HomeMy WebLinkAboutStaff Report 6811
City of Palo Alto (ID # 6811)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 5/2/2016
City of Palo Alto Page 1
Summary Title: Approval of 2257 Bryant St. Insurance Settlement
Title: Approval of the Final Fire Insurance Settlement and Payment to Frank
Benest for his Ownership Interest for Property Located at 2257 Bryant Street,
Palo Alto, California and Approval an Amendment to the Budget in the
General Fund
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff recommends that the City Council:
1) Approve a pro-rata payment of $205,144.31 plus accrued interest to Mr. Frank Benest
from a State Farm Insurance Company settlement. Council has previously authorized
the insurance settlement and this related disbursement to Mr. Benest is based on his
pro-rate ownership interest in property located at 2257 Bryant Street Palo Alto,
California which was damaged in a fire.
2) Amend the Fiscal Year 2016 Budget Appropriation Ordinance for the General Fund by:
a. Increase the Administrative Services revenue estimate for Other Revenue in the
amount of $2,336,704;
b. Increase the Administrative Services appropriation in the amount of $285,792;
and
c. Increase the Budget Stabilization Reserve in the amount of $2,050,912.
EXECUTIVE SUMMARY
Staff is seeking Council approval for the final insurance settlement involving the May 3, 2014
fire which severely damaged property located at 2257 Bryant Street in Palo Alto. The City co-
owned this property with Frank Benest, Palo Alto’s City Manager from February 2000 through
August 2008. The City and Mr. Benest are co-listed on the property insurance policy.
The property was purchased jointly on June 27, 2001 to be used as the primary residence of the
City Manager. Presently, the equity ownership of the property consists of 56.8% by the City and
43.2% by Frank Benest and Pamela S. Grady, Co –Trustee of the Benest & Grady Family Trust
dated November 13, 1990.
City of Palo Alto Page 2
During the past two years, City staff and Mr. Benest worked together to negotiate with State
Farm Insurance Company to settle the amount due for the fire damages and evaluated
alternatives as to repair and rebuild the structure, sell the property as is or demolish the
structure and sell as a single family lot parcel. Mr. Benest and the City agreed to the State Farm
settlement in the amount $562,106.18. The property was listed and sold as a single family lot
for $2.7 million. The proceeds from the sale of the property were distributed in escrow based
on the percentages of ownership by the City and Mr. Benest. The net proceeds from payments
from the insurance company for fire damages are being held in a City interest bearing account
to be divided based on ownership percentages to complete the settlement with Mr. Benest.
BACKGROUND
The City of Palo Alto and Frank Benest are joint owners of the property located at 2257 Bryant
Street. The City’s recent practice has been to provide a housing subsidy as part of the City
Manager’s compensation because the City Charter requires the City Manager to live in Palo
Alto. The property was purchased by Frank Benest on June 27, 2001 for his primary residence.
Mr. Benest and his family were living on the property until a major house fire severely damaged
the property on May 3, 2014. Since the occurrence, City staff has worked with Mr. Benest, the
insurance company, contractors, an architect, a structural engineer, and real estate consultants
toward the clean-up, rehabilitation, and development of architectural and structural plans, in
order to reach a settlement with the insurance company and evaluate alternatives for the use
of the property. Additional background information can be found via City Manager Reports
4963, 5891, and 6375.
On December 14, 2015, City Council approved the fire insurance settlement and approved the
sale of the property to the highest and most qualified bidder. The damaged structure was
demolished and the property was sold for $2.7 million. The final settlement amount from State
Farm Insurance Company after significant negotiation was $562,106.18. The related expenses
totaled to $87,235.08. The net amount is to be divided between the City and Mr. Benest based
on ownership rights is $474,871.10 which is held in a City deposit account. (See Attachment A:
Insurance payment and expense records)
DISCUSSION
After Council’s approval of the insurance settlement and sale of the property, the City and Mr.
Benest considered the following options for the property:
Option A: Rebuild the house as it was before the fire with required Building Code updates
Option B: Sell the Property “as is”
Option C: Demolish the structure and market the property as a Single Family lot
After evaluating the pros and cons of each approach, it was decided that the best course of
action was option C. This alternative provided a single family lot in a desirable location of the
city and it allowed the purchaser to design and build a new home. The remaining structure was
demolished and the property was listed on December 15, 2015 with Dreyfus Sotheby’s
City of Palo Alto Page 3
International Realty for $2,495,000. Three offers were received, the best one was selected and
final sale price of $2.7 million cash was agreed by all parties. The escrow was closed on March
18, 2016. The City received a net payment in the amount of $1,455,900.72 and an existing loan
on the property from the City to Mr. Benest in the amount of $325,284.28 was paid off. (Note
Attachment B: Sellers Final Closing Statement)
The final State Farm settlement offer equaled $562,106.18. This amount included: clean up and
repair expenses such as roof work, asbestos abatement, and costs for rebuilding the structure
which incorporate code upgrades, a dwelling extension (garage), landscaping and City permit
expenses. The expenses totaled $87,235.08. The net remainder amount of $474,871.10 is to be
divided between the City and Mr. Benest based on their percentage ownership of the property.
This results in the payment of $205,144.31 plus accrued interest to Mr. Benest. The remainder
of the payment will be retained by the City.
RESOURCE IMPACT
The original equity investment in 2001 totaled $900,000 and the loan from the City to Mr.
Benest was for $500,000 for a grand total of $1,400,000. The proceeds from the sale and
insurance settlement total $2,050,912. The net return on this investment equals $650,912. The
proceeds of $2,050,912 are recommended to be allocated to the Budget Stabilization Reserve
and staff will return to Council with future Council for direction on the use of these funds.
The final disbarment of funds from fire damage payment will settle all claims by the City of Palo
Alto and Mr. Benest regarding this property. City has received the following from the sale and
insurance payments
Revenues
Proceeds from the Sale of Property $1,455,901
Loan Repayment $325,284
Insurance Proceeds* $555,519
Total Revenues $2,336,704
Expenses
Mr. Frank Benest Insurance settlement ($205,145)
Property Clean-up Expenses* ($80,647)
Total Expenses ($285,792)
Budget Stabilization Reserve $2,050,912
*Both Insurance Proceeds and Property Expenses are slightly lower than noted
in the discussion above as $6,588 in property clean-up costs were paid directly
by State Farm Insurance and deducted from the final
This action will increase the current FY 2016 Budget Stabilization Reserve to $39.0 million or
21.0% of the FY 2016 Adopted Budget expenditures. Staff plans to bring forward
recommendations as part of the Fiscal Year 2017 Proposed Budget process on the use of these
funds.
City of Palo Alto Page 4
POLICY IMPLICATIONS
This recommendation is consistent with Council direction.
ENVIRONMENTAL REVIEW
None required
Attachments:
Attachment A: Insurance Payments and Expense Records (XLSX)
Attachment B: Seller Final Closing Statement_March 2016 (PDF)
ATTACHMENT A
Revenue and Payment Transactions Expenses Revenue
Revenues
Payment from State Farm (check number 1 02 694288 J) 1*$52,285.52
Payment from State Farm (check number 1 02 804461 J) 2*$435,635.65
Payment from State Farm (check number 1 02 097388 J) 3*$55,613.45
Payment from state Farm (check numbee 1 02 141559 J) 4*$11,983.83
Interest for the funds in the account
Expenses /Payments
Ward-Tek (Inv. #34063) $15,431.86
Alliance (Inv. #80899)$30,118.66
Boudreau Plumbing and Heating (Inv. #09-27809)$1,003.00
Protera (Inv # 74746) $375.00
Protera (Inv. #73443) Limited Survey, Site Visit Report, Bulk Asbestos Analysis $735.00
De Jesus and Alatorre Architects, INC (Inv. # 1527)$3,172.00
Alliance (inovice 82256) $394.47
Zonning Plan Check $1,096.00
Building Plan Check Fee $2,922.68
De Jesus and Alatorre Architects, INC (Inv. # 1600)$9,513.68
Fee for Buidling permit $0.00
Genuit Builders $385.00
Demoliton Permit Paid to City Dev Center $532.00
Demoliton Cost paid to Peninsula Demoltion $14,968.00
Total $80,647.35 $555,518.45
Balance in the Account $474,871.10
City's Proceed (City's Ownership Equity Percentage 56.8)$269,726.78
Frank Benest proceed (Frank Benest's Ownership Equity Percentage 43.2%)$205,144.32
Cost Center (for deposits) 47100000
Account 60560
Jon Crase construction Inc (invocie Number 11462) (was paid by State Farm) $522.50
Serve Pro (check number 1 02 694272 J) (was paid by State Farm)$6,065.23
2257 Bryant Street, Palo Alto
Frank Benest & City of Palo Alto - Revenue and Payment Charges for Project: PF-15005-080
ATTACHMENT A
*All expenses/payments in the total amount of $80,647.35 were paid from revenue
lines 1 through 4.
Total Payments including two payments that were paid dircly by State Farm $562,106.18
Total expenses including two invoices that were paid dircly by State Farm $87,235.08
Net Proceed to be Divided between Mr. Benest and CPA $474,871.10
Chicago Title Company
917 Alma St., Palo Alto, CA 94301
Phone: (650)324-1984 | FAX: (650)327-7918
FINAL SELLER'S STATEMENT
Settlement Date:Escrow Number:CSC-2989-FWPS-2989151433March 18, 2016
Disbursement Date:Escrow Officer:March 18, 2016 Tobi Langford
The Qimera Trust U/T/D June 16, 2004Buyer:
The Survivor's Trust, established under the Benest and Grady Family Trust UTA dated 11/13/90Seller:
2257 Bryant Street
Palo Alto, CA 94301
The Decedent's Trust, established under the Benest and Grady Family Trust UTA dated
11/13/90
Seller:
2257 Bryant Street
Palo Alto, CA 94301
The City of Palo AltoSeller:
250 Hamilton Avenue, 4th Floor
Palo Alto, CA 94301
Property:2257 Bryant Street
Palo Alto, CA 94301
Parcel ID(s): 124-14-021
DEBITS CREDITS$$
FINANCIAL CONSIDERATION
Sale Price of Property 2,700,000.00
PRORATIONS/ADJUSTMENTS
03/18/16 to 07/01/16 5,083.44($8,883.69 / 180 X 103 days)County Taxes/124-14-021 at
$8,883.69
COMMISSIONS
Commission - Listing Agent Dreyfus Sotheby's International Realty 60,750.00
$2,700,000.00 @ 2.2500% = $60,750.00
Commission - Selling Agent Alain Pinel Realtors 67,500.00
$2,700,000.00 @ 2.5000% = $67,500.00
TITLE & ESCROW CHARGES
Title - Escrow Fee Chicago Title Company 1,700.00
Title - Notary Janine Dietiker 60.00
Title - Special Courier Fee Chicago Title Company 43.00
Title - Mobile Signing Service Rhett Butler 125.00
Title - Owner's Title Insurance Chicago Title Company 4,151.00
Policies to be issued:
Owners Policy
Premium: $4,151.00Version: ALTA Homeowner's Policy of
Title Insurance 2013
Coverage: $2,700,000.00
RECORDING CHARGES
Santa Clara County Transfer Tax
($2,970.00)
Chicago Title Company 2,970.01
Palo Alto City Transfer Tax ($8,910.00)Chicago Title Company 4,455.00
PAYOFFS
Payoff of First Mortgage Loan
($325,631.42)
City of Palo Alto
325,284.28Principal Balance
Additional Interest (From 03/01/16 To 03/18/16 @ $20.420000 Per Diem) 347.14
MISCELLANEOUS CHARGES
Natural Hazard Diclosure JCP-LGS Natural Hazard Disclosures 123.95
Seller Proceeds 56.80%The City of Palo Alto 1,455,900.72
Seller Proceeds 8.748%The Survivor's Trust, established under the Benest 158,288.85
Seller Proceeds 34.452%The Decedent's Trust, established under the
Benest
623,384.49
Subtotals 2,705,083.44 2,705,083.44
TOTALS 2,705,083.44 2,705,083.44
Page 1 of 2 (FWPS-2989151433/54) March 18, 2016 1:16 PM PCERTIFIED COPY
ATTACHMENT B
FINAL SELLER'S STATEMENT - Continued
Chicago Title Company, Settlement Agent
THIS IS A CERTIFIED COPY OF THE ORIGINAL DOCUMENT(S) BY
CHICAGO TITLE COMPANY
SAVE THIS STATEMENT FOR INCOME TAX PURPOSES
Page 2 of 2 (FWPS-2989151433/54) March 18, 2016 1:16 PM PCERTIFIED COPY
ATTACHMENT B