REPORT TO THE CITY COUNCIL
June 28, 2018
FROM: MARLENE MURPHEY, Executive Director
Successor Agency of the Redevelopment Agency
SUBJECT
Title
Actions pertaining to approximately 4.79 acres located at 1153 Fresno Street (APN 467-310-12T):
1. Adopt a finding of Categorical Exemption pursuant to Section 15301 of California Environmental Quality Act Guidelines
2. Approve a Purchase, Sale and Settlement Agreement in the amount of $1,912,915 for sale of the Kearney Palms Shopping Center Parking Lot to Kearney Palms, LLC. (Council District 3)
Body
EXECUTIVE SUMMARY
Staff recommends adoption of the finding of Categorical Exemption pursuant to Section 15301 of CEQA and approval of the Purchase, Sale and Settlement Agreement in a total amount of $1,912,915 for sale of the Kearney Palms Shopping Center Parking Lot (APN 467-310-12T) to Kearney Palms, LLC.
BACKGROUND
The Kearney Palms Shopping Center Parking Lot (Parking Lot) is part of an enforceable obligation pursuant to a Disposition and Development Agreement (DDA) and Covenants for Public Parking, Lease, Operation and Maintenance and Option to Purchase Agreement (Parking Agreement) between the Successor Agency (Agency) and Thomas Beggs, Managing Member of Kearney Palms, LLC (Developer). The Parking Lot of approximately 4.79 acres is generally located at the northeast corner of Fresno and “B” Streets within and serving the Kearney Palms Shopping Center. Kearney Palms, LLC currently owns 7 of the 10 parcels that form the shopping center. Besides the Parking Lot, one additional parcel is owned by the City (police substation) and the last is owned and operated as a Burger King. A recent appraisal dated May 10, 2018, values the parcel at $791,000.
DDA & Parking Agreement Highlights. The Parking Agreement and the DDA include provisions pertinent to the sale of the Parking Lot briefly summarized below:
• The Parking Lot is to be used solely as a public parking lot without charging for its use. The developer, customer, tenants, occupants of the shopping center and the general public all park for free.
• The Developer pays the Agency a monthly fee of $1.00.
• The Developer has the exclusive right, but not the obligation, to purchase the Lot until April 26, 2044.
• The Developer may not assign the purchase option without the prior consent of the Agency except under limited conditions.
• The purchase price for the Parking Lot is the market value determined by appraisal or $1,270,915 whichever is greater.
• The Agency bears the cost for removal and replacement of the Parking Lot’s asphalt, as necessary, from age or damage. The cost of replacement is estimated at $1,043,000. The Agency’s obligation does not terminate with the sale of the Lot.
• The Developer is obligated to pay Agency 60% of all rents for Parcel C (the chain grocery) that exceeds the base of $0.38 per square foot (Excess Rents).
• The Developer’s obligation to pay Excess Rents to the Agency terminates when the Developer exercises the option to purchase.
Developer’s Original Purchase Offer. In an attempt to dispose of the Property, the Successor Agency Oversight Board (Oversight Board) requested staff initiate discussions with Developer, regarding the potential for exercising the option to purchase the Parking Lot. In a letter dated May 24, 2018, Developer offered to make an all cash purchase of the Parking Lot at the current appraised value of $791,000 with close of escrow by the end of July 2018. Additionally, pursuant to Section 12.3 of the DDA, Developer would make full payment for the Excess Rents obligation through June 2018 totaling $642,000.
Oversight Board’s Counteroffer. On June 13, 2018, the Oversight Board reviewed and considered Developer’s written proposal. After a lengthy discussion, the Oversight Board directed staff to convey a counter offer to Developer wherein the purchase price of the Public Parking Lot was increased from $791,000 to $1,270,915 pursuant to Section 8.3 of the Parking Agreement dated April 1999 the purchase price of the Property is to be the appraised value or $1,270,915 whichever is greater. The Oversight Board’s counteroffer provides for Developer’s payment of Excess Rents and also includes the termination of the DDA and the Parking Agreement upon successful Close of Escrow.
Termination of DDA and Parking Agreement. As set forth in more detail above, the DDA and Parking Agreement provided for the parties’ rights and obligations surrounding the Parking Lot. The DDA provided for the acquisition, disposition and development of project property, including the Parking Lot. Pursuant to the Oversight’s Board’s counter offer, after Developer’s purchase of the Parking Lot and payment of Excess Rent, the parties’ remaining obligations under the DDA terminates, save and except the nondiscrimination covenants, which shall run with the land in perpetuity, and have been included in the Grant Deed.
The Parking Agreement grants Developer an option to purchase the Property and requires Monthly Parking Fee payments for the duration of Developer’s 45-year Lease. Agency has maintenance obligations to remove and replace the parking lot’s asphalt in the event the surfacing is damaged or excessively worn. After Developer’s payment of Excess Rent and Close of Escrow, the Parking Agreement will be terminated, including the aforementioned duties and obligations. Pursuant to language in the Parking Agreement, the Developer’s obligation to continue use of the Property as a public parking lot and the Agency’s ability to reserve reciprocal easements will run with the land, survive termination of the Parking Agreement, and be included in the Grant Deed to Developer.
Staff communicated this counter offer to Developer and the Developer accepted.
ENVIRONMENTAL FINDINGS
Staff has performed a preliminary environmental assessment of this project and has determined that it falls within the Class 1 Categorical Exemptions as set forth in CEQA Guidelines Section 15301(c) which exempts the repair, maintenance or minor alteration of existing structures or facilities. Furthermore, Staff has determined that none of the exceptions to Categorical Exemptions set forth in the CEQA Guidelines, Section 15300.2 apply to this project.
LOCAL PREFERENCE
Local preference was not considered because this transaction does not include a bid or award of a construction or services contract.
FISCAL IMPACT
Under redevelopment dissolution law, assets are to be sold and the proceeds from the sale of property are to be distributed to local agencies as property taxes. Consequently, the City will receive a proportionate share of the proceeds received by the Successor Agency from the sale of the subject property. These funds will offset the City’s cost of the purchase price.
Attachments:
Purchase, Sale, and Settlement Agreement
Appraisal Summary
Location Map
Disposition and Development Agreement
Covenants for Public Parking, Lease, Operation and Maintenance, and Option to Purchase Agreement