1 STAFF REPORT
DATE: N
ovember 2, 2021
TO: Just
in Hess, City Manager
FRO
M: Patrick Prescott, Community Development Director
VIA: Simone McFarland, Assistant Community Development Director, Economic Development & Housing
BY: Sarah Eskandari, Real Estate & Project Manager
SUBJECT: Approval of a City of Burbank Surplus Property Protocol
RECOMMENDATION
Approve the process for identifying and disposing of surplus property.
BACKGROUND
This report is to establish a process for the leasing and/or sale of surplus City land after the City has complied with the State mandated requirements in the Surplus Land Act (SLA).
When the Boys and Girls Club announced that they would be moving out of the City - owned building located at 2244 N. Buena Vista, the City Council asked staff to prepare a report offering suggestions on how to re- lease the property. It was determined that the City needed a policy regarding the sale or lease of surplus property. About the same time, the California Housing and Community Development Department began enforcing the State’s SLA requiring that cities comply with the requirements of the SLA before moving forward with any leases or sale of surplus property.
Below is an overview of the process proposed by staff that includes SLA requirements along with the process that would be followed after these requirements are met.
COMMUNITY
DEVELOPMENT
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ATTACHMENT 1
2 What is The Surplus Land Act?
Sur
plus land is defined as land owned by any local agency (city, county, or district) that is no longer necessary for the agency’s use. In 2019, Governor Newsom signed Assembly Bill 1486 , an amendment to the SLA, into law to further promote affordable housing development on unused or underutilized local agency property throughout the State by strengthening reporting and enforcement provisions.
Assembly Bill 1486 also requires local agencies to submit an Annual Housing Element Progress Report including information on City -owned real property . As of Janu ary 1, 2021, the California Department of Housing and Community Development (HCD) is reviewing each local agency’s notices, negotiations conducted, and copies of restrictions recorded against the property. HCD has penalized local agencies who are found to be in violation.
The SLA also requires that surplus land be declared as either “surplus land” or “exempt surplus land”. If a City-owned property is deemed to be “exempt,” the City would be free from any State obligations and can lease or sell the property as they wish.
As most of Burbank’s city -owned properties are being used to provide government functions, most of our City -owned land will be designated for public use, and thus not considered surplus.
However, there are sites that may be deemed as surplus land in the future and be subject to SLA if they are not specifically design ated by City Council for City of Burbank use.
These could include the old Boys and Girls Club at 2244 N. Buena Vista Street as well as the Americold site located at 10 W. Magnolia Boulevard.
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3 Inventory
As a part of the overall process to meet the SLA regulations, Real Estate and Planning staff will complete an inventory of City-owned properties. Properties will be identified as either still in use, exempt surplus land, or surplus land subject to the SLA. A report on the inventory will be brought back to City Council for review when staff completes the inventory process . This inventory report will be updated annually and become the inventory list submitted to HCD.
SLA Process
If City-owned land is deemed surplus land (i.e., the City no longer uses the property and it is not covered by an exemption), then prior to the sale or lease of property, it must be offered for housing, park , and/or school use through the Notice of Availability (NOA) process outlined in the SLA regulations and a current appraisal must be obtained. The specific steps are outlined below:
1) Offer the property for development of affordable (moderate, low , or very -low) housing, open space, and schools by providing a NOA of surplus land for lease or purchase on the HCD’s website for 60 days.
2) The City must then negotiate in good faith with those parties who have expressed interest for a minimum amount of 90 days. The City is not required to accept less than Fair Market Value for the property. Council can provide direction to staff on price and terms of a sale in closed session.
3) After 90 days, if an agreement is not reached, then the City may proceed forward with other plans for the property.
If the process is completed; and either there are no interested parties and/or the City cannot come to an agreement with an interested party, then the property can be leased or sold by the City. One manner of disposal is a Request for Proposal (RFP) process.
If the property is defined as surplus exempt per the SLA guidelines listed below, then the property can be leased or sold through the RFP process.
Exemptions
There are exemptions to the SLA. These include:
1) An Exclusive Right to Negotiate prior to December 31, 2019 2) Land declared to be exempt by the local agency (more about this is below) 3) Small Surplus Land Parcels sold to an owner of contiguous land (parcels of land which touch) that is,
a. Less than 5,000 square feet in area, less than the minimum legal residential building lot size and/or has no record access, less than 10,000 square feet ATTACHMENT 1-3
4 in area and is not contiguous to land owned by a state or local agency ’s open space or affordable housing
4) Exchange of Surplus Land
5) Local Agency to Agency Surplus Land Transfer
6) Surplus Street Land
7) Exempt Surplus Land for Affordable Housing
8) Validly Restricted Surplus Land such as covenants
9) Surplus Trust Land
10) School District Surplus Land
11) Real property that is used by a district for agency’s expressly authorized use 12) Transfers of Surplus Parking Lot Land
Additionally, the City Council may designate a property as available for continued City use through one of its non- profit partners. For example, City Council could adopt a plan to lease a property to only a non- profit that is providing a City service via a contract between the City and the non -profit and that service or the non- profit work in general (such as homeless, childcare and/or dental or medical care) is supported by the City through partnerships and/or is the recipient of City grant funding. In such a case , the property is not surplus because it is still needed for City services; therefore the SLA does not apply. In such a situation, the City will still use the RFP process to lease the property.
Therefore, if City Council wishes to designate the 2244 N. Buena Vista Street building for lease only to a non-profit partner that meets these criteria, the site is not subject to the SLA.
Penalties
Penalties for not abiding by SLA may include notification to the Attorney General and administrative penalties that include 30% of the final sales price of the land sold in violation of the SLA and 50% for subsequent violations. Anaheim, San Diego, and Oakland all have sports arenas that are affected by the SLA, even though these projects have been on the drawing board for many years. Anaheim and San Diego have been cited by HCD for failing to comply and Oakland is under investigation. 1 In October, San
Diego yielded to HCD’s mandates and issued a Notice of Availability on the SLA website.
This starts a second solicitation process that includes at least 25% low-housing units. 1https://www.santacruzsentinel.com/2021/08/24/how-sports-arenas-became-the-poster-child-of-californias- housing-crisis/
https://www.latimes.com/sports/angels/story/2021-06-24/angels-stadium-sale-may-violate-california-law-arte- moreno
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5 DISCUSSION
Based on the discussion above, the SLA process will have to be included in the first steps for any properties that are deemed as surplus on a case-by-case basis until the inventory of all City properties is complete, approved by City Council , and submitted to HCD. The first inventory will be completed by April 1, 2022.
After the SLA process has been completed and the property is either deemed exempt or there have not been successful negotiations with respondents of the NOA, staff proposes that City Council consider the following steps to lease or sell surplus property.
Request for Proposals
1) Issue an RFP for a minimum of 30 days in which respondents must include:
a. Information that proves their financial ability to pay rent and take care of required maintenance and daily upkeep of the proper ty. The City should not be responsible for contributing to the costs of maintenance and the proposed rent should be sufficient to pay for long- term infrastructure improvements needed for the building.
b. Have a plan to pay for any needed tenant improvements. This could include grants from the City such as Community Development Block Grants. c. Partnerships between agencies and/or joint use would be encouraged. 2) Leas
e rates would be calculated for minimum rent in the two ways below and the lower amount shall be used as the base for future negotiations:
a. Non-profit Organizations
i. Minimum costs for pro -rata infrastructure and large equipment upkeep. This would include items such as mechanical systems, roofs, electrical and plumbing systems, and would be calculated by Public Works and Real Estate where the City is also responsible for daily general maintenance and upkeep over the entire term of the lease.
OR
ii. 50 percent of current market rent with a built-in escalation clause. b. For-profit Entities
i. Current market rents with a built-in escalation clause. 3) Sales amounts will be based on the appraised price of the property along with other negotiating terms requested within the RFP response.
Response Review and Selection
The responses will be reviewed by the Real Estate Review Working Group (Community Development Real Estate, Public Works, City Attorney's Office, and the department who ATTACHMENT 1-5
6 currently oversees the property) who will rank the responses giving preference to groups in the following order.
1) Non-profit organizations who serve the Burbank community and have proved their financial capability to afford the minimum lease rates or future negotiated sales price.
2) For-Profit entities who have proved their financial capability to afford the minimum lease rates or future negotiated sales price.
Staff will follow standard protocol of receiving negotiation parameters from City Council during closed session. Upon a successful negotiation, the proposed lease or purchase contract will be presented to City Council for consideration in an open meeting.
Options
City Council can elect to not require the above proposed non- profit rent requirements under 2a. or 2b. and leave it fully open to negotiation or continue with past practices that included charging $1 per year for leases. If this is City Council’s preference, then staff would ask proposal respondents to provide their offers within their RFP response and the General Fund would need to provide money towards on- going maintenance and/or improvements. The amount required from the General Fund would be estimated when staff reviews the RFP proposals and in contract negotiations.
FISCAL IMPACT
An adopted policy would alleviate a sizeable portion of City funding from the General Fund. The required maintenance costs will be captured in the lease agreement. With these cost savings, City staff would be able to better forecast budgets and plan for future capital improvements.
CONCLUSION
Having a Surplus Property Protocol in place will help ensure that the State’s guidelines are met while providing the City a clear path for leases and/or sales of the City’s surplus property.
ATTACHMENT
None.
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