Purpose

This report recommends that the City Council approve the sale of the property located at 2411 Olive Avenue, currently owned by Ryanco Partners LTD. No. IX, and to release obligations arising under a development agreement and recorded covenant imposed on the subject property.  In order to satisfy outstanding obligations, it is recommended that the City Council direct staff to collect a traffic mitigation fee in the amount of $80,618.72. Upon payment of this fee, it is recommended City Council direct staff to enter into a Release of Obligations arising under Development Agreement and Recorded Covenant.

Background

In the late 1980s and early 1990s during development of the Media District Specific Plan (MDSP), six property owners in the media district were simultaneously seeking entitlements for construction of office developments.  Rather than await completion of the plan and implementation of a proposed traffic impact fee in the plan area, these property owners agreed to enter into covenant agreements with the City to delay payment of fees while still receiving entitlements for construction.  In exchange for this delay of payment, these property owners agreed to allow the City to assess transportation mitigation fees in the future, in the form of either an assessment district or other financing mechanism.  While the specifics of such a mechanism had not been established at the time of execution of the covenant agreements, the agreements gave authorization for the City to impose a fee for traffic impacts when the costs of improvements was determined.

The subsequent adoption of the Media District Specific Plan (MDSP) in 1991 brought about a requirement to implement a funding mechanism to finance transportation improvements needed by existing and future development in the Media District.  This requirement was met with the passage of a citywide development impact fee ordinance in 1993 as part of the Infrastructure Blueprint for the 21^st Century.  Part of the MDSP analysis also included a cost estimate for transportation improvements needed to address existing transportation deficiencies.  These identified deficiencies included intersection flaring and signal improvements to 5 intersections.  It was determined that the six property owners who had entered into covenant agreements prior to adoption of the MDSP would satisfy their outstanding obligations to participate in the funding of transportation infrastructure by funding their fair share of the costs of these existing improvements based upon each property�s building square footage.  On or around 1994 and 1995, this fair share was calculated and invoices sent to all six property owners affected by covenant agreements.  Four property owners paid the fees as requested, while a fifth (and the largest) property owner agreed to a ten-year payment schedule that was satisfied in 2004.  The owner of the sixth property � the subject property located at 2411 Olive Avenue  � did not pay the requested fee and currently has not satisfied the obligations outlined in the Covenant Agreement.

Release of Obligations Imposed By Covenant Agreement

The owner of the subject property, Ryanco Partners LTD. No. IX, is currently in negotiations to sell the property to a third party.  A Development Agreement for the property (not a statutory development agreement, but an agreement incorporating the conditions of approval of the project) is currently in force, and requires City Council approval of any sale of the property or assignment of rights to another party.  A subsequent Covenant Agreement, running with the land, is also in force for the property and outlines obligations to pay traffic fees as described above.  Ryanco requests that they be released from the Development Agreement as well as obligations of the Covenant Agreement pertaining to traffic fees and improvements.  This action will clear title of the property and allow the sale of the building to proceed. While most of the obligations identified in the Covenant Agreement have been satisfied, the payment of fees for the property�s fair share of traffic improvements has not occurred.

Staff is requesting that the outstanding fee owed by Ryanco for the property�s fair share of the existing deficiencies improvements be paid before title to the property is cleared of the obligations of the Covenant Agreement.  Staff has calculated the fee to be $59,408.59 based upon the property�s ultimate square footage and the cost per square foot assigned to the other five properties for the cost of the existing deficiencies described above.  This figure was then factored by an average annual inflation rate of 3.1% over 10 years (1995 to 2005) to arrive at a final figure of $80,618.72.

Ryanco has objected to the payment of this fee to satisfy any obligation under the covenant agreement.  Further, all City records of the original invoicing that occurred in the mid-1990s have most likely been destroyed per record retention policies.  Thus, the City cannot produce proof that an invoice was sent to Ryanco along with the other five properties.  However, Ryanco has posted a bond to the City in the amount of $82,000.00 in order to remove the Development Agreement from title to the property and release them from the obligations in the Covenant Agreement pertaining to construction of unspecified traffic and transportation improvements and/or payment of a traffic fee.

Analysis

Collection of this fee would relieve Ryanco of all further obligations under the Covenant Agreement pertaining to traffic and transportation improvements (Sections A, B, and C of the Covenant Agreement) and allow for the sale of their property.  It would also allow the City to collect on the final outstanding balance of funds charged to the six properties affected by covenant agreements and complete the reimbursement process for these properties.  If Council were to approve this action, the fees would be posted as a bond. All remaining obligations under the Covenant Agreement not pertaining to traffic and transportation improvements would remain in force. Ryanco claims that additional street improvements were performed at the time of construction beyond those required in the Development Agreement.  They feel that these additional improvements should more than compensate for the current fees owed.  Staff maintains that credit for these additional improvements will not be granted unless evidence can be produced that shows these additional improvements somehow reduced traffic impacts or added street capacity to the same degree that the original improvements were designed to accomplish, and would have also reduced the city�s cost to achieve the same level of mobility as was achieved by implementing the measures identified in the MDSP.  Street paving or sidewalk reconstruction completed as part of this project would not be reimbursable as these improvements have no nexus to the �existing deficiencies� as identified in the MDSP or any other capacity-enhancing improvements in the area.  The proposed Release of Obligations Arising under Development Agreement and Recorded Covenant, if enacted, would give the City sole authority to approve or deny such transportation fee credits against the posted bond.  If Council were to approve this action, staff will make any decision relating to consideration of a fee refund due to transportation credits within two weeks of execution of the Release of Obligations Agreement.

Fiscal Impact

The transportation improvements identified in the MDSP to correct existing deficiencies have already been completed.  If Council were to approve the sale of the property and deem payment of the above fee adequate to satisfy the remaining traffic and transportation obligations of the Covenant Agreement, the money collected would be used to reimburse a portion of the cost of the completed improvements.  Collection of this fee would be added to the amount of un-appropriated Transportation Development Impact Fee funds available for other transportation improvements.

Recommendation

Staff requests that Council approve the sale of the property located at 2411 Olive Avenue and direct staff to collect a traffic impact fee in the amount of $80,618.72 from Ryanco Partners LTD. No. IX and enter into a Release of Obligations arising under Development Agreement and Recorded Covenant.

Exhibits

Exhibit A: Release of Obligations arising under Development Agreement and Recorded Covenant

Exhibit B:  Development Agreement for subject property

Exhibit C: Covenant Agreement for subject property

go to the top