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23

Deferral and Eventual Waiver of Permit Fees to Encourage Weatherford ACTION CALENDAR BMW to Build Its New Dealership in Berkeley October 13, 2009

On May 29, 2008, the City Manager sent a letter to Mr. Umebayashi that expressed a willingness to consider a financial assistance package, but noted that any such assistance package would have to be approved by the City Council (Attachment 1). It also stated that the Council would “…expect the level of assistance to be based on a financial analysis of the proposed project.” If Mr.Umebayashi did not want to publicly disclose financial information that could be used by its competitors, the City Manager offered to employ a “neutral-third party financial consultant to look at the records and advise us on what City assistance might be justified given projected costs, revenue and competitive conditions in the industry.”

On June 11, Mr. Umebayashi wrote to the City Council to request a financial assistance package (Attachment 2):

Overall, we would like to remain in Berkeley at our existing site but as a publicly-traded company we must justify our decision on a permanent site on the basis of relative cost and benefit to our shareholders. In particular, given the tremendous cost of rebuilding our dealership, we ask that the City of Berkeley consider reducing the cost by rebating to us part of the sales tax it would receive from our operation if we choose the Berkeley site.

The letter said that Weatherford would not publicly disclose confidential business records, but would “disclose to a third-party auditor the costs and terms we face in our site selection process but within a limitation of our discretion.”

Accordingly, the City retained appraiser Michael Yovino-Young to analyze the economics of Weatherford’s choice between sites in Oakland and Berkeley and recommend whether a subsidy from Berkeley was justified to retain the dealership. The Final Report and Recommendations of Mr. Yovino-Young’s study is attached. (Attachment 3)

Yovino-Young recommended that Berkeley offer Weatherford a “significant” financial incentive to remain in Berkeley. The report gives several suggestions on the form that such a subsidy could take, including a waiver of development fees.

In subsequent meetings with Mr. Umebayashi, the City Manager agreed to propose to the City Council that the City waive the cost of building permit fees if Weatherford built its new dealership in Berkeley.

At the time this subsidy was first considered, the new dealership was expected to cost in excess of $22 million. Based on this valuation, staff calculated building permit fees at about $960,000. With the onset of the economic crisis, Weatherford has reduced the scale of the project, which may now cost about $10 million. Building permit and plan check fees for a project of that scale would be $435,000.

BACKGROUND


Weatherford BMW located in Berkeley in 1990, after the Loma Prieta earthquake destroyed its dealership building in Emeryville. It leased the vacant “Auto Mall” building at 735 Ashby and subsequently also leased adjacent property at 750 Potter where it built a new showroom. While Weatherford has been very successful at its Berkeley location, the fact that Weatherford leases rather than owns has made it vulnerable to relocation when the leases expired. (Weatherford has attempted to purchase both properties but has not succeeded in purchasing either one.) In addition, BMW has very high standards for its dealership facilities and is requiring its franchisee, Weatherford, to significantly upgrade and modernize the facility, including a new auto service building, resheathing of the Auto Mall building, and other improvements. Weatherford is understandably reluctant to spend millions of dollars for improvements on property that it does not own. the Yovino-Young report points out, Weatherford does have alternative locations in Oakland that it is considering. They could be purchased at relatively advantageous prices but neither one is as well located as the Berkeley site to attract Weatherford’s affluent customer base. As Mr. Umebayashi’s June 11, 2008, letter to the Council made clear, local management would prefer to remain at the existing Berkeley site but must convince a corporate ownership in Japan that this is the most economically beneficial course of action. In practice, Weatherford has reached agreement in principle on new, long-term leases for the Berkeley properties but has not signed them pending a final decision by its parent, the Sojitz Corporation.

Weatherford BMW is the largest new car dealer in the East Bay and yields significant revenue to the City of Berkeley from sales tax and business license tax of $700,000-$800,000 per year. With significant new construction, including a new building for the service department and renovation of the existing “Auto Mall” building at 735 Ashby, the property will be reassessed and yield increased property tax revenue. The significant economic benefits to the City of retaining Weatherford BMW are detailed in Mr. Yovino-Young’s report.

RATIONALE FOR RECOMMENDATION The City Manager recommends this course of action because of the desirability of retaining a major revenue source that has potential to increase after a new dealership is built and the economy recovers. In 2008, the year when the current recession began, sales tax revenue from Weatherford nevertheless increased 4% over 2007.

ALTERNATIVE ACTIONS CONSIDERED Berkeley has never offered a subsidy to retain or attract a business, so this proposal is being made with great reluctance and only after negotiations with Weatherford to reduce it and condition it on Weatherford’s commitment to build the new facility in Berkeley.

CONTACT PERSON


Michael J. Caplan, Economic Development Manager, 981-2490

Attachments: 1: Resolution 2. Letter from Phil Kamlarz to Michael Umebayashi, May 29, 2008 3: Letter from Michael Umebayashi to Mayor and Council, June 11, 2008 4: Yovino-Young, Incorporated, Final Report & Recommendations Re: Economic Benefits Study for Retention of Weatherford BMW Dealership in Berkeley

RESOLUTION NO. ##,###-N.S.

DEFERRAL AND EVENTUAL WAIVER OF BUILDING PERMIT FEES FOR WEATHERFORD BMW TO RETAIN AN IMPORTANT REVENUE SOURCE IN BERKELEY WHEREAS, Weatherford BMW has been a valued source of employment and City revenue since 1990; and WHEREAS, Weatherford BMW is now contemplating new long-term leases for its site in Berkeley and construction of new dealership facilities there; and WHEREAS, Oakland has offered publicly-owned property at an advantageous price to encourage Weatherford to relocate to a proposed Oakland Auto Mall; and WHEREAS, Weatherford local management would prefer to remain in Berkeley and build its new facility there but must convince its corporate ownership of the advantages of that over moving to Oakland; and WHEREAS, Weatherford has requested that the City offer some financial assistance to narrow the cost differential between the project in Berkeley and the alternatives. NOW THEREFORE, BE IT RESOLVED by the Council of the City of Berkeley that the City Manager is authorized to defer building permit fees for Weatherford BMW’s new facility at 735 Ashby/750 Potter Street and waive them upon completion of the project. BE IT FURTHER RESOLVED that the City Manager is authorized to replace lost Permit Services Center revenues from General Fund Reserves.

deferral and eventual waiver of permit fees to encourage

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