Loading...
SR 09-27-2016 3E Ci ty Council Report City Council Meeting : September 27, 2016 Agenda Item: 3.E 1 of 5 To: Mayor and City Council From: Andy Agle, Director , Housing and Economic Development, Housing Division Subject: Approval of Final Sale of City -Owned Property at 2018 19th Street Recommended Action Staff recommends that the City Council: 1. Authorize the City Manager to negotiate and execute a Purchase and Sale Agreement with CBI, LLC regarding the City -owned property at 2018 19 th Street ; and 2. Adopt a resolution to approve the final sale of property at 2018 19th Street, pu rsuant to SMMC Section 2.24.110(g). Executive Summary The Redevelopment Agency funded a loan for the purchase of 2018 19 th Street by a non -profit housing entity for a proposed affordable housing development. During the predevelopment phase, the proposed development was determined financial ly infeasible. Subsequently, the property was conveyed to the Redevelopment Agency in 2009 in exchange for cancellation of the loan. As affordable housing development on the site would result in an inefficient use of affordable housing funds, Council autho rized the sale of the property , with the sale proceeds to be redirect ed toward a more optimal affordable housing use . Two solicitation processes resulted in a high bid of $1.3 million. If approved, the s ale proceeds would be deposited into the City’s Low and Moderate Income Housing Asset Fund to create future affordable housing opportunities. Background The property located at 2018 19 th Street is a 7,996 -square -foot, vacant parcel located in the first block north of Pico Boulevard, as shown in Attachment A. The property was originally acquired by Habitat for Humanity with funds from the City’s Redevelopment Agency for development of affordable, ownership housing. The property was conveyed to the Redevelopment Agency in 2009 , and subsequently to the City in 2012, because Habitat for Humanity determined that development of affordable housing on the site was financially infeasible (see May 26, 2009 staff report provided as Attachment B). Staff has examined various strategies to create affordable housing oppo rtunities on the 2 of 5 site. The site has a zoning designation of R -2, which would only support a development of approximately five residences with minimal opportunity to leverage other sources of funding. The small economy of scale achievable at the site would result in a prohibitively high per -unit development cost , thereby requiring a large City subsidy to achieve affordability and financial feasibility. On May 12, 2015 , Council adopted Resolution 10878 declaring that 2018 19 th Street is not needed for any p ublic purpose and authorized the sale of the property (see Attachment C). P roceeds from the sale must be deposited into the City’s Low and Moderate Income Housing Asset Fund , and would be used to create future affordable housing opportunities with potentia l to assist a greater number of households than possible at the property. Discussion Pursuant to City Council action and CAL. GOV. CODE § 54222, public agencies were offered the opportunity to purchase the property prior to the property being available for sale to the general public. No interest was expressed by any public agencies during the 60 -day offer period. To comply with SMMC Section 2.24.110 (d) allowing for sale by competitive proposals and negotiation, staff issued a Request for Sealed Bids (RSB) seeking proposals to purchase the property on October 7, 2015. The RSB was advertised through PlanetBids, a web -based system utilized by the City for procurement , which requires interested parties to register to receive RSB updates. Additionally, t he RSB was posted in the Santa Monica Daily Press, on the City’s website, and online through ForSaleByOwner.com . Several interested parties commented to staff that the City’s use of PlanetBids for real estate transactions is onerous and unconventional. Despit e considerable interest during the seven -week RSB period, only four formal offers were received by the November 30, 2015 deadline. The purchase offers received for the property ranged from $152,000 to $1.115 million, each less than the December 1, 2015 app raised value of $1.275 million. In December 2015, the property was offered 3 of 5 exclusively to the four proposers with a minimum asking price of $1.275 million. No ne of the four proposers submitted subsequent bids . In May 2016, the City revised its approach t o marketing the property by removing the requirement that bidders must register with PlanetBids to receive RSB updates for the sale of this property . Staff issued a second RSB seeking offers no less than the appraised value of $1.275 million for the proper ty. The second RSB was advertised in the Santa Monica Daily Press, on the City’s website, online through ForSaleByOwner.com, and through PlanetBids. After seven weeks on the open market, staff received one all -cash offer of $1.3 million from C ross B order I nvestments , LLC (CBI) with a 14 -day due diligence period and 21 -day escrow period. CBI is a limited - liability company registered with the State of California . Th e offer expires on November 1, 2016. The property’s market interest and value have been tested three times (initial RSB, exclusive offer to four bidders, and second RSB). The CBI, LLC offer is greater than the minimum price established by a current appraisal by a qualified real estate appraiser. Staff recommends that Council authorize the City Mana ger to negotiate and execute a Purchase and Sale Agreement with CBI, LLC. Sale proceeds would be deposited into the Low and Moderate Income Housing Asset Fund for use toward affordable housing. To comply with SMMC Section 2.24.110(g) regarding approval of final sale of real property, Council must adopt a resolution approving final sale, which must be passed by an affirmative vote of five members of the City Council. A copy of the resolution is attached as Attachment D. Alternatively, City Council at its d iscretion may reject the CBI proposal and may direct staff to re -advertise. Environmental Analysis Sale of the property is categorically exempt from environmental review pursuant to CEQA Guideline 15312, as it involves the sale of surplus governmental pro perty for which the use of the property has not changed since it was conveyed to the City. Should 4 of 5 the successful purchaser of the property pursue development of the site, such development would be subject to CEQA review. Alternatives The site could be mad e available to housing providers for the purpose of developing affordable rental housing. One challenge with development of the site is the combination of small -lot size and low -density zoning , which diminish es the potential for leveraging federal low -inco me housing tax credits , a primary source of affordable housing funding. Tax credits typically fund 40 to 50 percent of total development costs and e ligible tax credit developments cannot exceed p er -unit development costs limits established by the Californi a Tax Credit Allocation Committee (CTCAC). Given the imputed land value of $1.275 million and estimated construction costs, any proposed development would likely either exceed the CTCAC development costs limits or not be prioritized for a funding award . Th erefore, the development would require an exceptionally large City subsidy , representing approximately 80 to 90 percent of the development costs, to achieve affordability and financial feasibility. As a result, the City’s ability to support affordable hou sing with the available funds would be significantly diminished. Next Steps With Council authorization, staff would proceed to complete the sale of the property. Financial Impacts and Budget Actions Staff estimates that the sale of the property will gener ate approximately $1.3 million in revenues in FY 2016 -17; the actual amount will vary depending on final negotiations and closing costs. Sale proceeds would be deposited into the Low and Moderate Income Housing Asset Fund (15 Fund) account 15264.401801 for use toward future affordable housing. 5 of 5 Prepared By: Ava Lee, Senior Development Analyst Approved Forwarded to Council Attachments: A. Attachment A - Map of 2018 19th Street B. Property Conveyance from Habitat for Humanity to Redevelopment Agency and Cancellation of Loan Agreement C. Disposition of City -owned Housing P roperties D. Attachment D -Resolution Attachment A Reference:    Agreement  No. 10365   (CCS)  &   Resolution  No. 10991   (CCS)