By John Woolfolk
jwoolfolk@mercurynews.com
Posted: 12/12/2010 06:55:01 AM PST
Updated: 12/12/2010 06:59:23 AM PST
In a bid to keep Earthquakes owner Lew Wolff and his partners from backing out of an $89 million land deal, San Jose officials are recommending the city give them a potential multimillion-dollar break and more time so they can still move forward with a project to build a new soccer stadium near the airport.
The new terms, which could save Wolff and prominent valley builders Deke Hunter and Ed Storm up to $4 million in purchase costs, would mark the second time the city has lowered its price to keep the already-negotiated project afloat since the real estate crisis plunged the country into economic quicksand. It also allows them to delay purchasing the land until 2015, two years later than the current deadline.
City officials say the council should approve the new terms or risk being stuck with a worse deal for the 75-acre property it bought five years ago along Coleman Avenue from defense contractor FMC.
Wolff’s group has promised to buy the property and build offices, hotels, stores and a 15,000-seat stadium.
“The developer’s independent financial capacity, proven track record for delivering projects and desire to continue with the project “… still represent an important opportunity during this recession,” Interim Economic Development Director Kim Walesh said in a report to the City Council, which will consider the deal Tuesday. Without such a break, she added, the developers “would have to make the difficult decision to walk away from
the project.”
Wolff, who also owns the Oakland A’s and wants to move the team to San Jose if Major League Baseball will allow it, said he’s still committed to building a privately financed $60 million stadium for the Earthquakes on 14 acres, but the current deal and economy are making that difficult.
“The economy is certainly a huge factor here,” Wolff said. “We’re the only soccer facility in the MLS that has to do it totally private, so we have to make sure we have the best option to move that along.”
In 2005, San Jose paid $81 million for the FMC property. Including cleanup costs, the city’s cost for the site totaled $100 million. The city wanted the land for a modernization project at Mineta San Jose International Airport, which has since been scaled back.
In May 2008, the city reached a deal with Wolff and his partners giving them an option to buy the land for $132 million and build the soccer stadium plus 1.5 million square feet of office space, 95,000 square feet of retail space and 300 hotel rooms.
After the real estate market cratered, the city in May 2009 agreed to renegotiate: Wolff’s group would pay $89 million for 65 acres of the land. And $5 million of the $6 million they had paid for the option to buy the land would apply toward the purchase price. The developers would maintain their option to buy the property through June 2013 with nonrefundable option payments totaling $7 million over that time.
Under the new proposal, the purchase price would remain $89 million for the 65 acres, and the developers would still be credited for $5 million in option payments already made. But their option to buy the land would be extended two more years through June 2015 and would cost $2 million less over that time. If they buy the soccer site by June 2012, the first $2 million in new option payments would apply toward the purchase price.
That would save the developers anywhere from $2 million to $4 million, depending on when they bought the land. The developers would pick up demolition costs for existing structures, however, estimated at $3 million.
The city’s economic development division manager Nanci Klein said the deal is still far better for the city than seeking a new buyer because continued erosion of land values suggest the city would receive less than the $89 million under the current deal.
“The comparable costs are much lower,” Klein said. “If the city were to go out and sell to another developer, we’d get much less than the purchase price we’ve agreed to.”
Philip Mahoney, executive vice president at Cornish and Carey commercial real estate in Santa Clara, agreed and said that at $89 million, the airport land is probably overpriced.
“It would not sell on the open market at that price today,” Mahoney said. “Land is trading on North First Street at numbers below that — better location, lesser price.”
Wolff, who also developed the city’s Fairmont and Hilton hotels, and his partners have proven themselves capable of delivering projects, Klein said, which would be a boost to San Jose amid the economic downturn.
And without them, the city would lose the stadium project to support Major League Soccer’s Earthquakes. The team re-established in San Jose as an expansion franchise in 2007, two years after the original franchise moved to Texas.
The Earthquakes now play at Santa Clara University’s Buck Shaw Stadium and made the MLS playoffs this year. But Klein said having its own stadium would help the team build both fan support and revenue.
“Having their own stadium contributes a great deal to community participation,” Klein said.
City officials in 2008 projected the new stadium would pump some $60 million a year into San Jose’s overall economy, using economic models to show its ripple effect on hotels, restaurants and other local businesses.
As for the remaining 10 acres of the former FMC property, city officials are considering the site for a recreational soccer complex, which would have a natural tie-in with a nearby Earthquakes stadium. It would be built using some of the remaining $26 million from a 2000 city park bond measure.
