SR-111108-8BCity Council Meeting: November 11, 2008
Agenda Item: ~°"
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Exchange of City-Owned Property at 1920 Ocean Way and Solicitation of
Residential Development Proposals for 1828 Ocean Avenue
Recommended Action
Staff recommends that the City Council authorize staff to proceed with specific tasks
associated with the proposed exchange of City-owned property at 1920 Ocean Way:
1) enter into exclusive negotiations with the Neptune Walk LLC and Edward Thomas
Companies ("ETC"), owners of the 1828 Ocean Avenue property, while adhering to
selected negotiation requirements identified in this report; and
2) solicit development proposals for the proposed 1828 Ocean Avenue exchange
property site pursuant to guidelines identified in this report.
Executive Summary
The exchange of City-owned property at 1920 Ocean Way for another site can increase
the number of affordable housing. units that would otherwise be built at 1920 Ocean
Way. Additionally, creating affordable housing in the vicinity of the 1920 Ocean Way
site facilitates the distribution of affordable housing throughout the City. To identify
potential exchange sites, a solicitation of proposals was issued in July 2007. Among
the three proposals received, the 1828 Ocean Avenue site best achieves the
preferences established in the solicitation of proposals, in that it has the greatest
potential affordable housing yield and is in closest proximity to 1920 Ocean Way (see
Attachments A and B).
To facilitate discussions with ETC and ensure the City's interests-are protected, staff
has formulated a number of negotiating requirements that are summarized in this report.
These negotiating requirements address responsibility for replacement parking,
developer selection and design parameters regarding the 1828 Ocean Avenue site,
timing of the property exchange and assumptions about zoning- for the exchange
properties. These requirements are designed to provide the City with flexibility,
1
certainty and control throughout the development process. In order to facilitate
contemporaneous progress on the development of affordable housing on the
exchanged site, staff recommends that the City solicit housing development proposals
for the 1828 Ocean Avenue site pursuant to guidelines identified in this report. No
budget action is required at this time.
Background
The City became the owner of the property located at 1920 Ocean Way in July 1979.
On June 19, 2001, the City Council reaffirmed its commitment to use the property for
affordable housing
On December 11, 2001, the City Council authorized staff to negotiate terms and
conditions for the acquisition of property located at 1828 Ocean Avenue, including a
possible trade of the 1920 Ocean Way property. Sporadic negotiations ensued with the
owner but no agreement on the terms was reached. At the Council meeting of May 25,
2005, staff requested authorization to take the necessary steps to develop affordable
housing on the property through a solicitation of proposals process. At the request of
ETC, Council continued the requested action to allow for continued negotiations with the
property owner and possibly achieve more affordable housing.
After the arrival of the current City Manager ih 2006, he met with the owners of the
property to determine their level of interest in continuing discussions that began in 2001.
Based on the meeting, additional meetings were held between both entities regarding a
possible trade of the 1920 Ocean Way property with the 1828 Ocean Avenue property.
The owners of 1828 Ocean Avenue have expressed a continued interest in the property
exchange.
On May 8; 2007 the City Council directed staff to commence the solicitation of
proposals process for the 1920 Ocean Way site since the Municipal Code requires that
any disposition of City property be offered competitively. In July 2007 a solicitation of
proposals announcement was released and included the following minimum criteria for
any potential property that would be exchanged for the City site:
2
• .Property must be currently zoned for residential use and be located in the City of
Santa Monica;
• Property cannot have encumbrances which limit or restrict long term affordability;
• Preferential consideration would be provided to proposed properties that:
o provide the greatest potential increase in, or preservation of, affordable
housing yield; and
o are located in closest proximity to the 1920 Ocean Way site.
Discussion
Three proposals were received in response to the solicitation of proposals and are
summarized in Attachments A and B. Of the three proposals received, the 1828 Ocean
Avenue site is distinguished by having the greatest potential housing yield, and is in
closest proximity to the City-owned 1920 Ocean Way property.
Comparison of Contingencies and City Negotiating Requirements
The owners- of the 1828 Ocean Avenue property proposed a number of sale
contingencies in conjunction with the proposed property exchange. Because of
potential limitations and monetary impacts placed on-the City by the contingencies, staff
recommends that the following negotiating points be required of the Edward Thomas
Companies to commence negotiations:
'Edward'Thomas Companies
Contin encies 'Recommended Negotiating
Re uirements ''
Provision of replacement parking for 127 The current owner will be responsible for all
spaces for the Casa del Mar Hotel at the costs associated with its 127 space parking
1828 Ocean Avenue site per a obligation at 1828 Ocean Avenue.
Memorandum of Agreement and
Conditional Use Permit.
3
"`Edward'Thomas Companies Recommended Negotiating
Contin encies Requirements
An agreement that allows ETC to joint The 1828 Ocean Avenue developer will be
venture with an affordable developer for selected through a solicitation of proposal
the development of the 1828 Ocean process; the current owner may submit a
Avenue site. proposal. ETC will authorize the City to
issue a Request for Proposals for the 1828
Ocean Avenue property during negotiations
to ensure contemporaneous progress
toward developing affordable housing on
this exchange site.
City agreement that the property The proposed transaction will close escrow
exchange would not close escrow until as quickly as possible based upon current
entitlements for development on both zoning. Additional time can be allowed to
properties had been secured. obtain entitlements that comply with current
zoning, but a strict performance schedule
will be imposed.
City agreement that the 1828 property The City will determine the appropriate
will be developed as a mixed use/mixed development parameters for the 1828
income development. Ocean Avenue site as affordable housing.
Provision of entitlements-for increased The proposed transaction will be subject to
density and height for both the 1920 current zoning requirements.
Ocean Way and 1828 Ocean Avenue
sites.
The proposed negotiating requirements are intended to permit the City to retain greater
certainty and control throughout the development process.
1828 Ocean Avenue Development Guidelines
In order to promote contemporaneous progress on the development of affordable
housing on the exchanged site, staff recommends that a Request for Proposals (RFP)
be issued to find a qualified developer for the 1828 Ocean Avenue site. The solicitation
of proposals is intended to occur while negotiations are underway with ETC in
anticipation of reaching an agreement on the property exchange. This approach will
accelerate the production of affordable housing in the event negotiations on the property
exchange are successful. The RFP wilt describe the state of negotiations for the land
4
swap so that prospective RFP respondents are aware of the opportunities and risks
associated with submitting a development proposal on the exchange site. The RFP will
seek development proposals that at a minimum provide for the following:
1. A minimum of 40 residences that are affordable to low-income households;
2. Additional affordable residences that address City housing needs, such as
housing suitable for artists, families, local workers, and persons at risk of
homelessness, in compliance with zoning and Coastal Commission requirements
(with a total cumulative yield estimated at about 80 units); and
3. Ground floor commercial uses that promote an active and engaging Ocean
Avenue street environment and that comply with zoning and Coastal Commission
requirements.
Commission Action
On April 19, 2007; September 20, 2007, October 18, 2007, and November 15, 2007
staff presented the information contained within this report to the Housing Commission.
In view of new information presented at the November 15, 2007 Housing Commission
meeting regarding the potential for site control of both the 601 Arizona and 2600
Broadway sites by a single owner, the Housing Commission approved the following
motion: "The Housing Commission recommends that City Council authorize staff to
enter into dual negotiations or obtain a best and final offer from all parties with existing
proposals within a period of not longer than ninety days with a priority to maximize
opportunities for affordable units."
The Housing Commission's recommendation recognizes the potential to increase the
value and associated benefits of the existing proposals by requesting adjusted
proposals or by entering into contemporaneous negotiations. However, the proposal
that was orally presented at the November 15, 2007 Housing Commission meeting
involving the combination of 603 Arizona and 2600 Broadway is still inferior to the
opportunity presented by 1828 Ocean Avenue, pursuant to the RFP criteria, as the 1828
5
Ocean Avenue site offers a greater housing yield than both sites combined and is closer
to the City-owned site.
Alternatives
Other potential options available to the City were considered by staff and are identified
in Attachment C as follows:
1) Proceed with development of the 1920 Ocean Way site
2) Proceed with sale of the 1920 Ocean Way site
3) Enter into negotiations for the swap of the 1920 Ocean Way site for the 603
Arizona Avenue site
4) Enter into negotiations for the swap of the 1920 Ocean Way site with the
2600 Broadway site
As reflected in Attachment C, a range of property values, affordable unit yields, and net
cash calculations are provided for each of the five options (includes the proposed swap
with 1828 Ocean Avenue). After adjustments, the number of affordable units generated
by each option ranges from a low of 39 at the 1920 Ocean Way site (if developed) to a
high of 80 units at the 1828 Ocean Avenue site. Since the purpose of swapping the
1.920 Ocean Way site with another site is to increase the .yield of affordable units (that
could otherwise be constructed on 1920 Ocean Way), the 1828 Oceari Avenue site
provides the greatest potential affordable unit yield.
Option 1, development of 1920 Ocean Way, is estimated to yield 39 affordable units.
Option 2, selling the 1920 Ocean Way site for cash to be used for construction of
affordable units elsewhere, would result in an estimated 42 units. Additionally, because
the process of selecting another site. elsewhere is time consuming; this option is not
recommended due to the scarcity of land in Santa Monica and the escalating nature of
development costs. Moreover, the City's ability. to support geographic diversity of
6
affordable. units is jeopardized since the chances of finding a comparable site in the
immediate vicinity are remote.
Options 3 and 4, swapping either the 603 Arizona or the 2600 Broadway sites with 1920
Ocean Way, would require. an additional cash payment to the- City to provide for an
equitable land swap. This cash payment would be required based on a .preliminary
assessment which shows that the value of these two sites are significantly less than the
1920 Ocean Way site. Although this cash payment could fund additional offsite
affordable housing units, the total unit yield for each of these proposals is estimated in
the 49-unit to 55-unit range (offsite units plus an estimated number of units offsite)
which is still below the 80-unit yield estimated for the 1828 Ocean Avenue site.
Furthermore, the implicit cash payment associated with these proposals requires
additional. future development at an unidentified site to achieve these estimated
affordable unit yields. Given the uncertainties and difficulties associated with finding
development sites in Santa Monica, pursuing this approach could increase the timeline
and costs for completion of the affordable units. In addition, such an approach may limit
the geographical distribution opportunity afforded by the sites in the oceanfront area.
Therefore, the option that provides the greatest number of affordable units with highest
level of certainty is the 1828 Ocean Avenue option.
Environmental Analysis
CEQA review is not required for the purpose of a preliminary discussion of feasibility
and negotiations regarding a potential project (State CEQA Guidelines Section 15262).
Environmental analysis will be completed prior to considering approval of the potential
project.
Financial Impact and Budget Actions
There is no immediate budget action involved in authorizing negotiations or solicitation
of proposals. Any long-term financial impact and budget actions from the negotiation
will be identified when a recommendation is presented to Council.
7
Prepared by: James Kemper, Housing Administrator
Approved: Forwarded to Council:
Andy Agle, Director
Housing and Economic Development
Attachments:
Attachment A: Map of Proposed Exchange Sites
Attachment B: Estimated Unit Yield Summary
Attachment C: Estimated Valuation and Unit Yield Summary
8
Attachment A
1920 Ocean Way-Site and Prapased Exchange Sites
'~~ ~ ' i~ s`. 1_f n 'i i ~ .. i
City Site - 1920 Ocean Way ~~ i ' u ~ I If ~ lei I ~ ~~~
r
~i ~ i
~f PYOposed Exchange Sites ~-- (i ~ ~- ~ ~~~; ~ ~ 2600 Broadway; 33 192 sgft R2 - 2mi. away j
1 ;~1 ii,~` J~~I ~ N r
~ ~ i ~ ~_
~i~ ~ il€ ~,- -I~ i~ if, ~ ~ ,r, € '~ f
iii II I~ ~€ I~ I~
r
~ 1 ~~ ~ ri Y
~~ ,' ~ 1 rl L ~~ iii- ~i ~I 1~' ~ ~ € - ` } ~ ~ ~r~
r 2:n ~
i ~
r
li i j'~--3r ~--,~ ~,i ,r - F -II .f , I ~ ~ ~u ~ ~~ ~~'~''11,~ e X
~ __ ii (~ ~ II I l~ n~`---~i ~ I .I i n ~i, ;' r:Prl ii}~lsr~
~€ 1 :C ~ ] 7~ ~ ~ ~~`-i'^ it ,Y : Y. i f r i i / ~ ,
5 ~
~ E`I I~ I' l I~ ~~- ~~ ~ i N ii `if iu ,' ,+
i ,
it -~~'' Y~'--`4~ -~i IE. ~ •~_ ~i is i~, ,. .;i ~ ,~ .' ~,
i i i
~ ~ - - F 603 Arizona Ave; 7,499 sgft C3 1 mi away ` „ J~ -_-,
~ ~_, I, ( ~ ~ ,~. _ t~' i ,
,r
~ ` k 'i il ~ iii -I '~ ~ r o r i i li~, id i r~~
t° it 1 1,( l .~ '~ t- ~- I -j Jti ~i: 'i 1, ~I ti r
~ , Y- 1 .I , i ~ I J - 11 -..Ji ~ ,. ~ ~ i 4-r ;, f ( i ^~~
~ l 1 I~ i~ ( E 1----~ ""I C"`i I-~ if i r u,
~ ~ ~ ~i7~i ~~ ii ~7F r _r~F ~ ~ ~ s 1828 Ocean Ave 45 175 sgft RVC; ~ 400 ft. away
~~~i 11 it : `°'L -i i I u ~i .~ , i~
u
a' K"i ~: -_ ~ ~t}.,. ~ its{1 ~ i~".
r-
___
A . „~' i
1920 Ocean Way;.23,261 sgft; R4; City-owne
Attachment B
1920 OCEAN WAY EXCHANGE OF PROPERTY
SUMMARY OF ESTIMATED MAXIMUM UNIT YIELD
(Independent of unit. type or size)
PROPOSED SWAP SITES
1920 Ocean Way ~ 1828 Ocean Avenue 603 Arizona Avenue 2600 Broadway
OWNER
City Neptunes Walk, LLC
603 Arizona
LP Cham ion Realt Ltd
p y'
Edward Thomas Com anies
p , (w/option to purchase property)
SIZE (sq. ft) 23,000 45,175 7,499 33,192
ZONING R-4 RVC C-3 R-2
900 sf/unit FAR: 2.0 FAR: 1.5 1,500 sf/unit
ESTIMATED MAXIMUM BY Right: 26 70 - 80 (A) 24-26 (B) By Right: 22
NUMBER OF UNITS BUILT
w/ Density Bonus: 39 { w/ Density Bonus: 33
CURRENT USE/ ?
Vacant Lot Parking lot for the Casa del Mar ;Vacant office and church building. i ; Vacant nursing facility and
RELOCATION Hotel. No relocation is required. ^ No relocation is required. vacant assisted living facility. No
relocation is required.
1. Replacement parking for 127
;spaces per Parking Agreement.
2. Joint venture with owner, City, and - .
affordable developer.
CONTINGENCIES None None None
3. 1828 property to be a mixed
use/mixed income development.
4. Entitlements for increased density ;
and height for 1920 and 1.828
+ properties.
H/ r=snma[e Dasea on review of previous site plans for commerical and residential development
B) Estimate based on review of completed affordable projects with the same zoning; proposal for 39 units (all singles) currently pending approval
Attachment C
1920 OCEAN WAY EXCHANGE OF PROPERTY
ESTIMATED VALUATION AND UNIT YIELD SUMMARY
PROPOSED SWAP SITES
1920 Ocean Way
City Site 1828 Ocean Avenue 603 Arizona Avenue : 2600 Broadway
Neptunes Walk, LLC 603 Arizona, LP 2600 Broadway
Development: Sale Edward Thomas Companies
VALUATION (A) $16,282,000 ; $16,282,000 $27,105,000 (E) $3,000,000. $9,958,000
MAXIMUM NUMBER UNITS (B) 39 -- 80 21 33
NET CASH PROCEEDS AFTER SALE/SWAP $16,282,000 (F) $13,282,000 $6,324,000
UNIT YIELD: ONSITE (C) 39 ,- 80 21 33
UNIT YIELD: OFFSITE (C) -- 42 -- 34 16
FF d0
MAXIMUM NUMBER OF AFFORDABLE 39 42 80 55 49
UNITS
SITE VALUE $16,282,000 ; $16,282,000 $27,105,000 .$3,000,000 $9,958,000
ON-SITE CONSTRUCTION SUBSIDY (D) $7,410,000 : -- $15,200,000 $3,990,000 $6,270,000
OFP-SITE DEVELOPMENT SUBSIDY (D) -- -- -- $13,282,000 6 324 000
SUBTOTAL $23,692,000 ; -- $42,305,000. $20,272,000 $22,552,000
PER UNIT COST $607,487 $386,000 $528,813 $368,581 $460,244
(A) Per Southwest Realty Advisors 1) appraisal for Ocean Way site dated 10-15-07; 2) opinion letter with estimated values for other sites.
(B) Estimate based on residential zoning with density bonus; review of completed affordable projects in comparable commercial zones.
(C) In addition to land, on-site units would require development gap financing.
(D) City on-site subsidy based on $190,000/unit for new construction projects (excluding land) and $386,000/unit for off-site subsidy (including. land); subsidy amount
based on historical information adjusted for 2007 cost.
(E) Value excludes cost of replacement parking for 127 spaces per site specific Memorandum of Agreement and Conditional Use Permit.
(F) Unknown.