To: Sonoma County Board of Supervisors
Department or Agency Name(s): General Services
Staff Name and Phone Number: Johannes J. Hoevertsz, 707-565-2550
Vote Requirement: 4/5th
Supervisorial District(s): Fifth
Title:
Title
Acquisition of real property at 16390 Main Street, Guerneville
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Recommended Action:
Recommended action
A) Release the certain Board of Supervisors approval contingency, provide final approval, and otherwise authorize consummation of the purchase and acquisition of the real property, located 16390 Main Street, Guerneville, California, and known as the former Bank of America building, for the reduced purchase price of $2,725,000, pursuant to the contingent Property Purchase Agreement dated July 21, 2022, between the County and Patricia M. Veale and Clement C. Carinalli, as Trustees of the Veale Family 2020 Revocable Trust u/t/a dated October 31, 2020, as seller, contingent on there being no further significant due diligence discoveries through the remaining due diligence period.
B) Adopt a Budget Resolution approving adjustments to the FY 22-23 Capital Project Budget in the amount of $2,981,834 from Deferred Maintenance. Additional budget adjustments required for operational costs related to this purchase will be included in the FY22-23 Q2 Consolidated Budget Adjustments. (4/5th Vote Required)
(4/5th Vote Required) (Fifth District)
end
Executive Summary:
Objective 4 under Strategic Plan Resilient Infrastructure Goal 1, is defined as, “Establish resilient neighborhood/regional and satellite service centers with access to transportation systems in West County, Cloverdale, and Sonoma Valley, as expressed in the Real Estate Master Plan, by 2023 in order to improve equitable public access to services.” Consequently, on July 12, 2022, your Board authorized execution of a contingent property purchase agreement (“PPA”), for acquisition of the property commonly known as the former Bank of America building located in downtown Guerneville (the “Property”), for a purchase price of $3,000,000. The PPA provides County with a 90-day due diligence/determination period to enable the County to perform investigations of the Property, which have included property condition assessments, an American Land Title Association survey, and a title search.
As a result of due diligence investigations to date, certain conditions bearing on immediate and significant short-term property improvement capital needs were discovered. These costs are estimated at $522,264. In light of these anticipated capital costs, a $275,000 reduction in the PPA purchase price was negotiated, for a new purchase price of $2,725,000.
To allow more time for additional due diligence, the County exercised its option to extend the due diligence period another thirty days, through November 18, 2022.
Discussion:
PROPERTY FOR ACQUISITION: The Property for the acquisition consists of a single-story, 7,784-sq. ft. office building and parking lot containing over 30 parking spaces. The Property is comprised of six contiguous parcels, which total 32,569 sq. ft. The office building is constructed on two of the six parcels and comprises a total of 16,104 sq. ft. (.37 acres) of land.
The County Health Services (DHS) and Probation Departments currently lease 2,911 sq. ft. of office space at the Property. In addition, West County Community Services (WCCS) leases approximately 3,001 sq. ft. of office space, and the Bank of America has a lease for its auto-teller machine and equipment room at the location. DHS also collaborates with other local social service providers, including West County Community Services, Russian River Counselors, River to Coast Child Care Services, Face to Face, and West County Health Services from this location. The current County DHS and Probation leases expire in October and November 2023, respectively. The WCCS lease expires in December 2022, and the Bank of America lease expires in October 2024.
Acquisition of the Property would enable the County to continue providing County services at its current location, and to secure the Property for long term continued use, as other suitable and existing properties in the lower Russian River are non-existent at the time being.
PROPERTY CONDITION ASSESSMENTS; RESULTS OF DUE DILIGENCE INVESTIGATIONS:
As part of due diligence, the General Services Department contracted with AECOM Technical Services (AECOM) to conduct a walk-through Property Condition Assessment of the Property.
AECOM’s assessment was performed in accordance with ASTM E2018-15 “Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process.” The purpose of the PCA was to observe and document readily accessible (building) materials and systems of the Property, including physical deficiencies, to determine if conditions exist that could have a significant impact on the continued operation of the building or would affect the value or use of the property. Additionally, the assessment examined assets and/or systems that are expected to reach the end of their expected useful life within the specified evaluation period of 10 years, and includes opinions of cost for capital replacement.
Based on the materials and systems observed during the survey, the PCA report concluded that the Property appeared to be in good overall condition. Material and system replacements, and preventative maintenance were observed to have been performed at the Property.
The PCA report concluded that certain Property conditions raise concerns that are either immediate in nature (i.e., safety, code, or risk of critical failure within one year) or short-term (i.e., needed priority beyond routine repair/maintenance, due within first two years of ownership). These repairs are estimated to be $173,899.
Other Property conditions are noted in the report as long-term deficiencies (i.e., asset or systems anticipated to reach end of useful life within ten years) and are estimated to be $348,375 in present dollars ($368,941 assuming 6% escalation over a ten-year period during which such repairs likely would become due). GSD concurs with AECOM’s report and has also conducted its own assessment of the Property. GSD recommends that all of the immediate/short-term repairs and that certain of the long-term deficiencies (specifically, installation of a new roof, new rooftop HVAC equipment, ADA pushbutton doors for primary entry/egress, and a fire alarm system) be resolved within the first year of ownership. The total cost of these four items is estimated at $250,606. The total cost of all immediate and long-term recommended items is estimated at $522,264.
In light of the discoveries made during due diligence, GSD negotiated a $275,000 reduction of the purchase price for the Property.
Funds saved from the purchase price reduction ($275,000) would be used to pay for the four main immediate Property needs: a new roof ($118,062 estimate), new rooftop HVAC units ($82,141), ADA door upgrades ($13,000), installation of a fire alarm ($37,403), and miscellaneous maintenance repairs ($24,394) totaling $275,000.
Phase 1 Environmental Report Findings:
AECOM also performed a Phase I Environmental Site Assessment (ESA) in conformance with the scope and limitations of ASTM Practice E 1527-21. This assessment revealed no evidence of Recognized Environmental Conditions (RECs) in connection with the property, except that the site was the previous location of a Union Oil Service Station. A report filed in 1978 with the Permit Resource Management Department indicates that demolition and removal of the underground storage tanks was completed prior to the construction of the current building at the Property and that removal of the tanks was done in compliance with then-applicable laws and regulations. No controlled RECs (CRECs), historical RECs (HRECs), or de minimis conditions (DMCs) were identified in connection with the Property during this assessment.
A limited Phase 2 Environmental Site Assessment (ESA) is planned to conduct indoor and ambient air samples to assess possible vapor intrusion into the building.
County staff time and engineering consultant work to perform the recommended limited Phase 2 ESA is estimated at $25,000.
Review of the Condition of Title and Result of the Survey:
First American Title provided County with a preliminary title report dated as of July 18, 2022, which contained two mortgages on the Property. Pursuant to the PPA, the Seller is to convey to the County marketable and insurable fee simple title to the Property and the improvements in the form of a duly executed and acknowledged grant deed in a form acceptable to Buyer. First American Title will secure deeds of reconveyance from the Seller, and remove these exceptions from title prior to closing.
ALTA Survey
An American Lands Title Association (ALTA) survey was completed by BKF Engineers. No key concerns were found or identified.
ESTIMATED OPERATING EXPENSES:
During the due diligence investigations, Seller provided additional documents to County, indicating additional operational costs for the Property, such as landscaping, pest control, garbage refuse, propane service, and security. The previous staff report on July 12, reported that such annual Operational Expenses were estimated at $82,461. After adding in the additional services and utilities documented by the Seller, the revised Operational Expenses annual costs are approximately $111,206. However, because annual lease revenues of at least $178,874 remain unchanged (and may increase, given that Suites C and D are vacant and could be leased out), expected lease rental income from the building would cover the revised annual operating costs.
REVISED ACQUISITION COSTS AND FUNDING REQUEST
The purchase price was reduced from $3,000,000 to $2,725,000. As a result, the revised total cost for the acquisition of the Property is estimated at $2,830,371. The following details the revised acquisition cost including immediate property improvement needs:
Investigative Costs:
Property Inspections $ 56,037
PRMD - General Plan Consistency/CEQA $ 0
Property Appraisal $ 5,500
ALTA Survey $ 12,000
Additional due diligence* $ 25,000
Subtotal $ 98,537
Purchase Price $2,725,000
Plus. Est. Escrow Fees $ 2,874
ALTA Title Report $ 3,930
Estimated Other Closing Costs $ 30
Subtotal $2,731,834
Year 1 - Improvements/Maintenance:
Fire alarm system $ 37,403
ADA doors $ 13,000
New roofing $ 118,062
New rooftop units $ 82,141
Other maintenance and repairs $ 24,394
Subtotal $ 275,000
Total Acquisition Cost $3,105,371
*On 07/12/22, your Board approved funding of $73,537 to cover expenses for due diligence, and $50,000 for the earnest money deposit required pursuant to the Property Purchase Agreement, for a total of $123,537. $50,000 has been deposited into escrow by First American Title. An additional $25,000 is requested to cover additional due diligence (Phase II investigation work).
THE NEED FOR A LONG-TERM WEST COUNTY PROPERTY SOLUTION
The County has, and will continue to have, a need for office and operational space in the West County. DHS and Probation currently provide services at the Property, including Whole Person Care, Women Infant & Children, Mobile Support Team, Driving Under the Influence program, and adult and juvenile supervision services for West County clients. During flood and fire disaster events, the Property has served as the only local readily available for a Local Assistance Center for the County. In addition, the County Human Services Department (HSD) has long expressed an interest in expanding services to the West County.
The inventory of available commercial property in the Guerneville area is extremely limited. Previous searches for suitable property(s) have been unsuccessful, since there are no available existing properties large enough to accommodate all the County needs (an estimated additional 3,000 sq. ft., long-term) in Guerneville or the West County area. Should current ownership not continue to lease to the County, or should another entity acquire this building and terminate or not renew the existing leases with the County, the County would be without office-type operational space in that part of the County and locating replacement space would be very difficult. Acquisition of the Property therefore enables the County to ensure continuity of services in this area. The size of the Property and its location in downtown Guerneville, with associated parking and convenient access to public transit, provides the County a reliable option for programming needed services with confidence in the long-term availability of space.
As summarized by the County’s real estate broker, the Property is well worth the purchase price because of its uniqueness, in Guerneville and West County in general. These reasons include: there are currently no other commercial office properties located in downtown Guerneville that are zoned appropriately, ready for County office use, and with the square footage needed to immediately accommodate County services; the Property is the only true office building located on the main downtown strip, with existing and proximate transportation access options; the Property includes developable land and an oversized parking lot, with potential for expansion (approx. 2,500 sq. ft. of unimproved land immediately north of the existing office building, as well as the parking lot); and, the Property is constructed and elevated above grade, and not historically prone to flooding despite being in an area that has experienced major floods.
In sum, the County is a very motivated buyer under the circumstances, and because the Property is uniquely situated to meet County’s current and potential future needs, staff recommends that the County proceed with the purchase and acquire the Property under the PPA.
Strategic Plan:
This item directly support the County’s Five-year Strategic Plan and is aligned with the following pillar, goal, and objective.
Pillar: Resilient Infrastructure
Goal: Goal 1: Invest in County buildings and technology to enhance service delivery and improve employee mobility
Objective: Objective 4: Establish resilient neighborhood/regional and satellite service centers with access to transportation systems in West County, Cloverdale, and Sonoma Valley, as expressed in the Real Estate Master Plan, by 2023 in order to improve equitable public access to services.
Prior Board Actions:
07/12/22:
A) Authorized the Clerk of the Board to publish a notice of intent to purchase real property located 16390 Main Street, in Guerneville, California, and known as the former Bank of America building (Assessor's Parcel Nos. APN's 070-030-045, -049, -050, -058, -059, and -060).
B) Authorized the General Services Director to execute a contingent property purchase agreement for acquisition of the subject real property, in an amount not to exceed a purchase price of $3,000,000, as well as to take all actions and execute all agreements and instruments required and recommended to facilitate the contemplated acquisition, including agreements for due diligence services, escrow instructions, and related transactional documents, in form approved by County Counsel.
C) Determined that the proposed acquisition of the subject real property is categorically exempt under the California Environmental Quality Act (CEQA).
D) Adopted a Budget Resolution approving adjustments to the FY 22-23 Budget in the amount of $123,537 from Deferred Maintenance for the due diligence costs and earnest deposit.
Suites F, H, I and J - Department of Health Services Lease
12/11/18 Authorized General Services Director to execute 2nd amendment
09/10/13 Authorized General Services Director to execute 1st amendment
Suites B and G - Department of Health Services Community Lease
12/11/18 Authorized General Services Director to execute 3rd amendment
07/10/18 Authorized General Services Director to execute 2nd amendment
09/10/13 Authorized General Services Director to execute 1st amendment
10/09/07 Authorized General Services Director to execute lease
Suite E - Probation Department Lease
12/17/19 Authorized General Services Director to execute lease
Fiscal Summary
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Expenditures |
FY 22-23 Adopted |
FY23-24 Projected |
FY 24-25 Projected |
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Budgeted Expenses |
$123,537 |
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Additional Appropriation Requested |
$2,981,834 |
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Total Expenditures |
$3,105,371 |
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Funding Sources |
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General Fund/WA GF |
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State/Federal |
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Fees/Other |
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Use of Fund Balance |
$3,105,371 |
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Contingencies |
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Total Sources |
$3,105,371 |
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Narrative Explanation of Fiscal Impacts:
On 07/12/22, your Board approved additional appropriations $123,537 from the Deferred Maintenance fund, to proceed with the notice of intent to purchase. This amount included $73,537 for General Services to perform due diligence investigation (building condition assessment, an ALTA survey, and a property appraisal, and review of documents provided by the Seller) and $50,000 for an earnest money deposit, to be deposited in escrow, upon execution of the proposed contingent Property Purchase Agreement. The $50,000 earnest money deposit was deposited into escrow (First American Title), pending satisfaction of all conditions for the acquisition pursuant to the executed Property Purchase Agreement; and Board approval of proceeding with the acquisition. The $50,000 deposit has been deposited into escrow, and will be put towards the purchase price, if approved to proceed. Additional funds of $25,000 are being requested to cover additional due diligence investigations, $6,804 for escrow and title reports, and $275,000 for maintenance and repairs.
The requested balance of the revised purchase price of $2,725,000 plus the $25,000 for additional due diligence funding, plus $6,804 escrow and title report fees, plus $275,000 for maintenance and repairs for Year 1, totals $2,981,833. This remaining balance would be requested from the Deferred Maintenance fund, as a loan. If the property acquisition moves forward without further adjustment to the purchase price, the full acquisition cost and Year 1 maintenance and repairs of $3,105,371 will be repaid to the Deferred Maintenance fund using $333,000 per year, for a period of 7 years, from the annual $1 million County Center set-aside for regional/satellite offices and rental income available from tenant leases after accounting for operating and maintenance costs as seen in the repayment schedule in Attachment 1.
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Staffing Impacts: |
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Position Title (Payroll Classification) |
Monthly Salary Range (A-I Step) |
Additions (Number) |
Deletions (Number) |
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Narrative Explanation of Staffing Impacts (If Required):
None.
Attachments:
1 - Loan Repayment Detail
2 - Resolution
Related Items “On File” with the Clerk of the Board:
None.