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Current Council Agenda and Past Meeting Information

 

CITY COUNCIL AGENDA ITEM NO. 17

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

RECOMMENDATION
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.

PREVIOUS ACTION

• 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 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 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.

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 and medium industrial employers.

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.

Rank
Business 0-38
Possible Points
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 October 2006.

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 Deposit.

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:

FISCAL IMPACT
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.

Attachments:
1) Map identifying 2010 Elkins Way
2) Sales Strategy Criteria (scoring system)

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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