City Council Meeting: September 11, 2012

Agenda Item: 8-A

 

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 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:

 


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 after due diligence

Non-refundable after due diligence

Due Diligence

none

30 Days

60 Days

Escrow Period

5 Days

60 Days

Unknown; based on buyer’s receipt of entitlements

Financing Source

Cash on hand

Cash on hand

Equity partner

Entitlements Contingency

None

Unclear;  listed as issue for the due diligence period

$10.75 million of price paid only if entitlements received and completed

Other Conditions

/Information

None

None

$5 million paid after due diligence expires; entitlements may take two years

 

 

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.


 

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:

 

Forwarded to Council:

 

 

 

 

 

Andy Agle, Director

Housing and Economic Development

 

Rod Gould

City Manager