CITY OF SOUTH EL MONTE
APRIL 25, 2023
Surplus Land Act Overview
1601 N. Sepulveda Blvd., #382, Manhattan Beach CA 90266 | (424) 297-1076 www.kosmontrealty.com
THE ANALYSES, PROJECTIONS, ASSUMPTIONS, RATES OF RETURN, AND ANY EXAMPLES PRESENTED HEREIN ARE FOR ILLUSTRATIVE PURPOSES AND ARE NOT A GUARANTEE OF ACTUAL AND/OR FUTURE RESULTS.
PROJECT PRO FORMA AND TAX ANALYSES ARE PROJECTIONS ONLY. ACTUAL RESULTS MAY DIFFER FROM THOSE EXPRESSED IN THIS ANALYSIS.
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City retained Kosmont Real Estate Services ("KR") to evaluate potential sale and disposition requirements and strategies (e.g. Surplus Land Act) KR reviewed required processes and provisions pursuant to current California Government Code
An overview of the Surplus Land Act as well as a summary of provisions pertinent to current discussions are provided herein
BACKGROUND
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The Surplus Land Act (SLA), originally enacted in 1968, was modified in 2020 (AB 1486), to ensure availability of property for affordable housing development.
Under the new SLA structure, public agencies that want to sell or lease a property must go through a structured sale disposition process that first requires exposing a property to a state published list of affordable housing developers and other required public agencies.
WHAT IS THE SURPLUS LAND ACT?
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OVERVIEW/CONTEXT
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Origin In a response to the massive Statewide housing shortage, State Legislature passed dozens of housing bills including AB 1486 (Surplus Land Act) to address this crisis.
Purpose
The SLA gives affordable housing developers a right of first refusal on all public agency owned land in the State of California. Does not necessarily prevent agencies from ultimately selling or leasing property for other uses or fair market value.
Mandate
Public Agencies in California (e.g., cities, counties, special districts, school districts, etc.), with certain exceptions, must follow this mandate prior to selling or leasing any public agency owned real estate.
Process
The SLA requires an up to 180-day request for proposal/bid process to either select or reject an affordable housing project/proposals. Once rejected, the property can be sold or leased to broader market.
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SLA REQUIRED DISPOSITION PROCESS
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Step 1
• City declares property “surplus” or "exempt surplus" land • If exempt, then City pursues HCD concurrence by providing written findings • If not exempt, then City prepares Notice of Availability (NOA) Step 2 • City sends NOA to qualified affordable housing developers & other required public entities for 60 days
Step 3
• If "Step 2" responses received, 90-day good faith negotiation period commences • If no responses received or negotiations at impasse (e.g. FMV), agency may negotiate with other non-affordable housing developers
• Process will require HCD approval which can take up to 30 days for a Letter of Compliance Step 4 • Post HCD Approval, City may dispose of surplus land without regard to SLA • Agency must still record 15% affordability covenant, which is triggered if 10 or more units Proprietary Do Not Duplicate Without Authorization
THE PRIMARY SLA QUESTIONS
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What are they worth?
What is the highest and best use?
What properties do you have?
Do you want housing on these properties?
Do you want to use them for other purposes?
Public Use? Commercial Use? Special Conditions?
Is there an adjacent owner who wants the property?
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FIRST, IS YOUR PROPERTY EXEMPT?
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Property can be declared “exempt surplus” if it falls under a few categories:
• “Grandfathered” Land – if City had agreement (e.g., ENA) in place prior to 9/2019, land is subject to a pre-AB1486 version of the SLA
• Land Destined for Affordable Housing - at least 75% units restricted for lower income families, or a mixed-use development with 300+ units and at least 25% restricted for lower income
• Land Dedicated for Other Public Uses – transferred to another agency or exchanged for another property for local agency’s use
• Land Not Suitable for Affordable Housing – former street, right-of-way, easement; small sites (less than 5k SF or less than 10k SF with no recorded accesses); sold to owner of contiguous land
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THE SLA PATHWAY TO AFFORDABLE HOUSING
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If Property is not “exempt surplus”, it must go through a noticing process to affordable housing developers and certain agencies:
• Notice of Availability given to affordable housing developers • Notice given to local agencies including school districts for school facilities and parks and recreation districts for open-space use (given priority to other proposals) • Parties have 60 days to express interest and then provided 90 days to negotiate in good faith • City does not have to sell the property for less than fair market value • If agreement on price/terms not reached, then City can sell to other parties (Post HCD Approval) • Property that completes process is subject to covenant requiring any residential development w/10 or more units to provide at least 15% of units to lower income households
• Enforcement: If local agency does not comply with SLA, HCD will impose fine of 30% of final sale price for first violation, 50% of final sale price for second violation Proprietary Do Not Duplicate Without Authorization
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Primary Steps to SLA Success
1 Property Inventory (Start Early)
Identify priority properties and/or projects now that may be impacted by SLA & can be put into productive use.
2 Prioritize, Screen, & Select an Approach
Confirm value, SLA applicability, Preferred Disposition Strategy/Use (e.g., asset monetization, sale or lease, public use, housing, etc.), Econ Dev Tools, & Financing Mechanisms. 3 Implementation (Transparency is Key)
Execute preferred disposition (sale, lease, etc.) strategy that’s done openly & fulfills community goals and objectives (job creation, tax revenues, housing) Proprietary Do Not Duplicate Without Authorization
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WHAT’S NEXT FOR SLA? THERE’S MORE TO COME
Bill Sponsors Summary
AB 480* Asm. Ting
Sen. Umberg
Includes expanding exemptions, administrative process changes for declaring “exempt surplus land”, violation / penalty changes
AB 457 Asm. Patterson Expand definition of “exempt surplus land” to include parcels smaller than 2 acres that are identified for future roadway development, are zoned / used for retail commercial use, and abut a state highway ROW AB 837 Asm. Alvarez Expands “exempt surplus land” to include land acquired by an agency to develop a university / innovation district in accordance with a plan (City of Chula Vista)
AB 983 Asm. Cervantes Expands “exempt surplus land” to include land that is designated in an adopted downtown revitalization plan (area less than 1.1 square miles) and includes residential, commercial, office, civic and hospitality uses.
AB 510 Asm. Jackson Exempts land placed into a local land trust / disposed out of a local land trust from the disposal requirements of the SLA SB 747* Sen. Caballero Reaffirms Authority to Use “Economic Opportunity” Statute to acquire and dispose of property.
SB 229 Sen Umberg Open / public session for local agency to review notice of violation; prohibit agency’s governing body from taking final action to ratify/approve proposed disposal until a public session is held.
SB 34
Sen. Umberg
Sen. Min
Sen. Newman
Asm. Quirk-Silva
Asm. Ting
Makes legislative findings / declarations as to the necessity of a special statute for Orange County regarding notification / violation process
SB 693 Sen. Seyarto Exempts specific parcels in the City of Murrieta from the SLA AB 1734 Asm. Jones-Sawyer Changes annual deadline of when cities must provide inventory of surplus land to HCD from April 1st to March 1st Proprietary Do Not Duplicate Without Authorization
SURPLUS LAND ACT: NEW RULES FOR PUBLIC REAL ESTATE
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SLA Here to Stay
New rules being used for property
disposition and housing creation
New Processes
Cities navigating evolving
procedures and compliance
New Strategies
Time to be strategic: use property
assets to pursue priorities
Sooner better than later. Cities should start NOW to review/evaluate property portfolio in alignment with econ. development goals/objectives
SLA is nuanced and circumstantial. Engaging HCD early in process is important to determination of compliance Transparency is key. Promote the City’s repositioned asset program to community to achieve HCD compliance Proprietary Do Not Duplicate Without Authorization