Loading...
HomeMy WebLinkAboutStaff Report 4.B 09/14/2015Agenda Item #4.B DATE: September 14, 2015 TO: Honorable Mayor and Members of the City Council FROM: John C. Brown, City Manage SUBJECT: Introduction (First Reading) of an Ordinance to Repeal Ordinance No. 2512, Which Authorizes the Purchase and Leaseback of a Portion of Real Property, APN 007 - 380 -027, Owned by MGP VIII Properties, LLC, and Located Next to Deer Creek Shopping Plaza, Commonly Referred to as the Dog Park. RECOMMENDATION It is recommended that the City Council Introduce and approve the First Reading of the attached ordinance to repeal Ordinance No. 2512, which authorizes the purchase and leaseback portion of real property APN 007 - 380 -027, commonly referred to as the Dog Park. BACKGROUND On October 6, 2014, the City Council introduced Ordinance No. 2512, which authorized the City Manager to execute documents to acquire a portion of APN 007 - 380 -027, which is commonly referred to as the Dog Park, on the terms and conditions as outlined in the Purchase and Sale Agreement attached as Exhibit A to Ordinance No. 2512. The ordinance took effect on November 20, 2014. The acquisition of the Dog Park is to fulfill two stated goals: to acquire the property needed for the construction of the Rainier Interchange, as contemplated in the City's General Plan; or, in the alternative, should the primary goal be unattainable, to be able to sell the subject property at a price sufficient to recoup the City's expenditure in purchasing the subject property. Ordinance No. 2512 authorized the purchase of the Dog Park, and authorized the lease of the property back to MGP VIII Properties, LLC (Merlon Geier, or "MG "). Pursuant to Ordinance No. 2512, the City would purchase the property, as well as all improvements, for a total of $540,567. Section 4.1.1 of the Purchase and Sale Agreement requires MG to deliver the property with clean title, with only those encumbrances on title as agreed to by the City. After the transfer of the property to the City, MG would be required to lease the property from the City to operate the Dog Park until the City was ready to construct the Rainier Interchange. The lease requires MG to operate the Dog Park at its own cost, and indemnify and frilly insure the City until the City terminates the lease. DISCUSSION The Purchase and Sale Agreement contemplated City staff would conduct additional due diligence during escrow. On December 18, 2014, the City Attorney's Office obtained an updated title report, which listed several substantive exceptions. Of those exceptions, the exception involving Covenants, Conditions and Restrictions ( "CCR's ") placed on the property by MG, as the declarant, presents a challenge in the acquisition of the Dog Park because of its potential to undermine the City's stated goals for acquiring the property. Several provisions of the CCR's constrain the City's ability to build the interchange. Of greatest significance, the City will need to transfer some interest, most likely fee simple, in the subject property to Caltrans. Typically, Caltrans requires the property to be conveyed to them free and clear of any encumbrances. In addition, the CCR's present a challenge for the City as a property owner. For example, the City's property is defined as Common Area. There are provisions in the CCR's that enable the declarant (MG) to grant easements over common area, which would include City property. Finally, with respect to the City's alternative goal, the CCR's also seriously constrain the City's ability to resell the property and recoup its costs. Section 3.1 prohibits construction of any commercial building on a portion of the property that City proposes to purchase. In addition, Article III, Use Restrictions, grants the declarant significant veto power over any proposed use of the City's property. The City Attorney's Office spent several months attempting to develop solutions that would address MGP's concerns regarding the CCR's, the City's need for clean title, or in the alternative the City's need for an unconstrained sale of the property at a value equal to purchase price. Ultimately, City staff and MGP were not able to develop a solution that was consistent with the City Council's goals. Per Council's direction, an ordinance to repeal Ordinance No. 2512 is presented for Council action. It should be noted: although the parties were not able to complete the transaction, repealing Ordinance 2512 does not hinder the Rainier Interchange Project. Rather, as more clarity is gained regarding the Project, such as the timing of construction, the parties may be able to negotiate a purchase and sale of the property. If the parties cannot reach resolution, ultimately, the City has the ability to acquire the property with free and clear title, by exercising its powers of eminent domain. FISCAL IMPACT There is no fiscal impact associated with repealing the ordinance. With respect to the property purchase, it will not proceed and funding of $540,567 will remain in the City's Traffic Mitigation Fees Fund. ATTACHMENTS 1. Ordinance to repeal Ordinance No. 2512, which authorizes the purchase and leaseback of a portion of real property APN 007 - 380 -027, commonly referred to as the Dog Park. 2 ATTACHMENT 1 ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PETALUMA REPEALING ORDINANCE NO. 2512, WHICH APPROVED THE PURCHASE AND SALE AGREEMENT, BETWEEN MGP VIII PROPERTIES, LLC, A DELAWARE LIMITED LIABILITY COMPANY ( "SELLER ") AND THE CITY OF PETALUMA FOR ACQUISITION OF A PORTION REAL PROPERTY(APN 007 - 380 -027), THAT FALLS WITHIN THE PLAN LINE FOR THE RAINIER INTERCHANGE PROJECT APPROVED BY ORDINANCE NO. 1991 IN THE AMOUNT OF $540,567, AND THE SUBSEQUENT LEASEBACK OF THE REAL PROPERTY INCLUDING THE PORTION OF THE PROPERTY DEVELOPED AS A DOG PARK BY SELLER AND AUTHORIZED THE CITY MANAGER TO COMPLETE ALL NECESSARY TRANSACTION FOR PURCHASE AND SALE AND LEASEBACK OF THE PROPERTY WHEREAS, Section 46 of the Charter of the City of Petaluma requires that actions for the acquisition, sale, or lease of real property be taken by Ordinance; and, WHEREAS, Seller owns that certain real property known as Assessor's Parcel No. 007- 380 -027 in Petaluma, California, ( "Land "); and WHEREAS, the City's General Plan has planned consistently for a Rainier Avenue Extension and Interchange, which requires Rainier Avenue to be extended to and connect with a new freeway interchange on Highway 101 between Washington Street and Corona Road and to provide another cross -town travel route and access to Highway 101 ( "Project "); and WHEREAS, the City's General Plan designates areas within the City in which development of any improvements is limited in anticipation of the future Project ( "Designated Area "), and in 1995, the City Council adopted Ordinance No. 1991 N.C.S., approving the plan line for the Project; and WHEREAS, a portion of Seller's Land is within the Designated Area (hereinafter referred to as "Property "); and WHEREAS, the City negotiated a purchase and sale agreement between the City and Seller to purchase the Property in the amount of Five Hundred Forty Thousand, Five Hundred Sixty Seven Dollars ($540,567), and a copy of that purchase and sale agreement, with all of its attachments, is attached as Exhibit A to Ordinance No. 2512 ( "Purchase and Sale Agreement "); and, WHEREAS, the Purchase and Sale Agreement requires the Seller to enter into a lease to lease back the Property from the City to continue to operate and maintain the Property including 3 the portion of the Property developed as a Dog Park until the City requires use of the Property for City purposes, and a copy of that lease is attached as Exhibit B to the Purchase and Sale Agreement; and WHEREAS, Section 4. 1.1 of the Purchase and Sale Agreement requires Seller to deliver the property with clean title, with only those encumbrances on title as agreed to by the City; and WHEREAS, on December 18, 2014, the City Attorney's Office obtained an updated title report for the Property, showing the Property was subject to Covenants, Conditions and Restrictions ( "CCR's ") placed on the property by the Seller, as the declarant; and WHEREAS, the CCR's constrain the City's ability to transfer a portion of the Property to the California Department of Transportation because the Department typically requires a transfer to be free and clear of any encumbrances on title; and WHEREAS, the CCR's hinder the City's ability to resell the Property or any portion thereof to the extent not required by the Rainier Interchange Project to recoup the City's costs; and WHEREAS, City staff and Seller spent several months attempting to find a solution to the challenges presented by the CCR's, but were unable to do so; and WHEREAS, the City remains fully committed to planning for the implementation of the Rainier Undercrossing and Interchange Projects, as described in the City of Petaluma's General Plan 2025, and other City documents, and nothing in this ordinance is to be construed to the contrary. NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PETALUMA AS FOLLOWS: Section 1: Ordinance No. 2512 is hereby repealed. Section 2: If any section, subsection, sentence, clause, phrase or work of this Ordinance is for any reason held to be unconstitutional, unlawful or otherwise invalid by a court of competent jurisdiction or preempted by State legislation, such decision or legislation shall not affect the validity of the remaining portions of this Ordinance. The City Council of the City of Petaluma hereby declares that it would have passed and adopted this Ordinance and each and all provisions thereof irrespective of the fact that any one or more of said provisions be declared unconstitutional, unlawful other otherwise invalid. 4 Section 3: This Ordinance shall become effective thirty (30) days after the date of its adoption by the Petaluma City Council. Section 4: The City Clerk is hereby directed to publish or post this Ordinance or a synopsis for the period and in the manner provided by the City Charter and any other applicable law.