Espinoza: REI sale not good deal for taxpayers

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Highlights:

  • Denver City Council votes tonight on land sale to REI.
  • REI has option to buy land for its appraisal price of $500,000.
  • Councilman Espinoza opposes the current deal.
Shown is the flagship REiI store at 1461 Platte St. at the confluence of the Platte River and Cherry Creek.

Shown is the flagship REI store at 1416 Platte St. at the confluence of the Platte River and Cherry Creek.

The Denver City Council tonight will vote on whether to sell city-owned land adjacent to Recreation Equipment Inc.’s flagship store at Confluence Park for $500,000, in what city councilman Rafael Espinoza is calling a “sweet heart” deal.

The land, just under an acre at 42,400 square-foot, according to public records, has served as a 190-space parking lot for REI since it opened the store in the historic Forney Museum building at 1416 Platte St. in 2000. REI constructed and paid for the garage.

A week ago, the council 11-1 voted to publish the sale ordinance and move it tonight’s agenda. Espinoza was the lone no vote at the council meeting on Nov. 30.

On Sunday, Espinoza said the proposed contract would allow what he described as a “$2.5 million,” parcel to be sold for one fifth of that amount. The parcel has an “actual value” of $4.24 million and an assessed valuation of $1.229 million, according to city records.

“Currently, council is being asked to rubber stamp a contract that sells the viable city-owned parking structure, capable of generating significant revenue, for less that a quarter of what it would cost to build the current parking structure,” according to a release issued by Espinoza’s office late Sunday afternoon.

The proposed sale price equates to $11.79 per square foot.

REI currently pays the city $12,600 annually in rent, but Espinoza contends the site, between LoDo and LoHi, could generate $260,000 annually.

He said the contract offers no assurance the property will remain in its current state “or means to justly compensate the people of Denver if changes occur.

Shown is the parking garage entrance adjacent to REI that REI wants to buy from the city for its appraised value of $500,000.

Shown is the parking garage entrance adjacent to REI that REI wants to buy from the city for its appraised value of $500,000.

“The city initially brokered the sweetheart deal that brought the flagship REI store to its current location on Platte Street nearly 15 years ago,” according to Espinoza’s statement.

The $500,000 sale price is based on an appraisal by Integra Realty Services. REI had an option to purchase the land since 2000 and the city has renewed the option. According to the 2013 appraisal, the current 190-space garage is the “highest and best use” for the site.

“However, the city is now poised to sell the acre of land and parking structure adjacent to REI for a mere $500,000, based on an expired option to purchase the property for $407,000 that REI chose not to exercise in 2003, while another office of the city is providing a $1.5 million incentive to Costco to occupy the previous REI location at Alameda (Avenue) and Federal, (Boulevard),” according to Espinoza.

He noted the $1.5 million Costco Business Center incentive is in addition to $7.3-million already provided by the Denver Urban Renewal Authority for the redevelopment of what is called Alameda Square.

This map shows where REI is located.

This map shows where REI is located.

“It is not clear why further public funds should be allotted to subsidizing REI’s historic move,” Espinoza said

Espinoza, who represents District 1, where the land is located, is calling for a new appraisal of the land.

The appraisal, he said, should considers the “true value” of the parking structure or a compromise amendment by Denver’s Division of Real Estate for consideration by council that protects this valuable asset in the city’s property portfolio.

Councilman Rafael Espinoza says the city should hammer out a better deal with REI.

Councilman Rafael Espinoza says the city should hammer out a better deal with REI.

A compromise amendment would ensure the city have an opportunity to receive full fair market value for the property if there was ever a change-of-use, or decision granting additional development rights through zoning or modifying historic preservation easements, according to Espinoza. According to the Integra Realty appraisal, although the land is zoned for a 5-story building, height restrictions preclude future development from restricting views of the REI’s building southern elevation.

“Therefore, the subject site can only be improved with a below grade structure within the building envelope of the existing parking structure,” according to the appraisal.

“While I am grateful for the economic benefits and draw that REI brings to District 1, I am deeply concerned that council is being asked to sign off on a contact that gives no assurances, beyond what amounts to a gentleman’s agreement and the hope of institutional knowledge in a changing body of elected officials,” Espinoza said.

“I want assurance that the people of this city will receive fair compensation for a property that is central to some of Denver’s most meaningful destinations,” said Espinoza.

“I and other City Council members are largely in support of an amended bill that both honors our commitment with a valuable partner while protecting the people from incurring financial injury,” he continued.

“I’m confident that a better solution can be negotiated, either through an extended lease or more equitable sale, but the current bill is lacking.”

An aerial view of the REI site, where REI wants to buy a city-owned parking garage for $500,000.

An aerial view of the REI site, where REI wants to buy a city-owned parking garage for $500,000.

Espinoza outlined these concerns about selling the property for $500,000:

  • Zero documentation of the encumbrances has been provided to date, therefore reversibility remains unknown.
  • Appraisal is more that two years old, and relies on even older cost data from 2007-2011.
  • The unimproved vacant land was offered at $407,000 in 1999, prior to investments into Riverfront Park and associated redevelopment, pedestrian bridge, Union Station, work underway in Confluence Park (Shoemaker Plaza), and most relevant, the construction of the multi-million dollar parking structure and landscape on the subject property;
  • The $500,000 sales price in 2015 represents a 23 percent appreciation over 15 years and ignores or significantly downplays the value of the tenant improvements (parking structure, elevator, plumbing, lighting, landscape).
  • The analysis assumes parking demand to be confined to weekdays, completely disregarding the nature of the businesses (REI) and amenities of this part of the Central Platte Valley, where the demand for parking is as great or greater on weekends and holidays.
  • The cap rate analysis uses a revenue basis of $50 per month per space, completely unsubstantiated, and grossly undervalued even by the dated data in the appraisal, which documents comparable revenue no less than $100 per month, on average in $130s per month and as high as $225 per month. (This is based on 2011 data, with presumably some 2013 info.) A cap, or capitalization rate, is the rate of return on a real estate investment based on the income the property is expected to generate.
  • The REI move, while wildly successful, continues to make use taxpayer subsidy. Public investment into Alameda Square began in the 1980s. Today there remains a $7.3-million dollar tax-increment investment and the current $1.5-million Costco Business Center incentive being discussed goes directly into incentivizing use of the former REI building at Alameda and Federal.
  • The consequence of not approving the contract, means that REI continues to rent the land and 190-space parking structure for $1,050/mo, and the city keeps the asset.

At the last city council meeting, councilwoman Debbie Ortega said the city needs a “master plan for disposing of city property.”  Such a plan is in the works. Ortega said a comprehensive plan will become increasingly important as groups want to buy property owned by Denver.

Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. DenverRealEstateWatch.com is sponsored by 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

 

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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