DATE: OCTOBER 24, 2023
DEPARTMENT: COMMUNITY DEVELOPMENT DEPARTMENT
FROM: LISA BRINTON, DIRECTOR
THROUGH: ROD POWELL, ASSISTANT DIRECTOR
TITLE: PURCHASE AND SALES AGREEMENT FOR 443 WEST MARKET ST (EL REY MOTEL) RECOMMENDED MOTION:
A motion to approve a Resolution authorizing the Mayor to execute a Purchase and Sales Agreement (PSA) in the amount of three million six hundred and forty thousand dollars ($3,640,000) for the purchase of a 25-room motel with a two-bedroom manager apartment located at 443 West Market Street (Property) in the City of Salinas utilizing the American Rescue Plan Act (ARPA) funding for the purchase.
EXECUTIVE SUMMARY:
In recognition of the critical need for more affordable housing in Salinas, the City Council appropriated $7 million from the American Rescue Plan Act (ARPA) to the Affordable Housing Production Fund. Since then, staff have been working diligently to identify projects that would advance the City’s affordable housing goals. On August 23, 2023, during closed session, staff presented the opportunity to City Council to acquire 443 West Market Street, 25 studio/Jr. one-bedroom units and one two-bedroom unit. After receiving Council direction, City staff reached out to the owners with a purchase price of three million six hundred and forty thousand dollars ($3,640,000), contingent on the appraised value. Escrow would close January 24, 2024, with the seller having an option to extend up to three 45-day extensions to assist with his 1031 exchange.
The Community Development Department Economic Development Division will initially manage the Property and with the support of the Housing Division will develop an appropriate short-term rehabilitation and rental plan targeting extremely low, very low-, or low-income households.
BACKGROUND:
The City’s 2015-2023 Housing Element identified that a significant portion of Salinas’ households are considered “cost burdened”. Households are considered cost burdened when they spend more than thirty percent (30%) of their income on rent, mortgage, and other housing needs. Among those who rent in the City, almost fifty-three percent (53%) of households pay more than thirty percent (30%) of their income towards housing costs. In response to the City’s current housing market, Council has made providing affordable housing a top strategic priority.
On November 16, 2021, Council approved Resolution 22250 appropriating $7 million ($7,000,000) from the American Rescue Plan Act (ARPA) to the Affordable Housing Production Fund authorizing the funds to be used for predevelopment, acquisition, construction, plans, and studies. Staff have been actively soliciting proposals for the use of these funds from developers and has also explored opportunities for the City to acquire both developed and undeveloped properties for housing. In reviewing properties for acquisition, staff discovered 443 West Market Street (Assessor’s Parcel Number [APN] 002-061-008-000), which is unique in that it is a motel.
Purchasing the El Rey motel promises to be a transformative investment for the city, offering a multitude of benefits that will positively impact the community. Its acquisition can serve as a cornerstone in addressing the pressing housing crisis, presenting opportunities for diverse purposes such as the potential of a city-owned emergency shelter, permanent low-income residential housing, and temporary housing solutions. This versatility in usage would be invaluable in meeting the city's ever-evolving housing needs and provide a lifeline for vulnerable populations. Furthermore, the motel's strategic location opens doors for collaborative efforts with the County, reinforcing joint assistance initiatives and strengthening the City's commitment to social welfare. Lastly, the Property's prime positioning makes it an attractive prospect for future development, allowing Salinas to evolve in tandem with its growing population and changing urban landscape. In sum, acquiring this motel is a wise and forward-thinking move that holds the promise of a brighter future for the City of Salinas and its residents.
DISCUSSION:
443 West Market Street (Property) is currently owned by two Trusts, the Property was not listed for sale. Staff reached out to the owners who were willing to sell the Property at an asking price of three million nine hundred and fifty thousand dollars ($3,950,000). It is a single level motel with approximately 7,981 square feet of gross building area on a 43,717 square foot lot built in 1936. The Property is comprised of 25 studio/Jr. one-bedroom units and one two-bedroom unit. All but two of the units have kitchen amenities. These two units would require kitchens to be built, but otherwise, little reconfiguration of the Property would need to occur to be able to lease up the units to long-term residential tenants. The Property has been well maintained with a newer roof but does require rehab due to its age. Staff is currently coordination a facility assessment to determine the cost of rehab.
Staff negotiated a purchase price of three million six hundred and forty thousand dollars ($3,640,000). This purchase price is contingent on an appraisal of the Property’s fair market value which has been met. Escrow will close by January 24, 2024; however, the seller has the option to extend close of escrow for an additional three (3) 45-day extensions to comply with his request of completing a 1031 exchange. City staff is familiar with the Property and has reviewed the Preliminary Title Report and will coordinate is currently coordinating a Property Condition Assessment. Based on the information from the reports received, staff believes the Property to be in good condition with normal wear and tear that is expected for the age of the motel facility.
CEQA CONSIDERATION:
The City of Salinas has determined that the proposed action, acquisition of an existing, is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378). In addition, CEQA Guidelines Section 15061 includes the general rule that CEQA applies only to activities which have the potential for causing a significant effect on the environment. Where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the activity is not subject to CEQA. Because the proposed action and this matter have no potential to cause any effect on the environment, or because it falls within a category of activities excluded as projects pursuant to CEQA Guidelines section 15378, this matter is not a project. Because the matter does not cause a direct or foreseeable indirect physical change on or in the environment, this matter is not a project. Any subsequent discretionary projects resulting from this action will be assessed for CEQA applicability.
STRATEGIC PLAN INITIATIVE:
The proposed acquisition supports the City of Salinas Strategic Plan 2023-2025 goal of Housing/Affordable Housing. This acquisition represents an increase in local affordable housing stock and will provide a stable, long-term housing opportunities.
DEPARTMENTAL COORDINATION:
CDD’s Economic Development Division continues to coordinate with both the Community Development Housing and Permit Services Divisions to identify and vet viable properties. Additional consultation regarding the preparation of the draft PSA has also occurred with the City Attorney.
FISCAL AND SUSTAINABILITY IMPACT:
The purchase price for the property is three million six hundred forty thousand dollars ($3,640,000) and associated estimated escrow cost is four thousand sixteen dollars ($4,016), both of which are available and appropriated in 3911.30.9021.
Additional on-going operating costs for property maintenance, remediation and repair, and approximate property taxes in the amount of thirty-six thousand four hundred dollars ($36,400) per year is subject to annual budget appropriation..
ATTACHMENTS:
Resolution
PSA – 443 West Market Street – Draft, including a Legal Description, Grant Deed, and Certificate of Acceptance Aerial Photograph – 443 West Market Street
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