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SR-407-000-06 . L/tJ?----POO-tO (;:, , ~ Santa Monica, California, July 17, 1979 TO' Mayor and City Council FROM: City Staff II e SUBJECT: Analysis and Recommendation Regarding Alternative Proposals to U.S. Condominium Corporation Scattered SIte Housing Conceptual Approval 'JUL 2 4 1979 Background On July 10, 1979, the City Council voted to affirm their previous decision to grant an exclusive right to negotiate to the U.S. Condominiu~ Corporation for the development of low and moderate inco~e housing in the Ocean Park area. ThiS action was declared to be final subject to the receipt of the City Attorney's written opinion regarding the authority of various City agencies to consent to the transfer of their respective property, and the propriety and legality of the process by which U.S. Condo~lnium Corporation was granted an exclUSive agreement to negotiate. The Council action was also conditioned upon the receipt or lack thereof of substantial competitive bids on or before 5'00 p.~. Friday, July 13, 1979. Discussion Two alternative proposals were received prior to the Council-established deadl ine. These proposals (attached) which were submitted by Mr. George A. Carter and Mr John L. Hult, respectively, are summarized below. It is the opinion of staff that although each proposal presents a potentially feasible method of producing below market rate housing units on the City-owned sites, neither proposal constitutes a substantial competitive bid to the proposal presented by the U.S. Condominium Corporation. II e JUL .d 4 1979 . . Mayor and Council -2- July 17, 1979 The U.S. Condominium Corporation proposal IS based on participation in the CHFA-HUD Section 8, New Construction Program. This program which provides below market rate construction and permanent financIng, as well as ongoing supplemental rent payments, results in housing units which are constructed to hIgh standards (such as the Nielson Villa project). and a rental structure which is able to acco~modate very low income households for which few housing alternatives are available. On the negative Side. the program involves a relatively lengthy review and approval process. and places fairly rigid restraints on allowable per unit land costs. Additionally, the funding agencies, the California Housing Finance Agency and HUD, have. by legislatIve direction and self-imposed guidelines, established priorities for funding based on the elderly and non-elderly composition of the proposed projects. It is this set of circumstances and constraints which structured the U.S. Condominium Corporation proposal. In order to assure the approval and financing commitments for the elderly housing developments on the Barnard Way and 175 Ocean Park Boulevard sites. U.S. Condominium has proposed to include family housing developments on the privately acquired parcels to present the funding agencies With a fundable package. In order to achieve an averaged per unit land price acceptable to CHFA and HUD. U.S. Condominium has proposed the virtual donation of the City-owned parcels. although they have agreed that the City-owned parcels would revert to the City at the conclusion of the forty (~O) year mortgage period. Absent the control of the private parcels and the ability to further subsidize the low income housing land costs by the application of profits derived from the sister market rate condominIum development, no other developer . . ~ Mayor and Council -3- July 17, 1979 is in a posItion to package a CHFA fundable development. Both of the alternate proposals side step these constraints by speaking only to the City-owned parcels and by precluding the use of the CHFA-HUD financing and rental assistance subsidies, relying instead on pass through savings resulting from the zero land costs, substantially higher densities, construction economies not permitted by CHFA-HUD, and a reduced review period. Off setting the additional flexibility resulting fro~ the avoidance of CHFA-HUD partIcipation, is the reduction in available subsidies and the subsequent increase in required tenant participation. In other words, the other proposals could not achieve the rental schedules allowed by the Section 8 program, and may not be able to accommodate the target population sufficiently to satisfy the Coastal Commission requirements Additional detailed information would have to be provided before any determination could be made on this issue. Alternative Proposal Summaries Proposal of George A. Carter The written proposal submitted by Mr. Carter is an offer on behalf of himself and his associates to act as a development team on behalf of the City to design, develop, and construct a suggested one hundred twenty (120) elderly units on the .89 acre Barnard Way site, and sixty-six (66) elderly units on the approximately 26,000 square foot site at 175 Ocean Park Boulevard. Under the proposal, the obtaining of financing would be an obI igation of the City with assistance of the development team. Upon completion of the developMent, the housing unIts would be the property of the City, and the proposal suggests that they could be managed by the City Housing Authority. The proposed compensation of the development team would be not less than 10% of the total development cost. . . Mayor and Council -4- J u I y 17, I 979 Staff discussions with a representative of Mr. Carter resulted In an additional alternative. Since a new Article 34 election would be required before the City could own and operate housing units, Mr Carter and his associates would, as an alternative, be granted the City parcels at no cost; arrange their own financing from conventional sources; and, develop and operate the units for a period of forty (40) years at which time the land and improvements would revert to the City. The presumption underlying this proposal is that the cost savings represented by the zero land cost; high densities, conventional "off the shelf" design/ construction; and reduced review/approval times are suffICient to reduce the required rents to a level affordable by at least the upper end of the moderate (80% of median) income households. The time alloted precluded the submission of a detailed verification of this assumption. It was further proposed that once completed, the City or private owners could apply to HUO for supplemental rent funds for all or a portion of the units under the "Existl ng Section 811 or "Ne~'>Jly Constructed Section 8" programs Proposal of John L. Hult The written submission of John L. Hult constitutes a combination of concepts regarding the development of IILess-Cost" hOUSing on the two City-owned parcels, rather than a specific development proposal per se. The concepts include the donation of the City-owned parcels and the develop~ent by a non-profit group of 210 units for an elderly continuing care operation on the Barnard Way site, and the development of 90 units of elderly/family units on the 6 acre 175 Ocean Park Boulevard site. It is proposed that these substantial densities can be accommodated by hOUSIng units which consist of a . . Mayor and Council -5- July 17, 1979 combination of private quarters; i.e , bedroom and bathroom, and public or shared quarters for dining and group social activities It is also suggested that a 14,000 square foot parcel owned by Mt Olive Lutheran Church may be available for the development of an additional forty (40) units for the elderly to be constructed in the same configuration as described above. Alternate financing methods are described including front end lIaccommodation fees'; for the continuing care operation or prepayment fees for long term leases on the normal rental units, in combination with conventional financing of the balance of the cost by insurance companies. It is also suggested that under certain Circumstances, tax exempt municipal revenue bonds might be issued to reduce the carrying costs. An additional money saving aspect attributed to this form of development is the tax exempt property tax status often granted non-profit housing prOJects. As with the proposal from Mr. Carter, the Hult submission presumes that the reduced costs of the development generate sufficient pass through savings to accommodate the income 1 Imitations of the target population without the necessity of additional external subsidies. The proposal did not include a verificatIon of this assumption. Summary and Conclusion It is the opinion of the staff that neither of the alternatives submitted constitute a substantial competitive bid with respect to the proposal submitted by the U.S. Condominium Corporation. As expected, no one was able to assemble a package which would be financible under the Section 8 New Construction Program. . . Mayor and Council -6- J u 1 Y 1 7, 1979 However, the submittal of the alternative proposals demonstrates that the donation of land in and of itself can result in a substantial reduction in housing costs. The alternative proposals also indicate that other variables Including density allowances and design considerations can further reduce costs, which can be passed on in the form of reduced rents, although the degree to which the density and design considerations must be pushed beyond generally accepted standards to achieve rents which are affordable by low and moderate income households may be deemed unacceptable for environmental and other social reaSOns. Although the receipt of the alternative proposals demonstrate that it should be possible for the City to facilitate the development of below market rate housing on the City-owned properties In the absence of CHFA involvement, it is unclear as to what extent acceptable design variations can substitute for the substantial subsidies available through the CHFA-HUD program. Neither of the alternate proposals is sufficiently developed to merit further evaluation at this time. In the event that the Councl I elects to restrict its housing development activities to the existing City-owned parcels, a formal request for proposals would be appropriate in order to elicit the required level of detailed analysis. Alternatives Based on the City Attorney's opinion, the Council may: 1. Find that the two submitted proposals do not constitute substantial competitive bids; reject same, and reaffirm the exclusive agreement to negotiate with U.S. Condoninium Corporation granted on July 10, 1979; or 2. Determine that the alternative proposals are of sufficient merit to justify the reCision of the previously granted exclusive right to negotiate and . . Mayor and Council -7- July 17, 1979 direct staff to prepare and circulate a request for proposals for below market rate, non-CHFA financed, housing developments on the two (2) City-owned properties. Recommendation It is recommended that the Council approve AlternatIve No.1 of the staff report and reaffirm the exclusive right to negotiate with the U.S. Condominium Corporation. Prepared by: John Herner JH mh Attachments :- . , PROPOSALS FOR LESS-COST HOUSING IN SANTA MONICA Submi'tted by John L. Hul t July 13, 1979 GENERAL ASSESSMENT The great increase in rate of inflation precipitated by the oil crisis of 1973 has left the price of most housing in Santa Monica far behind market values. The natural resistance to escalating rental rates and the lack of corresponding increases in income that would enable most seniors and many others to pay for large increases in housing costs have created dangerous disparities between housing prices and market values. As a result the rental housing demand greatly exceeds the supply and there are enormous pressures to sell, convert, or leave the rental market. Typical market values as limited by replacement costs in Santa Monica are now about $100 per square foot for buying, or $1 per month per square foot for renting ordinary hous ing. The con- stnlction costs have escalated to about $50 per square foot :for conventional :frame and stucco con:forming to Santa Monica codes. When the land, parking, :financing, permit processing, housing amenities, and incentive costs are added to the construction the current typical $100 per square-foot value is obtained. Very little conventional rental housing will be built in a rent control- led market while rents are less than half the cost of new housing. In order to provide viable less-cost housing for those who are displaced from conventional rental housing in Santa Monica, unconventional approaches are neededl Less-Cos1; Land - If the land or rights to build can be obtained from the city or private parties at costs below market value, up to 1/3 of the conventional housing costs could be saved in typical multiPle residential districts of Santa Monica. Such opportunities exist for the Ocean Park redevelopment tract south of Barnard Way, the parcel at 175 Ocean Park Blvd. and possibly with other city owned properties. Many additional opportunities might become available if the city announced a policy of conditional use exceed- ing permitted height or volume limits in exchange for condominium building righ~s for less-cos~ housing in C3, C~ and other districts. $~onomy Living Quarters (ELQ) - Conventional housing design wastes a lot of costly space. Less-cost housing could provide private quarters (PQ) consisting of bathrooms and private sleeping and living facilities, and community quar~ers (CQ) for dining and group social or household activities. Instead of a typical one bedroom apartment of 600 square feet, the (ELQ) would provide a (N) o:f 300 square feet and a (CQ) share of 100 square feet. The (ELQ) would provide better and more desirable facilities for most people with a saving of 1/; in floor area or cost. It would permit larger families to use as many (PQ)s as needed at less cost. " iroLT PROPOSAL - P.. , Accommodation Fee Financin~ - Accommodation fee financing has , become the practice for continuing-care retirement homes. In this type of financing, tenants prepay their share of the initial investment for the facilities (an accommodation fee) which covers their occupancy for their remaining life. They must also pay a monthly fee to cover the operating expenses of providing their continuing care. The accommodation fees cover the 30 to 50 percent "downtl payment for the capital investment, so that the operating agency needs no additional financial resources. Experience demon- strates that the accommodation fees are quickly subscribed when the operation is non-profit with trustworthy religious affiliation. With a financial feasibility report from a reputable financial consultant that specifies operating policies which will be finan- cially successful, the long term commitment for loans to cover up to 70 percent of the initial investment and in amounts above a few million dollars become attractive to ou~-of-s~te insurance com~ies. However, this is true in California only as long as the market rate for this t,ype of loan does not exceed California's 10 percent usury rate. When the market exceeds the usury rate, bonding or other _ methods of financing the initial investment beyond the accommodation fees can be used. The accommodation ~ee financing could be extended to patrons with no capital resources by giving the city credit for value of land donation which could be applied to accommodation fees and allocated to those who do not have adequate resources for these fees. This type of financing could also be extended to family and non- retirement housing by applying the accommodation fee to the pre- payment of a component of a long-term lease. Credit for the value of land donation by the city could again be allocated to those who might otherwise qualify but do not have adequate resources for these fees. Non-Protl t Advantages - Non-profit status, at least for certain types of senior housing, can qualify for proper~ tax exemption which would save about 8 percent in housing costs for a one-percent property tax. Non-profit status also usually offers better moti- vation for operating senior and less-cost housing than does profit. Profit agencies can be used competitively to develop and build the facili~ies, but profit does not seem to offer the best motivation for long term delivery of quality subsidized operation and servioes when compe'ti tion can not be introduced appropriately. Most of the subsidized senior housing operations in Santa Monica are non-profit with religious affiliation. Interest Rates - Interest rates and financing costs are important components of the total costs of housing. Effective interest two percent below a conventional market of 10 percent could reduce the total costs by 15 percent, or seven percent below market could save more than ,50 percent. Tax free municipal bonds could save about 15 percent in housing costs if the moratorium is lifted and legislation permits use for this purpose. The city would aocrue no liability for the bonds and at maturity the housing becomes the property of the c1 ty. However, the city would probably like to turn it back to the operating agency for the continued subsidiza- tion of 80me of the housing. Greater savings from interest rates ml~ht be obtained from state or Federal agenc~esl. Howover, there wi 1 usuallY be.~eater andiundeterminediaeaulsi~ion t;me aelays an the lmpt>>si"t1lSn of undes rao.Le operat ona.L restrictl.ons. .~. ~ lWLT PROPOSAL - P.. , PROPOSALS Mt. Olive Lutheran Church has acquired RJ properties adjacent to the church on Ocean Park Blvd. on which it has been planning to build additional church facilities and less-cost housing. During the past year it has been searching for additional property that would enable the construction of enough less-cost housing for efficient use of the overhead organization for continuing care senior operation (150 or more units). Other churches or religious institutions in Santa Monica would probably also be interested if they were aware of the opportunities. The Ocean Park redevelopment tract south of Barnard Way could be developed with 3 - 60 X 160 feet foot-print buildings three stories high wi th a to tal 0 f a bou t 210 PQ uni ts for senior continuing care opera tion and 128 secure underground parking spaces. Credit for land value could be used to subsidize many of the initial accom- modation fees, and it should be possible to satisfY the Coastal Commission requirements for senior housing. The parcel at 175 Ocean Park Blvd. could be developed according to R3 standards with a 50 percent foot print and about 90 PQ units and more than 42 secure underground parking spaces. Since PQ uni t8 would mostly have bedroom and bathroom facilities without indepen- dent kitchens, they would not qualify as independen~ living units. The 90 PQ units and the CQ would be the equivalent of 20 to 25 multiple bedroom living units. They could be used for senior or family less-cost housing with the election of options previously discussed. The 14,000 square feet of church owned property at 1329-1337 Ocean Park Blvd. could be developed to provide 40 PQ for senior continuing care, more than 22 underground parking spaces and, iq6onjunction with adjacent church property, Preschool day care and Senior day activity Centers each with capacities of about 60. The Senior operations could be organized for efficient overhead in conjunction wi th those at Barnard way d~ h. Hulr ~o"aO~ \'1 3\ ~~ M~ <:Ar qOC+Oc- ) g"2~ -9 LI-<i S- J. . , SUPPLEMENTARY INFORMA TI ON (24 JULY) FOR PROPOSALS F~R LESS-COST HOUSING IN SANTA MONICA Submitted by John L. Hult July 13, 1979 ~Wn~ ,Ie JUl 2 4 '979 The proposals originally submitted offered such wide options to the City, that potential opportunities to fully and better satisfy any Coastal Commission or City requirements may not have been recognized. The following more specific examples are therefore added to highlight some options. At the Barnard Way site I ) 3-story buildings providing 210 private quarters in 86,400 square feet of living space for senior continuing care operations. Estimated Ap~lication of Funds Land - 30 year lease credit to City Basic Cons~~~ction Costs - 86,400 sq.ft. @ $50 Site work, landscaping, furnishings, Architects' and engineering fees,risk insurance, financing and legal fees, net interest during construc~ion. Working capital and debt service reserve Total Application of Funds Estimated Source of Funds First mor1igage loan Initial accommodation fees - 210 units @ $20,000 Tota~ Source of Funds $1,500,000 4,320,000 1,480,000 SOO,OOO $7,800,000 $),600,000 4,200,000 $7,800,000 The city's credit for lease of land would provide the accommodation tees for 75 units that it eould allocate in this example. The monthly fees for debt service would be about $160 per month per un! t. Full meal service WOUld/about $150 per month per person./be Costs of other services would depend on the type and amount of care required. Market interest rates are assumed. At 175 ocean Park Blvd. sitel 90 priva~e quarters in 39.000 sq. ft. o~ living space with R3 standards for less-eost housing. Land - 30 year lease credit to city @ $40 per sq. ft. $1,040,000 Basic Construction Costs - 39,000 sq. ft. @ $50 1.950,000 other Costs similar to previous example 670,000 Total $3,660,000 First mortgage loan $2,620,000 The monthly fee to cover debt pervice for a conventional loan would be about $270 per unit. Special interest loans might reduce these debt service :fees to between $150 and $230. M& i-f> II E- JUl 2. 4 j979 The Development firm headed by George A. Carter, a local bUllder and developer, hereby present the following proposal for developlng of subject type houslng on property owned by the City of Santa Monica, or agencles thereof and commonly referred to as 175 Ocean Park Blvd. and Barnard Way. Said parcel consisting of the approximate square footage of 26,000 & 39,200, respectively. Recognizlng the city's strong desire to provlde subJect houslng in an expedituous and economical manner, we heartlly agree that the above descrlbe property should be given high priority and thus we proposed to exert maXlmum effort toward that obJective. Due to the urgency to present thlS proposal before the deadlIne of 5'00 P. M. Friday, July 13, 1979, we are not able to give complete details, but wlll promptly supply additional lnformation on request. Therefore, the basIc parameters of our proposal are as follows, and we WIll meet all city building & safety codes, plus any additlon- al requirements of coastal commIssion, and any other agency having jurlsdlction in this matter. PROJECT SCHEDULE: 1. On Barnard Way - Approxlmately 120 Senior CItizen Units wlth ele- vators. full security, singles and 1 bedroom, wIth large recreatIon- al room and large outdoor recreation area, wIth sub-terr. parking and more than 1 parking space for each two unlts. 2. 175 Ocean Park Blvd. - 66 units same as No.1 ThIS is based on a typical design being used by prlvate enterpr1se and provIdes low cost Senlor CitIzen Houslng. FINANCING OF PROJECT: The CIty being the owner of saId property will with the assistance of the developing firm, obtaIn financing from local institut10n or pri- vate funds in order to expidite start and completion of this badly need proj ects . The developing fIrm wll1 provide plans and specifications to Clty of Santa Monica and Coastal Commission. as required to obtaln necessary permlts and approvals. We would expect that wIth full cooperation of City and other agenc1es to start construction wlthin 180 days, after acceptance of our proposal. At no tIme wl1l the City of Santa Monica be required to aeed, joint venture or any type of tItle transfer to the developing firm. when proJect is complete City WIll own 100% of the proJect and possIbly the CIty Housing Authority wlll assume management responsibl- 1 ity. At that tIme. the C1ty will have a fully completed and rented pro- Ject as an eXIsting entity. -~ -~, ~ - -1- -r-J -- - r- -I-~- -oJ -.. _.. T_ ..____T_~ ._. _.- ,_T -, __ __ _.r__ ,- doing the development, the City will save months and months of waiting tlme and br1ng to the needy citizens, hous1ng NOW. The developing firm w1l1 be compensated for 1ts serV1ces by a ne- gotlated fee of not less than 10% of the project costs. All cost sub. Ject to verif1cat10n by a City approved audit firm. US1ng Housing Rehab. Prog. Rental rates, t~e rental income from thlS prOject will exceed the debt serVlce. The development group 1ncludes all well-known experienced San- ta Monica buslnessmen having over 20 years each 1n residential housing and f1nancial field, in the Santa Mon1ca Bay area. In conclusion, we feel that it is in the best interest of the C1ty and 1ts taxpayers that the C1ty retain complete ownership of th1S very valuable property. And continue to provlde housing for its needy, by applY1ng any reslduals from the rental income of this project for futureJPublic beneflt. ,/ /- ~0ct:Ul ~~.- ,~ e A. Carter 4 19th 5t. Santa Monica 395-g333 7 GACjcl LONF~DENT. "INI:f.l~~~ ~....- -- 'n , CITY OF SANTA MONICA INTER-DEPARTMENT MEMORANDUM DATE: July 16# 1979 TO: Mayor and C~ty Counc~l FROM: Clty Attorney SUBJECT: Approval 1n concept of Ocean Park scattered site low-~ncome hous~ng project. INTRODUCTION This report transrnlts Clty Attorney Opinion #79-l48, approvlng the actlons of the City Councll on June 26, 1979, and July 10, 1979. The opin~on was prepared to meet a councl1-~mposed deadline of July l3, 1979. ANALYSIS The legal analysls in the opinion addresses two questlons: (1) the author~ty of the var~ous C~ty agencles to consent to the transfer of land ln que5t~on, and (2) the proprlety of the process by WhlCh U. S. CondominiuM Corporatlon was selected as the potentlal developer for the proJect. ALTERNATIVES The Clty Council may (I) approve its actions of June 26, 1979 and July lO, 1979, in 11ght of the City Attorney's oplnion, and dlrect the staff to negotiate wlth the developer as selectedj (2) reconsider 1tS actlons 1n light of the Oplnion or any other bids that may have been received before July lS, 1979j or (3) set a publlC hear~ng for conslderatlon, by the appropr1ate C1ty agencies, of the agreements necessary to implement the project and transfer the land. . , RECOMl1ENDATIONS It ~s respectfully recommended that, unless other substant~al blds are recelved by July l3, 1979, that the C~ty Councll approve ltS actlons of the June 26, and July 10, 1979, meetlng and set a )Olnt public hearing before the Clty Councll, Redevelopment Agency, and Parking Authority to cons~der the lmplementation of this proJect. Prepared By: Richard L. Kn1ckerbocker Stephen S. Stark -2- CA RLK:SSS:d~ July 13, 1979.... Santa Monic~alifornla CITY ATTORNEY OPINION #79-l48 SUBJECT: Approval ln concept of Ocean Park scattered slte low-inco~e houslng project. REQUESTED BY: Mayor and Clty Councll OPINIO~ BY: Rlchard L. Knickerbocker, Clty Attorney Stephen Shane Stark, Assistant Clty Attorney INTRODUCTIO~ ThlS oplnlon approves the actlon~ of the Clty Councll on June 26, 1979, and July lO, 1979, whereby the Council approved ln concept a prOJect for scattered slte low-lncone houslng ln Ocean Park and granted the U. S. Condo~inium Corporatlon an exclusive rlght to negotlate the transfer of two parcels of publlC land wlthin the Ocean Park Redevelopment Area. ThlS deC1Slon assu~es that no substantlal competitive proposals have been recelved by the Clty by close of buslness, July 13, 1979. The City Attorney reconmends that a ]Olnt publlC hearlng be held by the Clty Councll, Parking Authority, and Redevelopment Agency. After this hearlng, appropriate resolutions and agreements to effect the necessary land transfers and to lmplement the proJect may be approved. OPINION The Ocean Park Redevelopment proJect The Ocean Park Redevelopment ProJect began in 1958 uSlng federal urban renewal funds for land acquisitlon, demolltlon, and relocatlon of over 1,500 resldents and more than 200 bUSlnesses. Hlstorlcally, the area was a beach resort area . , related to the Old Paciflc Ocean Pler (POP) located to the ,ve 5 t . The parcel of land located at 175 Ocean Park Boulevard, WhlCh had been acqulred by the Parklng Authority ln the late 1950's from the Southern Paciflc Rallroad, was used as orlg1nal relocatlon housing for the Redevelopment ProJect. The Redevelopment Agency leased the ground fro~ the Clty and placed two structures on the site containing 27 un1ts of rental houslng. Although the bUlldlngs were lntended to be temporary structures, one structure cont1nues to be occupled by the original displacees of the proJect. The other structure 1S vacant. goth are 1n a state of disrepair. The Redevelopment Agency pays S7,000 annual rent to the Parklng Authorlty. A strlp of land located on Barnard Way at the south Clty 11~ltS was acqulred In the early 1960's as an original acqU151tlon of the Redevelopment Agency. Th15 strlp was orlginally deslgnated for commerclal or residential development. In 1973, under PrOpos1t1on 20, the State Coastal Commlssion unanlmously denied a permlt for a 639-unit resldentlal development on a lO-acre slte in the Redevelopment Area. The Commiss1on found the ProJect fa1led to meet the mandates of Proposltion 20 ln that: (1) No publlC use areas were provldedi (2) the proposed development would preempt a major opportunlty to provide lower-cost houslngi and (3) the Project would adversely affect the existlng Ocean Park neighborhood. -2- -- , In 1975, the COMmlSS1on approved a 100-unlt federally-sub- sldlzed sen10r c1tizens hous~ng development on 2 acres ln the RedevelopMent Area. In 1976, the COffirlSS10n approved the Downto\vn RedevelopMent ProJect In Santa MonIca WIth a condltlon requIrlng cOQpletlon o~ the senlor cltlzens unlts prlor to occu?ancy of the ShoP:':llng center. ThIS 'vas requln~d to mltlgate t~e addItlonal losses of lower-cost houslng In Santa Honlca. The Redevelopnent Agency deSIgnated the entIre SIte as a Redevelonrnent proJ ect Area under State 1 a,.] to allm.' tax lncrement fInanclng. In 1976, the Clty proposed the Ocean Park Redevelop~ent ProJect to the Coastal COITnlSS10n In appllcatlon number 318-76. The ProJect was intended to complete the maJor portlon of the redevelopMent process. The South Coagt RegIonal Commlsslon approved the proJect, but requlred that the Redevelopment Agency bUlld an addItlonal 100 unlts of low- and Moderate- cost hOUSIng ln the Ocean Park cONMunlty. The State CONnlSS10n granted a permlt to the Redevelop~ent Agency to proceed wlth the proJect, upon certaln condltlons. Among these condltlons were: If The parcel cO!'1Il1only known as the "strlp" located at the south east corner of Barnard Way and Nellson Way shall be llMited IP future use to senlor clt1zens' houslng. The [Redevelopment Agency] shall SUb~lt eVIdence of recordatlon of a deed restrlctlon . . . lrrevocably dedlcatlng sald land to sald use. No interlM uses shall be permltted. *** The [Redevelopment Agency] shall cause to be rehabllltated the eXlstlng 27 unlts of houslng owned by the Clty of Santa Monlca located at the northeast corner of Nellson Way and Ocean Park Boulevard. The 27 units shall continue to be used for houslng for low-lncome persons for the useful llfe of the bUlld~ngs, but In no event -3- ., .. less than 20 years. As many un1ts as feas1ble shall be rehabll1tated for low-1nco~e famll1es." The Redevelopment Agency has recorded a deed restr1ct1on on the Barnard \'lay str1p 1n compl1ance \Y1th the Coastal COMTI1SS10n requ1rement. Th18 land 18 currently vacant. If the Redevelop~ent Agency does not cause the rehab1l1tatlon of the property at 175 Ocean Park, the redeveloper (L1ncoln Pro~ert1es Corporat1on) w1ll not be able to proceed wlth the conplet1on of the project, WhlCh 1nvolves, among other th1ngs, the construct1on of 397 condoMln1uw un1ts and a SlX acre publ1C park. On February 23, 1979, the Callforn1a Hous1ng F1nance Agency (CHFA) not1fled the D1rector of Env1ronmental SerV1ces that the Barnard Way Slt~ had been glven a "grade II" approval, and 1nv1ted the C1ty to subm1t a full appIlcat10n for development of the slte for use as an elderly houslng proJect, to be f1nanced in an amount subJect to CHFA appralsal. Because of the unusual and 1rregular shape of the parcel, the bUlldlng, helght, and number of unlts must be restrlcted by Coastal COffin1SS10n Approvalr C1ty Approval, and adherence to HUD's Mln1mu~ Property Standards. The C1ty must also survey the property and subm1t the land cost to CHFA. In t1ay, 1979, CHFA advlsed the C1 ty that there were no funds avallable In the f1scal year endlng June 30, 1979, foru the flnanc1ng 0= elderly hous1ng. The agency requested the Clty to reap?ly for fundl~g durlng the 1979-80 flscal year. -4- f# , The u. S. Condom~n~um Corporat~on Proposal In an applicat~on dated June 19, 1979, the u. S. CondominiUTI Corporatlon requested slte approval from the CHFA for a proJect called "Ocean Park Scattered Sltes". The proposal conte~plates the develop~ent of 129 low-income farn~ly and elderly dwell~ng unlts and 58 condomlnlums on flve parcels of land. Three of these parcels are prlvately owned, and located on Thlrd and Flfth streets, outslde the Ocean Park Redevelopment Area but wlthin the Coastal Zone. The other two parcels contemplated to be developed are the Barnard Way strlp and 175 Ocean Park Boulevard. The Developer proposes to acqulre all f~ve parcels, to construct elderly housing on the Barnard Way slte, and a mlxture of low-income faMlly, elderly, and condominlums on the re~alning parcels. The three prlvate sites each contaln 11,200 square feet, for a total of 33,600 square feet. The two publ1C sltes contaln a total of 65,204 square feet. ThlS square footage lS not totally indlcative of the use to which the land may be put, as the Barnard Way parcells a strlp approximately 70 feet by 560 feet. The total square footage of the public property 15 65,204 square feet. The development contemplates 54 elderly unlts to be bUllt on the Barnard Way site. The 27 unlts on the l75 Ocean Park slte would be replaced by an equlvalent number of apartments. On the three private parcels, there are to be about 48 subsidlzed apar~ent units, which wlll be predominately for family use. In addltlon -5- ~ , to the l29 subsidlzed unlts, the project contemplates the sale of 58 condomlnlUffis. The developer intends that this project serve as a portlon of the houslng development authorlzed by Proposltion N, adopted by the voters of the Clty on June 6, 1978. The appllcation to CHFA is for both State houslng financlng and for federal funds to be allocated under the HUD Sectlon 8 prograM. On June 26, 1979, the developer addressed the Clty Councll and requested approval of lts proJect. After discuss1on, the Counc11, by a f1ve-two vote, passed a mot1on to the follow1ng effect: (1) The proJect was approved in concept. (2) The Clty would not solicit compet1ng proposals, but would recelve them untl1 the close of business on July 13, 1979. If no substantial comparable competitlve proposal 1S recelved by that tlme, U.S. CondoM1Dlurn wll1 rece1ve an exclus1ve r1ght to negotiate with the C1ty toward an agreement for development of the property. (3) The Clty staff wlll evaluate the proposals that are recelved and sort out those that are not compet1t1ve or comparable to the U.S. Condom1nlum project. If a substantlal bld 1S recelved before the deadllne, then the C1ty CouDell wlll consider all competitive proposals and choose from them. ThlS process, if lnltiated, will delay the grant of the exclusive r1ght to negotlate for the transfer of the two city properties. On July lO, a member of the Planning comm1ssion speaking to the COUDCll as a citizen objected to the developer -6- " , selection process. It was stated that an insufficient tlme and notlce had been afforded to recelve and conslder potentlal competitlve proposals. After a dlScusslon, the Council ratlfled lts previous actlon, conditloned upon the approval of the City Attorney that the Clty, or lts approprlate agenCl€S, had authorlty to transfer the land to the developer, and that the developer selection process was fair and proper. -7- , --- Legal Analysls The Parklng Law of 1949, Sectlon 32500 et. seq. Streets and Hlghways Code, and partlcularly Section 32667 thereof states: at any t~me after the actlvation of a parking authorlty, the leglslatlve body by a two-thlrds vote may adopt a resolutlon transferr~ng the property of the author~ty to the City, prov~ded that "such transfer shall not be made In contraventlon of any covenant or agreement made with the holders of bonds of the authorlty issued and outstanding. II The 175 Ocean Park slte was not acquired with bond revenues. Thus, the proposed transfer wl11 not lmpair outstandlng Parking Authorlty Bonds. Under Streets and Hlghways Code Section 32802, a Parklng Authorlty may: (c) Sell, lease, exchange, transfer, assign, or otherwise dispose of any real or personal property or any lnterest In such property. Under the Parklng Dlstrlct Law of 1943, partlcularly Streets and Hlghways Code Sectlon 31851.5, if a Clty determlnes that property acqulred for parking places lS not needed for that publlC use, it may devote such property to some other pub11c use whlch the leglslatlve body finds wl1l be of general beneflt to the area comprising the parking dlstrict. Before dOlng this, the Councl1 must hold a publlC hearlng after notlce is publlshed ln the newspaper. While the Parklng Distrlct Law does not appear appllcab1e to land located outslde the parking dlstrlct, the Section eVldences a POllCY that public land devoted for parklng not be put to another use without an opportunlty for the publlC to be heard. It ~s clear that providlng housing to persons of low- 1ncome 15 a public purpose for WhlCh publlC money may be -8- , --- spent. Health and Safety Code Sect~on 3420l(C); Hous~ng Author~ty v. Dockwe~ler 14 C 2d 437 (1939). Th~s publ~c purpose may be fulfilled by a prlvate corporatlon acqu~rlng land from Clty redevelop~ent agencies. The transfer of publlC lands to a prlvate corporatlon for the constructlon of low- lncorne houslng is not a ~lft of pub11C funds proh~blted by Artlcle XIII of the Callfornla Constltutlon. WlnkelMan v. Clty of Tlburon, 32 Cal. App. 3d 846, 108 Cal. Rptr. 418 (1973) . Thus, the Councll may determlne that 175 Ocean Park 15 not needed for parklng, and may devote the property to low- lncome houslng. ThlS use would be lU conformlty wlth the Coastal Cornmisslon permlt for the Ocean Park Redevelopment ProJect WhlCh requlres: (2) The [Redevelopment Agency] shall cause to be rehabllitated the eXlstlng 27 units of housing owned by the Clty of Santa Monlca located at the northeast corner of Nel1son Way and Ocean Park Blvd. The 27 units shall contlnue to be used for houslng for low-income persons for the use~ul llfe of the bUlldlngs, but in no event less than 20 years. As nany UUlts as feaslble shall be rehabilltated for low-lncorne famllles." BUD does not lntend to flnance any lOW-lnCOMe houslng for the elderly unless houslng for familles is provlded. In a letter the Manager, dated July 2, 1979, the BUD prograM manager sald: 3lnce both your Housing ASslstance Reconciliation State~ent and your Grantee Performance Report indlcate, that the elderly were served disproportlonately in the last three year cycle, the City will need to compensate for th~s in the annual goal by plannlng asslstance to more small fafflllles. Small families are the household category whlch was most underserved. Accordlngly, the City wl1l need to reduce the annual goal for the elderly to near zero. -9- , . The Barnard Way s~te ~s owned by the Redevelopment Agency. It was one of the original acquis~tions of the Ocean Park Redevelopment ProJect. As one of the cond~tions of the Coastal Comm~ss~on perm~t, the RedevelopMent Agency recorded a Declarat~on of Covenants and Restr1ct~ons on the property as follows: 1. Sa~d real property shall be lim~ted solely for future use as subs~d~zed hou51ng for low- and moderate- ~ncome sen10r citizens. No 1nter~m uses shall be perffiltted. Thus, t~e property must be used for sen10r citizen hous1ng. However, th~s 1S not feas1ble unless the proJect also 1ncludes family hous1ng. Under the Community Redevelopment Law, Health and Safety Code Sect10n 33430, a Redevelopment Agency: {a} . . . may, w1th1n the survey area or for purposes of redevelopment, sell, lease, exchange, subd1v~de, transfer, ass1gn, pledge, 1ncumber by mortgage, deed of trust, or otherwise, or otherw1se dispose of any real or personal property or any ~nterest in property. Under Sect~on 33431 of the Health and Safety Code, a lease or sale: may be made w1thout pub11c b1dd1ng but only after a publ~c hear1ng, not1ce of Wh1Ch shall be g~ven by pub11cation for not less than once a week for two weeks 1n a newspaper of general c1rculat~on pub11shed in the County 1n wh1ch the land l~es. Since a publ~c hear1ng should be he~d ~n order for the Park1ng Author1ty to devote 175 Ocean Park to publ~c use, 1t seems prudent for the City to enlarge the scope of that public hear1ng to 1nclude: (1) cons~deration by the Redevelopment Agency of the transfer of the Barnard Way s1te and the 175 Ocean Park bU1ld1ngs, and (2) an evaluat10n of the fairness -lO- ~ , , ~ of all aspects of the project. So long as the property ~s conveyed by appropr~ate procedure and is developed 1n accordance w~th the Coastal CO~~~sslon permIt, it does not matter lf the land transfers flow from the Authority and Agency dlrectly to the corporatlon or 1f the City acqu~res the property and then transfers it to the corporatIon. If the Parklng Authorlty transfers 175 Ocean Park to the C~ty, and the Redevelopment Agency also transfers the Barnard Way property to the City, the Clty may then negotlate toward a master agreement coverIng all aspects of development. Thus, the d~Sposltlon by formal document of land or bUlldlngs belonglng to any Clty agency requlres a public hearlng. This publlC hearlng does not have to precede the ~nltlal selection of a developer. The "exclusive" right granted to U. S. Condomlnlum Corporatlon constltutes a statement of intention on the part of the Councl1 that authorizes City Staff to negot~ate In good faith toward an agreement to implement the project. Th15 lmpl~es a promlse by the C1ty not to undercut the negotlation process by entertalnlng competitlve proposals. As indlcated below, before the Clty may transfer the land, there must elther be competItive bldding or an appropriate finding that competltive b1ddlng would not be in the best interests of the Clty. The developer's proposal asserts that the proJect -11- - , , ~ cannot be ~MFlernented unless the C~ty transfers its land for nominal cons~deratlon. The negotiat~on process may reveal that the Clty may ]ust1f1ably inslst on cash compensatlon for 1ts land as part of the bargain. Thu~, 1t should not be 1nferred that the Counc~l has, by approving the proJect 1n concept, necessarily endorsed the transfer of any C1ty land for any part~cular considerat~on, nO~lnal or otherWlse. Once the property ~n quest10n 1S transferred to the Clty, its subsequent transfer to the corporatlon should be regarded as a sale of Clty land. Th1S holds true even if the land ~s not be~ng transferred in exchange for money, but rather in exchange for the promlse of the developer to: (I) devote a port~on of prlvate property for low- income and senlor houslng, and {2} develop the entlre proJect 1n part1al satlsfaction of the provls1ons of Proposltlon N. There wlll be a contract, and the Clty wlll lose title to the land. This belng true, the transatlon 15 governed by Section 2508A of the Santa Monlca Municipal Code, WhlCh prov1des that: Sales of real property may be made wlthout advertislng for blds 1f the C~ty Councl1, by a Resolutlon adopted by at least flve aff1rmatlve votes shall determine by such vote that to advert1se for b~ds would be to no avail and would cause unnecessary expense and delay or would not be ln the best interests of the City. -ll{a)- , -- The City Counell by resolutlon may authorlze the sale of C~ty owned real property pursuant to the provlsions of thlS Section lf by the same or other resolutlon it has been declared that such property no longer is needed fer the purpose acqulred and that sald property or the t~tle thereto 15 not needed for any publlC purpose. The conpetlt1ve bid requ1rement 15 to be construed falrly~and reasonably wlth sole reference to the public lnterest and 1n llght of the purposes to be accompllshed: (1) to deter favoritlsm, lMprov~dence, extravagence, fraud, and corruption, (2) to prevent waste of public funds, and (3) to obtaln the best economic result for the public. (City of Inglewood-Los Angeles County Clvic Center Authorlty v. Superlor Court (1972) 7 Cal. 3d 861, 103 Cal. Rptr. 689; Cyr v. Whlte (19470 83 Cal. App. 2d 22,187 P2d 834; lO MCQul1lln, Munlclpal Corporatlons 3rd. Editlon Sectlon 29.29) . Where competltlve proposals are lncongruous, do not affect the flnal result, are not advantageous, and frustrate the project goal, competitlve blddlng is not applicable (2 Dillion, Hun1.c1.pal Corporations 5th Edltion, Seetlon 802). Courts conslstently apply competltive bldd1.ng requlrements as a matter of cornmon sense. The requlrements should be applled to prevent unfalrness when eompetltion as to price or quality is pract1.cal, but not to prevent a publlC entlty fro~ selecting the best means to accomp11sh the greatest publlC good. The co~petltive b1d requ1.rement does not seem to flt the un1.que clrcumstances of th~s case. Th~s is not a sltuat10n where property 15 exchanged for cash. Rather, -12- . - the varlOUS parcels form a coherent project ln Wh1Ch each separate element 15 lndlspensable to the success of the whole. Barnard Way must be developed for senlor hous1ng. Neither CHFA nor HUD wlll flnance senlar housing unacco~panled by lOW-lncome fa~lly houslng. Thus, 175 Ocean Park Boulevard must be lncluded in the pac~age since it is lntended to provlde houslng for famllies. The proJect is not economlcally attractlve wlthout s~erelat1vely profltable candomlnium constructlon. Thus, the prlvate parcels are a necessary component of the proJect. The co~binatlon of these parcels withln a relatively compact area and the scarc1ty of land in Ocean Park mllitate toward the concluslon that the proposal is unlque. Competltlve blddlng would probably be frultless and tend to jeopardize the achlevement of the proJect, since the developer's optlon expires on July l3. The best solutlon to the problem of expediting the proposal whlle conforming to varlOUS legal requirements and permltt1ng sufflclent publ1C lnput appears to be a publlC hearing before a JOlnt meeting of t~e Clty Councll, Parklng Authority, and Redevelopment Agency. ThlS public hearing should be advert15ed in the Evenlnq Outlook for at least two weeks. ?rlor to the hearlng, the City staff should commence a study of the proposal and negotlate ln good falth wlth the developer toward a series of agreements to be presented to the approprlate leg1slative bodies and to the publlc. While such negotiations are in process, the City may not entertaln competitive proposals. The developer is re~ponsible for obtalning all necessary approvals, lncluding City Zoning permits and var1ances, -13- ~ . Coastal COMnlSS10n approval, CHFA and Hun approval, and any other governmental approvals that may be necessary. The proJect clearly appears to be exempt from the requ1re~ent of Article XXXIV of the Cal1fornia Constitution that an electlon be held, the proJect appears to satlsfy a portlon of the action author1zed by Proposit~on N, and thus to dlscharge the C1ty'S obllgation to develop low-lncome housing. -14- .oil .. , . CONCLUSION Thus, the CIty has properly approved the Ocean Park scattered SIte proJect In concept. If no substantIal competItIve proposal 15 received before July 13, U. S. CondomInIum Corporation will acqUIre a rIght to negotIate toward an agreement for the transfer of the CIty's 175 Ocean Park and Barnard Way propertIes. The ParkIng AuthorIty and the RedevelopMent Agency must consent. There must be a publIC hearIng before executIon of any agree~ent5. T~ere must be a fIndIng that competItIve bIdding 15 not In the best interest of the City. It appears that the proJect, If fInally approved, wIll constItute the development of lOW-Income and senlar cltIzen hOUSIng endorsed by PropositIon N of 1978. Respectfully submitted, r--, ' " ./ l J.~_ n ,} ~// i,. \II-~~ ~J.-~~r....r~ '-RICHARD L. KNICKERBOCKER CIty Attorney s~ &.... StaA STEPHEN SHANE STARK - ASSIstant CIty Attorney DATED: July 13, 1979