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HomeMy WebLinkAboutItem 12 - Agreement for Payment In-Lieu of Taxes Planning and Building Agency 71 www.santa-ana.org/pb Item # 12 City of Santa Ana 20 Civic Center Plaza, Santa Ana, CA 92701 Staff Report February 3, 2026 TOPIC: Approval of Payment In-Lieu of Taxes Agreement— Cristo Rey School AGENDA TITLE Agreement for Payment In-Lieu of Taxes for Properties located at 3601, 3611, 3621, and 3631 S. Harbor Boulevard (APN: 414-261-07) RECOMMENDED ACTION Authorize the City Manager, or designee, to execute the attached Payment In-Lieu of Taxes Agreement with SOCO Harbor, Inc. (Agreement No. 2026-XXX). GOVERNMENT CODE 484308 APPLIES: Yes DISCUSSION Summary In October 2024, Cristo Rey Orange County High School approached the City of Santa Ana seeking approval of Conditional Use Permit (CUP) No. 2025-22 to establish a professional school use at an existing campus consisting of four office buildings located at 3601, 3611, 3621, and 3631 South Harbor Boulevard. The CUP application proposes that Cristo Rey will occupy space inside two of those buildings at 3601 S. Harbor Boulevard, Unit 200, and 3611 S. Harbor Boulevard. To address potential economic impacts associated with the property's tax-exempt status, Cristo Rey submitted a CUP application and, separately, a voluntary Payment In Lieu of Taxes (PILOT) agreement with a goal of minimizing fiscal and economic impacts to the City. While the Planning Commission has authority to act on the CUP, City Council approval is required separately for the PILOT agreement. Background The subject property consists of four office buildings located at 3601, 3611, 3621, and 3631 S. Harbor Boulevard, and is within a professional office park zoned Professional (P). SOCO Harbor, Inc., the Property Owner, intends to lease approximately 42% of the Approval of Payment In-Lieu of Taxes Agreement — Cristo Rey Orange County High School (3601, 3611, 3621, and 3631 S. Harbor Blvd.) February 3, 2026 Page 2 property's rentable area to Cristo Rey County High School, Inc., a California nonprofit, to operate a professional school. On November 10, 2025, the Planning Commission approved Cristo Rey's CUP application to facilitate construction of a professional school use in two existing buildings at 3601 S. Harbor Boulevard, Unit 200, and 3611 S. Harbor Boulevard. Additional details on the project background, description, and analysis are available in Exhibit 2 of this staff report. Analysis The entire, integrated project site consists of 10 buildings on five separate parcels. Cristo Rey will occupy 3601 S. Harbor Boulevard, Unit 200, and 3611 S. Harbor Boulevard, which are situated on a single parcel (Assessor's Parcel Number 414-261-07). Cristo Rey qualifies for a tax exemption as a nonprofit educational institution. The Property Owner has voluntarily proposed a Payment In-Lieu of Taxes Agreement with the City of Santa Ana to offset the anticipated reduction in property tax revenue attributable to the school's occupancy, stemming from the occupancy of the entire building located at 3611 S. Harbor Boulevard (45,148 square feet) and the second floor of 3601 S. Harbor Boulevard (18,033 square feet), which amount to approximately 41.62% of the parcel's total rentable square footage. This agreement reflects the property owner's commitment to bridge the loss of property tax revenue to the City from that exempted portion (41.62%). The funds will support City services and community benefits, consistent with the General Plan's objective of fostering partnerships with educational institutions and promoting sustainable community development. The PILOT agreement outlines the payment terms, schedule, and annual amounts, with payments beginning on the first day of the month following issuance of the certificate of occupancy to the school. While initially proposed for a term of five (5) years, staff discussions with Cristo Rey resulted in a mutually agreed-upon term of twenty (20) years. Payments will continue annually on each anniversary for up to twenty (20) years, contingent on the school's continued operation at the site. The PILOT minimizes the fiscal and economic impacts to the City from the property's tax-exempt status. Over the life of the PILOT, the applicant is expected to make payments totaling approximately$412,000. City Council approval is necessary for this agreement, as there is no enabling ordinance authorizing staff to execute such agreements. The City Attorney has reviewed the agreement and found it to be satisfactory, subject to non-substantive changes approved by the City Manager and City Attorney. Approval of this item will allow the City Council to secure up to 20 years of property tax-equivalent payments through the agreement. Approval of Payment In-Lieu of Taxes Agreement — Cristo Rey Orange County High School (3601, 3611, 3621, and 3631 S. Harbor Blvd.) February 3, 2026 Page 2 Approval of Payment In-Lieu of Taxes Agreement — Cristo Rey Orange County High School (3601, 3611, 3621, and 3631 S. Harbor Blvd.) February 3, 2026 Page 3 ENVIRONMENTAL IMPACT In accordance with the California Environmental Quality Act, the proposed project is exempt from further review under Section 15332 (Class 32 — In-Fill), as it meets all threshold criteria for infill exemption, and Section 15301 (Class 1 — Existing Facilities) for alterations. The Project would not cause significant impacts related to traffic, noise, air quality, water quality, or biological resources and is not located on a hazardous site, a scenic highway, or subject to unusual circumstances or cumulative impacts. A Notice of Exemption, Environmental Review No. 2025-37, was filed on November 13, 2025, for this project. FISCAL IMPACT Under the PILOT agreement, the property owner will make annual payments to the City of an estimated $16,938 in 2026, with a two percent (2%) annual increase over the 20- year term. The payments will be recorded as Miscellaneous Revenue — Property Tax (01102002-50011) and remain fixed regardless. Although the school is exempt from property taxes, the PILOT agreement ensures that the City does not lose revenue as a result of its tax-exempt status. These payments offset property tax revenue to the City that would otherwise be lost, therefore enabling the City to support its services. EXHIBITS 1. Payment In-Lieu of Taxes (PILOT) Agreement 2. Planning Commission Staff Report Submitted By: Ali Pezeshkpour, AICP, Executive Director, Planning and Building Agency Approved By: Alvaro Nunez, City Manager RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: City of Santa Ana 20 Civic Center Plaza Santa Ana, CA 92702 Attention: City Clerk Record for the Benefit of The City of Santa Ana Pursuant to Government Code Section 27383 Space Reserved for Recorder's Use Only AGREEMENT FOR PAYMENT IN-LIEU OF TAXES This AGREEMENT FOR PAYMENT IN-LIEU OF TAXES ("Agreement") dated as of February , 2026, is made and entered into by and among SOCO Harbor, Inc., a California nonprofit religious corporation ("Owner"), and the City of Santa Ana, a California municipal corporation ("City"). City and Owner are collectively referred to herein as the "Parties" and individually as a"Party." RECITALS A. Owner owns the real property located at 3601, 3611, 3621 and 3631 S. Harbor Boulevard in the City of Santa Ana, California,identified as Orange County Assessor's Parcel No. 414-261-07 and more particularly described in Attachment A (the "Property"), having approximately 151,791 rentable square feet(sf). B. The Property is comprised of four (4) office buildings zoned `P' (Professional) in the Santa Ana Municipal Code ("SAMC") C. Prior to Owner's acquisition of the Property, and as of the date of this Agreement, the Property is being used for commercial office purposes. D. Owner intends to lease a portion of the Property to Cristo Rey Orange County High School, Inc., a California nonprofit religious corporation (the "School"). E. Approval for the School's use of the Property will require the issuance of a Conditional Use Permit("CUP")by City("Project Approval"). F. Project Approval would allow the School to occupy the entire building located at 3611 S. Harbor Boulevard (45,148 sf) and the second floor of 3601 S. Harbor Boulevard (18,033 sf), collectively referred to as the "School's Share" of the Property, and equivalent to AGREEMENT FOR PAYMENT IN-LIEU OF TAXES 1 109231\18768373vi approximately 41.62% of the Property's rentable square footage. The portion of the Property not leased to the School shall be referred to as the "Taxable Share." G. The Parties acknowledge that Owner is a qualifying religious organization and the School is an exempt purpose for which no property taxes would be assessed, with the total amount of property taxes payable on the Property reduceable in an amount equivalent to the School's Share (%) of the Property("Property Tax Exemption"). H. The Parties have agreed to enter into this Agreement in order to provide partial compensation ("Payment(s) In Lieu") to the City for the potential loss of property taxes associated with the School's Share of the Property. I. The Parties further agree to execute and record this Agreement in order to bind Owner and its successors and assigns to the Property Tax Exemption and Payment in Lieu obligations, as more particularly set forth in this Agreement. J. The enforcement of the obligations in this Agreement will ensure that the City will not suffer any loss of its share of property tax revenues as a result of the School's use of the Property. K. In determining the amount of the Payment(s) in Lieu, the Parties affirm and acknowledge the following statements of fact as they relate to secured taxes assessed on the Property: 1. For tax year 2024, the assessed value of the Property was $24,000,000.00, comprised of a $14,000,000.00 land value and a $10,000,000.00 improvement value; 2. For tax year 2024, the tax assessment rate for the Property was 1.11285 percent,translating to a base property tax assessment of$267,083.99("Base Taxes"); 3. For tax year 2024, the Property was also subject to the payment of special assessments of$23,650.04, which special assessments were not tied to the assessed value of the Property; 4. In total, the secured property taxes payable for the Property for tax year 2024 were $290,734.03; 5. The City is the direct beneficiary of approximately sixteen and nine-tenths percent (16.9%) ("City Share") of the Base Taxes for the Property (approximately$45,137 for tax year 2024); 6. On February 13, 2025 the Property was acquired by Owner for $20,800,00.00, a reduction from the tax year 2024 assessed value of $24,000,000.00, imputing Base Taxes of approximately $231,455 (i.e. a AGREEMENT FOR PAYMENT IN-LIEU OF TAXES 2 109231\18768373v1 reduction of 13.33%), rounded to the nearest dollar ("New Base Taxes"); and 7. Taxes assessed on the Property are subject to California Proposition 13 (codified at California Constitution, article XIII A), which provides that property taxes may not increase by more than two percent (2%) per year ("Annual Tax Increase"), and for purposes of this Agreement shall be assumed to increase at the rate of exactly 2%per year. L. The Parties acknowledge and agree that capital improvements associated with the School's Share of the Property which could result in a re-assessment of the Property are not intended to increase the Payment(s)in Lieu or be attributed to the Taxable Share of the Property. AGREEMENT NOW, THEREFORE, in consideration of the mutual benefits accruing to the Parties, and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Owner on behalf of itself and its heirs,executors, successors, and assigns and City hereby covenant and agree as follows: I. The "Effective Date" of this Agreement shall mean the latest of the following dates, as applicable: (i) expiration of any appeal period without challenge following Project Approval by the City's Planning Commission; (ii) expiration of any appeal period without challenge following Approval of this Agreement by City Council; or (iii) successful defense of any appeal of City Council's Project Approval and entry of a final, non-appealable judgment in support of Project Approval. Unless and until final, non-appealable Project Approval is obtained, this Agreement shall be of no force or effect. 2. Following the Effective Date, Owner shall initiate Payments in Lieu to the City subject to the terms in this Agreement. 3. The Payments in Lieu contemplated by this Agreement shall commence on the first day of the first month following the City's issuance of a Certificate of Occupancy to the School ("Payment Commencement Date"), and renew annually on the anniversary of The Payment Commencement Date for a total of up to twenty (20) individual payments ("Twenty Year Period"),provided the School remains in operation at the Property. 4. If at any point the School discontinues operations at the Property, Owner's obligation for any Payments In Lieu shall immediately cease, and no additional Payments In Lieu shall be due or payable unless and until the School resumes operations at the Property. 5. The Amount of the Payment in Lieu is intended to reflect the estimated impact of the Property Tax Exemption on the City's share of Base Taxes, and is calculated as follows: (i) For 2025, the base amount was $16,606, calculated as the Property Tax Exemption (41.62%) of the City Share (16.9%) of the New Base Taxes AGREEMENT FOR PAYMENT IN-LIEU OF TAXES 3 109231\18768373v1 ($231,455), adjusted by the Annual Tax Increase (2%), rounded to the nearest dollar. (ii) For 2026, the amount will be $16,938, reflecting a two percent (2%) increase from the 2025 calculation, above, rounded to the nearest dollar; (iii) For 2027 and any subsequent year, a two percent (2%) increase from the calculated payment for the prior year, rounded to the nearest dollar. 6. The amounts set forth in Paragraph 5 assume the School's Share represents 41.62% of the rentable square footage of the Property. Owner may notify City if the School's Share represents less than 41.62% of the rentable square footage of the Property, and in that event the amounts set forth in Paragraph 5, above, shall be adjusted accordingly based on a new Property Tax Exemption (i.e., less than 41.62%). 7. Any capital improvements made by Owner for the School's Share of the Property, which may or may not trigger a re-assessment of the Property, shall not serve to increase the Payment(s) in Lieu, as calculated in Paragraph 5, above, or Paragraph 8, below, which shall only adjust on the basis of an Annual Tax Increase. 8. By way of illustration only, if a Certificate of Occupancy is issued on August 15, 2025, the School's Share represents 41.62% of the Property's rentable square footage, and the School continues operating at the Property during the remainder of the Twenty Year Period,Owner shall pay to City the following Payment(s) in Lieu: (i) On September 1, 2026, $16,938 shall be due and payable by Owner. (ii) On September 1, 2027, $17,277 shall be due and payable by Owner. (iii) On September 1, 2028, $17,623 shall be due and payable by Owner. (iv) On September 1, 2029, $17,975 shall be due and payable by Owner. (v) On September 1, 2030, $18,335 shall be due and payable by Owner. (vi) On September 1, 2031, $18,702 shall be due and payable by Owner. (vii) On September 1, 2032, $19,076 shall be due and payable by Owner. (viii) On September 1, 2033, $19,458 shall be due and payable by Owner. (ix) On September 1, 2034, $19,847 shall be due and payable by Owner. (x) On September 1, 2035, $20,244 shall be due and payable by Owner. (xi) On September 1, 2036, $20,649 shall be due and payable by Owner. AGREEMENT FOR PAYMENT IN-LIEU OF TAXES 4 109231\18768373v1 (xii) On September 1, 2037, $21,062 shall be due and payable by Owner. (xiii) On September 1, 2038, $21,483 shall be due and payable by Owner. (xiv) On September 1, 2039, $21,913 shall be due and payable by Owner. (xv) On September 1, 2040, $22,351 shall be due and payable by Owner. (xvi) On September 1, 2041, $22,798 shall be due and payable by Owner. (xvii) On September 1, 2042, $23,254 shall be due and payable by Owner. (xviii) On September 1, 2043, $23,719 shall be due and payable by Owner. (xix) On September 1, 2044, $24,193 shall be due and payable by Owner. (xx) On September 1, 2045, $24,677 shall be due and payable by Owner. 9. Any Payment(s) In Lieu not paid when due shall accrue interest at the rate of ten percent (10%)per annum. 10. Owner may, at their sole discretion, and at any point during the Twenty Year Period, pre-pay any remaining Payment(s) in Lieu, discounted at the compounded rate of ten percent(10%)per annum. The number of remaining Payment(s)in Lieu shall equal the number of remaining years in the Twenty Year Period for which no Payment(s) in Lieu have been paid, regardless of whether the School subsequently vacates the property. By way of illustration only, if the Payment Commencement Date is September 1, 2025 and Payment(s) in Lieu are timely paid on September 1, 2025 and September 1, 2026, Owner may elect to pre-pay the remaining eighteen (18) Payment(s) in Lieu at any point prior to September 1, 2027. To calculate the amount due under this provision, owner and City shall first calculate the individual Payment(s) in Lieu for the remainder of the Twenty Year Period, then discount those Payment(s) in Lieu individually at the compounded rate of ten percent (10%) per annum, such that the next payment due would be discounted by ten percent (10%), the subsequent payment due would be discounted at twenty-one percent (21%), and so forth. 11. The covenants contained in this Agreement shall remain in effect until twenty(20) Payments in Lieu have been paid (including any lump-sum pre-payment under Paragraph 10, above) or the School discontinues operations at the Property, whichever occurs first. 12. Any successor of Owner to the Property shall be bound by the covenants set forth in this Agreement, whether such successor's title was acquired by foreclosure, deed in lieu of foreclosure, trustee's sale or otherwise. 13. Failure by Owner or its successors or assigns to perform its or their obligations set forth in this Agreement shall constitute a default under this Agreement and City may institute legal AGREEMENT FOR PAYMENT IN-LIEU OF TAXES 5 109231\18768373v1 action to cure, correct or remedy such default. The City's remedies for Owner's default shall be limited to specific performance of this Agreement. 14. City and Owner are deemed the beneficiaries of the terms and provisions of this Agreement and of the covenants running with the land, for and in their own right and for the purposes of protecting the interests of the community and other parties,public or private,in whose favor and for whose benefit this Agreement and the covenants running with the land have been provided, without regard to whether City or Owner has been, remains or is an owner of any land or interest therein in the Property. 15. Any notice to be given or other document to be delivered by either party to the other shall be in writing and shall be deemed to have been duly given and received (i)upon personal delivery, (ii) as of the third business day after mailing by United States registered or certified mail, return receipt requested, postage prepaid, addressed as set forth below, or (iii) the immediately succeeding business day after deposit with Federal Express or other equivalent overnight courier, addressed to the party for whom intended, set forth in this Section 6. Any party to this Agreement may from time to time, by written notice to the other, designate a different address which shall be substituted for the one specified below. If to the City: City of Santa Ana 20 Civic Center Plaza Santa Ana, CA 92702 Attention: City Clerk Telephone: (714) 647-6520 with a copy to: City of Santa Ana 20 Civic Center Plaza Santa Ana, CA 92702 Attention: City Attorney Telephone: (714) 647-5201 If to Owner: SOCO Harbor, Inc. 3621 S. Harbor Boulevard, Ste 130 Attn. Michael Del Santo Santa Ana, CA, 92704 with a copy to: Cox, Castle &Nicholson LLP 3121 Michelson Drive, Ste. 200 Irvine, CA 92612 Attention: Sean Matsler, Esq. Telephone: (949) 260-4652 16. This Agreement, including the Recitals and all Attachments (which are hereby incorporated by reference), contains the entire agreement between The Parties with respect to the subject matter in this Agreement and supersedes whatever oral or written understanding they may AGREEMENT FOR PAYMENT IN-LIEU OF TAXES 6 109231\18768373v1 have had prior to the execution of this Agreement. No waiver, alteration, modification, or termination of this Agreement shall be binding unless made in writing and signed by the authorized The Parties. 17. No waiver by City or Owner of any breach or default of any provision of this Agreement shall be deemed a waiver of any other provision in this Agreement or of any subsequent breach or default by Owner of the same or any other provision. whether or not similar, nor shall any waiver constitute a continuing waiver. 18. This Agreement shall be deemed to be jointly prepared by The Parties, and any ambiguities or uncertainties herein shall not be construed for or against either party. The words "including," "included," "include" and words of similar import shall not be interpreted as words of exclusion but shall instead be interpreted as though followed by the words "but not limited to" or "without limitation." 19. The invalidity of any provision of this Agreement as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision in this Agreement, except as it relates to Paragraph 1 which, if found invalid, shall render the entire Agreement null and void. 20. The Parties represent and warrant that each has the full right, power and authority to carry out its obligations under this Agreement. The individuals executing this Agreement on behalf of each party represent and warrant that they have full power and authority to execute and deliver this Agreement on behalf of such party. 21. Upon the Effective Date, all provisions of this Agreement, including the benefits and burdens, are equitable servitudes, run with the Property and are binding upon the heirs, executors, successors, assigns and personal representatives of Owner and inure to the benefit of City and Owner and its and their successors and assigns unless and until twenty(20) Payments in Lieu have been paid, at which time the Agreement shall be of no force or effect. 22. One year prior to the end of the 20-year term of this Agreement, notices shall be sent by Owner to all entities listed in Section 15. Said notices shall notify all parties to this Agreement of the Agreement's end date and shall contain any updated contact information for the parties. 23. Each and every contract, deed or other instrument covering, conveying or otherwise transferring the Property or any portion thereof or interest therein shall conclusively be held to have been executed, delivered and accepted subject to this Agreement,unless and until twenty(20) Payments in Lieu have been paid, at which time the Agreement shall be of no force or effect. 24. This Agreement shall not be deemed to create any third-party beneficiary rights for any person or entity. This Agreement is made and entered into in the State of California and is to be construed under the laws and the constitution of the State of California, without regard to its conflicts of laws principles. Venue shall be in Orange County. AGREEMENT FOR PAYMENT IN-LIEU OF TAXES 7 109231\18768373v1 25. In the event any action is brought by any party against the other party for the enforcement or declaration of any right or remedy in or under this Agreement or for the breach of any covenant or condition, the prevailing party shall be entitled to recover, and the other party agrees to pay, all fees and costs to be fixed by the court therein including, but not limited to, attorneys' fees and costs. 26. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, The Parties have executed this Agreement as of the Effective Date. CITY OF SANTA ANA ALVARO NUNEZ City Manager ATTEST: JENNIFER L. HALL City Clerk APPROVED AS TO FORM: SONIA CARVALHO City Attorney By: 1&�a Melissa M. Crosthwaite Senior Assistant City Attorney OWNER: AGREEMENT FOR PAYMENT IN-LIEU OF TAXES 8 109231\18768373v1 SOCO Harbor, Inc., a California nonprofit religious corporation By: Name: �I�-Pir• Its: t.r� AGREEMENT FOR PAYMENT IN-LIEU OF TAXES 9 109231\18768373v1 ATTACHMENT A PROPERTY LEGAL DESCRIPTION ALL THAT CERTAIN REAL PROPERTY SITUATED IN THE COUNTY OF ORANGE, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: PARCEL ONE PARCEL 3,IN THE CITY OF SANTA ANA,COUNTY OF ORANGE,STATE OF CALIFORNIA,AS SHOWN ON A MAP FILED IN BOOK 198, PAGES 1 TO 3 INCLUSIVE,OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID ORANGE COUNTY. EXCEPTING THEREFROM ONE-HALF OF ALL OIL, GAS, MINERALS AND HYDROCARBON SUBSTANCES BELOW A DEPTH OF 600 FEET FROM THE SURFACE OF SAID LAND, BUT WITHOUT THE RIGHT OF ENTRY UPON ANY PORTION OF THE SURFACE ABOVE A DEPTH OF 500 FEET,AS RESERVED IN THE DEED FROM ANTON H.SEGERSTROM AND OTHERS, RECORDED MARCH 14,1958 IN BOOK 4227,PAGE 456 OF OFFICIAL RECORDS. PARCEL TWO: AN EASEMENT FOR INGRESS AND EGRESS OVER THOSE PORTIONS OF PARCEL 1,2 AND 4 As SHOWN ON MAP 84-887, FILED IN BOOK 198, PAGES 1 TO 3 INCLUSIVE,OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID ORANGE COUNTY, INCLUDED WITHIN THOSE CERTAIN STRIPS OF LAND DELINEATED ON SAID MAP AS"PRIVATE VEHICULAR ACCESS WAY". PARCEL THREE* EASEMENTS FOR FIRE PROTECTION, STORM DRAIN, TELEPHONE AND VEHICULAR ACCESSWAY FACILITIES, INCLUDING INCIDENTAL RIGHTS OF MAINTENANCE, REPAIR AND REPLACEMENT,AS SET FORTH IN THAT CERTAIN DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS WITH GRANT OF EASEMENTS RECORDED JUNE 12, 1086 AS INSTRUMENT NO.85.213161 AND AMENDED BY DOCUMENTS RECORDED JUNE 2, 1989 AS INSTRUMENT NO. 89-293438 AND MAY 9, 1990 As INSTRUMENT NO.90-249094,ALL OF OFFICIAL RECORDS. APN:414-261-07 ATTACHMENT B NOTARY ACKNOWLEDGMENTS [To Be Inserted] 109231\18768373vl