Does the mayor have a crystal ball?
In her response to William Barbat's Citizen's View article of last week, titled 'Safeco: Is it a White Elephant?' Mayor Hammerstad says 'I can assure you that, because of the desirability of that piece of property, it will never be a white elephant. In the event that it does not become a community center, the appreciation of the property will more than cover our costs of acquiring and financing.'
While it is true that the Safeco property is desirable, it is pure speculation that the property will appreciate in value 'more than the cost of acquiring and financing.' If we assume Safeco was a knowledgeable seller and the city paid market value for the property, we have already paid for this desirability in the purchase price. The value in 2009 will be dependent upon economic factors far beyond the city's control -changes in long-term interest rates, growth in the local and national economies, and the availability of new office space. If the mayor has a crystal ball, I'd like to borrow it.
More importantly, the value of the Safeco property in 2009 will be more dependent upon finding a willing single-use buyer for the property. The Safeco building was designed for a single user, an insurance company, with the specific requirements of this user. It is not designed as a multiple use office building offered for lease like the other high-demand office buildings in the area. Single-user purchasers for the Safeco building will be difficult to find at that price. A more-likely scenario is for a buyer to demolish the building and to build a multi-story office building like the others in the area. Would such a buyer pay $20 million, plus the more than $3 million city will have paid for financing and consulting costs, for the land alone plus the demolition and site preparation costs? The city's architectural firm, BOORA and Associates, has estimated site preparation cost, including the total demolition of the existing Safeco building, at $5.4 million. In order to cover the city's costs, as the mayor says the city would have to, to find a buyer willing to pay at least $28.4 million for the Safeco property in 2008 before he even starts to build his own office building. That's just wishful thinking.
The mayor's 'assurance' is pure speculation.
Ironically, the city has its own fund-balance policy that could have controlled this excess. The policy provides that 'no more than 25 percent of Property Tax Fund reserves may be held in land at any one time.' Obviously, the intent of the policy was to avoid undue risk in real estate investments. The mayor and city council earlier this year voted to suspend that policy in order to acquire the Safeco property. So why make a policy only to suspend it when it seems convenient?
In a letter I wrote to the mayor and city council earlier this week, I said, 'I urge you and the council to consider the best interests of the citizens of Lake Oswego. Re-sell the Safeco property now or bring the community center bond issue to a vote in 2007, not in November 2008. Selling Safeco now would provide the city with an investment gain, avoid the embarrassment of a failing bond measure and possible investment losses in the future, eliminate more than $3 million expenses in the future, and possibly avoid future spending limitation initiative petitions. A less desirable alternative is to bring the bond issue to a vote in November 2007, a year earlier than you propose. But there would be more risk and more expense in that alternative. There are still 11 months until November 2007. Let's not waste any more time and the taxpayers' money.'
I hope they listen for our sakes.
Gordon Umaki is a resident of Lake Oswego.