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HomeMy WebLinkAbout60A - PROPERTY DISPOSITION POLICYREQUEST FOR COUNCIL ACTION CITY COUNCIL MEETING DATE: JULY 3, 2018 TITLE: RECEIVE AND FILE THE REAL PROPERTY DISPOSITION POLICY {STRATEGIC PLAN NO. 3,5A) 1 RECOMMENDED ACTION Receive and file the Real Property Disposition Policy. DISCUSSION CLERK OF COUNCIL USE ONLY: APPROVED ❑ As Recommended ❑ As Amended ❑ Ordinance on 1e Reading ❑ Ordinance on 2nd Reading ❑ Implementing Resolution ❑ Set Public Hearing For CONTINUED TO FILE NUMBER Acquired for its municipal operations and various improvement projects, the City is an owner of substantial real property assets and interests. Over time, the need for these assets and interests can change, thereby creating an opportunity for their use for other purposes. By allowing remnant, unneeded, or marginally used City -owned real property assets to be employed for other purposes, the City and its residents can benefit from private improvements which provide property tax revenue and economic development opportunities, support non -City public uses such as schools, or support uses that provide substantial community benefits or opportunities for neighborhood beautification improvements. The purpose of this policy is to establish procedures whereby remnant, unneeded, or marginally used City -owned real property assets and interests are identified and recommended for disposition through sale, lease, easement, license, or agreement for use to public, private, and non-profit organizations, individuals, or other entities for economic development, public use, community use, community benefit uses, community beautification, or assemblage with adjacent real property. The intent of this policy is to provide an orderly, transparent, open, and fair process for public, private and non-profit organizations, individuals, and other entities to acquire remnant, unneeded, or marginally used real property assets and interests from the City while assuring that the City receives the best overall value for the real property interests conveyed. 60A-1 Real Property Disposition Policy July 3, 2018 Page 2 The Policy is comprised of seven (7) sections: • Background: This section includes a guiding policy to optimize sale price or lease rental; and allows for consideration of the value of special benefits. • Designation of Custodian of List of Real Properties Available for Disposition: This section designates the Clerk of the Council to function as the official custodian of the City's real property list that will be available for disposition and subject to this policy. This list will be made available to the public. • Process to Determine Real Property Interests Potentially Available for Disposition: This section establishes a Real Property Disposition Committee (RPDC), comprised of City staff, that will guide the process to review and recommend available City property for inclusion on the disposition list. The properties identified for disposition will need to satisfy several criteria as outlined in pages 2-3 of the Policy. • Classification of Real Property Interests for Disposition: During the process, the RPDC will include its recommendation to City Council a classification of the property into one or more categories (economic development potential; housing developing potential; public use potential for parks, recreation and open space; community use/benefit potential; neighborhood beautification potential; or adjacent owner assemblage). These classifications will inform preparation of disposition solicitations. • Provisions Related to Disposition to Non -Profit and Community Organizations and Entities: This section provides a process for non-profit and community organizations to formally affirm their interest in acquiring or leasing city property for community use, benefit or beautification projects. The purpose of this provision is to assist the City in determining the organizational capacity of these organizations to carry out their desired use of the property. • Requirements/Procedures for Sale of Real Property Assets and Interests: This section provides the disposition procedures and details on any special requirements before disposition such as the use of brokers, appraisal of the property and soliciting community input before the sale of the property. • Leasing of City Real Property: This section provides a process for the leasing of City owned property. The above sections outline the City's process for disposition of city -owned property and establishes the criteria for how the community can be involved in the process. On March 22, 2016, CDA staff met with the Equity for All Coalition, a group of non-profit community organizations, to review and solicit input on the draft disposition policy. On April 18, 2018, CDA staff met again to review the draft disposition policy with Equity for All Coalition and local residents. Upon receiving this input, several modifications were made to the Policy. This administrative policy will be reviewed by staff on an annual basis. 60A-2 Real Property Disposition Policy July 3, 2018 Page 3 STRATEGIC PLAN ALIGNMENT Approval of this item allows the City to meet Goal #3 (Economic Development), Objective 5 (Leverage private investment that results in tax base expansion and job creation citywide), Strategy A (Identify and market underutilized properties {city and non -city owned} for new development that will create new jobs and expand the City's tax base). FISCAL IMPACT There is no fiscal impact associated with this action. i VU, Steven A. Mendoza Executive Director Community Development Agency Exhibit: 1. Draft Real Property Disposition Policy 60A-3 60A-4 City of Santa Ana Administrative Policies and Procedures Executive Director, Community Development Agency Authorization Subject Date Number Anril 2018 REAL PROPERTY DISPOSITION POLICY Purpose The purpose of this policy is to establish procedures City -owned real property assets and interests are idi sale, lease, easement, license, or agreement fo`rus individuals, or other entities for economic develc benefit uses, community beautification, -or assembly ti. Intent The intent of this policy is to provide an orderly, tral and non-profit organizations,— individuals,', and of marginally used real property assets.and interests 1 the best overall value for the real property interests 1. BACKGROUND. Acquired for its municipal operatic substantial 'real _prop0ty;assets anc interests can`change, thereby creat remnant, unneeded, or marginally purposes, the City and its residents, revenue and economic developme support uses that provide substa beautification improvements.,, It is i real property assets and interests of Community Redevelopment Agency vhereby rem rnanf, unneeded, or marginally used itified and recommended for disposition through to public, private, and'non-profit organizations, ment, public use, community use, community ewith adjacent real property"?, pn\and fair process for public, private fo..acquire remnant, unneeded, or while assuring that the City receives 2ment projects, the City is an owner of the need for certain of these assets and ing an^opportunity for their use for other purposes. By allowing used City -owned real property assets to be employed for other can benefit from private improvements which provide property tax nt opportunities, support non -City public uses such as schools, or ntial community benefits or opportunities for neighborhood mportant to note that this Real Property Disposition Policy covers the City of Santa Ana and the Successor Agency to the Santa Ana but does not cover the real property assets and interests of the City of Santa Ana Successor Housing Agency, nor those of the City of Santa Ana held for affordable housing development purposes ("Housing Properties"). Disposition of Housing Properties is instead covered by the Affordable Housing Funds Policies and Procedures, published by the Housing Division of the Community Development Agency of the City, approved by the Santa Ana City Council on March 20, 2018. The City's basic guiding policy is to optimize the sale price or lease rental income from disposition of City -owned real estate assets and interests. Optimized sales price or lease/rental income shall be based EXHIBIT 1 60A-5 upon a current appraisal with a date of valuation not more than one (1) year prior to the date of City Council approval of any agreement to dispose of the real property. Subject to any limitations which may derive from the source of funds used to acquire a property, the following factors potentially influence a disposition decision and will be considered bythe City in addition to the basicguiding policy: 1.) the effect of prevailing economic conditions and market trends on the appraisal conclusion of value, and: 2.) the estimated value of any special benefits that may accrue from a sale, lease, or other agreement for use. •'1 2. DESIGNATION OF CUSTODIAN OF LIST OF REAL PROPERTIES -AVAILABLE FOR DISPOSITION Following adoption of this policy, the Clerk of the Council will function as the official custodian of the L list of City real properties available for disposition and subject,to.this policy and make the list available to the public. As properties are disposed of, or added -.to -the City's real property portfolio, the Clerk will be provided timely updates by the City Agency'disposing of the 'rea�l`pr perty, or adding property to the portfolio. r /' 3. PROCESS TO DETERMINE REAL PROPERTY INTERESTS POTENTIALLY AVAILABLE FOR DISPOSITION Several City Agencies possess expertise related to valuation and disposition of real property. This Disposition Policy establishes a Real Property Disposition Committee (RPDC) chaired by the City Manager (or his or her designee), comprised of •rep resentatives`of the Community Development Agency, Parks, Recreation,and Community Services Agency; -Planning, and Building Agency, and Public Works Agency. The function•of the RPDC is to review and recommend City -owned real property assets and interests for inclusion�on the list of properties available for disposition held by the Clerk of the Council. Recommendations feom the RDPC will be submitted to the City Council for approval. Meetings and deliberations -of -the RPDC will be noticed and conducted publicly. The agenda of the RPDC will allow for public comment. Real properties be made,a3ailable for�disposition subject to the below described review criteria. As part of its charge, the RPDC will review the City s real property inventory to determine which properties are remnant, surplus, unneeded,'or marginally used and therefore potentially available for disposition. A City owned property may be recommended for disposition by the RPDC if: • Disposition is required by the terms of the funding used to acquire the property. • The property is not currently used by a City department or does not support a municipal function. • The property is vacant and has no foreseeable use by the City. • The property is a non-performing or under -performing asset and greater value may be generated by its sale or lease. • Significant economic development opportunities may be generated by selling or leasing the property. • Disposition facilitates acquisition of real property required for a City project, or acquisition of other real property required for a City project. 7 • 1 M • In the opinion of the Executive Director of Parks, Recreation, and Community Services, the property does not provide significant park, recreation, or open space use opportunities, or if it does, no means of financing the development of the real property for park, recreation, or open space use is reasonably foreseeable. • Disposition has potential to support development of affordable housing, parks and open space, community benefit uses, or neighborhood beautification. Nothing in the foregoing shall preclude the ability of the City to dispose of or exchange real property acquired in connection with a specific project if the disposal or exchange facilitates acquisition of another real property or real property interest needed for the same, or a closely related project. Factors to be considered by the RPDC in determining whethi disposition include: • Will the City be relieved of potential liabilities a does not generate income or provide.pUblic�ben • Will new property tax be generated'by.the sale? • Will disposition stimulate the local economy by investment? • Does the property have grnater.,public benefit i • Will sale of the property generate greater econo lease is a feasible option? • ~`� should be recommended for maintaining a property that opportunities for private sector if retained than'if sold or leased? than a ground lease, if a ground 4. CLASSIFICATION OF REAL PROPERTY INTERESTS FOR DISPOSITION-) In addition to reviewing,and recommending City owned real property for disposition, the RPDC will also include in its recommendation to the City Council'a classification of the property into one or more of the following categories`(A thru F): A.) significant-economic'development.potential an example of,significant economic development potential would be a disposition that results in a development providing new employment, municipal income or tax revenue(s). B.) 'significant housing development potential an, example of significant housing development potential would be a disposition that results m a development}which helps the city meet its Regional Housing Needs Assessment (RHNA) targets. C.) significant public use potential, including for parks, recreation, or open space an example of,signifcant public use potential would be a disposition that results in development of usable, publicly accessible parks or open space. D.) significant community use/benefit potential an example of significant community use/benefit potential would be a disposition that results in development of a community garden, farmer's market, or other community uses benefitting residents. E.) significant neighborhood beautification potential an example of significant neighborhood beautification potential would be a disposition that allows a property to be landscaped, resulting in visual enhancement of the location and neighborhood. F.) assemblage potential with adjacent owner 60A-7 an example of assemblage potential with an adjacent owner would be a disposition that conveys an otherwise unusable remnant property for use by an adjacent owner and back on the property tax roll. 5. PROVISIONS RELATED TO DISPOSITIONS TO NON-PROFIT AND COMMUNITY ORGANIZATIONS AND ENTITIES The City values and supports the many community-based non-profit organizations, entities and neighborhood groups that work to make Santa Ana a better place. These groups represent potential City partners for community use, benefit, and beautification projects requiring real property. The purpose of the provisions described in this section is to identify,those organizations, entities, and i groups that may be interested in acquiring or otherwise obtaining use of City real property for community use, benefit, and beautification projects. The City will create and maintain a list of interested organizations through a Solicitation of Interest (SOI) process. The purpose of the SOI application process•is to determine the organizational capacity of applying community-based non-profit organizations ientities, and groups to own, lease, maintain, manage and operate real property for the desired program, project, o'r use. The list will be used to notify organizations, entities, and neighborhood groups of the availability\of City real property approved for disposition that has been designated as having significant communiybenefit/community use potential. The City recognizes that the number of community organizations changes over time so the SOI solicitation will be conducted as an", open recruitment" so that the list of organizations and entities maybe continuously refreshed over,time An application,form will be developed. Information requested may include, but is not limited to the following • Property sought;'for whatpu'rpose, and whetherfor'purchase or lease • Name of organization • Type of organization \ . • Age of.organization • Organizationahfinancial capacity • Experience with controlling and'managing red property • Description of how the organization,will handle property management • Description%of how property will be operated and maintained (Operations and Maintenance Plan) 6. REQUIREMENTS/PROCEDURES FOR SALE OF REAL PROPERTY ASSETS AND INTERESTS • Conformance with Provisions of the Municipal Code: Sections 2-706, 2-706.1, 2-706.2, 2-707, 2-708, 2-709, and 2-710 of the Santa Ana, CA Code of Ordinances govern sale of real property by the City (copy attached). Notably, Section 2-706 provides for sale to the highest bidder unless another method of sale is authorized by the City Council by not less than a 2/3 vote (See Sec. 2-709). Provisions contained in this Real Estate Disposition Policy provide additional guidance in the disposition of real property assets, but in the case of conflict, the Municipal code and its provisions govern. 4 • l m • • Conformance with Provisions of Government Code Sections 54220 thru 54233: California Government Code Sections 54220 thru 54233 requires that a local agency proposing to dispose of surplus property must first notify all governmental agencies operating within the City as to the availability of the property. The agencies are given 60 days to respond with an intent to acquire, if not, the property may be deemed cleared for public sale. (note: Government Code Sections 54220 thru 54233 requirements do not apply to disposition of real property that has not been used by the City and acquired or held for purposes of exchange or sale as a remnant in connection with implementation of a City project). • Community Comment Required Prior to Issuance,of Solicitation: Prior to the City Council approving properties for inclusion `on dhe list of properties available for disposition, or authorizing issuance of solici atio s\for disposition (e.g. Requests for Proposal, listing for sale or lease, etc.);`the,City shall conduct a noticed neighborhood meeting pursuant to Section 2-153; subsections (b) tl ru (g) of the Santa Ana Municipal Code (relevant portions of Ordinance,NS-2838 "Sunshine Ordinance") in orderto obtain neighborhood comment on the proposed disposition and,futurre use(s) of the real property in question."\ r • Special Requirements Rel: as park land often have sp original acquisition or site restricting use to park pu property.' • Appraisal and Authorizatic ,that-a property may be.so o Disposition•ofPark Land: Real property designated restrictions related to the source of funds used for the lopment.Such'restrictions can arise from covenants is and the source of,funds used to acquire the real of sale Jr. price-equal'to or greater than- \,(1) han`(1) year old) appraisal. Council: Upon approval by the City Council Iger is authorized to sell the property for a rice established by a current (less than one • _'M dthod of Sale: Properties•may be sold by any method allowed by the Municipal Code a"cl,this Policy. This includes direct negotiation, request for proposal, listing with a broker, sealed bid, 'auction or other appropriate method as recommended by the City Manager -arid approved by the City Council. As appropriate, disposition agreements shall includ'e.r asonable "clawback" provisions that provide the City the ability to regain ownership of 'a property as one remedy for non-performance by purchaser or lessee under a disposition agreement or lease. • Marketing: Properties offered for sale shall receive the widest possible exposure to the market. This may be accomplished through direct marketing techniques, such as requests for proposals (RFPs), advertising, exposure through the real estate media, posting the property on the multiple listing service or any other appropriate method. • Use of Proceeds: For transactions where the City retains disposition proceeds, the City Manager may recommend use of proceeds; however, the City Council retains approval 5 60A-9 discretion on use. Application of disposition proceeds toward "one time" expenditures, such as deferred maintenance in parks and community centers, and other possible one time uses, should be prioritized. • Use of Real Estate Brokers: Real estate brokers may be used to represent the City in the sale of its properties. Brokers will be selected for individual assignments through Requests for Proposals (RFP) or Requests for Qualifications (RFQ) and a subsequent bid or other methods that result in the City receiving the services of a qualified broker at the best value to the City. If the property is listed with a broker, the City reserves the right to exclude from the listing agreement potential buyers whose interest in purchasing a property has been made a part of.the record prior to the execution of the listing agreement. All brokerage arrangements shall conform to Section 2-707 of the Municipal Code. , Easements: The City will receive current -fair market value f easements or access rights previously -paid for by the City or, or reserved in a sale of City property. I as provided in the Municipal Code rider one of the following conditions: • • Negotiated Sales: Negotia and this Disposition Policy, o When a parcel is la o When the sale to a o When f intere<- sales are maybe a or other required =- --,aftera noticed oubl 7. LEASING OF�CITY REAL PROPERTTY , There may be opportunities for the'Cityto to the City. City property shall be consid apply: the removal of restrictive her governmental agency ous owner would'correct a site deficiency. peline or other right-of-way is no longer required, it s owner. ATestfictive pipeline easement of adequate 1.sements will be reserved from said sale. public and quasi -public agencies submit acquisition :horiied by a two-thirds (2/3) vote of the City Council ng perMunicipal Code Section 2-709. ase rather than sell its real property that results in a benefit -ed for leasing when one or more of the following criteria • The property is`noVrequired for current municipal use, but is to be held for possible future use and can be leasedas an interim measure. • The City requires substantial control over development, use and reuse of the property. • The property has the immediate potential of a high return to the City because of its high demand and type of use, such as commercial and industrial land. • The property can be efficiently utilized by a provider of services needed by the City. • The property can be leased to promote a substantial economic development opportunity. • The property can only be leased because of legal restraints. For example, property acquired with Land and Water Conservation funds or held as dedicated park land. Lessee Selection: Competitive offers for lease of City property shall be solicited in the open market. This may be accomplished through a number of marketing techniques, such as Request for Proposals 60A-10 (RFPs), a marketing subscription system, direct advertising, use of a Multiple Listing Service (MLS), listing with a broker, posting the property and any other appropriate means. In certain limited situations, the City may exclusively consider a single proposal for lease of City property. Potential lessees wishing to exclusively negotiate with the City must submit for City staff review a business case with sufficient justification as to how it is capable of optimizing the use of the property and return to the City, thereby negating the need for a competitive process. This information will be included when the lease transaction is presented for City Council approval. Leasehold proposals shall be evaluated in terms of: • the amount of consideration offered in the form of rent. e • the financial feasibility of the proposal. • the capability, expertise and experience of the potential leasehold development and operation. • if new development is proposed, a developmen plan development team and its qualifications. -. essee with respect to the proposed • the identity of each person or entity thaf, ill,have an interest in the'pr • special public benefits to be derived (if any').X a description of the lease. Rate of Return: The City shall obtain fair market rents for'its leases commensurate with the highest and best use of the property. The fair marke rent shall tie.based on an appraisal that complies with the definition of Market Rent found in the Uniform Standards sof Professional Appraisal Practice (USPAP) published by the Appraisal Foundation. Theappraisal shall be no more than six months old at the time the lease transaction is presented for City Council approval. If the cost of an appraisal is not justified by the anticipated"rents, tl e,city may choose,,an alte ative method to establish rent. City leases shall contain terms and conditions which will'sMain a fair rate of return throughoutthe duration of the lease. i Rental Terms, Rental terms may be negotiated on -the basis of fixed rates (flat rent leases) or percentages of the lessee's, gross income derived from business conducted on the property, with a provision foraminimum rental (percent ge leases). Flat Rate Leases \, • Market Rate Adjustments: 1Fldt rate leases shall provide for upward adjustment of rent at least every ten (10) year's,to current fair market rent. In no event shall the adjusted rent be lower than the rent in existence immediately preceding the adjustment. • Consumer Price Index Adjustments: Flat rate leases shall provide for upward adjustment of rent in the interval term between market rate adjustments by changes in the consumer price index. In no event shall the adjusted rent be lower than the rent in existence immediately preceding the adjustment. The index used for consumer price index adjustments will be the All Urban Consumers index for Los Angeles - Riverside - Orange County, California with a base year of 1982-84. If the U.S. Department of Labor indices are no longer published, another substitute index generally recognized as authoritative will be used. Flat rate leases may include pre- determined periodic increases to rent instead of consumer price index adjustments. These periodic increases would occur at least every five (5) years. 7 60A-11 Percentage Leases: • Minimum Rent: The minimum rent component for a new percentage lease shall be set at no less than eighty percent (80%) of the fair market rent as defined above. In certain cases, a portion of the minimum rent may be abated for new construction or redevelopment on the leasehold. The minimum rent shall be adjusted upward throughout the duration of the lease at intervals of not more than every five (5) years to reflect no less than eighty percent (80%) of the average annual rent actually paid or accrued during the three (3) years preceding the adjustment. In no event shall the adjusted minimum rent be less than the minimum rent in existence immediately preceding the adjustment. • Percentage Rates: Percentage leases shall provide for adjustment of percentages rates every ten (10) years to current fair market rates. For the purposes of determining fair market rent percentage rates, the City shall adopt and publish a schedule of benchmark percentage rates that will be updated to current market rates on a-0 e rio'd i cbasis by appraisal. The appraisal will be guided by prevailing market percentage rates -for similar operations primarily within the Southern California area. Rent Arbitration: Leases shall provide for binding {bitration when the City, and lessee cannot agree on the new rent for a rental period under review. The City and lessee shall each select a professional independent real estate appraiser who n -turn will selecta thirdindependent real estate appraiser to determine the fair market rent. If the two selected appraisers fail to mutually select a third appraiser, then the third appraiser shall be determined in•accorance with'the rules of the American Arbitration Association. The City and lessee shall pay the,cosf . .cost of,its own selected, appraiser and equally share the cost of the third appraiser: Appraisal Assumptions:, City leases shall include a definition of the fair market value to be used to set rent and identify the premise for that value. In establishing the fair market value of leased property, any appraisal shall consider the property s'a.fee simple absolute estate and as vacant and available for lease or•sale-forthe authorized purposes of the lease at the commencement of the rental period under review. Rates established for purposes'of.periodic percentage rental adjustments shall not consider any abatement as may be appropriate in a "new' development of vacant land. It shall also be assumed that all"re�quired regulatory approvals to permit the use authorized in the lease have been obtained. \ Lease Term: i • Short -Term Lease: %,The City Manager shall have the authority, without advertising, notice, or competitive bidding, and'upon such terms as he or she may deem proper, to lease any City property for a term of up to three (3) years (short-term lease). The City Council will be notified of a short-term lease not later than fifteen (15) days following its execution. A short-term lease may not be renewed without approval of the City Council. The City Manager may also execute rental agreements covering month-to-month tenant occupancy of City -owned residential housing. • Long -Term Lease:_A lease in excess of three (3) years requires a resolution passed by a majority vote of all members of the City Council. The length of lease term shall be based on the level of capital improvements to be made by the lessee and the economic life expectancy of the development. These factors can be determined utilizing cost estimating and economic life A' 8 60A-12 expectancy resources such as tables provided by Marshall Valuation Service. The City may consider other relevant information in determining if a longer lease term is warranted, such as if the proposed leasehold development is expected to generate above average returns to the City or significantly improve the quality of the property. Lease Amendments: Amendments to long-term leases require City Council approval. The City's agreement to an amendment may be contingent upon updating sections of the lease to incorporate current City standard lease provisions and an adjustment to fair market rent. Subleases: A lessee may sublease all or part of the leased property, approval by the City. No sublease shall be approved which would, under the master lease or for a use that is not consistent with use: City Manager may authorize subleases which meet the se �cond amendment of the master lease. Unless special circumstances exist, receive a minimum of fifty percent (50%) of the incremental gross from subleases. _ ,' Leasehold Financing. The City will not subordinate its leasehold by a lessee. The City Mani leasehold interest, which provide that property until the leasehold is fully develope appropriate steps to reviewthe proposed finan Maximum loan proceeds sKill`not be in exce "value' refers to the leasehold improvements; to a qualified sub -lessee subject to X e detrimental to the City's rights allowed by the master lease. The itions and which do not require leases shall provide for the City to rental revenues due to the lessee encumbra cn es placed against any approve, appropriate financial encumbrances of the roceeds are used for authorized improvement of the in,accordance with the lease. City staff shall take ig and insure that loan proceeds go into the leasehold. of seventy-five percent (75%) loan -to -value, where s determined by -a, lender's appraisal which has been reviewed and approved by City staff: The loan term shall not exceed the term of the lease. Loans or refinancing in the form of encumbra nces'against the lease for the purpose of reducing equity or financing the -sale of leasehoId. interes_t Will not be allowed until the property is fully developed for uses authorized in -the lease. After the property is•developed, such financing may be permitted so long as there js also substantial benefit to,be gained..'by the City. This may take the form of either a percentage share of the loan proceeds o'ban upward adjustment to the rent, either of which shall be based on commercially reasonable comparables found in the market. Leasehold Improvements: Leasehold improvements installed by lessees shall be removed at the lease termination without cosVto the, 'City, or will revert to the City, at the City's option. All leasehold improvements and alterations require prior written approval of the City Manager. Maintenance and Utilities Responsibility: City leases shall require the lessee to maintain all improvements on the property at its own expense and be responsible for the cost of all utilities. Leases for multi -tenanted space shall include specific requirements delineating appropriate responsibilities. Lease Audits: All percentage leases shall be subject to audit in the first year of operation to establish proper reporting procedures and at least once every three (3) years thereafter. More frequent audits may be made if appropriate. The City shall reserve the right to audit all other leases and agreements subject to this Policy. 60A-13 Leasehold Assignments: Requests for assignment of leasehold interest shall be evaluated on the same basis as the criteria used in evaluating a leasehold proposal. The City Manager may authorize assignments which do not require amendment of the master lease. Consent may be contingent on the payment of additional consideration to the City, either as a percentage share of the purchase price of the leasehold interest or an upward adjustment to the rent. Either of which shall be based on commercially reasonable comparables found in the market. If new financing is involved in the sale, the requirements of'Leasehold Financing' shall apply. Lease Extensions & Renewals: Requests from existing lessees for lease extensions or renewals may be considered if such proposals promote capital investment and,.redevelopment of City property. Whenever an existing lessee is seeking renewal of an expiring•I'ong=term lease, the City Manager will bring the issue before the applicable City Council Committee'with an appropriate recommendation. In addition to the criteria used to assess new lease proposals` City`staff•also will review the lessee's history with respect to: maintenance of the property; compliance with•.existing lease terms; prompt rent payments; and a rental return consistent with maximizing the property's full potential. The lessee must propose capital investment that: will increase tFie value or the useful life of the leasehold improvements by an amount more than can be reasonably amortized over the.remaining lease term; is not recurring in nature; and is at least ten percent\(10%)'orjmore of the. Value of the existing improvements. It specifically should, exclude expenditure"s to correct deferred Maintenance and expenditures for repairs to keep theexisting improvements in good condition. The length of any extended lease term shall be calculated'by the same method used for calculating the length of new leases. City's Interest in Leasehold Improvements: City lease agreem nts.provide the City the right to assume ownership of the leasehold,improvements at 6e end`of the lease The value of the City's interest in the leasehold improvements can be appraised usingwidelyaccepted appraisal methods. In the event the City grants.a-lessee a lease extension the City shall be compensated by an amount equal to the change in present value attributable.to the•deferral of its)interest in the leasehold improvements. This amount either can be paid.as`an upfront payment at the beginning of the extended term or amortized over time with appropriate interest applied. The City shall offset from the value of its interest in the leasehold improvements any increased economic benefit derived from an extended lease. The City shall not receive any compensation for its interest in the leasehold improvements on leases extended prior to the last twenty percent (20%) of the existing term. Security Deposits: The stariclar`d security deposit for a new lease agreement shall be equivalent to three (3) month's rent. The security deposit may take the form of cash, an instrument of credit or a faithful performance bond. For a lessee making a substantial investment in improvements, the security deposit will be refunded upon completion of the improvements. Transaction Processing Fees: The City may charge a transaction processing fee in accordance with the schedule of adopted fees. The fee may be waived for transactions that provide benefit to the City. Nothing in this section shall preclude the City from negotiating terms or conditions that may vary from these requirements should that be necessary or required under the particular circumstances of the proposed lease transaction. 10 60A-14 Attachment A— Municipal Code on Sale of Real Property Sec. 2-706. - Sale of real property—Procedure. After authorization by the council of the sale of a parcel of real property, a sale shall be scheduled and conducted by the director of public works or by his designated deputy. All sales shall be made to the highest bidder subject to final confirmation by the council. Notice that such sale is to be conducted shall be given by publication at least once in a newspaper of general circulation printed, published, and circulated in the city and by sending written notice to all persons who had requested notice and to all persons suggested by department heads as prospective bidders, such notice to be published and mailed`at least ten (10) days prior to the date of sale. .1` / Sealed bids may be required or oral bids may to purchase must be accompanied by a depos minimum bid in the form of cash, or by cashier's after any sealed bids are opened and any written t submit an oral bid provided that any bid may be 6, bid theretofore made by at least one (1) percent,c The successful bidder must deliver immediately statement of his bid signed by the bidder; togetl the amount of his bid. The deposit maybe in the is replaced before the close of business on the: or certified check. Failure -to deposit such�writte the bid price in the mariner stated may beacon check is not replaced'as,re'quired, a,forfeit of oni written statement of the bid, shall be required offered to the second highest bidderlof record. provided for. Sealed bids or written offers �f,.one'(1)`ppercent of the amount of the certified check. If oral bids are permitted, s are annou`nced;,any person present may garded which doe's`not exceed the highest such highest bid. form of ig the declaration�of sale, a written initial deposit of ten (10) percent of ersonal check provided such check ng business day by cash or by cashier's ement'of bid or said ten (10) percent of d, a�withdrawal of the bid. If a personal arcent of the sales price, as stated in the purchase of the property may then be (Code 1952; § 613 OrdNo. NS -1281 § 11 8=15-55; Oid?No. NS -1265, § 1, 8-4-75) J Sec. 2-706.1. `Same—Sale only to owners`of adjoining property. Upon the written recommendation of the city manager, the council may determine that the property being offered for sale can have real value only to a certain owner or owners of adjoining property and`bould be used by other persons only for the purpose of nuisance value to such owners of adjoining or abutting property. After such determination has been made as next hereinabove provided.for the council may by direct negotiation, provide for the sale of the real property covered thereUy, without compliance with the auction, public sale, or method of payment requirements in this article provided for. (Ord. No. NS -1265, § 2, 8-4-75) 11 60A-15 Sec. 2-706.2. - Same—Method of payment. Sales of real property shall be on an all cash basis with the following exception: Upon written recommendation of the city manager and approval by the council, a parcel of surplus real property may be sold on such credit terms as are deemed to be necessary in each case. After the required down payment has been made, the balance of the purchase price shall be secured by a note and deed of trust. The credit payment period shall not exceed fifteen (15) years from the date of execution of the trust deed. Interest shall be at the prevailing rate in the community allowed by the Federal Housing Administration (FHA) as of the date of the public sale, but shall not include any FHA mortgage insurance premium. (Ord. No. NS -1265, § 2, 8-4-75) Sec. 2-707. - Same—Broker listing; maximum commission; nonliability of city agent. The city council, when it determines that any real property owned by the city be disposed of, may authorize the director of public works,fo execute a written fisting contract to find bidders with a licensed real estate agent or broker, and,may specify that said property be placed in multiple listing. Said listing contract shall specify the maximum commission to be paid if the property is sold, which said commission shall in no case exceed six (6) percent of the sale price on property improved with a habitable building and shall in no case exceed ten (10) percent on unimproved property. No personal liability -shall attach to any agent of the city who signs any such contract on behalf of the city. (Code 1952, § 2615; Ord: ,No.' (Code § 1, 623-57; Ord. No. NS -1082,-§ 1, 6-21-71; Ord. No. NS - 1265, § 11, 8-4-75)x) Sec. 2-708. -Same—Paymentof commission;division of commission. In the event ari'agent covered by the contract, as out in section 2-707, procures a bidder who submits the highest,biid\and to whom the,sal'e is made and completed in due course, the commission provided in said contract shall be paid to said agent. In event an agent covered by the contract submits the highest written bid which conforms in all respects to the city's invitation to bid and the provisions of section 2-706; and an oral bid conforming to said requirements is made by a different, bidder and results in the sale being made and completed to said different oral bidder, then one-half(Y2) of the commission originally fixed shall be paid to the listing agent who procured the origiiinal`highest written conforming bid. If the successful oral bidder was procured and is represented by a licensed real estate agent or broker and the sale is made and completed, then the other one-half (%) of said commission shall be paid to such agent or broker. In cases where no listing contract exists and the successful bidder is represented by a licensed real estate broker, upon approval by the council, a full commission will be paid to such broker under the following conditions: (1) The buyer's written or oral bid must be submitted by the broker, (2) The broker must be designated as such in the buyer's purchase offer or in the written statement of his bid, and 12 ZI •. (3) The sale to the buyer must be consummated. (Code 1952, § 2616; Ord. No. NS -256, § 1, 6-3-57; Ord. No. NS -1265, § 5, 8-4-75) Sec. 2-709. - Exceptions. The provisions in this article regulating the sale of surplus city personal property or the sale of city real property shall not apply to any sale of such property made to any city, county, city and county, state or federal government, or any political subdivision of any of them, or to any nonprofit public benefit corporation formed or controlled by the city, or to any sale which is exempted from such provisions by two-thirds ( 2/3 ) vote of,tfie,city council after a duly noticed public hearing, and such sales may be made upon a basis of direct negotiations without the necessity for public auction or competitive bidding, when the.authority to so negotiate has been granted by the city council. (Code 1952, § 2614; Ord. No. NS -128, § 2, 8-15-55`,' Ord. No. NS -1006, §,27, 4-6-85) Sec. 2-710. - Exchange of real property. Upon written recommendation of the city manager; the council may authorize the exchange of any parcel of city -owned real propegf 'which has been/declared to be surplus to the city's needs for any other real property, whether -publicly or privately owned, for which the city has a public need. Upon such authorization,tan exchange maybe concluded by direct negotiation without compliance with the -auction orpublic sale requirements in this article provided for. (Ord. No. NS -1265, § 6,�8-4 75) 13 60A-17 o. 1 CORRESPONDENCE 60A-20 Orozco, Norma From: Huizar, Maria Sent: Thursday, June 28, 2018 9:02 AM To: Orozco, Norma Cc: Rojano, Michael Subject: Fwd: Real Property Disposition Policy Attachments: Real Property Disposition Policy (DRAFT- E4A Edits) .pdf,, ATT00001.htm. Please add as communication to agenda packet. Thank you. Sent from my iPhone Begin forwarded message: From: "Mendoza, Steven" <SMendoza(a),,santa-ana.org> Date: June 28, 2018 at 9:40:19 AM CDT To: "Huizar, Maria" <MHuizarna,santa-ana.org> Cc: "Sweiss, Fuad" <fsweiss(a,santa-ana.org>, "Morley, Marc" <MMorleyC santa-ana.org>, "Gabriel, Jason" <JGabrielAsanta-ana.org>, "Galvez, William E." <wegalvez(a,santa-ana.org> Subject: FW: Real Property Disposition Policy Good Morning Maria, I received the following email and attachment regarding next week's agenda item for the Real Property Disposition Policy. Sincerely, Steven From: Karen Romero Estrada Sent: Wednesday, June 27, 2018 7:53 PM To: Mendoza, Steven <SMendoza@santa-ana.org> Cc: Ana Urzua (SABHC) Subject: Re: Real Property Disposition Policy Good evening Steven, I hope this email finds you well. I have attached the Real Property Disposition Policy ("Policy") with edits from the Equity for All Coalition ("Coalition"), which are indicated in blue. The Coalition is a partnership of Santa Ana residents and community organizations working to ensure equitable planning and development. On October 6, 2016, the Coalition came before the Economic Development, Infrastructure, Budget and Technology Committee to express concerns regarding the sale of over 90 public parcels of land to the private market. Since then, we have worked with the City Council, City staff, and community members to identify community needs and help develop policies that prioritize community benefits in the development of city -owned land. Additionally, the coalition has been in communication with city staff and council members since March 22, 2018, when the Policy was first introduced at the Economic Development Infrastructure, Budget and Technology Committee, and we have presented the edits to council 60A-21 members since. We respectfully request our edits to be taken into consideration and incorporated into the policy. Thank you, Karen Karen Romero Estrada Research and Policy Analyst Orange County Communities Organized for Responsible Development Facebook I Twitter I YouTube 60A-22 City of Santa Ana Administrative Policies and Procedures Executive Director, Community Development Agency Authorization Subject j Date I Number I April 2018 REAL PROPERTY DISPOSITION POLICY Purpose The purpose of this policy is to establish procedures whereby remnant, unneeded, or marginally used City- owned real property assets and interests are identified and recommended for disposition through sale, lease, easement, license, or agreement for use to public, private, and non-profit organizations, individuals, or other entities for economic development, public use, community use, community benefit uses, community beautification, or assemblage with adjacent real property. Intent The intent of this policy is to provide an orderly, transparent, open, and fair process for public, private and non-profit organizations, individuals, and other entities to acquire remnant, unneeded, or marginally used real property assets and interests from the City while assuring that the City prioritizes community benefits for its residents and receives the best overall value for the real property interests conveyed. IMIMA[yC(e13e11P►G] Acquired for its municipal operations and various improvement projects, the City is an owner of substantial real property assets and interests. Over time, the need for certain of these assets and interests can change, thereby creating an opportunity for their use for other purposes. By allowing remnant, unneeded, or marginally used City -owned real property 60A-23 assets to be employed for other purposes, the City and its residents can benefit from private and public improvements which provide property tax revenue and economic development opportunities, support non -City public uses such as schools, or support uses that provide substantial community benefits, and positively impact the health, wellbeing, and livelihoods of City residents, or opportunities for neighborhood beautification improvements. It is important to note that this Real Property Disposition Policy covers real property assets and interests of the City of Santa Ana and the Successor Agency to the Santa Ana Community Redevelopment Agency, but does not cover the real property assets and interests of the City of Santa Ana Successor Housing Agency, nor those of the City of Santa Ana held for affordable housing development purposes ("Housing Properties"). Disposition of Housing Properties is instead covered by the Affordable Housing Funds Policies and Procedures, published by the Housing Division of the Community Development Agency of the City, approved by the Santa Ana City Council on March 20, 2018. The City's basic guiding policy is twofold: First, it is to optimize the sale price or lease rental income from disposition of City -owned real estate assets and interests. Optimized sales price or lease/rental income shall be based upon a current appraisal with a date of valuation not more than one (1) year prior to the date of City Council approval of any agreement to dispose of the real property. Subject to any limitationswhich may derive from the source of funds used to acquire a property, the following factors potentially influence a disposition decision and will be considered by the City in addition to the basic guiding policy: 1.) the effect of prevailing economic conditions and market trends on the appraisal conclusion of value, and: 2.) the estimated value of any special benefits that may accrue from a sale, lease, or other agreement for use. Second, the City recognizes that it plays an important role in stewarding publicly -owned real estate assets and interests in a way that serves the City's Vulnerable Residents, meaning those who are at -risk of or experiencing homelessness, displacement, unemployment or underemployment, low-wage jobs, poor health, and harmful environmental impacts. The City shall prioritize land disposition or leasing that provides substantial Community Benefits to City residents, especially its Vulnerable Residents. Community Benefits means the following: 1.) Affordable housing, with a focus on community -controlled, permanently affordable housing, for example a community land trust, 2.) Affordable, healthy food retail, 3.) Community health clinics, 4.) Renewable energy infrastructure, 5.) Public transportation, 6.) Green space, parks, and recreation centers, 7.) Affordable childcare, and 8.) Youth and senior facilities and services, and 60A-24 9.) Community agriculture 10.) Development of land by Community Land Trust. The City aims to achieve these outcomes first and foremost with local organizations that serve the City's Vulnerable Residents. 2. DESIGNATION OF CUSTODIAN OF LIST OF REAL PROPERTIES AVAILABLE FOR DISPOSITION Following adoption of this policy, the Clerk of the Council will function as the official custodian of the list of City real properties available for disposition and subject to this policy and make the list available to the public. As properties are disposed of, or added to the City's real property portfolio, the Clerk will be provided timely updates by the City Agency disposing of the real property, or adding property to the portfolio. 3. PROCESS TO DETERMINE REAL PROPERTY INTERESTS POTENTIALLY AVAILABLE FOR DISPOSITION Several City Agencies possess expertise related to valuation and disposition of real property. This Disposition Policy establishes a Real Property Disposition Committee (RPDC) chaired by the City Manager (or his or her designee), comprised of not more than two representative of each of the following agencies: the Community Development Agency, Parks, Recreation and Community Services Agency, Planning and Building Agency, Public Works Agency, and six members of the public who will serve as Community Representatives and are appointed by the City Council to serve for two- year terms. Community Representatives are individuals and representatives of nonprofit organizations that work with the City's Vulnerable Residents, which include the following: The Kennedy Commission Latino Health Access Orange County Communities Organized for Responsible Development (OCCORD) EI Centro Cultural de Mexico KidWorks Habitat for Humanity Illumination Foundation The function of the RPDC is to review and recommend City -owned real property assets and interests for inclusion on the list of properties available for disposition, including sale or lease, held by the Clerk of the Council. Recommendations from the RDPC will be submitted to the City Council for approval. Meetings and deliberations of the RPDC will be noticed and conducted publicly. The agenda of the RPDC will allow for public comment. The RPDC will not submit a recommendation to the City Council without the approval of at least two thirds of the members of the entire RPDC. Real properties may be made available for disposition subject to the below described review criteria. As part of its charge, the RPDC will review the City's real property inventory to 60A-25 determine which properties are remnant, surplus, unneeded, or marginally used and therefore potentially available for disposition. A City owned property may be recommended for disposition by the RPDC if: Disposition is required by the terms of the funding used to acquire the property. • The property is not currently used by a City department or does not support a municipal function. • The property is vacant and has no foreseeable use by the City. • The property is a non-performing or under -performing asset and greater value may be generated by its sale or lease. • Significant economic development opportunities may be generated by selling or leasing the property. • Disposition facilitates acquisition of real property required for a City project, or acquisition of other real property required for a City project. • In the opinion of the Executive Director of Parks, Recreation, and Community Services, the property does not provide significant park, recreation, or open space use opportunities, or if it does, no means of financing the development of the real property for park, recreation, or open space use is reasonably foreseeable. • Disposition has potential to support development of affordable housing, parks and open space, community benefit uses, or neighborhood beautification. Nothing in the foregoing shall preclude the ability of the City to dispose of or exchange real property acquired in connection with a specific project if the disposal or exchange facilitates acquisition of another real property or real property interest needed for the same, or a closely related project. Factors to be considered by the RPDC in determining whether a property should be recommended for disposition include: • Will the City be relieved of potential liabilities and/or cost of maintaining a property that does not generate income or provide public benefit? • Will new property tax be generated by the sale? • Will disposition stimulate the local economy by providing opportunities for private sector investment? • Does the property have greater public benefit potential if retained than if sold or leased? • Will sale of the property generate greater economic value than a ground lease, if a ground lease is a feasible option? 4. CLASSIFICATION OF REAL PROPERTY INTERESTS FOR DISPOSITION In addition to reviewing and recommending City -owned real property for disposition, the RPDC will also include in its recommendation to the City Council a classification of the property into one or more of the following categories (A thru F): A.) significant economic development potential an example of significant economic development potential would be a disposition that results in a development providing new employment, municipal income or tax revenue(s). B.) significant housing development potential an example of significant housing development potential would be a disposition that results in a development which helps the city meet its Regional Housing Needs Assessment (RHNA) targets. C.) significant public use potential, including for parks, recreation, or open space an example of significant public use potential would be a disposition that results in development of usable, publicly accessible parks or open space. D.) significant community use/benefit potential an example of significant community use/benefit potential would be a disposition that results in development of a community garden, farmer's market, or other community uses benefitting residents. Community Benefits may be achieved through developing or increasing access to the following: 1.) Affordable housing, with a focus on community -controlled, permanently affordable housing, for example a community land trust, 2.) Affordable, healthy food retail, 3.) Community health clinics, 4.) Renewable energy infrastructure, 60A-27 5.) Public transportation, 6.) Green space, parks, and recreation centers, 7.) Affordable childcare, 8.) Youth and senior facilities and services, and 9.) Community agriculture 10.) Development of land by Community Land Trust. E.) significant neighborhood beautification potential an example of significant neighborhood beautification potential would be a disposition that allows a property to be landscaped, resulting in visual enhancement of the location and neighborhood. F.) assemblage potential with adjacent owner an example of assemblage potential with an adjacent owner would be a disposition that conveys an otherwise unusable remnant property for use by an adjacent owner and back on the property tax roll. No fewer than 75 percent of parcels classified in each calendar year shall be classified as having significant community use/benefit potential (D). At least 50 percent of the parcels classified as having significant community use/benefit potential in category (D) should be developed for these purposes. 5. PROVISIONS RELATED TO DISPOSITIONS TO NON-PROFIT AND COMMUNITY ORGANIZATIONS AND ENTITIES The City values and supports the many community-based non-profit organizations, entities and neighborhood groups that work to make Santa Ana a better place. These groups represent potential City partners for community use, benefit, and beautification projects requiring real property. The purpose of the provisions described in this section is to identify those organizations, entities, and groups that may be interested in acquiring or otherwise obtaining use of City real property for community use, benefit, and beautification projects. The City will create and maintain a list of interested organizations through a Solicitation of Interest (SOI) process. The purpose of the SOI application process is to determine the organizational capacity of applying community-based non-profit organizations, entities, and groups to own, lease, maintain, manage and operate real property for the desired program, project, or use. The list will be used to notify organizations, entities, and neighborhood groups of the availability of City real property approved for disposition that has been designated as having significant community benefit/community use potential. Any organization in the SOI process must demonstrate commitment to the provision of community benefits including affordable housing, open public space, public education, community health, youth services, supportive social services, community agriculture, public transportation, renewable energy infrastructure, community-based cooperative enterprise. The City must send a written offer to sell or lease the property to notify organizations, entities, and neighborhood groups, including nonprofit housing development entities and community land trusts, at least 60 days before notifying the public. The City recognizes that the number of community organizations changes over time so the SOI solicitation will be conducted as an 'open recruitment' so that the list of organizations and entities may be continuously refreshed over time. An application form will be developed. Information requested may include, but is not limited to the following: • Property sought, for what purpose, including the community use and benefit, and whether for purchase or lease • Name of organization • Type of organization • Age of organization • Description of commitment to the provision of community benefit(s) • Organizational financial capacity • Experience with controlling and managing real property • Description of how the organization will handle property management • Description of how property will be operated and maintained (Operations and Maintenance Plan) 6. REQUIREMENTS/PROCEDURES FOR SALE OF REAL PROPERTY ASSETS AND INTERESTS Conformance with Provisions of the Municipal Code: Sections 2-706, 2- 706.1, 2-706.2, 2-707, 2-708, 2-709, and 2-710 of the Santa Ana, CA Code of Ordinances govern sale of real property by the City (copy attached). Notably, Section 2-706 provides for sale to the highest bidder unless another method of sale is authorized by the City Council by not less than a 2/3 vote (See Sec. 2- 709). Provisions contained in this Real Estate Disposition Policy provide additional guidance in the disposition of real property assets, but in the case of conflict, the Municipal code and its provisions govern. 60A-29 • Conformance with Provisions of Government Code Sections 54220 thru 54233: California Government Code Sections 54220 thru 54233 requires that a local agency proposing to dispose of surplus property must first notify all governmental agencies operating within the City as to the availability of the property. The agencies are given 60 days to respond with an intent to acquire, if not, the property may be deemed cleared for public sale. (note: Government Code Sections 54220 thru 54233 requirements do not apply to disposition of real property that has not been used by the City and acquired or held for purposes of exchange or sale as a remnant in connection with implementation of a City project). Community Comment Required Prior to Issuance of Solicitation: Prior to the City Council approving properties for inclusion on the list of properties available for disposition, or authorizing issuance of solicitations for disposition (e.g. Requests for Proposal, listing for sale or lease, etc.), the City shall conduct a noticed neighborhood meeting pursuant to Section 2-153, subsections (b) through (h) of the Santa Ana Municipal Code (relevant portions of Ordinance NS -2838 "Sunshine Ordinance") in order to obtain neighborhood comment on the proposed disposition and future use(s) of the real property in question. • Special Requirements Related to Disposition of Park Land: Real property designated as park land often have special restrictions related to the source of funds used for the original acquisition or site development. Such restrictions can arise from covenants restricting use to park purposes and the source of funds used to acquire the real property. • Appraisal and Authorization of sale by City Council: Upon approval by the City Council that a property may be sold, the City Manager is authorized to sell the property for a price equal to or greater than a minimum price established by a current (less than one (1) year old) appraisal. • Method of Sale: Properties may be sold by any method allowed by the Municipal Code and this Policy. This includes direct negotiation, request for proposal, listing with a broker, sealed bid, auction or other appropriate method as recommended by the City Manager and approved by the City Council. As appropriate, disposition agreements shall include reasonable "clawback" provisions that provide the City the ability to regain ownership of a property as one remedy for non-performance by purchaser or lessee under a disposition agreement or lease. Marketing: Properties offered for sale shall receive the widest possible exposure to the market. This may be accomplished through direct marketing techniques, such as requests for proposals (RFPs), advertising, exposure through the real estate media, posting the property on the multiple listing service or any other appropriate method. 60A-30 • Use of Proceeds: For transactions where the City retains disposition proceeds, the City Manager may recommend use of proceeds; however, except as set forth herein, the City Council retains approval discretion on use. Application of disposition proceeds toward "one time" expenditures, such as deferred maintenance in parks and community centers, and other possible one time uses, should be prioritized. Beginning in 2019, 30 percent of all disposition proceeds shall be designated to [the creation of a new fund (Community Fund) to be administered by the Community Economic Development Agency, with the purpose of providing affordable housing for low, very low, and extremely low-income persons, expanding resident -owned micro -business enterprises, open recreational spaces.] These proceeds shall be used to develop projects that deliver Community Benefits for the City's Vulnerable Residents, meaning those who are at -risk of or experiencing homelessness, displacement, unemployment or underemployment, low- wage jobs, poor health, and harmful environmental impacts. Upon approval of the Policy and before 2019, City staff will follow up to create this community fund, in conjunction with Equity for All coalition. Fifteen percent of the Community Fund funding will be allocated towards the Universal Representation fund for legal defense (ordinance NS- XXX). • Use of Real Estate Brokers: Real estate brokers may be used to represent the City in the sale of its properties. Brokers will be selected for individual assignments through Requests for Proposals (RFP) or Requests for Qualifications (RFQ) and a subsequent bid or other methods that result in the City receiving the services of a qualified broker at the best value to the City. If the property is listed with a broker, the City reserves the right to exclude from the listing agreement potential buyers whose interest in purchasing a property has been made a part of the record prior to the execution of the listing agreement. All brokerage arrangements shall conform to Section 2-707 of the Municipal Code. • Easements: The City will receive current fair market value for the removal of restrictive easements or access rights previously paid for by the City or other governmental agency or reserved in a sale of City property. • Negotiated Sales: Negotiated sales are permitted as provided in the Municipal Code and this Disposition Policy, and may be approved under one of the following conditions: o When a parcel is landlocked. o When the sale to a contiguous owner would correct a site deficiency. o When a fee interest in a pipeline or other right-of-way is no longer required, it may be sold to a contiguous owner. A restrictive pipeline easement of adequate width or other required easements will be reserved from said sale. o When other governmental, public and quasi -public agencies submit acquisition proposals, or any sale is authorized by a two-thirds (2/3) vote of the City Council after a noticed public hearing per Municipal Code Section 2-709. 7. LEASING OF CITY REAL PROPERTY 60A-31 There may be opportunities for the City to lease rather than sell its real property that results in a benefit to the City and its residents. City property shall be considered for leasing when one or more of the following criteria apply: • The property is not required for current municipal use, but is to be held for possible future use and can be leased as an interim measure. • The City requires substantial control over development, use and reuse of the property. • The property has the immediate potential of a high return to the City because of its high demand and type of use, such as commercial and industrial land. • The property can be efficiently utilized by a provider of services needed by the City. The property can be leased to promote a substantial economic development opportunity or enable the provision or community benefit. • The property can only be leased because of legal restraints. For example, property acquired with Land and Water Conservation funds or held as dedicated park land. • The property can provide a substantial community use or benefit to City residents. Process to Determine Community Use/Benefit Classification of City -Owned Property Available for Lease: Upon ratification of this policy, on the first of every month, the City Manager shall provide the RPDC with a list of City -owned properties that are being considered for leasing. The RPDC shall review and recommend the City -owned properties that are classified as having significant community use or benefit potential. No fewer than 75 percent of properties reviewed by the RPDC in each calendar year shall be classified as having significant community use/benefit potential. Lessee Selection: For City -owned properties classified by the RPDC as having significant community use or benefit potential, the City shall first provide written notice of lease availability of these properties to nonprofit community organizations and entities described in Section 5, at least 60 days before notifying the public. After 60 days, competitive offers for lease of City property shall be solicited in the open market. This may be accomplished through a number of marketing techniques, such as Request for Proposals (RFPs), a marketing subscription system, direct advertising, use of a Multiple Listing Service (MLS), listing with a broker, posting the property and any other appropriate means. In certain limited situations, the City may exclusively consider a single proposal for lease of City property. Potential lessees wishing to exclusively negotiate with the City must submit for City staff review a business case with sufficient justification as to how it is capable of optimizing the use of the property and return to the City, thereby negating the need for a 60A-32 competitive process. This information will be included when the lease transaction is presented for City Council approval. Leasehold proposals shall be evaluated in terms of: • the amount of consideration offered in the form of rent. • the financial feasibility of the proposal. • the capability, expertise and experience of the potential lessee with respect to the proposed leasehold development and operation. • if new development is proposed, a development plan that includes a description of the development team and its qualifications. • the identity of each person or entity that will have an interest in the proposed lease. • community use and public benefits to be derived (if any). Rate of Return: The City shall obtain fair market rents for its leases commensurate with the highest and best use of the property. The fair market rent shall be based on an appraisal that complies with the definition of Market Rent found in the Uniform Standards of Professional Appraisal Practice (USPAP) published by the Appraisal Foundation. The appraisal shall be no more than six months old at the time the lease transaction is presented for City Council approval. If the cost of an appraisal is not justified by the anticipated rents, the City may choose an alternative method to establish rent. City leases shall contain terms and conditions which will sustain a fair rate of return throughout the duration of the lease. Rental Terms: Rental terms may be negotiated on the basis of fixed rates (flat rent leases) or percentages of the lessee's gross income derived from business conducted on the property, with a provision for a minimum rental (percentage leases). Flat Rate Leases: • Market Rate Adjustments: Flat rate leases shall provide for upward adjustment of rent at least every ten (10) years to current fair market rent. In no event shall the adjusted rent be lower than the rent in existence immediately preceding the adjustment. • Consumer Price Index Adjustments: Flat rate leases shall provide for upward adjustment of rent in the interval term between market rate adjustments by changes in the consumer price index. In no event shall the adjusted rent be lower than the rent in existence immediately preceding the adjustment. The index used for consumer price index adjustments will be the All Urban Consumers index for Los Angeles - Riverside - Orange County, California with a base year of 1982-84. If the U.S. Department of 60A-33 Labor indices are no longer published, another substitute index generally recognized as authoritative will be used. Flat rate leases may include pre -determined periodic increases to rent instead of consumer price index adjustments. These periodic increases would occur at least every five (5) years. Percentage Leases: Minimum Rent: The minimum rent component for a new percentage lease shall be set at no less than eighty percent (80%) of the fair market rent as defined above. In certain cases, a portion of the minimum rent may be abated for new construction or redevelopment on the leasehold. The minimum rent shall be adjusted upward throughout the duration of the lease at intervals of not more than every five (5) years to reflect no less than eighty percent (80%) of the average annual rent actually paid or accrued during the three (3) years preceding the adjustment. In no event shall the adjusted minimum rent be less than the minimum rent in existence immediately preceding the adjustment. • Percentage Rates: Percentage leases shall provide for adjustment of percentages rates every ten (10) years to current fair market rates. For the purposes of determining fair market rent percentage rates, the City shall adopt and publish a schedule of benchmark percentage rates that will be updated to current market rates on a periodic basis by appraisal. The appraisal will be guided by prevailing market percentage rates for similar operations primarily within the Southern California area. Rent Arbitration: Leases shall provide for binding arbitration when the City and lessee cannot agree on the new rent for a rental period under review. The City and lessee shall each select a professional independent real estate appraiser who in turn will select a third independent real estate appraiser to determine the fair market rent. If the two selected appraisers fail to mutually select a third appraiser, then the third appraiser shall be determined in accordance with the rules of the American Arbitration Association. The City and lessee shall pay the cost of its own selected appraiser and equally share the cost of the third appraiser. Appraisal Assumptions: City leases shall include a definition of the fair market value to be used to set rent and identify the premise for that value. In establishing the fair market value of leased property, any appraisal shall consider the property as a fee simple absolute estate and as vacant and available for lease or sale for the authorized purposes of the lease at the commencement of the rental period under review. Rates established for purposes of periodic percentage rental adjustments shall not consider any abatement as may be appropriate in a "new" development of vacant land. It shall also be assumed that all required regulatory approvals to permit the use authorized in the lease have been obtained. Lease Term: 60A-34 • A lease shall require a majority vote of all members of the City Council. The length of lease term shall be based on the sale price or lease rental income from disposition of City -owned real estate assets and interests and that provides substantial Community Benefits, as defined in Section I of the policy, to City residents, especially its Vulnerable Residents. Lease Amendments: Amendments to long term leases require City Council approval. The City's agreement to an amendment may be contingent upon updating sections of the lease to incorporate current City standard lease provisions and an adjustment to fair market rent. Subleases: A lessee may sublease all or part of the leased property to a qualified sub- lessee subject to approval by the City. No sublease shall be approved which would be detrimental to the City's rights under the master lease or for a use that is not consistent with uses allowed by the master lease. The City Manager may authorize subleases which meet these conditions and which do not require amendment of the master lease. Unless special circumstances exist, leases shall provide for the City to receive a minimum of fifty percent (50%) of the incremental gross rental revenues due to the lessee from subleases. Leasehold Financing: The City will not subordinate its fee interest to encumbrances placed against any leasehold by a lessee. The City Manager may approve appropriate financial encumbrances of the leasehold interest, which provide that all loan proceeds are used for authorized improvement of the property until the leasehold is fully developed in accordance with the lease. City staff shall take appropriate steps to review the proposed financing and insure that loan proceeds go into the leasehold. Maximum loan proceeds shall not be in excess of seventy-five percent (75%) loan -to -value, where "value" refers to the leasehold 60A-35 improvements, as determined by a lender's appraisal which has been reviewed and approved by City staff. The loan term shall not exceed the term of the lease. Loans or refinancing in the form of encumbrances against the lease for the purpose of reducing equity or financing the sale of leasehold interest will not be allowed until the property is fully developed for uses authorized in the lease. After the property is developed, such financing may be permitted so long as there is also substantial benefit to be gained by the City. This may take the form of either a percentage share of the loan proceeds or an upward adjustment to the rent, either of which shall be based on commercially reasonable comparables found in the market. Leasehold Improvements: Leasehold improvements installed by lessees shall be removed at the lease termination without cost to the City, or will revert to the City, at the City's option. All leasehold improvements and alterations require prior written approval of the City Manager. Maintenance and Utilities Responsibility: City leases shall require the lessee to maintain all improvements on the property at its own expense and be responsible for the cost of all utilities. Leases for multi -tenanted space shall include specific requirements delineating appropriate responsibilities. Lease Audits: All percentage leases shall be subject to audit in the first year of operation to establish proper reporting procedures and at least once every three (3) years thereafter. More frequent audits may be made if appropriate. The City shall reserve the right to audit all other leases and agreements subject to this Policy. Leasehold Assignments: Requests for assignment of leasehold interest shall be evaluated on the same basis as the criteria used in evaluating a leasehold proposal. The City Manager may authorize assignments which do not require amendment of the master lease. Consent may be contingent on the payment of additional consideration to the City, either as a percentage share of the purchase price of the leasehold interest or an upward adjustment to the rent. Either of which shall be based on commercially reasonable comparables found in the market. If new financing is involved in the sale, the requirements of 'Leasehold Financing' shall apply. Lease Extensions & Renewals: Requests from existing lessees for lease extensions or renewals may be considered if such proposals promote capital investment and redevelopment of City property. Whenever an existing lessee is seeking renewal of an expiring leng terra lease, the City Manager will bring the issue before the applicable City Council Committee with an appropriate recommendation. In addition to the criteria used to assess new lease proposals, City staff also will review the lessee's history with respect to: maintenance of the property; compliance with existing lease terms; prompt rent payments; and a rental return consistent with maximizing the property's full potential. The lessee must propose capital investment that: will increase the value or the useful life of the leasehold Z •. improvements by an amount more than can be reasonably amortized over the remaining lease term; is not recurring in nature; and is at least ten percent (10%) or more of the value of the existing improvements. It specifically should exclude expenditures to correct deferred maintenance and expenditures for repairs to keep the existing improvements in good condition. The length of any extended lease term shall be calculated by the same method used for calculating the length of new leases. City's Interest in Leasehold Improvements: City lease agreements provide the City the right to assume ownership of the leasehold improvements at the end of the lease. The value of the City's interest in the leasehold improvements can be appraised using widely accepted appraisal methods. In the event the City grants a lessee a lease extension, the City shall be compensated by an amount equal to the change in present value attributable to the deferral of its interest in the leasehold improvements. This amount either can be paid as an upfront payment at the beginning of the extended term or amortized over time with appropriate interest applied. The City shall offset from the value of its interest in the leasehold improvements any increased economic benefit derived from an extended lease. The City shall not receive any compensation for its interest in the leasehold improvements on leases extended prior to the last twenty percent (20%) of the existing term. Security Deposits: The standard security deposit for a new lease agreement shall be equivalent to three (3) month's rent. The security deposit may take the form of cash, an instrument of credit or a faithful performance bond. For a lessee making a substantial investment in improvements, the security deposit will be refunded upon completion of the improvements. Transaction Processing Fees: The City may charge a transaction processing fee in accordance with the schedule of adopted fees. The fee may be waived for transactions that provide benefit to the City. Nothing in this section shall preclude the City from negotiating terms or conditions that may vary from these requirements should that be necessary or required under the particular circumstances of the proposed lease transaction. 60A-37 Attachment A – Municipal Code on Sale of Real Property Sec. 2-706. - Sale of real property—Procedure. After authorization by the council of the sale of a parcel of real property, a sale shall be scheduled and conducted by the director of public works or by his designated deputy. All sales shall be made to the highest bidder subject to final confirmation by the council. Notice that such sale is to be conducted shall be given by publication at least once in a newspaper of general circulation printed, published, and circulated in the city and by sending written notice to all persons who had requested notice and to all persons suggested by department heads as prospective bidders, such notice to be published and mailed at least ten (10) days prior to the date of sale. Sealed bids may be required or oral bids may be provided for. Sealed bids or written offers to purchase must be accompanied by a deposit of one (1) percent of the amount of the minimum bid in the form of cash, or by cashier's or certified check. If oral bids are permitted, after any sealed bids are opened and any written bids are announced, any person present may submit an oral bid provided that any bid may be disregarded which does not exceed the highest bid theretofore made by at least one (1) percent of such highest bid. The successful bidder must deliver immediately following the declaration of sale, a written statement of his bid signed by the bidder, together with an initial deposit of ten (10) percent of the amount of his bid. The deposit may be in the form of a personal check provided such check is replaced before the close of business on the following business day by cash or by cashier's or certified check. Failure to deposit such written statement of bid or said ten (10) percent of the bid price in the manner stated may be considered a withdrawal of the bid. If a personal check is not replaced as required, a forfeit of one (1) percent of the sales price, as stated in the written statement of the bid, shall be required. The purchase of the property may then be offered to the second highest bidder of record. (Code 1952, § 2613; Ord. No. NS -128, § 1, 8-15-55; Ord. No. NS -1265, § 1, 8-4-75) Sec. 2-706.1. - Same—Sale only to owners of adjoining property. Upon the written recommendation of the city manager, the council may determine that the property being offered for sale can have real value only to a certain owner or owners of adjoining property and could be used by other persons only for the purpose of nuisance value to such owners of adjoining or abutting property. After such determination has been made as next hereinabove provided for, the council may by direct negotiation, provide for the sale of the real property covered thereby, without compliance with the auction, public sale, or method of payment requirements in this article provided for. (Ord. No. NS -1265, § 2, 8-4-75) Sec. 2-706.2. - Same—Method of payment. Sales of real property shall be on an all cash basis with the following exception: Upon written recommendation of the city manager and approval by the council, a parcel of surplus real property may be sold on such credit terms as are deemed to be necessary in each case. After the required down payment has been made, the balance of the purchase price shall be secured by a note and deed of trust. The credit payment period shall not exceed fifteen (15) years from the date of execution of the trust deed. Interest shall be at the prevailing rate in the community allowed by the Federal Housing Administration (FHA) as of the date of the public sale, but shall not include any FHA mortgage insurance premium. (Ord. No. NS -1265, § 2,8-4-75) Sec. 2-707. - Same—Broker listing; maximum commission; nonliability of city agent. The city council, when it determines that any real property owned by the city be disposed of, may authorize the director of public works to execute a written listing contract to find bidders with a licensed real estate agent or broker, and may specify that said property be placed in multiple listing. Said listing contract shall specify the maximum commission to be paid if the property is sold, which said commission shall in no case exceed six (6) percent of the sale price on property improved with a habitable building and shall in no case exceed ten (10) percent on unimproved property. No personal liability shall attach to any agent of the city who signs any such contract on behalf of the city. (Code 1952, § 2615; Ord. No. NS -256, § 1, 6-3-57; Ord. No. NS -1082, § 1, 6-21-71; Ord. No. NS -1265, § 11, 8-4-75) Sec. 2-708. - Same—Payment of commission; division of commission. In the event an agent covered by the contract, as set out in section 2-707, procures a bidder who submits the highest bid and to whom the sale is made and completed in due course, the commission provided in said contract shall be paid to said agent. In event an agent covered by the contract submits the highest written bid which conforms in all respects to the city's invitation to bid and the provisions of section 2-706, and an oral bid conforming to said requirements is made by a different bidder and results in the sale being made and completed to said different oral bidder, then one-half ('/z) of the commission originally fixed shall be paid to the listing agent who procured the original highest written conforming bid. If the successful oral bidder was procured and is represented by a licensed real estate agent or 60A-39 broker and the sale is made and completed, then the other one-half ('/z) of said commission shall be paid to such agent or broker. In cases where no listing contract exists and the successful bidder is represented by a licensed real estate broker, upon approval by the council, a full commission will be paid to such broker under the following conditions: (1) The buyer's written or oral bid must be submitted by the broker, (2) The broker must be designated as such in the buyer's purchase offer or in the written statement of his bid, and (3) The sale to the buyer must be consummated. (Code 1952, § 2616; Ord. No. NS -256, § 1, 6-3-57; Ord. No. NS -1265, § 5, 8-4-75) Sec. 2-709. - Exceptions. The provisions in this article regulating the sale of surplus city personal property or the sale of city real property shall not apply to any sale of such property made to any city, county, city and county, state or federal government, or any political subdivision of any of them, or to any nonprofit public benefit corporation formed or controlled by the city, or to any sale which is exempted from such provisions by two-thirds ( 2/3 ) vote of the city council after a duly noticed public hearing, and such sales may be made upon a basis of direct negotiations without the necessity for public auction or competitive bidding, when the authority to so negotiate has been granted by the city council. (Code 1952, § 2614; Ord. No. NS -128, § 2,8-15-55; Ord. No. NS -1006, § 27,4-6-85) Sec. 2-710. - Exchange of real property. Upon written recommendation of the city manager, the council may authorize the exchange of any parcel of city -owned real property which has been declared to be surplus to the city's needs for any other real property, whether publicly or privately owned, for which the city has a public need. Upon such authorization, an exchange may be concluded by direct negotiation without compliance with the auction or public sale requirements in this article provided for. (Ord. No. NS -1265, § 6, 8-4-75)