Wrangell's Port Commission examined its options for lengthier leases at The Marine Service Center during a special workshop before its Tuesday evening meeting.
The discussion has continued off and on since January, when contractor Don Sorric requested commissioners consider extending lease options for lots at the yard past the current five years. The yard currently has seven lease lots of varying sizes, with the potential for an eighth.
The reasons Sorric gave for lengthening the leases was for stability, giving leaseholders greater assurance of return on capital investments and site improvements, in the event of a sale. Harbormaster Greg Meissner anecdotally explained he has since contacted an acquaintance with Wells Fargo Bank in Ketchikan to discuss conditions for issuing bank notes for such sales.
“He didn't give me anything in writing,” he prefaced, but Meissner conveyed that banks traditionally prefer the lease term to be at least as long as the note being issued, which typically can range between 10 and 15 years for a commercial note. Because of the yard's industrial nature, Meissner said a bank would also need an assurance a new tenant would not be held liable for violations from a prior tenant.
In January, Sorric had explained the current five-year lease limits would thus be a hindrance to organizing a sale. The reasoning given for the current five-year limit was to allow the city to retain some amount of control and flexibility over its yard's lease holdings.
As space at the yard for additional lease lots is limited, Meissner explained the lease limitations allowed commissioners to periodically assess ongoing business operations, to help ensure lots were being used as intended. As long as vendors continue to conduct maritime industrial activities at the yard, they could ostensibly renew as often and for as long as they liked.
“You can go on indefinitely as it is,” he noted.
A prospective vendor purchasing from a current leaseholder would still need to come before the commission to secure a new lease for themselves, in part to address concerns with subletting.
Commission chair Clay Hammer said he would not be opposed to a 15-year duration for leases, if that was what vendors preferred. However, he brought up another topic to consider which tied into yard leases, that of rates.
Currently vendors pay different monthly rates on their leases, calculated by square footage and tied to how well developed the lot was at the time of leasing. Most lease holders have already renewed their holdings once, on their second five-year leases.
Meissner pointed out that lease rates for lots have not been changed since first issued, and disparities in how the yard was earning were beginning to show. While a lease lot can bring in as little as 8 cents per square foot for some contractors, others may pay in the 20s range, while boat storage now earns 33 cents per square foot. In all, the yard earns between $45,000 and $47,000 from leases per year, just over a tenth of total revenues brought in by The Marine Service Center during the 2016 fiscal year.
Commissioners had last year decided against raising lease rates on renewing lot holders, figuring it would give them ample time to establish themselves in the industry. But looking ahead, they hope to hammer out a more standardized rate system which would apply to all holders more equally.
“I felt it was a good faith measure on our part,” said Hammer.
One proposed scenario could have lease rates fixed to a proportion of assessed value for the individual lot itself, taking out of consideration improvements to the property made by the lease holder.
“His improvements should never increase the value of his property,” Meissner explained hypothetically.
This was differentiated from assessments on a house or owned property, where improvements and additions increase value and therefore tax liabilities. However, Meissner noted improvements to the yard itself could affect assessed value, which would ultimately be gauged by a third party.
For next steps, commissioners would like to sit down with an assessor and get a better idea what the lots might be valued at before comparing it to current rates, or suggesting a fair percentage to peg rates to. Commissioners also recommended finding harder quotes from lenders on what they require or otherwise prefer for issuing commercial notes. They decided to hold one more workshop after the holidays.
In other business, commissioners considered a request by Ruth Stough to purchase city tidelands near the northern inside end of the state ferry terminal.
“I would like an easement that protects both of us,” she explained.
As the item would also have to pass through the purview of Planning and Zoning and the Assembly, Hammer pointed out the commission's only question to answer was whether the request would adversely impact port interests.
“Near as I can tell, it does not,” he said. Commissioners agreed, unanimously giving approval to the motion. The item is on the P&Z docket for this evening for further review.
A similar request by neighbor Brett Woodbury to purchase the tidelands also appeared, as new business. Meissner and harbor staff inspected the property in question earlier in the day and found the sale would likely not hinder access to that corner. The main consideration would be what the intended use of the area would be, to which Woodbury was not present to respond. Commissioners decided to table the request for a future hearing, deciding in the meanwhile to have a look at the site themselves during the interim.
Woodbury has previously entered a request to purchase the tidelands, which Planning and Zoning did not support in August 2015. The Port Commission had abstained from making a ruling at that time.
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