LBREPORT.com provides quick-access on-demand audio of the Council discussion, colloquy and public testimony that followed presentation of a city staff report, click here.

Among salient matters during the Council discussion and public testimony:

• City Attorney Bob Shannon announced publicly that the City [Councilmembers and the Mayor] had received a formal protest to the proposed transaction via letter from Lyon Capital Ventures. [A copy of the letter wasn't immediately available; LBREPORT.com plans to webpost the letter when we receive it.]

• Some public speakers, who indicated they were experienced in real estate transactions, indicated they believe City Hall's selling price is undervalued and questioned why the sale wasn't listed with a broker.

• City management's newly named Director of Business and Property Development (former Public Works Director) Mike Conway said the Request for Proposals process used by management is a better basis for judging market price than listing with a broker. He also asserted that the $2.1 million price is above an "appraisal" of the property (details of which weren't revealed publicly).

  Management also contended that the RFP process gave the City greater control over how the building would ultimately be used. At least one public speaker questioned this assertion, stating that the City could have retained this control even if the property were listed with a broker.

• Asked if the management-negotiated purchase and sale agreement requires the buyer to include residential as specified in the RFP, Mr. Conway replied that's what the RFP intended. Deputy City Attorney Rich Anthony then stated that a restrictive covenant included with the deed ensures residential will be part of the project [exact covenant text not immediately available].

• Councilwoman Gerrie Schipske revealed the property was insured by the City for a value of $35 million...a statement that city management didn't deny.

• Councilwoman Schipske questioned the provision of the management-negotiated purchase and sale agreement that entitles the buyer to $1 million if the City breaches the agreement while leaving the City with $250,000 if the buyer breaches. City management indicated that it considers the $1 million potential exposure for the City extremely unlikely ever to materialize...and including it in the agreement gave the city negotiating leverage on other items. As an example of those items, management cited a $40,000 credit to the buyer (instead of a higher amount) for vandalism that had occurred to the city-owned building.

• Councilwoman Schipske objected to the provision of the agreement giving the buyer a $40,000 credit for vandalism, stating that the agreement specified elsewhere that buyer was accepting the building is "as is." In Council colloquy, management was unable to explain how the vandalism was committed to the city owned and fenced building.

• Retired Deputy City Attorney Jim McCabe, speaking as a private citizen, testified he believes the deal is taking place without sufficient explanation for the price accepted by city management and urged the Council to move with exceeding caution.

LBREPORT.com believes that the property (at a prime location on the SE corner of Long Beach Blvd. at Broadway) was valued at roughly $10 million by both the City and Southern CA Edison in 2000 when SCE (then under President Bob Foster) conveyed it to the City at a no cash-cost as part of an agreement in which the City renewed SCE's franchise with LB with a provision that prevents the City from switching to an alternate electricity provider unless (among other things) the City pays SCE $10 million for the building. [Under then-City Manager Henry Taboada, the city had considered switching to Enron (which history shows would have been disastrous for the City) and which SCE sought to prevent in pursuit of its own business interests.]

After acquiring the building, the City spent a sum (not stated in city management's memo) to renovate the building's first three floors to serve as LBPD's HQ while its main HQ was seismically retrofitted and upgraded.

In 2008, Mayor Foster suggested closing LB's Main Library (with no permanent library site then decided) with 100 LB Blvd. as a possible temporary library site. The proposal triggered a major public outcry and was dropped.

The Council then voted to sell 100 LB Blvd. for $5.1 million to Howard CDM for a commercial project in 2008, but the transaction wasn't finalized.

In Sept. 2010, the Council voted 6-2 (Schipske and Johnson dissenting, Gabelich absent) to sell property for $4 million to Lyon Capital Ventures LLC, which partnered with Howard for a nearly 100 unit residential project with ground floor retail. Council members Gerrie Schipske and James Johnson voted against the sale, and Councilwoman Rae Gabelich was absent.

In January 2012, City Hall issued a Request for Proposals (RFP) for [Conway agendizing memo text] "the purchase and development of a project consisting of a minimum of 72 market rate residential units with ground floor retail that is designed to reinforce and complement the adjacent uses in the East Village Arts District of downtown Long Beach. In addition, the RFP stipulated that the purchase and sale of the building was on an "As Is" basis. The City received five proposals by the required March 30, 2012 due date. Based upon the proposals submitted, Watt Investment Partners, LLC, was initially selected as having made the best and highest offer. Subsequent to their selection, Watt formally withdrew their offer, resulting in Cliff Ratkovich and Associates, Inc., an affiliate of the Buyer, having made the best and highest offer to purchase the building in accordance with the requirements of the RFP."

Among the salient terms of city management's proposed purchase and sale agreement cited in Mr. Conway's April 23 agendizing memo:

• A purchase price of $2.1 million with a $40,000 credit to the Buyer "for damage to the building as a result of recent vandalism."

• Use: [Conway agendizing memo text] "The Buyer is acquiring the property to rehabilitate the structure and operate the building primarily as a residential building, with approximately 134 units, and a minimum of 1,800 square feet of usable ground floor space to be devoted to retail uses."

• Default Costs [Conway agendizing memo text]: "In the event the City breaches the terms of the PSA, potential City liability to the Buyer is limited to $1,000,000. In the event the Buyer breaches the terms of the PSA, City is entitled to retain the $250,000 deposit."

• Escrow: "...shall occur no later than 45 days after opening of escrow provided all conditions to Buyer's and Seller's obligations have been met."

City Management's agendizing memo text was as follows:

RECOMMENDATION:

Declare the City-owned property located at 100 Long Beach Boulevard, City Hall East (CHE), as surplus, and authorize the City Manager, or designee, to execute any and all documents, including the Purchase and Sale Agreement (PSA) with 100 LBB REAL ESTATE LLC, a California limited liability company (Buyer), for the sale of CHE in the amount of $2,100,000. (District 2)

DISCUSSION

The City of Long Beach (City) acquired the office building at 100 Long Beach Boulevard, also known as City Hall East (CHE), from Southern California Edison in June 2000 as part of a negotiated franchise agreement extension. The site consists of a ten-story office building having approximately 149,160 square feet of office space and includes a 149-space parking structure (site map attached). The building was originally constructed in 1959. In 2002, the first three floors of the building were renovated and occupied by the Long Beach Police Department as a temporary replacement facility while the City's existing Public Safety Building was being renovated. Since completion of the Public Safety Building improvements in June 2005, CHE has been vacant. .

On January 13, 2012, a Request for Proposals (RFP) was issued for the purchase and development of a project consisting of a minimum of 72 market rate residential units with ground floor retail that is designed to reinforce and complement the adjacent uses in the East Village Arts District of downtown Long Beach. In addition, the RFP stipulated that the purchase and sale of the building was on an "As Is" basis. The City received five proposals by the required March 30, 2012 due date.

Based upon the proposals submitted, Watt Investment Partners, LLC, was initially selected as having made the best and highest offer. Subsequent to their selection, Watt formally withdrew their offer, resulting in Cliff Ratkovich and Associates, Inc., an affiliate of the Buyer, having made the best and highest offer to purchase the building in accordance with the requirements of the RFP. The major terms and conditions of the proposed sale of CHE are as follows:

• Property: The property is located at 100 Long Beach Boulevard and consists of a land area measuring approximately 36,725 square feet, and a parking structure containing approximately 149 stalls.
• Seller: City of Long Beach.
• Buyer: 100 LBB REAL ESTATE, LLC, a California limited liability company.
• Purchase Price: $2,100,000. A credit in the amount of $40,000 will be made to the Buyer in escrow for damage to the building as a result of recent vandalism.
• Use: The Buyer is acquiring the property to rehabilitate the structure and operate the building primarily as a residential building, with approximately 134 units, and a minimum of 1,800 square feet of usable ground floor space to be devoted to retail uses.
• Deposit: As part of the RFP requirements, the Buyer has already provided a $25,000 deposit. In connection with the opening of escrow, the Buyer will provide an additional deposit of $225,000 for a total deposit of $250,000. The deposit is refundable only under limited circumstances.
• Default Costs: In the event the City breaches the terms of the PSA, potential City liability to the Buyer is limited to $1,000,000. In the event the Buyer breaches the terms of the PSA, City is entitled to retain the $250,000 deposit.
• Purchase of Due Diligence Reports. In the event Closing does not occur within one (1) year of opening of escrow due to third-party litigation, the City will purchase from the Buyer all plans, drawings, test results, studies, reports and data prepared by Buyer with respect to the Property in exchange for $100,000.
• Closing: Closing shall occur no later than forty-five (45) days after opening of escrow provided all conditions to Buyer's and Seller's obligations have been met. Based upon the above terms and conditions, it is recommended that City Council authorize the City Manager to execute the PSA and any other documents necessary to open escrow and to effectuate completion of this transaction.

In compliance with Government Code 54220 (Chapter 621, Statutes of 1968), on April 4, 2013, staff notified the State of California (State) that the City was declaring its property located at 100 Long Beach Boulevard as surplus. Further, in accordance with past practice, a memorandum was circulated to all City Departments to determine their interest in or objection to declaring this parcel surplus. To date, neither the State nor any City Departments have expressed an interest or objection. A Categorical Exemption, CE- 13-027 was completed related to the proposed transaction on April 4, 2013.

This matter was reviewed by Deputy City Attorney Richard F. Anthony, on April 9, 2013 and Budget Manager Dennis Strachota on April 11, 2013.

TIMING CONSIDERATIONS

City Council action is requested on April 23, 2013 in order to execute the PSA and related documents to complete the transaction.

FISCAL IMPACT

Of the $2,100,000 purchase price, $40,000 will be disbursed to the Buyer, through escrow, for damage to the building as a result of vandalism. In addition, the Public Works Department (PW) is likely to incur approximately $100,OOOto $150,000 in unbudgeted costs for continued security, maintenance and repairs of the building until the close of escrow. After the actual costs have been verified, an appropriation increase may be requested to reimburse PW for the unbudgeted costs from the sale proceeds. Consistent with the City Council's financial policy regarding the use of one-time resources, the net proceeds from the sale of CHE will be deposited to the General Fund (GP).

SUGGESTED ACTION:

Approve recommendation.