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Report regarding a resolution approving the third amendment to the Purchase and Sale Agreement for the property located at 432 Baden Avenue. (Julie Barnard, Economic Development Coordinator)
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RECOMMENDATION
Recommendation
Staff recommends that Council adopt a resolution approving the third amendment to the Purchase and Sale Agreement, which includes:
1. Changing the developer from Baden Developments LLC to For the Future Housing,
2. Modifying the project scope from market rate housing to a fully-affordable housing, and
3. Reducing the purchase price from $1,100,000 to $1.
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BACKGROUND
In 1997, the former Redevelopment Agency to the City of South San Francisco (“Redevelopment Agency”) purchased 432 Baden Avenue (“the Property”) for $270,000 for the development of a public parking lot to serve the 400 block of Grand Avenue. Previously, this section of the downtown had no public parking facilities, resulting in parking problems for the area. The Agency demolished the residential building that existed on the site and developed a 16-space surface parking lot.
The City of South San Francisco (“City”) is responsible for the disposition of the former Redevelopment Agency properties in accordance with the procedures and requirements of the approved Long Range Property Management Plan (“LRPMP”). Under the LRPMP, the Property is required to be sold through a sale using a negotiated purchase and sale agreement. The City is required to select a buyer that proposes the highest net value to the taxing agencies through a combination of sale proceeds and future tax revenues. Reducing the price of the Property from $1.1 million to $0 will require an action by the San Mateo County Countywide Oversight Board (“Oversight Board”) to accept this lower sales price.
In September 2018, Baden Development, LLC (then Sierra Investment Group) (“Developer”) purchased 428 Baden Avenue, for development of a small multi-family housing project. During the entitlement process for 428 Baden Avenue, the developer approached the City with a proposal to purchase the Successor Agency owned, adjacent site, 432 Baden (or “the Property”), in order to assemble land for a larger housing project.
Typically, the City would undergo a competitive bid process for the sale of properties. However, because the adjacent property owner made an offer on the Property with the intent to develop a project that is determined to be the highest and best use of the assembled properties, the City considered the proposal exclusively in order to determine whether or not a better offer might be made on the open market. In this case, this sole offer with the site assembly would provide a housing project with more housing units (rather than being developed individually).
By assembling 428 and 432 Baden, the developer was able to pursue a project with better design and more housing units, which included 10% Below Market Rate (“BMR”) units at the Very Low Income (“VLI”) level. On October 9, 2019, the City Council considered the Letter of Intent (“LOI”) provided by Baden Development and agreed that the site had a far greater value if assembled with 428 Baden rather than disposing of it as a stand-alone site. The City Council accepted the offer price of $1,100,000, (which was $80,000 less than the November 2019 appraised value of $1,020,000), and directed staff to negotiate a Purchase and Sale Agreement (“PSA”) with Baden Development. The purchase price was confirmed by the Oversight Board on February 10, 2020. The PSA was executed on February 19, 2020.
The Planning Commission approved the entitlements for 36 rental residential units which include three BMR units at the 50% or below the area median income (otherwise known as very low income or VLI) at the August 6, 2020 meeting. The attachment indicates the San Mateo County AMI levels for 2021.
Due to the impacts of COVID-19 (“the pandemic”) and the Shelter in Place (“SIP”) order, the Developer initially experienced some delays to their due diligence contingency period, and further required additional time to investigate some small issues relating to their Density Bonus concessions and or waivers. The PSA allows for administrative extensions at the City Manager’s discretion, typically for six months at a time. Staff executed the First Amendment which extended the due diligence period administratively by six months (to October 18, 2020) and the Close of Escrow from August 17, 2020 to February 16, 2021. The Second Amendment which provided further extensions to the Close of Escrow, was considered and approved by Council at the January 21, 2021 City Council meeting. Baden Development LLC was expected to start construction during the first quarter of 2022.
DISCUSSION
PSA Amendments
Presently, the developer is requesting the following amendments to their PSA:
1. Change the development team from Baden Development LLC to For the Future Housing,
2. Amend the scope from market rate (with a 10% affordable component) to a fully-affordable housing development, and
3. For the land purchase price to be reduced to $1 (or a land donation) in recognition of the extraordinary costs associated with affordable housing development.
Baden Development LLC was approached by an affordable housing developer, For the Future Housing, that wanted to make an unsolicited offer on the entitled property to purchase the property and convert it to a 100% affordable development. After discussing internally, Baden Development LLC agreed to enter into contract with For the Future Housing to assign Baden’s interest under the PSA to For the Future Housing. Baden Development LLC is working with both For the Future Housing and the City of South San Francisco to make the timing and terms work in order for Baden Station Apartments to be built as a 100% affordable development.
For the Future Housing’s mission is to deliver affordable, high-quality and safe housing. The company is a developer as well as a general contractor and has significant experience in the bay area, including entitling 78-units in Calistoga, 70-units "Pacific Station" Downtown Santa Cruz, 107-units "Library Mixed-Use" Downtown Santa Cruz and they are a partner in a 65 unit development on El Camino Real in Santa Clara.
Staff met with For the Future Housing (“FTF Housing”) who requested for the land to be donated. Cities typically need to provide financial contribution to affordable housing developers in order for them to leverage other funding sources (such as County and State grants). In this case the City can donate the land which can be considered a financial contribution to the development by other lenders.
FTF Housing are in the process of applying for funding through the San Mateo County Department of Housing Affordable Housing Fund 9.0 (Measure K). They will also be applying for the next round of 9% tax credit funding which will occur in the first quarter of next year.
FISCAL IMPACT
Because the property is a former Redevelopment Agency property, the City would have received 16.75% of the sale proceeds, or $184,250, at the current $1.1 million sales price. With the land donation the City would not receive any funding but will be gaining thirty-six BMR units.
The developer has paid a cost recovery deposit for City Attorney and staff time and additionally has paid $30,000 in fees for the time extensions permitted under the PSA.
RELATIONSHIP TO STRATEGIC PLAN
The development meets the City’s Strategic Plan Objective #2 - Quality of Life by providing a full range of housing options.
CONCLUSION
Staff recommends that Council adopt a resolution approving the third amendment to the Purchase and Sale Agreement, which includes:
1. Changing the developer from Baden Developments LLC to For the Future Housing,
2. Modifying the project scope from market rate housing to a fully-affordable housing, and
3. Reducing the purchase price from $1,100,000 to $1 (or a land donation).
Attachment:
1. San Mateo County Area Median Income Limits (2021)