sr-102709-8cCity Council Meeting: October 27, 2009
Agenda Item: ~~-
Ta Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Acquisition of property at 1654 19th Street
Recommended Action
Staff recommends that the City Council:
1. authorize the City Manager to exercise the purchase option of the lease between
the City and Guntram and Liane Ossa Trust for the property located at 1654 19th
Street;
2. authorize the City Manager to negotiate and execute the purchase documents
relating to the acquisition of the property for $3.2 million, plus closing costs; and
3. approve budget actions and appropriations as outlined in the Financial Impacts
and Budget Actions section of this report.
Executive Summary
In July 2008, the City authorized aten-year lease with two five-year options for property
located at 1654 19th Street for CityTV operations. The building is 4,700 square feet on
an 8,000-square foot lot. Tenant improvements for CityTV operations are expected to
cost approximately $2 million. The lease includes an option agreement through October
31, 2009, for the City to purchase the property for $3.2 million. Funds in the amount of
$350,000 are currently available in the Public Education and Governmental Access to
Cable Fund (PEG Fund), provided by cable providers pursuant to state law. The
remainder of the purchase price will come from the General Fund, to be repaid from
future PEG funds.
Discussion
On July 22, 2008, the City Council authorized the lease of 1654 19th Street, for ten
years, with two five-year options for CityTV. The lease agreement also includes an
option agreement that allows the City until October 31, 2009, to purchase the property
for $3.2 million. A City-commissioned appraisal confirmed the price as fair and
reasonable.
1
Tenant improvements to the building are expected to cost approximately $2 million.
Given the City's large capital investment in the property, as well as the inconvenience
and reduced productivity that accompanies relocation, acquisition of the property to
ensure long-term occupancy by CityTV is recommended.
Acquisition of the property is also a prudent financial investment. Assuming a seven
percent discount rate, the present value of the cost of tenancy over 20 years is
approximately $2.5 million. With an acquisition price of $3.2 million, the City's net cost
to purchase the asset is approximately $700,000. At the end of 20 years, the City could
sell the property or maintain it for City operations. Unless there is a dramatic decline in
property values, the present value of the property's sale price should exceed the City's
net cost to purchase the property. In addition, PEG funds can only be used for oapital
purposes. Purchase of a building is an eligible expense, while rent is not, allowing for
an effective use of PEG funds.
Environmental AnalVSis
The recommended Council action is exempt from CEQA under Section 15301, Existing
Facilities.
Financial Impacts & Budget Actions
The acquisition price is $3.2 million, plus closing costs of approximately $20,000. Funds
in the amount of $307,260 are currently available in the PEG designation in Account No.
4.345214, and additional revenues of $50,000 are expected to be received before the
end of October, providing available funds of approximately $350,000. Staff
recommends that $2,870,000, the remainder of the acquisition price plus an estimate for
closing costs, be appropriated from the Designation for Future Expenditures account in
the General. Fund. The General Fund's contribution to the property purchase will be
repaid at seven percent interest from PEG funds received during the next 20 years, or
until the principal is repaid.
2
The following budget actions are necessary to complete the funding requirements to
purchase the building and establish a financing plan:
1. release $350,000 from the PEG designation in Account 4.345214;
2. release $2,870,000 from the Designation for Future Expenditures Account
1.345217;
3. increase the inter-fund transfer from General Fund (01) Account 01695.577010
to Capital Projects Fund (02) Account 02695.577010 by $2,870,000 and
appropriate $2,870,000 to Account 0024043.589000; and
4. increase inter-fund transfer from Special Revenue Fund (04) Account
04695.570270 to Capital Projects Fund Account 02695.570270 by $350,000 and
appropriate $350,000to Account 0024043.589000.
Prepared by: Miriam Mack, Economic Development Manager
Forwarded to Council:
® ~~
Andy Agle, Direct P. ont Ev
Housing and Economic Development City Manager
3
Reference Amendment to
Contract No. 8947 (CCS).