CITY COUNCIL AGENDA ITEM
Meeting Date: February 13, 2007
Subject/Title: Waive the Good Faith Deposit provision of the Purchase and
Sales Agreement related to the termination of the real estate escrow for
2010 Elkins Way at Sunset Industrial Complex and direct staff on the method
to select new buyer for 2010 Elkins Way
Prepared by: Gina Rozenski, Redevelopment Manager
Submitted by: Howard Sword, Community Development Director
Waive the Good Faith Deposit provision of the Purchase and Sales Agreement
related to the termination of the real estate escrow for 2010 Elkins Way at
Sunset Industrial Complex and direct staff on the method to select new buyer
for 2010 Elkins Way.
• City Council authorized the purchase of approximately 40 acres of property
located at the northeast corner the Tresch and Sunset Roads to master-plan
an expansion of the Sunset Sports Park and to create the Sunset Industrial
• 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
Planned Development 56 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 selected the successful buyers based
on the approved ranking system and approved the 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
within Subareas A and B, and to allow smaller lot sizes in Subarea C, in the
Sunset Industrial Complex.
• On April 13, 2004, the City Council approved the Purchase Agreements for
the first phase of sales.
• 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).
• Since April 2004, fifteen escrows have successfully 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, using
Redevelopment Agency funds, and became the owner.
• On April 25, 2006, the Council approved the sales price, the method to
select the buyer and adopted a sales strategy to sell 2010 Elkins Way,
located in SubArea A.
• On June 20, 2006, the Economic Development/Redevelopment Subcommittee met
to review the purchase proposal rankings, and recommended the Council
approve Kevin Vornhagen as the selected buyer.
• On July 11, 2007, the City Council approved the selection of Kevin
Vornhagen’s purchase proposal for 2010 Elkins Way at Sunset Industrial
Complex based on Council-approved Sales Strategy Ranking.
• On July 25, 2006, the City Council approved the Purchase Agreement and
Grant Deed for the sale of property located at 2010 Elkins Way at Sunset
Industrial Complex and authorized City Manager or her designee to execute
Purchase Agreement and Grant Deed to convey City-owned property.
• In August 2006, Kevin Vornhagen’s purchase for 385 Carrol Court was
canceled, and a new escrow for 2010 Elkins Way was opened. Mr. Vornhagen
deposited $65,340 (10%) into escrow as a good faith deposit.
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 and medium
The qualifications and identities of the buyers are of particular concern to
the City. For that reason, the City adopted a sales strategy ranking system
to fairly and objectively select qualified buyers that meet the economic
development objectives of Sunset Industrial Complex.
In December 2005, the City Council authorized staff to re-purchase 2010
Elkins Way, a 2.0 acre site, from Pottery World (map is attached), using
Redevelopment Agency funds. This escrow closed in March 2006. In April 2006,
the City Council approved the sales price of $7.50/square foot (or $653,400)
for 2010 Elkins Way, approved the method of selecting a buyer, and adopted a
sales strategy to rank the purchase proposals (scoring system is attached).
Staff prepared and mailed 51 sales offerings, and advertised the
availability of the parcel twice in the local newspaper. Three purchase
proposals were received, scored and ranked in accordance with the sales
strategy criteria approved by City Council that considered business
location, type, job generation and economic impacts. The evaluation of the
three proposals is reflected in the following table.
1 Vornhagen Body and Paint 36 points
2 Kendall Auto Repair 33 points
3 RGM & Associates 23 points
The Economic Development/Redevelopment Subcommittee met on June 20 to review
the rankings of the purchase proposals and recommended the selection of
Vornhagen Body & Paint as the successful candidate based on the score of his
proposal. The Council agreed and later approved a purchase agreement with
the condition that Mr. Vornhagen cancel his escrow for 385 Carrol Court and
open a new escrow. Vornhagen’s deposit for 385 Carrol Court was transferred
to the new escrow which was opened in August 2006, and Mr. Vornhagen
deposited enough additional funds to equal $65,340 as a 10% good faith
deposit for 2010 Elkins Way.
The availability of 385 Carrol Court then became another sales opportunity.
In July 2006, the Council approved a sales price for 385 Carrol Court and
agreed to offer the property to the 2nd candidate on the list, Kendall
Automotive. Kendall Automotive accepted the City’s offer. The purchase
agreement with Kendall Automotive was approved by the City Council in
Good Faith Deposit
On January 5, 2007, Mr. Vornhagen advised City staff that he wants to
terminate his escrow for 2010 Elkins Way because of the lack of access from
Sunset Road that would accommodate retail-front businesses and a future
subdivision of the property. Staff reminded Mr. Vornhagen that the
ingress/egress constraints and subdivision rights of the property were fully
disclosed in the proposal package and in the purchase agreement. Mr.
Vornhagen acknowledges the disclosure but, after working through several
building configurations, feels the constraints of the parcel will not work
for a retail and auto body center that he had hoped to build.
As it relates to retaining the good faith deposit when the escrow is
terminated by the Purchaser, the purchase agreement states:
Good Faith Deposit. The Purchaser has, prior to the execution of this
Purchase Agreement by the City, delivered to the City a deposit of cash or
certified check satisfactory to the City in the amount of Sixty Five
Thousand Three Hundred Forty Dollars ($65,340.00) (the “Deposit”) as
security for the performance of the obligations of the Purchaser under the
terms and conditions of this Purchase Agreement. Upon execution of this
Purchase Agreement by Purchaser, the Deposit becomes non-refundable unless
this Purchase Agreement is terminated by the Purchaser as a direct result of
the City’s failure to perform any provision of this Purchase Agreement. The
non-refundability of the Deposit is contingent on a fair market appraisal
sufficient for the Purchaser’s lender.
The City shall be under no obligation to pay or earn interest on the
Purchaser and City agree that City’s economic detriment if Purchaser
defaults hereunder and Purchaser’s default results in the termination of
this Purchase Agreement is impracticable or extremely difficult to
ascertain. Accordingly, Purchaser and City agree that the Deposit is a
reasonable estimate of City’s damages if Purchaser defaults and Purchaser’s
default results in the termination of this Purchase Agreement. Purchaser
agrees to pay such Deposit to City as liquidated damages and not as a
penalty if Purchaser defaults hereunder and Purchaser’s default results in
the termination of this Purchase Agreement. If this Purchase Agreement is
terminated on account of Purchaser’s default, Purchaser and City hereby
instruct and agree that the Deposit, together with all interest accrued
thereon, if any, shall be promptly retained by City.
After termination of the escrow, staff will have the property appraised for
the most recent fair market value before placing it back on the market. Most
likely the parcel will be sold at a sales price more reflective of the 2007
fair market value, probably in the range of $8.50 to $10 per square foot. As
noted in the Good Faith Deposit clause above, the City would retain the
deposit as “liquidated damages not as a penalty”. In this case, it is
unlikely the City will suffer, be harmed or damaged because it presents an
opportunity to sell the parcel for a higher value than the current escrow
amount of $7.50 per square foot. In all likelihood, the City will not lose
money on this transaction.
For the reason stated above, staff recommends the Council waive the Good
Faith Deposit requirement in the Purchase Agreement, and approve the return
of the good faith deposit in the amount of $65,340 to Kevin Vornhagen upon
termination of the escrow for 2010 Elkins Way.
Method to select buyer
There are several methods to select a new buyer to purchase 2010 Elkins Way,
as outlined below.
1. Return to existing list by first offering 2010 Elkins Way to Kendall, the
2nd candidate, with the condition that their original proposal has not
changed, in particular the financial capability and the proposed legal uses.
a. If offer is accepted by 2nd candidate, then cancel escrow at 385 Carrol
Court and offer 385 Carrol Court to 3rd candidate, with the condition that
their proposal has not changed.
b. If offer is not accepted by 2nd candidate, offer 2010 Elkins Way to 3rd
candidate, with the condition that their original proposal has not changed.
c. If 2nd and 3rd candidates are not successful, go to Options 3 or 4 below.
2. Return to existing list and offer 2010 Elkins Way to 3rd candidate, with
the condition that their original proposal has not changed, in particular
the financial capability and the proposed legal uses. If 3rd candidate is
not successful, go to Options 3 or 4 below.
3. Send out a fresh request for proposals to interested parties to purchase
2010 Elkins Way in the same manner as was conducted in summer 2006.
4. Sell the parcel to the highest bidder using no ranking system.
Staff requests the Council provide direction to staff on the method to
select a buyer to purchase 2010 Elkins Way:
The fiscal impact associated with terminating Mr. Vornhagen’s escrow is the
dissolution of his escrow for 2010 Elkins Way in the amount of $653,400.
After termination of the escrow, staff will have the property appraised for
the most recent fair market value. Most likely, the parcel will be sold at a
sales price more reflective of the 2007 fair market value.
If the Council retains the good faith deposit, or a portion thereof, the
City will deposit the defaulted funds into the General Funds of the City.
1) Map identifying 2010 Elkins Way
2) Sales Strategy Criteria (scoring system)
SUNSET INDUSTRIAL COMPLEX
SALES STRATEGY CRITERIA
(38 possible points)
Existing Business Location Priorities (10 Possible Points)
Relocation from Brentwood Redevelopment Agency’s Project Areas. (10
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
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
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