SR-09-11-2012-8ACity Council Meeting: September 11, 2012
Agenda Item:
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 that the City Council:
1. Authorize the City Manager to execute a Purchase and Sale Agreement to sell the
City -owned property at 1920 Ocean Way to the Edward Thomas Hospitality
Companies for the purchase price of $13,150,000.
2. Authorize the budget changes as outlined in the Financial Impacts and Budget
Actions section of this report.
Executive Summary
On July 10, 2012, Council authorized staff to negotiate the sale of the City -owned
property at 1920 Ocean Way in the open market. City staff received several offers,
conducted negotiations and has reached a tentative agreement with the Edward
Thomas Hospitality Companies (ETC) for the purchase and sale of 1920 Ocean Way.
ETC's purchase offer represents the best combination of highest price, no contingency
or due diligence period and shortest escrow period. The key terms of the ETC offer
include a $13,150,000 purchase price, $2,600,000 good faith deposit, no due diligence
and a five -day escrow period.
Background
The City -owned property at 1920 Ocean Way ( "Property ") is a beach -front vacant
lot. The Property is approximately 23,000 square feet, zoned R -4, and included in the
Beach Overlay Zone. The history of the Property is discussed in
a November 11. 2008 staff report. On November 22, 2011, the City Council authorized
staff to solicit offers for the sale of the Property, after making a determination that the
Property is no longer needed for any public purpose and is deemed to be surplus
property. On March 19, 2012, staff issued a Request for Letters of Interest (RLOI)
seeking offers to purchase the Property. The responses to the RLOI were discussed at
the July 10, 2012 City Council meeting, wherein Council directed staff to reject all of the
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RLOI offers and negotiate the sale of the Property on the open market, subject to City
Council approval.
Discussion
Staff contacted all interested buyers of the Property who participated in the RLOI
process to inform them that the Property would be sold in the open market.
Subsequently, three potential buyers indicated their continued interest in pursuing
purchase of the Property. After negotiating among the parties, ETC offered the best
purchase offer in terms of price, good faith deposit, due diligence period, contingencies
and escrow closing. A summary of ETC's offer and the offers from the other two
interested parties is below:
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ETC
Offer #2
Offer #3
Offer Amount
$13,150,000
$13,100,000
$15,750,000
Deposit
$2,600,000
$300,000
$500,000
Deposit Terms
Non- refundable
Non - refundable
Non - refundable after
after due diligence
due diligence
Due Diligence `
none
30 Days
60 Days
Unknown; based on
Escrow Period
5 Days
60 Days
buyer's receipt of
entitlements
Financing
Source
Cash on hand
Cash on hand
Equity partner
Unclear; listed as
$10.75 million of
Entitlements
None
issue for the due
price paid only if
Contingency
diligence period
entitlements received
and completed
$5 million paid after
Other
due diligence
Conditions
None
None
expires; entitlements
/Information
may take two years
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Staff recommends the offer from ETC as the best among the three offers
received /negotiated. The offer from ETC includes a purchase price of $13,150,000 that
includes no due diligence period and no contingency, as well as a good faith deposit of
$2,600,000 and a very short escrow period of five days. The two other offers represent
less desirable terms. Offer #2 includes a lower price, longer due diligence /escrow period
and an unclear entitlement contingency. Offer #3 includes a higher purchase price of
$15,750,000 but is contingent on the receipt of future land use entitlements which may
take years to obtain. Offer #3 includes a payment of $5 million toward the purchase
price after the due diligence period expires, but the balance of the $10.75 million for the
purchase price would only be paid after recordation of a final tract map. Therefore, staff
recommends that the City enter into a Purchase and Sale Agreement with ETC for the
Property reflecting the terms of the offer.
Alternatives
The Property could continue to be available in the open market awaiting better offers.
However, given that the City has solicited offers for the Property for the last five months,
better offers may not be forthcoming.
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
The sale of the property will generate revenues of $13,150,000 for FY 2012 -13 to be
deposited into the Citywide Housing Trust Fund for use in creating affordable housing.
A revenue increase of $13,150,000 for FY 2012 -13 is requested in account
04264.404400, where sale proceeds will be deposited.
Prepared by: Barbara Collins, Housing Manager
Approved:
apt
� n
Andy Agle, Director 11,
Housing and Economic Development
Forwarded to Council:
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Rod Gould
City Manager
Reference Contract No.
9645 (CCS).