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Club One Casino Deal: All You Need To Know

Fresno City Hall

Club One Casino Deal: All You Need To Know

Club One Casino is moving to the Gottschalks building and partner Brixton Capital are set to invest $13 million to $15 million.

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The Club One Casino relocation project was one of the prime issues at the Dec. 6 Fresno City Council meeting.

The proposed move of the card room/restaurant/event center to the old Gottschalks building figures to bolster redevelopment efforts at the south end of Fulton Corridor.

What got overlooked in the public eye on Dec. 6 was a council action that seeks to bolster redevelopment efforts at the north end of Fulton Corridor, thus giving the six-block stretch two powerful anchors and the beginning of an identity worthy of regional notice.

First, a review of the Club One deal. My interest in its public affairs dates back to the 1990s when the Casino was preparing to open at its current location on the corner of Van Ness Avenue and Tulare Street, across from Courthouse Park. The owners opened their doors one morning to prospective employees. I was a business reporter at The Bee at the time. I remember interviewing people waiting in the long line to apply for jobs. They had high hopes for the future, as did City Hall.

As I understand it, Club One has been at its current spot for nearly a quarter-century. There was one high-profile bump along the way, a bankruptcy filing in 2015. But as Club One President Kyle Kirkland told the council on Dec. 6, the Casino has never closed its doors. It’s a 24/7/365 operation.

The Dec. 6 staff report outlines the deal. The first thing to note is that the city contract is with Southern California-based Brixton Capital. I don’t know if that means Brixton, in the wake of Club One’s bankruptcy, is now Club One’s senior partner.

The staff recommendation was to sell the city-owned portion of the Gottschalks building (53,040 square feet) and the next-door spiral garage (214,292 square feet) to Brixton for $1.7 million.

Club One President Kyle Kirkland told the council that Brixton expects to invest $13 million to $15 million in getting the old retail space and the garage fully renovated. City officials said the two assets are being sold at appraised value

By my reckoning, that means the two assets, combined, are being sold at $6.36 per square foot. If Brixton ends up spending the full $15 million in renovation funds, then the project on the eve of the grand opening will have cost $62.47 per square foot.

I mention these rough numbers because $62.47 per square foot for the ownership of fully remodeled, income-producing, strategically located real estate assets strikes a real estate layman like me as being a pretty good deal. By comparison, as I wrote earlier this month, the government and an affordable housing developer are spending about $400 per square foot to build the $14.14 million Annadale Commons apartment project for low-income seniors in West Fresno. I’m not saying City Hall is gifting public assets to Brixton. But I’m also rejecting any notion that I’m raising an apples-to-oranges comparison. It’s expensive to build big projects. The Club One/Brixton project sounds big. Unlike the Annadale Commons project, the Club One project is expected to deliver a generous return on investment. Somehow, Brixton expects to fulfill its mission at a substantially lower cost per square foot.

What is Brixton Capital? This is what the Brixton website says:

“With an unprecedented track record of successful real estate investing spanning three decades, over 800 properties representing $10 billon of asset value and virtually zero losses, Brixton and it’s principals have consistently achieved outstanding returns across multiple real estate cycles spanning more than 30 years.

“Today Brixton owns and manages a diverse array of real estate assets totaling more than $1 billion which each offer an important combination of mitigated downside protection with the opportunity to create additional value through the disciplined execution of each property’s business plan.”

Perhaps more to the point for our purposes is an item in the April 30, 2018 edition of the San Diego Business Journal. The journal awarded Brixton its award for “Best Retail Purchase” during the preceding year. That purchase/sale was Gateway Marketplace in Chula Vista.

The Journal wrote: “The seller, Brixton Capital, bought a 128,000-square-foot center in Chula Vista that had been vacated by big-box retailers and invested $9.25 million in renovations, which included dividing an old Target location into three units and setting the buildings back 10 meet to improve pedestrian flow…. Brixton stabilized the rent with new tenants and sold the center within three years. Brixton had projected a return of 17.1 percent on the project but netted more than 32 percent. This $42 million deal was the fourth biggest retail sale of 2017.”

The Gottschalks building and the Spiral Garage have been wasting assets for many years. Both face millions of dollars in deferred maintenance. Brixton Capital is the real McCoy when it comes to turning real estate potential into reality. I sense that Fresno’s future business historians will have much to chew on regarding how this deal plays out.

Kirkland, Club One’s president, was his usual charming yet forthright self at the Dec. 6 council meeting.

“I’d like to thank Mayor Brand for entertaining our offer for the spiral garage,” Kirkland said. “I’d also like to thank Wilma (Quan-Schecter, the City Manager) and her staff for helping us refine it to meet the city’s needs.”

Kirkland noted that Club One has been operating in its current location for 23 years – some 8,400 days in a row. He said the business model is that of a licensed gaming operation with satellite wagering, bar/restaurant and event center. The Casino employs about 350 people and generates about $1 million a year for the city in taxes. The casino’s workforce is expected to grow by 50 to 60 in its new digs.

“We feel like that we have an excellent relationship with the city that we value very much,” Kirkland said. At the same time, he added, Club One has outgrown its existing footprint.

I took that to mean the ambitions of Club One/Brixton Capital are too big for the casino’s current site.

The aim, Kirkland said, is to take an underperforming asset “and turn it into something really special for Downtown Fresno.” He said he has worked before with Brixton: “I’ve had a relationship with them over the past two years on some gaming interests.” Kirkland said the architectural firm that will design the Fresno project also did design work on the Gardens Casino in Hawaiian Gardens (not all that far from California State University, Long Beach) and Hollywood Park Casino in Inglewood.

“We have a lot of talent working on this,” Kirkland said.

The Spiral Garage, for all its problems, remains a key part of Downtown’s parking inventory.

Kirkland said: “The project is going to take, candidly, patience and cooperation. It’s a big project. That (former retail) building has been vacant for a long time. We’re committed to working with the folks in the area and our neighbors, whether it’s the Grizzlies, Mehmet Noyan’s project, the Downtown businesses in that area. It’s our goal that everyone’s parking needs are satisfied, to make sure that the businesses aren’t disrupted.”

Kirkland said project design would begin immediately. A timeline accompanying the staff report expects construction of improvements to begin in July 2019. Work should be done in December 2020.

The project “certainly has risks,” Kirkland said. “But we feel that we have the talent to put it together.”

Council Member Paul Caprioglio noted that City Hall talks a lot about being business friendly. He said the Club One project will be a good test of that claim.

“Hopefully we’ll get reports that this is speeding along at space age, rocket satellite speed,” Caprioglio said.

“I’m confident that we can keep on a timetable,” Kirkland said.

Caprioglio got in the last word: “I wish you good luck. But you’re a good businessman. You don’t need luck. You just need the opportunity to proceed.

The deal was approved without opposition from the dais.

At the same meeting, the council on its consent calendar approved an Exclusive Negotiation Agreement (ENA) with Tutlelian & Company for the development of city-owned property at the north end of Fulton Corridor.

The way I read the staff report, this ENA is a promise that over the next 270 days (with a possible extension of 180 days) the Administration will negotiate only with Tutelian about coming up with a plan for something really grand at the north end of what was once Fulton Mall.

In light of the Brixton Capital/Club One Casino deal, it’s worth quoting at some length from the city’s agreement with Tutelianz:

“The CITY, on October 20, 2016, approved the Fulton Corridor Specific Plan.

“Implementation of the Fulton Plan envisions a development strategy driven by private investors, and a plan development focused on retail, employment, shared parking, and livable neighborhoods.

“The Fulton Plan also acknowledges that, though direct City financial assistance for private projects is not a sustainable blanket strategy, public investments in infrastructure that reduce costs and uncertainty for individual projects will allow private developers to operate at the volume and speed necessary to revitalize the plan area. (My emphasis.)

“The Fulton Plan confirms that the north end of the Fulton District is currently flanked by two parking lots, and the remnants of the loop road developed as part of the Gruen Plan for the Fulton Mall, commonly referred to as the Tuolumne Reversal. The Fulton Plan thereby identifies the Tuolumne Reversal in the vicinity of Van Ness Avenue and Tuolumne Street as underutilized lands owned by the CITY that may provide opportunity in attaining objectives of the Fulton Plan in those environs.

“The Fulton Plan includes conceptual layouts of desirable redevelopment of properties in the North Fulton District, in the vicinity of the Tuolumne Reversal. Those conceptual layouts reflect midrise mixed-use development, which includes a parking garage lined with ground floor retail uses.

“DEVELOPER has a proven record of completing mixed use development projects in Downtown Fresno, and further has a proven record of investment and rehabilitation of important historic resources in Downtown Fresno in the immediate (area) adjacent of the North Fulton District within the Fulton Plan.

“DEVELOPER has further invested significant time and money in completing engineered drawings and infrastructure plans that are consistent with the goals and objectives of the Fulton Plan’s North Fulton District.

“During the Negotiation Period, the DEVELOPER proposes to determine the feasibility of a project in the Fulton Plan’s North Fulton District that may utilize elements of the Tuolumne Reversal and/or other lands owned by the CITY (or subsequently acquired by the City)…. Such feasibility evaluations shall include jointly identifying with the CITY the extent and potential of public infrastructure development needed to attain the objectives of the Fulton Plan.” (Parenthetical comment in the agreement.)

In other words, Cliff Tutelian, like Brixton Capital, has the proven drive to get big projects done. Big and successful projects at both ends of the Fulton Corridor are exactly what is needed to jump-start development in the corridor’s middle. Public investment almost certainly will be required.

Who will get its project done first, Brixton Capital/Club One Casino at the South End or the Cliff Tutelian team at the North End? Who will have the best project? Let the competition begin.

Fresno wins if both developers take the competition seriously. That’s the American Way.

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George Hostetter

George Hostetter is a contributor to CVObserver.

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