SR-901-005Council Meeting: July 11, 2000 Santa Monica, California
To: Mayor and City Council
From: City Staff
Subject: Recommendation To Restructure The Acquisition Of The Property
Located At 2330 Michigan Avenue, Santa Monica; And To
Authorize The City Manager To Negotiate And Execute All
Agreements And Documents Related To The Restructure Of This
Transaction
Introduction
This report recommends that City Council restructure the City's prior acquisition
of the real property located at 2330 Michigan Avenue, Santa Monica ("Property"),
and authorize the City Manager to negotiate and execute all agreements and
documents related to the restructure and reacquisition of the Property, including
a four year triple net lease with rent in the amount of $14,500 per month and
with an option to purchase the Property for the sum of $3,150,000 at the end of
the lease term, a rescission and restructure agreement, and deeds related
thereto.
Backqround
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In November of 1998, City staff became aware of the potential availability of the
Property which consists of approximately 26,500 square feet of land with an
approximately 12,500 square foot building. The Property is located west of
the City Yards, on the south side of Michigan Avenue. Staff recognized a
potential opportunity to expand the City's and holdings adjacent to the City Yards
for future City needs.
The Property was owned by Irving and Gertrude Geffner (58%) and their three
daughters (14% each). Discussions and negotiations with the property owners
ensued over a period of several months between late 1998 and mid 1999 and
concluded with an agreement for the Geffners to sell a percentage of their
interest (4.5132278%) in the Property to the City and for the Geffners to donate
the remainder of their interest (95.4867722%) to four separate Charitable
Remainder Annuity Trusts (CRATs), with the City as the trustee of the CRATs.
The City then purchased the remainder of the interest in the Property from the
CRATS pursuant to four separate installment notes. These actions were
approved by Council on June 29, 1999 and shortly thereafter, all pertinent
documents were executed and the title was transferred to the City of Santa
Monica.
Subsequent to the transfer, the Geffners approached the City about rescinding
the transaction. The parties then held a series of discussions about
restructuring the transaction in a way that would better serve the needs of both
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the Geffners and the City, including minimizing tax liability. As a result of these
discussions, staff recommends that the transaction be restructured to allow the
City to reacquire the Property after the expiration of the lease term without the
use of the CRATS.
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The specific actions which are recommended are as follows:
1) For the parties to set aside and rescind retroactively all of the CRATs, Gift
Agreement, Commercial Property Purchase Agreement, and all related
installment notes, grant deeds, deeds of trusts and assignments entered into in
1999 in connection with the transfer of the Property. The City will reconvey title
to the Property back to the Geffners. The Geffners, in turn, will reimburse the
City for all annuity payments they have received from the City pursuant to the
CRATS;
2) For the City to enter into a triple net lease with the Geffners for a four year
period commencing July 1, 1999 until June 30, 2003 for a fixed rental price of
$14,500 per month;
3) For the City exercise the option to purchase the Property for fixed price of
$3,150,000 during the term of the lease. The escrow period related to the City's
purchase cannot open until July 10, 2003 absent consent of all parties to an
earlier escrow date. The City would acquire the Property on or about August of
2003 after the expiration of the lease term;
4) For the City to pay for pay for escrow costs, closing costs, City's title
insurance, property taxes for the period from July 1, 1999 until the expiration of
the lease term, and $10,000 in attorney's fees to the Geffners.
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Acquisition of this Property provides an excellent opportunity to meet future City
needs for additional space. In recognition of the high land values and scarcity
of land available for such expansion within Santa Monica, it is clear that
acquisition at this time is a hedge against future inflation. There are no specific
plans at present for this site. During the remaining three years of the lease term,
it is anticipated that the City will either continue a sub-lease with the current
commercial tenant or utilize the Property for City operations yet to be
determined.
CEQA Status
Staff has determined that this transaction is exempt from CEQA since there is no
possibility that the lease and/or purchase of the Property may have a significant
effect on the environment. Additionally, there will be no change of use since the
City is assuming the existing lease with the commercial tenant, Flap Happy. The
City will be conducting a comprehensive environmental analysis linked to the
proposed City Yards Master Plan, if approved by Council later this year,
which will include this particular site.
Budqet and Financial Impact
Based on Council approval of the recommendations in this report, during
FY2000-2001 lease payments in the amount of $174,000 will be remitted to the
Property owners (Geffners). It is anticipated that these lease payments will be
fully offset by rental income to the City which will be received from the current
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tenant. Sufficient expenditure and revenue amounts have already been included
in the Adopted Budget for 2000-20001 in accounts which were established to
disburse the trust annuity payments to the Geffners (account#
C01033701.589000) and receive rental income for the current tenant at 2330
Michigan, respectively. In addition, since the City's actual payment of the
$3,150,000 purchase price for the Property is not anticipated to occur until July,
2003 no budget changes are required at this time to implement the staff
recommendations. Prior to finalizing the purchase, financing will be identified
from either the Capital Improvements Program Budget or other appropriate
funding sources.
Recommendation
It is recommended that City Council restructure the City's prior acquisition of the
Property located at 2330 Michigan Avenue, Santa Monica, and authorize the City
Manager to negotiate and execute all agreements and documents related to the
restructure and reacquisition of the Property, including, but not limited to, a four
year triple net lease with rent in the amount of $14,500 per month and with an
option to purchase the Property for the sum of $3,150,000 at the end of the
lease term, the rescission and restructure agreement, and the deeds related
thereto.
Prepared by: Craig Perkins, Director of Environmental & Public Works Mgmt.
Jeff Mathieu, Director of Resource Management
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