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6. Daley FieldAgenda - May 4, 1998 AGENDA ITEM 6 - DALEY FIELD BACKGROUND/CONSIDERATION: Our previous discussions about the offering of this property resulted in a tabling of this subject. We need to pursue and continue with the plans that were previously approved by the City Council. Those plans were compiled as a method to finance both the balifields and the airport improvements. We are proceeding at this time with the airport master plan process. Within six (6) months (plus or minus), we will know the results of the master plan. To enable us to continue in a timely fashion and as a part of our budget, we should expedite the offering of this property. Previously, staff had requested any suggestions or information you may have about the potential for leasing the property. We did not receive any answer or information from any Council members. In reviewing the option to lease we have identified potential problems. Those include: A. No cash infusion for capital improvements at the airport. B. No or reduced continuing cash flows for the tax increment district. C. Without either of the above, there is little potential for issuance of the TIF Bond that was anticipated for the airport improvements. D. Questionable Leasing Market l . Businesses prefer to buy. 2. City would/may have to build a facility prior to lease. Where would these funds come from? What time delay would we have before cash flow is positive? 3. City would be leasing for a strip commercial/retail area which is a high risk for us. Turnover, vacancies, closures, etc., all would be the type of exposure we would experience. The Ernst property and the Whitefish Mall are both local examples of this risk. 4. If we pursue this route, the City must subordinate our interest to the first mortgage holder. This would leave us with no asset obligation from the lessor. These are a few of the concerns we have with leasing the property. During our negotiations with Rosauers and their developer, they indicated in a council meeting that they would only consider leasing under a sale/lease back arrangement. The City would have to make a large capital outlay up front. They would then lease with a requirement that they have a right to purchase the improvements. Their improvements are estimated to be over $6 million. We would not have the capability to handle this type of transaction. Rosauers also anticipate that they will have commercial neighbors that are compatible with their retail improvements. They desire commercial/retail neighbors to assist in traffic generation for the location. In reviewing the analysis of the property sale, the appraiser evaluated the leasing option for this area. I quote from the 1995 analysis: "The potential for leasing to someone for construction other than that which would be related to the City Airport was examined. Assuming a ground lease of the lower end of the range, $0.075/sf/yr, a one acre parcel would have a lease amount of 43560 x 0.075 or $3267/yr. At a 10% capitalization rate this would suggest a site value of $32,670. This would compare with a 1.06 acre industrial site sale of $32,500. The implication is that there is little, if any, incentive to a lessee to lease rather than purchase, unless he could invest the capital at a return of more than 10%. In addition, an owner would have the benefit of any increase in value with the ownership, whereas on the lease he would likely be faced with increased lease payment in later years. The potential for leasing other than the airport use thus appears minimal." We have identified the desire to continue with the airport. We have also identified that the current airport is unsafe as it is now. We have also identified a financial plan that will enable us to correct the non-standard condition to a 13-1 type of airport if not the B-2. We can proceed to correct this problem after the master plan is received. The discussion of an additional 200-300 acres of commercial property (North Highway 93 at the Valley Dome area and the State owned land on the west side of the highway) presents additional concern in our ability to market, sell, and compete with the new improvements that may be put in that area. The value of our property probably will or at least may be diminished due to "lack of interest." We should expedite our sale to assure the economic return that has been predicted and planned for. We currently have contracted responsibilities for this area. The contract with Rosauers requires us to install the traffic signal at Third and Highway 93 (approx $130,000) when the highway is approved. We also committed to the Kelly Road signal if and when it is warranted (approx $130,000). The Sewer/Water Agreement with Rosauers allows Rosauers or the City to install these improvements. In either case, the recovery of those costs will be doubtful if we do not sell and recapture the costs of the commercial improvements. The tax increment generation is extremely important in other potential improvements. The sewer, water and storm sewer improvements along the highway are extremely shaky in terms of financing. Although we cannot completely estimate our cost for this and/or Meridian at this time, I can assure you that we cannot do these improvements without "creative" financing (if at all). Our capability will be determined during our budget sessions but I can assure you that we need the TIF growth maximized for airport and utility improvements. RECOMMENDATION: To continue with the plans that have been adopted, the goals to achieve a safe airport, the improvements to the airport, the development of "under used" land in a commercial area and the fulfillment of the City Council commitments to the Airport Advisory Board, I recommend your approval to offer the Daley Field land immediately. ACTION REQUIRED: A motion to authorize the City Manager to begin the offering process for the balance of the Daley Field property.