REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Oliver Chi, City Manager
PREPARED BY: Kellee Fritzal, Deputy Director of Economic Development
Subject:
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Authorize the Sale of City-Owned Real Property Located at 15311 Pipeline Lane for $2,744,000
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Statement of Issue:
Authorize the sale of City-owned real property located at 15311 Pipeline Lane (Pipeline Property) to Steve Chalabian and Jackie Jernigan in the amount of Two Million Seven Hundred Forty-Four Thousand Dollars ($2,744,000). The City will also pay applicable escrow and commission fees.
Financial Impact:
The City’s total costs to acquire the Pipeline Property was $2,748,176. As currently structured, the proposed sale of the Pipeline Property will result in approximately $2,656,400 net revenue to the city (this includes the City paying the estimated escrow costs of $19,000 and commission costs of $68,600).
The City has a tenant renting space at the Pipeline Property which has earned $12,481 in rent revenue to the City. Factoring rent in the proposed sale of the Pipeline Property will result in a cumulative estimated net loss of $79,295.
Proceeds from the sale of the property will be used to reimburse the City for the initial purchase of the Pipeline Property. Those funds include the Redevelopment Dissolution Assignment (Fund 100), the Community Development Block Grant Rehabilitation Loans (Fund 215), the Community Development Block Grant Program Reallocations & Cumulative Project Savings (Fund 239), and Residual Receipts (Fund 233).
Recommended Action:
recommendation
A) Authorize the sale of the Pipeline Property to Steve Chalabian and Jackie Jernigan for $2,744,000; and
B) Authorize and allocate funds for the payment of escrow fees associated with the transaction for an amount not to exceed $19,000; and
C) Authorize and allocate funds for the payment of associated commission fees in an amount not to exceed 2.5% of the property sale price ($68,600) payable to Lee Associates, to be paid from the proceeds of the sale or Residual Receipts Fund 233; and
D) Authorize the City Manager to request a 45-day period to allow for current tenants to vacate the site prior to the close of escrow; and
E) Authorize the City Manager, with the approval as to form by the City Attorney Office, to execute any and all necessary documents to consummate the real estate transaction.
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Alternative Action(s):
Do not approve the Purchase and Sale Agreement and provide staff with additional direction.
Analysis:
On April 18, 2019, the City Council authorized the purchase of real property located at 15311 Pipeline Lane, for use as a possible homeless navigation center. After coordinating outreach meetings related to the matter, the City heard significant concerns from the business community regarding use of the Pipeline Property for the proposed shelter use. Based on the feedback received, on October 7, 2019, the City Council directed that staff look for alternative locations for a shelter locations, and to proceed with the disposition of the Pipeline Property.
Based on that direction, staff solicited and received a written offer from a commercial real estate agent representing Steve Chalabian and Jackie Jernigan to purchase the Pipeline Property for $2,744,000. Initially, the proposed purchase offer from the buyer included a provision that the City pay a broker fee of 3% as part of the transaction. After further negotiation, the broker agreed to lower his commission by 0.5%, for a total fee of 2.5%. In addition, the proposed sale of the property would include a 50%-50% split of all escrow fees.
Given this overall transaction framework, if approved, the sale of the Pipeline Property would result in a net loss to the City of approximately $79,295, as follows:
§ The City initially acquired the property for $2,744,000, and in addition, paid a total of $4,176 in escrow fees, for a total cost of $2,748,176.
§ Pursuant to the terms of the proposed property sale now, the $2,744,000 that the City would receive from the transaction would be reduced by $87,600 to account for related escrow and commission costs (escrow costs are estimated at $19,000, while commission fee costs are estimated at $68,600). This would result in the sale providing the City with net proceeds estimated at $2,656,400.
§ During the time that the City has owned the property, tenants have paid the City a total of $12,481 in rent.
§ The total net loss to the City based on the above factors would be approximately $79,295.
Environmental Status:
Not applicable
Strategic Plan Goal:
Non-Applicable - Administrative Item
Attachment(s):
1. Letter of Understanding to Purchase 15311 Pipeline Lane