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HomeMy WebLinkAbout01/18/2000, C6 - APPRAISAL SERVICES AGREEMENT: PALM STREET-COURT STREET PROJECTL! FROM: SUBJECT: council acEnaa uEpolzt CITY OF SAN LUIS OBISPO Bill Statler, Director of Finance APPRAISAL SERVICES AGREEMENT: PALM STREET -COURT STREET PROJECT CAO RECOMN ENDATION hm Nm ba C6 ■ Approve an agreement with Ventura Appraisal Consulting Corporation to perform property appraisals for the Palm Street -Court Street project in the amount of $20,000. ■ Appropriate $20,000 from the unreserved General Fund balance to fund this work. DISCUSSION Overview As discussed below, perhaps the single most important "business" issue in considering the Palm Street -Court Street proposal is determining the fair market value of the properties affected by the project. Following an extensive proposal evaluation process, we recommend contracting with Ventura Appraisal Consulting Corporation for this work. While we received proposals from several well-qualified funs, we believe that Ventura Appraisal Consulting Corporation has the most experience in appraising "reuse" projects like this one that involve public- private partnerships. Background On September 20, 1999, Tom and Jim Copeland presented the Council with their conceptual proposal for the development of properties on Palm Street and Court Street, and requested that the City enter into an exclusive negotiating agreement (ENA) with them to "work out the project details." In response to this request, the Council entered into an ENA on October 19, 1999 in order to further explore the feasibility of the project concept. One of the key features of the project concept is the sale or lease of City-owned properties to the developer, and the sale or lease of properties owned by the developer to the City. As such, while there are many other major policy issues to be resolved in considering this proposal — including environmental, traffic, archaeological and parking concerns — determining the fair market value of the affected properties is probably the single most important "business" issue. Proposal Review and Selection Process Requesting Proposals. We sent Request for Proposals (RFP) on November 16, 1999 to nine firms that we believed were well- qualified to do this work based on the City's past experience, contacts with other cities and recommendations from our economic advisor on this project (PCR C64 Council Agenda Report— Appraisal Service Agreement: Palm Street -Court Street Project Page 2 Kotin). Attached is the Description of Work section from the RFP. Before issuing the RFP, we reviewed it with the developer, and provided copies to the Council. We held a pre - proposal conference on November 30, 1999 to review the RFP and answer questions by prospective proposers. Four firms attended this pre - proposal conference. We received proposals from the following three funs by the December 13, 1999 closing date: Reeder, Gilman & Associates $10,500 Ventura Appraisal Consulting Corporation $20,000 Schenberger, Taylor, McCormick & Jecker. . $28,000 Review Team and Evaluation Criteria. A review team composed of the City Administrative Officer, City Attorney, Director of Public Works and Director of Finance evaluated the proposals using the following criteria as set forth in the RFP: ■ Understanding of the work required by the City. ■ Quality, clarity and responsiveness of the proposal. ■ Demonstrated competence and professional qualifications necessary for successfully performing the work required, by the City. ■ Recent experience in successfully performing similar services. ■ Proposed approach in completing the work. ■ References. ■ Background and related experience of the specific individuals to be assigned to this project. ■ Proposed compensation. As reflected above, contract award should not be based solely on price, but on a combination of factors as determined to be in the best interest of the City. Proposal Review. In addition to a detailed review of the written proposals, the review team held follow -up interviews with each of the three proposing firms and performed detailed background and reference checks. The review team concluded that each of the proposers is qualified to do this work, and each would bring particular strengths to the project. For example, Reeder, Gillman has appraised several of the affected properties in the past, and Schenberger, Taylor, McCormick & Jecker has extensive experience in appraising properties in downtown San Luis Obispo. However, the review team believes that the proposal from Ventura Appraisal Consulting Corporation provides the overall best value, both in terms of their proposed cost as well as their experience in performing similar appraisal assignments. Of the three firms, we believe they have the most experience with "reuse" and "private -public partnership" projects, which we C6 -2 Council Agenda Report — Appraisal Service Agreement: Palm Street -Court Street Project Page 3 specifically highlighted as desirable past work experiences in the RFP. Once the appraisal is finished, we believe their experience and advice will be especially valuable to us in developing property acquisition and disposition strategies and structuring an agreement. Next Steps As noted in the RFP workscope, we need a final proposal from the developer before we can proceed with the appraisal. In short, we need to know exactly which properties are affected. We anticipate that we will receive this by February 2000. Based on a finalized project concept, it is likely that there will be some adjustment (most likely a reduction) to the workscope, and a resulting adjustment in the fee. However, the final compensation for appraisal services should not exceed $20,000. Once the workscope is finalized and we authorize Ventura Appraisal Consulting Corporation to proceed, the appraisal will be completed within 60 days. After the appraisal is completed, we may request follow -up consulting services from them. Any fees for these services will be on a time and materials basis. CONCURRENCES The proposal review team concurs with this recommendation. FISCAL IMPACT Funds for this work are not currently included in the City's budget. Accordingly, we recommend appropriating $20,000 from the unreserved General Fund balance to fund this work. Adequate fund balance is available to fund this appropriation and retain fund balance at minimum policy levels. ALTERNATIVES ■ Contract with Another Firm. While the other two firms are qualified to perform this work, we believe the Ventura Appraisal Consulting Corporation proposal provides the best overall value to the City. ■ Re- Solicit Proposals. We received three responsive and competitive proposals, and as such, we do not believe there would be any value in re- soliciting proposals. Additionally, this would resuft in a significant, undesirable delay in evaluating the feasibility of this project. ■ Defer or Do Not Go Forward with the Appraisal Work. This is a critical component of the research needed in negotiating an agreement. Deferring —or not going forward with the appraisal at all—would be the same as no longer pursuing this concept. Given the priority assigned to this project by the Council, we do not recommend this option. C6 -3 Council Agenda Report — Appraisal Service Agreement: Palm Street -Court Street Project Page 4 ■ Require the Developer to Pay for this Work. Given the proprietary and confidential nature of appraisals, and the importance of this information to the City in successfully negotiating an agreement with the developer, we believe the work product should clearly belong to the City. As such, we recommend that the City pay for this work. ATTACHMENTS ■ Agreement with Ventura Appraisal Consulting Corporation ■ Excerpt from RFP: Section A— Description of Work AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE ■ Request for Proposals for Appraisal Services ■ Proposals from Reeder, Gilman & Associates, Ventura Appraisal Consulting Corporation and Schenberger, Taylor, McCormick & Jecker Q: Council Agenda RepotNAppraisal Saviors Agnxm a C6-4 APPRAISAL SERVICES AGREEMENT THIS AGREEMENT is made and entered into in the City of San Luis Obispo on this day of , by and between the CTTY OF SAN LUIS OBISPO, a municipal corporation, hereinafter referred to as City, and VENTURA APPRAISAL CONSULTING CORPORATION, hereinafter referred to as Appraiser. WITNESSETH: WI EREAS, on November 16, 1999, City requested proposals for appraisal services for the Palm Street- Court Street Project per Specification No. 90049. WHEREAS, pursuant to said request, Appraiser submitted a proposal, which was accepted by City for said NOW THEREFORE, in consideration of their mutual promises, obligations and covenants hereinafter contained, the parties hereto agree as follows: 1. TERM. The term of this Agreement shall be from the date this Agreement is made and entered, as first written above, until acceptance or completion of said services. 2. INCORPORATION BY REFERENCE. City Specification No. 90049 and.Appraiser's proposal dated December S, 1999 are hereby incorporated in and made a part of this Agreement. 3. CITY'S OBLIGATIONS. For providing services, as specified in this Agreement, City will pay and Appraiser shall receive therefore compensation in a total sum not to exceed $20,000.00. 4. - APPRALSER'S OBLIGATIONS. For and in consideration of the payments and agreements hereinbefore mentioned to be made and performed by City, Appraiser agrees with City do everything required by this Agreement and the said specification. 5. AMENDMENTS. Any amendment, modification or variation from the terms of this Agreement shall be in writing and shall be effective only upon approval by the City Administrative Officer. 6. COMPLETE AGREEMENT. This written Agreement, including all writings specifically incorporated herein by reference, shall constitute the complete agreement between the parties hereto. No oral agreement, understanding, or representation not reduced to writing and specifically incorporated herein shall be of any force or effect, nor shall any such oral agreement, understanding, or representation be binding upon the parties C6 -5 Appraisal Services Agreement —Page 2 7. N0110E. All written notices to the parties hereto shall be sent by United States mail, postage prepaid by registered or certified mail addressed as follows: City City Clerk City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 Appraiser Lindsay F. Nelson, President Ventura Appraisal Consulting Corporation 770 County Square Drive, Suite 100 Ventura, CA 93003 8. AUTHORITY TO EXECUTE AGREEMENT. Both City and Appraiser do covenant that each individual executing this agreement on behalf of each party is a person duly authorized and empowered to execute Agreements for such party. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed the day and year first above written. ATTEST: City Clerk CITY OF SAN LUIS OBISPO By: _ Mayor APPROVED AS TO FORM: APPRAISER By: ' mey C6 =6 Section A DESCRIPTION OF WORK Excerpt from Request for Proposals OVERVIEW The City of San Luis Obispo wants to contract with a highly qualified appraisal firm to value City-owned properties proposed for acquisition (through either sale, lease or trade) as part of a private development proposal in the City's downtown known as Chinatown -Court Street. In valuing the City's properties, we recognize that appraisals of other privately -owned properties may be necessary. BACKGROUND As set forth in Appendix 1, the developer presented the Chinatown -Court Street concept to the Council at a study session on September 20, 1999, and requested that the City enter into an exclusive 120 -day negotiating agreement (ENA) to "work out the project details." On October 19, 1999, the Council approved an ENA with the developer. The ENA itself is provided in Appendix 2; and the Council Agenda Report recommending approval of the ENA and providing background information on the project is provided in Appendix 3. So far, the community has favorably received the project concept. However, is it is still in a very conceptual phase at this time, and there is much work and City review yet to follow. Before the finalizing the project proposal, the developer has scheduled a series of community workshops, which are currently underway. The developer has contracted with Peter Calthorpe —a nationally recognized expert on downtown design and "smart growth" concepts —to facilitate these workshops. Because of this, we do not expect a finalized project proposal for another 60 to 90 days. Following this, assuming the developer decides to go forward with the project and files a formal development application, there will be an extensive development review process as well as detailed "development and disposition agreement" negotiations. About the Developer. Tom and Jim Copeland own a large chain of sporting goods stores (Copeland's Sports), and have successfully developed a retail and theater project in the City's downtown known as the Downtown Centre. PROJECT CONCEPT As discussed above, the proposal is still in a very conceptual stage. It is important to emphasize this point: at this time, there is not much more to it than the 15 -page pamphlet provided in Appendix 1. However, preliminary information about building square footage and parking space needs is provided in Appendix 4. The proposal affects two separate sites: "Court Street" and "Palm/Morro/Monterey." These are mostly used for public and private parking, although there are two existing single -story structures on them —one privately -owned and one owned by the City. Based on information provided by the developer, there are six distinct construction projects on these two sites, summarized as follows: Court Street Site — Proposed Uses ■ Retail and Office Development Retail and office uses of about 75,000 square feet on a 39,300 square foot site owned by the City and currently used as a surface parking lot providing 118 - metered public spaces. -I- C6 -7 Palm/Morro/Monterey Site — Proposed Uses ■ Chinatown Mired -Use Project on Palm Street Mixed -use project of about 60,000 square feet for retail, office and residential uses. This would take place on several parcels. The City owns most (but not all) of them, which we use for public parking as well as City offices at 955 Morro Street. ■ Civic Offices on Palm Street. About 50,000 square feet of office space on property currently owned by the City and others. Current uses include private and public surface parking as well as a privately- owned, 2,700 square foot, single -story office building at the northeast comer of Palm and Morro Streets. While the concept plan shows this as City office space, the City has made no commitment at this time to occupy or purchase this space. However, we are reviewing this issue and we may decide to do so later. ■ Retail and Office Development on Monterey Street About 22,000 square feet of retail and office space on property currently owned by the City and used for public parking. ■ Plazas and Walkways. Several plazas and walkways are conceptually proposed for this area, including the proposed closure/abandonment of Morro Street between Palm and Monterey Streets. ■ Underground Parking. Two-to-three level underground parking structure under most of this site, providing between 300 to 450 public parking spaces. CITY PROPERTIES Unique City Role Normally, the City's appropriate role is to respond to private sector development proposals. However, this project concept is unique in that City-owned property—currently in use as public parking lots and City offices —is an essential component of the project concept. Therefore, in this case the City also has a "proprietary" role in addition to its usual "regulatory" one. As set forth in the ENA and accompanying "Issues to Be Addressed Daring the Initial ENA Term," there are a number of major policy issues that have to be addressed in considering the project concept. However, the single most important question for the City to answer in its "proprietary" role is: how much are the City's properties worth? The affected City properties are identified in Appendix 5, summarized as follows: ■ Court Street Parking Lot As noted above, the City currently uses this site as for public parking, providing 118 - metered spaces. ■ Cily Offices. The City rises this 4,850 square foot, single -story building located at 955 Morro Street for offices for our Utilities and Public Works administration and engineering staff. This site also includes eight parking spaces for City vehicles. ■ Morro Street Right -of -Way. As noted above, the proposal calls for abandoning Morro Street. It is possible that the City owns the entire street in fee -title. However, if this is not the case, then a significant portion of the street (if abandoned) would revert to the adjoining property owners, which include the City as well as others. ■ Palm/Monterey Street Parking Lot There are 143- metered spaces in this parking lot. -2- C6 -8 Property Disposition The form of disposition of the City's properties has not been determined (such as sale, lease or trade). In the case of the Court Street site, this is less complicated because all of the sit"oth "horizontally and vertically," would be used solely by the developer. The Pahn/Morro/Monterey site is more complex, because there would be a City use (public parking) under all of the site; and a combination of private uses (retail, office and residential) and public uses (civic offices) over the site. For the purposes of this appraisal, the appraiser should assume sale of the property. From a policy perspective, we will be concerned with the parking impacts of this proposal, both in terms of the existing public and private parking spaces that will be lost, and the new parldng demand generated by the new development. WORBSCOPE Valuation of City-Owned Properties Stated simply, the City needs to know the market value of its properties. In this instance, market value will depend largely on assumptions as to entitlements and likely future use for the properties if they were to be sold for private use, given the current underlying zoning and the resolution of any remaining entitlement contingencies. One such set of assumptions —but only one —would be the uses proposed in the Chinatown -Court Street project. Since the values developed in the appraisal will be used in negotiations with the developer and we would like to avoid too much dependence on "circular" logic, the appraiser will be asked to determine value also based on more generalized but still defensible assumptions as to zoning and future use. City staff will work closely with the selected appraiser in establishing a reasonable and defensible set of assumptions about future use. Furthermore, we recognize that any such assumptions will be identified as such in the appraisal, and attributed to the City and other third party sources in the final document. The final product is likely to contain two estimates of value: one reflecting the underlying zoning and likely future private uses without reference to the Chinatown -Court Street project; and another estimate of value (or at least a discussion of likely impacts on value) assuming that the uses are as proposed in this project. Valuation of Privately -Held Properties As discussed below, it may also be necessary to appraise the four privately -held properties that are directly involved in the project concept as well as those owned by the City: ■ This is essentially one project proposal. However, the project will take place on property owned or controlled by both the City and the developer. There are undoubtedly concerns on the part of both parties that there could be a situation where "my property has a high appraisal; unfortunately, yours has a lower appraisal." Since the properties are in the same vicinity, we have to assure our citizens that there was a reasonable basis for evaluating all of the properties that are included in the resulting business arrangements. ■ The Palm/Morro/Monterey site is proposed as a "vertical" development with a multi-level parldng structure under the majority of the property; and private - sector stores, housing and offices (some of which my be owned or leased by the City) over most of the underlying parldng - 3 _ C6 -9 structure. With such a `vertically integrated project," it may make sense to strive for a common appraisal approach on the different underlying ownerships. Proposers should discuss this methodological issue in their proposal, and set forth their initial thoughts based on: ■ Their professional judgment and experience in valuing redeveloping properties. ■ Greatest public assurance that all properties in the resulting business transaction were valued fairly and consistently. As the work proceeds, the selected appraiser will need to work closely with the City's Steering Committee and our economic advisor (Allan Kotin of PCR- Kotin) in analyzing the complex assumptions that will need to be made in valuing the affected public and private properties, which are likely to go beyond the typical analysis of comparables and income projections, and incorporate redevelopment principles. Redevelopment Concepts As noted above, this project has many elements that are similar to those that might be undertaken by a redevelopment agency. However, the City does not have a redevelopment agency, and we have no plans to form one. This means we may have fewer tools to work with (although our charter city status provides us with greater flexibility than if we were a general law city), and the City staff has limited experience in this area. For this reason, we have contracted with PCR -Kotin to assist us in evaluating this development proposal. The Successful Proposer Similar Experience. We want to hire a qualified appraiser that has extensive experience in valuing properties in circumstances similar to those present in this case. This means experience with: ■ Properties undergoing redevelopment and intensification. ■ Valuing properties before entitlements have been fully resolved, and making clear assumptions about complex issues accordingly. We recognize this may result in multiple evaluations as the project progresses through the development review process. ■ Development and disposition of publicly -owned properties for private purposes. ■ Properties within or immediately adjacent to a downtown core. Local Knowledge. Past appraisal experience in the San Luis Obispo real estate market is not required. However, we do believe that knowledge about the local market and policy environment will be important in producing a timely and thorough analysis. As such, appraisers who do not have specific experience in the San Luis Obispo market should discuss how they would address this in their proposal, including the possibility of collaborating with local appraisers. Final Work Products In order to assure that City staff and other consultants working on the Chinatown -Court Street project clearly understand the appraisal results, the selected appraiser will submit seven copies of a draft appraisal report, followed three to five days later by a briefing in San Luis Obispo to discuss the -4- C6 -10 appraiser's findings. In addition, the selected appraiser may subsequently be asked to attend a closed session with the City Council. As set forth in the Proposal Submittal Form, proposed compensation should separately identify proposed costs for valuing City and privately -owned properties. Additionally, it should separately identify the cost for the follow -up briefing with City staff. Lastly, an optional fee should be quoted for attending a closed session of the Council, should this be required. We want to complete the appraisal within 60 days after contract execution. _ 5 _ C6 -11