HMB releases financial analysis of Beachwood settlement


Posted by on Thu, June 5, 2008

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CIty of Half Moon Bay, Piper Jaffray

The city of Half Moon Bay has released a financial analysis of the cost of developing Beachwood should the state legislature decide not to accept its settlement.

The city’s investment bankers, Piper Jaffray, estimate that the city will lose $48 million if 19 houses can be built on the site, and $9 million if 129 houses can be built.

We’re going to dig more deeply into these numbers in the near future, and we’ve already got some ideas about what to do, but tonight, you can download the Piper Jaffray’s analysis [pdf] and an Excel spreadsheet of their numbers from Coastsider.

What do you think of the city’s numbers? What would you be considering if you were presented with this analysis? Add your thoughts in comment to this story and we’ll add your ideas to our analysis of the city’s analysis.


As I have mentioned elsewhere, my copy of the Beachwood Settlement says that if the City of Half Moon Bay pays Keenan $18 million they get two things: 1) The land referred to as Beachwood, and 2) the *option*, recently purchased by Keenan, to buy the land referred to as Glencree.

They don’t get Glencree—just the option. They have to buy Glencree which, based on the option payment, looks like at least $1 million on top of the $18 million.

The Piper Jaffray analysis, however, has HMB building on Glencree without purchasing it.

That missing payment makes the analysis look worse for getting payback out of Beachwood, true, but it does reveal that the analysis is not a reflection of reality.

Another example is their assumption that HMB will play developer and try to develop the lots themselves is silly and no doubt causes the costs to rise well beyond what would actually be the case.

Garbage in, garbage out, as the computer guys say.

—Darin

The inclusion of Glencree is a clear indication of a sloppy analysis, although it doesn’t necessarily invalidate the scenarios with 83 and fewer houses. It does make you wonder how how much HMB paid for this piece of work and who reviewed it before it was published.

Anytime you want something done poorly,  let the government do it.  Whether its federal, state or local,  its not an impressive record.

The City shouldn’t try and play Donald Trump.  Can you imagine every single sale having to be approved by City staff, Council with the lawyer’s approval.

And considering how long it takes to sell lots,  how long will this take. 2,3,4,5 years?

Its always best to know your limitations.  The City should stick to what it does best.  I’m sure many of the posters here have different ideas of what the City best talents are.  Ken,  I think, favors the cartoon!

Anyway, should AB 1991 not pass,  the City should try and sell the whole lot to a big developer and let him deal with the headaches.

Perhaps, the City could do an equity partnership.  They should start to market it soon so that they can have a concurrent double escrow and reduce the money they would have to otherwise pay Keenan

HMB’s analysis shows they lose money under any scenario for building on Beachwood alone, including the 83-home version the developer claims was previously approved.

Why does building 83 homes on Beachwood become profitable only when AB 1991 passes?

Barry: FYI - the links to the spreadsheet/pdf are reversed. Also, is there a more detailed spreadsheet, as it’s the same thing as the Summary Table, which is a bit too high-level to analyze.

The $450K-$325K range for the land might be a bit outdated already, unfortunately.

Steven, the equity partnership idea ain’t that crazy an idea. The legal benefits for those involved could be compelling, in case this somehow rears it’s ugly head again.

I agree that the City would make the most money if they sold each lot privately.  The more lots they can pack in that area,  the more profitable the project becomes because some fixed costs will be amortized over a bigger base.

There are many more costs that haven’t been anticipated like surveys, reports and most importantly the 6% real estate commission!

But dealing with this is a potential nightmare.  I wonder how many people would want to take this on considering its colorful past.

Personally if I had my choice between building 129 homes here over 5-7 years or taking $18 million in cash,  I’d take the money in a NY minute.

I’ll add the more-detailed information to the spreadsheet as soon as I can.  In the meantime, thanks to Kevin B for noting the mixed-up links, which I’ve fixed.

Steven, the cash value of the settlement should be at least as attractive to Keenan as the right to build, or he wouldn’t have agreed to it.

Initially,  I thought AB 1991 was wishful thinking.  But that was before the City hired Master Spinner lobbyist Lanny Davis.  He certainly showed he knows how to work the system.

Keenan would probably do very well building 129 homes.  I think it would be an ugly process with fights all the way.  But he has proven he can take a lot of garbage and dish it out as well.

I would still rather take the money and say adios to HMB.  With that much cash,  there must be some amazing opportunities in the state.

fyi, the end of the Piper Jaffray analysis has more detail on the numbers…

—Darin

Now let’s see. The City Council hires a consultant to perform a financial analysis that ends up supporting the Council’s goal: a bill that tramples over environmental laws.

What a coincidence. The financial “analysis” delivers the exact conclusion desired by the client (the City Council).

This is sort of like what happened in real estate in recent years where the appraiser got paid to come up with a number that made sure the transaction would go through—so everybody could take their cut. (Now we are seeing how that scam turned out).

One of the very first questions an appraiser asks is what’s the purpose.  Divorce, death, purchase.  That will have an effect on the outcome.

In confrontational sales such as divorces,  its best to have several appraisals and then average them.  Each side may have a different estimate of value.

Probably would be interesting to see a few appraisals on Beachwood so its value can be established.  These would be costly to do.  Don’t know if it really matters because the price has already been established.  The difference would be the cost of the lawsuit for damaging Keenans’s property.

I’m confused, Steve.

A house is worth what a willing buyer will pay for it. The appraiser is supposed to be able to determine that amount.

Why should the willing buyer even know the circumstances of the seller? Why should a willing buyer pay more or less because a home is being sold as a result of divorce, death, job relocation, or some other reason?

Why should the appraised value be different for a buyer and a seller?

Or are you telling us that appraisals are just fictitious, made-up numbers to satisfy the client?

Appraisals are done for different reasons.

The most common is for purchases or refinances.  Its true that a house or anything for that matter is worth what someone is willing to pay and what someone is willing to sell.

Banks use appraisals to validate the value to protect their loan.

In divorces or deaths,  different values are used for settlement or tax purposes. But appraisals will vary for even the same home because different comps can be used.

If there are 5 comps for a home and the bank wants only 3 comps,  you can see how different homes will produce different results.

This is where a good realtor can work with an appraiser to get the best results for the client.  Hope that helps.