Staff Writer
The owner of a BMW dealership at the Signal Hill Auto Center plans to expand to a vacant, former redevelopment property in a deal that would settle a $6-million debt that the City’s former redevelopment agency has had with used-car retailer CarMax.
Acting as the Successor Agency to the former Signal Hill Redevelopment Agency (RDA), the City Council voted unanimously (5-0) to approve the proposal just before their regular meeting on Tuesday, May 6.
The amended disposition and development agreement (DDA), which also requires approvals from the successor agency’s oversight board and the California State Department of Finance, comes nearly two years after CarMax backed out of a previous deal to locate an “auto superstore” on the property.
CarMax had agreed to purchase the 6.1-acre site located at the corner of Spring Street and Walnut Avenue from Signal Hill’s former redevelopment agency for $6 million in 2006, making “advance” payments in three installments over a two-year period, according to City Manager Ken Farfsing.
The payments were secured through a promissory note using deeds of trust on the property, according to a staff report. However, the company never started construction, citing concerns over the economic recession, Farfsing said.
Then, in early 2012, nearly six years after the original purchase agreement, CarMax sent a letter to the City, terminating escrow and requesting a refund. The company’s decision came just as concerns arose over the State’s decision to dissolve redevelopment agencies in order to fix a billion-dollar budget deficit.
A new law froze redevelopment transactions and required that former RDA properties be liquidated through a process that gives the State ultimate authority over land acquisitions. Municipalities that opted to form successor agencies are also given some authority along with oversight boards, but they’re required to follow various state provisions.
Initially, the State determined that CarMax’s payments and obligations were unenforceable, but that decision was later reversed after the State passed legislation, known as AB 1484, which provided “additional guidance” on the RDA dissolution process, Farfsing said.
The successor agency informed CarMax to not act on the refund request since the DDA “predated the dissolution of the Signal Hill Redevelopment Agency,” he said.
Even though the State had permitted the project to move forward, CarMax still pushed for the refund. The City, however, had already spent the money years ago on purchasing remaining parcels of the property, environmental remediation, oil-well abandonments and preparing the site for construction, Farfsing said.
In order to find an equitable solution, CarMax and the City agreed to contact nearby auto dealers at the Signal Hill Auto Center, asking if any would be interested in expanding or moving to the site.
Then, North Carolina-based Sonic Automotive, Inc., which owns the BMW dealership on Cherry Avenue and several other franchise auto dealers throughout the state and the country, stepped up to buy the property.
To prevent the transaction from being blocked by the State, the City amended the original DDA and replaced CarMax with Sonic Automotive, among other changes. City officials said the State is already on board with the transfer.
A new purchase price was set at approximately $6.3 million, slightly higher than what CarMax paid after adjustments were made based on “final land surveying,” Farfsing said. The State requires that excess funds from redevelopment transactions go toward paying attorney fees, staff costs and other enforceable obligations, he said.
The deal not only fulfills state requirements but also ensures that CarMax would be paid back in full through a three-party agreement, Farfsing noted.
“The amendments also include the waiver and release of all claims by CarMax, the Successor Agency and the State of California, and that also would include broker fees,” he said.
John Russ, vice president of corporate development for Sonic Automotive, confirmed during the meeting that the company plans to spend $14 million on building the new dealership, with an additional $1-million to $2-million investment in its existing auto dealership that would be rebranded to sell only Mini Cooper vehicles.
“We really enjoy being here and appreciate your assistance to close the loop on this deal, if you will, and move forward,” he said. “We’re excited about the new project.”
The company’s existing 4.8-acre Long Beach BMW dealership on Cherry Avenue would be redesigned for only the Mini Cooper brand while the new dealership would fit BMW’s new dealership model, Russ said.
“Mini [Cooper] wants to be a separate franchise from BMW,” he said. “So there’s a strong, strong desire on the part of the manufacturer to separate those. And, in this location, we think it’s going to work great for us as well.”
According to city officials, the new BMW dealership would include a 32,000-square-foot building for showrooms, offices and reception areas in addition to a 35,000-square-foot service and repair center. The facility would accommodate parking for 338 cars, with 176 spaces devoted to vehicle storage.
Signal Hill Mayor Ed Wilson praised the potential transaction, stating that the new dealership would add to the City’s growing business community.
“I just wanted to give you my appreciation for moving this project forward,” Wilson told Russ. “It’s been a number of years, and we are definitely moving forward on it … We have a number of car dealerships here, among a lot of other businesses that are really great corporate partners.”
The proposal did, however, draw some criticism.
Signal Hill resident Bob Mendoza, a supporter of the controversial tax initiative known as Measure U, questioned whether the project will be completed, pointing out the length of time it took the City to find an auto dealer. He also noted that the City’s plan to build a new library with redevelopment bond proceeds has yet to move forward.
“I’m glad you all have a smile on your face, but we’ve been here before, and we’ve seen a lot of nice presentations that have happened before,” Mendoza said. “I wouldn’t be too excited yet until this thing gets done.”
Supporters of Measure U, a highly debated initiative that would require a two-thirds majority vote of the electorate for the approval of certain taxes, fees and assessments, have recently used the CarMax situation as an example of the City’s “bad” financial decisions, noted Councilmember Tina Hansen. Voters will decide on the measure during a special election on June 3.
However, City Attorney David Aleshire defended the City, stating that, while most other cities in California are stuck with vacant properties because of the State’s dissolution of redevelopment, Signal Hill has “creatively” come up with a way to move the project forward through a solution suitable for all parties involved.
“It’s taken a long time because of these complexities, but instead of standing back and throwing up our hands and waiting until the State allows us to go forward, we have creatively looked for solutions,” Aleshire said.
He clarified that deeds of trust on the land gave CarMax the option to take the property, but the auto dealer instead chose to pursue the refund without having to take legal action against the City.
If the State approves the deal, Sonic Automotive would have 180 days to get building permits from the City. Thereafter, the company would have one year to build the facility and 60 days from then to occupy the site once construction is complete.
Other Council highlights:
Presentations During its regular meeting, the Council received three presentations. In the first presentation, Bill Kelly, president of Kelly Associates Management Group, shared input received from two public workshops regarding the City’s five-year Strategic Plan. He noted that the meetings that took place last month each drew about 30 residents. After the presentation brought considerable debate about how Measure U would impact the Strategic Plan, councilmembers agreed that a planning session should be postponed until after the June 3 election. Secondly, the City presented a 12-minute YouTube informational video on Measure U. And lastly, Kelly Middleton, director of community affairs for the Greater Los Angeles County Vector Control District, and Dave Lopez, vector control specialist, gave a presentation on efforts to control vectors, particularly mosquitos, which can transmit diseases, including West Nile virus.
Restaurant inspection fees The Council voted unanimously (5-0) to establish new restaurant inspection fees. Under the federal- and state-mandated National Pollutant Discharge Elimination System (NPDES) and new municipal separate storm sewer (MS4) permit, cities are required to inspect restaurants to determine whether minimum stormwater control measures or best management practices are being implemented, according to a staff report. Restaurants would be charged for two inspections, which cost $144 each, over a five-year period, paying about $58 annually. The State expects cities and counties to bear the cost of performing various inspections as required under the MS4 permit, essentially expanding the program already under an “unfunded mandate,” according to the staff report. The total estimated cost to perform the inspections on about 37 restaurants in the City is $5,328, city staff said.
Committee vacancy The Council agreed to have Councilmember Lori Woods fill a vacancy on the Signal Hill Sustainable City Committee.
Copier contract agreement The Council voted unanimously (5-0) to enter into an agreement with Cell Business Equipment Office Solutions (CBE), which would provide copiers and service maintenance for all copiers in city facilities. The contract agreement would be for three years with a possible extension of an additional three years.
The next Signal Hill Council meeting is scheduled for 7pm on May 20 at the Council Chamber.
