STAFF REPORT
Meeting Date:
January 27, 2026
BUSINESS
15 SUBJECT: ARTIST LIVE WORK UNITS; AUTHORIZATION TO EXECUTE ASSIGNMENT
OF PURCHASE AND SALE AGREEMENTS AND LOAN AGREEMENT WITH THE LAGUNA BEACH COMMUNITY LAND TRUST FOR 2307 AND 2535
LAGUNA CANYON ROAD
RECOMMENDATION: It is recommended that the City Council:
1. Authorize the City Manager to execute the Assignment Agreement assigning the City’s Purchase and Sale Agreements for 2307 and 2535 Laguna Canyon Road to the Laguna Beach Community Land Trust;
2. Authorize the City Manager to execute a Loan Agreement in the principal amount of eight million dollars with the Laguna Beach Community Land Trust, secured by deeds of trust on both properties, on substantially the terms presented;
3. Authorize the City Manager to execute all related escrow, security, and implementing documents necessary to consummate the transaction;
4. Approve a one-time grant to the Laguna Beach Community Land Trust in an amount not to exceed seventy five thousand dollars to cover closing costs associated with the acquisition of 2307 and 2535 Laguna Canyon Road;
5. Appropriate funds in an amount not to exceed seventy-five thousand dollars from the Housing Fund for the purpose of providing the grant; and
6. Find that the recommended action is not a project under the California Environmental Quality Act pursuant to Section 15378 because the actions will not result in a direct or reasonably foreseeable indirect physical change in the environment.
SUMMARY OF THE MATTER
On December 9, 2025, the City Council authorized staff to proceed toward assignment of the Purchase and Sale Agreements for 2307 and 2535 Laguna Canyon Road (the Properties) to the Laguna Beach Community Land Trust and directed staff to return with final assignment and loan documents for Council consideration.
The City initially acted in 2025 after the Properties were placed on the private market and were at risk of being sold and converted to other uses. Together, the Properties contain approximately 25 artist live work and light industrial units. To preserve these units, the City entered into purchase agreements, completed due diligence, and helped establish the Laguna Beach Community Land Trust as the long term owner.
The actions now before the City Council complete that process. The City will assign the purchase agreements to the Community Land Trust, which will close escrow directly with the property owners for a total purchase price of $8,000,000. The City will provide a $8,000,000 secured loan with a 5 year term and a fixed interest rate of 4 percent. The loan includes safeguards to protect public funds and ensure the Properties remain dedicated to artist live work and affordable housing purposes.
ARTIST LIVE WORK UNITS; AUTHORIZATION TO EXECUTE ASSIGNMENT OF
PURCHASE AND SALE AGREEMENTS AND LOAN AGREEMENT WITH THE LAGUNA BEACH COMMUNITY LAND TRUST FOR 2307 AND 2535 LAGUNA CANYON ROAD January 27, 2026
Because the Community Land Trust is a new organization with limited operating funds, it has requested a one time grant to cover closing costs, estimated between $50,000 and $75,000. Staff recommends providing this assistance as a grant from the Housing Fund rather than adding it to the loan.
These actions are financial and administrative in nature and do not approve construction or physical changes to the Properties. Approval will allow the Community Land Trust to acquire and preserve critical artist live work properties while protecting the City’s financial position and advancing long standing housing and cultural preservation goals.
DISCUSSION
Background and Prior Council Action
As detailed in the December 9, 2025 staff report, the City was made aware of a potential private sale of of the Properties. To prevent the loss of approximately twenty-five artist oriented live work and light industrial units, the City entered into Purchase and Sale Agreements in January 2025, completed extensive due diligence, negotiated revised pricing based on verified site conditions, and coordinated the formation of the Laguna Beach Community Land Trust as the long-term ownership entity.
The Council previously approved:
• Execution and amendment of the Purchase and Sale Agreements • Formation and initial capitalization support for the Community Land Trust • A nonbinding letter of intent outlining the proposed assignment and loan structure • Direction for staff to return with final documents for approval The actions before the Council represent the final step in implementing that direction.
Assignment of Purchase and Sale Agreements
The City will assign its rights and obligations under the Purchase and Sale Agreements for both properties to the Laguna Beach Community Land Trust. The Land Trust is a California nonprofit corporation with a specific purpose, enshrined in its bylaws, to:
“secure affordable house for the residents and people working in the City of Laguan Beach, by among other things, purchasing, developing, constructing, financing, managing, renting, selling, subsidizing, and monitoring single-family housing, multi-family housing, combined live-wok housing and shared housing; expanding economic development opportunities for the benefit of low and moderate income residents and workers; supporting the development of business and charitable facilities and programs; and conducting or performing any ancillary or related activity in furtherance of the foregoing.”
This stated purpose, along with terms of the transaction with the City, will ensure the Properties are used for the goals, policies and objectives mentioned above. Upon assignment, the Land Trust will become the buyer of record and will close escrow directly with the property owners under the same negotiated terms approved by the City Council.
ARTIST LIVE WORK UNITS; AUTHORIZATION TO EXECUTE ASSIGNMENT OF
PURCHASE AND SALE AGREEMENTS AND LOAN AGREEMENT WITH THE LAGUNA BEACH COMMUNITY LAND TRUST FOR 2307 AND 2535 LAGUNA CANYON ROAD January 27, 2026
Key points:
• Properties: 2307 and 2535 Laguna Canyon Road
• Total purchase price: eight million dollars
• Due Diligence Period Ends: January 28, 2026
• Closing: February 6, 2026
• Assignment permitted under the Purchase and Sale Agreements with City approval • The City will not retain ownership interest in the properties following closing, other than its secured lender position.
Loan Agreement Structure
To facilitate acquisition, the City will provide a secured loan to the Community Land Trust with the following principal terms, consistent with the previously disclosed letter of intent:
• Loan amount: eight million dollars
• Funding source: Vehicle Replacement Fund
• Term: five years with balloon payment at maturity
• Interest rate: four percent fixed
• Payments: quarterly interest only
• Security: first position deeds of trust on both properties • Future affordability covenant to come back to City Council to allow Community Land Trust to plan for Properties
• Option to purchase easements for undergrounding purposes Loan proceeds will be used solely to fund acquisition costs.
Financial and Operational Safeguards
The transaction includes multiple safeguards designed to protect the City and ensure long term public benefit:
• Deeds of trust securing full repayment of principal and interest • Restrictions on redevelopment or conversion of use during the loan term without City approval • Rent covenants requiring that operating income cover debt service and maintain affordability objectives
• Annual financial reporting and rent roll submittals to the City • Insurance requirements naming the City as additional insured or loss payee • Indemnification provisions protecting the City from property related claims If the Community Land Trust is unable to refinance or repay the loan at maturity, the City retains the ability to exercise its lender remedies, including sale of the properties to recover outstanding principal.
Request from Laguna Beach Community Land Trust for Additional Funding to Cover Closing Costs The Land Trust remains in its early stages of operation and is simultaneously working to establish its organizational capacity while preparing to assume ownership of 2307 and 2535 Laguna Canyon Road. The ARTIST LIVE WORK UNITS; AUTHORIZATION TO EXECUTE ASSIGNMENT OF
PURCHASE AND SALE AGREEMENTS AND LOAN AGREEMENT WITH THE LAGUNA BEACH COMMUNITY LAND TRUST FOR 2307 AND 2535 LAGUNA CANYON ROAD January 27, 2026
timing of the opportunity to preserve these properties required the City and the Land Trust to advance property acquisition and organizational formation in close coordination, rather than through a sequential process. As a result, the Land Trust has limited unrestricted funds available to cover near term transactional expenses.
In this context, the Land Trust Board has requested City assistance in the form of a grant to cover closing costs associated with the acquisition of the two properties. These costs include escrow fees, title insurance, recording fees, and other customary transactional expenses that must be paid at closing. Staff estimates that total closing costs will range between fifty thousand dollars and seventy five thousand dollars.
Staff recommends that these costs be provided as a grant rather than incorporated into the loan documents.
Providing the assistance as a grant avoids increasing the principal loan balance, simplifies loan administration, and reflects the City’s intent to support the Land Trust during its initial formation and transition into ownership. This approach also recognizes that the closing costs do not contribute to long term asset value and are not appropriate to amortize over the loan term.
Staff further recommends that the City Council appropriate funds in an amount not to exceed seventy five thousand dollars from the Housing Fund to cover these closing costs. Use of the Housing Fund for this purpose aligns with the fund’s intended use to support housing related activities and affordable housing objectives within the City. The proposed grant would provide targeted, one time assistance that enables the Land Trust to successfully close escrow while maintaining the integrity of the loan structure and protecting the City’s financial position.
Housing Fund
The City has identified the Housing Fund and the Housing In Lieu Fund as the primary sources of local matching funds required for a two point five million dollar affordable housing grant. Staff identified these funds for planning purposes only, and the City has not committed or expended them. The Housing Fund currently maintains an approximate balance of one hundred sixty four thousand dollars.
Use of these funds as a match does not prevent the City Council from approving up to seventy five thousand dollars for closing costs. If the City Council approves that action, the City would need to identify an alternative funding source in the amount of one hundred fifty three thousand dollars to fully satisfy the grant matching requirement. The senior home repair program previously received an appropriation from the Housing Fund on January 13, 2026. The need to identify an alternative source would not arise until, at the earliest, the next fiscal year.
At the time the City submitted the grant application, staff anticipated that the Housing Fund and the Housing In Lieu Fund might not have sufficient balances to cover the full local match if the grant were awarded. For that reason, on April 9, 2024, the City Council authorized the use of the Parking Fund as a supplemental funding source to cover any remaining portion of the required match.
ARTIST LIVE WORK UNITS; AUTHORIZATION TO EXECUTE ASSIGNMENT OF
PURCHASE AND SALE AGREEMENTS AND LOAN AGREEMENT WITH THE LAGUNA BEACH COMMUNITY LAND TRUST FOR 2307 AND 2535 LAGUNA CANYON ROAD January 27, 2026
FINANCIAL ANALYSIS
Investment Policy
The proposed loan to the Community Land Trust does not qualify as an investment under generally accepted governmental accounting standards. Governmental Accounting Standards Board Statement No. 31 defines an investment as an asset acquired mainly to earn income or profit. The primary purpose of this loan is not to generate profit. Its purpose is to advance a public benefit by preserving and expanding artist live work units and affordable housing within the City.
Although the loan includes interest, interest alone does not transform the transaction into an investment.
The City structured the loan to support housing production and long term affordability, not to maximize financial return. The interest rate functions as a safeguard for public funds rather than a profit driven objective. The loan advances a recognized public purpose that aligns with the City’s authority and the State’s declared housing emergency.
Even if the loan were analyzed under the City’s Investment Policy, it does not fit within the types of investments that policy regulates. The Investment Policy, consistent with state law, governs the placement of surplus funds into financial securities. Those securities include bonds, notes, pooled funds, and other market based financial products. A direct loan secured by deeds of trust on specific properties does not function as a security in the traditional sense. It is not pooled, tradeable, or designed for market resale.
State law and the City’s Investment Policy both regulate mortgage related securities only when they are pooled or bundled as investment products. This structure reflects a focus on market instruments rather than direct loans made for specific public purposes. The absence of rules governing individual loans supports the conclusion that such transactions were not intended to be treated as investments.
Interpreting the Investment Policy to apply to any City activity that earns interest would also lead to unreasonable outcomes. Under that interpretation, longstanding City loan programs for housing or other public purposes would be improperly classified or restricted. That interpretation would conflict with historical practice and with the intent of the policy.
Audit and Accounting Treatment
For accounting and audit purposes, the loan is expected to be recorded as a loan receivable, not as an investment. Governmental accounting standards treat loans made to advance public policy objectives as receivables. This treatment reflects the substance of the transaction, which involves extending credit to achieve a community goal rather than placing funds to earn investment income.
This approach is consistent with how governments typically report housing loans and similar public purpose financing arrangements. These loans are disclosed with their terms, interest rates, security, and repayment conditions. They are not included in pooled investment accounts and are not evaluated under investment performance measures.
ARTIST LIVE WORK UNITS; AUTHORIZATION TO EXECUTE ASSIGNMENT OF
PURCHASE AND SALE AGREEMENTS AND LOAN AGREEMENT WITH THE LAGUNA BEACH COMMUNITY LAND TRUST FOR 2307 AND 2535 LAGUNA CANYON ROAD January 27, 2026
The loan includes standard financial protections, including collateral, interest, and a defined maturity date.
These features support responsible financial reporting while preserving a clear distinction between policy driven lending and surplus fund investment activity.
Loan to Community Land Trust
The City will provide a direct loan to the Community Land Trust in the principal amount of eight million dollars. The loan carries simple interest at a fixed rate of four percent and has a five year term. The loan is secured by deeds of trust on the subject properties. At the end of the term, the full principal balance is due.
The Community Land Trust is a separate legal entity formed to support housing objectives within the City, including artist live work units and affordable housing. The public benefit associated with the loan is the primary justification for the transaction. The loan supports long term housing stability, affordability, and preservation of cultural assets that define the community.
The repayment and security provisions exist to protect public funds. They do not change the fundamental purpose of the transaction. The loan is a policy driven financing tool, not an investment vehicle. For these reasons, the loan is appropriately evaluated outside the City’s Investment Policy and accounted for as a loan receivable in the City’s financial statements.
ENVIRONMENTAL ANALYSIS
Staff recommends that the City Council find that the actions before the Council do not constitute a project under the California Environmental Quality Act pursuant to Section 15378. The recommended actions do not authorize, approve, or commit the City to any physical development or activity that may cause a direct or reasonably foreseeable indirect physical change in the environment.
These actions do not grant development rights, do not modify land use entitlements, and do not approve construction, alteration, or redevelopment of the properties. Any future actions that may result in a physical environmental effect will require separate review and compliance with CEQA before consideration by the City Council.
Based on this analysis, the recommended action is not a project under CEQA and no further environmental review is required at this time.
ATTACHMENTS
1. Loan Agreement (Pgs. 8-21)
2. Deed of Trust (Pgs. 22-34)
3. Secured Promissory Note (Pgs. 23-30)
Submitted By:
. Approved: .David A Kiff
Jeremy Frimond, Assistant City
Manager
Dave Kiff, City Manager
ARTIST LIVE WORK UNITS; AUTHORIZATION TO EXECUTE ASSIGNMENT OF
PURCHASE AND SALE AGREEMENTS AND LOAN AGREEMENT WITH THE LAGUNA BEACH COMMUNITY LAND TRUST FOR 2307 AND 2535 LAGUNA CANYON ROAD January 27, 2026
Report Prepared By: Coordinated With:
Jeremy Frimond, Assistant City Manager Patrick Donegan, Assistant City Attorney Michelle Bannigan, Finance Director