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CITY COUNCIL AGENDA ITEM NO. 23

Meeting Date: April 25, 2006

Subject/Title: Approve the sales price, method to select buyer, and sales strategy criteria for 2010 Elkins Way at Sunset Industrial Complex; direct staff to commence request for proposals to sell 2010 Elkins Way

Prepared by: Gina Rozenski, Redevelopment Manager

Submitted by: Howard Sword, Community Development Director

RECOMMENDATION
Approve the sales price, method to select buyer, and sales strategy criteria for 2010 Elkins Way at Sunset Industrial Complex; direct staff to commence request for proposals to sell 2010 Elkins Way, a 2.0 acre lot on the corner of Sunset Road and Elkins Way.

PREVIOUS ACTIONS

• In 1999, City Council authorized the purchase of approximately 40 acres of property located at the northeast corner the Tresch and Sunset Roads.

• City Council authorized various consultant contracts to master-plan and prepare environmental documents for approximately 132 acres of city owned land northeast of Tresch and Sunset Roads to include a 49.2 acre Wastewater Treatment Plant, 2.7 acre Solid Waste Plant, 37.7 Sports Park, 13.3 acre Corporation Yard and a 28.4 acre Industrial Complex.

• On June 4, 2002, the Planning Commission certified the Environment Impact Report for the Sunset Industrial Complex, and on June 6 the Notice of Determination was filed with the County.

• On July 23, 2002 the City Council adopted Ordinance 710 approving the PD Zoning for Sunset Industrial Complex, and also awarded the construction contract for the Sunset Industrial Complex Improvements Project (CIP No. 336-3128) to Teichert Construction.

• On November 26, 2002 the City Council approved a sales strategy for property located at the Sunset Industrial Complex and adopted criteria for the selection of successful candidates to purchase the subject property.

• On October 28, 2003, the City Council approved the Sunset Industrial Complex sales strategy criteria ranking and preliminary lot layout which included the cul-de-sac site plan.

• On January 27, 2004, the City Council amended Planned Development Zone 56 to allow for an increase in the square footage designated for retail uses directly associated with the primary industrial uses with Subareas A and B, and to allow smaller lot sizes in Subarea C, in the Sunset Industrial Complex.

• On April 2, 2004, the first Final Map for Sunset Industrial Complex, Subdivision 8588, was recorded.

• On April 13, 2004, the City Council approved the Purchase Agreements for the first phase of sales.

• On June 7, 2004, the second Final Map for Sunset Industrial Complex, Subdivision 8842, was recorded.

• From April 2004 to September 2004, twelve escrows closed.

• On September 28, 2004, the City Council approved selection of a purchase proposal for 385 Carrol Court at Sunset Industrial Complex (this lot was available due to its original buyer choosing to drop out).

• On May 12, 2006, the third map for Sunset Industrial Complex, Subdivision MS 360-04, was recorded.

• From October 2004 to current, five escrows closed.

• On December 13, 2005, the City Council authorized staff to exercise the City’s option to repurchase 2010 Elkins Way owned by Pottery World following the expiration of the building permit issuance deadline.

• In March 2006, the City closed escrow for 2010 Elkins Way, and is currently the owner.

BACKGROUND
The Sunset Industrial Complex was an economic development strategy envisioned by the City and Redevelopment Agency to voluntarily relocate members of the redevelopment project areas, our business community and surrounding areas to a more appropriate location zoned for light industrial employers. In 2003, the City Council set a sales price of $5.50 per square foot for all parcels at Sunset Industrial Complex.

The qualifications and identities of the buyers are of particular concern to the City, and it is because of such qualifications and identities that the City entered into the Purchase Agreements with the selected buyers. For that reason, and to encourage timely development while discouraging pure speculation of the properties, the City intentionally added the provision to repurchase the properties should a buyer not perform its obligations outlined by the Purchase Agreement.

In December 2005, the City Council authorized staff to re-purchase 2010 Elkins Way, a 2.0 acre site, from Pottery World for not performing its obligations. The repurchase price was $479,160, the same amount as the original sale. This escrow closed in March 2006.

It is timely for the City Council to now consider the sale of 2010 Elkins Way including 1) the sales price, 2) the method of selecting a buyer, and 3) sales strategy criteria to rank the purchase proposals.

Approval of Sales Price
According to a professional appraisal dated March 2, 2006, the real property valuation of 2010 Elkins Way is $653,400 or $7.50 per square foot. Staff recommends that the City Council sell 2010 Elkins Way for the appraised value of $653,400 for two reasons. The first reason is that the end of 2005 brought several court rulings filed by the State Department of Industrial Relations (DIR) involving government agencies and prevailing wages. The DIR is carefully reviewing cases where government agencies transfer property for less than fair market value to private parties and determined that when this occurs, prevailing wages for on-site improvements are mandated. After diligent judicial process, DIR has received several court rulings in favor of their position that prevailing wages are required. Payment of prevailing wages for on-site construction and improvements will, in all likelihood, make a development financially infeasible, and cause the City’s economic development strategy for Sunset Industrial Complex to collapse. It is recommended that the City avoid a review and legal challenge from the DIR by selling the property for its appraised fair market value. A second reason to sell 2010 Elkins Way at the appraised value is to avoid any appearance of a gift of public funds.

Method of Selecting a Buyer
In 2003, the City Council directed staff to send out requests for proposals to interested parties to purchase property at Sunset Industrial Complex. The first response was overwhelming, and with further subdividing of the parcels at Sunset, all respondents were accommodated, thereby exhausting the list of proposals. When one of the original respondents dropped out, with Council approval, staff sent out a second request for proposal, specifically for the available one acre site at 385 Carrol Court, and specifically for SubArea B of PD 56. In 2004, the Council selected one of the four proposals received.

There are two options available to the Council related to the method to select a buyer for 2010 Elkins Way. The first is to return to the existing list where three candidates remain. However, this 2004 proposal was specifically for a one acre site at 385 Carrol Court, specifically for SubArea B of PD 56, and for a specific sales price of $5.50 per square foot. In contrast, 2010 Elkins Way is two acres, is in SubArea A that allows slightly different uses than SubArea B, and has an appraised value of $7.50 per square foot. Legal challenges can reasonably be expected if the City chooses to use an old list for a newly available parcel that has different parameters, and an argument can be made regarding a perceived unfairness to new interested parties.

To avoid a legal challenge from parties that may have been interested in a parcel in 2004, but elected to not submit a proposal because they needed more than one acre or desired more flexible zoning not allowed in SubArea B, staff recommends a second option: City Council direct staff to advertise the availability of the two acre site at 2010 Elkins Way and send out fresh requests for purchase proposals at the appraised sales price, with intent to rank the proposals for Council selection. This process is similar to the first two offerings prepared by the City for Sunset Industrial Complex.

Sales Strategy Criteria
The qualifications and identities of the buyers at Sunset Industrial Complex remain a particular concern to the City. In November 2002, the City Council approved the 36-maximum-point sales strategy criteria. For both rounds, purchase proposals were evaluated and scored to determine the successful candidates by assigning points based on several factors including existing business location, business type, business operation, job generation and economic impacts.

Since the completion of the first two rounds of purchase proposals, a couple of important events have transpired which results in a valid need to adjust the point system. Specifically, the Downtown Specific Plan was approved in December 2005, and the Brentwood Boulevard Specific Plan is queued for preparation. Relocation of industrial uses from both the Merged Redevelopment Project Areas is now more critical in order to implement the town center and grand boulevard concepts and vision. Voluntary relocation opens future redevelopment opportunities as the City re-invents and invests in the specific plan areas, and industrial uses are prime examples of the type of businesses that the City envisioned for Sunset. Based on this, staff recommends that the sales strategy criteria be amended to increase the relocation from the Merged Redevelopment Project Areas by two (2) points, resulting in a maximum point award of 38, rather than the original 36. The recommended, adjusted sales strategy criteria is attached for Council consideration and approval.

Upon receipt of the purchase proposals, the scoring and ranking will be prepared by Economic Development and Redevelopment staff, and brought to the Economic Development Subcommittee for a recommendation to the Council. This is the same process used in the first two rounds.

Summary
Staff recommends the City Council:
1) Approve the sales price of $7.50 per square foot for 2010 Elkins Way.
2) Approve and direct staff to proceed with a fresh request for purchase proposals to select the buyer of 2010 Elkins Way.
3) Approve the revised sales strategy criteria to evaluate and score the submitted purchase proposals.

FISCAL IMPACT
Setting the sales price for 2010 Elkins Way at the appraised value of $7.50 per square foot will result in a sale of $653,400, less escrow fees. The estimated sales impact is approximately $2.00 per square foot more than the original sales offering in 2003. The rankings will be brought to the Council at a later date to approve the selection of a purchase proposal for 2010 Elkins Way.

Attachments:
1) Map identifying 2010 Elkins Way
2) Revised Sales Strategy Criteria

SUNSET INDUSTRIAL COMPLEX
SALES STRATEGY CRITERIA
(38 possible points)
April 2006

Existing Business Location Priorities (10 Possible Points)

 Relocation from Brentwood Redevelopment Agency’s Project Areas. (10 Points)

 Relocation from the City of Brentwood not within the Redevelopment Agency’s Project Areas (5 Points)

 Relocation of businesses that have moved out of Brentwood within the past four years due to the lack of a suitable building site in the City. (5 Points)

 Relocation from unincorporated areas surrounding the City of Brentwood as defined by the attached map listed as Figure 2 and titled Brentwood Planning Area in the Brentwood General Plan, 2001 – 2021. (3 Points)

 Relocation from Far East Contra Costa County as defined as lands to the south and east of Somersville Road. (1 Point)

Business Types (5 Possible Points)

 Industrial business operations not conducive or desirable in business or high tech parks. (5 Points)

 Business with limited permitted locations in Brentwood. (4 Points)

 Business providing support services not available to local businesses. (3 Points)

Business Operation (8 Possible Points)

 Owner-occupied business that will conduct primary operation from the property. (8 Points)

 Business with long term pre-lease that accomplishes other criteria objectives. (5 Points)

 Business that will conduct satellite operation from the Site. (3 Points)

Employment Impact (5 Possible Points)

 Number of jobs that are reported to the State Franchise Tax Board as located in the City of Brentwood. (0 - 5 Points Possible)

Fiscal Impact (10 Possible Points)

 Sales tax generated by business. (0 - 5 Points Possible)

 Property tax increment generated by improvements to the property. (0 - 5 Points Possible)
 

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