SR-9-B (37)
JUN 2 9 1999
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Council Meeting June 29, 1999 Santa Momca, Callforma
To Mayor and City Council
From City Staff
Subject Recommendation to Authorize the City Manager to Negotiate and
Execute Four Chantable Remainder Annuity Trusts and Execute All
Pertinent Documents Necessary to Establish the Trusts and for the
Purpose of Acquiring the Property at 2330 Michigan Avenue, Santa
Momca, and Authonze Expenditure and Revenue Adjustments
Associated with the Transaction
Introduction
ThiS report recommends that City Council authonze the City Manager to negotiate
and execute a Trust Agreement for the Irving and Gertrude Geffner Charitable
Remainder Annuity Trust #1, Trust Agreement for the Anne Thelma Geffner
Chantable Remainder AnnUity Trust #1, Trust Agreement for the Sarah Hennetta
Geffner LewIs Chantable Remainder Annuity Trust #1, Trust Agreement for the
Ellen Naomi Geffner Blderman Chantable Remainder Annuity Trust #1, Installment
Note, Promissory Note, Purchase Agreement, and Assignment and Assumption of
Lessor's Interest In Lease, for the purpose of acqUlnng the property at 2330
Michigan Avenue, Santa MOnica, and to make the Initial down payment, contract for
trust management services for the trusts, and to execute all other documents
necessary to establish the Charitable Remainder Annuity Trusts (CRA Ts) Selected
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JUN 2 9 1999
revenue and expenditure budget adjustments associated with the transaction are
also recommended for Council authonzatlon
Background
In November of 1998, City staff became aware of the potential availability of real
property located at 2330 Michigan Avenue The property 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 recogmzed a potential opportunity to expand the land holdmgs of the City for
future City needs
The property IS owned by Irving Geffner (58%) and his three daughters (14% each)
DIscussions and negotiations with the property owners ensued over a penod of
several months, and these negotiations were successful, concluding with an
agreement to acquire the property at the appraised value, contmgent upon City
CouncIl's approval of the transaction
The owners do not Wish to sell for cash, they desire CRA Ts which Will prOVide them
and their heirs With ongoing cash Income or annullles for a set penod of time Staff
retained a certified appraiser to determine the market value of the property and an
appraisal was prepared In June, 1999 The appraisal found the fair market value
of the property to be $3,150,000
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DISCUSSion
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 escalation In land values and the Increasing
scarcity of appropnate sites for functions related to City operations There are no
speCific plans for thiS site at the current time, other than to continue the lease With
the current tenant, Flap Happy
CEQA Status
Staff has determined that thiS transaction IS exempt from CEQA since there IS no
pOSSibility that the creation of a trust will have a Significant effect on the
environment Addlllonally, there will be no change of use since the City IS assuming
the eXisting lease With the current tenant until at least Apnl 30, 2000. The City will
conduct a full environmental analYSIS With respect to the City Yards Master Plan,
If approved by Council later thiS year, which will Include thiS particular site If Council
approves ItS acqulsrtlon
Budqet and Financial Impact
The City will purchase a 45132278% undIVided Interest In the property, valued at
$142,16668, for an Installment Note paYing $14,500 permonth to the sellers for ten
months, beginning July 1, 1999 Rental Income which Will be received from the
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current tenant will fully offset these payments
The sellers Will donate the remaining 95 4867722% undivided Interest In the
property, valued at $3,007,833 32, to four Charitable Remainder Annuity Trusts
(CRATs) with the City as trustee and remainder beneficiary The City Will then
purchase this Interest In the property from the CRATs for $3,007,833 32, with a
cash down payment of $1 07,83332 The balance of $2,900,000 (after deducting
the down payment amount) Will be paid In four Promissory Notes, secured by a
deed of trust and bearing 7% Interest, at a quarterly rate of $57,98020, inclUSive
of principal and Interest The Promissory Notes Will terminate In 30 years (or sooner
If the related CRAT terminates before 30 years), after a maximum potential payout
of $6,957,618 95, at which time the City's financial obligations on the property Will
cease
Payments of $496,754 12 to be made dUring FY 1999-00 consist of the follOWing
. $145,000 for the Installment Note
. $231,92080 In quarterly Promissory payments to the Trust
. $12,000 In trust administration costs
. $107,83332 trust Promissory Note down payment
This cost Will be financed by $145,000 In FY 1999-00 rental revenue from the
property and from FY 1998-99 budget savings In those funds which would benefit
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from the use of the property In subsequent years, payments of up to $232,OOOlyr
Will be partially financed from rental Income with the net cost being budgeted from
other on-gOing sources of revenue In applicable funds
To Implement this transaction, the FY 1999-00 budget needs to be amended to
appropriate $496,755 at capital Improvement account number
C01074000 5890071040, and the revenue budget needs to be revised by $145,000
at revenue account 01224 404170
Recommendation
Staff recommends that City Council authorize the City Manager to negotiate and
execute four Charitable Remainder AnnUity Trust Agreements and all pertinent
documents necessary to establish the Charitable Remainder AnnUity Trusts and
for the purpose of acquiring the property at 2330 Michigan Avenue, Santa MOnica,
and authOrize the revenue and expenditure budget adjustments associated With the
transaction which are desCribed above
Prepared by eralg Perkins, Director of Environmental & PubliC Works Mgmt
Jeff Mathieu, Director of Resource Management
Mark Richter, Economic Development Manager
Gretchen Kubacky, Senior Real Estate Analyst
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