

So what price should the city have negotiated for its property? I think $5.5 million. I get to that number in two ways.

First, the market rate appraisal determined the former public works building and land is worth $2.9 million as is. Add to that the $2.6 million parking in lieu fee owed by the Copelands to replace the parking lost when the city lots are converted to other use. Together you get $5.5 million.

Second, the current city-Copelands agreement which expires on July 3 values the city-owned property at $3 million, not counting the $2.6 million in lieu fee. That’s $5.6 million combined.

Incidentally, the Copelands made $177,000 in option payments on the current agreement. The city is entitled to keep that money because the Copelands could not obtain building permits before July 3. Instead, the city is allowing the money to rollover to the new agreement, even though it has a lower purchase price.

Once again, I support the Copeland Chinatown project in general. I cannot support the $3.7 million negotiated price for the city-owned land.