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515 Little Canada Road, Little Canada, MN 55117-1600 <br />(651) 766 -4029 / FAX: (651) 766 -4048 <br />Email: cityhall @ci.little- eanada.mn.us <br />MEMORANDUM <br />TO: Mayor Fahey & Members of the City Council <br />FROM: Joel Hanson, City Administrator <br />DATE: March 23, 2001 <br />RE: Frattalone Property Update <br />MAYOR <br />Michael I. Fahey <br />COUNCIL <br />Beverly Sealze <br />Jim LaValle <br />Matt Anderson <br />Ricic Montour <br />ADMINISTRATOR <br />Joel R. Hanson <br />We received a copy of the appraisal commissioned be Mr. Frattalone for his existing property. However, <br />after discussing this matter with him in greater detail, I do not believe it is feasible for us to continue <br />discussions relative to our potential acquisition. My reasons are as follows: <br />4. Mr. Frattalone informed me he has a full value offer of $2,000,000. (The appraisal had <br />identified two values and the higher value (as used) is $2,026,000. The value we <br />needed to make this work for us financially needed to be substantially less.) <br />• A 1033 letter provides no financial benefit to the transaction from Mr. Frattalone's <br />perspective. He can do a 1031 exchange that yields the same results. (If a 1033 letter <br />would have created a benefit, it would have generated a 28% savings due to capital <br />gains considerations. I would have proposed splitting that benefit with Mr. Frattalone. <br />It would have saved us about 190,000 over a lower estimated purchase price.) <br />4. Assuming we could deduct the value of the excess land (Mr. Frattalone would retain for <br />development) at $375,000 (per the appraisal) and that we could sell or generate income <br />from leasing the office area for $60 per square foot, the net cost to us for the shop and <br />outbuilding would be $1.2 million. At that level, there is no real incentive to deal with <br />the risk issues associated with the office area. <br />• CTV was interested in the office area and the small outbuilding. However, they would <br />have needed to construct an addition for a new studio. Again, the financial incentive for <br />that venture isn't there. <br />4. Here is the financial comparisons I was hoping we could achieve: <br />Desired Actual <br />Base Price 1,725,000 2,026,000 <br />Less: Excess Land 375,000 375,000 <br />1033 Deduction (50 %) 189,000 0 <br />Office Value to Others @ $60 460,800 460,800 <br />Net Costs for Shop 700,200 1,190 200 <br />PAGE 18 <br />