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Home My WebLink About2023-10-10 - AGENDA REPORTS - PROPTY ACQUISITION 26326-26330 CITRUS STO Agenda Item: 1 1. CITY OF SANTA CLARITA AGENDA REPORT NEW BUSINESS 14) CITY MANAGER APPROVAL: ' DATE: October 10, 2023 SUBJECT: REAL PROPERTY ACQUISITION OF A +/- 15,000 SQUARE -FOOT COMMERCIAL FACILITY LOCATED AT 26326 - 26330 CITRUS STREET DEPARTMENT: City Manager's Office PRESENTER: Michael Villegas RECOMMENDED ACTION City Council: 1. Approve the real property acquisition of a +/- 15,000 square -foot building and associated land in Valencia, Assessor's Parcel Number 2861-009-040, commonly known as 26326 - 26330 Citrus Street, at a total cost of $5,590,373, which includes $5,550,000 for the purchase price, $15,000 for title, escrow, due diligence, and $25,373 for reserves owed to seller. 2. Authorize the transfer of $4,178,160 from the General Fund (1009500-710130) to the Citrus Facility Fund (130-600100) and $1,412,213 from the Public, Education, and Government Fund (3309500-710130) into the Citrus Facility Fund (130-600330). 3. Appropriate $5,590,373 from the Citrus Facility Fund (Fund 130) to Property Acquisition Expenditure Account (1309008-520105), for the purchase price of the property and related costs. 4. Increase Rental Income Revenue Account 130-431107 by $206,130 (Citrus Facility Fund). 5. Authorize the transfer of $1,412,213 from the General Fund (1009500-710330) to the Public, Education, Government Fund (330-600100) to reimburse the PEG fund for the purchase of the Roger Dunn Property in Fiscal Year 2017-18. 6. Authorize the City Manager, or designee, to enter into a Purchase and Sale Agreement to acquire the property and to execute any amendments and documents needed for the purchase of this property, subject to City Attorney approval. Page 1 Packet Pg. 12 O BACKGROUND The City of Santa Clarita (City) has long partnered with SCVTV through the Santa Clarita Public Television Authority to provide operational management, production, and oversight of video programming for the City's Public, Education, and Government (PEG) Channel. SCVTV's production and operations are currently conducted in an approximately 3,542-square-foot facility located at 22505 14th Street. While the facility has been home to SCVTV for several decades, SCVTV has expressed the need for a larger, more modern facility for several years, as the current studio is approximately 670 square feet. A larger studio space would allow SCVTV to offer greater opportunities to collaborate and offer studio space for local schools and universities, as well as local professionals. With the current six -year lease on the 14th Street facility expiring this year, City staff and SCVTV have actively looked into various rental opportunities for a potential relocation for SCVTV. Several sites were explored early in the year, however, the rental costs deemed them infeasible. In May 2023, City staff were notified of a vacant 9,500-square-foot suite located on Citrus Street adjacent to Westfield Valencia Town Center, just north of City Hall. The facility (Citrus Building) is owned by, and is the current headquarters of, Lundgren Management (Lundgren), a long-standing, local construction management firm who played a critical role in the construction of Valencia High School and several buildings at College of the Canyons. The entire facility totals approximately 15,000-square-feet and is currently subdivided into three units. Approximately 5,500-square-feet of the frontage of the building is currently leased to two tenants, MEND Health & Wellness and a local dentist office, with both tenants having executed 10-year leases. The remaining 9,500-square-foot unit, located in the rear of the facility, currently houses Lundgren's administrative staff. The unit is an open warehouse format, with 14 offices, large removal cubicles, several conference rooms, and plenty of storage area. City staff across several departments completed inspections of the facility and have found it to be well -maintained and in excellent condition. In addition, SCVTV toured the suite on several occasions and deemed it suitable for its operations. Further, based on preliminary design plans provided by SCVTV, the facility would need minimal tenant improvements (TI) and would provide a much larger studio space that would allow for more effective and efficient use of the studio. While the suite was posted for lease, Lundgren expressed its desire to sell the entire facility at a sale price of $5.8 million. Upon receiving this information, City staff completed initial due diligence for the property, including an appraisal, which valued it at $5.72 million. In July, the City Council provided direction to pursue the purchase of the facility. Since then, City staff have been actively negotiating with Lundgren representatives for the purchase of the facility as well as completing additional due diligence, as done with all acquisitions. In early September, a conditional offer was accepted by Lundgren, pending City Council approval, for a sale price of $5.55 million, in addition to a few other detail points. Purchase Agreement In addition to a sale price of $5.55 million, Lundgren and City staff worked out three deal points. The first is associated with the tenant improvement allowance (TIA) owed to the dental office as part of the executed lease agreement. The dental office is currently completing the TI work to Page 2 Packet Pg. 13 O become operational, with an anticipated completion timeline of late 2023. Given that the TIA is part of the existing lease agreement and work is underway, Lundgren has agreed to satisfy the TIA obligation, estimated at $72,000, directly with the dental office through a separate agreement. Lundgren is in the process of ceasing operations permanently and has requested to lease back the suite through December 31 at no cost. Given that the TI needed for SCVTV will not be completed for several months, as they will require the City to go through a bidding process and present a contract for City Council approval, City staff agreed to the lease back. While no rent is being assessed for the unit, Lundgren will be responsible for covering any standalone expenses associated with operating the facility. Lastly, the facility is located within a larger plaza that has shared maintenance expenses managed through an association. As part of the deal, Lundgren has expressed its desire to receive a credit for its share of the reserves in the association, which amount to $25,373. Funding for the Citrus Building In January 2018, the City Council authorized the purchase of the old Roger Dunn building along Main Street for $1.4 million using PEG Funds, with the intent of relocating SCVTV to that location. However, after conducting an analysis on the TI needed to complete the move and adequately meet the needs of SCVTV, the site was deemed infeasible and cost prohibitive. For this reason, City staff is recommending to reimburse the PEG Fund in the amount of the original purchase price. With a reimbursement to the PEG Fund, staff is also recommending the City Council use the same $1.4 million that has already been committed to public television and use it towards the acquisition of the Citrus Building, as SCVTV will use the majority of the facility. The approximate $4.175 million contribution from the General Fund will be provided in the form of an internal, one-time loan to be repaid using rental income from tenants of the Citrus Building, inclusive of interest at a rate of three percent. Next Steps Upon approval of the recommended actions, City staff would work with Lundgren to finalize the purchase of the Citrus Building, while also assisting SCVTV with its current lease at 14th Street. In addition, staff will work with SCVTV to complete architectural designs for the TI needed and complete a formal bid process. An agenda item to approve the construction contract and funding needed to facilitate the move for SCVTV will be brought forward for City Council consideration at a future date. ALTERNATIVE ACTION Other action as determined by the City Council. FISCAL IMPACT Upon approval of the recommended actions, sufficient funds totaling $5,590,373 will be available in the Property Acquisition Expenditure Account 1309008-520105 (Citrus Facility Fund, Fund 130) to facilitate the acquisition of the facility. Funding will be used for the punccase Page 3 Packet Pg. 14 O of the building and associated land, administrative costs associated with the acquisition, and reserves owed to the seller. Additional funding necessary to maintain and operate the facility will be requested at a future date, once the City takes ownership of the facility and completes a full assessment. Page 4 Packet Pg. 15