HomeMy WebLinkAbout09/04/2001, B4 - REVISED POLICIES ON LEASING OF CITY-OWNED PROPERTY AND LEASE OF PROPERTY AT 610 MONTEREY cou hat Meeting D�Qr -t/I
j acEnaa REpoRt
CITY O F SAN LUIS 0 B I S P 0
FROM: Wendy George,Assistant City Administrative Officer
SUBJECT: REVISED POLICIES ON LEASING OF CITY-OWNED PROPERTY AND
LEASE OF PROPERTY AT 610 MONTEREY
CAO RECOMMENDATION:
1) By resolution, adopt revised policies for leasing of City-owned buildings.
2) Direct staff to include these revised policies in a future update of the City's Property
Management Manual.
3) Reaffirm Council direction to lease the property at 610 Monterey Street as a mixed
use office/residence through a commercial real estate broker. Should such direction
be unsuccessful, authorize staff to lease the property as a residence through the
Housing Authority.
DISCUSSION
Background.
Over the years, the City of San Luis Obispo has acquired a number of properties that, for various
reasons, have not yet been put to their intended City use. Examples include: property on Bullock
Lane bought to allow future road widening, property bought for future cultural facility uses on
Monterey Street and property purchased as a future parking structure location on Monterey
Street. Likewise, the City of San Luis Obispo has built portions of properties specifically
intended for other than City of San Luis Obispo uses. Examples include: Copeland Sports and
Senator O'Connell's offices located in the Marsh Street Parking Garage.
As set forth in the City's Property Management Manual, adopted by the Council in 1986
[Resolution No. 5963 and updated in 1989 (Resolution No. 6706)], the City has adopted policies
for leasing such properties. Excerpts of the key provisions from this manual related to property
leasesareattached and can be summarized as follows:
• General Approach to Disposing of Surplus Real Property. "The sale or lease of City
property will be conducted through a Request for Proposal (RFP), Competitive Bid or
Auction process. At the time that sale or lease is initiated, the City Administrator will
determine which procedure will be followed. As part of the RFP process, the Administrator
may choose to use a broker, consistent with the purchasing manual procedures, to conduct the
proceedings." Note: Under the City Charter, the Council must approve all real property
sales or leases with a value in excess of$100. While this policy indicates that the CAO will
determine the method of disposition, in reality the Council has always made the decision on a
case-by-case basis.
Council Agenda Report—Revised Policies on Leasing of City-Owned Property
Page 2
Non-Profit Organizations. "Requests for long-term use of City property by non-profit
organizations should follow the same review procedures as the sale or lease of City property
by private for-profit entities."
Priority. The City will "offer [the] property lease to the following categories, [contingent]
on acceptable terms: Housing Authority (for low-income housing); County Regional and
State agencies;,Parks,recreation and open space; School District." .
While these policies provide the Council with considerable flexibility, they do not provide a
realistic process for leasing property with buildings, especially to non-profit organizations. In
fact, the requirement to use an RFP, competitive bid or auction to lease to non-profits has not
been followed in the past. Instead, non-profits have usually come to the City on a case-by-case
basis with organized "campaigns" to request the use of City-owned property. If the City has
available property, past Councils have tended to approve such requests. The leases with the San
Luis Obispo Little Theatre and the Children's Museum arose in this manner. Thus, the City has
reacted to needs after they have reached enough of a critical mass, rather than by actively
selecting among numerous non-profits.
The difficulty with using one of the selection approaches prescribed by the Property
Management Manual and pro-actively "marketing" a property to non-profit organizations is 1)
we usually end up charging the non-profits a$1 per year annual rent on long-term leases, so there
are no competitive rental proposals to evaluate, and 2) each organization's purpose and value are
unique and cannot easily be evaluated on a competitive basis. For example, the Council would
be placed in a very difficult position if it were asked to decide that the Children's Museum
served a higher community purpose than the Railroad Museum, if they were both bidding for the
same location. An example of this dilemma arose when two non-profit organizations and a
private individual all requested the use of the property at 610 Monterey Street last year.
Fortunately, the Council determined that it was not in the City's best interest to lease the building
at that time, and was not required to make a choice between these interests. For this reason, staff
is recommending that we remain in a reactive mode for long-term lease requests from non-
profits,unless the City pre-determines a particular use for a building and seeks out an appropriate
non-profit to fulfill that use(e.g. a future natural history museum).
Proposed Policy Changes
Staff proposes to make changes to the policies currently set forth in the Property Management
Manual by creating separate leasing policies that take into consideration a property's long-term
intended use and zoning, and differentiate between leases with non-profit and for-profit
organizations. For example, if a building is intended to remain in place permanently,uses should
be compatible with a long-term relationship that meets the intent of the City Council and the
City's goals. If the building will eventually be moved or demolished so that the property can be
put to a different use, leases should be of shorter term and may be less directly related to City
goals and objectives.
�C2
Council Agenda Report—Revised Policies on Leasing of City-Owned Property
Page 3
The proposed policy makes provision for the following four situations, organized by whether
they are intended to be long-term or interim uses:
Long-Term Uses
1. Buildings or space permanently intended for commercial or office uses and located on
land zoned for those uses. (Copeland Sports and Senator O'Connell's office)
2. Buildings permanently intended for specific City-approved purposes by others, such as
cultural uses.. (Children's Museum, County Historical Museum.)
Interim Uses
3. Buildings eventually intended for other City purposes, which are available for interim
residential use and located on land zoned for that use. (House on Bullock Lane)
4. Buildings eventually intended for other City purposes, which are available for interim use
on land zoned for non-residential purposes. (610 Monterey Street)
The changes only address City-owned property that includes existing buildings. The current
policies (outlined in Attachment 2) in the Property Management manual would remain in place
for leasing property without buildings, including any land leased to the San Luis Obispo City
Housing Authority for moderate to low income housing.
610 Monterey Street Property
The property at 610 Monterey Street was purchased when it became available on the open market
because it will be part of a future planned cultural facility/paiking structure called for by the
City's Conceptual Physical Plan for the City's Center. In the meantime, the property is located
in the office zone and was in residential use at the time of sale. Although the General Plan
allows the site to become an office with a conditional use permit, a second General Plan policy
directs that loss of residential units in the downtown should be avoided.
The City Council, at the time of acquisition, directed staff to purchase the building, and to
modify the building for office use by the City. However,.at the time staff requested funding to
perform those modifications, the City Council changed its earlier direction, and indicated that the
building should include both a residential and an office component, to avoid the loss of a
downtown residential unit. Implementation of that direction was to await the completion of the
San Luis Obispo County Historical Museum restoration project, as the house was in use as a
storage facility for museum artifacts at the time.
As the museum project was nearing completion, staff was contacted by three different groups
seeking the building for office use: a) anon-profit seeking a dollar/year lease; b) a non-profit
seeking a substantial, but less than market rent lease; and c) a private individual seeking a market
rent office building lease. Given the substantial differences in rents and implications of favoring
one non-profit over another, the City Council asked staff to develop an overall guiding policy for
renting all City-owned buildings, including those intended for interim uses, such as 610
Council Agenda Report—Revised Policies on Leasing of City-Owned Property
Page 4
Monterey Street.
At this time, staff is recommending that the house at 610 Monterey Street be leased as a mixed
use residential/office property in accordance with Section 4 of the proposed policies attached and
current Council direction. As indicated earlier, while the property is located in an office zone,
this change from its current residential status will require a conditional use permit. Since there
are no City plans at this time for building a cultural facility/parking structure (envisioned by the
Conceptual Physical Plan for the City's Center) in this location for many years, it would seem
prudent to allow a lease of at least five years, with one negotiable extension of another five years.
It should be noted, that because of the original Council direction that the site be used for City
office and conference purposes, we began the process of modifying the building (particularly the
bathroom) using existing staff resources. These modifications must be completed before the site
is ready for leasing. There is some funding remaining from the original purchase that can be
used for this purpose.
CONCURRENCES
The Public Works and Finance Departments concur with the proposed policy.
FISCAL EVIPACT
There will be no cost to the City in implementing the proposed policy. Potential income will
depend on the individual properties being leased and how they fit into the policy.
Additional City costs for making the house at 610 Monterey Street suitable for leasing can be
funded with the $25,000 still remaining in the Capital Improvement Plan project account for the
purchase of the property.
ALTERNATIVES
1.
Mod i Policy-3 to nlinw n higher return on investment. The Council may wish to
change this proposed policy to use a realtor and rent residential property at market rate,
rather than renting it as affordable housing through the Housing Authority- The Section 8
program used by the Housing Authority bases its rental rates on HUD standards,not local
market rates, which would likely be higher. While this option would provide additional
income to the City, it would not support the City's interest in providing more affordable
housing.
2. Mnoofy Poliq 4 to chow a preferenee for non-profit agencies- The Council could
consider a different approach to leasing buildings for interim non-residential uses on land
zoned for those uses. Rather than using a commercial rental agent and leasing such
buildings at market rate, the City could set a priority of leasing them only to non-profit
organizations, at a significantly, reduced rate, instead. This approach would be in
Council Agenda Report—Revised Policies on Leasing of City-Owned Property
Page 5
keeping with the spirit of the City's Partnership Policy and non-profit grant programs,but
would be difficult to implement fairly and would reduce income to the City.
Even though many non-profit organizations are currently housed in relatively expensive,
or inadequate space, they may not be actively seeking new locations. However, if they
were apprised of available City space at a reduced rent, they might jump at the
opportunity to move. Therefore, if the City were to make leasing to non-profits a priority
for interim commercial or office space, it is likely the City would be forced to use an
RFP, competitive bid or auction process. As discussed above, staff believes there are
inherent difficulties with these options when choosing between non-profit organizations.
Additionally, once a non-profit is settled into a location, it is often difficult for the City to
terminate its lease, and the lease ceases to be interim. Or the City is faced with providing
the non-profit with an alternative location. As a result of these difficulties, we are not
recommending this approach.
3, Fnllowing Council discretion allowed in Policy 4, lenge the.610 Monterey house for
residential use only, While this approach is a change from current Council direction, it
may be easier to lease the house as a straight residence, rather than a combination
office/residence. Additionally, a conditional use permit will not be required, since
residential use is actually the only allowed in an office zone. Therefore, staff
recommends that this alternative be pursued, if our efforts to attract an appropriate mixed
use tenant is unsuccessful.
4, Decide net to 1pnsp, the, 610 Monterey urn-erty at al and move forward with the
proposed cultural farilitylparIcing structure nt that lneation. In order to proceed with
such a project, Council would need to determine that this parking structure should be the
City's next priority, rather than a structure north of Santa Rosa Street. Additionally, the
City would need to purchase the neighboring property, which the owners are not currently
interested in selling.
Attachments
1. Current sections from Property Management Manual
2. Resolution and proposed policies
ATTACHMENT 1
Excerpts from Property Management Manual Regarding Real Property Leases
Abandonment of Parks or Streets: Special requirements must be met.
Contact the City Attorney.
3. SALE AND LEASE PROCEDURES
Procedures to be followed by Lead and Staff Departments are outlined in
Tables #I and #2 (see pages 11 and 14) in the Appendix. To verify specific
procedures and legal requirements, departments should contact the City
Attorney as soon as the decision has been made to sell or lease the
prope
4. METHODS OF DISPOSAL
The sale or lease of city property will be conducted through a Request for
Proposal (RFP), Competitive Bid, or Auction process. At the time that the
sale or lease is initiated, the City Administrator will determine which
procedure will be followed. (As part of the RFP process, the Administrator
may choose to use a broker, consistent with purchasing manual procedures,
to conduct the proceedings.)
When the city is interested in the future use or disposition of property it
is selling or leasing, the RFP option may be appropriate. It offers the
city a way of negotiating various types of performance from the buyer or
lessee.
The formal bid procedure applies to the sale of property while the auction
procedure applies to the lease of property. Specific procedures are
outlined in Tables #3 - #5 in the Appendix (see pages 17-20).
5. DISPOSAL gFF RIGHT-OF-WAY
The city will respond to public requests for the disposal of right-of-way.
Right-of-way will be abandoned only when it has no apparent current or
future use.
The following principles guide the disposal of right-of-way:
The city will only abandon right-of-way which is held as an easement.
Right-of-way that has been a purchased in fee will be sold at market
value.. Easements that have been purchased with city funds will also
be sold at market value.
Easements used for utility transmission and distribution systems will
normally be reserved. If the utility previously using the easement
declines further use, the city will offer it to other utilities before
abandonment.
The city may reserve an easement for its water and sewer system or may
reserve a blanket easement for all utilities.
The city will not guarantee the title of right-of-way it abandons.
F. USE OF CITY-OWNED PROPERTY BY OTHERS ATTACHMENT i
1. Property Purchased by City for Low and Moderate Income Housing
Any land that the City obtains for low and moderate income housing should
be retained in fee simple title by the City, with the City granting a long-term
ground lease to the San .Luis Obispo City Housing Authority or other
appropriate group for the development of the housing, with the housing to
revert to the City at the end of the lease period (20-50 years).
Approved by Council on May 17, 1988
2. Use of City Property by Non-Profit Organizations
The following policies will guide all long-term use of City property by non-
profit organizations. These policies will be used by the City when considering
and/or developing long-term lease agreements with non-profit organizations.
a. Requests for long-term use of City property by non-profit organizations
should follow the same review procedures as the sale or lease of City
property by private for-profit entities.
b. The proposed use of City property should be consistent with the goals
and objectives of the City's General Plan for land use.
C. The proposed use of City property should not conflict or preclude any
existing or planned City use. .
d. Any development or operations directly related to the proposed use
should be in the public interest and supply measurable benefit to the
public.
e. Any lease agreement for the use of City property by non-profit
organizations which charge a less than market rate for the City
property must include a provision for community and/or City use.
Approved by Council on October 17, 1989 (Resolution No. 6706)
4- 7
ATTACHMENT a
RESOLUTION NO. (2001 Series)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
ADOPTING REVISED POLICIES ON LEASING OF CITY-OWNED BUILDINGS
WHEREAS, the City often owns buildings that it wishes to lease, either permanently or
on an.interim basis; and
WHEREAS, the City has adopted policies on leasing property as part of its Property
Management Manual; and
WHEREAS, the City finds that these current leasing policies do not adequately address
all potential rental situations,particularly when non-profit organizations are involved; and
WHEREAS, the City believes that the current policies should be updated and revised;
BE IT RESOLVED by the Council of the City of San Luis Obispo that the revised
Policies on Leasing City-Owned Buildings, Exhibit A,be adopted.
Upon motion of seconded by ,
and on the following roll call vote:
AYES:
NOES:
ABSENT:
the foregoing resolution was adopted this day of , 2000.
Mayor Allen Settle
ATTEST:
Lee Price, City Clerk
APPROVED AS TO FORM:
6ej y G. Jorgensen, i ttomey
—� EXHIBIT ,ass
POLICIES ON LEASING CITY-OWNED BUILDINGS
The City often has the occasion to lease buildings it owns,to outside parties. According to
Government Code Sec. 54220, before a lease is awarded, City-owned property must be offered
to (1) housing authorities, (2) parks, recreation and open space areas, (3) enterprise zones, (4)
schools. A proposal from these entities need only be accepted if the terms are acceptable to the
City. Assuming the City first fulfills its obligation under Government Code 54220, but
determines that it is in the City's best interest to lease to a party other than those listed in the
Code, the following policies will be used.
Long-.Term Uses
1. Buildings permanently intended for non-residential uses (such as retail or office)
and located on land zoned for those uses.
a.. The City shall use the services of a local private sector real estate agent to
advertise, locate and manage the lessees.
b. Renters or lessees shall pay comparable market rents.
C. The net different between the manager's fees and the rents collected shall accrue
to the City.
d. Lessees shall agree to make-all tenant improvements and comply with all City
zoning and land use requirements, including any special conditions the City
Council may place on the property.
e. Lessees shall conform to the City's non-discrimination requirements.
Typical buildings in this category include: Office space located in the Marsh Street
Parking Garage Structure.
2. Buildings permanently intended for specific City-approved purposes by others,such
as cultural uses.
a. The lessee shall be a non-profit organization whose stated purpose is a public
benefit aligned with the goals and directions of the City of San Luis Obispo.
b. The proposed use must further the Council's intended goals or policies for the
specific property, and shall not conflict or preclude any existing or planned City
use.
C. The proposed use should be consistent with the goals and objectives of the City's
General Plan for land use.
d. Any development of operations directly related to the proposed use shall be in the
public interest and supply measurable benefit to the public.
e. The lease agreement must include a provision for community and/or City use.
f. Lessee shall be determined either by a specific organization requesting use of the
building or by the City actively seeking out an organization to fulfill the Council=
approved use for the property.
g. Approved lessees shall conform to the City's non-discrimination requirements.
h. Lessees shall be responsible for all general maintenance and upkeep of the
property and any expansion or improvement of the building, unless the Council
otherwise chooses to help fund that expansion or improvement.
1
i. The long-term lease shall be at a rate of$1 per year, unless the Council
determines otherwise.
Typical buildings in this category include: The Children's Museum, the Art Center and
the Railroad Historic Museum.
Interim Uses
3. Buildings on land eventually intended for other purposes, which are available for
interim residential use and located on land zoned for that use.
a. The property shall be managed by the San Luis Obispo Housing Authority. Each
property will be evaluated on its particular merits and an appropriate agreement
will,be developed between the City and the Housing Authority.
Typical buildings in this category include: residential units along Bullock Lane that will
eventually be demolished to make room for the Orcutt Road widening and grade
improvement project.
4. Buildings on land eventually intended for other purposes,which are available for
interim uses on land zoned for other than residential uses.
a. The Council shall determine the best use of the property.
b. Unless the Council determines otherwise,the City shall use the services of a local
private sector realestate agent to advertise the property, and locate and manage
lessees.
b. Lessees shall pay comparable market rents.
C. Lessees shall conform to the City's non-discrimination requirements.
d. Lessees shall agree to make all tenant improvements and comply with all City
zoning and land use requirements, including any special conditions the City
Council may place on the property.
e. The City shall give direction to the property manager as to the length of the lease
term, since business/office users that install tenant improvements generally want
lease terms long enough to recover those costs.
f. The net different between the manager's fees and the rents collected would accrue
to the City.
Typical buildings in this category include: 610 Monterey Street
2
�iv