How Can Hermosa Beach Pay For The $17.5M Settlement?

Hermosa Beach Self Storage Worth Approx. $7M ($180K Annual Tax Revenue)

City Yard in Hermosa Beach Worth Approx. $15M ($0 Tax Revenue).  Are we just giving E&B a $15M property? Here is why it might be more expensive to vote yes.  $3.5M loan repayment + $15M Property for voting Yes = $18.5M vs 17.5M for Voting No.  

Noble Park in Hermosa Beach Worth Approx. $20M ($0 Tax Revenue)

Hermosa Beach Breezeway Lot Worth Approx. $1.5M+  ($12K Tax Revenue)

Old Prospect Ave School Building Lot Worth Approx. $800K (No Tax Revenue)

Public Parking Facility Worth Approx. $20M ($360K Annual Revenue)

The biggest question that voters need to understand when going to the polls is how is Hermosa Beach going to pay for the $17.5M upon a "No" vote.  There has been some speculation that the vote might not happen until 2013 or 2014 which doesn't surprise me.  In the contract, it states that E&B can ask the city to put the measure on the ballot at any time and the city has 6 months to do it.  When do you think it will be in the best interest of E&B to put the measure on the ballot?  

I think Hermosa Beach should be financially prepared for another recession and have the cash in the bank or a bond measure approved to pay for $17.5M NOW!  Current macroeconomic headlines could easily affect our ability to finance a bond offering or sell real estate in the coming years:  1)  inflated bond market, 2) massive U.S. government debt and 3) European Union debt restructuring recession.  Its been over 4 years since the 2008 financial crisis and you never know when the next downward cycle will hit our economy.  

The City of Hermosa Beach has plenty of liquid and semi-liquid assets that it can use to cover the costs.  There is no need to do a parcel tax or an assessment on residents.  There is no need to believe the oil propaganda and rumors about the going bankrupt over the oil settlement.  We can afford to pay it and it won't affect our budgets or our valuable schools.  The City owns a lot of valuable property and the last time I checked we are not in the "property management" business.  The City has a number of assets that do not generate any tax revenue for the city and should be considered for sale.  

The City of Hermosa Beach likely owns over $100+ million in real estate assets and has over $25+ million in working capital in the bank available to pay for the settlement.  The City also has the ability to get a $10M "Judgement Bond" from the State of California at 3% and service loan which will cost the city $300,000 per year which is nothing out of the budget.  Why not also float another bond for $7.5M as well since boring money is so cheap these days.  So there are lots of ways we can solve the problem of paying for the settlement if we have to.   

The Storage facility was purchased by the City years ago for around $4M.  Its likely worth about $7M today if you put 14 multifamily units on the lot and zone if for residential purposes.   It generates $180K per year for a property the city paid $4M.  Is rent revenue worth the annual yield for tax payers?  The City is not in the property management business and thus we should sell it.  See lease agreement. 

The City Public Works Yard on 6th Street has 8-10 employees and unfortunately they would have to relocate if oil drilling came into town.  The city could outsource the public works functions to a private company which would save money on employee salaries and pensions, etc.  This lot is likely worth $10M  zoned as commercial and might be close to $15M as residential.  17-20 multifamily units could likely fit onto this lot if a developer buy it.  Also, has the city has not factored into the E&B Oil drilling deal that the we are practically giving E&B oil a $15M property.  So in reality, it might be cheaper to pay the $17.5M and vote NO vs paying $3M+ giving a $15M property to E&B for voting Yes. 

The City owns 13 parks some of them are more useful than others.  I am not proposing to go around the City to sell parks but if you compare a price per square foot and the lack of tax revenue to the city.  Noble Park is probably the most valuable asset we have that could be sold.  The Beach House next door to this large lot pays Hermosa Beach $800,000 per year in bed tax revenue.  I know there are a lot of people that use the park to walk their dogs but that is a debate for a separate discussion.  However, most people would not let their kids play in the grass because of the amount of dog waste.  You might be able to classify this as one of the most valuable dog walking park in the U.S.  It might be worth $25M depending on the zoning. 

The Fat Face Fenner's breezeway is likely worth $1.5M.  Currently the city leases the above air space for $1K per month for the right to have a restaurant above the walkway space.  $12K per year is not a lot that is worth $1.5.   I don't know many people who currently use the walkway and don't know how much value it has to lower pier any longer.   A full scale Fat Face Fenner's restaurant might make sense here if constructed from the ground up. 

The Old Prospect School is next to the Fort Lots of Fun park might be worth $800K.  It has been a storage facility for old city lights for years and does not serve as a tax generator for the City. 

The City of Hermosa Beach has parking garage which it shares revenue with LA County on a 50/50 split.  What is a property like this worth that generates $300,000 per year?  Could it be worth $20M and is it worth it to sell half of our stake for $10M?  Again we are not in the property management business and it might be in our best interest to divest this property.  See LA County agreement & annual parking structure revenue / expense financial statement. 

As you can see, we have lots of choices of assets that the City can sell.  Its up to the citizens to come up with a plan to sell one or a few smaller parcels because we know our officials wont take the initiative.  Just look at what Redondo Beach City Council is doing to their residents if you need any proof.  Real estate has recovered from the 2008 lows and it looks like another good time to sell some assets.  I hope this makes everyone more comfortable about voting "NO". 

This is work in progress and we would like your feedback on our theoretical pricing.  If you have commercial real estate experience please contact us or comment below.  Please check back frequently for changes.  I apologize for any errors.  

Hermosa Beach Slant Oil Drilling Maps

These maps are speculative drawings based in information we have gathered from the Macpherson proposals.  E&B oil has not submitted their drilling proposal yet.  

Map of the proposed Hermosa Beach slant oil drilling site will reach out into the ocean.  What is slant oil drilling?  The drilling will also go underground into Redondo Beach likely.  The California Coastal Commission has full authority of this drilling and has thus tidelands restrictions on where money from oil can be spent.  The oil site will also be less than 100 feet from homes when Colorado requires a 350 foot setback and California recommend 300 feet.

Do we really know what is underground nor want to disturb the environment with oil drilling pipes possibly poking through the ocean floor?  Do want want to risk the dangers of the ocean floor and our beaches sinking (subsiding)?

The proposed drilling site effects more than 50% of residents of Hermosa Beach.  Noise, air pollution, explosions or dangerous gases are all a potential consequence.  Not to mention the drilling site will be within a few hundred yards of your kids playing in the park.  If you run on the greenbelt in Manhattan Beach or Hermosa Beach there could be an oil pipeline to under it to Chevron Refinery in Torrance and/or a natural gas pipeline AES Power Plant in Redondo Beach.

Lets not forget about the fault line that runs across the Santa Monica Bay and the South Bay.  We have had several earthquakes offshore in Hermosa Beach and Santa Moncia bay in the past few years. 

 27 oil wells and 3 water injection wells for Fracking and Natural Gas

Horrible Air Quality

I am told by oil experts in the business that the odor from gases and drilling will be "awful" around the site.  There is no way to contain the odor or poisonous gases that come up our of the ground.  This map depicts 3 different wind scenarios we get in the area.  An onshore, offshore and no wind where the smell and gases get trapped in the valley.

Emissions generated during the drilling/development phase include vehicle emissions; diesel emissions from large construction equipment and generators, storage/dispensing of fuels, and, if installed at this stage, flare stacks; small amounts of carbon monoxide, nitrogen oxides, and particulates from blasting activities; and dust from many sources, such as disturbing and moving soils (clearing, grading, excavating, trenching, backfilling, dumping, and truck and equipment traffic), mixing concrete, and drilling. During windless conditions (especially in areas of thermal inversion), project-related odors may be detectable at more than a mile from the source.  Excess increases in dust could decrease forage palatability for wildlife and livestock and increase the potential for dust pneumonia.  See source.

250 Yard Heavy Impact Zone from Noise, Odor, Dangerous Gases and Explosions.   There are two parks, hundreds of homes and a jogging trail in the vicinity which I think is disgraceful.   There are probably 10+ kids under the age of 10 years old that live in the red boxed area.  Its just sad that no one thought through the ramifications.  

Projected Ripple Affect of Real Estate Losses

This is a Scenario of What Could Happen

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Earthquakes From Drilling?

Ohio Earthquakes Linked to Natural Gas Drilling 

Read the LA Times Article

Enjoy this recent CBS News Story

One of the environmental impacts that we feel has not, was not adequately addressed initially and certainly now needs to be re-addressed, is the issue of earthquake hazards. And we have a declaration from Dr. David Jackson who's on the National Academy of Sciences.  Dr. David Jackson who's on the National Academy of Sciences. He is a respected geophysicist, was a professor at UCLA. He is on the California Earthquake Prediction Evaluation Council. And he said that the reinjection of water into the Hermosa Beach site, well the reinjection of water into any site will increase the likelihood of risk of earthquakes based upon an L.A. Times article and other studies that have come out recently about the fact that. Northridge has increased the risk of earthquakes in our basin. Read the State Lands Commission testimony transcript which he predicted in 1994 and its coming true in place like Ohio.

We are very concerned about the impact upon the oil and a as sanctuary in the Santa Monica Bay. Pipelines will go into the bay but could rupture in case of an earthquake. We're saving on the earthquake issue it wasn't properly considered by the by the city and now there's new information.  New studies indicate water re-injection increases the likelihood of earthquakes.