Subject: Property Management Policies and Procedures for Lease and Sale of City-owned Property Index: Real Property Management
Number: 901-1
Effective Date:
Prepared By: Community Development
Supersedes: July 1, 1994
Approved By:
Attachment 3Attachment 3
Attachment 3
Attachment 3
Policy And Procedure
PURPOSE:
The purpose of these policies and procedures is to establish a consistent framework for managing the City's real property portfolio through periodic review, asset classification, and evaluation. The procedures provide guidance for determining the appropriate long-term role of individual properties and, where appropriate, implementing lease, sale, exchange, and other real property transactions in accordance with applicable law and City policy.
This policy does not apply to franchise agreements or other regulatory authorizations for the use of public property that are governed by separate provisions of the San Clemente Municipal Code or other applicable law.
ORGANIZATION AFFECTED:
All Departments/Divisions.
REFERENCES:
California Surplus Land Act (Government Code Section 54220 et seq.) City Real Estate Asset Management Program (REAMP)
California Environmental Quality Act (CEQA)
POLICY:
This policy governs how the City manages its real property interests and conducts real property transactions.
Portfolio Management
The City shall manage its real property portfolio to support municipal needs, adopted City objectives, and the efficient use of public assets. The Real Estate Asset Management Program (REAMP) is the City's primary tool for evaluating and managing its real property portfolio.
Staff shall review the City's real property portfolio in conjunction with the City's biennial budget development process. Where the review identifies changes in municipal needs, legal requirements, property conditions, or other factors affecting the City's real property portfolio, staff shall update the REAMP and present any recommended asset classifications or reclassifications to the City Council. The REAMP shall also be updated as needed outside the budget development process as necessary to reflect approved changes, comply with applicable law, or address municipal needs.
Asset Classification
The City Council shall consider the recommendations of the REAMP and determine the long-term role of City-owned real property within the City's real estate portfolio by assigning an appropriate asset classification. Classifications supporting surplus land disposition are subject to the requirements of the Surplus Land Act and other applicable law.
Real Property Transaction Authority
Real property transactions require approval from the authority designated by law, the Municipal Code, or City Council action.
Transaction Recommendations
Prior to recommending a real property transaction, staff shall evaluate and document its financial, strategic, and operational impacts, aiming for the greatest overall public benefit.
Negotiation Authority
Real property transactions shall be negotiated by the City Manager or designee, subject to any direction provided by the City Council. Price and terms of proposed real property transactions may be discussed in closed session in compliance with the Ralph M. Brown Act. The City Council may provide direction to the City Manager or designee for further negotiation or study or direct the proposed transaction be returned to open session for approval, disapproval or other action.
Unsolicited Requests
The City may receive unsolicited requests to purchase, lease, exchange, or otherwise obtain an interest in City-owned property. Staff evaluates any such request against the real property's existing classification and the City's objectives at the time of the request. Receipt of an unsolicited request does not obligate the City to evaluate, negotiate, consider formally or convey an interest in the property. Unsolicited requests for proposed transactions that are inconsistent with the real property's existing classification and the City's objectives at the time of the request may be summarily rejected by staff.
Administration
Responsibility for administering and implementing this policy and procedure is delegated to the City Manager or designee.
PROCEDURE:
Real Estate Portfolio Management
Staff shall periodically prepare updates to the Real Estate Asset Management Program (REAMP) in accordance with the procedures established for administration of the REAMP. The REAMP provides the framework for evaluating City-owned property and developing recommendations regarding the property’s long-term role in meeting municipal needs and City objectives.
Bi-Annual REAMP Portfolio Evaluation
As part of the REAMP, staff shall evaluate City-owned properties to develop recommendations for City Council consideration regarding any proposed asset classifications or reclassifications.
Evaluation Outside the REAMP Cycle
Staff may initiate an evaluation of individual properties outside the regular REAMP cycle when circumstances warrant, including changes in operational needs, capital improvement planning, development or redevelopment opportunities, unsolicited purchase or lease requests, intergovernmental opportunities, grant opportunities, or other circumstances affecting a property's long-term role.
Evaluations conducted outside the regular REAMP cycle shall follow the same analysis, documentation, and recommendation process established by the REAMP procedures.
Recommendation to City Council
Based upon a completed evaluation, the City Manager or designee shall recommend asset classifications or reclassifications to the City Council together with supporting analysis and findings.
The City Council shall consider the recommendation and determine the property's long-term role within the City's real estate portfolio by assigning an appropriate asset classification.
Regulatory Compliance
Following City Council assignment of an asset classification, staff shall complete all applicable statutory and regulatory requirements before submitting the proposed transaction to the appropriate approving authority.
Surplus Land Act – Exempt Property Process
Where the approved asset classification supports a surplus land disposition and qualifies for an exemption under the Surplus Land Act, staff shall complete the required documentation and reporting to the California Department of Housing and Community Development (HCD). Following satisfaction of the applicable statutory notice requirements and consideration of any response received from HCD, staff may proceed with transaction development.
Surplus Land Act – Non-Exempt Property Process
Where the approved asset classification supports a surplus land disposition and has been determined to be a non-exempt surplus property, staff shall complete all notices, offer requirements, negotiation periods, and other procedures required by the Surplus Land Act. Upon completion of the applicable statutory requirements, staff may proceed with transaction development and submit the proposed transaction to the appropriate approving authority.
Environmental Review
Where required by the California Environmental Quality Act (CEQA) or other applicable law, staff shall complete the required environmental review or recommendation for appropriate CEQA determination simultaneously with submitting the proposed transaction for final approval or execution, as applicable.
Grant Requirements
Where City-owned property is subject to state or federal grant requirements, deed restrictions, funding agreements, or other funding conditions, staff shall ensure compliance with all applicable requirements before proceeding with the proposed transaction.
Other Regulatory Approvals
Where other federal, state, regional, or local approvals, permits or authorizations are required, staff shall obtain or satisfy such approvals before submitting the proposed transaction for final approval or execution, as applicable.
Transaction Process
Following completion of any required regulatory compliance activities, staff shall develop the proposed real property transaction in accordance with this policy, applicable law, and the approved asset classification. Staff shall determine the transaction strategy most appropriate to achieve the City's long-term objectives.
General Transaction Requirements
All real property transactions shall be conducted in accordance with applicable federal, state, and local laws, regulations, and City policies. Staff shall coordinate with affected departments and agencies as necessary to complete the proposed transaction. The City may utilize qualified real estate professionals or other specialized consultants, as appropriate, to assist with the evaluation, marketing, negotiation, or implementation of real property transactions.
Transaction Development
Staff shall develop a recommended transaction strategy by evaluating the transaction structure and transaction method that best support the approved asset classification, considering municipal objectives, operational needs, legal and regulatory requirements, financial and risk considerations, long-term public benefit, and other relevant factors.
The recommended transaction strategy shall be consistent with the approved asset classification and the long-term role established by the City Council. In developing a recommendation, staff shall also consider the long-term operational, financial, and strategic implications of the proposed transaction on the City's real property portfolio.
The selected transaction structure should reflect the approved asset classification and the manner in which the City’s long-term objectives are best implemented. Lease transactions may be appropriate where continued City ownership advances municipal objectives while allowing another party to utilize, improve, or activate the property. Sale transactions may be appropriate where permanent transfer of ownership best advances the City's long-term objectives and public benefit.
Fair Market Value / Fair Market Rent
Unless otherwise authorized by law or approved by the City Council based on an identified public benefit, real property transactions shall generally be based upon Fair Market Value (FMV) or Fair Market Rent (FMR), as applicable. The valuation supporting a recommended transaction must be no more than twelve months old at the time the transaction is presented to the City Council. Staff may obtain an appraisal, broker opinion of value, or other market valuation, as appropriate, to support the recommended transaction.
Standard Forms and Templates
Transaction documents shall utilize City-approved forms or templates when available, unless otherwise authorized by the approving authority.
City Council Approval of Final Transaction
The staff report presented to the City Council for a proposed real property transaction must include:
Background — the property, its asset classification, and the type of transaction recommended; Reason for the transaction — why this type of transaction (lease, sale, or exchange) was chosen over other options, and what public benefit or City goal it supports; Financial terms — what the City will receive, and if it's below Fair Market Value or Fair Market Rent, the specific public benefit and basis that justifies the lower amount; Legal requirements met — confirmation that the Surplus Land Act, CEQA, and any other required reviews have been completed; Staff recommendation.
Unless otherwise authorized by applicable law or by City Council through ordinance, resolution, or adopted policy, transactions involving the conveyance of an interest in City-owned real property shall require City Council approval.
Transaction Approach
The selected transaction approach shall govern the procedures applicable to the transaction. Competitive and negotiated transactions shall be conducted as follows:
Competitive Marketed Transactions
Competitive transactions are the City's preferred method for offering real property interests to the market unless applicable law or the circumstances of the proposed transaction support a negotiated transaction in accordance with Section 5.4.2.2. Competitive transactions may include the sale or lease of City-owned property.
Marketing
Marketing shall be conducted using methods appropriate to the property, approved asset classification, and approved transaction strategy. Marketing may include notice of availability, professional brokerage services procured in accordance with the City's purchasing policies, public advertising, online commercial listing services, requests for proposals, direct outreach, or other methods appropriate to the proposed transaction. Any notices required by applicable law shall also be completed.
Evaluate Offers
Offers shall be evaluated based upon the overall public benefit and consistency with the City's adopted objectives. While financial consideration is an important factor, the City Council is not obligated to approve the highest monetary offer and may consider other factors, including proposed land use, development concept, public benefit, transaction structure, financial return, and other municipal interests. Evaluation criteria shall reflect the objectives established for the property through the approved asset classification.
Where brokerage fees are paid by the City, proposed consideration shall be evaluated based on the net financial benefit to the City, taking into account any applicable brokerage fees and other transaction costs.
Recommend
Following completion of the competitive process, staff shall recommend the preferred transaction to the appropriate approving authority together with supporting analysis and findings.
Negotiated Transactions
Negotiated transactions may be appropriate where applicable law or the characteristics of the proposed transaction make competitive marketing impractical or inconsistent with the City's objectives. Circumstances supporting a negotiated transaction may include, but are not limited to:
Statutory Negotiations
Where required by applicable law, including the Surplus Land Act, the City shall conduct negotiations with eligible entities in accordance with applicable statutory requirements. Completion of any required statutory negotiation process does not obligate the City to approve a transaction unless otherwise required by law.
Adjoining Property Owner
Properties having practical value primarily to one or more adjoining property owners may be appropriate for a negotiated transaction because competitive marketing is unlikely to result in additional meaningful competition or increased public benefit.
Public Agency Transactions
Negotiated transactions may be appropriate where the proposed transaction is with another governmental, public, or quasi-public agency and the transaction advances a public purpose or municipal objective that would not be enhanced through competitive marketing.
Nonprofit Organizations
Negotiated transactions may be appropriate where state law authorizes conveyance to a qualified nonprofit organization and the proposed transaction advances an identified public purpose or development objective.
Property Exchanges
Property exchanges may be appropriate where another governmental or public agency owns property needed to further municipal objectives or where an exchange otherwise provides a clear advantage to the City. See Section 5.4.5 for exchange transactions.
Entitlement and Due Diligence Contingencies
Negotiated transactions may be appropriate where entitlement requirements, environmental review, due diligence, development obligations, or other property-specific conditions make competitive marketing impractical or contrary to the City's interests.
Documentation of Negotiated Transactions
Staff shall document the basis for recommending a negotiated transaction, including the circumstances supporting negotiation, the basis for the proposed consideration, and the public benefit or municipal interest served by the transaction.
City Council Authorization to Negotiate
Where the City Council determines that a negotiated transaction is appropriate, staff may proceed with negotiations in accordance with the direction provided by the City Council and return with a proposed transaction for final consideration.
Lease Transactions
Lease agreements shall be structured to retain City ownership while advancing the approved asset classification and municipal objectives. Lease terms shall appropriately allocate financial responsibilities, operational obligations, maintenance responsibilities, and risk in a manner that protects the City's interests and supports the intended use of the property.
Lease Consideration
Lease consideration shall generally reflect Fair Market Rent unless otherwise authorized by law or by the appropriate approving authority. Lease agreements shall include appropriate rent adjustment mechanisms, such as periodic review, CPI adjustments, reappraisals, percentage rent, or other methods appropriate to the transaction.
Lease Terms
Lease agreements may utilize gross, net, modified gross, percentage rent, triple net, or other rental structures appropriate to the proposed transaction.
Selection of Lessee
Staff shall evaluate lease proposals based on the approved transaction strategy and the extent to which the proposal advances the approved asset classification and municipal objectives. Evaluation may include consideration of:
consistency with the approved asset classification;
compatibility with municipal objectives;
proposed public benefit;
proposed land use or use of the property;
financial consideration;
financial capability to perform the lease obligations; or demonstrated experience operating similar facilities or activities, where applicable; Amendments
Amendments shall be approved by the authority having jurisdiction under applicable law, ordinance, resolution, or policy. Where an amendment materially affects the economic terms of the lease, staff shall evaluate whether the proposed consideration remains consistent with Fair Market Rent or otherwise supports the City's interests. Such evaluation may be supported by an appraisal, broker opinion of value, market survey, or other information appropriate to the proposed amendment.
Financial Encumbrances
The City shall generally not subordinate its ownership interest in City-owned property to financing or other encumbrances associated with a leasehold interest. Exceptions may be approved by the appropriate approving authority when determined to protect the City's interests and support the approved transaction.
Improvement
Lease improvements installed by the lessee shall be removed at termination without cost to the City, or will revert to the City, at the City's option, unless otherwise provided in the lease agreement. Leasehold improvements shall be subject to the approvals required by applicable law and the applicable lease agreement.
Audits
The City may review or audit lease records, financial information, or other documentation as authorized by the lease agreement to verify compliance with lease terms and financial obligations. Lease agreements that include percentage rent or other performance-based compensation should include appropriate reporting and audit provisions.
Sale transactions
Sale transactions shall be structured to implement the approved asset classification through the transfer of ownership in a manner that advances municipal objectives, protects the City's interests, and provides the greatest overall public benefit consistent with applicable law.
Purchase and Sale Agreement
Following City Council approval of a transaction, staff shall prepare a purchase and sale agreement or other transaction documents appropriate to the disposition, using City-approved forms or templates where available. The agreement shall establish the terms of sale, including purchase price, contingencies, closing timeline, and any conditions, covenants, or restrictions necessary to protect the City's interests or satisfy applicable regulatory requirements.
Bid and Sale Deposits
The City may require deposits, earnest money, bid security, or other financial assurances as appropriate to the proposed transaction. Deposit amounts, form, and timing shall be established in the solicitation documents, purchase agreement, or other transaction documents approved by the City. Failure to timely deliver a required deposit may be treated as a withdrawal of the offer, and the City may pursue the transaction with the next qualified party.
Escrow
Sale transactions shall be closed through escrow with a qualified escrow or title company. Escrow instructions shall be consistent with the approved purchase and sale agreement and executed by the City Manager or designee.
Conveyance and Deed
Title shall be conveyed by grant deed or other instrument appropriate to the transaction, subject to any reservations, covenants, conditions, restrictions, or exceptions approved by the City Council or required by applicable law. Staff shall ensure the deed and any related recorded documents accurately reflect the approved terms of the transaction.
Disposition of Proceeds
Net proceeds from the sale of City-owned property shall be deposited and allocated in accordance with the City's adopted financial policies, budget direction, or any specific direction provided by the City Council at the time of transaction approval, including any restrictions imposed by grant funding, deed restrictions, or other applicable law.
Exchanges
Property exchanges shall be structured to advance the approved asset classification and municipal objectives through the mutual conveyance of real property interests. Exchanges shall generally follow the transaction procedures established in Section 5.4.4, with the following distinctions:
Value Equivalency
Staff shall obtain appraisals, broker opinions of value, or other market valuations for each property involved in the exchange sufficient to establish rough equivalency of value. Where the properties are not of substantially equal value, the transaction may include an equalization payment or other consideration to account for the difference, subject to City Council approval.
Reciprocal Conveyance
Because an exchange involves the City conveying and receiving an interest in real property in the same transaction, closing documents shall address conveyance in both directions concurrently, including reciprocal deeds and any escrow instructions necessary to ensure simultaneous or conditioned closing.
Regulatory Considerations
Staff shall confirm whether the exchange qualifies for any applicable exemption under the Surplus Land Act or other law, and shall complete any due diligence, entitlement, or environmental review applicable to the property being acquired by the City, in addition to the property being conveyed.
Closing and Post Closing.
Following execution of a real property transaction, staff shall complete the closing and post-closing activities necessary to finalize the transaction and maintain accurate City records.
Recording
Deeds, easements, memoranda of lease, and other instruments affecting title to City-owned property shall be recorded with the County Recorder as necessary to provide public notice and protect the City's interests, unless the City Manager or designee determines that recordation is not required or appropriate for the transaction.
Asset Records
Upon closing, staff shall update the City's title, encumbrance, and lease administration records to reflect the completed transaction, including any changes in ownership, easements, restrictions, or lease obligations affecting the property.
REAMP Update
Following completion of a real property transaction, staff shall update the Real Estate Asset Management Program (REAMP), property inventory, and any related records to reflect the completed transaction and the current status of the property. Completion of a transaction does not preclude future evaluation or reclassification of remaining City-owned property as municipal needs and priorities evolve.
Financial Reporting
Staff shall report completed real property transactions in accordance with the City's adopted financial policies and reporting practices, including any information necessary to support the City's annual financial statements, capital asset records, or budget documents, and any reporting required under the Surplus Land Act or other applicable law.