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)