Vallejo inks profit sharing deal for Blue Rock Springs golf course redevelopment

VALLEJO – The Vallejo City Council voted unanimously on Tuesday to finalize a profit sharing agreement for the sale and redevelopment of the Blue Rock Springs golf courses.

The development project has been controversial in part due to an initial $400,000 payment for the purchase of  approximately 75 acres of land that is currently occupied by two 18-hole golf courses on either side of Columbus Parkway. The parcel was originally appraised at $285,000. Residents became alarmed when Blue Rock Springs LLC advertised the property for $18 million only eight months after the $400,000 purchase. 

The agreement with developer Blue Rock Springs LLC which was approved on Tuesday creates a $10.5 million minimum compensation to the city for the land. If the property is appraised at a higher value than expected once the permitting for the project is complete, the city will receive additional compensation. The city will also share in any profits from the sale of finished homes that the Blue Rock Springs LLC is able to negotiate with homebuilders. 

Jeb Elmore, vice president of acquisitions at Lewis Group, the company that partnered with Greg Norman Company to form Blue Rock Springs LLC, hailed the city’s negotiating efforts as he advocated for the agreement. 

“We are operating at a substandard return for our company of what we typically require for this endeavor” he said. “The city, through negotiations, became a seller and a partner. In most cases, we're either a seller or we’re a buyer of property or we're a partner.” 

“In the seller side, you've guaranteed yourself a minimum consideration vetted by your financial consultant,” Elmore continued. “In addition, you became a partner, where we're mutually aligned, that the better our company does, the better the city ultimately does.” 

Despite Elmor’s glowing review of the deal, councilmembers still had questions about whether the compensation was adequate. 

Councilmember Charles Palmares asked how negotiators determined that the minimum compensation should be set at $10.5 million. Elmore said that Blue Rock Springs LLC paid for the city to hire a consultant to examine Blue Rock Springs LLC’s books and financial modeling to negotiate the minimum sale price. 

The $10.5 million includes the initial $400,000 payment and the city is responsible to pay for a $1.5 million architecture and engineering plan for a new 18-hole golf course and clubhouse. 

Assistant City Manager Gillian Haen said that the City Council will have a choice of three different price range options for that project.

“While it makes sense for the city to move forward with new clubhouse and revitalized golf facilities, the proceeds from the project are to be used by the City Council at their sole discretion,” Haen said. “It could be on the golf course renovations, or it could be on something else.”

The project still has to go through the city’s Planning Commission for design and environmental review in order to obtain permits to begin construction. Upon permit approval, the project will be appraised and the city will receive an additional 25% of the appraised value exceeding the $10.5 million minimum. 

Early project designs included residential developments on either side of Columbus Parkway. However Syar Industries, the company that operated the nearby quarry before selling to Vulcan Materials, raised concerns that residences could be impacted by dust and noise generated by their operation. 

As a result of a settlement between the city and Syar, all residential development is confined to the west side of Columbus Parkway. A commercial strip adjacent to residential development is planned on the east side of the parkway. 

Once permitting and infrastructure needs are satisfied, Blue Rock Springs LLC plans to sell the residential lots to a housing developer. When the lots are sold, the city will receive 8.15% of the gross lot sales that exceed the minimum compensation of $10.5 million.

Blue Rock Springs LLC may negotiate a share of the housing developer’s profits for the sale of the completed homes. The profit sharing agreement requires Blue Rock Springs LLC to split with the city any share of those home sales profits that it negotiates with the housing developer. 

Elmore said that the company expects to negotiate a 50% profit share from the home sales, in which case the city would receive half of that share.

During the public comment period, Councilmember-elect Alex Matias questioned whether the 25% going to the developer was appropriate. “I'm not sure if that's a usual number, it appears to be on the higher end,” Matias said. “I think just getting some clarity from staff on what is usually the percentage on profit sharing would be helpful for a deal this size, because I think maybe more should be coming to the city.”

Haen said that the 25% is normal and that percentage has been vetted by the city’s financial consultant. “Actually, it's more than I've negotiated on any prior agreement, for a developer to share at point of land sale and home sale is not common,” Haen said. 

The city initially sought to redevelop its two 18-hole golf courses as a means to address a $4.6 million operating budget deficit that the courses had accrued due to declining revenues from 2011 to 2017. The city selected a proposal from the Greg Norman Company in 2017 which later partnered with Lewis Group to form Blue Rock Springs LLC.