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The Orchard Center’s developer agrees to pay mitigation fees over two years
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Posted by editor Mon Jan 14, 2008 16:57:10 PST
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0 responses 5 comments “Nothing could be further from the truth,” was Community Development Director David James response to the very public outcry that the city’s mitigation fee policies favor commercial developers and are “not friendly to small business.”

James announced at the Jan. 8 regular council meeting that his staff was successful in negotiating a two year payment plan with The Orchard Shopping Center’s developer, Sobel Development, which would remove the onus for more than $100,000 in fees from the shoulders of the businesses that signed leases months ago for commercial space in the nearly completed center. Prior to this agreement, the city had allowed developer Brad Sobel, and others like him, to “choose” whether or not they wanted to pay the fees up front or pass them directly on to the tenants.

Case in point: Que Pasa Restaurant’s opening was delayed by a number of weeks before an agreement could be reached to pay off more than $50,000 in previously undisclosed fees over a two year period. 

The council also directed city staff to create a new commercial development “shopping center fee” to be paid up front by the developer before ground is ever broken.

“We acknowledge the chaos and animosity this has created,” said James, explaining that prior to this, the city’s fee system “has worked out very, very well historically.” 

One business owner it has not worked out so well for is Susie Atherton, of Canine Creek Dog Wash & Boutique. Atherton was “appalled” to learn she was expected to pay nearly $17,000 in fees just weeks before her business was due to relocate to the new center, even though she had signed her lease for relocation to The Orchard months prior. Atherton said she has managed to break her lease with Sobel, but at a significant cost.

“At this point I’ve paid out almost as much as the fees, just to get out from under this,” said Atherton adding that even if Sobel does pay the fees, she doesn’t want to be stuck with a long-term landlord-tenant situation that has soured before her new doors are ever opened.

Atherton has obtained a lawyer and is currently going over a new lease for a different location, “with a fine tooth comb.”

“Ultimately this will work out better for me,” she said, still hesitant to announce her new location before the contracts have been thoroughly signed, sealed and delivered.   

Councilman Stan Beckham was the only dissenting vote against the proposal to allow Sobel to enter into the payment contract, reiterating past public statements that such a practice “turns the city into a bank.”

City Manager Greg Garrett and Councilman Phil Smith both explained that the money is not coming out of the city’s coffers, it is income earned that will be distributed over time.

“This is not hard cash the city is out,” said Smith. “The infrastructure has been built. It’s not like we’re loaning $100,000 to anybody.”

Beckham was also concerned about the potential for developer default prior to the two year term.

“We will try to protect those tenants as well as the city,” said the city’s attorney, Tom Schroeter, admitting that there is some liability involved in such an arrangement. “I don’t like this. This kind of long-term agreement is not good.” 
  
Smith replied that once the new shopping center fee is approved, it will apply to all new commercial development, effectively making The Orchard Center the “last loose end.”

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Comment From: ProgressoDasani

Nice. A developer can "choose" to pay fees or pass them directly to the tenants! How is that friendly to small business, Mr. James?

And to Phil Smith - how is providing 2 years for a developer to pay for infrastructure the city owns not like a loan? Its exactly like the loans car dealers make to get merchandise out the door!  No wonder the water and sewer fund is broke and you're writing new fee schedules! 

And, what is the logic of allowing a developer to pass the fees associated with the property they own directly to the first tenant? Over the course of their ownership, these developers will have many tenants as business start and fail. These fees must be fairly applied to the entirety of the tenant base - or added to the owner's loss if business conditions leave units vacant or competitive pressures limit rent increases.

What were you guys thinking? 

Comment From: Screemy1

glad to see the loose ends are going to be tied, but the fees should be payed by property taxes on the land the tenent owns.... throw it on top of his property taxes next year.... then they can not default on them... they have the money! Comment From: caninecreek

With all due respect to David James... he was just doing his job enforcing the rules and policies previously set forth by the City. To their credit, the City Council was very responsive in handling the mitigation fee issue -- resolving it quickly and as fairly as possible to all concerned. That doesn't help Canine Creek at this late date, but it does pave the way for other businesses to consider The Orchard. It's a beautiful complex in a great location, and no one wants to see it sit empty in the center of our commercial district. Comment From: jer72

I agree that David James is doing exactly as the books say. The blame for the problem is on the city council's shoulders not his. What I think is the biggest problem is how the fee is collected. If I built a house all the fees would have to be paid by me and if the bank would finance the fee intot he loan it would come out of my pocket. It wouldn't matter if I leased the house out or not to someone else. I would have to pay up front. If I sold the house I would have to increase the price to cover that charge. So why is it that a developer can get two years on a fee they must pay and what happened as Stan said, they go bust. Comment From: Active4People

Jer72 is exactly on point. It seems like a very discriminatory practice to allow an one property owner (commercial) two years to pay and then require residential property owners to pay up now, or else. This is pandering to developers and commercial enterprise at the expense of the majority of property owners in the City. Shame on the City Council.