The Del Mar City Council voted 4-0, with Mayor Richard Earnest recused, to try to sell its no-longer used Balboa property to pay off the remaining debt on the sentimentally valued 5.3-acre Shores Park.
Escrow closed on the $8.5 million Shores property in 2008, with the city paying the Del Mar Union School District $5 million through fundraisers, and financing the other $3.5 million. A balloon payment of roughly $3.25 million is due on Nov. 13, 2011, and the city wants to avoid paying it off through the general fund. Staff reports that the Balboa property, a 22,000-square-foot parcel with sweeping ocean views purchased in 1965, is an idle asset that generates no income.
The fundraising group, Friends of the Shores, raised enough money to make payments on the loan, $300,000 annually, through fiscal year 2008-2009. The city has contributed $92,929 this year through the general fund. Government code allows cities to sell off property as long as it provides a public benefit.
Depending on how much the Balboa property sells for, the money could also be used to fund other projects, such as a new lifeguard tower and safety center. That project is also currently in the fundraising stage.
The council adopted a process that would aim to avoid the sentiment of a “fire sale” of the Balboa property. As such, the city will set a minimum price, from which interested parties will submit a bid. At some point, Del Mar will use those bids as a starting point for a live auction, with live bids required to up the sealed bids by at least 5 percent. Given the economic climate, the council reserved the right to pass on the sale if the offer is not satisfactory.
While most of the public speakers spoke out in favor of selling the Balboa property as a way to retire the debt on the Shores property, the city received two protest letters. That upped the requirement of at least a 4/5ths vote, which the council achieved with its 4-0 vote.
Jacqueline Winterer, who sent a letter and spoke to the council, cited concerns of property values being too low to justify selling the Balboa lot and asked why the council had changed its mind after expressing a similar sentiment at a June 2009 meeting. She suggested selling a piece of the Shores Park to pay off the remaining debt.
Councilmember Crystal Crawford, however, said she believes the Balboa parcel’s uniqueness and the market of potential buyers would keep the price high, despite the recession.
“This was one of those safety nets and turns out to be the one that we’ve opted to pursue at this point,” she said. The council will later decide a minimum asking price, but did settle on a maximum $20,000 for a real estate consultant and a 2 percent commission for the buyer’s agent. Since the property must sell for at least $3.25 million to pay off the entire debt, 2 percent would come out to be at least $65,000 in commission.
EDIT: I think this example will end up surprising some of the old guard how the market has changed. They think they can start the auction at $3.25 million? Just because the City of DM has owned a prized parcel since the 1960s, doesn’t mean someone will pay what’s needed to pay off another debt. Pricing your real estate based on what you need, rather than approximating what the market will bear, has proven to be a poor predictor of what a buyer will pay in this market. The photo above shows a red house at the end of Balboa, but I’m still trying to track down the exact location (I think it’s a little further south, on the east side of the street).