HomeMy WebLinkAboutStaff Report 427-06TO:
of Palo Al o
CitY Manager. tReport
HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: CITY MANAGER AND
PLANNING AND COMMUNITY
ENVIRONMENT
DATE:DECEMBER 11, 2006 CMR: 427:06
SUBJECT:CITY COUNCIL DIRECTION TO IDENTIFY ONE OF TWO CITY-
OWNED SITE OPTIONS FOR AUTO DEALER RETENTION AND
EXPANSION AND DIRECT THE CITY MANAGER AND CITY
ATTORNEY TO NEGOTIATE A LEASE THAT WILL RETAIN
ANDERSON HONDA IN PALO ALTO
RECOMMENDATION
Staff requests that City Council identify one of two City-owned site options for auto dealer
relocation and direct the City Manager and City Attorney to negotiate an appropriate lease that
will retain Anderson Honda in Palo Alto.
BACKGROUND
The City of Palo Alto is home to seven auto dealers: Anderson Honda, Magnussen Toyota,
Carlsen Volvo, Carlsen Audi, Stanford European Motors, Park Avenue Motors and Hengehold
Motors. Si,nce 2001, three additional dealers (Stanford Nissan, Peninsula Ford and Carlsen
Volkswagen/Porsche) have either moved to other cities or closed their dealerships. The current
auto dealers generate approximately $1.97 million annually in sales tax revenue.
An April 7, 2006 Colleague Memo (Attachment 1) from former Mayor Burch, Mayor Kleinberg
and Council Member Beecham directed staff to pursue strategies to preserve and grow the
revenue stream that auto dealers provide to support City services. The memorandum requested
that the City Manager form a multi-department team to investigate any and all feasible options
for alternate sites for relocation of Palo Alto’s auto dealers. The team was given the following
strategies and parameters for retaining auto dealers in Palo Alto:
1. Investigate available sites adjacent to highway 101 which are currently underdeveloped or
vacant.
2. Investigate existing City-owned land and facilities that could be relocated to accommodate
auto sales sites.
3. No dedicated parkland should be considered.
4. Provide increased visibility for existing dealers through freeway-oriented signage.
CMR: 427:06 Page 1 of 4
5. Identify effective financial policies to overcome economic barriers preventing relocations.
Two primary strategies have been used to retain auto dealers: 1) adoption of an auto sales
dealership overlay zone which includes auto dealer sites on E1 Camino Real, San Antonio Road,
Embarcadero Road, and the General Manufacturing zoning districts to allow existing auto
dealers to "grow in place"; and 2) identification of specific sites that meet dealership and
corporate requirements for storage, visibility and access.
The first strategy has been successful for Magnussen Toyota and Carlsen Volvo which have
decided to remain in Palo Alto and expand new and used car sales. Magnussen Toyota has
acquired a second site on Middlefield Road and will be expanding its used car sales on the
second site. It will also have a parts and service adjunct to the business on Middlefield Road in
Mountain View.
Carlsen Volvo has also acquired the old Peninsula Ford site adjacent t° its former location. This
site is double the size of the building in which its operations were formerly located.
Carlsen Audi, Stanford European Motors, Park Avenue Motors and Hengehold Motors have
done a variety of onsite improvements and will continue to operate at their existing locations.
In accordance with the second strategy, several possible sites for auto dealer expansion were
presented to City Council. The pre-eminent site identified for further expansion was the
Municipal Services Center (MSC) site on East Bayshore. staff was directed to provide the City
Council with a cost benefit analysis for the Municipal Services Center site. After analysis and
discussion of the costs and benefits, Council determined that creating an auto row at the MSC
was not financially feasible and directed staff to continue working with the existing auto dealers
on strategies for retaining their dealerships in Palo Alto. Staff has since been working to identify
other more feasible sites for Council consideration.
DISCUSSION
Attached to this staff report is a letter from John Anderson (Attachment 2), owner of Anderson
Honda, outlining facilities requirements from Honda Corporation that Anderson Honda must
meet by the year 2010. According to Anderson’s letter, the current site for Anderson Honda is
inadequate--total land, total building size, showroom, service facility, and frontage. Two
potential sites for the growth of Anderson Honda include: 1) 5.77 usable acres at the end of
Embarcadero road at the Palo Alto airport and 2) 5.62 usable acres at the former the Los Altos
Treatment Plant site. At the first site, Anderson estimates doubling his annual car sales; at the
second site, he anticipates a 50% growth within the first two years following expansion.
Anderson’s letter outlines the constraints and challenges that he faces at his current site and
requirements if he is to continue his operations in Palo Alto. Staff has identified three issues at
each site for further consideration:
CMR: 427:06 Page 2 of 4
At the Palo Alto Airport site: 1) Resolution of site control issues. This site has been
leased to the County in a long term lease through 2017. Utilizing the 5.77 acres for auto
storage would require renegotiation of the County lease. 2) Existing land use policy. The
existing Baylands Master Plan (BLMP) does not support a commercial expansion on
airport land. An amendment to the BLMP is required before the City can proceed with
any change in this area. 3) Revenue impacts. Anderson anticipates that Honda sales
would increase by 100% within two years of operation.
Former Los Altos Treatment Plant (LATP) site. 1) Resolution of site control issues. The
City of Palo Alto is currently in dispute with Los Altos regarding site control. While
Palo Alto has fulfilled its obligations under the lease/purchase agreement, Los Altos to
date has not delivered a deed to the property. It is possible that litigation will have to be
commenced to resolve these issues. 2) Existing land use policy. The site was previously
developed as a treatment plant and a portion of the site has been set aside as undeveloped
wetlands. 3) Revenue impacts. Revenue anticipated from operations at the LATP site is
less than the airport site.
RESOURCE IMPACT
As previously stated, new and used auto sales generate approximately $1.97 million annually in
sales tax revenues and retention and potential expansion of auto dealers is essential to
maintaining the City’s diverse General Fund revenue base. While specific sales tax data is
confidential, Anderson Honda generates a significant amount of all new and used auto sales tax
revenues. Based on the proposal, sales tax revenues could potentially increased by
approximately $300,00Oto $700,000 per year.
In addition, the expansion would be located on city owned land and the site would be leased at
current market rates for a period of 30 years. Typical lease rates for these potential sites based
on current market rates will vary. However, based on a site of approximately 5.5 acres valued at
$55.00 per square foot rented at an 8.0% annual rate of return would generate approximately
$1.05 million in annual lease revenue.
Sq Total Sq Market
Acres Ft/Acre Ft Value
Approximate Site
Size 5.50 43,560.00
Cost per square
foot 55.00 8.00%
Annual Lease
Revenue 1,054,152.00
239,580.00 13,176,900.00
CMR: 427:06 Page 3 of 4
Based on these two factors, incremental General Fund revenues could be approximately $1.3 to
$1.7 million annually. It should however be noted that a portion of the lease revenue may have
to be split with the City of Los Altos depending on the outcome of the site control issues.
ENVIRONMENTAL REVIEW
This action by the City Council is not considered a project under the California
Environmental Quality Act (CEQA). Prior to entering into a lease agreement, however,
appropriate CEQA review will be required.
ATTACHMENTS
Attachment A: Colleagues’ Memo re:FORMATION OF AUTO DEALER RETENTION
TASK FORCE
Attachment B:
PREPARED BY:
October 1, 2006 Letter from John Anderson
Economic Development and Redevelopment Manager
PLANNING AND COMMUNITY ENVIRO/~IMRNT_..N__T..A.P-P-t~VAL:
%.
CITY MANAGER APPROVAL:
D~mmunityire~cto~f Planning a~nd Co
Environment
FRANK" BENEST
City Manager
CMR: 427:06 Page 4 of 4
ATTACHMENT A
TO:
FROM:
DATE:
SUBJECT:
OFFICE OF THE CITY COUNCIL
CITY OF PALO ALTO
MEMORANDUM
City Council
Mayor Butch, Vice Mayor Kleinberg and Council Member Beecham
April 7, 2005
FORMATION OF AUTO DEALER RETENTION TASK FORCE
This memorandum requests that the Council direct the City Manager to form a multi-
department team to investigate any and all feasible options for alternate Sites for
relocation of Palo Alto’s auto dealers. This direction includes authorization to restructure
existing work plans to accommodate the addition of this project.
Palo Alto’s sales tax base relies heavily on economically strong automobile sales. For
decades, Palo Alto has enjoyed diverse auto sales on E1 Camino Real, Park Boulevard
and Embarcadero east of Highway 101. Gross revenue of twenty million dollars is
generated annually by auto sales in Palo Alto, representing twelve percent of the City’s
total sales tax revenues.
Council has previously directed staff to work on strategies for our automotive dealers.
Staff has met with all existing dealers to identify their needs in their existing locations
and has made recommendations to Council. These recommendations have been
approved. But the existing locations of several of our dealers are nonetheless inadequate
in the long run. Increased competition from adjoining communities as well as stringent
demands placed on dealers by their respective manufacturers increase pressure on Palo
Alto’s existing auto dealers to relocate to sites visible from a freeway. Palo Alto stands
to lose this significant segment of its sales tax base if action is not taken immediately.
The Task Force authorized by this memorandum should investigate the following:
1. Available sites adjacent to Highway 101 that are currently underdeveloped or
vacant.
2. Existing City owned land and facilities that could be relocated to accommodate
auto sales sites.
3. No dedicated parkland should be considered.
4. Increased visibility for existing dealers through freeway oriented signage.
5. Effective financial policies to overcome economic barriers preventing relocations.
Due to the urgent conditions and the real possibility Palo Alto may lose this vital segment
of our sales tax base, the task force should largely consist of internal city staff. The task
force should consult with the community, real estate experts and stakeholders as needed
and report its findings to the Council within the next 3 to 4 months.
ATTACHMENT B
Anderson
Frank Benest
City Manager
City of Palo Alto
25 Hamilton Avenue
Palo Alto, CA 94301
November 15, 2006
Dear Frank,
I thought it would help to memorialize our several conversations regarding Anderson
Honda’s need for expansion while at the same time expressing our desire to stay in Palo
Alto.
I have attached a copy of the documents from Honda outlining our facilities requirements
that we must meet by the year 2010. For us, this is very serious. If we have not met these
requirements by 2010, Honda has the fight to limit the number of cars we receive or to
even close the facility and pull our franchise. As you can see, our current site is totally
inadequate - total land, total building size, showroom, service facility, frontage,
everything is short.
As you know, our first choice, and Honda’s, is a freeway site. Since that does not seem
to be possible in Palo Alto, we have two choices that we are exploring: one to move to
East Palo Alto, the other to get additional land close by this current facility.
In line with that, I would like to discuss price and terms of payment for the purchase,
sale, exchange or lease of certain city properties identified below:
The first site would be the 8 acres at the end of Embarcadero and the end of the airport
runway. That would be an ideal location and would easily satisfy Honda as well. At the
very least, we would simply pave and light the facility and store cars there. However, our
first choice would be to build a low profile 8-10,000 square foot building near the small
executive termina! that would be used strictly for cleaning and prepping new cars for sale
and delivery. The rest of the site would be used for new vehicle storage.
The site could be totally landscaped and hidden from the street, and the building would
be very low so it would not be seen. I have asked our architect to prepare a quick sketch
of the site from the street as well as an aerial for your review. Everything would be on
asphalt so there would be no risk of leaks to the Bay.
As a backup, I would like to also formally discuss the old Los Altos Treatment Plant site.
While not as ideal, I feel I could convince Honda to allow this. Again, we would build a
1766Embarcadero Road ¯ Palo Alto, CA 94303 ° (650) 8566000 ¯ Fax (650) 8566738
www.ande~’sondirect.corn
low building and conceal it with landscaping from the street, This site is obviously not as
desirable, because of the dis~ce from the Store, it is a smiler site and there is the
possibility of flooding.
If I were to get the Embarcadero Road site, I feel confident I could remain in Palo Alto
for a long time and would certainly double my sales within 2 years of having the site.
The Los Altos site would not be as ideal because of the distance required to take
customers to see vehicles. However, I would feel a 50% growth within the first two years
would be possible there.
After thinking about the Pasco site, I feel it is too small to be of much value. It simply
would not solve enough of the space issues Honda raises.
Frank, please understand that my desire is to stay in Palo Alto. But as you can see, I have
to do something. And I have to do it fairly soon to make Honda’s deadline. Please also
note that it would require a facelift to our present facility, as in their drawings.
Let me know if I can answer any questions. I look forward to hearing from you and to
moving the project forward.
Sincerely,
Anderson
Anderson