Closed-Door Talks Explore Land Deal

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Three valuable commercial properties side-by-side on Laguna Canyon Road provided the talking points of an unusual closed-door meeting this week by the City Council.

City Manager John Pietig convened the meeting Tuesday after learning that the owners of the event center Seven Degrees and a nearby college dormitory complex had placed the properties on the market, said Mayor Steve Dicterow, who declined to discuss the talks in detail.

Pietig would say only that “no reportable actions” took place.

The properties would be particularly alluring as public lands because of their proximity to the summer art festivals and the still to be realized village entrance and could bolster ambitions to create a cohesive civic arts district, several commercial property experts said.

“It’s a critical piece of real estate,” agreed Ryan Harmon, who specializes in commercial Laguna Beach properties for Lee & Associates. He predicted, though, that city officials will forego the opportunity because of the potential backlash for pursuing deals that he estimated would cost 10s of millions of dollars. Moreover, without increasing density, likely requiring a change of zoning, such an investment would likely lose money, Harmon said.

“We don’t intend to move fast,” said Dicterow, who nevertheless wants the council to publicly discuss in the next few weeks whether the city should pursue such a venture. “I don’t think it’s financially feasible; we’d have to go to the voters on that.”

The properties under discussion are controlled by Dee Mark Partners Ltd. I and III, which share a common principal, local resident Mark Orgill.

Orgill did not return phone calls seeking comment. And the properties are not formally listed with any of the commercial listing services, said Paul F. Meyer, whose Tenant Advisors of Irvine consults for buyers and tenants.

Also part of the closed-door discussion Tuesday was a third 1.5-acre property, sandwiched between the two controlled by Orgill. Known as the Festival Center, it’s comprised of often empty storefronts that partly encircle a 59-space parking lot and was listed for $10.7 million in 2014, according to a commercial listing service.

“This is all news to me,” said owner Gary Sauter, of Corona del Mar, who has owned the property at 853 Laguna Canyon Road since 1989. He said city officials expressed an earlier interest in his property at the same time a $5.3 million deal was struck in 2013 for 3.8 acres known as the Christmas tree lot, also along Laguna Canyon. The city coveted the land for summer parking and as a possible gateway to a long-awaited village entry.

“If the properties could by assembled, it would be wise for the city to control them,” said local Joe Hanauer, who has redeveloped several properties in town. “But the city has had a hard enough time with what it has,” he pointed out, referring to multiple village entrance iterations over two decades.

Properties for sale that are not included in industry databases are sometimes characterized as “pocket listings,” when a seller wants to informally approach a logical buyer, such as an adjacent property owner, for a brief period before broadly shopping the property with a formal listing, Meyer said.

In such a circumstance, the seller typically would have already obtained a valuation based on projected lease income and a comparison to like properties, he said. Valuing Seven Degrees, the event center and artist studio spaces at 891 Laguna Canyon Road, presents a challenge because it is a unique property, he said. Fifteen commercial properties in Laguna Beach are currently for sale, including Madison Square and Garden Café, with a $6.5 million asking price by owner Jon Madison, and Best Western Laguna Brisas, which is up for auction, Loopnet.com listings show.

And at 793 Laguna Canyon Road, Laguna College of Art & Design holds a master lease, which includes apartments for 56 freshman students, through 2025, said college President Jonathan Burke. “We’re happy here. We have no intent to go any place,” said Burke, who was unaware of any negotiations.

“The city is not your typical real estate investor,” said Meyer. Government often ends up paying more for real estate because city officials can’t be as creative or nimble in bargaining, due to public disclosure requirements, he said.

For a seller, though, making a deal with an assured buyer lowers uncertainty, he said.

 

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