Staff recommends that the City Council take the following actions:

1. Adopt a resolution finding that 320 Vernon Street is surplus to the needs of the City, that disposition of the property is in the City’s best interest, and authorizing the City Manager to execute a Purchase and Sale Agreement between Lenox Hill Interiors, Inc. and the City of Roseville for the sale of 320 Vernon Street, subject to conditions, in the amount of $570,000.00 and additionally authorizing the City Manager or his designee to execute all escrow related documents; and
2. Adopt an ordinance approving a Budget Adjustment allocating $275,000.00 from the Strategic Improvement Fund to the Vernon Street Sale Preparation Capital Improvement Project (CIP), to cover the expenses of the City’s due diligence items and remediation costs as required in the Purchase and Sale Agreement and associated Addendum.
   

The .52 acre project site is located within the Downtown Roseville Specific Plan (DTSP) at 320 Vernon Street and is developed with a 19,485 square-foot building that the federal government built in 1935. In 2010, the City of Roseville’s Redevelopment Agency purchased the property from the United States Postal Service (USPS) with the intent to relocate the Post Office and provide for development opportunities at the site, consistent with the DTSP. Following the dissolution of redevelopment agencies throughout California in February of 2012, the property was subsequently turned over to the City pursuant to the Long-Range Property Management Plan (“Plan”) with a future objective of developing the property in support of economic development efforts. In conjunction with the DTSP and the Plan, the subject site and adjacent parcel (at 316 Vernon Street) were designated as a catalyst site and the DTSP accordingly identified a conceptual development plan for both parcels consisting of a three-story office building and parking garage.  To date, the building has been occupied by the USPS, which has an active lease agreement through April of 2020.  With construction of the City office building at 316 Vernon Street, the “pre-design plan” was modified, and in July of 2018, the City released a Request for Proposals (RFP) for development of 320 Vernon Street.  

In response to the RFP, the City received two proposals and selected the project presented by Lennox Hills Interior, Inc. due to the amenities the project would provide to Downtown Roseville and the project’s general compliance with the DTSP development standards (further project details are provided in the Project Description section below).  At this time, the City wishes to move forward with the sale of the property. The property appraisal established the highest and best use based on the existing condition of the site and established a fair market value of $570,000.00.

Sale of Property for the Creation of Economic Opportunity

As a former redevelopment agency property, disposition of the site is governed by the terms of the Long-Range Property Management Plan ("Plan") approved by the Department of Finance on May 12, 2014, and not the Surplus Land Act.  Pursuant to Health and Safety Code section 34191.3, the approved Plan shall govern, and supersede all other provisions relating to, the disposition and use of all real property assets of the former redevelopment agency.  In addition, Section 52201 of the Government Code authorizes the City to sell property returned to it under a Plan, provided that the sale will assist in the creation of economic opportunity, which this sale will do as discussed below.  As indicated previously, the Plan identified the property for future commercial development and, in accordance with that Plan, the RFP solicited proposals for a mixed use project. 

Project Description

The proposed project includes a six-story mixed use building that will consist of 72 hotel rooms and 20 “for-sale” condominiums (eight one-bedroom units and twelve two-bedroom units).  Nine thousand three hundred square feet of retail/commercial space will be located on the first level of the building, integrated with direct street access to the hotel lobby.  The hotel rooms will be located on floors 2 - 4 and condominiums will be located on floors 5 - 6.  The use will also include a rooftop restaurant and dining area that will activate the top of the building.  Thirteen parking spaces will be constructed onsite, along Atlantic Street and forty-two parking spaces will be provided below grade in a secured underground parking lot (consistent with the DTSP parking requirement).

The project design is conceptual in nature and the proposal will be slightly modified as feasibility analysis and additional input is provided by the development team.  In addition, the project will be evaluated per the California Environmental Quality Act (CEQA), prior to obtaining the appropriate approvals from the Development Services Department for construction.   

Purchase and Sale Agreement

Based on negations with Lennox Hill Interior, Inc., the City has decided to forgo an Exclusive Right to Negotiation (ERN) period and move forward with a Purchase and Sale Agreement.  The Purchase and Sale Agreement identifies the terms and conditions of the property sale. Conditions of particular note are outlined below:

1. Finance Terms – No loan is needed for the Buyer to purchase the property and the offer is not contingent on the Buyer obtaining outside financing. 
2. USPS Rental Service Agreement – The existing lease agreement between the USPS will carry over to the Buyer and will expire April 30, 2020, per the original terms of the lease agreement.
3. Christopher Columbus Statue – The City will pay to relocate the Christopher Columbus statue to an offsite location.
4. City Obligations – In addition to the standard costs associated with the sale of property (escrow fees, title insurance, transfer tax, etc.), the City is responsible for paying for a Hazardous Building Materials Analysis (Lead and Asbestos Report) – estimated at $8,400, Phase 1 Environmental Survey Report – estimated at $1,275, Soils and Geotechnical Report – estimated at $30,000, Utility and Demolition Study – estimated at $15,000, and remediation costs up to $100,000 plus 50 percent of any remediation services in excess of that amount – estimated at $200,000.
5. Memorandum of Agreement – Paragraphs 10 and 11 of the Addendum detail the City's Repurchase Right and Right of First Refusal, respectively. In the event the Buyer does not expend $500,000 in improving the property within thirty-six months after the close of escrow and secure a Certificate of Occupancy for a project generally consistent with the RFP proposal within 60 months after the close of escrow, the City has the right to repurchase the property for the purchase price, together with 2% interest, plus reimbursement to the Buyer for its environmental remediation costs.  A maximum five-year extension may be granted if a recession has been determined to limit the Buyer’s ability to meet any of the above-mentioned obligations.  In addition, the City has the right of first refusal to repurchase the property, for a period of five years following the close of escrow, in the event the Buyer attempts to sell to a third party.  The purchase terms in such a situation would be on the same terms and conditions as offered by the third party in a bona fide offer.

Pursuant to approval of the Purchase and Sale Agreement, staff estimates a property escrow of six (6) months wherein the buyer will work on:  1) due diligence studies and research 2) processing of the Planning entitlements; and 3) preparations for building demolition.

The proceeds from the sale of the property (totaling $570,000.00) will be deposited into the Strategic Improvement Fund.  A budget adjustment allocating $275,000.00 from the Strategic Improvement Fund to a newly created Vernon Street Sale Preparation CIP is also proposed (see Attachment 5).  This CIP will fund the cost of the City’s due diligence items required for the property sale (i.e. appraisal, title report, Phase 1 Environmental Analysis, Geotechnical and Soil Analysis, Hazardous Building Material Analysis, the City’s portion of remediation costs, and other standard expenses).   As proposed, no General Fund resources will be used to cover the City’s obligations.

Economic Development / Jobs Created

Development of the subject property with a mixed use commercial project will generate significant economic benefit. The project will result in approximately $25 million in capital investment and will provide roughly 200 temporary construction jobs and require 50 - 100 employees to manage the property and associated businesses. In addition, historically property taxes were not paid on the site because the property was formally owned by the federal government and is currently owned by the City.  Based on a project valuation of $25 million, $250,000 ($37,500 to Roseville) in property taxes is estimated annually.  Sales tax revenue will also be generated by the project and based on the 2018 hotel occupancy rates (79%) and average daily rate (ADR) ($117.83), it is anticipated that the project will generate approximately $147,000 in Transient Occupancy Tax (TOT) annually.  

Staff also finds the proposal to be in the City's best interest for the following reasons: 

• The request is consistent with the DTSP’s intent to ultimately dispose of the 320 Vernon Street property for private development that further the DTSP goals;
• The request is consistent with the goals of the DTSP to facilitate development that provides further connectivity along Vernon street, pedestrian accessibility, encourages a greater mix of uses in the Downtown, and provides higher intensity development in the Downtown core;
• The City has no plans to utilize the property for governmental purposes and the sale of the  site would remove the City’s obligations to manage real property; and
• The request meets City Council’s 2018-2019 goals and priorities for developing and promoting economic development, creation of a great Downtown, and for encouraging investment in the City's Civic Core.

Based on the analysis noted above, Council can make the finding (per RMC Section 4.12.110(B)) that the subject site is surplus to the needs of the City as it currently has no governmental purpose and that the sale and development of the property is in the best interest of the City.  It is also staff’s intent to work with the USPS to find an alternative site that will maintain a presence within the Downtown area.

The proposed project involves the sale of surplus property not located in an area of statewide, regional or areawide concern.  This activity is categorically exempt from CEQA as a Class 12 Exemption (State CEQA Guidelines Section 15312).  The Exemption has been prepared and no further CEQA action is required.

_____________________________
Dominick Casey, City Manager