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SR-10-08-2013-3ECity of City Council Report Santa Monied City Council Meeting: October 8, 2013 Agenda Item: 3-L To: Mayor and City Council From: Andy Agle, Director of Housing and Economic Development Subject: Disposition of City -Owned Property at 1122 22nd Street Recommended Action Staff recommends that the City Council: 1. Authorize the City Manager to proceed with sequential negotiations with the two highest and best bidders for the sale of City -owned property located at 1122 22 "d Street, as follows, with the contingency, escrow, and closing cost terms listed in Table 1 of this report: a. Authorize the City Manager to negotiate and execute a Purchase and Sale Agreement with Pezhman Firoozfam in the amount of $1.067 million. b. In the event of unsuccessful negotiations with Pezhman Firoozfam, authorize the City Manager to negotiate and execute a Purchase and Sale Agreement with Maryland Estates, Inc. in the amount of $1.025 million. 2. Direct staff to set aside sale proceeds for affordable housing production and preservation. Executive Summary On March 12, 2013, Council authorized staff to solicit bids for the sale of 1122 22nd Street (Property) at no less than market value. Staff received and reviewed several bids based on purchase price, capacity to purchase, and contingencies to be met prior to completing the sale. Staff recommends authorization to proceed with sequential negotiations with the two highest and best bidders, Pezhman Firoozfam followed by Maryland Estates, Inc. Both bids exceed market value based on a recent appraisal. Background The Property is a residential parcel with an existing single - family home. The Property is approximately 5,920 square feet and the existing home is 1,107 square feet. The zoning designation is R -2, which allows for a low- density, multi - family development and a new development of approximately four residential units. The history of the 1 Property is discussed in a March 12 2013 staff report. At that time, Council authorized staff to solicit bids for the sale of the Property, after making a determination that the Property was no longer needed for City purposes and was deemed to be surplus property. Pursuant to CAL. GOV. CODE § 54222, public agencies were offered the opportunity to purchase this Property prior to the Property being presented for sale to the general public. No interest was expressed by any public agencies. On June 13, 2013, staff issued a Request for Sealed Bids (RSB) seeking bids to purchase the Property. Discussion Pursuant to the RSB, the City received 28 offers. One offer was submitted after the June 27th submission deadline and returned to the bidder. The remaining 27 qualified offers included purchase prices ranging from $260,000 to $1.067 million, contingency requirements varying from none to the ability to hold for resale, an assortment of contingency and escrow periods and allocation of closing costs, and offer expiration dates ranging from none to three days after the submission deadline. In July, staff contacted all qualified purchasers to ensure that all received bids could be extended through September. No bids were retracted. In August, after thoroughly reviewing all bids, staff notified the two highest and best bidders, Pezhman Firoozfam and Maryland Estates, Inc., that they were progressing to the next stage in the process, and confirmed that their bids were valid through October. The qualified offers propose a wide range of contingency requirements, escrow periods, and allocation of costs. In the effort to limit protracted and unsuccessful negotiations, staff requests authorization to proceed with contingency requirements, escrow period, and allocation of costs as based on standard residential sale parameters listed below. Table 1: Staff Recommended Negotiating Parameters Buyer removes all contingencies 17 days after acceptance of the Agreement Close of Escrow shall occur 30 days after acceptance of the Agreement Buyer / Seller each to pay own escrow fees Buyer pays for all inspections, reports, transfer taxes or fees, insurance policies, and warranties 2 Staff evaluated the purchase offers in terms of price, good faith deposit, evidence of funds, due diligence period, contingencies, and escrow period. A summary of the highest and best offers is below: Staff recommends proceeding with sequential negotiations and execution of a purchase and sale agreement (Agreement) based on deal terms in Table 1 with the strongest prospective purchasers, Pezhman Firoozfam followed by Maryland Estates, Inc. Both offers exceed the market value established by a recently City- commissioned appraisal. Mr. Firoozfam's offer represents the highest price, minimal contingencies and demonstrated proof of funds. The key terms of the offer include a $1.067 million purchase price, $32,010 good faith deposit within three days of Agreement acceptance, financing contingency, and a 35 -day or less escrow period. Maryland Estate's offer represents the second highest price. This is an all -cash offer, although financial capacity has not been demonstrated. The key terms of the offer include a $1.025 million purchase price, $30,000 good faith deposit within three days of Agreement acceptance, execution of Agreement within five days after acceptance; and contingency period of 14 days following inspections. 3 Best Offer Second Best Offer Pezhman Firoozfam Maryland Estates, Inc. Offer Amount $1.067 million $1.025 million Deposit $32,010 $30,000 $650,000 cash or Sources of Funds .. equivalent and $417,000 Cash financed; evidence of funds provided Escrow Period 35 days or sooner 14 days after contingencies Contingencies Financing Inspections, due diligence Staff recommends proceeding with sequential negotiations and execution of a purchase and sale agreement (Agreement) based on deal terms in Table 1 with the strongest prospective purchasers, Pezhman Firoozfam followed by Maryland Estates, Inc. Both offers exceed the market value established by a recently City- commissioned appraisal. Mr. Firoozfam's offer represents the highest price, minimal contingencies and demonstrated proof of funds. The key terms of the offer include a $1.067 million purchase price, $32,010 good faith deposit within three days of Agreement acceptance, financing contingency, and a 35 -day or less escrow period. Maryland Estate's offer represents the second highest price. This is an all -cash offer, although financial capacity has not been demonstrated. The key terms of the offer include a $1.025 million purchase price, $30,000 good faith deposit within three days of Agreement acceptance, execution of Agreement within five days after acceptance; and contingency period of 14 days following inspections. 3 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. Next Steps With Council authorization on the recommendations discussed in this report, the Housing Division would proceed to negotiate an Agreement with the parties for execution by the City Manager Financial Impacts & Budget Actions Staff estimates that the sale of the Property will generate approximately $1.067 million in revenues in FY 2013 -14; the actual amount will vary depending on final negotiations and closing costs. Proceeds from the sale will be deposited into account at 04264.401801. These funds will be used for affordable housing production and preservation. Budget changes associated with this transaction will be included in the Midyear report to City Council, once the sale has been completed and the final purchase amount has been determined. At this time, there are no budget changes being requested. Prepared by: Ava Lee, Acting Housing Administrator Approved: Andy Agle, Director Housing and Eco o 'c Development Attachments: Attachment A: Resolution 0 Forwarded to Council: Rod Gould City Manager Attachment A City Council Meeting: October 8, 2013 Santa Monica, California RESOLUTION NUMBER (CCS) (City Council Series) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA FOR THE SALE OF CITY -OWNED REAL PROPERTY AT 1122 22ND STREET WHEREAS, the property located at 1122 22 "d Street ('Property ") was bequeathed to the City of Santa Monica in or about 1994 by the Estate of Anna Blackburn, with possessory interest to her caretaker, who has passed away; and WHEREAS, by Resolution Number 10742 (CCS), the City Council determined that the Property was no longer needed for any public purpose and authorized the commencement inviting bids for the sale of the Property in accordance with SMMC Section 2.24.110 and California Government Code Section 54222, and WHEREAS, on June 12, 2013 and June 19, 2013, the City advertised the sale in the official newspaper in accordance with SMMC Section 2.24.110(b). In response to the request for proposals, the City received 27 proposals. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES RESOLVE AS FOLLOWS: SECTION 1. The City Manager is authorized to negotiate with two of the highest and best bidders, Perzhman Firoozfam and Maryland Estates, Inc., and is authorized to 1 enter into a sales agreement and related documents for the sale of the Property with the best proposer after the conclusion of the negotiations. SECTION 2. The City Clerk shall certify to the adoption of this Resolution, and thenceforth and thereafter the same shall be in full force and effect. APPROVED AS TO FORM: 2 Reference: Agreement No. 9808 (CCS)