CORRECTION – At Last ….. the truth comes out on the DWP EIR Report!

(In an earlier article …..WUSB incorrectly identified Mr. Goldberg as a Plannning Commissioner. He is not a city employee….but he was appointed to the Planning Commission by Councilman Gordon Shanks. But in our opinion he is an extraordinary public citizen.)

On May 2, 2012, at the Planning Commission meeting a report was given by Robert Goldberg .…THAT FULLY EXPLAINED… how the “70%/30%” open space vs developed space has been confused and misguided for many years.  How much by design and how much by ignorance cannot be judged at this time but it was refreshing to hear someone appointed by the city stand up and tell it like it was.

Robert Goldberg’s Slide #1 was entitled  CONCERNS:  A- The EIR GREATLY underestimates the potential loss of open space. B- “My (Goldberg’s) estimate is the open space loss is approximately 1.5 acres not the 0.2 shown in the EIR . C- EIR does not accurately inform the publlic regarding a critical issue – loss of open space!” (WSUB Emphasis)

Part of same slide HOW DID THIS HAPPEN?   A- EIR incorrectly concludes that the legal description of the Specific Plan area does not support the use of 70/30.  B- EIR staff were provided with an incomplete Specific Plan map.   C-EIR incorrectly  uses Central Way as the ‘line in the sand” ….rathr than the 70/30 split it should have been

Next slide: Legal Description: Nothing to do with 70/30 land split.  It just describes the boundary of all property in the Specific Plan. It goes on to say that the “Legal Description” has no language regarding the 70/30 split (70% open space) or “where to draw the line.”   Further it does not describe the sub-area subject to Land Use Development Standards.  This sub-area is defined by the Land Use Development Map which is included as “Exhibit A”

The next slide shows the Land Use Development Map which clearly shows that all development is to on the ‘northerly’  part of the land.  That would be on the side of Central Street closest to Pacific Coast Highway…and that no development should be done on any portion of what would be the extension of Central.  The legal boundary map….on the same slide shows that part of the legal boundary is actually in the riverbed!

Next Goldberg asks the question …”SO WHICH MAP DO  WE USE FOR 70/30?”     Section A: Introduction  3-location describes the entire boundary of the Specific Plan   Section B   1-Loation ” the general location of all principle land uses is shown in Exhibit A”   3- Visitor Serving “northerly 30%” and 4-Open Space….the southerly 70%

Goldberg goes on to say “So what does all this mean?   It means that the llegal description includes 1.3 acres of river, levee rocks, and riverfront land that was intentionally not included in the LAND USE DEVELOPMENT PLAN!   Since the river/riverfront area was excluded by the the Land Use Development map this area is not covered by the 70/30 provisions of the Plan and was never intended to contribute to the 70% open space requirement.

A- Open Space provided by Specific Plan  totals 7.9 acres:  River/Riverfront area is 1.3 acres.  Development area is 6.6 acres (70% x 9.46 ac) B-Open Space provided by the Proposaltotals 6.4 acres:   River/riverfront area 1.2 acres; Development area: 5.2 acres.

That difference is 1.5 acres….not 0.2 acres as stated in the EIR

There are additional maps in Mr. Goldbergs presentation which you can find on line, HOWEVER, Mr Goldberg finishes with the following:

WHAT HAPPENED?

A- Its unclear.

B- the 1996 revisions (Resolution 4444) to the Specific Plan did not change the map.

C- A “user-friendly” version of the Specific Plan was created the next day by the City Staff

WHAT DOES THIS MEAN?

A-Use of the southern border of Central Way as the “line in the sand” by the EIR is clearly not the intent of the Specific Plan (…even if it might be what the  Bay City Partners would like. WSUB emphasis)

B-The EIR use of Central Way inappropriately underestimates potential loss of open space

Much of this report is technological jargon which gets confusing when one doesn’t have the maps in front of them.  Robert Goldberg’s report was excellent and we apologize for not being able to copy it in its entirety here. We encourage you to contact him by email for more information.

For more info and copies of the slides go to <rgoldberg@live.com>

Remembering Bob Gruneisen

To friends of Bob

Please meet at Long Beach Big Rec golf course at 5 o’clock on May 8 to spread a few ashes on the 16th hole in memory of Bob’s hole in one.

This will be very informal.  No banquets are planned.

LIBBY AND KEN APPLEGATE

Who’s Side are out Council Members On? DWP Struggle About to Get Dicey!

(THIS IS ANOTHER IN A SERIES OF NOTICES BY A LARGE GROUP OF LOCAL CITIZENS TO KEEP ALL OF US ADVISED ON WHAT THE COUNCIL IS TRYING TO FORCE THROUGH TO BENEFIT THE DEVELOPERS OF THE DWP PROPERTY.  WE’VE BEEN ADVISED BY A 3RD PARTY THAT A DEVASTING DOCUMENT WILL BE INTRODUCED TONIGHT TO THWART THOSE EFFORTS….IF THE COUNCIL ALLOWS IT TO BE INTRODUCED AS EVIDENCE.)

Dear Friends,  We really need to be heard at the Plannning Commission on Wednesday, May 2nd at 7PM  This is public trust land and we need to stand up

Please come and be heard.  Seal Beach is not an accident!  It took hard work to make this city what it is. WE need you to show up and let the council know that no matter how much they keep putting off  the DWP problem….WE’RE NOT GOING AWAYf …….PLEASE !!!

1) First, we’re  not sure why a feasibility study is relevant given that the developers bought the land with the zoning for a hotel already in place.  The feasibility of the hotel is their issue, not the public’s.  Why does it matter if they decide later it’s not feasible.

2) Even if “feasibility” is somehow relevant, the studies are completely flawed in both set up and in the actual calculation.

Set up

– A feasibility study would not include the historical cost of the land purchased. A feasibility study would be used to determine if hotel can be built, and then to back into what price one could afford to pay for the land.  Doing it the other way is not “feasibility” ……it is simply calculating profitability, retroactively.  A developer’s profitability is certainly not the public’s concern, unless they were planning to share their profits with the public if they got  a good deal.

–  Even if  their historical land cost is somehow relevant, including a return for their “sunk cost” of the past 10 years of holding the land in the cost-basis is simply unreasonable in a “feasibility” study.  And it’s even more unreasonable when land values generally declined over that period.  Again, how is their return or their “opportunity cost” of any concern to the public?

Calculations

First, the financial models done by Kosmont are simply wrong.  They made a couple math errors that invalidate the entire analysis.

Math errors:

– Interest expense is held constant throughout the entire 10 projection period on all the scenarios.  Obviously that’s incorrect, as interest expense will vary with debt balances.  Balances will increase as they lose money and will decrease as they pay down debt.  In their first scenario, for example, the effect is so dramatic that in year 10 projected interest expense is $1.3 million more that it would be.

– They make the same mistake in calculating Terminal Enterprise Value. They assume the debt balance is the same at the end  of the 10 years,when in fact it would have declined from $$21.5mm to only $5.0mm, in scenario one for example. Similar for all the other scenarios.

– The IRR in scenario 1, using THEIR numbers, but correcting the math mistake, would make the projected IRR go from 16% to 26%.

– Interest expense in couple of the scenarios appear to simply be wrong.  And it reduces the returns dramatically.

Unrealistic Assumptions:

– Kosmont assumes that the interest rate would stay the same for all 10 years.  Naturally, when the hotel gets to a steady state, as projected by year 5, they would be able to refinance at better rates.

– Requiring a 20% IRR over 10 years is not realistic.   Once the hotel gets to a steady state, the required return is much lower, which is why “cap rates” for hotels in the stock market are only 7% right now.  A 5 year window of start-up risk is more appropriate for a 20% return.  In scenario one, if the developer sells the hotel at year 5, they would achieve a 30% IRR.

– The 8% cap rate assumed in the analysis is conservative, given where the market is right now.

Results

Correcting the math errors alone leads to several scenarios that are over 20% IRR. If we slightly adjust a few assumptions to more realistic ones, like cap rate, refinancing rate, using actual cost on the land (which shouldn’t even be included at all in our opinion), then almost every scenario becomes feasible with 16%-30% IRR ranges.

JOIN YOUR NEIGHBORS TONIGHT!