CITY COUNCIL: ECONOMIC FEASIBILITY ANALYSIS SUPPLEMENT TO THE FLANDERS MANSION PROPERTY

F 415 733 5530
www.cbre.com/consulting
May 6, 2009
Mayor McCloud and City Council
CITY OF CARMEL-BY-THE-SEA
City Hall
Post Office Box CC
Carmel-by-the-Sea, CA 93921-1757
Re: Supplement to the Flanders Mansion Property
Economic Feasibility Analysis
Honorable Mayor and City Council Members:
CBRE Consulting attended the special City Council meeting on April 28, 2009, at which the
public was invited to comment orally on the Flanders Mansion Property Economic Feasibility
Analysis dated February 23, 2009. At the request of the City Carmel-by-the-Sea (“City”), CBRE
Consulting submits the following supplement to its report in light of comments regarding issues
warranting clarification. Each category of public comment is enumerated below and followed
by CBRE Consulting’s response.
As a preamble to the following responses, it is important to note that the description of
economic feasibility standards stated in the Economic Feasibility Analysis at page 6 is a short
paraphrase set forth for purposes of the report. In determining the economic feasibility of the
alternatives analyzed in the report, CBRE Consulting reviewed and considered the standards for
economic infeasibility discussed in the Intended Decision dated February 23, 2007, in
particular, at pages 9 through 15 (from the case, The Flanders Foundation v. City of Carmelby-
the-Sea, et al., Mont. Co. Super. Ct. Case No. M76728). CBRE Consulting’s analysis was
not designed to assess which, if any, alternative may produce profit for the City. The full
Economic Feasibility Analysis, dated February 23, 2009, with its Appendices fully explains the
basis for determining the economic feasibility of each alternative.
1. Comment: The economic feasibility analysis assumed in connection with assessing the
feasibility of a lease that the City would pay the full cost of rehabilitation for the Flanders
Mansion without any offsetting grants. Historic tax credits are available and would make
rehabilitation a more viable option. Rehabilitation funding may be available from federal,
state, or other sources.
Response: The Economic Feasibility Analysis did also consider leasing of the Flanders
Mansion Property with the lessee responsible for the rehabilitation.
Funds and tax credits available for the rehabilitation of properties such as Flanders Mansion
are currently scarce, which has been affirmed by California’s Office of Historic Preservation.
Two significant sources exist today. One is in the form of IRS tax credits through the
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National Park Service. However, these apply only to income-generating properties, with
leases running 39 or more years.
The other main source is the New Markets Tax Credit (NMTC) Program, which permits
taxpayers to receive a credit against federal income taxes for making qualified equity
investments in entities serving “low-income communities or low-income persons.” As noted
below in response to Comment #4, CBRE Consulting is not aware of any properties similar
to Flanders Mansion being reused as high density affordable housing. Moreover, in the
current economy there is virtually no market for tax credits, as most businesses no longer
have profits they are seeking to offset.
2. Comment: Selling costs are not factored into the sale disposition scenarios.
Response: CBRE Consulting deemed the sum of these costs (typically related to real estate
commission, transfer taxes, and title charges) insignificant for purposes of determining the
economic feasibility of selling the Flanders Mansion Property and therefore excluded them
from the estimated sale proceeds. In standard appraisal methodology, the deduction of
selling costs from a market value conclusion is not typical. In the case of the Flanders
Mansion Property the potential selling costs would not alter the conclusions of economic
feasibility in CBRE Consulting’s analysis.
3. Comment: Disposition of the Flanders Mansion without its surrounding deeded land should
be another alternative considered.
Response: Disposition of the Flanders Mansion without its surrounding deeded land would
significantly reduce the property’s marketability and ultimately its sale or lease proceeds,
particularly since much of the property’s value is in its land. It is not customary to see
ownership of single-family residences, particularly of this type, divided from their
surrounding property.
4. Comment: Disposition pursuant to the Surplus Land Act could result in land use impacts not
studied in RFEIR. Should the Flanders Mansion Property be offered to public agencies as
part of the surplus property disposition process, the resulting use may be high density
affordable housing.
Response: CBRE Consulting is not aware of any properties similar to Flanders Mansion
being reused as high density affordable housing.
5. Correction: Use of Flanders Mansion Property by a foundation represents a non-residential
use. However, CBRE Consulting’s statement at the City Council meeting on April 28, 2009
meant to suggest that should a foundation buy or lease Flanders Mansion, it may use the
property for housing a visiting scholar, artist, curator, or similar resident rather than as a
non-residential facility.
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Mayor McCloud and City Council, CITY OF CARMEL-BY-THE-SEA
May 6, 2009
Page 3
6. Correction to the Economic Feasibility Analysis dated February 23, 2009: This report
erroneously notes the Assessor’s Parcel Number of Flanders Mansion Property as 010-061-
007, whereas the correct number is 010-061-005.
Sincerely,
Lynn M. Sedway, CRE Jonathan Kuperman
Executive Managing Director Director