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“I regard the brain as a computer which will stop working when its components fail. There is no heaven or afterlife for broken down computers; that is a fairy story for
people afraid of the dark.” - Theoretical physicist Stephen Hawking
Desert Political Opinion: Desert Fashion Plaza Profit Potential
Desert Fashion Plaza Profit Potential
Palm Springs, California. The City of Palm Springs
has released details of its recently negotiated financing agreement with
developer John Wessman covering the renovation of DesertFashionPlaza. Wessman is the
near-empty plaza’s owner and that central downtown site is viewed as a major
stumbling block to the revitalization of the city’s oldest and singularly
pampered shopping district. The financing agreement clearly proves Mr. Wessman
is an extremely shrewd negotiator for he stands to receive $43 million in
taxpayer funds as an incentive (a gift) to undertake major renovation work on a
portion of his plaza property.
According
to city staff analysis the cost of DesertFashionPlaza’s
Phase One development will be $81 million. It is stated development of the
plaza has not previously occurred because it would not be a profitable
enterprise. The projections for the plaza, following an $81 million
redevelopment, would only return 4.7% as the annual net profit. The analysis
states investors currently demand 9.5% returns before they will participate.
The conclusion is that Mr. Wessman does not personally have sufficient funds to
develop the plaza without outside investors and a 4.7% return is insufficient
to meet their demands. According to the analysis the project will need a gift
of city funds totaling at least $43 million in order to allow it to generate
the 9.5% annual net return investors expect. It is believed downtown
millionaires and other influential interests completely understand the issue
and may have instructed city officials to do whatever it takes, pay whatever it
costs and move as swiftly as possible in order to persuade Mr. Wessman to
quickly undertake redevelopment of his plaza property. It is for that reason
this agreement may have been negotiated and the new one percent Sales Tax hike
ordinance enacted and placed on the November ballot as Measure J. The Sales Tax
hike ballot measure money will be deposited
in the city’s general fund where it will be available to satisfy the $43
million required by the agreement with Mr. Wessman.
The
financing agreement between the city and Mr. Wessman is completely one-sided
and allows him the best of all possible options. His construction cost
contribution will be $38 million and the city’s gift will cover the remaining
$43 million. When completed his annual net return will be $4.7 million and the
city’s share will be zero. A portion of the city contribution, $32 million,
together with $2 million from Mr. Wessman will be deposited into escrow and
paid out as construction proceeds. Mr. Wessman’s remaining $36 million will not
be required until the city contribution has been completely used. When Phase
One of the project is complete in 2015 it will be worth, based on actual cost,
at least $100 million dollars. At that point if Mr. Wessman chooses to sell the
property for that amount his profit will be $42 million. The city’s share of
the profit (remember, the city contributed $43 million towards the costs) will
be zero!
The agreement with Mr. Wessman is a bad arrangement for Palm Springs and its
taxpaying community. There is still time to change some of its terms and make it
a bit more palatable. For example:
a stipulation that provides
for the city to share in any profit from future sale of the property would
seem appropriate; and
provide for the city to
receive all of the Phase Two land that is being set aside for future
development; and
re-examine the costly
arrangement that relieves the parking structure, public restrooms and new
streets maintenance costs from the developer and transfers them to the
city.
These steps could eventually lead to the city recovering
much, if not all, of its $43 million at a future date. A better solution, of
course, would be for the city to get out of the gift of public funds business
and allow Mr. Wessman to make his best deal with private investors.
Mr.
Wessman is a smart, shrewd and determined developer and businessman. No better
evidence exists than in the one-sided financing conditions he has extracted
from Palm Springs
city officials. He will receive huge sums of taxpayer dollars as a gift to
develop property he owns that, when development ends, can be sold for almost
double his actual investment. The only losers in this deal are taxpayers in Palm Springs and they
lose twice. The first loss is the 1% Sales Tax hike they are being asked to
pay. The second loss is in city officials’ credibility for that group clearly
answers to money and influence while completely ignoring presumed ethical and
fiduciary responsibilities to their taxpaying constituency. Some, who have
cried out “Shame on them!” may have rightfully made that call.
Bond Shands Palm Springs - September 6,
2011
- End -
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