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HomeMy WebLinkAbout2017-10-17; City Council; ; Adopt Real Estate Strategic PlanCITY COUNCIL Staff Report Meeting Date: To: From: Staff Contact: Subject: October 17, 2017 Mayor and City Council ' Kevin Crawford, City Manager Curtis M. Jackson, Real Estate Manager Curtis.jackson@carlsbadca.gov or 760-434-2836 Adopt Real Estate Strategic Plan Recommended Action CA Review e/3 Receive a presentation 'and adopt a Resolution approving the Real Estate Strategic Plan. Executive Summary The City Council has elected to take a more strategic approach to how our major real estate assets are managed, both to maximize the return on the investment of public dollars and to leverage properties for the greatest public benefit, including addressing future city facility needs. In 2012, city staff commissioned an initial assessment of some of its real estate holdings from a professional commercial real estate consulting firm (Professional Strategic Plan for Real Property Assets, The Irving Group report, June 2012). City staff has completed an updated Real Estate Strategic Plan (Plan), which builds and expands upon the 2012 assessment. The Plan details a phased approach to the disposition of certain real estate assets over a five-year planning horizon. City Council review and approval of the Plan _is requested.· Discussion The City of Carlsbad currently owns a diverse portfolio of real estate assets, which includes properties used for city operations, vacant properties and leased properties. Consistent with the city's stewardship role, the City Council has elected to take a more strategic approach to how our major real estate assets are managed, both to maximize the return on the investment of public dollars and to leverage properties for the greatest public benefit, including addressing future city facility needs. In 2012, city staff commissioned an initial assessment of some of its real estate holdings from a professional commercial real estate consulting firm (Professional Strategic Plan for Real Property Assets, The Irving Group, June 2012). The city has since carried out a number of recommendations in the resulting report, including consolidating management of the city's real estate assets under a new position in the Office of the City Manager. This real estate manager position has since been filled, enabling the city to take a more holistic and strategic approach to October 17, 2017 Item #3 Page 1 of 50 its real estate holdings, with all real estate business now being led and managed through the real estate manager position. Given market fluctuations and evolving city needs, staff has developed this updated Plan, which builds on the 2012 assessment by including: • An analysis of the funding sources utilized to purchase each city owned parcel, including the constraints and opportunities associated with those sources, completed with the assistance of legal counsel. • Updated property valuations completed by an independent professional commercial real estate firm. • Additional properties, beyond those included in the 2012 report. • A five-year planning horizon, with annual progress reports and provisions for updates. • A third-party peer review to strengthen and validate the Plan, conducted by a professional commercial real estate consulting firm (KMA-Keyser Marston Associates). The development of the Plan and the recommendations included in the Plan were guided by the following objectives: • Retaining ownership of all non-residential property to create a long term revenue stream for the city, rather than selling non-residential property, which yields only one-time funds. • Disposing of real estate assets in a fiduciarily responsible manner consistent with the funding source used to acquire the property. • Balancing the city's return on investment of public dollars and leveraging properties for the greatest public benefit. • Disposing of real estate assets through an open and competitive process. • Disposing of real estate assets in a manner that takes into account existing and future city facility needs. • Incorporating the flexibility needed to respond to changing market conditions and unforeseen opportunities. The Plan addresses a five-year planning horizon with targeted timeframes that include: 1) a plan for completing six real estate transactions that are in progress {In Progress); 2) a one-to-three year strategic plan for nine specific properties (One-to-Three Year Plan); and, 3) a longer-term plan for seven properties which are currently being utilized for city purposes and are likely to be needed for the foreseeable future (Three-to-Five Year Plan). To keep the city focused and aligned regarding its real estate assets, city staff will provide the City Council with annual progress reports and will update the overall Plan at least every five years. This Real Estate Strategic Plan should be considered a framework for decision-making, understanding that the specific actions identified in the Plan will be presented individually to the City Council for discussion and direction. October 17, 2017 Item #3 Page 2 of 50 Fiscal Analysis Initial funding to implement the Real Estate Strategic Plan was included in the FY 17 /18 operating budget. No additional funding is being requested at this time. Next Steps City staff will implement the approved Real Estate Strategic Plan and will return to the City Council for review and approval of documents on each individual property as required and as appropriate. In addition, city staff will provide annual progress updates to the City Council on the overall implementation of the Real Estate Strategic Plan. Environmental Evaluation (CEQA) This action to approve the Real Estate Strategic Plan is statutorily exempt from the California Environmental Quality Act pursuant to CEQA Guidelines section 15262 (feasibility and planning studies). Public Notification This item was noticed in accordance with the Ralph M. Brown Act and was available for public viewing and review at least 72 hours prior to the meeting date and time. Exhibits 1. Resolution approving the Real Estate Strategic Plan. 2. Third-party peer review memorandum (KMA-Keyser Marston Associates). October 17, 2017 Item #3 Page 3 of 50 RESOLUTION NO. 2017-200 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA APPROVING THE REAL ESTATE STRATEGIC PLAN {OCTOBER 2017) EXHIBIT 1 WHEREAS, The City of Carlsbad currently owns a diverse portfolio of real estate assets, which includes properties used for city operations, vacant properties and leased properties; and WHEREAS, the City Council has elected to take a more strategic approach to how the city's major real estate assets are managed, both to maximize the return on the investment of public dollars and to leverage properties for the greatest public benefit; and WHEREAS, in August 2012, the City Council accepted the Professional Strategic Plan for Real Property Assets, prepared by The Irving Group (June 2012); and WHEREAS, city staff has prepared the Real Estate Strategic Plan as an updated plan that builds and expands upon the June 2012 plan; and WHEREAS, the Real Estate Strategic Plan was prepared by city staff, with the assistance of legal counsel and updated property valuations completed by an independent professional commercial real estate; and WHEREAS, the Real Estate Strategic Plan provides for a phased approach to the disposition of assets that will help ensure the city's real estate portfolio is actively managed for the public's benefit, while incorporating the flexibility needed to respond to changing market conditions and unforeseen opportunities; and WHEREAS, a third-party peer review to strengthen and validate the Real Estate Strategic Plan was completed by a professional commercial real estate consulting firm {KMA -Keyser Marston Associates); and October 17, 2017 Item #3 Page 4 of 50 WHEREAS, in implementing the Real Estate Strategic Plan, city staff will return to the City Council for review and approval of documents on each individual property as required and as appropriate; and WHEREAS, city staff will provide annual progress updates to the City Council on the overall implementation of the Real Estate Strategic Plan. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1. That the above recitations are true and correct. 2. That the City Council hereby approves the Real Estate Strategic Plan, attached hereto as Attachment A, and authorizes city staff to implement the recommendations contained within the Real Estate Strategic Plan. PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City of Carlsbad on the 17th day of October 2017, by the following vote, to wit: AYES: M. Hall, K. Blackburn, M. Schumacher, C. Schumacher, M. Packard. NOES: None. ABSENT: None. ATTEST: (SEAL) October 17, 2017 Item #3 Page 5 of 50 Attachment A Real Estate Strategic Plan October 2017 October 17, 2017 Item #3 Page 6 of 50 2 City of Carlsbad 2017 Real Estate Strategic Plan Table of Contents Page I. Introduction .......................................................................................3 II. Source of Funds Analysis ...................................................................4 III. Real Estate Asset Prioritization .........................................................6 1. In Progress ...................................................................................7 Current Lease Implementation Lot 9 ........................................................................................7 Village Grille/Shorehouse Kitchen ..........................................9 Dove Library Café ..................................................................10 Lease Expiration and Renewal Bio, Tech, and Beyond ............................................................12 Bauer Lumber/New Village Arts .............................................14 Previous City Council Disposition Direction Buena Vista Reservoir ............................................................16 2. One-to-Three Year Plan ...............................................................17 Old Fire Station #3 ......................................................................17 Hawthorne ..................................................................................19 The Shoppes at Carlsbad Parking Lot Properties ........................21 Golf Course Lots 4 and 5 .............................................................23 Oceanside Properties ..................................................................25 Las Palmas ...................................................................................28 Calavera Waste Water Facility ....................................................31 3. Three-to-Five Year Plan ...............................................................33 Farmers Property ........................................................................33 CMWD Property ..........................................................................36 Village Properties ........................................................................38 Faraday Center ............................................................................41 IV. Appendix ............................................................................................43 October 17, 2017 Item #3 Page 7 of 50 3 City of Carlsbad 2017 Real Estate Strategic Plan I. Introduction The City of Carlsbad currently owns a diverse portfolio of real estate assets, which includes properties used for city operations, vacant properties and leased properties. Consistent with the city’s stewardship role, the City Council has elected to take a more strategic approach to how major real estate assets are managed, both to maximize the return on the investment of public dollars and to leverage properties for the greatest public benefit and to meet future city facility needs. In 2012, city staff commissioned an initial assessment of some of its real estate holdings from a professional commercial real estate consulting firm (Professional Strategic Plan for Real Property Assets, The Irving Group, June 2012). The city has since carried out a number of recommendations in the resulting report, including consolidating management of the city’s real estate assets under a new position in the Office of the City Manager. This real estate manager position has since been filled, enabling the city to take a more holistic and strategic approach to its real estate holdings, with all real estate business now being led and managed through the real estate manager position. Given market fluctuations and evolving city needs, staff has developed this updated Real Estate Strategic Plan, which builds on the 2012 assessment by including:  An analysis of the funding sources utilized to purchase each city owned parcel, including the constraints and opportunities associated with those sources, completed with the assistance of legal counsel.  Updated property valuations completed by an independent professional commercial real estate firm.  Additional properties, beyond those included in the 2012 report.  A five-year planning horizon, with annual progress reports and provisions for updates.  A third-party peer review to strengthen and validate this strategic plan, conducted by a professional commercial real estate consulting firm (KMA – Keyser Marston Associates). The development of this strategic plan and the recommendations included in this strategic plan were guided by the following objectives:  Retaining ownership of all non-residential property to create a long term revenue stream for the city, rather than selling non-residential property, which yields only one-time funds. October 17, 2017 Item #3 Page 8 of 50 4 City of Carlsbad 2017 Real Estate Strategic Plan  Disposing of real estate assets in a fiduciarily responsible manner consistent with the funding source used to acquire the property.  Balancing the city’s return on investment of public dollars and leveraging properties for the greatest public benefit.  Disposing of real estate assets through an open and competitive process.  Disposing of real estate assets in a manner that takes into account existing and future city facility needs.  Incorporating the flexibility needed to respond to changing market conditions and unforeseen opportunities. This Real Estate Strategic Plan should be considered a framework for decision-making, understanding that the specific actions identified in this plan will be presented individually to the City Council for discussion and direction. II. Source of Funds Analysis The city, with the assistance of outside legal counsel, completed an analysis of the funding sources utilized to purchase city owned properties, including the constraints and opportunities associated with those sources. The Analysis focused on Community Facility District No. 1 Funds (“CFD No. 1”), Public Facility Funds (“PFF”), and Redevelopment Bond funds. Each of these three funding sources have specific requirements as to the use of said funds. Below is a general overview of each of the funding sources: Community Facility District No. 1 CFD No. 1, established in 1991, is a special development fee created to finance certain public capital facilities to be located throughout the city that were necessary to meet increased demands placed upon the city as a result of new development. To date, most all of the public facilities identified in CFD No. 1 establishment documents have been constructed except for the City Hall complex, a Public Works office and warehouse facility, the expansion of the Cole library, and the construction of Veteran’s Park. CFD No. 1 funds cannot be used for projects outside what was described in the initial 1991 CFD No. 1 establishment documents, or for ongoing maintenance or services. CFD No. 1 funds are not considered “general fund” dollars and are not subject to Prop H spending limit restrictions, which require a vote of the registered voters of Carlsbad for expenditures over $1,000,000 of general fund monies used in the acquisition or improvement of real estate. Any property acquired with CFD No. 1 funds must be used for the purpose for which they were acquired and for a purpose consistent with those identified in the CFD No. 1 establishment documents. If it is definitively determined that a property purchased October 17, 2017 Item #3 Page 9 of 50 5 City of Carlsbad 2017 Real Estate Strategic Plan with CFD No. 1 funds will not be used for a purpose consistent with those identified in the CFD No. 1 formation documents, the City is required to sell the property within a reasonable, fiduciarily responsible timeframe and the sale funds must be returned to the CFD No. 1 fund account, including any gain on the property. The city is prohibited from leasing properties purchased with CFD No. 1 funds long-term. However, the city is allowed to enter into a short term lease on a property until a final decision regarding the property’s use has been determined. Public Facility Fund The Public Facility Fund (PFF), established in 1979, is a special development fee created to finance public facilities. The city is required to maintain public health and safety and the general welfare of the community and all its citizens; as such, PFF ensures that all necessary services and facilities will be available concurrent with need. PFF may be used only for the purpose of acquiring, building, improving, expanding and equipping public property and public improvements and facilities, including but not limited to the following types of capital projects: public buildings (i.e., fire stations, police facilities, maintenance and yard facilities, libraries and general city offices), parks, major streets, traffic signals, storm drains, bridges and other similar projects. PFF funds are not considered “general fund” dollars and are not subject to the Prop H spending limitation restrictions and use of these funds are generally more flexible than the use of CFD No. 1 funds. The city may sell or lease (short- or long-term) properties acquired with PFF funds so long as those properties are no longer required for city purposes. Redevelopment Bonds In 1988 the Carlsbad Redevelopment Agency (“Agency”) issued a $12,000,000 Tax Exempt Bond for redevelopment project purposes. Subsequently, the city refinanced the 1988 Bond in 1993 for $15,495,000, of which $6,030,000 is currently outstanding (June, 2017). Bond payments are financed through redevelopment tax increment, established at the time the Bond is originated. Should the Bond be paid off early, the existing tax increment tied to the Bond will be reallocated and redistributed through the standard property tax protocol, with distributions going to not only the city, but the county, state and school district. The 1993 outstanding Bond will be completely paid off in 2023. The 1988 and 1993 Bonds were issued as tax-exempt bonds which mean that, as of the date of issuance of each such series of the Bonds, it was expected that the proceeds of such Bonds would be used for a governmental purpose throughout the life of such Bonds. Generally speaking, properties purchased with such Bond proceeds must be purchased for and utilized for a governmental purpose throughout the life of the Bonds. The legal and tax ramifications of the lease or sale of properties acquired from such Bond proceeds must be carefully considered. October 17, 2017 Item #3 Page 10 of 50 6 City of Carlsbad 2017 Real Estate Strategic Plan III. Real Estate Asset Prioritization A Real Estate Strategic Plan (Plan) should include targeted timeframes to keep the city focused on its real estate assets in a prioritized and strategic manner. The city’s Plan includes targeted timeframes as follows: 1) a plan for completing real estate transactions that are in progress (“In Progress”); 2) a one-to-three year strategic plan for specific properties (“One-to-Three Year Plan”); and, 3) a longer-term plan for properties which are currently still being utilized for city purposes and are likely to be needed for the foreseeable future (“Three-to-Five Year Plan”). The overall Plan should be updated at least every five years; thus keeping the city focused and aligned in regards to its real estate assets. The Plan should also allow for flexibility due to changes within the real estate market and city policy. Additionally, the city is likely to experience external influences, such as unsolicited proposals, that will influence which properties are prioritized in future years. October 17, 2017 Item #3 Page 11 of 50 7 City of Carlsbad 2017 Real Estate Strategic Plan 1. In Progress The following properties currently have leases underway but are not fully implemented, are currently leased but the lease is expiring in the very near future, or the City Council has previously given direction on the disposition of the property. All of the following properties will require staff efforts and/or city council consideration over the next year. CURRENT LEASE IMPLEMENTATION The following properties currently have lease agreements underway, but they are not fully executed or implemented. Lot 9 Lot 9 is a 3.15 acre property located at the northwest corner of the northern-most reach of The Crossings Drive, north of Palomar Airport Road. The property consists of a 1.6 acre parcel owned by the City of Carlsbad, and a 1.54 acre parcel owned by the Carlsbad Municipal Water District (“CMWD”), which was occupied by a water storage tank that was no longer in service. October 17, 2017 Item #3 Page 12 of 50 8 City of Carlsbad 2017 Real Estate Strategic Plan Current Status In 2013 (with an amendment in 2016), the city entered into a 65-year ground lease with Grand Pacific Carlsbad, L.P. on Lot 9, whereby the tenant will develop 71 hotel rooms branded as a Westin Hotel on the CMWD parcel and 36 time share units to be included as a part of the existing MarBrisa Resort on the city parcel. The tenant has obtained all necessary project approvals, has initiated and has reached the 35% point of construction on the Westin Hotel and the 20% point of construction on the MarBrisa timeshare units (September, 2017). In addition the tenant is constructing a new Sheraton Hotel building with 48 rooms on the tenant’s own property, where they have reached the 40% point of construction. The new Westin Hotel rooms are expected to be completed in August of 2018, the MarBrisa units in November of 2018, and the new Sheraton building in August of 2018. When all construction is completed, the new Westin Hotel will be 200 rooms, the new Sheraton Hotel will be 200 rooms, and there will be an additional 35 timeshare units incorporated into the overall MarBrisa Resort project. The city and the district will initially receive $159,965 in total annual lease revenue from both properties, subject to annual rent increases between years 6-65. The initial $79,983 in rent received from the 35 timeshare units will be paid to the City of Carlsbad, while the initial $79,983 in rent received from the 71 Westin hotel rooms will be paid to the Carlsbad Municipal Water District. Recommendation It is recommended that city staff continue to implement and monitor the ground lease agreement with Grand Pacific Carlsbad, L.P. on Lot 9. October 17, 2017 Item #3 Page 13 of 50 9 City of Carlsbad 2017 Real Estate Strategic Plan Village Grille/Shorehouse Kitchen The Village Grille/Shorehouse Kitchen property is located on the west side of north State Street, just north of Grand Avenue, at 2833 State Street. The site is immediately adjacent to a city-owned parking lot. The property consists of a 5,000 square foot parcel developed with a 1,850 square foot restaurant building. The property, along with the adjacent parking lot, was acquired by the city’s redevelopment agency with tax increment funds, and is subject to no restrictions. Current Status In February 2017, the city entered into a 20-year retail lease agreement (initial 10 years, with two, 5-year options) with Shorehouse Kitchen to operate a full service restaurant. The building was leased in an “as-is” condition. Currently, the tenant has obtained their Village Review Permit, obtained their building permit (issued 09/05/17), and construction is underway. Per the lease agreement the tenant will be required to pay rent 120 days from the issuance of the building permit (01/04/18), or upon issuance of a Certificate of Occupancy, whichever comes first. It is anticipated the restaurant will be open for business in early 2018. The city will initially receive $95,000 in annual lease revenue, subject to 3% annual increases. Recommendation It is recommended that city staff continue to implement and monitor the retail lease agreement with Shorehouse Kitchen. October 17, 2017 Item #3 Page 14 of 50 10 City of Carlsbad 2017 Real Estate Strategic Plan Dove Library Café The Dove Library Café consists of a 700 square foot café shell space located adjacent to the courtyard and the main public entrance into the Dove Library. The shell space was designed and built as a part of the Dove Library renovation project completed in June of 2016. The café space was intended to serve library patrons, library personnel, and events held at the Dove Library campus, including the George and Patricia Gowland Meeting Room, the Ruby G. Schulman Auditorium, and the William D. Cannon Art Gallery. The intent was to enliven the library campus and courtyard, create a great gathering place, connect community members, and provide a convenient service, rather than to be solely lease revenue motivated. Current Status In July of 2015, the City Council authorized the release of a Request for Proposals (RFP) for leasing the Dove Library Café space. The city did not receive any responsive and responsible proposals from this RFP effort. In July of 2016, the City Council authorized the release of a second Request for Proposals (RFP) for leasing the Dove Library Café space. Again, the city did not receive any responsive and responsible proposals from this RFP effort. Subsequently, the city engaged the professional services of a café/coffee house advisory consultant. From these three efforts it is now apparent that the initial business start-up costs and business risk associated with completing tenant improvements to the café shell space are likely too great to attract a viable tenant proposal. The city now believes it will be necessary for the city to financially contribute towards the initial tenant improvement costs. In doing so, the city believes we would be able to attract a viable café operator and our initial tenant improvement budget investment would be paid back in under five years through the café rent October 17, 2017 Item #3 Page 15 of 50 11 City of Carlsbad 2017 Real Estate Strategic Plan payments. Through this additional new investment, the city could realize its’ original goal to enliven the library campus and courtyard, create a great gathering place, connect community members, and provide a convenient service to patrons of the Dove Library campus. Recommendation It is recommended that city staff return to the City Council with a request for authorization to release a third Request for Proposals (RFP) for leasing the Dove Library Café space that includes a recommended budget amount for a financial contribution towards the initial tenant improvement costs. October 17, 2017 Item #3 Page 16 of 50 12 City of Carlsbad 2017 Real Estate Strategic Plan LEASE EXPIRATION AND RENEWAL The following properties are currently leased but the lease is expiring in the very near future. Bio, Tech, and Beyond The Bio, Tech, and Beyond property is located at the southwest corner of El Camino Real and Faraday Avenue, at 2351 Faraday Avenue. The site is 1.46 acres in size and is a part of the overall 13.51 acre Farmers property. The site is developed with a 6,100 square foot building that was originally occupied by Farmers Insurance and utilized as a drive-thru claims assessment building. The entire Farmers property was purchased by the city in 2002, with the intent to utilize the property as the location of a new city hall. The city is currently working on a plan to develop a new city hall, as a part of a larger civic center campus. It is anticipated that the location for a new city hall will be selected by the City Council, in consultation with the community, in the near future. In January of 2013, the City Council approved a five-year lease agreement with Bio, Tech, and Beyond to utilize the building as life sciences incubator, community laboratory, and science education center. The annual lease rate for the five years of the agreement is one dollar ($1.00) per year, with the city assuming certain first year utility and maintenance expenses, and with the city assuming landscape maintenance (not capped) and trash charges (capped at $100.00 per month) for the remaining four years of the initial lease agreement period. The five-year lease agreement included two (2), one (1) year Lessee options to renew the lease upon the city’s written consent, with the city reserving the right to modify the rent rate for each renewal year at the City Council’s discretion. October 17, 2017 Item #3 Page 17 of 50 13 City of Carlsbad 2017 Real Estate Strategic Plan Current Status Bio, Tech, and Beyond is in the last year of the initial five-year lease agreement, and must provide written notice to the city of Lessee’s intent to exercise the first of their two (2), one (1) year Lessee lease options. The city anticipates that Bio, Tech, and Beyond will deliver written notice to the city of their intent to exercise the first one- year lease option. Recommendation Execution of the Lessee’s request to exercise the first one-year lease option requires the city’s written consent. In addition, the city reserves the right to modify the rent rate for each of the two (2), one (1) year lease renewal option years at the City Council’s discretion. It is recommended that city staff negotiate a nominal annual rent increase that covers all or at least some of the city’s actual landscape maintenance costs and all of the trash charges for the property and return to the City Council with the new one-year lease agreement for their review and approval. October 17, 2017 Item #3 Page 18 of 50 14 City of Carlsbad 2017 Real Estate Strategic Plan Bauer Lumber/New Village Arts The Bauer Lumber/New Village Arts property is located on the west side of north State Street, at the northwest corner of State Street and Christiansen Way, at 2787 State Street. The property consists of an approximately 10,000 square foot parcel developed with a 9,400 square foot building originally the location of Bauer Lumber. In November of 1997, the Carlsbad Redevelopment Agency purchased the property with proceeds from tax exempt bonds issued in 1993 with the intent of facilitating redevelopment of the site along with other properties at the corner of Grand Avenue and State Street. Redevelopment of the properties proved challenging and the Carlsbad Redevelopment Agency elected to pursue interim uses of the property through a series of retail leases. The 1993 bonds utilized to purchase the property will reach their maturity date and be paid off in 2023. Generally, properties purchased with tax exempt bond proceeds must be used for a governmental purpose throughout the life of such bonds. The 9,400 square foot building is currently divided into two suites, a 6,300 square foot suite in the rear of the building for a performing arts theatre (New Village Arts) and a 3,100 square foot suite in front of the building for an arts incubator (The Foundry). In 2006, New Village Arts (NVA) originally leased the rear 6,300 square foot suite for a two-year period, with a one-year option, for a performing arts theatre as an interim use until redevelopment of the site was viable. In 2009, NVA entered into a new two- year lease agreement that also included the front 3,100 square foot suite for use as The Foundry. NVA continuously leased all 9,400 square feet of the building until April 2014, when a new lease agreement was executed for a three-year period (retroactive October 17, 2017 Item #3 Page 19 of 50 15 City of Carlsbad 2017 Real Estate Strategic Plan to July 2013), with Lessor options for two, one-year lease extensions. NVA and the city have exercised both one-year lease extension options, with the current lease expiring on June 30, 2018. The annual lease rate for the current agreement is one dollar ($1.00) per year, with a seventy-five cent ($0.75) surcharge per ticket sold (estimated annual surcharge revenue of $7,500) to help defray some of the city’s maintenance, repair and improvement costs associated with owning the building. Current Status NVA is in the last year of the current agreement, which expires on June 30, 2018. The city anticipates that NVA is desirous of negotiating a new lease agreement with the city. Recommendation It is recommended that city staff negotiate two new and separate lease agreements with NVA, one lease for the 6,300 square foot rear theatre suite and one lease for the 3,100 square foot front arts incubator suite. It is also recommended that the term of the two new leases run until the bonds utilized to purchase the property reach their maturity date and will be paid off in 2023. Finally, it is recommended that city staff negotiate two new leases that include a nominal rent increase with an annual minimum rent adjustment percentage that would cover all of the city’s actual costs to maintain, repair, or improve the exterior of the property, as well provide the city with some limited financial return on the property, and return to the City Council with the two new lease agreements for their review and approval. October 17, 2017 Item #3 Page 20 of 50 16 City of Carlsbad 2017 Real Estate Strategic Plan PREVIOUS CITY COUNCIL DISPOSITION DIRECTION The City Council has previously provided disposition direction for the Buena Vista Reservoir Property. Buena Vista Reservoir The Buena Vista Reservoir property is located on the south side of Buena Vista Way, east of Highland Drive and west of James Drive/Lido Place. The property is 3.16 acres in size, is currently vacant, and was the site of a former water reservoir. The property was acquired by the City of Carlsbad in 1958. Current Status In March of 2017, the City Council approved a Community Benefit Agreement (Agreement) as a part of a solution to settle a lawsuit entitled North County Advocates v. City of Carlsbad. The lawsuit challenged the city’s certification of the General Plan EIR and approval of the General Plan Update and Climate Action Plan in 2015. The Agreement is between the city and North County Advocates, and third parties including Lennar Homes of California, Preserve Calavera, Friends of Aviara, and Friends of the Buena Vista Reservoir. The terms of the approved Agreement include retention and development of the Buena Vista Reservoir property as a new public park that Lennar Homes will construct. Lennar Homes has received all necessary approvals for their Poinsettia 61 project and is currently developing construction plans, including all plans and actions necessary to complete construction of the public park at the Buena Vista Reservoir site. Recommendation It is recommended that city staff continue to implement and monitor the Community Benefit Agreement and the Poinsettia 61, project approvals. October 17, 2017 Item #3 Page 21 of 50 17 City of Carlsbad 2017 Real Estate Strategic Plan 2. One-to-Three Year Plan The following properties are scheduled to be addressed within the initial one-to-three year period of the five year plan horizon. These properties were previously identified in the 2012 The Irving Group Report as real estate assets that the city should be taking a more strategic approach to how they are managed, both to maximize the return on the investment of public dollars and to leverage properties for the greatest public benefit. Old Fire Station No. 3 The Old Fire Station No. 3 property is located at the southeast corner of El Camino Real and Chestnut Avenue, at 3701 Catalina Drive. The property is 9,200 square feet in size and is developed with a 2,151 square foot building, formerly used by the City as a fire station. The property was acquired in 1966, with Old Fire Station No. 3 being built in 1976 where it operated uninterrupted until the recent opening of the new Fire Station No. 3. The building is a two story structure located in a residential neighborhood. The building has two bedrooms and two and a half bathrooms, with two large roll-up garage doors in the front and rear of the property that allow fire truck access to and through the garage. October 17, 2017 Item #3 Page 22 of 50 18 City of Carlsbad 2017 Real Estate Strategic Plan Acquisition Source of Funds The property was acquired with general funds and is not subject to any known restrictions. The station structure was constructed with 1974 Revenue Sharing Funds in the amount of $94,850. There are no known “source of funds used” restrictions associated with disposition of the property. Status Carlsbad Fire Department personnel have officially moved from the Old Fire Station No. 3 property to their new Station No. 3 location off of Cannon Road, east of El Camino Real, within the Robertson Ranch East development area. The Old Fire Station No. 3 property is now completely vacant. The property has a General Plan Land Use designation of Residential 0-4 du/ac (R-4) and a Zoning designation of One Family Residential (R-1-8000). Highest and Best Use The highest and best use of the Old Fire Station No. 3 property is to sell the property for use as a single-family home, generating revenue not just through the disposition, but also by returning the property to the Assessor’s property tax roll. Value Based on Highest and Best Use Sell “As-Is”: The unique nature of the over-sized garage at the Old Fire Station No. 3 property could either impair the disposition of the property at market value or drive demand by interested parties with motor-homes, car collections, or other large vehicles. As such, if the city were to sell the property in an “as-is” condition, the city could realize proceeds estimated to be around $645,000 (April, 2016). Sell After Renovating: If the city elected to spend an estimated $50,000 on renovations to the building, the city could realize proceeds estimated to be between $695,000 and $774,500 (April, 2016); however, there would be no guarantee of realizing a return on the renovation investment. Recommendation It is recommended that city staff complete an appraisal of the property to establish the minimum asking price and list the property for sale by owner in an “as-is” condition. City staff would return to the City Council for review and approval of documents as required and as appropriate. October 17, 2017 Item #3 Page 23 of 50 19 City of Carlsbad 2017 Real Estate Strategic Plan Hawthorne The Hawthorne property is located at the southwest corner of Camino Vida Roble and Las Palmas Drive, at 2065 Camino Vida Roble. It is immediately adjacent to the city- owned Las Palmas property at 2075 Las Palmas Drive. The property consists of two parcels totaling 3.52 acres (3.08 acres and .44 acres). The property is developed with a freestanding 5,000 square foot concrete block building comprised of 1,100 square feet of office space and 3,900 square feet for truck bays. The property was acquired by the City in 2010, with the intent that the property, along with the adjacent Las Palmas office building, would serve as a new central location for the city’s maintenance and operations center. However, the city now believes that the two properties are not large enough to accommodate the city’s current operational needs. Since its acquisition in 2010, the property has not been occupied and the property is in need of capital investment to address deferred maintenance issues. The property is also constrained by a 200 foot-wide SDG&E easement traversing the rear portion of the property. Acquisition Source of Funds The Hawthorne property was acquired in 2010 for $2,487,000, utilizing CFD No. 1 funds. The property was purchased with CFD No. 1 funds with the intent that the property would serve as the location, in conjunction with the Las Palmas property, for the city’s maintenance and operations center. At the time it is definitively determined that the property will not be used for this purpose, the City is required to sell the property within a reasonable, fiduciarily responsible timeframe and the sale funds must be returned to the CFD No. 1 fund account. Camino Vida Roble Camino Vida Roble October 17, 2017 Item #3 Page 24 of 50 20 City of Carlsbad 2017 Real Estate Strategic Plan Status The Hawthorne property has remained vacant since it was acquired in 2010 as a possible location for a new maintenance & operations center. On several occasions, the city has utilized the property for interim uses such as construction staging, materials storage, and temporary parking. The property has a General Plan Land Use designation of Planned Industrial (PI) and a Zoning designation of Planned Industrial (P-M). Highest and Best Use The property’s location within the central portion of the city and the design and configuration of the current building on the property presents an opportunity to attract unique tenants and/or purchasers. As such, the highest and best use for the Hawthorn property is to lease the property in the near-term (three to five years) and then sell the property with the sale proceeds returned to the CFD No. 1 fund account. Value Based on Highest and Best Use Lease: The Hawthorne property was purchased utilizing CFD No. 1 funds and, as such, the city is prohibited from leasing the property long-term. However, the city is allowed to enter into a short term lease on the property until a final decision regarding the property’s use has been determined. Lease rates as of May 2017 in the area around the Hawthorne property are approximately $0.95 per square foot, or $4,750 per month; however, due to the properties unique characteristics and open areas, lease rates could be as high as $12,000 per month depending on the use. Sale: When the city sells the Hawthorne property, it should be sold “as-is”. It is estimated that the sales price would be between $2,250,500 and $3,100,000 (April, 2016). Recommendation It is recommended that the city should issue a competitive Request for Proposals (RFP) for a short term (maximum three-to-five year) lease that includes a right of first refusal option to purchase the property. If, at the end of the initial lease period, the city has definitively determined that the property will not be used for a CFD No. 1 fund eligible use, then the city should issue a competitive RFP for offers to purchase the property. If, at that time, the tenant elects to not exercise their right of first refusal and chooses to not match or exceed the highest and most responsive and responsible purchase offer proposal and acquire the property, then the city would sell the property to the RFP respondent with the highest and most responsive and responsible purchase offer proposal. City staff would return to the City Council for review and approval of documents as required and as appropriate. October 17, 2017 Item #3 Page 25 of 50 21 City of Carlsbad 2017 Real Estate Strategic Plan The Shoppes at Carlsbad Parking Lot Properties The Shoppes at Carlsbad Parking Lot properties surround the regional shopping center, now known as The Shoppes at Carlsbad, located south of Highway 78, north of Marron Road, east Monroe Street, and west of El Camino Real, including the southwest corner of El Camino Real and Marron Road. The properties consist of numerous parcels totaling 56.9 acres. The Carlsbad Parking Authority (“Parking Authority”) acquired the 56.9 acres to financially assist Plaza Camino Real L.P. (“PCR”) in developing a regional shopping center within the city. The first phase of the center was constructed in 1969 and the center was subsequently expanded in 1975. The Parking Authority entered into a lease agreement with the city for control over the parking lots, and repayment of the bonds used to acquire the property; the city and Parking Authority subsequently entered into a Public Parking Lot Agreement (“Agreement”) with PCR in 1981 whereby PCR was required to maintain the parking lots. In 1996, the city dissolved the Parking Authority (Resolution 96-294), leaving the city and PCR as the sole parties to the Agreement. PCR has since sold their interests in the mall to Westfield, LLC, predecessor in interest to RPI Carlsbad L.P. and Rouse Properties L.P. (“Rouse Properties”) as of December 2015. The properties have been utilized as parking lots for the regional shopping center since 1969 and 1975 respectively. Acquisition Source of Funds The parking lot properties were acquired from the proceeds of a 1969 Parking Revenue Bond (“Bond”) for a total of $1,535,000 on October 1, 1969. The Bonds held tax exempt status, thus the parking lots had to be used for a public purpose and the city could not profit from the parking lot properties until the Bonds were completely paid off. The Parking Authority leased the parking lot properties to the city at an initial lease rate of $142,250, which was subject to adjustment until the Bonds were retired in full, which occurred in 1995. The city will need to continue its due diligence to confirm whether or not a long-term lease or sale of the properties is viable. Marron Road Highway 78 October 17, 2017 Item #3 Page 26 of 50 22 City of Carlsbad 2017 Real Estate Strategic Plan Status The parking lot properties are currently managed and maintained by Rouse Properties pursuant to the Agreement. The parking lot properties have a General Plan Land Use designation of Regional Commercial (R)/Open Space (OS) and a Zoning designation of General Commercial (C-2)/Open Space (OS), and are subject to the Westfield Carlsbad Specific Plan (CS-219, approved July 23, 2013). Highest and Best Use The current highest and best use and only use allowed under the Agreement is the continued use of the properties as a parking lot to be utilized by customers of the regional shopping center. Setting aside the Agreement, the only practical potential long-term lessee or owner of the properties other than the city, would be the regional shopping center owner and operator, Rouse Properties. Rouse Properties has formally expressed an interest in a long-term lease or purchase of the properties. Value Based on Highest and Best Use Lease: The city could retain ownership of the properties and elect to pursue entering into a long-term lease agreement (55-99 years) with Rouse Properties. A formal appraisal or valuation would be required to ascertain the fair market long-term lease value of the properties. Entering into a long-term lease agreement for the properties would provide additional development and financing flexibility for Rouse Properties. In addition, with a long-term lease agreement in place the properties would be returned to the Assessor’s property tax roll. The city will need to continue its due diligence to confirm whether or not a long-term lease is viable. Sale: The city’s general preference is to retain ownership of our properties and lease them out long-term, rather than sell a particular property. However, the city could elect to pursue the sale of the properties to Rouse Properties. A formal appraisal or valuation would be required to ascertain the fair market value of the properties. The city should, at a minimum, receive sale proceeds that exceed the $3,133,275 spent on the Bonds. The sale of the properties would provide additional development and financing flexibility for Rouse Properties. In addition, with the sale of the properties they would be returned to the Assessor’s property tax roll. The city will need to continue its due diligence to confirm whether or not a sale of the properties is viable. Recommendation It is recommended that the city should initiate exploration of options for entering into a long-term lease agreement for the parking lot properties with Rouse Properties. City staff would return to the City Council for review and approval of documents as required and as appropriate. October 17, 2017 Item #3 Page 27 of 50 23 City of Carlsbad 2017 Real Estate Strategic Plan Golf Course Lots 4 and 5 Golf Course Lots 4 and 5 are located on the south and north sides of College Boulevard respectively, just west of the intersection of College Boulevard and Palomar Point Way. The properties are immediately west of and adjacent to the Carlsbad Research Center. Lot 4 is situated approximately 500 feet north of the western extent of the Palomar- McClellan Airport property. The property consists of two lots totaling 18.51 gross acres. Lot 4 is 7.1 gross acres in size (6.9 acres net), while Lot 5 is 11.4 gross acres (6.8 acres net). Both lots are vacant and undeveloped, and have been previously graded. Both lots offer excellent views of the ocean, the Agua Hedionda lagoon, and The Crossings golf course. Acquisition Source of Funds The city acquired Lots 4 and 5 in 2010 from the Golf Course Fund for $4,229,417 (City Council Reso. No. 2010-77). There are no known “source of funds used” restrictions associated with disposition of the property. Status Lots 4 and 5 are undeveloped, graded lots. Both properties have a General Plan Land Use designation of Planned Industrial & Office (PI/O) and a Zoning designation of Planned Industrial & Office (P-M/O), allowing for the full range of planned industrial and general office uses, including hotel uses. Lot 5 Lot 4 October 17, 2017 Item #3 Page 28 of 50 24 City of Carlsbad 2017 Real Estate Strategic Plan Highest and Best Use The site is one of the best locations in Carlsbad with nearly 360 degree views of the city and close proximity to major arterial roadways. The highest and best use of the property is most likely either a hotel or multi-tenant or corporate headquarters office use. Value Based on Highest and Best Use Lease: If the city elects to enter into a long-term ground lease (at least 50-years) for either a hotel or multi-tenant or corporate headquarters office use, the city would realize the highest return on the properties. Combining the expected revenues from ground leases for both Lots 4 and 5, and assuming a 15-year amortization value, the city can expect initial annual lease revenues of $1,032,739 ($86,062 per month) (September, 2017). Estimating a 50-year term with minimum 2.5% annual lease revenue increases, the total estimated revenue over the term of the 50-year lease comes to $100,675,888 (September, 2017). Sale: If the city elects to sell the properties, the city could expect to receive between $10,454,589 and $15,491,075 (September 2017). Considering the unique characteristics of Lots 4 and 5, the minimum value should be at the mid to high end of comparable sales within the region. Using the highest estimated sale valuation, if the city invested the proceeds over the same 50-year term of a possible lease scenario, with the city’s current portfolio interest rate of 1.174%, the city would receive $27,444,711, which is $73,231,177 less than the $100,675,888 the city could earn by entering into a long-term ground lease on the property. Recommendation It is recommended that the city should issue a competitive Request for Proposals (RFP) for offers for a long-term ground lease of the properties for either a hotel or Class A multi-tenant or corporate office building. City staff would return to the City Council for review and approval of documents as required and as appropriate. October 17, 2017 Item #3 Page 29 of 50 25 City of Carlsbad 2017 Real Estate Strategic Plan Oceanside Properties The Oceanside Properties, more specifically known as the Foussat & Mission (“F&M”) and Pajama Drive (“PJ”) properties are both located within the City of Oceanside at the southeast corner of the Mission Avenue and Foussat Road, and at the southern end of the Pajama Drive cul-de-sac, south of Mesa Drive, respectively. The F&M property is 2.75 acres in size and is vacant and undeveloped, with the exception of a water well. The PJ property is .25 acres in size and is vacant. The F&M property was acquired in 1914 by the Oceanside Mutual Water Company, predecessor in interest to the Carlsbad Mutual Water Company, and thereafter the City of Carlsbad (upon incorporation in 1952). The F&M property was originally used as a water well site for the Costa Real Water District and the City of Carlsbad now owns the water rights to the property. The PJ property was acquired by the City of Carlsbad on October 9, 1979. Acquisition Source of Funds The source of acquisition funds used to purchase both properties is unknown. However, there are no known “source of funds used” restrictions associated with disposition of the properties. Status Foussat & Mission: The property is located in a non-coastal area and is zoned Light Commercial District (CL). The zoning designation permits a limited range of retail and service uses that are not allowed to generate significant amounts of traffic or have high public service demands. CL has a wide range of available uses; however, the following Foussat & Mission Property Pajama Drive Property Pajama Drive October 17, 2017 Item #3 Page 30 of 50 26 City of Carlsbad 2017 Real Estate Strategic Plan are prohibited: RV Parks, convalescent facilities, emergency health care, heliports, hospitals, park and recreation facilities, adult businesses, ambulance services, communication facilities, drive-though and drive-up services, funeral services, internet services, laboratories, marines sales and services, nurseries, pawn shops, research and development services, swap meets, hotels, warehousing, industry, wholesaling, distribution, and storage. The property is currently involved in litigation in which the city is attempting to perfect its ground water rights. At this time there is no certainty when litigation will be concluded. However, the on-going litigation does not preclude the city from pursuing either a long-term grounds lease or sale of the property. Pajama Drive: The property is located in a non-coastal area and is zoned Residential Estate – B (RE-B). The zoning designation allows for residential estate development at a density of 1.0 dwelling unit per acre. Highest and Best Use Foussat & Mission: The best use of the property for the city includes retaining the ground water rights for the entire property and some small portion of the property to maintain access to the water well located onsite, and either long-term ground leasing or selling the remainder of the property through a competitive, market-rate process such as a RFP. Pajama Drive: The city has no continuing use of the property. As such, the best use of the property is to sell the property through a competitive, market-rate process. Value Based on Highest and Best Use Foussat & Mission-Sale: If the city elects to sell the property, the city could expect to receive between $1,399,104 and $4,410,532 (September 2017). Considering the unique ground water rights and water well site constraints, the maximum value estimated to be received should be the average comparable sales within the region, or approximately $3,012,626 (September 2017). Lease: The city could enter into a long-term ground lease on the property. Assuming a 15-year amortization value, the city can expect initial annual lease revenues of $200,842 ($16,737 per month) (September, 2017). Estimating a 50-year term with minimum 2.5% annual lease revenue increases, the total estimated revenue over the term of the 50-year lease comes to $19,578,928 (September, 2017). Pajama Drive-Sale: If the city elects to sell the property, the city could expect to receive between $98,019 and $119,801 (April, 2016). The value estimated to be received should be the median comparable sales within the region, or approximately $109,000. October 17, 2017 Item #3 Page 31 of 50 27 City of Carlsbad 2017 Real Estate Strategic Plan Recommendation Foussat & Mission: It is recommended that the city should issue a competitive Request for Proposals (RFP) for offers for a long-term ground lease of the property, in a manner that includes retaining the city’s ground water rights for the entire property. City staff would return to the City Council for review and approval of documents as required and as appropriate. Pajama Drive: It is recommended that city staff complete an appraisal of the property to establish the minimum asking price and list the property for sale by owner in an “as is” condition. City staff would return to the City Council for review and approval of documents as required and as appropriate. October 17, 2017 Item #3 Page 32 of 50 28 City of Carlsbad 2017 Real Estate Strategic Plan Las Palmas The Las Palmas property is located on south side of Las Palmas Drive, just east of the intersection of Camino Vida Roble and Las Palmas Drive, at 2075 Las Palmas Drive. The property is adjacent to and just east of the city-owned Hawthorne property. The Las Palmas property is 2.29 acres in size and is developed with a freestanding fully- improved 22,627 square foot office building. Originally built in 1985, the property served as the city’s development services center from 1986 until 2001 when city staff moved to the larger Faraday Center building. The property is currently leased to the Mira Costa Community College District for use as a Technology Career Institute and Small Business Development Center. Acquisition Source of Funds The Las Palmas property was originally leased by the city in 1986 with an option to purchase. In 1987, the city exercised the purchase option and acquired the property for $1,602,000 using Public Facilities Funds (“PFF”). The city may sell or lease facilities acquired with PFF funds so long as those properties and facilities are no longer required for city purposes. Status In July 2014, the city entered into a six-year lease agreement with the Mira Costa Community College District to operate a Technology Career Institute and Small Business Development Center at the Las Palmas property. The lease term is set to expire on July 16, 2020. The lease does include an option to renew that must be mutually agreed upon. Mira Costa must provide written notice to city of their intent Camino Vida Roble October 17, 2017 Item #3 Page 33 of 50 29 City of Carlsbad 2017 Real Estate Strategic Plan to renew the lease not less than sixty (60) days prior to the expiration of the initial lease term, and the city must respond to the renewal request in writing within thirty (30) days of receiving such notice. The city reserves the right to modify the rent rate for each renewal year at the City Council's discretion. The city anticipates that Mira Costa is desirous of negotiating a lease renewal agreement. The Las Palmas property has a General Plan Land Use designation of Planned Industrial (PI) and a Zoning designation of Planned Industrial (P-M). Highest and Best Use Given the property’s central location and the current physical characteristics of the building, the highest and best use of this property is to continue to lease the property to users ranging from laboratories, office, and light manufacturing, to the current technical training and educational uses currently conducted onsite. The use of the facility as a technology career institute and small business development center continues to be consistent with the city’s desire to become a hub for higher education and research within northern San Diego County. Value Based on Highest and Best Use Lease - “As-Is”: The current lease term ends on July 16, 2020. The lease specifies a flat lease rate of $5,656.75 per month ($.25 per foot, per month; or $67,881 total per year), with no cost of living adjustment or rent increase over the six year term of the lease agreement. At the time of entering into the lease agreement (July 2014), average market rent rates for similar property types were estimated at $.70 per square foot per month. The $.70 per square foot per month average market rent rate reflected properties with little or no deferred maintenance and took into consideration the condition of existing tenant improvements. Prior to occupancy by Mira Costa, the Las Palmas property was in need of a significant amount of deferred maintenance repairs. These repairs, all of which were completed by the city, were estimated at $450,000 and included roof replacement, HVAC repairs, parking lot resealing, and building power washing. In addition, the interior improvements to the building were substandard and in need of upgrading. Mira Costa completed the significant and necessary tenant improvements at their expense. Finally, at the time of the lease agreement the City Council was strategically focused on creating quality jobs and becoming a hub for higher education and research and the use of the property as a Technology Career Institute and Small Business Development Center provided public benefit and aligned with the City Council’s focus. The current average market rent rate for Class B buildings at a triple-net rate is $2.43 per square foot (July 2017), or approximately $54,984 per month ($659,803 annually). Beginning in 2020, if the city entered a 5-year lease at today’s market rents of $2.43 per square foot with a minimum 2% CPI increase, the city could expect to generate over $3,433,643. October 17, 2017 Item #3 Page 34 of 50 30 City of Carlsbad 2017 Real Estate Strategic Plan Sale: The city’s general preference is to retain ownership of our properties and lease them out, rather than sell a particular property. If, at the end of the current lease term, the city elects to sell the Las Palmas property, the sale should be conducted in an “as- is” manner, with an estimated sales price between $2,899,142 and $7,772,391 (April, 2016). The Median estimated sales price is $4,600,479 and the property’s value should appreciate over the next three years to warrant expected sales proceeds near the higher end of this range. The longer term decision to lease or sell the Las Palmas property could be greatly influenced by future City Council decisions on a new city hall. Recommendation The current lease term ends on July 16, 2020. While it is anticipated that Mira Costa is desirous of negotiating a lease renewal agreement with the city, such a request requires the city’s written response and the city reserves the right to modify the rent rate for each renewal year at the City Council's discretion. If the city agrees to consider a lease renewal agreement, it is recommended that the city negotiate a rent increase with an annual minimum rent adjustment percentage that would cover all of the city’s actual costs to maintain, repair, or improve the exterior of the property, as well provide the city with some additional financial return on the property that is at, or closer to, current market rates. If Mira Costa declines to request a lease renewal agreement or the city declines such a request, then it is recommended that the city should issue a competitive Request for Proposals (RFP) for offers for leasing the property. The city will need to choose which approach to pursue during the 2019-2020 fiscal year. City staff would return to the City Council for review and approval of documents as required and as appropriate. October 17, 2017 Item #3 Page 35 of 50 31 City of Carlsbad 2017 Real Estate Strategic Plan Calavera Waste Water Facility The former Calavera Sewage Facility property (“Calavera”) is located on northwest side of Tamarack Avenue, midway between Carlsbad Village Drive and El Camino Real. The property is 4.55 acres in size and is currently vacant. The property was previously developed with a waste water treatment facility that was built by the original developer of the surrounding neighborhood. The property and facility were granted to the City in 1982. The waste water treatment facility became obsolete and was demolished by the City in 2012. Acquisition Source of Funds The source of acquisition funds used to purchase the property is unknown. However, there are no known “source of funds used” restrictions associated with disposition of the properties. Status The Calavera property has remained vacant since the waste water treatment plant was demolished in 2012. On several occasions, the city has utilized the property for interim uses such as construction staging and materials storage. The property has a General Plan Land Use designation of Public (P) and a Zoning designation of Public Utility (P-U. The intent and purpose of the P-U Zoning designation is to provide for certain public utility and related uses, including governmental maintenance and service facilities, and public utility district maintenance, storage and operating facilities. Property N October 17, 2017 Item #3 Page 36 of 50 32 City of Carlsbad 2017 Real Estate Strategic Plan Highest and Best Use The city is currently using the large building on the Farmers property for public works storage purposes. The Farmers property was purchased by the city in 2002, with the intent to utilize the property as the location of a new city hall. The city is currently working on a plan to develop a new city hall, as a part of a larger civic center campus. It is anticipated that the location for a new city hall will be selected by the City Council, in consultation with the community, in the near future. The Farmers property was purchased with CFD No. 1 funds with the intent that the property would serve as the location for a new city hall. If the Farmers property is chosen as the site for a new city hall, it is possible that municipal storage needs could be a part of the larger civic center campus project. If, however, it is definitively determined that the property will not be used for city hall, the city is required to sell the property within a reasonable, fiduciarily responsible timeframe and the sale funds must be returned to the CFD No. 1 fund account. If, at some point in time, the city is no longer able to utilize the Farmers property to meet its public works storage needs, the city will need to identify a new storage solution. Thus, the highest and best use of the Calavera property at this time is to retain ownership of the property, while the city explores and identifies a long-term solution that addresses the city’s storage needs. The Calavera property could be a possible location for a public works storage facility. The use would be allowable in the Public Utility (P-U) zone, the property is large enough to accommodate a municipal storage facility, and the property is isolated and is generally not visible to the public from either Tamarack Avenue or the surrounding residential neighborhoods. The City will likely need to complete a storage space needs and locational analysis to determine the extent of the city’s municipal storage needs and to identify a preferred location. CFD No. 1 funds can be utilized to build a public works storage facility. Value Based on Highest and Best Use Storage Facility: Based on the outcome of a storage space needs analysis, the city will determine the required size of a new public works storage facility. Costs for Single Story Self Storage Construction range between $50 to $100 per square foot. Multi- Story Self Storage Construction costs range from $85 to $150 per square foot. Complexity of design and architectural features can significantly affect costs. Recommendation It is recommended that the city retain ownership of the Calavera property until the city explores and identifies a long-term solution that addresses the city’s storage needs. The Calavera property could be a possible location for a public works storage facility. October 17, 2017 Item #3 Page 37 of 50 33 City of Carlsbad 2017 Real Estate Strategic Plan 3. Three-to-Five Year Plan The following properties addressed in the three-to-five year section of the Plan are currently still utilized for city purposes and are likely to be needed for the foreseeable future. The goal is to strategically consider and address how these properties should be managed in the longer-term, both to maximize the return on the investment of public dollars and to leverage properties for the greatest public benefit. Farmers Property The Farmers property is located at the southwest corner of El Camino Real and Faraday Avenue, at 5815 El Camino Real and 2351 Faraday Avenue. The entire property consists of three parcels totaling 13.51 acres (6.95 acres, 1.46 acres, and 5.1 acres). The 6.95 acre parcel is developed with a 128,846 square foot, three-story office building built in 1986 for a Farmers Insurance claims center, and is currently being used by the city for public works storage purposes. The 1.46 acre parcel is developed with a 6,100 square foot building that was formerly a drive-thru insurance claims center and is now occupied by Bio, Tech, and Beyond. The 5.1 acre parcel is undeveloped land and fronts on both Faraday Avenue and Priestly Drive. The Farmers property was acquired by the city in 2002, with the intent that the property would serve as the location for a new city hall. The city is currently working 5.1 Acres 1.46 Acres 6.95 Acres October 17, 2017 Item #3 Page 38 of 50 34 City of Carlsbad 2017 Real Estate Strategic Plan on a plan to develop a new city hall, as a part of a larger civic center campus. It is anticipated that the location for a new city hall will be selected by the City Council, in consultation with the community, in the near future. The Farmers property remains as one of the sites that the City Council is considering as a possible location for a new city hall. Acquisition Source of Funds The Farmers Property was acquired in 2002 for $15,730,000, utilizing CFD No. 1 funds. The property was purchased with CFD No. 1 funds with the intent that the property would serve as the location for a new city hall. If, at any time it is definitively determined that the Farmers property will not be used for this purpose, the city is required to sell the property within a reasonable, fiduciarily responsible timeframe and the sale funds must be returned to the CFD No. 1 fund account. The city is allowed to enter into short-term leases on the property until a final decision regarding the property’s use has been determined. Status The two buildings on the Farmers property are currently utilized for public works storage purposes (128,846 square foot building) and as a life sciences incubator, community laboratory, and science education center (Bio, Tech, and Beyond; 6,100 square foot building). These uses are expected to continue for the foreseeable future. The city is currently working on a plan to develop a new city hall, as a part of a larger civic center campus. It is anticipated that the location for a new city hall will be selected by the City Council, in consultation with the community, in the near future. If the Farmers property is not the location chosen for a new city hall, the city is required to sell the property. In the interim, short-term leases of the property are allowable. The Farmers property has a General Plan Land Use designation of Planned Industrial (PI) and a Zoning designation of Heavy Commercial (C-M). The property is located in the Carlsbad Research Center (“CRC”) and is subject to the standards in CRC Specific Plan (SP-180). Highest & Best Use Currently the highest and best use is to continue to utilize the Farmers property for its current uses. If the Farmers property is not the location chosen for a new city hall, the city is required to sell the property within a reasonable, fiduciarily responsible timeframe and the sale funds must be returned to the CFD No. 1 fund account. At that point in time the highest and best use of the property would be for the city to release a competitive Request for Proposals to sell the property “as-is”. October 17, 2017 Item #3 Page 39 of 50 35 City of Carlsbad 2017 Real Estate Strategic Plan Value Based on Highest & Best Use Sell “As-Is”: If the city were to sell the property in an “as-is” condition, the city could realize proceeds estimated to be between $25,206,000 and $38,493,843 (December, 2016). This would include the disposition of the entire 13.51 acre property, including the undeveloped 5.1 vacant parcel. Sell After Renovating: The cost to bring the 128,846 square foot building up to current standards is estimated at $12,000,000 (February, 2016). If the city elected to spend approximately $12,000,000 to renovate the 128,846 square foot building, the city could realize sale proceeds estimated to be between $38,493,843 and $59,471,772 (December, 2016); again, this would include the disposition of the entire 13.51 acre property, including the 5.1 acre vacant parcel. There is no guarantee that the city would recoup the $12,000,000 spent to renovate the building. Lease: The property was purchased with CFD No. 1 funds with the intent that the property would serve as the location for a new city hall. If, at any time it is definitively determined that the Farmers property will not be used for this purpose, the city is required to sell the property within a reasonable, fiduciarily responsible timeframe and the sale funds must be returned to the CFD No. 1 fund account. As such, long-term leases of the property are prohibited. In the interim, the city is allowed to enter into short-term leases of the property. Recommendation It is recommended that the best course of action is to continue to utilize the Farmers property for its current uses for the foreseeable future. If the Farmers property is not the location chosen for a new city hall, the city is required to sell the property within a reasonable, fiduciarily responsible timeframe and the sale funds must be returned to the CFD No. 1 fund account. At that point in time, the city should release a competitive Request for Proposals (RFP) to sell the property “as-is”. Prior to the sale of the Farmers property, the city will need to identify a new location to serve the city’s public works storage needs. It is also recommended that the city initiate efforts to complete a storage space needs and locational analysis to determine the extent of the city’s municipal storage needs and to identify a preferred new location. CFD No. 1 funds can be utilized to build a public works storage facility. City staff would return to the City Council for review and approval of documents as required and as appropriate. October 17, 2017 Item #3 Page 40 of 50 36 City of Carlsbad 2017 Real Estate Strategic Plan CMWD Property The Carlsbad Municipal Water District (“CMWD”) property is located at the northeast corner of El Camino Real and Orion Street, at 5950 El Camino Real. The property is 6.09 acres in size and is developed with a 13,000 square foot administrative office building, a 5,000 square foot warehouse building, and an open-air maintenance yard. The administrative office building was constructed in 1990 and the warehouse building was constructed in 1963. Both buildings and the maintenance yard are currently occupied by the CMWD and city utility administrative and field staff. The CMWD acquired the property on August 3, 1973. The City is currently working on a plan to develop a new maintenance and operations center that would include sufficient maintenance yard space to serve the needs of the city and district. The current plan is locate the new facility at the larger Safety Center campus on Orion Way. It is anticipated that all personnel currently working out of the CMWD campus would be relocated to the new maintenance and operations center. At that time, the CMWD property would no longer be needed. Acquisition Source of Funds The property was acquired in 1973. There is no information available as to the source of funds used for the acquisition of the property; however, it is assumed that CMWD funds were used. If CMWD funds were used for the acquisition, proceeds from the lease or sale of the property would be required to stay within the funds of the district. 5.1 Acres 1.46 Acres 6.95 Acres October 17, 2017 Item #3 Page 41 of 50 37 City of Carlsbad 2017 Real Estate Strategic Plan Status The CMWD property is currently utilized by CMWD and city utility administrative and field staff. This use is expected to continue for the foreseeable future. The City is currently working on a plan to develop a new maintenance and operations center that would include sufficient maintenance yard space to serve the needs of the city and district. The current plan is locate the new facility at the larger Safety Center campus on Orion Way. It is anticipated that all personnel currently working out of the CMWD campus would be relocated to the new maintenance and operations center. At that time, the CMWD property would no longer be needed and could be sold or land leased long-term. The CMWD property has a General Plan Land Use designation of Planned Industrial (PI) and a Zoning designation of Industrial, with a Qualified Development Overlay (M-Q). Highest and Best Use: Currently the highest and best use is to continue to utilize the CMWD property for its current use. It is anticipated that all personnel currently working out of the CMWD campus would eventually be relocated to the new maintenance and operations center. At that time, the CMWD property would no longer be needed and the highest and best use of the property would be for the city to release a competitive Request for Proposals (RFP) and enter into a long-term land lease of the property. Value Based on Highest & Best Use: Sell “As-Is”: If the district were to sell the 6.9 acre property in an “as-is” condition, the district could realize proceeds of $5,550,000 (October, 2016). Lease: The city should charge no less than the current average Class B NNN rate for San Diego of $2.43 per square foot for the office building, or approximately $31,590 per month, ($379,080 annually). Should the city enter into a 5-year lease at today’s market rate rents of $2.43 per square foot with a minimum 2% CPI increase, the city could expect to generate over $1,972,747.54 (September, 2017); however, due to the properties unique characteristics (5,000 SF warehouse building) and open areas, the above lease rates should be considered the base rents the city should expect depending on the use of the property. Recommendation It is recommended that the best course of action is to continue to utilize the CMWD property for its current uses for the foreseeable future. At the time the CMWD property if no longer needed due to the completion of a new maintenance and operations center, it is recommended that the city release a competitive Request for Proposals (RFP) and enter into a long-term lease of the property. City staff would return to the City Council for review and approval of documents as required and as appropriate. October 17, 2017 Item #3 Page 42 of 50 38 City of Carlsbad 2017 Real Estate Strategic Plan Village Properties The Village Properties consist of four former Carlsbad Redevelopment Agency (“RDA”) properties located throughout the Carlsbad Village area. They include three public parking lots (State and Grand, South State Street, and Roosevelt Street parking lots) and a municipal maintenance yard (Oak Yard). All former RDA properties were transferred to the city pursuant to the Redevelopment Agency’s dissolution on February 1, 2012, at which point the city became the Successor Agency for the RDA. At the request of the California Department of Finance (“DOF”), the city then drafted a Long Range Management Plan (“LRPMP”). Per the LRMP, the transferred RDA properties were not scheduled for disposition, as all properties were deemed to have a continuing governmental purpose. The LRMP was subsequently approved by the DOF, giving the Oversight Board direction to approve the property transfers to the city. State and Grand parking lot: The State and Grand parking lot is located at the northwest corner of State Street and Grand Avenue. The property is .23 acres in size and contains 14 public parking spaces. South State Street parking lot: The South State Street parking lot is located on the west side of South State Street, generally mid-block between Carlsbad Village Drive and Oak Avenue. The property is .37 acres in size and contains 48 public parking spaces. State and Grand Parking Lot Roosevelt Street Parking Lots Oak Yard South State Street Parking Lot October 17, 2017 Item #3 Page 43 of 50 39 City of Carlsbad 2017 Real Estate Strategic Plan Roosevelt Street parking lots: The Roosevelt Street parking lots consist of two sites located on the east side of Roosevelt Street, generally mid-block between Grand Avenue and Carlsbad Village Drive. The two properties total .9 acres and contain 110 public parking spaces. Oak Yard: The Oak Yard is located on the south side of Oak Avenue and south of the southern terminus of State Street. The property is 1.35 acres in size and is currently utilized by the city as a public works maintenance and operations yard. Acquisition Source of Funds The State and Grand parking lot property was acquired in 1977 for $118,000 utilizing general funds. The South State Street parking lot property was acquired in 2009 for $1,150,000 utilizing parking in-lieu fee funds and must be used for public parking purposes. The Roosevelt Street parking lot properties were acquired in 1985 utilizing a loan from the city’s general fund until the Carlsbad Redevelopment Agency (“Agency”) could pay back the city with Redevelopment Tax Exempt Bond proceeds. In 1988 the Agency issued a $12,000,000 Tax Exempt Bond for redevelopment project purposes, and reimbursed the city in full on the previously acquired parcels and acquired the remaining parcels in fee. Subsequently, the city refinanced the 1988 Bond in 1993 for $15,495,000, of which $6,030,000 is currently outstanding. The 1993 outstanding Bond will be completely paid off in 2023. The Roosevelt Street parking lot properties must be utilized for a governmental purpose, such as public parking, throughout the life of the Bonds. The Oak Yard property was acquired and built in 1965 utilizing general funds. Status State and Grand parking lot: The State and Grand parking lot is currently utilized as a public parking lot. As parking (public and private) is at a premium in the Village area, it is likely that the State and Grand property will be needed for public parking purposes for the foreseeable future. South State Street parking lot: The South State Street parking lot is currently utilized as a public parking lot. As the property was acquired with parking in-lieu fees it must continue to be utilized as a public parking lot. Roosevelt Street parking lots: The Roosevelt Street parking lots are currently utilized as public parking lots. As the properties were acquired with Redevelopment Tax October 17, 2017 Item #3 Page 44 of 50 40 City of Carlsbad 2017 Real Estate Strategic Plan Exempt Bond proceeds they must continue to be utilized for a governmental purpose, such as public parking lots, throughout the life of the Bonds. The 1993 outstanding Bond used to acquire the properties will be completely paid off in 2023. Oak Yard: The Oak Yard is currently being utilized by the city as a public works maintenance and operations yard. The city is currently working on a plan to develop a new maintenance and operations center that would include sufficient maintenance yard space to serve the needs of the city and district. The current plan is locate the new facility at the larger Safety Center campus on Orion Way. It is anticipated that all personnel currently working out of the Oak Yard site would be relocated to the new maintenance and operations center. At that time, the Oak Yard property would no longer be needed for its current purpose. All four Village properties have a General Plan Land Use designation of Village (V) and a Zoning designation of Village Review (V-R), and are subject to the standards of the Village Master Plan. Recommendation State and Grand parking lot: It is recommended that the State and Grand parking lot continue to be utilized as a public parking lot for the foreseeable future. South State Street parking lot: It is recommended that the South State Street parking lot continue to be utilized as a public parking lot. As the property was acquired with parking in-lieu fees it must continue to be utilized as a public parking lot. Roosevelt Street parking lots: It is recommended that the Roosevelt Street parking lots continue to be utilized as public parking lots. As the properties were acquired with Redevelopment Tax Exempt Bond proceeds they must continue to be utilized for a governmental purpose, such as public parking lots, throughout the life of the Bonds. The 1993 outstanding Bond used to acquire the properties will be completely paid off in 2023. Oak Yard: It is recommended that the best course of action is to continue to utilize the Oak Yard property for its current use for the foreseeable future. At the time the Oak Yard property is no longer needed for its current use due to the completion of a new maintenance and operations center, it is recommended that the city release a competitive Request for Proposals (RFP)and enter into a long-term land lease of the property. City staff would return to the City Council for review and approval of documents as required and as appropriate. October 17, 2017 Item #3 Page 45 of 50 41 City of Carlsbad 2017 Real Estate Strategic Plan Faraday Center The Faraday Center property is located on the south side of Faraday Avenue, just east of the intersection of Faraday Avenue and Camino Hills Drive, at 1635 Faraday Avenue. The property is situated within the Carlsbad Research Center Business Park. The 7.24 acre property is developed with a 68,000 square foot Class-B office building constructed of concrete tilt-up and glass. Originally built in 1999, the city acquired the property in 2001. The property was acquired for use as city administrative offices and has been continuously occupied by the city since its purchase. Acquisition Source of Funds The Faraday Center property was purchased by the city in 2001 for $9,100,000 using Public Facilities Funds (“PFF”). The city may sell or lease properties acquired with PFF funds so long as those properties are no longer required for city purposes. Status The Faraday Center is currently utilized for city administrative offices and this use is expected to continue for the foreseeable future. The city is currently working on a plan to develop a new city hall, as a part of a larger civic center campus. It is anticipated that the location for a new city hall will be selected by the City Council, in consultation with the community, in the near future. If the Faraday Center property is not the location chosen for a new city hall, it is expected that the city administrative personnel occupying the Faraday Center would relocate to the new city hall location and the property would no longer be needed by the city for administrative offices. The longer term decision to lease or sell the Las Palmas property could be greatly influenced by future City Council decisions on a new city hall. The Faraday Center property has a October 17, 2017 Item #3 Page 46 of 50 42 City of Carlsbad 2017 Real Estate Strategic Plan General Plan Land Use designation of Planned Industrial (PI)/Open Space (OS) and a Zoning designation of Heavy Commercial (C-M) and Open Space (OS). The property is located in the Carlsbad Research Center (“CRC”) and subject to the CRC Specific Plan. Highest and Best Use Currently the highest and best use is to continue to utilize the Faraday Center property for city administrative offices. At the point in time the Faraday Center property is no longer needed by the city for administrative offices, the highest and best use will likely be to enter into a long-term lease of the property with a corporate office tenant or to sell the property. Value Based on Highest and Best Use Lease – “As-Is”: The city should charge no less than the current average Class B NNN rate for San Diego of $2.43 per square foot, or approximately $165,240 per month, ($1,982,880 annually). Should the city enter into a 5-year lease at today’s market rate rents of $2.43 per square foot with a minimum 2% CPI increase, the city could expect to generate over $10,318,987 (September, 2017). Sale: The city’s general preference is to retain ownership of our properties and lease them out long-term, rather than sell a particular property. However, if the city elects to sell the Faraday Center property, the sale should be conducted in an “as-is” manner, with an estimated sales price between $9,800,050 and $17,798,950. The Median estimated sales price is $11,667,500 (August, 2016). The longer term decision to lease or sell the Faraday Center property will be greatly influenced by future City Council decisions on a new city hall. Recommendation It is recommended that the best course of action is to continue utilizing the Faraday Center property for city administrative offices for the foreseeable future. If a new city hall is developed and the Faraday Center property is not the location of the new city hall, it is expected that the current city administrative personnel occupying the Faraday Center would relocate to the new city hall location and the Faraday Center property would no longer be needed by the city for administrative offices. The decision to lease or sell the Faraday Center property should be made at that point in time. City staff would return to the City Council for review and approval of documents as required and as appropriate. October 17, 2017 Item #3 Page 47 of 50 43 City of Carlsbad 2017 Real Estate Strategic Plan IV. Appendix Property APN SF Acres Acquisition Date Acquisition Price Source of Funds Estimated Sale Price Estimated Lease Price Lot 9 137,214 3.15 1952 NA NA NA $159,965/Yr Village Grille/ Shorehouse Kitchen 2833 State Street 203-294-02 203-294-03 5,000 0.11 1977 $118,000 General Funds NA $95,000/Yr 3% Annual Inc. Dove Library Café 215-050-70 750 0.017 1999 NA General Funds NA $18,000/Yr Bio, Tech, and Beyond 5815 El Camino Real 213-062-13 6,000 (Bldg. SF) 1.46 2002 $1,699,909 10% of Total Price CFD No. 1 NA $1/Yr Bauer Lumber/ New Village Arts 203-295-01 203-295-02 10,019 0.23 1997 $498,944 Redevelopment Tax Bonds $1,376,310 NA Buena Vista Reservoir 156-200-16 119,339 2.74 1958 Unknown General Fund NA NA Old Fire Station #3 3701 Catalina Drive 167-154-20 9,200 0.21 1966 $94,850 General Fund $644,450 NA Hawthorne 2065 Camino Vida Roble 213-061-28 114,409 *5,000 (Bldg. SF) 2.63 2010 $2,487,000 CFD No. 1 $2,250,000 To $3,100,000 Up to $144,000/Yr The Shoppes at Carlsbad Parking Lot Properties (Rouse Properties) 156-301-06 156-301-10 156-301-11 156-302-24 165-120-59 69,260 63,162 1,033,679 39,204 1,273,259 1.58 1.45 23.73 0.90 29.23 1969 1969 1969 1969 1992 $1,535,000 1969 Parking Revenue Bonds (paid off in 1995) Unknown Unknown Golf Course Lots 4 & 5 College Blvd. & Palomar Point Way 212-270-04 212-270-05 217,800 304,920 18.51 2010 $4,229,417 General Fund Up to $15,109,875 Up to $1,032,739/Yr Oceanside Properties Foussat & Mission Pajama Drive 160-550-01 149-070-47 119,790 10,891 2.75 0.25 1952 1952 Unknown Unknown NA NA Up to $3,012,626 $109,000 Up to $200,842/Yr NA Las Palmas 2075 Las Palmas Drive 213-061-19 22,627 2.29 1987 $1,602,000 PFF $4,600,479 $659,803/Yr Calavera Waste Water Facility 167-101-09 198,198 4.55 1982 Unknown Unknown NA NA Farmers Property 5815 El Camino Real 213-062-12 (Building) 213-062-13 (Claims Center) 213-062-14 (Land) 588,496 *133,922 (Bldg. SF) 13.51 2002 $15,730,000 CFD No. 1 $25,206,000 To $38,493,843 *As-Is vs. Renovated NA CMWD Property 5950 El Camino Real 209-050-19 265,280 6.09 1973 $18,000 Enterprise Fund $5,500,000 Up to $379,080/Yr October 17, 2017 Item #3 Page 48 of 50 44 City of Carlsbad 2017 Real Estate Strategic Plan Property APN SF Acres Acquisition Date Acquisition Price Source of Funds Estimated Sale Price Estimated Lease Price Village Properties State and Grand Parking Lot 2829-2897 State St. South State Street Parking Lot 3045 State Street Roosevelt Street Parking Lots 2922, 2936-2944 Roosevelt St. 2992 Roosevelt St. Oak Yard 405 Oak St. 203-294-02 203-294-03 203-296-06 203-304-02 203-304-05 203-296-06 204-010-05 204-010-06 5,000 16,117 14,375 10,890 39,204 0.11 .37 0.33 0.25 0.90 1977 2009 1985 1995 1965 $1,260,000 $1,150,000 $990,000 $765,000 Unknown General Fund Parking In-Lieu Redevelopment Tax Bonds Redevelopment Tax Bonds General Fund $1,376,310 $2,213,992 $1,974,694 $1,495,959 $5,385,453 NA NA NA NA NA Faraday Center 1635 Faraday Avenue 212-130-31 315,810 7.25 2001 $9,100,000 PFF $11,667,500 $1,982,880/Yr October 17, 2017 Item #3 Page 49 of 50 ADVISORS IN: Real Estate Redevelopment Affordable Housing Economic Development SAN FRANCISCO A. Jerry Keyser Timothy C. Kelly Kate Earle Funk Debbie M. Kern Reed T. Kawahara David Doezema Los ANGELES Kathleen H. Head James A. Rabe Gregory D. Sao-Hoo Kevin E. Engstrom Julie L. Romey SAN DIEGO Paul C. Marra To: From: Date: Subject: KEYSER MARSTON ASSOCIATES,, ADVISORS IN PUBLIC/PRIVATE REAL ESTATE DEVELOPMENT MEMORANDUM Curtis Jackson, Real Estate Manager City of Carlsbad James Rabe, CRE October 12, 2017 Review of Draft Real Estate Asset Management Plan At your request, Keyser Marston Associates, Inc. (KMA) has reviewed the draft City of Carlsbad, Strategic Real Estate, Asset Management Plan (Plan). KMA's review focused on the structure of the Plan and technical information in the Plan. The Plan contains a large volume of important information and background on the properties owned by the City. The Plan does a good job of presenting the restrictions that are placed on the properties as a result of the funding that was used to acquire the properties. These restrictions, in some cases, limit how the properties can be utilized, and how the City can dispose of the properties and use the proceeds. The analysis of the potential uses of the properties and the likely disposition, timing and approach are reasonable. Overall, the Plan provides a reasoned approach to the evaluation of the City's property holdings. 500 SOUTH GRAND AVENUE, SUITE 1480 ',-LOS ANGELES, CALIFORNIA 90071 ,-PHONE 213.622.8095 WWW.KEYSERMARSTON.COM 1710013.CRL.JAR 11060.011.001 EXHIBIT 2 October 17, 2017 Item #3 Page 50 of 50 Gary T. Barberio, Assistant City Manager Curtis M. Jackson, Real Estate Manager October 17, 2017 Real Estate Strategic Plan Real Estate Strategic Plan •Receive a presentation •Adopt a Resolution approving the Plan Real Estate Strategic Plan •Background −Council directed taking a more strategic approach to city real estate −June 2012, Irving Group Report −2015, Real Estate Manager position created Real Estate Strategic Plan •Updated Plan −Builds on 2012 Plan −Addresses 22 major city real estate assets Real Estate Strategic Plan •Updated Plan includes −Analysis of funding sources used to purchase property (legal counsel) −Updated property valuations −Additional properties beyond those included in 2012 Report Real Estate Strategic Plan •Updated Plan includes −5 year planning horizon; annual progress reports; Plan update provisions −Third-party peer review; strengthen and validate Plan (KMA) Real Estate Strategic Plan •Plan development & Plan recommendations guided by objectives: −Retaining ownership; on-going revenue vs. one- time funds −Fiduciarily responsible disposition, consistent with source of funds −Balancing financial return vs. public benefit Real Estate Strategic Plan •Plan development & Plan recommendations guided by objectives: −Open and competitive disposition process −Accounting for existing and future city facility needs −Incorporating flexibility; respond to changes and new opportunities Real Estate Strategic Plan •Plan includes a 5 Year Planning Horizon −In Progress Complete 6 transactions −One to Three Year Plan Plan to address 9 specific properties −Three to Five Year Plan Plan for 7 properties currently used by the city Real Estate Strategic Plan •In Progress: −Current Lease Implementation Lot 9 Village Grille/Shorehouse Kitchen Dove Library Cafe Real Estate Strategic Plan •In Progress: −Lease Expiration and Renewal Bio, Tech and Beyond Bauer Lumber/New Village Arts −Previous City Council Disposition Direction Buena Vista Reservoir Real Estate Strategic Plan •One to Three Year Plan: −Old Fire Station No. 3; sell −Hawthorne; short-term lease, then sell (MOC dependent) −The Shoppes at Carlsbad Parking Lot Properties; initiate exploration Real Estate Strategic Plan •One to Three Year Plan: −Golf Course Lots 4 & 5; long-term ground lease −Oceanside Properties: Foussat & Mission; long-term ground lease Pajama Drive; sell −Las Palmas; building lease renewal −Calavera Waste Water Facility; hold Real Estate Strategic Plan •Three to Five Year Plan: −Farmers Property; hold, then sell (city hall dependent) −CMWD Property; hold, then long-term lease (MOC dependent) Real Estate Strategic Plan •Three to Five Year Plan: −Village Properties: State & Grand Parking Lot; hold South State Street Parking Lot; hold Roosevelt Street Parking Lots; hold Oak Yard; hold, then long-term lease (MOC dependent) –Faraday Center; hold, then long-term lease (city hall dependent) Real Estate Strategic Plan •Plan is a framework for decision-making •All specific actions will be presented individually to the City Council •Annual progress reports on overall Plan will be provided to City Council •Plan updated at least every five years Real Estate Strategic Plan •Recommendation: That the City Council adopt the Resolution approving the Real Estate Strategic Plan Real Estate Strategic Plan •Questions?