CC WORKSESSION 05202003 - Laserfiche WebLink

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MEMORANDUM DATE: May 1, 2003 TO: Mike Mornson, City Manager FROM: Roger Larson, Finance Director ITEM: SROGA PROPERTY Per your request, I reviewed the funding options for the possible purchase of the Sroga Property. From a financial perspective, this is a great investment. Given the fact that the current tenant is paying $48,000 a year in lease payments and comparing it to the cash outlay, it is a quality use of funds. Conceptually, let's assume the City pays the asking price of$550,000. The property has been appraised at $321,000. If the City purchases the property it could opt to sell the property at anytime and at a minimum immediately recoup $321,000. The balance of the purchase price could be repaid by the.annual lease payments. Assuming that the lease remains active, the present terms set the annual payment at $48,000 or$4,000 per month. It would take 4 years, 10 months of lease payments for the City to break even. An analysis is as follows: Value of Property $321,000 (City could sell at this value at anytime) Lease Payments $232,000 (58 Months X $4,000 per month lease payment) $553,000 Currently, I feel we have two funding options available,both supported by HRA funds: 1) Amend—Tax Increment budget of the Chandler District to include the Sroga Property. 2) Tires Plus Lease Funds—Repayment of building purchase. Option #1: The current tax increment budget for the Chandler District is as follows: 1) Purchase and removal of Hardee's $ 360,000* 2) Purchase and removal of Exhaust Pro's $ 500,000** 3)Purchase and removal of Phillips 66 $ 500,000 4) Apache Plaza redevelopment 200,000 Total Chandler TIF $1,560,000 *Completed—Culver's opened 4/14/03 **Culver's purchased Exhaust Pro's—Plan could be revised to remove Exhaust Pro's and include Sroga's ($500,000 would then be available).