December 13, 2016
MEMO TO: Mayor Barber and Board of Commissioners
FROM: Frank A. Rush, Jr., Town Manager
SUBJECT: Sale of Welcome Center Building to Carteret County Tourism Development Authority (Summary & Suggested Motions)
The Board of Commissioners is scheduled to consider three items at the December 13 meeting that would result in the Town transferring ownership of the Welcome Center building to the Carteret County Tourism Development Authority (TDA). The attached resolution authorizes the sale for a total sale price of $237,000, which will enable the Town to recover its full investment in the new Welcome Center building. The Board will also consider a new sub-lease agreement between the Town and the TDA for the NC 58 right of way on which the Welcome Center building is located, and an associated budget amendment to formally appropriate the sale proceeds to the Future Beach Nourishment Fund.
Resolution Authorizing Sale of Welcome Center Building to Carteret County Tourism Development Authority
The attached resolution formally authorizes the Town Manager to proceed with the sale of the building to the TDA for a total sale price of $237,000. This amount, when combined with $42,000 previously remitted by the TDA, will enable the Town to recover its full investment in the Welcome Center building.
The Town constructed the Welcome Center building in 2015 for a total cost of $276,000. The Town entered into a 10-year construction and lease agreement (attached) with the TDA prior to construction that was intentionally structured to enable the Town to recover its full capital investment, plus interest, over the 10-year period. The agreement includes a provision whereby the TDA may purchase the Welcome Center building from the Town for $1 at the conclusion of the 10-year lease agreement. Since September 2015, the TDA has remitted monthly lease payments of $2,800 per month, resulting in total payments of $42,000 over the past 15 months, thus the proposed sale price of $237,000 will enable the Town to recover its full investment. Adding these amounts together results in total TDA payments of $279,000, and this calculation includes the Town’s interest expense since the building opened.
The TDA initially intended to honor the 10-year lease agreement, however, due to TDA accounting issues and an unexpected budget surplus for the TDA, they would like to complete the purchase of the building now rather than at the end of the 10-year lease agreement. This scenario is more favorable for the Town, and will enable the Town to fully retire the internal financing agreement used to fund the construction of the building in 2015. The Town’s Future Beach Nourishment Fund provided financing to the General Fund for the construction of the building in 2015, and this outstanding note will be fully retired upon payment by the TDA. I am pleased that the Town will retire this note early, and will improve the Town’s cash position in the Future Beach Nourishment Fund.
Assuming Board approval, we intend to schedule the closing for this sale sometime prior to December 31, and Town Attorney Richard Stanley will conduct this transaction.
Welcome Center Land Sub-Lease Agreement (NC 58 Right of Way)
As you know, the new Welcome Center is located on an approximately 0.83 acre tract in the NC 58 public right of way. The Town entered into a special lease agreement with NCDOT in 2014 (attached) that enabled the Town to construct the Welcome Center building at this site, and the agreement contemplated the Town owning the building and leasing it to the TDA. Because the Town is now selling the building to the TDA, it is necessary to execute a sub-lease agreement between the Town and the TDA for the land on which the Welcome Center building is located. The special lease agreement with NCDOT would remain in effect, as the Town will continue to retain the right to use the grounds at the Welcome Center for park improvements and public gatherings. This approach is also much easier to accomplish administratively.
The attached sub-lease agreement between the Town and the TDA is consistent with the spirit and intent of the current NCDOT agreement and the original construction and lease agreement with the TDA, but has been amended to simply reflect the fact that the TDA will now be the owner of the building. From a practical standpoint, the site will continue to be used by the public and the Welcome Center will continue to operate in the same manner that it has since it opened in 2015.
The key provisions of the attached sub-lease agreement are as follows:
the TDA owns the building and bears all expense associated with operating, furnishing, and maintaining the building and parking area,
the TDA agrees to keep public restrooms available to the general public, but the Town will clean and maintain the restrooms,
the Town retains the right to use the grounds for park improvements and public gatherings, and will maintain the landscaping at the site,
the sub-lease agreement expires in 2025, but renews automatically in the same manner as Town’s special lease agreement with NCDOT,
if NCDOT ever reclaims the NC 58 right of way for a road project (not likely anytime soon; probably not in our lifetimes), the TDA, as owner of the building, is responsible for removing it, and
all typical legal provisions included are the same as the current agreement between the Town and TDA.
Budget Amendment – Future Beach Nourishment Fund
The attached budget amendment formally recognizes the sale proceeds as revenue in the Future Beach Nourishment Fund, and will fully retire the internal financing agreement used to construct the Welcome Center in 2015. The attached budget amendment includes only $220,800 because the FY 16-17 budget already anticipated a portion of these funds in the form of TDA lease payments. These additional funds will be appropriated to fund balance, reserved for future beach nourishment activities, and will be invested in appropriate interest-bearing instruments.
I am pleased to complete the sale of the Welcome Center building to the TDA in 2016, rather than waiting until 2025 as originally anticipated. I recommend approval of the attached items.