PURPOSE:

The purpose of this report is to present the information necessary for the Redevelopment Agency Board to consider approval of an Acquisition Agreement to purchase 57 E. Palm Avenue owned by Patrick V. Kendall and Ruth M. Kendall as Trustees of the Kendall Family Trust.

BACKGROUND:

The subject property is located on Opportunity Site 6B within the City Center Redevelopment Project Area.  This site is bounded by First Street, Bonnywood Place, Magnolia Boulevard, and Orange Grove Avenue.  The site is privately owned by twelve (12) different property owners, includes about twenty-four (24) businesses and primarily consists of industrial and automotive uses (Exhibit A).  The 5 Freeway is directly west of the project site, and there is a mix of retail, restaurant, and office uses to the east, north, and south of the site.  The City owns a portion of Bonnywood Place and one-half of Magnolia Boulevard, between First Street and Bonnywood Place (Exhibit B).  

In 2002, Opus West and McDonalds Corporation submitted a preliminary proposal for a mixed-use residential/retail development on this site and had entered into purchase agreements with various owners to acquire their properties.  However, because of concerns raised regarding density, traffic circulation, affordability, and the feasibility of a drive-thru restaurant, the proposed development did not proceed.  Subsequently, all purchase agreements were terminated.  Mr. Patrick Kendall was one of the property owners who had entered into a purchase agreement with McDonalds.  He subsequently contacted staff to express an interest in selling his property to the Agency.

ANALYSIS:

On March 10, 2003, staff received a letter from Mr. Kendall offering to sell his property to the Agency for $525,000 ($67.74 psf).  The property, located at 57 E. Palm Avenue, is 7,750 square feet, improved with a 3,000 square foot building, and is used as a storage facility by Urban Habitat (a furniture store).  The primary business location for Urban Habitat is 229 N. First Street.  According to Mr. Kendall, the tenant is on a month-to-month rental agreement for $1,700 per month ($1.76 psf).  The offer letter also requested a 60-day escrow, $5,000 payable to the seller for a 60-day extension (beyond the initial escrow period), paperwork indicating the seller will be reinvesting the proceeds of the sale, and the right to offer the property for sale to other interested parties during negotiations.  The 60-day escrow period would begin from the date of the approval of the Acquisition Agreement by the Agency.  Staff believes that escrow can close within this period.  The acquisition cost would be subject to an environmental review, and Mr. Kendall would be required to provide staff with an Early Entry Agreement for this purpose. 

Because of its strategic location near the center of the site, staff believes that the timely acquisition of the Kendall property would help fulfill the Agency�s goal to ensure quality future development and to prevent undesirable uses.  More importantly, this would be the first step towards revitalizing this site which is currently underutilized with manufacturing and industrial uses that are incompatible with surrounding commercial uses downtown.

Pursuant to Agency direction, staff received an appraisal dated January 10, 2003 appraising the City�s interest in Bonnywood Place and East Magnolia Boulevard, adjacent to the project site, in the amount of $68.94 per square foot of land.  This is the value of the property in conjunction with the development of Opportunity Site 6B.  The Kendall offer of $525,000 is equivalent to $67.74 per square foot of land which is $1.20 per square foot less than the City�s appraised value for Bonnywood Place and East Magnolia Boulevard in the same location.  Therefore, staff has determined that the Kendall offer is within the range of Fair Market Value.

Along with the acquisition cost of $525,000, additional costs for the Kendall property (including relocation, environmental, demolition, and escrow services) are estimated at $60,000 for a total of $585,000.  However, staff would recommend that the existing use by Urban Habitat as a storage facility be allowed to continue, thereby allowing the Agency to collect monthly rents (currently $1,700) until there is an approved project.  This would allow the Agency to receive a revenue stream while minimizing initial acquisition costs to $525,000.  Finally, staff would recommend that unencumbered 20% Housing Set Aside funds be used to acquire this property, which would require future development to include a residential component with affordability provisions.  Staff believes that a mixed-use residential/retail project is an appropriate use for the site.

FISCAL IMPACT:

The cost to acquire the Kendall property is $525,000.  Additional costs estimated at $60,000 (environmental, relocation, demolition, escrow services, etc.) would be deferred until a project is approved.  Unencumbered Housing Set Aside funds would be used to fund the acquisition of this property.  Funds will be transferred from the Low Mod Unappropriated Fund Balance Account No. 305.ND000.30004.0000.000000 into the Low Mod Land Acquisition Account for the Kendall Property Acquisition Account No. 305.CD23A.70001.0000.14182 in the amount of $525,000.

RECOMMENDATION:

It is recommended that the Redevelopment Agency Board adopt the attached resolutions authorizing the acquisition of 57 E. Palm Avenue and the appropriation of unencumbered Housing Set Aside funds of $525,000 for acquisition costs.

EXHIBITS:

A         Opportunity Site 6B Owner/Tenant Map

B          Opportunity Site 6B Property Profile/Street Ownership Map

C         Acquisition Agreement 

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