Title
Report regarding a resolution approving the First Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions with Eden Housing, Inc. for the sale of a portion of the City-owned property at 201 Baden for a senior affordable housing development. (Nell Selander, Economic & Community Development Director)
label
RECOMMENDATION
Recommendation
Staff recommends adopting a resolution approving the First Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions with Eden Housing, Inc. for the sale of a portion of the City-owned property at 201 Baden for a senior affordable housing development.
Body
BACKGROUND
The City-owned property at 201 Baden Avenue (“the Property”) is improved with a retired firehouse. The Property is comprised of three land parcels (APNs 012-335-100, 012-335-110 and a third parcel, which has not been assigned an APN) totaling approximately 22,460 square feet (0.51 acres).
In 2017, the City determined that the unused Property presented an opportunity for redevelopment development and issued a Request for Qualifications (“RFQ”) to potential developers. Based on the RFQ responses, the City selected a development team comprised of a commercial owner/user to restore and convert the firehouse to office and a residential developer. Since the development team’s selection, the residential developer has been replaced by Eden Housing, Inc (“Eden”), a nonprofit affordable housing developer.
In November 2021, the City and Eden executed a Purchase and Sale Agreement (the “PSA”) pursuant to which Eden would purchase approximately 0.3-acre portion of the Property (the “Eden Parcel”), the portion not occupied by the retired firehouse, for a senior affordable housing project. The PSA specifies a purchase price of $1.00 and a close of escrow date of no later than December 31, 2022, to comply with the Surplus Land Act.
KFC Parcel
While roughly 50 units could be accommodated on the Eden Parcel, more than 80 units could be accommodated if it is combined with the adjoining property, 199 Airport Boulevard, on which an existing KFC restaurant is located (the “KFC Parcel”). The KFC Parcel is owned by a private owner who is a former employee of Harman, one of the largest franchisers of KFCs in the United States. The KFC Parcel was given to the current owner by Harman as a form of a retirement plan, with retirement income earned from the KFC restaurant lease. Harman owns the KFC franchise restaurant on the KFC Parcel. Harman also has reversionary purchase rights for the KFC Parcel, meaning it will one day own it.
Harman has a significant interest in partnering with Eden to build a new state of the art restaurant with a drive-through and, as such, Harman has been trying to obtain title to the land prior to its reversionary rights being triggered. Eden has negotiated a purchase and sale agreement with Harman, as is required by the PSA, but it has not been executed because Harman has been unable to obtain title from the current owner. Harman has executed its reversionary rights on other similar properties, as this practice of conveying a property to a former employee as a retirement benefit was a practice of the company for some time. While Harman, and therefore Eden, do not yet control the KFC Parcel, there is an interest by both to continue pursuing the eventual merger of the sites and their redevelopment.
State Grant
In January 2022, the City was awarded a competitive Local Housing Trust Fund (LHTF) grant by the California Department of Housing and Community Development for the project with Eden. The award of $2,362,500 will be matched by the City’s land contribution and a loan of $1,882,500 from the City’s Housing Trust Fund.
DISCUSSION
Eden remains committed to the 82-unit senior affordable housing project spanning both the Eden and KFC Parcels originally proposed to the City and would like to proceed to close escrow and acquire the Eden Parcel from the City. However, owing to the uncertainty around Harman’s ability to exercise its reversionary rights or repurchase the KFC Parcel from the current owner, Eden has requested to amend the PSA to move some pre-closing obligations to post-closing obligations and amend the schedule of performance (see Attachment 1). Most significantly, Eden is requesting:
1) One more year (until December 31, 2023) to execute the PSA with Harman or
2) If they are unable to secure the KFC Parcel, pursue a smaller, roughly 50-unit project on the Eden Parcel or return the property to the City.
Under the proposed amendment, if Eden is unable to execute the PSA with Harman by the end of 2023, the City at its discretion could require that they return the Eden Parcel. The City would then be able to remarket the site for affordable housing, or some other use. Alternatively, should the City desire Eden to pursue a smaller development on the Eden Parcel and Eden still believes it can feasibly build the smaller project, then Eden will proceed to submit an entitlement application for the smaller project in 2024. If Eden is not able to pursue the smaller project then the parcel would be returned to the City as described above.
FISCAL IMPACT
There is no fiscal impact of adopting this resolution.
RELATIONSHIP TO STRATEGIC PLAN
This request is in alignment with Priority 2, Quality of Life, and providing a full range of housing options to the South San Francisco community.
CONCLUSION
While this amendment will further delay this project, staff recommends proceeding as it has the potential to keep the KFC Parcel in play as part of a larger redevelopment, ultimately bringing more affordable units to the South San Francisco community, and it will allow for the continued leveraging of the state LHTF grant award.
Attachments:
1. Letter from Eden Housing Requesting PSA Amendments