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SR-10-27-2009-1Cc7 ~;tYOf City Council Report Santa Monica City Council Meeting: October 27, 2009 Agenda Item: 1C To: Mayor and City Council From: Eileen Fogarty, Director, Planning & Community Development Subject: New Mills Act Contracts at 514 Palisades Avenue, 2219 Ocean Avenue, 405 Palisades Avenue, 236 Adelaide Drive and 3018 Third Street; and, an amendment to an existing Mills Act Contract at 2612 Third Street. Recommended Action Staff recommends that the City Council adopt resolutions authorizing the City Manager to negotiate and execute Historic Property Preservation Agreements (Mills Act Contracts) between the City of Santa Monica and the property owners of four designated City Landmarks at 514 Palisades Avenue, 2219 Ocean Avenue, 405 Palisades Avenue and 236 Adelaide Drive, one Structure of Merit at 3018 Third Street and an amendment to an existing Mills Act Contract for a Contributing Structure in the Third Street Neighborhood Historic District located at 2617 Third Street. Executive. Summary The Mills Act is a state law that enables local governments to enter into contracts with owners of qualified historic properties to authorize a property tax reduction. The Mills Act is one of the few financial incentives available to owners of historic properties and is an important tool for implementing the City's goals, as articulated in the City's Historic Preservation Element, to promote the designation and long-term preservation of historic resources through the provision of incentives and technical assistance. The City requires Mills Act Contract applicants to provide a report prepared by a qualified architect describing the condition of the structure and its restoration and maintenance needs in order to ensure the resource's historic integrity and structural stability. The recommendations in the architect's report are reflected in the proposed 10-year restoration/maintenance plan which becomes an attachment to the Mills Act Contract entered into between the City of Santa Monica and property owners. Staff verifies the information contained in the report and may identify additional restoration and maintenance items as necessary. Execution of the five pending Mills Act Contracts will result in reduced property tax revenue to the City estimated at $23,264 for the 2010-2011 fiscal year and a similar amount annually thereafter. 1 Discussion Background In 1991, as part of a comprehensive revision to the City's Landmarks Ordinance, the City Council authorized designated structures of merit, landmarks, and contributing structures located in designated historic districts to be considered qualified historic properties eligible for historic property contracts submitted pursuant to the provisions of California Government Code Sections 50280-50290. As a result, property owners of such designated historic properties may file a Mills Act Contract application. Once approved, a Mills Act contract requires the County Tax Assessor's office to determine the value of the historic property based upon its current net operating income, rather than upon the traditional assessed valuation method resulting, in most cases, in a property tax reduction. For residential or commercial structures that are rented, the net operating income is determined based on actual rents received. For residential and commercial structures that are owner-occupied, the net operating income is determined by the income the property would produce if rented. In exchange for a property tax. reduction, the owner agrees to protect,' maintain and, if necessary, restore the historic property. Under the traditional method of determining property taxes, properties are reassessed when sold. However,- since Mills Act contracts run with the property, subsequent owners may realize greater tax benefits, as the assessed property value typically increases when property is sold, resulting in an even greater difference between the property taxes under the assessed valuation method versus the property tax calculation permitted by the Mills Act contract. This can be a significant marketing feature for the property in terms of future sales and are considered an important historic preservation incentive because the property will be maintained. Similarly, the obligations and 2 property tax reduction benefits associated with the Mills Act contract are also binding upon successive property owners during the contract term. The initial Mills Act' contract term is a minimum ten-year period. Each year on the anniversary of the effective date of the agreement, also known as the renewal date, a year is automatically added to the initial ten-year term of the agreement. This effectively makes the term of the contract at least ten years but possibly indefinite unless the owner or City submits a notice of non-renewal. If such a notice of non-renewal were submitted, the contract would remain in effect for the balance of the term remaining, either from its original date of execution if within the initial ten-year term, or from the date of the last one-year renewal of the agreement. Alternatively, the owner may petition the City to initiate an immediate cancellation, which would result in payment of a penalty equal to 12.5% of the property's assessed current fair market value of the property, as determined by the County Assessor as though the property were free of the contractual restriction. The City may also cancel the contract in the event of a breach of contract conditions, whereby the property owner would be subject to pay the same 12.5% penalty. The terms of the contract also state that the agreement may be amended, in whole or in part, if both the owner and the City agree to execute a recorded document to memorialize the contract amendment. Santa Monica Mills Act Contracts In addition to the certified architect's report, financial data is also required. as part of the Mills Act Contract application in order to calculate an estimate of the potential tax reduction and provide guidance to the Landmarks Commission and Council in making a decision on Contract requests. The County Assessor will make a final determination of the taxes due when the approved Contract is submitted and recorded, and will continue to conduct property tax assessments on an annual basis. 3 Los Angeles County Assessor's Office data showed that for the 2006-2007 tax year, property value assessments of thirty-seven of the thirty-nine Santa Monica historic properties with executed Mills Acts Contracts have been reduced by 12% to 91%, with the average reduction being 51%, when compared to their "Proposition 13" values. From these Mills Act Contract property value assessments, correspondingly lower taxes have been levied on these properties. Each year, the County Assessor will reassess taxes due for properties with Mills Act Contracts. Data for the 2008-2009 tax year has not yet been received from the County Assessor's Office; however, it is anticipated that the average reduction in property taxes will be similar to data from prior years: 2003-2004: 14%-75% reduction with an average reduction of 47%; 2004-2005: 6%-74% with an average reduction of 42%; 2005-2006: 12%-90% with an average reduction of 51 %; and 2006-2007: 12%-90% with an average reduction of 51 %. Staff estimates that the five new contracts will result in respective property tax reductions between 38%-86% with an average reduction of 69 %. Property owners are required to obtain all applicable entitlements such as a Certificate of Appropriateness, and all associated building permits for work proposed in the ten- year restoration/maintenance plan. Furthermore, all work proposed in the ten-year restoration/maintenance plan must comply with "The Secretary of the Interior's Standards for the Treatment of Historic Properties with Guidelines for Preserving, Rehabilitating, Restoring & Reconstructing Historic Buildings" (Weeks & Grimmer, 1995). Property owners are also required to submit a report to the City on a biennial basis to demonstrate compliance with Contract terms. Staff may also conduct a site visit every year to ensure that restoration and maintenance plans are implemented in accordance with Contract terms. 4 Analysis The five new applications submitted in 2008/2009 include vernacular beach cottages and residences all designed in a Craftsman style. A modification to an existing Mills Act Contract for a Contributing Structure in the Third Street Historic District has also been submitted. In addition to the specific restoration and repair obligations listed below for each property, each Mills Act Contract will include a standard requirement for ordinary maintenance and upkeep throughout the Contract's term for work such as additional roof maintenance, and plumbing and electrical systems maintenance. 514 Palisades Avenue A Mills Act Contract application was filed on October 14, 2008, for the Craftsman style residence located at 514 Palisades Avenue. This residence was designated a City Landmark on May 12, 2008. The subject property is located on the east side of Palisades Avenue between Fourth and Seventh Streets. Constructed in 1911, the residence is an excellent example of the Craftsman architectural style as applied to a large single-family residence. It exemplifies aspects of the City's architectural history due to its high level of craftsmanship and the key character-defining features that remain intact including: • low-pitched cross-gabled roof featuring exposed rafter tails and bargeboards; • tudor-style half-timbering decoration of the gable faces, clapboard siding; • wood framed windows and surrounds; • recessed front porch with tapered cobblestone. pedestals and pergola. • oak entry door with multi-pane sidelights; • tapered cobblestone chimney; and. • mature Canary Island Date Palms. 5 As part of the Mills Act application, arr architect's report was prepared by architect Mario Fonda-Bonardi, AIA. The report assesses the condition of the primary residence and identifies repair, restoration/rehabilitation and maihtenance needs (Attachment A) along with a general schedule for completion of work. As noted in the report, the exterior of the residence is in good condition and generally requires maintenance only. No restoration is contemplated or necessary. A full inventory of proposed work items is included in the ten-year maintenance/rehabilitation plan; the work items that address the treatment of the exterior and enhancement and/or stabilization of the building's structural integrity will be an attachment to the Mills Act Contract. Proposed Maintenance and Rehabilitation Plan Examples of work proposed during the contract terms include the following: • Fixing roof leak in west wall/roof junction 6 • Refurbishing leaded stain glass window • Replacing six worn out windows in the west wall • Repairing termite damaged pilings • Replacing 138 linear feet of foundation • Repainting exterior • Replacing decaying roof beams and outriggers • Replacing basement windows Attachment A also contains the estimated financial analysis for the property at 514 Palisades Avenue. 2219 Ocean Avenue A Mills Act Contract application was filed on May 28, 2009, for the turn-of-the-century vernacular beach cottage located at 2219 Ocean Avenue. This residence was designated a City Landmark on February 26, 2008. The subject property is located on the east side of Ocean Avenue between Pacific and Strand Streets. Constructed in 1905, the beach cottage exhibits a high degree of integrity of design, workmanship; and materials on its primary (west) elevation, including the retention of form, massing, and scale associated with early, turn-of-the-century vernacular cottages. The subject residence was a "pioneering" structure in its neighborhood along Ocean Avenue and is the last remaining turn-of-the-Twentieth- Century, mass-planned vernacular cottage visible from the beach in the immediate Ocean Park area along Ocean Avenue. Character-defining features of the cottage include: • simple hip roof; • narrow clapboard siding; • wood sash, double-hung windows, multi-pane sash windows and doors; and • a unique stained glass window. 7 As part of the Mills Act application, an architect's report was prepared by architect Michael Folonis, AIA. The report assesses the condition of the primary residence and identifies repair, restoration/rehabilitation and maintenance needs (Attachment B) along with a general schedule for completion of work.. As noted in the report, the exterior of the residence is in fair condition. The foundation and floor joists are in disrepair and their replacement is included in the proposed rehabilitation plan. The character defining features, as noted above, are in good condition and will require only minor maintenance and restoration. A full inventory of proposed work items is included in the ten-year maintenance/rehabilitation plan; the work items that address the treatment of the exterior and enhancement and/or stabilization of the building's structural integrity will be an attachment to the Mills Act Contract. 8 Proposed Maintenance and Rehabilitation Plan Examples of work proposed during the contract terms include the following: • Foundation work/floor leveling • Exterior repairs • Window renovation New electrical • New plumbing • Renovation of detached garage • Site drainage improvements Attachment B also contains the financial analysis estimate for the property at 2219 Ocean Avenue. 405 Palisades Avenue A Mills Act Contract application was filed on August 6, 2009, for the Craftsman style residence located at 405 Palisades Avenue. This residence was designated a City Landmark on July 13, 2009. The subject property is located on the northeast corner of Palisades Avenue and Fourth Street. Constructed around 1912, the residence is an outstanding example of the Craftsman architectural style as applied to a large single-family residence. It retains sufficient contextual and architectural integrity to manifest the varied residential development and architectural history of Santa Monica, particularly the appearance of Craftsman style dwellings on both sides of Palisades Avenue in the 1910s. As one of the earliest homes constructed in the neighborhood, the residence's location, design, materials, and workmanship manifests the feeling- of early residential life in the Palisades Tract before many other parcels were developed. Its character defining features include: • asymmetrical massing; • cross gabled-roof; • fascia boards; 9 • exposed rafter tails; • projecting purlins; • decorative beam ends; • shingle and clapboard siding; • multi-pane casement and double-hung sash windows; • wood pergola; and • wide, low-slung porch. As part of the Mills Act application, an architect's report was. prepared by architect Robert Jay Chattel, AIA. The report assesses the condition of the primary residence and identifies repair, restoration/rehabilitation and maintenance needs (Attachment C) along with a general schedule for completion of work. As noted in the report, the exterior of the residence is in good condition and generally requires annual maintenance only. No restoration is contemplated or necessary. The report notes some uneven settling with 10 regards to the foundation on the first and second floors, which may be solved with the installation of a sump pump. Further investigation into the issue is recommended. A full inventory of proposed work items is included in the ten-year maintenance/rehabilitation plan; the work items that address the treatment of the exterior and enhancement and/or stabilization of the building's structural integrity will be an attachment to the Mills Act Contract. Proposed Maintenance and Rehabilitation Plan Examples of work proposed during the contract terms include the following: • Repair/replace portions of the roof • Assess condition of rain gutters/downspouts and repair/replace, as needed • Assess condition of wood shingles and clapboard siding and repair/replace, as needed • Assess foundation condition and perform seismic retrofit, as necessary. Installation of a sump pump may also be required • Rehabilitate window sashes and frames, as necessary Attachment C also contains the estimate financial analysis for the property at 405 Palisades Avenue. 236 Adelaide Drive A Mills Act Contract application was filed on August 14, 2009, for the Craftsman style residence located at 236 Adelaide Drive. The residence, known as the Isaac Milbank house, was designated a City Landmark on March 11, 2002. The subject property is located on the southside of Adelaide Drive between Ocean Avenue and Fourth Street. Constructed in 1911, this single-family residence is an excellent and highly intact example of the Craftsman style and that the architectural consistency of the design and the attention to detailing, including the design of the accessory garage (carriage house), shed (guard house), and Porte-cochere (pergola) makes this property one of the most valuable to a study of the early 20th Century 11 Craftsman style in the City of Santa Monica. The impressive Moreton Bay Fig, two mature Canary Island Palms, and the circular drive are noted as features of aesthetic interest and value. The key character-defining features that remain intact include: • balconies and terraces; • redwood window casings and sashes; • original doors; • existing outriggers; • rafters; • eaves and fascia; • carriage house; • guard house; and • pergola. The Landmarks Commission approved a Certificate of Appropriateness (09CA-006) application on May 11, 2009 for the restoration and rehabilitation of certain features of the main residence and on the existing on-site accessory structures. A 44 square foot addition to the main residence was also included in the project scope. The Landmarks 12 Commission expressed strong support for the Certificate of Appropriateness and found that the project would not detrimentally change, destroy, or adversely affect any exterior feature of the Landmark or contributing site features. The Commission also noted that the project is consistent with Secretary of the Interior's Standards for Rehabilitation. The Commission's action was appealed. However, the City Council upheld its decision on July 28, 2009. As part of the Mills Act application, an architect's report was prepared by architect Kelly Sutherlin McLeod, AIA. The report assesses the condition of the primary residence and identifies repair, restoration/rehabilitation and maintenance needs (Attachment D) along with a general schedule for completion of work. As discussed in the report, the improvements that are anticipated as part of the project scope of the recently approved Certificate of Appropriateness will significantly improve the condition of the Landmark. Once these improvements are made, a maintenance plan has been included which identifies annual and semi-annual activities for the upkeep of the structure and property improvements. A full inventory of proposed work items is included in the ten-year maintenance/rehabilitation plan; the work items that address the treatment of the exterior and enhancement and/or stabilization of the building's structural integrity will be an attachment to the Mills Act Contract. Proposed Maintenance and Rehabilitation Plan Examples of work proposed during the contract terms include the following: • Removal of non-original wood shakes and replacement with new cedar shakes Rehabilitation of expose wood framing and trim • Window rehabilitation • Reinforcement and stabilization of outriggers New roofing ® Replacement of non-historic chimney • Seismic retrofit of existing foundation • Relocation and rehabilitation of guard house • Evaluation and ongoing protection of Moreton Bay Fig and Canary Island Palms 13 by a certified arborist. Attachment D contains the estimate financial analysis for the property at 236 Adelaide Drive. 3018 Third Street A Mills Act Contract application was filed on August 13, 2009, for the Craftsman style beach cottage located at 3018 Third Street. This residence was designated a Structure of Merit on May 11, 2009. The subject property is located on the west side of Third Street between Marine Street and Ashland Avenue. Constructed in 1911, the residence is a vernacular example of the Craftsman architectural style as applied to a modest beach cottage type dwelling. The beach cottage residential property type was once common in Ocean Park. Although several enclaves of beach cottages still exist, many of these residences have. been compromised due to alterations. The subject property retains many of the existing original style and character defining features including: • square proportions, • side gabled roof with exposed rafter tails; • central gabled dormer; • double hung sash windows; • front porch with battered columns above a rusticated stone wall; and • clap board siding. 14 As part of the Mills Act application, an architect's report was prepared by architect Robert M. Ridgley, AIA. The report assesses the condition of the primary residence and identifies repair, restoration/rehabilitation and maintenance needs (Attachment E) along with a general schedule for completion of work. As discussed more fully in the report, the exterior of the residence is in good condition. The report identifies an issue with the foundation of the structure which has caused some floor buckling. In addition, the windows on the upper floor have been noted as needing repair/replacement. Since certain of these windows have been identified as a character defining feature of the structure, their repair rather than replacement is recommended. A full inventory of proposed work items is included in the ten-year maintenance/rehabilitation plan; the work items that address the treatment of the exterior and enhancement and/or stabilization of the building's structural integrity will be an attachment to the Mills Act Contract. Proposed Maintenance and Rehabilitation Plan Examples of work proposed during the contract terms include the following: • Repair of windows • Exterior painting • Driveway replacement • Replace support piers • Repair wood eaves and detailing 15 Landscaping maintenance Attachment E also contains the estimate financial analysis for the property at 3018 Third Street. 2612 Third Street A Mills Act Contract was executed with the City and property owner on December 11, 2002. The applicant is seeking to amend certain identified improvements that were included in the restoration/maintenance plan that is included as part of the contract. The amendment request was filed on May 29, 2009 for the two-story Victorian Queen Anne style building with significant Craftsman features located at 2612 Third Street. This residence was identified as a Contributing Structure in the Third Street Historic District in 1990. The applicant is proposing to officially modify the restoration/maintenance plan associated with their Mills Act Contract to reflect the October 13, 2008 action of the Landmarks Commission with regards to Certificate of Appropriateness 08-013, where the installation of a garden in place of constructing a new garage was approved. In addition, the applicant is requesting two modifications affecting the interior of the building: elimination of the provision to install a second floor heating system; and, modify the timing for the repair/refinishing of the hardwood floors to "as-needed" (Attachment F). Commission Action 16 The Landmarks Commission reviewed the Mills Act Contract requests at its September 14; 2009 and October 12, 2009 meetings and directed staff to forward recommendations to the Council in support of all new applications and the modification to the existing Mills Act Contract. Budpet/Financial Impact Execution of these Mills Act Contracts will result in reduced property tax revenue to the City estimated at $23,264 for the 2010-2011 fiscal year. Similar reductions in property tax revenue to the City are anticipated each fiscal year for the life of the both Mills Act Contracts. However, the amount of revenue loss is not significant in terms of total property tax revenues collected from all properties in the City. A summary financial analysis table is included as Attachment C. Prepared by: Scott Albright, AICP, Senior Planner Forwarded to Council: Director, Plar Development Attachments: ~fnont Ewell Manager A. 514 Palisades Avenue: Draft Mills Act Resolution .and Contract, Architect's Report and. Financial Analysis B. 2219 Ocean Avenue: Draft Mills Act Resolution and Contract, Architect's Report and Financial Analysis C. 405 Palisades Avenue: Draft Mills Act Resolution and Contract, Architect's Report and Financial Analysis D. 236 Adelaide Drive: Draft Mills Act Resolution and Contract, Architect's Report and Financial Analysis 17 E. 30.18 Third Street: Draft Mills Act Resolution and Contract, Architect's Report and Financial Analysis F. 2612 Third Street: Draft Resolution Amending Existing Mills Act Contract, Existing Mills Act Contract and Owner's request letter G. Summary Financial Analysis Table 18 ATTACHMENT A 514 Palisades Avenue: Draft Mills Act Resolution, Draft Mills Act Contract, Architect's Report and Financial Analysis Partial attachments are not available in electronic format. Entire document is available for review at the City Clerk's office and the Libraries. 19 ATTACHMENT C 405 Palisades Avenue: Draft Mills Act Resolution, Draft Mills Act Contract, Architect's Report and Financial Analysis Partial attachments are not available in electronic format. Entire document is available for review at the City Clerk's office and the Libraries. 21 ATTACHMENT D 236 Adelaide Drive: Draft Mills Act Resolution, Draft Mills Act Contract, Architect's Report and Financial Analysis Partial attachments are not available in electronic format. Entire document is available for review at the City Clerk's office and the Libraries. 22 ATTACHMENT E 3018 Third Street: Draft Mills Act Resolution, Draft Mills Act Contract, Architect's Report and Financial Analysis Partial attachments are not available in electronic format. Entire document is available for review at the City Clerk's office and the Libraries. 23 ATTACHMENT F 2612 Third Street: Draft Resolution Amending Existing Mills Act Contract, Existing Mills Act Contract and Owner's request letter Partial attachments are not available in electronic format. Entire document is available for review at the City Clerk's office and the Libraries. 24 ATTACHMENT G Summary Financia(Analysis Table Electronic version of attachment is not available for review. Document is available for review at the City Clerk's Office and the Libraries. 25 Attachment G 2009 -- SUMMARY OF ESTIMATE FINANCIAL ANALYSIS FOR MILLS ACT CONTRACTS** Property Est. Assessed Current Tax Est. Tax Est. Mills Act Est. Reduction in City Revenue City Revenue City Revenue Address Value (MILLS (Prop. 13) (MILLS ACT) Taz as a °/ of Property Tax (Prop. 13 ) (MILLS ACT) Reduction ACT) Current Tax 514 Palisades Avenue $1,481,143 $24,574 $15,332 62.4% -$9,242 $3 932 $2 453 ($1 479) 2219 Ocean Avenue $352,653 $13,593 $3,650 26.9% -$9,943 , $2,175 , $584 , ($1,591) 405 Palisades Avenue $868,373 $62,755 $8,989 14.3% -$53,766 $10 041 $1 438 ($8 603) 236 Adelaide Drive $1,234,286 $79,957 $12,777 16.0% -$67,180 , $12,793 , $2,044 , ($10,749) 3018 Third Street $299,755 $8,366 $3,103 37.1% -$5,263 $1,339 $496 ($842) Reference Resolution Nos. 10430 (CCS) through 10435 (CCS); Contract Nos. 9135 (CCS) through 9139 (CCS), and amended Contract No. 8173 (CCS).