So far the city has not found any termites in the giant house
that is Gilroy Gardens, clearing the way for a potential February
sell date.
So far the city has not found any termites in the giant house that is Gilroy Gardens, clearing the way for a potential February sell date.
For the past few months, city inspectors and hired legal and environmental consultants have been inspecting the park’s title and the land itself. So far everything looks fine, and the park’s board of directors met its latest payment date earlier this month when it forked over $800,000 to bondholders, according to Bob Kraemer, the board’s president.
The city council ordered staff July 9 to scrape its own city coffers and explore proper inspection procedures, similar to how a potential homebuyer vets their bank account, consults a loan officer and then dispatches an inspector before making an offer on a desired house.
Gilroy Gardens is like a giant, 536-acre house that could cost between $13.1 million and $25.4 million even though the land has been valued closer to $60 million.
The city is the discounted buyer, and Assistant City Administrator Anna Jatczak and Fire Marshal Jacqueline Bretschneider, whose department completed routine inspections in March, have both spent the last four months sending environmental, title, land and chemical inspectors to the gardens to make sure the park is in sound condition.
So far it is, but Jatczak said city staff will report its final findings to the council by mid-December, when the new council will be in session.
“Most of the due diligence activities have been completed,” Jatczak wrote in an e-mail that outlined the city’s boundary surveys and its research into lease terms and the park’s financial and legal histories. “We are still awaiting the results of the environmental review, (but) to date, no red flags have appeared.”
Bretschneider said a subsequent environmental probe could occur if, say, inspectors find a chemical spill somewhere in the park. But she and other city officials cautioned that this is not likely, which would make approving the city’s acquisition of the park an easier process come January, when the council might vote on the matter, according to Jatczak.
Councilman Craig Gartman said “the first thing I’m looking at is whether there are any restrictions on the bonds, and I want to make sure there are no liens against the property.”
Kraemer, who meets with the board about once a month, said the next payment to bondholders is in May and is estimated to be about $500,000. Jatczak figured the $13.1 million sale price before the latest $800,000 payment, which could affect the sale price that represents the park’s outstanding debt to the bondholders.
City-hired bond experts and counsel have spent recent months feeling out investors about selling some or all of the $12.4 million in bonds issued by Gilroy Gardens. The $13.1 million figure was Jatczak’s conservative calculation: It is how much the bonds, with an average 8 percent interest rate, will be worth in Nov. 2010, when they are up for sale.
It’s just a matter of when creditors will get their money, Kraemer said.
“The city is intending to buy out the remaining debt that we have, but how they’re going to do that is something the city should tell you,” Kraemer said.
To finance the project, the city will borrow against itself and/or postpone the construction of the city’s planned art center, which is budgeted at $10 million even though it will likely to cost about $25 million, according to Community Services Director Susan Andrade-Wax. Another option would be to take out a 30-year-bond bond that could cost the city as much as $25.4 million, but Jatczak said the city would not let 30 years go by before repayment.
Jatczak said she imagined borrowing $4.5 million from the general fund and getting the other $7.9 million from possibly three other sources. One could be borrowing money from a private lender, another could be “borrowing against ourselves” with an “inter-fund loan” from uncommitted money that would otherwise finance storm drains, sewer projects, city fleets, equipment, and information technology. The final potential source could be money slated for a postponed arts center that has turned out to cost more than anticipated.
If it becomes the city’s asset, though, it is unclear who will run the park, but city officials have indicated that the city does not intend to.
“We would like our relationship with the board to continue. There’s no way in heck our community services department could handle that,” Jatczak said. Kraemer expressed the board’s similar desire.
Current councilmen and incoming council members Perry Woodward, Cat Tucker and Bob Dillon have all said they would prefer the city to have the same arrangement with Gilroy Gardens as it does with the golf course: The city owns the dirt, but someone else runs the operations on that dirt.
The contract with the Gardens’ current operator, Cedar Fair, expires at the end of February 2008, but the Canadian company would likely agree on a renewal, according to city officials. Cedar Fair owns 17 amusement parks, four of which are in southern California. It also owns Great America in Santa Clara, which the San Francisco 49ers franchise has expressed interest in buying as the site for a new stadium and parking lot.
In March the financially troubled west Gilroy park offered to sell its acreage along Hecker Pass Highway to the city since it has a special contract with Gilroy to surrender any excess earnings not paid to bondholders, according to Kraemer.
So far bondholders appear to be satisfied, and the park is not in jeopardy of foreclosure ahead of the planned sale, Kraemer said.
“We all know that Gilroy Gardens isn’t rolling in cash and that has been the situation forever, but we have managed every year to find solutions to that,” Kraemer said in reference to the board’s reduction of the park’s former $70 million debt.
“We have open books. We have no secrets. We’re not making money for stockholders because we don’t have any, and the board members don’t get paid,” Kraemer said. “We’re here as a community asset.”
