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City may buy land for hotel: Cost of three San Carlos parcels deemed ‘landmark properties’ is $13.7M
November 22, 2013, 05:00 AM By Michelle Durand Daily Journal

The owners of 595 Industrial Road, 810 E. San Carlos Ave. and 850 E. San Carlos Ave. are reportedly eager to sell " so eager in fact they want a short close.

The longtime wish for a hotel on land San Carlos has deemed landmark properties could gain traction with the $13.7 million purchase of three parcels in the industrial area near the city’s gateway.

Earlier this year, city officials wrestled with the idea of protecting the area from large-scale gyms and other non-hotel uses by changing the zoning. Proponents argued the challenge of creating a space for a hotel and its precious revenue to the city. Opponents maintained a hotel would be hard-pressed to materialize and said the market should decide. Now, the market apparently is leaning toward a hotel after all.

Several hotel developers have expressed varying levels of interest and the owners of 595 Industrial Road, 810 E. San Carlos Ave. and 850 E. San Carlos Ave. are reportedly eager to sell — so eager in fact they want a short close. But hotel developers don’t operate quite that quickly so to overcome the potential obstacle of a roughly 120-day escrow, the city is considering a short-term purchase of the land from the owners, said Councilman Mark Olbert.

The danger is the city being left holding the 3.91 acres of land if a hotel deal never transpires, but Olbert called it a low-risk investment.

“I think at this state of the economic cycle, holding an investment of land is a good idea. We have a concept in place, a vetted level of interest and it would be really silly to let this kind of opportunity go,” Olbert said.

At Monday night’s meeting, the council will consider approving the purchase and sale agreements for the three parcels. The $13,690,000 total is $80 per square foot and include $4.85 million for 595 Industrial Road, $5.34 million for 850 E. San Carlos Ave. and $3.5 million for 810 E. San Carlos Ave. Each is separately owned but represented by a single broker who has also brought forward several interested developers.

The funding for 595 Industrial Road would come from the city’s Strategic Property Acquisition Reserve Fund while the other two are subject to the city’s ability to get private financing, according to a report by Community Development Director Al Savay.

The financing proposals are expected to come back to a City Council meeting in January 2014.

The Industrial Road property has a single-story, 32,000-square-foot building and four tenants. Under the agreement, tenant First Down Promotions can continue occupying the property for $1 per month through June 15, 2014, or the final close of escrow of the other two properties.

Nine tenants currently occupy 850 E. San Carlos Ave. and there are none in 810 E. San Carlos Ave. The city’s economic development consultants estimates relocation costs shouldn’t be more than $400,000.

New zoning district

The potential buy comes a few months after the City Council in a split 3-2 vote created a new zoning district, a decision that overrode the Planning Commission recommendation to largely leave the area at the city’s gateway alone. Mayor Bob Grassilli and Councilman Matt Grocott opposed creating the new landmark commercial district along Highway 101.

As defined, the new district allows uses that “have significant beneficial results in employment growth and contribute to the economic sustainability of the city and implementation of the city’s economic development plan.” All others will require conditional use permits.

At the time, property owners decried the proposal as bad for business and city staff highlighted the need for the sales tax and transient occupancy tax that comes with a hotel.

According to Savay’s report for the council meeting, general fund revenue could be a million or more based on conservative projections.

Gateway ‘landmark sites’

The city has looked at redeveloping the properties at the gateway intersection of Holly Street and Industrial Road since the early 1990s and in 1991 labeled them “landmark sites” in its East San Carlos Specific Plan.

The roots of the most recent debate began in March when a proposal was submitted for a 45,000-square-foot fitness center with 300 parking spaces. The existing zoning allowed the use without greater scrutiny or permits, causing the City Council to hit pause with an emergency ordinance on development. The council did not extend the moratorium and the Planning Commission, after two meetings, voted against creating the entirely new district. That decision came after property owners and real estate experts said that waiting for a hotel that might never transpire is harming business in the meantime.

Hotel interest

Councilman Ron Collins said Savay and City Manager Jeff Maltbie knew at the time hotel interest was knocking on the city’s proverbial door but were required to bite their tongue.

With the possibility of a hotel looking more realistic, Collins said he’s encouraged by the potential of a “very nice” development producing “a fair amount” of revenue for the city. Like Olbert, he also considers the city acting as buying middleman a reasonable risk.

“It’s a consideration but this is an extremely valuable piece of land and I strongly suspect if the buyer we have in mind doesn’t want the property there will be somebody else,” Collins said.

In its request for proposals, the city has named several factors used in the developer selection process including fiscal benefits, how much city assistance is needed and the intention to work with the Greater East San Carlos neighborhood and other neighbors on the project’s conceptual and final design

The San Carlos City Council meets 7 p.m. Monday, Nov. 25 at City Hall, 600 Elm St., San Carlos.

(650) 344-5200 ext. 102



Tags: hotel, carlos, council, city, property, industrial,

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