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C;,Yof City Council Report
Santa monies°
City Council Meeting: July 10, 2012
Agenda Item: 3E
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Disposition of City -Owned Property at 1920 Ocean Way
Recommended Action
Staff recommends the City Council:
1. Adopt the resolution provided as Attachment A to reject all offers for the
purchase of 1920 Ocean Way and declare and determine that such real property
may be sold in the open market, pursuant to Municipal Code Section 2.24.110;
and
2. Authorize staff to negotiate to sell the City -owned property located at 1920
Ocean Way in the open market, subject to City Council approval.
Executive Summary
The City received 15 offers to purchase City- owned, vacant land at 1920 Ocean Way.
The offers ranged widely in terms of both purchase price and contingencies to be met
prior to completing the sale. Staff believes that direct negotiation with interested buyers
is in the best interest of the City, as that approach would allow for competing and
counter -offers among multiple buyers. This process is expected to achieve more
favorable terms including the best price, minimal contingencies and a short escrow
period. Staff would return to Council following conclusion of negotiations to seek
authorization to enter into a purchase and sale agreement.
Background
The City -owned property at 1920 Ocean Way ( "Property ") is a vacant lot immediately
south of the Casa Del Mar Hotel. The site is approximately 23,000 square feet, is
zoned R -4, and is included in the Beach Overlay Zone. 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. On November 22, 2011, Council authorized staff to
solicit bids for the sale of 1920 Ocean Way at no less than market value. On March 19,
1
2012, staff issued a Request for Letters of Interest (RLOI) seeking offers to purchase
the property.
Discussion
Pursuant to the RLOI, the City received 15 letters of interest on or before May 17, 2012.
The letters of interest include 12 cash offers, as well as one proposal to exchange
property, one proposal to increase affordability on deed - restricted units currently in
development, and one proposal to best any offer by 10 percent. Attachment B provides
a summary of the offers.
The cash offers ranged from $6.45 million to $15.75 million and included a range of
contingencies. Contingencies included requirements to obtain land -use entitlements or
secure investor capital prior to close of escrow. As such offers include significant
uncertainties related to a prospective buyer's ability to secure land -use entitlements or
find third -party investors in a timely manner, the value to the City of such offers could
decrease significantly.
The City also received three non -cash offers. One offer proposes to exchange a 7,500
square foot property at 603 Arizona Avenue in Santa Monica, currently in development
proposing 39 units, for the City's property. Another offer proposes to increase
affordability levels on 42 apartments currently in development from the low income level
(80 % of area median income) to the very low income level (50% of area median
income). The third offer proposes to best all others by 10 percent.
Staff also evaluated the benefits to affordable housing from selling the property relative
to using the site to develop affordable housing. Based on recent City housing loans,
staff estimates that selling the property at the highest offered price of $15.75 million
could produce approximately 60 to 80 affordable apartments elsewhere in Santa
Monica, depending on the exact location, land price, and construction costs. Selling the
property at the second - highest price of $12.5 million could produce 50 to 65 affordable
W
apartments. By comparison, 1920 Ocean Way could accommodate approximately 25 to
36 affordable apartments, depending on how parking is addressed at the beach -level
site. Furthermore, the City would need to invest an additional $5 to $16 million to build
an affordable housing development at 1920 Ocean Way. The broad funding range
stated above reflects a variety of development scenarios involving number of units,
parking costs, and uncertainty about successfully leveraging the highest level of tax -
credit financing.
In conclusion, the RLOI process demonstrated that significant interest in the purchase
of 1920 Ocean Way exists in the open market. However, the range of price offers
coupled with varying contingencies makes direct comparisons difficult without further
negotiation with prospective buyers. Negotiation between the City and interested buyers
is expected to allow for the highest and best offer to surface. As a result, staff
recommends rejecting all offers submitted in the RLOI process and pursuing sale of the
property through direct negotiation with buyers.
Environmental Analysis
Sale of the subject property is categorically exempt from environmental review pursuant
to CEQA Guideline 15312, as it involves the sale of surplus governmental property for
which the use of the property and adjacent property has not changed since it was
bequeathed to the City. Should the successful purchaser of the property pursue
development of the site, such development would be subject to CEQA review.
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Financial Impacts & Budget Actions
There is no immediate financial impact to the policy decision. The amount of sale
proceeds would be identified when staff returns to Council for consideration of entering
into a purchase and sale agreement.
Citywide Housing Trust Fund.
Sale proceeds would be deposited into the
Prepared by: Jim Kemper, Housing Administrator
Hnay Hgie, uirector
Housing and Economic Development
Forwarded to Council:
t�
Rod Gould
City Manager
Attachments:
A. Resolution to Reject All Offers and Pursue Direct Negotiation
B. Summary of Letters of Interest Offers
Cl
Reference Resolution No.
10693 (CCS)