Signal Hill to sell off redevelopment properties at ‘fire sale’ prices, but oil-well cleanup required
September 20th, 2013 · No Comments · News
Considered some of the last remaining vacant land in a rather built-out community, nine sites totaling 24 acres in Signal Hill may soon be either sold to developers at historically low prices or transferred to the City for governmental use.
As part of the State’s decision to shut down redevelopment, legislation requires that all real property and assets previously owned by redevelopment agencies be liquidated, with proceeds from property sales dispersed between local taxing entities.
Acting as the Successor Agency to the former Signal Hill Redevelopment Agency (RDA), the City Council unanimously approved its long-range property-management plan (PMP) at a meeting on Tuesday, Sept. 17, taking a critical step to dissolve former RDA properties. (Mayor Michael Noll and Councilmember Lori Woods were absent.)
But, before any new development can break ground in Signal Hill, most of the properties still require millions of dollars worth of environmental remediation, mainly because of the City’s long history of oil extraction that dates back to the 1920s and 1930s.
This factor dramatically decreases the value of the properties that total 129 parcels. In addition, newly appraised property values are still lower than they were when the sites were first appraised and purchased by the Signal Hill RDA between 2008 and 2011 since the real estate market has yet to fully recover, city officials noted.
“This is sort of a fire sale,” said Councilmember Larry Forester. “We hope that we can get an approval and work with somebody to come in and develop it.”
Under the PMP, which still requires approval by the Successor Agency’s Oversight Board and the State Department of Finance, plans call for keeping four of the sites for governmental use, such as the newly built Signal Hill Police Department headquarters, the Signal Hill Auto Center freeway sign and public parking lots.
Three of the sites are to be sold to specific buyers, and two will be put on the market.
Many of the sites, however, still require environmental remediation, including a process known as oil-well re-abandonment. This process involves removing “junk” from inside oil wells, soil remediation, installation and operation of vapor-recovery systems, pipeline removal and clearing contaminated properties.
Property-tax-increment funds have helped pay for environmental remediation for years, making possible the Signal Hill Auto Center, Costco, Home Depot and many other developments, but those funds are no longer available, city officials said.
“We do not have any funds as a Successor Agency for environmental remediation,” said Elise McCaleb, Signal Hill redevelopment and economic-development manager. “So, in the appraised value, we have made reductions in the environmental-remediation costs, as estimated offsets.”
The largest property to be sold to a specific developer is a nearly 14-acre site along Spring Street between California and Atlantic avenues near Long Beach Memorial Medical Center. This site, which the City plans to sell to Signal Hill Petroleum, is slated for a mixed-use project, including a hotel, medical offices and retail.
The Signal Hill RDA first purchased the site for more than $8.2 million, but, given environmental-remediation costs and current market conditions, city officials now estimate the current fair-market value of the site at $3.3 million.
According to the PMP, environmental remediation of the site may cost the developer up to $4.8 million. The site currently has five active wells, seven idle wells and 28 abandoned wells. However, 18 of the abandoned wells need to be excavated, leak-tested and potentially re-abandoned to meet State standards. At about $150,000 to $500,000 per well, city officials estimate oil-well re-abandonment alone may cost $2.7 million.
Another site, which city staff plans to put on the market, is a property located at Cherry Avenue and 27th Street where Giant Grinder Deli was once located before closing its doors due to financial reasons in March. City staff proposes to market the entire site for sale to a retail developer or an auto dealership.
Signal Hill RDA originally bought all properties on the site for $5.2 million, but city staff estimates the current value of the site to be from $1.2 million to $2.1 million. However, when environmental-remediation costs (projected at $1.2 million to $3.4 million) are added, the value dips to a range of $1,600 to $1.2 million.
Even with such steeply discounted prices, it’s hard to tell if the properties that will be sold to developers are a bargain or a bust because of the cleanup costs associated with many of the sites, city officials point out.
“Redevelopment was eliminated, so we don’t have anything or any funds,” McCaleb said in a phone interview. “[Developers] will have to do their own financial analysis to determine if it makes sense.”
Forester said he hopes the State Department of Finance doesn’t reject the PMP because the properties may be sold “too cheap.”
Additionally, city staff noted in the PMP that developers would also have to contend with state policy changes in how oil wells are to be re-abandoned and how the City is dealing with such developments.
In November 2010, the State Division of Oil, Gas and Geothermal Resources (DOGGR) terminated its methane-leak testing of oil wells and its development review, abruptly ending a 22-year-old program. City officials have said this has created uncertainty and a lack of guidance in the oil-well abandonment process, since the State has taken a more hands-off approach to the procedure, leaving developers and cities to carry out the process on their own.
After Signal Hill put a moratorium on all development near or on top of abandoned or re-abandoned oil wells in 2011, the City Council adopted an ordinance earlier this year to allow for development near abandoned oil wells but not over them. These new requirements could “further complicate” development on many sites, city staff states.
The PMP comes after Signal Hill recently received a “finding of completion” from the State regarding the due-diligence process for housing and non-housing assets.
If the Oversight Board and the State eventually approve the PMP, the Successor Agency would be able to start marketing the properties through a request-for-proposals and begin negotiations for purchase agreements, which would require State approvals as well.
Many cities, including Long Beach and Signal Hill, have recently received a boost in property-tax income as a result of the abolishment of redevelopment that has helped ease budget shortfalls. But Vice Mayor Ed Wilson noted that the State’s decision to end redevelopment has created a “mess” in “future economic development,” and the State and taxing entities will receive “pennies on the dollar” for the property acquisitions.
In other Council news, Vice Mayor Wilson presented the 3rd Quarter Sustainability Award to MBK Homes for the Aragon Town Homes at Orizaba Avenue and Pacific Coast Highway.
Wilson presented a proclamation to Det. Sgt. Colleen Vincent in recognition of her retirement from the Signal Hill Police Department, for which she has worked since November 1983.
In a second reading, the Council voted 3-0 to approve a zoning ordinance amendment to allow Costco to build a gas station at 2198 E. Willow St.
In new business, Wilson asked city staff to look into whether the two separate versions of the Signal Hill Historical Society are operating under the same 501(c)(3) nonprofit status.