Developer Hamish Marshall walked out of the Sept. 7 San Luis Obispo City Council meeting with a little something special: $2.4 million of city funds to help build his Garden Street Terraces, a retail-residential development.
The SLO City Council voted unanimously to loan Marshall’s development company, Garden Street SLO Partners, L.P., $2.4 million in return for a 99-year lease on a city parking lot. The loan must be repaid within 30 years at a yet-to-be-determined interest rate that will equal the city’s cost to borrow equivalent funds. The parking lot now conveniently located on Garden Street between Higuera and Marsh will soon disappear from both public view and use. The replacement lot will sit below the development and be off limits to the public.
According to a city staff report, officials awarded the loan because “due to the economic downturn, this term offers the developer a key financing source and offers the city an opportunity to invest in the longterm health of the community while providing a good vehicle for investment of money from the parking fund.”
City officials say the low-interest loan is actually beneficial. But the deal is by no means simple. In addition to the loan, project developers will lease the parking lot for 99 years and own the air-space rights above it. In return, the developers will have to pay a minimum rent of $167,800 per year and, beginning 15 years into the life of the lease, will pay 1.5 percent of the gross individual hotel room revenues that exceed $71,500 per room of the hotel. Naturally, the base rent will be reduced equal to the city’s net realized increase in property tax paid by the developer, currently estimated to be approximately $53,000 annually.
The developer will also pay a onetime fee of $30,000 for each of the 62 parking lots taken away by the builder. That comes out to $1,869,000.
City officials claim the project will be a honey of a deal all around. They predict the general fund will rack up a net benefit of $325,700 a year from the project’s completion. The 99-year lease and air-space giveaway is estimated by city staff to bring in $13.3 million over its life. Staff figured in a conservative 2-percent rate of inflation, so presumably if there are a few nasty bouts of ’70s-style inflation, that money might not buy a lot in the future.
Marshall has five years to take up the loan offer. Due to the dismal economy, construction of Garden Street Terraces has been delayed. The project has also shrunk from its original size.