Weatherford BMW said this week that it has not finalized lease agreements for renovations and new construction at its current 735 Ashby Ave.-750 Potter St. dealership location in Berkeley, although the Berkeley City Council approved about $500,000 dollars in building permit fee waivers for the project earlier this month.
David Callahan, general manager for Weatherford BMW, said that negotiations were still at a preliminary stage and declined to discuss specifics, except to say that Weatherford wanted to stay and make modifications to the West Berkeley location.
He added that he was also open to the prospect of expanding to other locations in Berkeley, something that Dave Fogarty, the city’s economic development project coordinator, said was unlikely due to a lack of suitable sites in the city.
“One of the purposes of the waiver was to get them to commit to Berkeley,” Fogarty said. “We were aware that their preference for Berkeley was still tentative. They are either going to remain at the current site or go to a new city.”
Weatherford considered relocating to the Oakland Army Base, a 170-acre site which includes 24 acres dedicated to a freeway auto mall at $25 per square foot, half the rent of Weatherford’s Berkeley site.
The Berkeley City Council’s actions to grant a waiver echoed a move it made last month to keep Bayer Healthcare—the city’s largest private sector employer—at its Aquatic Park campus, when the pharmaceutical giant threatened to take a $100 million investment in hemophilia treatment elsewhere, except that in Bayer’s case the council created a new enterprise zone to give Bayer up to $10 million in tax breaks.
Fogarty pointed out that the enterprise zone would also benefit other West Berkeley businesses regardless of size.
District 7 Councilmember Kriss Worthington said he abstained from voting on the Weatherford project because he was concerned about Berkeley businesses getting unequal treatment from the city.
“I had questions about how much tax benefits BMW Weatherford is getting from city and staff because of this, and you add the fee waiver on top of that, so what is the accumulative net amount the city is subsidizing?” he said. “I understand people want to keep big businesses but where’s the fairness factor? What about all the small businesses that are struggling?”
Fogarty defended the city’s position.
“The city has always offered various incentive to small businesses,” he said, giving an example of how Berkeley’s business license fees are structured to minimize costs for start-ups.
“We have other options,” Callahan of BMW said. “We just need to get the most attractive package. I believe in the 20 years we have been in Berkeley we have been their number one sales generator. We have made an agreement and everybody seems to be happy. That’s a lot to say for the location.”
Weatherford, which moved to Berkeley in 1990 after its dealership in Emeryville was destroyed in the Loma Prieta earthquake, is a subsidiary of a large Japanese company, Sojitz. The dealership had $110,000,000 in sales in 2007. It employs 145 people, with a pay-scale ranging from $41,719 to $130,000 annually.
Berkeley has four auto dealerships—BMW, Volvo, Honda and Toyota.
The City Council’s vote to approve the permit fee deferral for BMW was a first for Berkeley, a step City Manager Phil Kamlarz warned would set a precedent for other businesses. Kamlarz added that in the event of BMW’s departure, the city would lose almost $1 million annually in sales tax and business license revenue.
“Nobody likes the precedent, but the fact that we get $800,000 in sales tax justifies the waiver—it’s less than half of what Weatherford BMW brings to the city.” Fogarty said. “We are of course worried about it setting a precedent, but we will do something like this again only in an equivalent revenue loss-only situation.”
Councilmember Jesse Arreguin said he supported the project because its benefits far outweighed the consequences.
“We should not be waiving fees for corporations, but at a time when the city’s tax revenue is down and we are making cuts to city services it’s important to retain whatever little tax revenue we have left,” he said. “That said, I am unlike to vote for a fee deferral for other businesses in the future.”
Although plans have not yet been drawn up for the proposed renovations to the dealership, estimated to cost $10 million, preliminary discussions suggest that building permit fees which would be waived could be in the range of $400,000-$600,000, which would result in a loss of revenue earmarked for the city’s Planning Department. The amount would be replaced by funds from the City of Berkeley’s General Fund reserves.
Fogarty said that Weatherford had initially asked for a much larger subsidy—the amount of which he declined to reveal—but that the city manager had decided to waive building permit fees only.
In a June 2008 letter to Berkeley Mayor Tom Bates and councilmembers, Weatherford BMW President Michael Umebayashi said that while their current Ashby site, which they have leased for the last 17 years, had many perks—including a regional freeway and an easy accessible service area—the dealership had the disadvantage of not owning the property.
Fogarty said that the new project would likely keep Weatherford’s current showroom, upgrade the big barn-like structure that can be seen from the freeway and construct a new service center.
“Overall, we would like to remain in Berkeley at our existing site but as a publicly traded company we must justify our decision on a permanent site on the basis of relative cost and benefit to or shareholders,” Umebayashi’s letter said. “In particular, given tremendous cost of rebuilding our dealership, we ask that the City of Berkeley consider reducing the cost by rebating to us part of the sales tax it would receive from our operation if we choose the Berkeley site.”
Umebayashi said that if Berkeley chose to extend these benefits to Weatherford, it would enjoy likely higher sales tax from an increase “foreseen in after-sales service and parts sales.”
Although Kamlarz asked Weatherford to provide its current financial statements and revenue projections in order for council to consider a financial assistance package, Weatherford agreed to disclose the information to only a third party financial consultant, Yovino-Young, Inc., because of confidentiality reasons.
In a staff report to council, the city’s Economic Development Manager Michael Caplan wrote: “Berkeley has never offered a subsidy to retain or attract a business, so this proposal is being made with great reluctance and only after negotiations with Weatherford to reduce it and condition it on Weatherford’s commitment to build the new facility in Berkeley.”
Callahan said that there was no set timeline by which a new lease would be signed.