PURPOSE:

The purpose of this report is for the City Council to consider a request from Raul Porto of Porto�s Bakery to provide financial assistance to locate a bakery and restaurant at the Old Thrifty site located at 3606 and 3614 West Magnolia Boulevard, as well as enter into a Reciprocal Easement Agreement that would effect the proposed bakery parking lot and the adjacent public parking lot.  

BACKGROUND:

The old Thrifty site has been vacant for more than six years, and is a blighting condition for the Magnolia Park area.  The current owner of the property, Ken Fisher, has considered different plans for the property after he purchased the property in 2001.  This included the establishment of entitlements for a multi-tenant retail building, and more recently negotiations for a lease with the United States Social Security Administration.   At the same time, Raul Porto has also expressed an interest in purchasing the property to open a Porto�s Bakery and Caf�.  Porto�s is a 44 year old family owned and operated business headquartered in Glendale.

Just recently, Ken Fisher and Raul Porto have reached agreement for Porto�s to purchase the property.  The owner has requested that escrow close as soon as possible.  At the same time, Raul Porto has requested the City to provide $790,000 in assistance to help pay for base building and tenant improvements.   This assistance has been requested due to the high cost to purchase and renovate the building and provide a more pedestrian-friendly environment.  While the proposed bakery and caf� has sufficient on-site parking, a Reciprocal Easement Agreement is also proposed to improve circulation between the Porto�s parking lot and adjacent public parking lot. Over time, this may allow the opportunity to reconfigure the public parking lot in a way to gain more parking spaces.

ANALYSIS:       

The building contains approximately 14,400 square feet including a 3,000 square foot mezzanine. Since the building is such poor condition and its street presence is uninviting, Porto�s has estimated it would cost $514,557 in base building and site work costs as well as an additional $841,925 in tenant improvements for a total of $1,356,434 to bring the property up to the standard for a successful bakery and caf�. This would include a new roof, storefront fa�ade, sprinkler system, landscaping, and a redesigned interior with new flooring, lighting and plumbing.  If City assistance is approved, this cost could rise by as much as an additional $350,000 for the payment of prevailing wages.  A site and floor plan are provided as Exhibit A. 

Keyser-Marston Associates, the City�s economic consultant has reviewed the request for assistance in the amount of $790,000 and believes it is warranted.

If approved, staff proposes the funding be structured similar to how the Redevelopment Agency provides assistance through the Downtown Tenant Assistance Program.  This program was developed to provide financial assistance for structural and tenant improvements for underutilized and vacant properties in an effort to revitalize Downtown.  In the past, this program offered a forgivable loan to Tucker Investment Group to attract an Urban Outfitters to Downtown.  In that case, the Agency provided a $675,000 loan that was to be forgiven for each year that Urban Outfitters remained open for a period of 10 years, which was set forth in a Commercial Rehabilitation Loan Agreement.

A Commercial Rehabilitation Loan Agreement is also proposed for Porto�s Bakery and Caf�.  The following are the major terms for the proposed loan to Porto�s:

1. Porto�s must purchase the property at a minimum cost of $3.5 million with a minimum 25% equity down payment.

2. A minimum of 25% of the base building and tenant improvement costs shall be paid by Porto�s Bakery or related Porto�s entity.

3. Porto�s will be required to improve the property to the general level of the Porto�s in Glendale and as generally outlined in the Contractor�s Estimated Cost.

4. The City shall make progress payments to Porto�s as the improvements are completed based on 90% of the costs that are billed by Porto�s contractor up to the $790,000 loan amount through a pre-approved payment schedule.  The loan shall earn interest at the prime rate plus two percent amortized over ten years.

5. The City shall place a second trust deed on the property as security for its promissory note behind the funding for the purchase and improvement of the property by Porto�s.  In addition, the City shall receive a loan guarantee placed on the Porto�s Bakery business in Glendale.   

6. The bakery and caf� shall be opened for business within nine months after beginning improvements on the building, and in any case within 12 months after the close of escrow.

7. For each year Porto�s remains open, 1/10^th of the loan amount shall be forgiven.  

8. If after the third year of operation, Porto�s gross revenue exceeds $5,500,000, Porto�s shall pay the City one-half of the revenues over this amount up to the total amount of the loan due for that year ($79,000 plus interest).

9. Porto�s shall agree to participate in a Business Improvement District should one be formed for the Magnolia Park Area.

The Downtown Tenant Assistance Program guidelines limit the amount of the Agency loan to 80% of the landlord's base building and tenant improvement costs not to exceed $75 per square foot of leased space. In this case, the loan represents 58% of base building and tenant improvements and $55 per square feet of leased space.

CONCLUSION:

As part of the development of the Magnolia Park Action Plan several focus group meetings were undertaken to determine, among other things, the type of retailers that people would like to see in Magnolia Park.  This was followed by a survey of the area residents to receive their opinion.  The responses received called for more restaurants and cafes with outdoor seating, one-of-a-kind retailers, as well as a desire for a bakery.  They also indicated that they wanted to eliminate vacant retail space and improve building facades. A Porto�s Bakery and Caf� at the vacant Old Thrifty site appears to be a perfect fit in this regard.   

Given the fact that the building has been vacant for six years and has been a blighting factor for the area, and considering the response from the community to have this type of use, staff recommends entering into the proposed Commercial Rehabilitation Loan Agreement and Reciprocal Easement Agreement.

FISCAL IMPACT:

The old Thrifty site is not located within a Redevelopment Project Area.  However, the Agency can provide funding by reimbursing a portion of one of its loans with the City.  This would allow the City to execute the proposed loan agreement with no impact on the General Fund.  If approved, $790,000 of Agency funding will be transferred from Agency Account No. 301.ND000.85101.0302.000000 (Golden State Fund) to Agency Account No. 302.ND000.85101.0001.000000 (City Centre Fund), then to the City Revenue Account No. 001.ND000.59500.0302.000000, then to the City�s Economic Development Account No. 001.CD11A.62195.0000.000000, through a Cooperation Agreement between the City and Redevelopment Agency.

RECOMMENDATION:

It is recommended that the City Council and Redevelopment Agency Board adopt the respective resolutions to:  1) authorize the Community Development Director to enter in a Commercial Rehabilitation Loan Agreement under the terms outlined in this report; 2) approve a Reciprocal Easement Agreement to allow mutual access between the proposed bakery parking lot and adjacent public parking lot; and 3) appropriate the necessary funds, through a Cooperation Agreement between the City and Redevelopment Agency.

EXHIBITS:

Exhibit A         Site and Floor Plans

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