Council Approves $9 Million Price Tag

Ocean City Sentinel Wednesday, September 19, 2018

By ERIC AVEDISSIAN Sentinel staff Ocean City Sentinel

OCEAN CITY – Council on Sept. 13 voted 7-0 to bond $8.5 million to finance the $9 million purchase of the Ocean City Chevrolet car dealership from the owner, Klause Enterprises.

Located next to the Ocean City Community Center, Ocean City Chevrolet closed in February. A dealership building and lot remain on the property.

 

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  • 1 The property is 1.856 acres or 80,850 square feet in the block between 16th Street and 17th Street along Simpson Avenue. The individual lots to be acquired include 1601-43 Simpson Ave., 1620 Haven Ave., 1628-38 Haven Ave., and 1644-46 Haven Ave.

Property the city will acquire doesn’t include lots in the same block owned by two private owners.

The Palermo family owns a 40-foot by 140-foot parcel in the southeast corner of the block, while Palmer Center, LLC owns a parcel in the northeast corner. The city owns a parcel in the southwest corner of the block used for parking.

Some members of the public criticized the purchase, noting the price and the lack of any real plans from the city.

In their August meeting when they introduced the ordinance, council proposed several ideas for the property, including open space, additional parking, recreation, and constructing a new public safety building to replace the aging one on Central Avenue.

City council in July approved a $22,250 contract to McLees Architecture for preparing plans for a new public safety building on the former car lot.

In 2016 the city proposed replacing the current public safety building, noting it could cost $17 million to replace the building at its current site.

West Avenue resident Suzanne Hornick said the property regularly floods.

“You are asking to be allowed to spend a minimum of $9 million to purchase land and then another undisclosed amount for more lots in the area of 1600 Simpson Avenue. This will be followed if approved by spending millions more to build a new police station on that lot,” she said.

Marie Hayes, a Battersea Road resident, called the $9 million sales price “exorbitant.”

“What is happening here is the city government is asking for $9 million to pay for real estate. You won’t even tell us what it’s going to be used for. If I went to the bank and asked for a $9 million loan, the bank would ask me what it was for, and if I replied, ‘I don’t know and I don’t want to tell you,’ the bank would laugh at me,” Hayes said.

Hayes wanted to know the city’s intentions for buying the property.

“My guess is whatever would go there is something controversial or you would have already been talking about it. Maybe affordable housing? I don’t know. We don’t know,” Hayes said. “Be transparent to the taxpayers with your plans. I ask everyone on city council please remember who you are representing and who voted you into office. It is not the city government you should be answering to but to us, the taxpayers. The city should not be in the business of real estate speculation with our money.”

West Atlantic Boulevard resident Michael Hinchman said the two appraisals the city acquired for the property were “illegitimate,” “fraudulent” and a “white collar crime” and said they were “not worth the paper they’re written on.”

NorthStar Appraisal Company appraised the car dealership property at $8,210,000, while Integra Realty Resources deemed market value for the car dealership property as $9,300,000.

Hinchman said Integra Realty Resources used comparable sales that really weren’t comparable. Key omissions in the NorthStar appraisal, according to Hinchman, include buying in bulk, demolition costs, and costs of approval.

“When you buy 30 lots as a developer you get a bulk discount of 10, 15, 20 percent. Nowhere is that reflected in the appraisal. When you buy 30 lots, you have a carrying cost while you sell 10 lots a year. Nowhere is that reflected in either appraisal,” Hinchman said. “The lower appraisal doesn’t have any kind of cost for demolition or cost to get it approved.”

Hinchman threatened to take the information to the FBI and the New Jersey Department of Community Affairs.

“This is a fraud in the most naked sense of how you value property,” Hinchman said. “This is a fraud on the City of Ocean City and its taxpayers.”

Hinchman left council chambers before administration officials could respond.

City Solicitor Dorothy McCrosson said the property’s multiple owners have a court-ordered ability to develop coastal cottages on the car dealership property, and had a plan for 44 cottages.

Coastal Cottages, an alternative to condos designed to entice single-family homes to Ocean City, were once allowed in the zone.

McCrosson said the development plan at the site fell apart and the Klause family approached the city with an offer to sell the land, where they could fit 30 homes on their parcels, for $9 million.

“The question became is that a reasonable price?” McCrosson said. “They had come to the city once previously and asked more money and it was less advantageous zoning and the city did not go through this process of getting appraisals because it a clear that we could never reach their price and we agreed not to move forward.”

McCrosson said the city reviewed comparable sales, examining coastal cottages and the single-family homes developed on the old Peter Lumber lot.

She said the city contacted two appraisers who gave the city a deadline to respond to their offer.

“I initially said to the appraisers give me a verbal as to whether we should even move forward with the written appraisal,” McCrosson said. “We got a verbal back that it’s in the ballpark. We don’t know if it will be $9 million, we don’t know if it will be $8 million… It was in the ballpark and it was worth moving forward with the additional expense to have reports prepared.”

McCrosson said after receiving the reports, the difference between the appraisals was over 10 percent, and she started to pursue a third appraisal, as mandated by city ordinance.

“I’m having a difficult time getting a decent price for a comprehensive appraisal by an MAI (Member of the Appraisal Institute) who didn’t have a conflict of the city and had the time to do the report,” McCrosson said.

After reviewing the reports, the MAI discovered one of the appraisals contained too many units.

McCrosson said the seller had given the city information that 29 coastal cottages could be constructed, plus a single-family home by the 17th Street and Haven Avenue, for a total of 30 units. Instead, Integra Realty Resources appraised 30 costal cottages plus the single-family home, according to McCrosson.

McCrosson said she contacted the appraiser and told him he had too many units and to rework the numbers and amend the appraisal. She said she received an amendment report dated May 11, 2018. With the reduction of the one coastal cottage, the price was reduced to $9 million.

“That’s the professional opinion of this experienced, licensed appraiser. The only reason that was particularly significant at that point is that we didn’t need a third appraisal. We were now at 10 percent,” McCrosson said.

McCrosson noted Hinchman, who requested the appraisals through an Open Public Records Act (OPRA) request, did not receive the amendment letter because of an oversight with Hinchman’s request.

“The property is not being slated for the use as affordable housing. The concept for acquiring the property in the first place was to eliminate the possibility that it would be developed for housing and eliminate the density for the city as a whole certainly but for the neighbors who said they did not want to see coastal cottages on that site,” McCrosson said.

Councilman Bob Barr said he was “greatly offended” by Hinchman’s comments.

“For him to say that we are not qualified to make a decision is wrong. He could have reached out to me. He could have reached out to anyone,” Barr said. “All it takes is a simple phone call. Ask. He never does. He’s in gotcha mode. That’s not good.”

Barr said he’s confident the property will be used for the public good.

Councilman Antwan McClellan said buying the land would prevent coastal cottages from being built. He said the city would explore a use for the land, such as a police station or public park.

“Nobody wants coastal cottages in that neighborhood,” McClellan said.

Councilman Keith Hartzell said he was also confident in the property’s true value.

“What this comes down to is whether this is a good value. I can tell you wholeheartedly 100 percent believe that the Klauses have given us the price of $9 million. That’s the price and they’re not backing off,” Hartzell said, adding there’s “compelling evidence” that the property is worth $9 million.

Councilman Tony Wilson said the city is keeping options open on whether to develop a police station or open space.

“No matter what it is that we put there I certainly believe it will be better for the taxpayers and the surrounding community as a whole,” Wilson said.

On Thursday, Sept. 13, Ocean City Council introduced an ordinance authorizing the acquisition of the remaining lots on the Ocean City Chevrolet block by purchase or condemnation.

“This is the very first step the city takes in acquiring a property. We don’t have the appraisals back on these properties. These three properties would complete the block that the Klause Enterprises lots are in,” McCrosson said.

McCrosso said John Flood, owner of adjacent lots (block 1606 lot 3, block 1506 lot 1), wants to sell his properties. Flood, a real estate developer and former councilman, ran unsuccessfully against Mayor Jay Gillian in the May 8 mayoral election.

“He’s (Flood) indicated he does want to sell to the city. We do want to buy from him. We don’t know if we’ll come to an agreement on price,” McCrosson said. “If we are unable to do so the next step would be to go to condemnation and allow the court determine the fair and just compensation for the property and Mr. Flood is agreeable to the process.”

McCrosson said the appraisals haven’t been completed for the lots.

Hartzell welcomed the acquisition, noting any development on those lots would have flood remediation, since the area is currently covered with macadam and is impervious.

“When I look at it from a flooding standpoint, I just want to make sure people understand that we can only get better, not worse,” Hartzell said. “If we’re going to put something there I think all of us would say wait a minute can we make sure we can do the best we can to prevent flooding in that area for a number of reasons. If it ends up a police station, it wouldn’t be very effective if it was flooded. We’re going to take that into concern.”

Councilwoman Karen Bergman said “it makes sense” for the city to complete the block by acquiring the remaining parcels.

The ordinance’s second reading and public hearing will be held 7 p.m. Thursday, Sept. 27.

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