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sr-112211-8aof City Council Report City Santa Monies City Council Meeting: November 22, 2011 Agenda Item:8 =A To: Mayor and City Council From: Andy Agle, Director of Housing and Economic Development Subject: 1920 Ocean Way Recommended Action Staff recommends that the City Council: 1. Authorize staff to solicit bids for the sale of 1920 Ocean Way, a City -owned property designated for affordable housing, at no less than market value; and 2. Approve the attached resolution (Attachment A) declaring that the 1920 Ocean Way property is not needed for any public purpose and is therefore surplus property. Executive Summary City staff and Edward Thomas Companies (ETC) have been negotiating toward an agreement on the terms for an exchange of the City -owned property at 1920 Ocean Way with the ETC -owned property at 1828 Ocean Avenue. The negotiation period authorized by the City Council has expired as the parties have been unable to reach an agreement. Among the alternatives for the disposition of the 1920 Ocean Way property, staff recommends that the City -owned property be placed on the market for sale and the proceeds be used to facilitate affordable housing development elsewhere in Santa Monica. Background The City -owned property at 1920 Ocean Way ( "Property ") is a vacant lot immediately south of the Casa Del Mar Hotel. The lot is zoned R -4 and allows development of one unit for every 900 square feet of land area. The lot size is 23,000 square feet and, with the zoning incentives for affordable housing, can accommodate approximately 39 affordable units. The City's 20 -year history with the site and its commitment to utilize it for affordable housing is provided in a November 11, 2008 City Council staff report. In November 2008, Council directed staff to begin negotiations with ETC to exchange their property at 1828 Ocean Avenue with City -owned property located at 1920 Ocean 1 Way. The goal of the exchange was to achieve the greatest potential for affordable housing yield within the closest proximity to 1920 Ocean Way (total yield for 1828 Ocean Ave. was estimated at 70 -80 units). On November 10, 2009, to establish deadlines for negotiations and to limit the risk of protracted negotiations, the City Council authorized a six -month "Economic Uncertainty Period" for staff and ETC to negotiate and finalize the terms of an Exclusive Negotiating Agreement ( "ENA "). Council also granted authority to the City Manager to extend negotiations for an additional six months if necessary. ETC and staff were unable to agree on deal terms during the negotiation and extension periods, which are now expired. Discussion Due to the expiration of the negotiation period, the City can consider a variety of options for disposition of the property. Staff has identified four primary alternatives: 1) Extend expired negotiation period 2) Issue new Request for Proposals 3) Sell property and use proceeds for affordable housing 4) Wait for improved market conditions to sell property Option 1: Extend the Expired Negotiation Period The City Council could extend the negotiation period with ETC to consider changes to the current draft Exclusive Negotiating Agreement (ENA), including but not limited to, the schedule of performance, parking, entitlements and developer deposits. However, ETC's requested terms of the exchange are inconsistent with the City Council's original negotiation parameters. Additionally, further discussions may result in protracted and unsuccessful negotiations. Option 2: Issue a New Request For Proposals A new Request for Proposals (RFP) for a property exchange could be issued. However, the outcome of a new RFP process is unpredictable and because it would repeat the process already undertaken, it would require additional time and resources but. could result in the very same unsuccessful property exchange negotiations 2 regarding disposition of the property. Alternatively, the option may reveal opportunities that were not available in the initial round. Option 3: Sell the Property The property could be placed on the open market and sold. The City would commission an appraisal to establish that qualified bids must be equal to or greater than the appraised value. The proceeds would then be available immediately to fund affordable housing development. Since a significant amount of new affordable housing is about to begin construction nearby in the Civic Center area (160 units) and 400 block of Pico, the sale proceeds could be used to facilitate affordable housing anywhere in the City. Option 4: Wait for Improved Market Conditions to Sell Property The current market environment for vacant land may result in purchase offers that fail to meet expectations for leveraging this resource into capital. Therefore, the City could decide to wait for market conditions to improve and then place the property for sale. Staff Recommendation To expedite the creation of affordable housing and to avoid further delays by extending the current ENA process or issuing a new RFP, staff recommends that the property be placed for sale on the open market and that sale proceeds be dedicated for affordable housing development elsewhere in the City. To comply with Municipal Code Section 2.24.110 regarding the sale of real property, the Council must adopt the resolution provided in Attachment A declaring that the 1920 Ocean Way property is not needed for any public purpose and is therefore surplus property. Additionally, before inviting general bids for the sale of the property, staff would comply with the requirements of Government Code section 54222, which requires that various public agencies (school district, county, etc.) be allowed the first opportunity to bid on the surplus property. Staff would commission an independent appraisal that would establish a minimum qualifying purchase offer price and return to Council with the highest and best bid. If the City Council approves the bid, the sale of the property will be authorized by Council. The 3 Council may reject any and all bids presented and may re- advertise in its discretion per City Charter section 2.24.110 Commission Action At its August 2011 meeting, the Housing Commission discussed the disposition of 1920 Ocean Way and how the original priority to build affordable housing close to the 1920 Ocean Way property may not be as pressing today due to the imminent construction of the Civic Center Village's 160 affordable residences at 1725 Ocean Avenue, as well as the 32 affordable residences under construction at 430 Pico Boulevard. Additionally, Commissioners raised concerns about entering into property exchange negotiations that might again lead to protracted and unsuccessful negotiations. The uncertainty of future Redevelopment funds for affordable housing was another concern expressed by the Commissioners, as proceeds from the sale of the property would represent new funds for affordable housing development. Finally, Commissioners asked staff to return to the Commission with a single recommendation. Staff returned to the Housing Commission on October 20, 2011 with a staff recommendation that the Housing Commission recommend that the City Council sell the property and deposit proceeds from the sale in the Citywide Housing Trust Fund was discussed. The Housing Commission voted on a motion to support the staff recommendation but the motion did not carry due to receiving only three votes of the five Commissioners present. Two Commissioners did not support the recommendation to sell the property because they felt 1920 Ocean Way is a one -of -a -kind vacant parcel on the beach that should be retained and used for a public purpose. Financial Impacts & Budget Actions Financial impacts related to the sale of 1920 Ocean Way would include the costs of commissioning an appraisal, advertising the property and possibly real estate agent fees. Funds for the appraisal and advertising are estimated at $6,000 and are available in the FY 2011 -12 budget at account number 01264.555060. Any real estate broker fees would be paid from the proceeds of the property sale. Additionally, revenue from 0 the proceeds of the sale should be deposited into the Citywide Housing Trust Fund, at account number 04264.404400. Prepared by: Lisa Luboff, Senior Development Analyst Approved: Andy Agle, C Housing and Attachments: A. Resolution Development 5 Forwarded to Council: r Rod Gould City Manager Reference Resolution No. 10638 (CCS).