Agenda Report
Fullerton City Council
MEETING DATE: DECEMBER 20, 2022
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: SUNAYANA THOMAS, INTERIM DIRECTOR OF COMMUNITY AND ECONOMIC DEVELOPMENT PREPARED BY: SUNAYANA THOMAS, INTERIM DIRECTOR OF COMMUNITY AND ECONOMIC DEVELOPMENT
ELIZABETH HULL, BEST BEST & KRIEGER
SUBJECT: DISPOSITION AND DEVELOPMENT AGREEMENT BY AND BETWEEN THE CITY OF FULLERTON AND WESTPARK INVESTMENTS, LLC AND TA PARTNERS FOR THE SALE OF PROPERTY LOCATED AT 212 EAST SANTA FE AVENUE, FULLERTON, CA (APN 033-030-18)
SUMMARY
The City owns of approximately 2.05 acres of real property at 212 East Santa Fe Avenue. On December 4, 2018, the City entered into an Exclusive Negotiation Agreement (ENA), with the Developer, West Park Investments, LLC and Parkwest Contractors to develop a portion, approximately 1.66 acres, of a City owned public parking lot at the southwest corner of East Santa Fe Avenue and South Pomona, into an upscale boutique hotel.
The applicant has modified the project since the August 2021 ENA Extension to construct 140 residential units, 124 room hotel, 3,570 square feet of retail, 3,570 square foot restaurant and 412 parking stalls (City, Residential and Hotel parking) (“Project”).
City Council held a public hearing on December 6, 2020, regarding the disposition of the property and CEQA determination for the Project. Although the previous noticing was in substantial compliance with the law, out of an abundance of caution, the Council voted to continue the item to the December 20, 2022, meeting to allow for additional noticing and to allow staff time to address the protest claims and general questions raised during the December 6, 2022 meeting.
RECOMMENDATION
Open the public hearing and receive testimony from the public regarding proposed sale of the Property.
Close the public hearing.
Adopt Resolution No. 2022-XXX by a 4/5th majority vote.
RESOLUTION NO. 2022-XXX - A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FULLERTON, CALIFORNIA OVERRULING ALL PROTESTS RECEIVED AND FINDING THAT DISPOSTION OF THE PROPERTY IS IN THE INTEREST OF AND FOR THE CONVENIENCE OF THE PUBLIC Adopt Resolution No. 2022-XXX.
RESOLUTION NO. 2022-XXX – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FULLERTON, CALIFORNIA, ADOPTING A MITIGATED NEGATIVE DECLARATION AND MITIGATION MONITORING AND REPORTING PROGRAM UNDER THE CALIFORNIA ENVIRONMENTAL QUALITY ACT, APPROVING THE DISPOSITION AND DEVELOPMENT AGREEMENT BY AND BETWEEN THE CITY OF FULLERTON AND WESTPARK INVESTMENTS, LLC AND TA PARTNERS FOR THE SALE OF PROPERTY LOCATED AT 212 EAST SANTA FE AVENUE, FULLERTON, CALIFORNIA (APN 033-030-18) AND AUTHORIZING THE CITY MANAGER TO TAKE ALL ACTIONS NECESSARY TO EFFECTUATE THIS ACTION
CITY MANAGER REMARKS
I believe the mixed use in this development provides the City both an estimated annual revenue of between $700,000 and $800,000 per year over the next 10 years. It also provides the mixed use component of housing which assists with RHNA numbers.
There are other considerations such as not having the entitlements prior to the sell of the property. Which corrects an element of risk to the project.
Also, as a clarification, the money received from the sale will be distributed to all of the taxing entities based on their proportional share if approved.
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statement:
Fiscal and Organizational Stability.
FISCAL IMPACT
Based on the 2022 CBRE analysis provided by the developer, the proposed project is anticipated to have a significant fiscal impact to the City of Fullerton through visitor spending, tax revenue and jobs.
In a representative year, the proposed subject hotel development will have an estimated economic impact of approximately $799,000. In a representative year, the proposed subject hotel will have an estimated economic impact, including both direct and indirect visitor spending of approximately $31,899,000. The City would receive additional TOT tax revenue of approximately $650,000 to $800,000 annually which would place the hotel in the upper bracket of TOT producing hotels in the City. It is conservatively estimated that 233 new local jobs will be created for the proposed hotel.
The analysis of the total tax revenues for the City of Fullerton is limited to measurable tax revenues which include transient occupancy tax (TOT), direct sales tax, business tax, and property tax revenues at the proposed subject project in Downtown Fullerton.
Upon the sale of property, the City would receive $1,400,000 in net revenue. As the property is a former Redevelopment Agency site, these funds will, pursuant to Government Code Section 34180(f)(1) be paid to the County Auditor Controller who will then disburse the funds to the affected taxing entities. The City will receive an amount equal to its prorate share received of property taxes, in this case approximately $210,000.
The proposed project has a total valuation of approximately $125 million which would result in significant one-time fee contributions of roughly $3,020,339 (building permit fees, park dwelling fee, traffic impact fee).
DISCUSSION
On December 4, 2018, the City entered into an Exclusive Negotiation Agreement (ENA), with the Developer, Parkwest Contractors and West Park Investments, LLC to develop a portion of the site as an upscale boutique hotel on a public parking lot.
On November 19, 2019, September 15, 2020, and August 17, 2021, the City Council approved the first, second and third amendment(s) to the ENA extending the period of exclusive negotiations by 12 months, each year, to allow for additional time to complete the analysis of various components of the Project. The last amended negotiation period is scheduled to terminate on December 31, 2022.
The project has been modified to construct 140 residential units, 124 room hotel, 3,570 square feet of retail, 3,570 square foot restaurant and 412 parking stalls (City, Residential and Hotel parking).
On November 15, 2022, the City Council adopted Resolution No. XX declaring its intent to sell the Property and setting a public hearing for the proposed sale on December 6, 2022. Following public comment that public hearing was continued to December 20, 2022.
There were a number of questions raised during the public comment that the Council asked for clarification on including:
Noticing: Pursuant to the Resolution of Intent adopted on November 15, 2022, the notice of the public hearing should have been placed in the newspaper and posted on the Property. Unfortunately, the property was only posted for 6 days, and the noticing did not appear in the paper until December 3, 2022, both slightly shorter than required by statute. The Council was advised by City Attorney Jones that they could proceed as the City had achieved substantial compliance with the requirements of the statute and there was no evidence of actual harm by the shortened notice period, particularly in light of the facts that the City Council had set the date for the public hearing at a public meeting, the noticing had been posted for a substantial number of days, and the environmental document for the Project had been noticed properly for the same day and time. Out of an abundance of caution and in the interest of transparency the Council directed Staff to re-notice the public hearing and return to the Council on December 20, 2022. Staff noticed the sale in on December 9, 2022, in the Orange County Register.
2. Surplus Land Act (“SLA”): The City entered into an ENA for this property in 2018. In 2019 the legislature passed AB 1486 which substantially modified the SLA to create additional process and obligations when a local agency sells surplus land. However, the legislature specifically included an acknowledgement that local agencies may be in the midst of transactions and therefore provided an exception to the new law in very limited circumstances. Pursuant to Government Code Section 54234(a)(1) a local agency which had property that was subject to an ENA prior to September 30, 2019, could complete that transaction without complying with the new rules provided the disposition of land occurred no later than December 31, 2022. During the December 6 hearing there was some confusion that the City was utilizing a “loophole” in the law to complete this transaction. Because the property was under an ENA prior to the enactment of AB 1486, the City is in compliance with the SLA provided the transaction closes by December 31, 2022.
3. Lease or Sale of the Land. Questions have been raised as to whether the City can lease the land instead of selling of the land. This Property was an asset of the Redevelopment Agency (“RDA”). Pursuant to Assembly Bill 26 from the 2011-12 First Extraordinary Session of the California Legislature and the California Supreme Court’s decision in California Redevelopment Association v. Matosantos (2011) 53 Cal.4th 231, effective February 1, 2012, the Fullerton Redevelopment Agency was dissolved. As part of the dissolution, the City, through the Fullerton Successor Agency (“SA”), was required to prepare and obtain the California Department of Finance’s (DOF) approval of a Long-Range Property Management Plan (LRPMP) that addressed the disposition of the real property formerly owned by the RDA. The SA’s LRPMP was approved by the DOF on December 22, 2015. The LRPMP identified 56 parcels that were owned and controlled by the SA. Five of these assets, including this Property, were classified as “retain property for future economic development” and were required to be transferred to the City. In order to transfer the remaining five assets to the City, the City had to prepare and secure compensation agreements from all public taxing entities that share in the property tax base prior to the disposition of these properties. Compensation agreements were entered into with all taxing entities in the fall of 2018. On November 6, 2018, the SA approved the transfer of this Property to the City for future economic development subject to the terms of the compensation agreements. The conveyance was recorded in December 2018 and the ENA with the Developer was approved that same month.
Pursuant to the laws governing the disposition of former RDA assets and the compensation agreements the City entered into with the taxing entities, the City must provide payment to the affected taxing entities in proportion to their shares of the base property tax, as determined pursuant to Health and Safety Code Section 34188, for the value of the property upon disposition of the Property. As described above, the City would need to convey the value of the Property to County Auditor Controller at the time of disposition. A lease would not result in a lump sum payment from the Developer that would allow the City to distribute those funds as provided for in State law and in accordance with the City’s obligations under the compensation agreements.
4. Clarification of Property to be conveyed. As described in the December 6, 2022, Agenda Report the City currently owns approximately 2.05 acres located at 212 East Santa Fe Avenue. It is generally described as S. Pomona Avenue and E. Santa Fe Ave (south side of Santa Fe) and as the parking lot to the northeast of the train station. Of this area the City is selling approximately 1.66 acres. The area is currently the striped parking lot area containing approximately 164 parking spaces. The DDA does not include any property currently leased by the City to a third party. Below is a depiction of the general area and attached are a metes and bound description and map depicting the area to be conveyed (Attachment 4 and 5 respectively).
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5. 100% Affordable Housing or Mixed-Use Project. Based upon the ongoing housing crisis in California a number of speakers at the December 6 meeting asserted that the City should develop this site as a 100% affordable housing project. Other speakers indicated that the mix of commercial and housing was an appropriate use of the site. Additionally, there was public comment that a nearby hotel was closing and that additional hotel rooms, particularly adjacent to the train station were needed.
Multiple members of the public commented that additional apartment units were needed. It was noted that based upon the developer self-funding of the proposed affordable units this project would get actual units built in the near future. If the Council were to pursue a traditional affordable housing project the affordable housing developer would seek an array of county, state, and federal funding including but not limited to potentially a tax credit allocation, No Place Like Home funding, Community Development Block Grant funding, and/or HOME funding among other sources. Each of these funding sources involves a competitive and time-consuming process to apply for and receive funding. There are more applications for these funding sources than there is funding each year. As such, a project utilizing these funding sources is not guaranteed to be awarded funding and, if awarded, the timing of the availability of those funds cannot be known. Pursuing a new developer for a project like that would result in a multiyear delay to the redevelopment of the site.
The City has no obligation to develop this site as affordable housing. As described in more detail in the Entitlement Section of this report, this property is the subject of the Fullerton Transportation Center Specific Plan. According to that Plan the City has a number of stated goals for this area including the creation of a mixed use and transit-oriented neighborhood which includes housing, affordable and market rate, and new employment opportunities. This project, as proposed, is consistent with the General Plan, the adopted Specific Plan, and meets numerous stated policy goals of the City.
6. ADA compliance. There were comments raised during the public comment regarding the Developer’s commitment to providing facilities that are safe for the mobility challenged and are ADA compliant. The proposal is anticipated to include accessible rooms and residential units, wayfinding signage, and ground level accessible features related to mobility access. It should be noted that these and other design issues are not a part of the action being considered this evening and will be appropriately addressed during the entitlement phase of the Project.
7. CEQA. A Mitigated Negative Declaration (MND) and Mitigation Monitoring and Reporting Program (MMRP) have been prepared for the Project. Issues were raised regarding the proposed Project’s compliance with the California Environmental Quality Act (CEQA) and the adequacy of the MND’s analysis of the proposed Project’s potential impacts to the environment, including air quality impacts, energy impacts, water impacts, and traffic and noise impacts to surrounding businesses. The MND has been fully prepared in compliance with CEQA, and formal responses to the comment letters received by the City have been prepared. There is no substantial evidence supporting a fair argument that the Project may have a significant impact on the environment. The MND includes a robust discussion of, without limitation, the proposed Project’s potential air quality impacts, energy impacts, noise impacts, transportation impacts, and hydrology/water impacts. The MND constitutes substantial evidence that the proposed Project will not have any significant impact on the environment with the implementation of identified mitigation measures. Moreover, the term “project” under CEQA “refers to the activity which is being approved and which may be subject to several discretionary approvals by governmental agencies.” (State CEQA Guidelines, § 15378(c).) “The term ‘project’ does not mean each separate governmental approval.” (Ibid.) Here, the MND properly analyzes the proposed Project, as required by CEQA.
Anticipated Entitlement Process (2003)
The property has a General Plan designation as Fullerton Transportation Center Specific Plan and is located within the Fullerton Transportation Center (FTC). The FTC Specific Plan envisioned creating a sustainable transit-oriented neighborhood near the Santa Fe Train Depot and focus growth and development around the train depot to link land use and transit. The main goals of the FTC Specific Plan are to:
1. Create buildings, public spaces, streets and infrastructure that contribute to a sustainable built environment;
2. Create a mixed-use neighborhood that contributes toward a sustainable Downtown economy;
3. Create a mixed-use and transit-oriented neighborhood that contributes to a sustainable natural environment; and
4. Develop and promote a framework for a sustainable community lifestyle. The Specific Plan also encourages the inclusion of affordable housing in proximity to public transit and new employment opportunities and intended to accommodate a portion of the City’s housing obligation related to the Regional Housing Needs Assessment (RHNA).
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The property is within the FTC Specific Plan and would be subject to Major Site Plan Review and possibly Conditional Use Permit (CUP) for a restaurant with on-site alcohol service. The developer conducted a public meeting on October 19, 2022, with roughly 15 members of the public in attendance. Additional public outreach and formal public hearing processes are anticipated to commence in early 2023. The project is going through preliminary review with City Staff related to the proposed project and continues to be modified through comments received by the community and Council/Commission members as well as Staff.
DDA Terms:
Before the City Council this evening is a revised Disposition and Development Agreement (“DDA”) which includes the following substantive deal points:
Open escrow immediately following approval by City Council Close escrow no later than December 29, 2022
Earnest Money Deposit of $100,000
Site shall be operated as subject to a written franchise agreement with a major nationally recognized hotel brand for less than 10 years from the issuance of the Certificate of Occupancy Purchase Price is $1,400,000
Escrow Holdback of $500,000 to address the discovery of any Hazardous Substances discovered on the Property during grading Developer covenants to construct the project consistent with the entitlements and the DDA pursuant to the Schedule of Performance Post-Closing Conditions:
Developer shall use best efforts to entitle the project within 120 days of close of escrow and failure to obtain entitlements within 180 days is a default.
Developer shall use best efforts to submit complete development plans to the City within 180 days of receiving entitlements and failure to obtain within 240 days of receiving entitlements is a default.
If Developer fails to obtain entitlements or submit completed development plans pursuant to the Schedule of Performance the City is entitled to retake possession of the property. Developer has agreed to indemnify the City for actions related to the project or the approval of the DDA.
Developer has entered into a series of covenants related to maintaining the property on the tax rolls, payment in lieu of sales tax, maintenance of the Property, maintaining the hotel flag and antidiscrimination provisions. Additionally, following the December 6, 2002, public hearing the DDA has been revised to include:
Added Section 4.1.1 which requires the Developer to provide not less 12% of the base maximum density (60 DU/acre) allowed by the specific plan as housing affordable to households earning between 60% and 120% of area median income. Developer will enter into a Regulatory Agreement with the City concurrent with entitlements to ensure the units are affordable for not less than 55 years.
Added Section 4.1.2 which requires Developer to ensure that not less 164 parking spaces are made available to the public in perpetuity following the issuance of a certificate of completion for the Project. Not less than 138 of the spaces shall be provided on site with the remaining potentially provided off site with City Manager approval.
Added Section 4.1.3 which requires Developer to use its best efforts to utilize union labor for the construction of the project.
Outside completion date for the project is October 21, 2026.
Protest
Government Code Section 37420 et seq sets forth the procedure for the sale of public buildings or sites. It provides that when a city sells property it must adopt a resolution indicate that it is selling it for public interest and convenience and if there is a protest to that sale the protest must be overruled by 4/5th majority vote before the transaction can proceed. During the December 6 hearing members of the public raised questions about the Project as described above. Unite Here Local 11 identified the sale of the property for other than housing and certain CEQA concerns as the basis of their protest to the sale of the Property. Other members of the public merely stated that they protested the sale without identifying a specific policy or legal deficiency at the basis for that protest.
Under the statute the protest must relate to the sale not being for the public interest or convenience. As described above, each of the issues raised during the December 6 hearing have been addressed.
Based upon the following facts, Staff believes that public interest and convenience warrant the sale of the Property and recommend the Council overrule the protests received:
Any noticing defect has been cured and the public has had multiple opportunities to provide input on the proposed sale.
The SLA has been complied with and therefore does not create additional obligations for the City to sell the land for affordable housing or pursuant to the process set for in the SLA as of 2019.
The sale, not lease, of the Property is appropriate in this instance based upon the laws governing the disposition of former RDA property and the City’s contractual obligations to the affected taxing entities agreed to by the City in the compensation agreements in 2018.
The attachments to this Agenda Report and the DDA address any confusion the public may have had regarding what portion of the larger property is being conveyed.
The sale of the Property for a mixed-use project is consistent with the City’s adopted governing documents and use of the site for housing, and specifically a 100% affordable housing project, is not required by current City policy, City governing documents, the SLA, or any other state law. Proceeding with the current disposition of land as described in the DDA will result, if the entitlements for the project are approved, with housing making it to market many years sooner than any other potential project.
ADA Compliance related to the project will be addressed during the entitlement process. The proposal is anticipated to include accessible rooms and residential units, wayfinding signage, and ground level accessible features related to mobility access.
The potential environmental impacts of the proposed Project have been fully analyzed in a Mitigated Negative Declaration under CEQA, and the proposed Project’s potential impacts will be mitigated to a level of less than significant with the implementation of the mitigation measures set forth in the Mitigation Monitoring and Reporting Program.
In response to the protest the Developer has committed in the revised DDA presented this evening to the following:
Added Section 4.1.1 requires the Developer to provide not less 12% of the base maximum density (60 DU/acre) allowed by the specific plan as housing affordable to households earning between 60% and 120% of area median income. Developer will enter into a Regulatory Agreement with the City concurrent with entitlements to ensure the units are affordable for not less than 55 years.
Added Section 4.1.2 which requires Developer to ensure that not less 164 parking spaces are made available to the public in perpetuity following the issuance of a certificate of completion for the Project. Not less than 138 of the spaces shall be provided on site with the remaining potentially provided off site with City Manager approval.
Added Section 4.1.2 which requires Developer to use its best efforts utilize union labor for the construction of the project CEQA
This proposed sale of the Property has been environmentally reviewed pursuant to the provisions of the California Environmental Quality Act (Public Resources Code Sections 21000, et seq (“CEQA”)), the State CEQA Guidelines (California Code of Regulations, Title 14, Sections 15000, et seq) and the City’s Local CEQA Guidelines. The Project’s Initial Study/Mitigated Negative Declaration (IS/MND) was prepared pursuant to California Environmental Quality Act (CEQA) (Public Resources Code §§21000¬21177) and State CEQA Guidelines §15063 requirements.
The IS/MND and supporting documentation were made available for public review pursuant to State CEQA Guidelines §15070. Seven comment letters were filed with concerns about Environmental Impacts from State and Public Agencies, Union Representatives, and a local resident. Formal responses to these comment letters are incorporated into the Final IS/MND.
Attachments:
Attachment 1 – Resolution No. 2022-XXX Overruling the Protest Attachment 2 – Resolution No. 2022-XXX Findings and Approving DDA Attachment 3 – Draft Disposition and Development Agreement Attachment 4 – Metes and Bounds Description of the Property Attachment 5 – Depiction of Property
cc: City Manager Eric J. Levitt
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