UPDATED: JANUARY 17, 2018 3:36 PM — The city of Winter Park has two new retail development bids for a half acre of public land along Lee Road near the Interstate 4 intersection, each offering different paths to profitability for the site.
City Commissioners will be asked at their Jan. 22 meeting to consider two very different offers for the 0.54-acre parcel at 2600 Lee Road.
One is for a single-tenant, Triple-Net ground lease for a Checkers fast-food restaurant and drive-thru, which would be a new arrangement for Winter Park with one of its surplus properties.
Checkers would begin paying the city rent after it builds and opens the restaurant, estimated for early 2019, with the latest terms as $77,500 per year over 15 years with three five-year renewal options.
Benefits to the city include that the deal is directly with an end-user and not an intermediary developer, and the tenant has corporate credit, ensuring a reliable income stream.
This would give the city flexibilty to later sell the NNN-leased property at a higher price than it can command as undeveloped land, with similar properties trading anywhere from $1.34 million to $1.59 million, according to a city staff report.
If leased and then sold, the city would be sure to realize a financial gain on the $990,000 it paid for the site in 2015. Potential negatives are that Checkers could terminate the contract near the end of its due diligence period, and that Cap rates may rise in step with any interest rate increases, potentially reducing sale proceeds in the coming years.
The other offer is for sale of the property to an affiliate of UP Development for $995,000, which is above asking price. UP has proposed a 5,000-square-foot, speculative multi-tenant retail strip center.
This is similar to the last contract the city had the property under in March 2017 to an affiliate of Glen Spivey, a state-certified general real estate appraiser, broker and president of The Spivey Group, Inc. He proposed a retail building of the same size, but switched that late last year to a speculative ground lease development before dropping the contract, due to lack of a tenant.
The plus side, according to staff, is that UP is an accomplished commercial developer, most notably in Winter Park for the Whole Foods-anchored Winter Park Square at Lee Road and Orlando Avenue, where mixed-use plans for Phase 2 are now underway. The city would also profit on this sale of the property.
"We've invested in the Whole Foods-anchored center, extended Lee Road there at a cost of $6 million, and have the (114-acre) Hungerford property in Eatonville under contract from the school district for $16 million, scheduled to close in mid-March," UP principal Frank Herring told GrowthSpotter. "We obviously have higher aspirations for this site than just doing a Checkers and selling it to someone else. Lee Road is important to us, we're trying to improve the entire corridor."
UP has not provided the city further details over the past three months in the form of a site plan, or potential tenant use categories. Winter Park would also only receive its sale proceeds in 180 to 210 days.
The challenges are common ones for any surplus property sale to a commercial developer, namely that UP could terminate the contract as its due diligence period expires if it hasn't secured tenants or financing.
The Cap rate range on a Checkers lease deal is 5.5-6.5 percent, while on the UP Development sale it's 5.75-7.5 percent, according to staff.
The property had formerly been home to the Booby Trap adult nightclub, a breast-shaped building that had been leased at one point as Christie's Cabaret. City Commissioners voted in December 2014 to buy the property for $990,000 and demolish the business, in order to avoid getting embroiled in a protracted zoning dispute with the owner.
The city was unable to sell the property afterward through its own marketing efforts, and hired the Orlando office of CBRE in July 2016 to begin marketing it, among a handful of city-owned parcels.
Other previous purchase offers have included a Dairy Queen and medical office building that proved too large for the site, and a Dunkin Donuts that fit but couldn't justify the development costs.
The vacant parcel has been marketed for its retail, restaurant or office redevelopment potential, with CBRE promoting an Average Daily Trips (ADTs) count of 36,000 vehicles along Lee Road.
Separately, city commissioners will also make their final vote on Jan. 22 to approve the sales contract of a 1.51-acre parcel at 1111 W. Fairbanks Ave. The high bid of $3.5 million was accepted by commissioners in late September, made by a group of local physicians who plan a new two-story medical office building.