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
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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
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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
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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
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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
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Forwarded to Council:
r
Rod Gould
City Manager
Reference Resolution No.
10638 (CCS).