HomeMy WebLinkAboutStaff Report 3639
City of Palo Alto (ID # 3639)
City Council Staff Report
Report Type: Meeting Date: 5/20/2013
City of Palo Alto Page 1
Summary Title: U.S. Post Office Purchase
Title: Consideration of City of Palo Alto Offer to Purchase U.S. Post Office
Building at 380 Hamilton Avenue and Agreement to Assume Enforcement of
Historic Covenant (Continued from May 13, 2013)
From: City Manager
Lead Department: Planning and Community Environment
Recommendation
Staff recommends a Council MOTION to:
1. Authorize staff to submit and negotiate an offer to purchase the U.S. Post Office
building at 380 Hamilton Avenue, as soon as the Post Office lists the U.S. Post Office
Building for sale, and according to the parameters discussed in the concurrent Closed
Session; and
2. Direct staff to represent to USPS the City’s willingness to accept the responsibility to
hold the historic covenant to assure the historic integrity of the structure is protected.
Executive Summary
In February 2012, following a presentation to the public at a Council meeting, the United States
Postal Service (USPS) announced its intention to sell the historic Palo Alto Post Office property
on Hamilton Avenue. Council directed staff to prepare an analysis of the costs and benefits to
the City of purchasing the historically significant property designed for the Palo Alto community
by renowned architect Birge Clark in 1932. The analysis was to include possible City uses for the
building and financial analysis for the purchase. City staff subsequently completed a number of
professional studies to evaluate the Post Office structure, its potential to house City services,
and to estimate the cost of seismic retrofit and upgrade to modern, conditioned office space.
These studies conclude that the Post Office structure could be seismically retrofitted and
upgraded to modern office space at a reasonable cost, while preserving the historic-defining
characteristics of the structure. An appraisal of the building and site has been conducted but is
confidential for negotiation purposes.
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Once the potential use and improvement costs were determined, City staff evaluated the
financing for a required ‘all cash’ offer. Financial estimates were based on the possible purchase
price, plus necessary structural improvements, tenant improvements and rent savings. The
tentative conclusion is that the purchase of the Post Office property makes economic sense,
with a payback of approximately 10-15 years, whereas the expected life of the building after
the proposed improvements is likely to be at least 30 years. Staff requests that Council provide
direction to develop a formal offer to the USPS to be in a position to promptly submit the offer
as soon as USPS lists the building.
The purchase of the U.S. Post Office building would allow the City to protect and enhance an
extremely valuable historic community resource, while relocating City office space to save
money in the long run.
Background
The Palo Alto Post Office is both a historical treasure and a focal community resource for the
City. In February 2012, the United States Postal Service (USPS) held a public hearing before the
Palo Alto City Council to announce its intention to sell the Palo Alto Post Office property at 380
Hamilton Avenue. A fact sheet, including location map and historic background, is provided as
Attachment A. The USPS noted that the property would be put on the market as a competitive
sale and that only “all cash” offers would be considered, with no contingencies. At the close of
the public hearing/meeting the City Council directed staff to undertake a due diligence study to
determine the viability of the City purchasing the Post Office property. The minutes of the
Council meeting are included as Attachment B.
Staff has been in frequent contact with regional representatives of the USPS, who have most
recently indicated that opening the bid process is probably at least 60 days away. Staff has also
discussed these issues with the USPS Asset Manager in Washington, D.C., who has confirmed
this timing. Staff and some Councilmembers have checked in as well with the City’s federal
lobbyists, who have reported similar perspectives on the process and timing.
Due Diligence Evaluation
Planning staff, working with the Administrative Services and Public Works Departments, has
conducted a series of professional studies in order to evaluate the viability of purchasing the
Post Office property.
These studies included:
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Preliminary Title Report, June 1, 2012;
Appraisal Report by Hulberg and Associates, July 3, 2012 (as this report was prepared for
real estate negotiations, it is not public record at this point);
Historic Assessment, Palo Alto Main Post Office, Architectural Resources Group, June 11,
2012;
Addendum to Historic Assessment, Architectural Resources Group, October 26, 2012;
Seismic Structural Engineering Report, Hohbach-Lewin Inc., June 25 2012;
Conceptual Reuse and Conceptual Construction Cost Estimate Report, Hohbach-Lewin, Inc.,
August 30, 2012; and
Fiscal Analysis prepared by the Palo Alto Administrative Services Department, January 2013.
A summary of the findings of these studies concludes that while preserving its historic
characteristics, the Post Office could provide about 20,000 net square feet (SF) of office space
which could be made suitable for offices for City services, and/or for the possible lease of 3,200
SF to USPS for a retail postal outlet. The structural study indicates that cost would be
prohibitive, however, to use the building for “essential” public safety services, so that potential
relocation of City Police facilities to the building would not be feasible.
1. Zoning and Parking Requirements
The property is currently zoned Public Facilities (PF). In order to accommodate commercial
office use, the site would require a significant upzoning to Downtown Commercial (CD-C). It is
not clear whether the City would permit this upzoning. The appraisal indicates that, whether in
public or private ownership, the value of the property is affected by the fact that a substantial
in-lieu parking fee (about $2.3 million) would need to be paid for the conversion of the
basement and mezzanine areas to office use.
2. Historic Preservation
The Post Office, designed by Birge Clark, is listed on the National Historic Registry of Historic
buildings and is classified as Category 1 on the City of Palo Alto’s Historic Inventory. The historic
architect determined that the structure completed in 1932 could be used for office or retail
uses so long as the items identified as elements that contributed to the historic character of the
structure were preserved. These elements include:
The historic first floor lobby with high ceilings, heavy timber beams with wood corbels, and
overhead wrought-iron grills located within the walls between the lobby and work area;
Marble wainscot, marble floor pattern and tiles, pendant light fixtures, original post office
boxes, paneled and glazed wood doors;
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The Post Master’s Office and the loggia/porch; and
The facades of the building that face the adjacent public streets.
The historic architect prepared schematic plans that documented improvements that would be
consistent with the historic structure and would enable modernization of the office space in the
basement and on the mezzanine. These plans included restoring the skylight to bring natural
light back into the first floor work area and expanding the existing mezzanine area by 3,150 SF.
Historic preservation is implemented in the USPS sale process through Section 106 of the
National Historic Preservation Act of 1966. USPS is required to complete a report identifying
historic-defining characteristics using the Secretary of Interior’s standards and to implement a
covenant on the property that protects these characteristics. The State Historic Preservation
Office (SHPO) must approve USPS’s study and covenant before the property may be listed for
sale. As of April 1, SHPO had not agreed with a proposed finding of No Adverse Effects caused
by the sale of the Palo Alto Post Office, because USPS had not submitted the wording for the
covenant and had not found a third party overseer for the covenant on the Palo Alto Post Office
property. City staff has discussed with USPS the potential for the City to be designated in that
role, and USPS has also had discussions with the Palo Alto-Stanford Heritage Association (PAST).
Structural
The structural engineer prepared a study to determine what seismic structural improvements
consistent with the historic preservation criteria would be required to bring the structure up to
a ‘satisfactory’ seismic rating, which is the typical rating for structures with office uses in the
downtown area. Using the historic architect’s plans, the consultant also determined if the
improvements needed for seismic stability and efficient use could be achieved structurally.
Finally, a conceptual reuse and cost estimate was prepared to determine the cost to make the
building seismically stable, to expand the mezzanine, and to complete interior shell
improvements to support modern office space.
Discussion
The sale of the U.S. Post Office building provides a singular opportunity for the City to retain
and enhance an iconic downtown community resource, while structuring a financing plan that
should save the City lease costs adequate to pay for the building. Because of its location within
a block of City Hall and its design for public access and service, the Post Office building is a very
desirable location for the City’s Development Center. Relocating this City function from leased
space to city owned space would establish a stable rent for the Development Center and help
to stablilize the cost of this service to the City over time. Because of the size of the building,
service to the public could also be made more efficient by consoldating the Planning and
Community Development Department (currently on the fifth floor of City Hall) with the
Development Center. There are many direct interconnections between the functions of the
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Development Center and Planning and Community Environment.
With the mezzanine expansion and use of a modernized full basement, there is more than
enough space in the Post Office building to house these two functions. Presently the
Development Center leases about 9,000 SF and the Planning and Community Environment
Department occupies about 6,000 SF. The retail postal outlet, if included, would need about 3,
200 SF. Therefore, the 20,000 net square feet of the Post Office would accommodate all these
uses while preserving the 2,400 SF historic lobby. The space opened up on the fifth floor of
City Hall by relocation of the Planning and Community Environment could be occupied by some
other city functions currently occupying leased space, which would further control off-site
leasing costs. Alternatively, a portion of the ground floor of City Hall could be leased out to
private or non-profit uses. Those uses have not yet been identified. Other City uses for the Post
Office site can also be considered.
Financial Feasibility
The final step in the due diligence evaluation was to gather financial data to determine if it
would be cost effective for the City to purchase the Post Office property. Finding that it was
cost effective over a 10-15 year period, financing options were considered.
To assess whether it is financially prudent for the City to purchase the Post Office property, the
following factors were considered:
Estimated acquisition, soft shell preparation, tenant improvement, and parking in-lieu costs;
Rent costs to the City that would be eliminated at the current Development Center site and
from other City-leased office space;
Estimated revenue generated by leasing space back to USPS for a retail postal outlet;
Leasing revenue without USPS occupancy;
Estimated, potential rental income by relocating staff from one floor of City Hall and renting
that space to a private party;
Potential Transfer of Development Right (TDR) revenues were excluded from the analysis.
The financial analysis shows that purchasing the Post Office property makes economic sense,
particularly since the expected life of the improvements is likely to be 30 years instead of the 20
years assumed in the analysis. Using a payback measure based on how long it would take to
recoup up-front capital costs from ongoing revenue streams, all scenarios indicated a payback
period of about 15 or fewer years, far short of the building’s useful life. Using net present
value calculations, positive results were shown over less than a 25-year period. An Internal
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Rate of Return (IRR) analysis showed encouraging results with returns ranging from 5.9% to
8.9%. Financing options are discussed in the Resource Impact section below.
Purchase Options
Although the post office structure will provide about 20,980 net square feet of office space,
because of the historic preservation requirement of retaining the existing lobby and post
master’s office, the useable space on the most publically accessible first floor is limited to 6,760
SF, which is about the same square footage currently leased on the first floor by the
Development Center. The historic architect’s plans indicate that about 30 feet of counter space
can be created along the lobby wall, which will provide the Development Center adequate
space for public interaction. Should a Retail postal outlet be included on the first floor, there
would be about half the useable floor area and less counter space available to the Development
Center. However, there would be considerably more square footage to support Development
Center activities available on the other floors of the building. For these reasons it is
recommended that the City Council consider two options for purchase:
1. Offer the USPS 3,200 SF on the first floor as a lease back based on a rent less than full
market as an incentive for the purchase and use the remainder of the building for the
Development Center, Planning and Community Environment Department and other City
office space; or
2. Pursue a purchase option that does not include leasing space for a retail postal business
and use the entire building for City office space. Because USPS has made it clear that
they will consider favorably an offer that provides them a retail outlet without
relocation, the City could ‘sweeten’ an offer which excludes USPS from the site by
offering to assist USPS in finding an appropriate retail space within the downtown area
(or perhaps leasing space to them on the ground floor of City Hall).
Staff recommends that the City provide both options in its purchase offer to USPS. The price of
the offer would be determined in a Council Closed Session.
Historic Covenant
The USPS is required to identify an organization or agency who would be responsible for
enforcing a historic covenant to assure that the structure’s historic character is not diminished
and that any alterations of the structure are consistent with the Secretary of the Interior’s
Guidelines for Historic Rehabilitation. The City of Palo Alto currently fulfills this role when a
private developer attains historic preservation bonuses or transfers for renovation of historic
structures. For City-sponsored projects, the City has generally turned to outside groups, such as
PAST, to assure enforcement of the covenant.
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USPS has inquired to know if the City is interested in holding the covenant for the Post Office
building. Staff recommends that the City acknowledge its willingness to accept the covenant
responsibility, but reserve its right to contract with a third party to oversee the covenant or to
seek reimbursement from USPS (or the purchaser) for all enforcement costs.
Timeline
USPS currently anticipates that it will take SHPO 30 days to review and make a finding of No
Adverse Effect after USPS submits the covenant and names a covenant overseeer. USPS would
expect to list the property 35 days after SHPO’s action. The earliest date for listing currently
anticipated by USPS is June, 2013.
Resource Impact
Several financing options were evaluated, assuming a City purchase offer is accepted, including:
1. Issuance of Certificates of Participation to acquire the Post Office, with redirection of
rental expenses that the City is currently paying to third parties to pay off the COPs;
2. Using part of the Stanford University Medical Center Development Agreement (DA)
funds, which would reduce principal and interests costs and/or alternately the City could
consider the funds drawn from the DA account as a loan to be repaid over time from
available resource streams available by occupying the Post Office; or
3. Purchase the Post Office with existing funds from a combination of the Stanford
University Medical Center DA, Infrastructure Reserve, and the General Fund Budget
Stabilization Reserve, to later be reimbursed by potential General Obligation Bond
proceeds (the use of GO bonds is time sensitive and must occur within 18 months after
the expenditure is made).
Staff recommends using Stanford University Medical Center Development Agreement funds for
the immediate purchase, with replacement of the funding through the issuance of Certificates
of Participation within 12 months of purchase. Savings from current leases, together with
potential rental income from USPS or other third parties , would allow the City to cover its
annual debt service payments and gain a valuable historic community asset. This option is
particularly attractive with the low, current interest rates. Using rents also preserves cash in the
long term in the City’s Infrastructure Reserve and the Stanford funds for future critical
infrastructure needs.
Policy Implications
Purchase of the Post Office property by the City is consistent with the Palo Alto Comprehensive
Plan, including historic conservation policies. Use by the City and the USPS would require no
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changes to the current zoning or Comprehensive Plan designation.
Environmental Review
Environmental review for the sale of the Post Office property is the responsibility of USPS. The
agency must comply with Section 106 of the National Historic Preservation Act of 1966 which
imposes the Secretary of Interior’s guidelines and requires review by the California State
Historical Preservation Office. The property may not be sold until the California SHPO has made
a finding of No Adverse Effect, including approval of the covenant to be placed on the property
and the agency to oversee the enforcement of the covenant.
Attachments:
Attachment A: Post Office 380 Hamilton Fact Sheet (PDF)
Attachment B: February 21, 2012 Council Excerpt Minutes (PDF)
02/21/2012
Special Meeting
February 21, 2012
The City Council of the City of Palo Alto met on this date in the Council
Chambers at 6:00 P.M.
Present: Burt, Espinosa, Klein, Price arrived @ 6:10 P.M., Schmid,
Shepherd, Yeh
Absent: Holman, Scharff
CLOSED SESSION
1. CONFERENCE WITH CITY ATTORNEY—EXISTING LITIGATION
Subject: Schmidlin v. City of Palo Alto
Sixth District Court of Appeal, Case No. H034169
Authority: Government Code section 54956.9(a)
The City Council returned from the Closed Session at 7:00 P.M. and Mayor
Yeh advised no reportable action.
SPECIAL ORDERS OF THE DAY
2. Adolescent Counseling Services- Community Presentation.
Dr. Philippe Rey, Executive Director of Adolescent Counseling Services
(ACS) spoke to the Council about the three main programs that his agency
provides. These include the On-campus counseling program, which is on
all public middle and high schools in Palo Alto, the Substance Abuse
Treatment Program and the After-school Counseling Program. He thanked
the Council for the ongoing support from the City through the funds
received from the Human Services Resource Allocation Process (HSRAP.)
He also explained the key role that ACS has taken in Project Safety Net,
the community collaborative for suicide prevention and youth well-being.
Opportunities to get involved at ACS include through monetary donations
and serving on the board of directors. Dr. Rey invited the Council to attend
their annual fundraiser, Spring Sounds, to be held on March 16, 6:30-
11:30pm at Club Illusions in Palo Alto.
3. Selection of Candidates to be Interviewed for the Public Art
Commission for Three Terms Ending on April 30, 2015.
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13. Finance Committee Recommendation to Accept MGO’s Financial
Statements and Letter.
14. Adoption of a Resolution 9231 Expressing Appreciation to William
Berry Upon Completion of His Term as a Utilities Advisory
Commissioner.
MOTION PASSED: 7-0 Holman, Scharff absent
ACTION ITEMS
15. Public Meeting for Presentation from U.S. Postal Service to Discuss
Process for Disposition and Relocation of Post Office at 380 Hamilton
Avenue.
Director of Planning & Community Environment, Curtis Williams indicated
the purpose of tonight's meeting was to allow the U.S. Postal Service to
present information regarding the potential disposition and relocation of
the Downtown Post Office. He stated Postal Service representatives would
outline the process and schedule for a potential sale and would accept
public comments now and through March 7. Staff expected, unless Council
directed otherwise, to commission an appraisal of the site and to return to
Council to discuss whether the City was interested in presenting an offer to
purchase the site. He reported no Council action was requested at this
time, but Staff had listed this as an Action Item in the event Council wished
to provide direction.
Jim Wigdell, USPS Communications, reported he was present to discuss the
possible relocation of the Palo Alto Post Office currently located on
Hamilton Avenue, which USPS called the Hamilton Station. He indicated he
would discuss why they were here, the decision-making process, cost and
community input. He stated there would be a comment period, which was
important to him. He indicated he would discuss the financial condition of
the Postal Service, and Ms. Alvarado would discuss the cost avoidance by
relocating retail operations in Palo Alto. He stressed this was not a closure
of the Palo Alto Hamilton Station; it was merely a relocation. He stated the
community would still have the same retail services, the same PO boxes
and everything available today; it may not be in the Palo Alto Hamilton
Station going forward. Lastly he would discuss the next steps. He
explained they were present because of 39 Code of Federal Regulations
(CFR) § 241.4, which was a federal law dealing with the relocation of Post
Offices no matter where they were located in the country. He indicated
there was another process they used for discontinuing a Post Office, 39
CFR § 241.3. He didn't want people to be confused by the two processes.
6 02/21/2012
He repeated this was strictly a relocation process. He stated part of the
process was to have a public meeting to ensure increased opportunities for
members of the community and local officials to convey their views
concerning the contemplated project, and to have those views considered
prior to any final decision. He explained the financial climate of the Postal
Service had led them to doing these types of projects throughout the
country. He noted there were several occurring on the Peninsula currently;
the Palo Alto Hamilton Station, Sausalito, Half Moon Bay and a few other
similar projects where they were considering selling large buildings and
moving into a smaller footprint. He said the biggest problem was the
decline of first-class mail volume. He reported in 2006 they had their best
year ever as far as mail processing and mail volume, 213 billion pieces of
mail; whereas, that count was down to about 168 billion pieces in 2011.
He reported first-class mail was simply going away, and first-class mail was
their biggest contributor to revenue. The Postal Service received no tax
dollars; it was funded by the sale of stamps, other products and services.
He said they had to cover their expenses, and so far they were having
financial difficulties because of the decline of first-class mail. He reported
over the last five years, they had had a decline of about 25 percent of first-
class mail volume, and the Postal Service ended Fiscal Year September 30,
2011 with a net loss of $5.1 billion. In 2006 the Postal Enhancement and
Accountability Act required the Postal Service to pay into the future retiree
healthcare benefits approximately $5.5 billion a year. He explained that
was why they were looking at not only changing the way they were doing
business, but also looking at properties with high value and possibly
relocating Postal Services and Operations to return money to the coffers.
He noted traditional retail was declining; over the past six years, retail
revenue had declined by over $2 billion and customer visits to Post Office
lobbies had dropped by more than 200 million. He indicated 35 percent of
all revenue was generated outside of postal facilities, such as ATMs and
usps.com and contract postal units or village post offices. He stated they
were changing the way they do business to embrace the new reality of the
Postal Service.
Diana Alvarado, USPS Real Estate Manager, explained a customer service
facility was categorized by a facility that provided retail window service and
P.O. boxes to the public. She stated any time the Postal Service had a
plan to either expand, relocate or have new construction, they had to abide
by the CFR and they must host a public meeting. She said it was
important to note that this was not a closure or a consolidation. They were
proposing to take retail services currently at the Palo Alto Hamilton Station
and relocate them into the Downtown. One of the core strategies that the
Postmaster General had created was for the Postal Service to become
leaner, faster and smarter as an organization. They did that by optimizing
their network, realigning the workforce, reducing energy and reducing
physical footprint. The Hamilton Station building had 20,300 square feet,
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and the Postal Service could provide the same retail services in a 3,500
square foot footprint. By relocating into a right-sized facility, she stated
they could have an annual savings of over $100,000 a year, mainly in
utility and maintenance costs. She explained over a ten year period, they
saved over $1 million from just one building in Palo Alto, which was why
they were doing this everywhere. She stated Palo Alto currently had six
retail sites. She noted they typically considered sites within 2 1/2 miles,
but this would push the Hamilton Station into another facility, so they
didn't want to do that. She said they had an asset manager assigned to
the project, and all dispositions were operated from the facility's
headquarters. She reported due diligence meant ordering appraisals,
surveys and internal documents, and they were contracting for a historical
consultant. She stated the Postal Service understood the importance of
keeping the characteristics of the historical building. She indicated that the
historical consultant would be working closely with the State Historical
Preservation Officer (SHIPO) to define the covenants and restrictions on
the historical building, and the covenants and restrictions would be placed
on the deed for whoever purchased the facility. She reported the next
steps were to obtain a local broker as the Postal Service had a national
contract with CB Richard Ellis. She said they would advertise the property
for sale, at which point they would determine qualifications and obtain a
best and final offer. She stated it was important to know this proposal was
contingent upon locating an acceptable buyer and finding an acceptable
relocation space.
Mr. Wigdell stated considerations in the decision-making process were
community input. He reported the community would have an opportunity
to comment up to 15 days following the community input meeting, which
was the comment period. He said anybody could write a letter, if they
wished. He noted this particular Post Office had been located on Hamilton
Avenue for a very long time. He assured the public that any Post Office
boxes and corresponding numbers would transfer to the new location, so
the consumers would not have to change their address. He said mail
delivery would not change the results of this possible relocation of the
Hamilton Station. He noted mail delivery would not be affected at all as
letter carriers were located in a different building. He explained the Postal
Service would make a recommendation, which would be forwarded to USPS
headquarters in Washington, D.C. along with the cost analysis and any
community input. He stated headquarters would either concur with the
recommendation or make a recommendation of its own or stop the
process. He reported if the recommendation was to go forward with the
proposal, the Postal Service would notify the community of its decision and
the community would be given an opportunity to appeal to Washington,
D.C. He said they would post the instructions for appeal. He stated the
community had 15 days following the public input meeting, until March 7,
to send letters and comments to Diana Alvarado at the Pacific Facility
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Service Office at the address noted. He stated the Postal Service had a
representative present to take notes during the comment period, and those
comments would become part of the public record while they formulated
their decision.
Council Member Burt wished them luck in finding reasonably priced
commercial property in Downtown Palo Alto. He asked if they would
consider simply reducing the size of services at the present location.
Ms. Alvarado stated everything was under consideration at this point.
Council Member Burt asked specifically if that was something they were
presently considering or had already considered.
Ms. Alvarado indicated many developers had asked about the property and
asked if they would be willing to stay. She stated they would evaluate
everything. She repeated the disposition was handled in Washington, D.C.
and all decisions would be made there. She said they would put it all into
a formalized report and send it back to Washington, D.C.
Council Member Burt inquired how far along they were in looking at
alternatives, because it seemed that they would have a hard time in their
price range in Downtown Palo Alto. He asked why they wouldn’t want to
shrink the size and stay in that location.
Ms. Alvarado repeated it was not a local decision, but they would move it
forward. She thought it would be considered.
Council Member Burt asked if they would be making recommendations.
Ms. Alvarado replied absolutely.
Council Member Burt inquired why that wouldn’t be their first
recommendation.
Ms. Alvarado indicated it would be a recommendation.
Council Member Klein asked how the USPS covered that deficit, where did
the $5 billion come from.
Mr. Wigdell replied from sale of the Palo Alto Post Office and others like it
around the country. He explained the USPS had a $15 billion credit limit
with the Federal Government, and had been tapping into that, and were
very close to reaching the limit. He reported the Postmaster General had
stated, barring any Congressional changes, the USPS would be out of cash
by the middle or end of this year
9 02/21/2012
Council Member Klein noted they didn't discuss the use of sales proceeds.
Assuming the property sold for $x million, he asked where the $x million
went.
Ms. Alvarado stated it went into the general fund of the Postal Service.
Council Member Klein thought that would be one way to reduce the annual
deficit.
Ms. Alvarado answered correct.
Mr. Wigdell said this program was part of a larger program of the Postal
Service to become solvent by the year 2015 or so, and involved other
closures and consolidations and reducing deliveries.
Council Member Klein inquired if the highest bid always won.
Ms. Alvarado responded no.
Council Member Klein asked what went into that decision.
Ms. Alvarado explained the highest bidder may not always have the cash or
have acceptable credit or propose a suitable use for the property.
Council Member Klein inquired if there was a discount for local
governments.
Ms. Alvarado suggested the City put in an offer.
Council Member Klein asked if discounts were in a written policy in the
Postal Service or if they had been carried out in actual practice.
Ms. Alvarado was not aware of any discounts.
Council Member Klein proposed the following scenario: three credible
buyers, one bid x amount and wanted to develop it into an office building,
another bid a little less than x amount and wanted to turn it into a hotel,
and the City bid half of x amount to keep the property in public use. He
asked how the Postal Service decided who won the property.
Ms. Alvarado couldn't answer that question right now.
Council Member Klein inquired how the Council could get guidance on that.
Ms. Alvarado said she had provided the name of the asset manager and
suggested the City submit a letter of intent.
10 02/21/2012
Council Member Klein indicated the property was zoned PSOSNAC,
meaning governmental, public utility, educational, community service and
recreation. He asked whether a business developer made an offer
contingent on rezoning. He also inquired what the Council's rules were
with respect to a prospective buyer.
City Attorney, Molly Stump explained that kind of thing could be handled
through a contingency. She believed the Postal Service in this case had
indicated that they were interested in proposals that would be free of
contingencies. She stated that meant, for a proposal to be considered, the
purchaser would have to assume the risk of a subsequent zone change if
that was the buyer's plans for the facility. She said that would potentially
come before the Council at a future date for the Council's consideration.
Council Member Klein inquired if the Council was under any obligation to
change the zoning given the General Plan Designation of Regional
Community Commercial area.
Ms. Stump thought the Council would have to work with Staff on any
proposal, and it would be in the future in terms of the City having to review
its potential. She wasn't sure she was in a position to state exactly the
limits of the Council's discretion. She indicated they would have to look at
that going forward.
City Manager, James Keene thought the City would not be under any
obligation to rezone the property based upon the Postal Service agreeing to
sell the property to a buyer who was assuming risk. He thought the sale
itself didn't put the Council in a situation where it was required to make
that change.
Council Member Klein asked if it was fair to say that a potential buyer
would take that into account and be less willing to pay top dollar.
Mr. Keene answered unless there was some benefactor who just
generously wanted to buy it for the City and build a building for the City on
his place, yes.
Council Member Klein hypothesized that Mr. Donald Developer bought the
property subject to current zoning restrictions, and a year later he wanted
it rezoned to the equivalent of all the surrounding property, and asked if
the Council could legally say no to that.
Ms. Stump stated he was asking a question containing many hypothetical
elements, and thought Staff would have to review the situation at that
point and what was in the best interest of the City, then make a
11 02/21/2012
recommendation to the Council. She indicated the Council would have
some discretion to consider any request for a zone change that came
before the Council.
Council Member Espinosa was interested in learning more about the
decision process as it seemed to rest in D.C. He was trying to understand
how the conversation happened between the Council and USPS to make
sure they understood the real estate market Downtown. He asked if the
USPS representatives had shared that information so the people in
Washington, D.C. would understand which options really made sense. He
wanted to make sure the folks in the decision-making seat were receiving
information about a unique real estate market.
Ms. Alvarado explained when the concept first came about and the
planners put it together, they considered the local real estate market as
well as the capital expenditure it would require to build out that property,
and weighed it against what they thought they could get for the Palo Alto
Hamilton Station along with the operational savings. She reported it went
through three levels of approval, and it passed all three levels of approval.
She stated they had local brokers giving them the prices, and they
understood prices were high.
Council Member Espinosa inquired if teams from D.C. viewed sites
physically or through information when considering options.
Ms. Alvarado stated the Facilities Vice President had viewed the property
and surrounding area two weeks ago. She repeated staying in the location
was possible.
Council Member Espinosa asked if any of the examples of property sold had
been sold to government agencies.
Ms. Alvarado did not know, but stated she could follow up.
Council Member Espinosa inquired where the Council fit into the timeline
and where in the decision-making process would the USPS be returning for
feedback or decision from Council Members.
Mr. Wigdell explained the USPS was in the very early stages. He agreed
this was a relatively complicated process. He stated the initial step was
meeting with the City of Palo Alto, and the next step was the public input
meeting. He stated they would wait the 15-day period, but the Asset
Management Group had to perform due diligence which was the next step.
He did not have a firm timeline on that.
12 02/21/2012
Council Member Espinosa asked if that process was taking four months or
1 1/2 years.
Ms. Alvarado indicated due diligence typically required 90 days; however,
this one could be longer because they had to rely on the SHIPO to be
timely. She explained they typically marketed the property for 90 days,
and after that it was probably another 30 days to review qualifications, and
probably two weeks to 30 days for a best and final offer. She reiterated
finding a qualified buyer and an acceptable location were challenges. She
indicated they had to satisfy operational folks, which might be even more
difficult.
Council Member Espinosa inquired where in the sales process did they
return to Council or work with Staff to resolve issues. He asked if there
were other public meetings. He wanted to understand when the Council
would participate in the process.
Mr. Wigdell stated as the process unfolded, the asset manager became
involved, due diligence occurred, and the property went on the market,
and he wouldn't keep the City Council in the dark. He said there wasn't a
specific timeframe when they would return to the Council, but if necessary
they would. He indicated there was no requirement for an additional public
meeting according to the CFR, but they would keep the Council informed as
things proceeded.
Council Member Espinosa inquired if any of the other sites had plans for
change.
Ms. Alvarado answered no. She explained delivery from Menlo Park would
probably go into the Palo Alto main office.
Council Member Schmid was concerned about how much time potential
buyers would have to assess the value of the property once it went on the
market.
Ms. Alvarado stated approximately 90 days.
Council Member Schmid asked if they knew what the earthquake rating of
the building was and, if someone was interested in remodeling the interior,
were there constraints because of earthquake standards.
Ms. Alvarado didn't know, but imagined they would have to follow Code.
Council Member Schmid confirmed she couldn't say anything about the
existing building structure. In terms of the value of the property, he
13 02/21/2012
noticed that around it was a number of other PFs which were parking. He
asked if the City owned those parking lots.
Mr. Williams replied yes.
Council Member Schmid asked if the City had options along with this
property or neighboring properties.
Mr. Williams answered correct.
Council Member Schmid noted that the City was currently paying parking
assessments, which were quite substantial. He asked what that amount
was.
Mr. Williams replied the site was assessed for 28 parking spaces with an
assessment of $140,000, and the City of Palo Alto paid that.
Council Member Schmid asked if it was paid each year or a one-time
payment.
Mr. Williams thought it was either paid at one time or paid over a number
of years, but the City was not paying it currently.
Council Member Schmid inquired if the City would be reimbursed if the
property was transferred. He asked if the parking was being sold along
with the property.
Mr. Williams indicated the parking did go along with the property, to the
extent that there were discretionary approvals associated with that. He
indicated they could have a discussion about recouping the cost of that
assessment or buying into the Parking District.
Council Member Schmid thought there were annual assessments for the
Parking District.
Mr. Williams stated he would have to check. He thought some property
owners had paid upfront and in some instances the City had done that.
Council Member Schmid stated any private party that bought the property
would have to understand the relationship to the parking assessment and
whether that continued or not and whether there was an obligation on it.
Mr. Williams replied yes.
Council Member Shepherd mentioned the Azula property where Sunnyvale
obtained access to former military property without cost. She explained
14 02/21/2012
there was no cost because Foothill College and a park would be located
there. She asked why this sale was different from that sale, and why
couldn't this sale be like that.
Mr. Wigdell indicated that was not their area of expertise, but stated the
USPS was not subsidized by taxpayer dollars, so the USPS was a quasi-
governmental agency.
Ms. Alvarado explained the Federal Acquisition Act did not apply to the
Postal Service because it was not subsidized by tax dollars.
Council Member Shepherd inquired whether the USPS was looking for a
statement from the City of Palo Alto regarding zoning
Ms. Alvarado answered they were not looking for that at this time.
Council Member Shepherd explained the property's zoning affected the
price the USPS would get. She would rather see the Postal Service receive
their fair share of that if there was going to be any other consideration.
She asked if there had been a presentation for the Palo Alto Unified School
District.
Ms. Alvarado stated this was the public meeting.
Council Member Shepherd inquired if the Council could ask to be part of
the sale process in order to review proposals that would complement the
type of interest the City had of keeping it a public facility site.
Ms. Alvarado explained the City was not typically part of the process. She
indicated they could include the City on information sent to Washington,
D.C.
Council Member Shepherd explained the City prepared zones to build what
it wanted and to support what it wanted. She knew the Council had been
looking at public facility sites. She wanted to understand if there was a
way the City could become part of that process. She asked if the building
was in good condition or was it being sold as-is.
Ms. Alvarado indicated that a building assessment would be disclosed to
the buyer. She had checked the response line and there were no roof
leaks. She suggested asking the station manager who was present. She
explained the appraisal would provide a good idea of the condition of the
building.
15 02/21/2012
Council Member Shepherd requested the City become a hard stop in the
process at some point in time, so that the City could work in concert with
the buyer.
Council Member Price inquired if it was possible to contact the Asset
Management Group in Washington, D.C. to determine if there were
examples of partnership opportunities with local government. She
recognized that was not Ms. Alvarado's specialty, and asked if the Council
could make those inquiries to determine if there were some successful
examples.
Ms. Alvarado answered absolutely; that's why they had provided the asset
manager's name in the presentation.
Council Member Price thought it was better to present an argument in
person, and felt the Council should present its case in person. She
encouraged Staff to pursue that. She inquired if there was ever
Congressional interest in the deliberations around these kinds of sites.
Mr. Wigdell said it depended on the situation. He noted there was a lot of
Congressional interest when the Hillsborough Post Office burned down and
had to be relocated.
Council Member Price thought it advisable for the Council to consider
contacting their representatives, if needed. She noted the presentation
didn't include anticipated costs in terms of rent and overhead for a smaller
location.
Ms. Alvarado replied that information was considered proprietary and a
part of the study.
Council Member Price stated a structural engineering assessment would be
performed to answer questions. She explained this was an exquisite
building built by architect Burge Clark who was a founding member of the
American Institute of Architects Santa Clara Valley.
Mayor Yeh asked for a walk-through of some of the physical requirements
for a building for USPS services.
Ms. Alvarado replied they needed a building of approximately 3,500 square
feet that would house three retail counters, Post Office boxes, an
automated postal unit, a small platform, security, and customer parking,
Mayor Yeh noted the current site had a mail island.
16 02/21/2012
Ms. Alvarado said they called that a snorkel lane, which was no longer a
part of the design standard. She noted the snorkel lane could be removed
to allow more parking. She suggested the Council approach the USPS
about that; they'd be willing to work with the Council on that.
Mayor Yeh asked Staff if the City usually relied upon an appraisal obtained
by the property owner or obtained an independent appraisal or property
assessment.
Mr. Keene thought the Council had some discretion, but practice was to
obtain an independent appraisal for transparency and validation for the
Council on any spending decision.
Mayor Yeh was curious about the construction options for the actual
building. He assumed there were protections for changing the building
itself, and inquired if there were options for construction around the
building.
Mr. Williams thought there were probably some options for building around
the building, not in front of the building. He explained any construction
would need to be consistent with the Secretary of Interior standards. He
indicated it might be possible to have some kind of addition or separate
structure behind the building, but Staff did not have a detailed analysis of
that.
Mr. Keene understood the Postal Service was required to sell the property
at the appraised value, with that being based on existing zoning, the
historical nature and requirements, building conditions and market factors.
He asked if there were any circumstances where the Postal Service would
sell the property for less than the appraised value, separate from
something related to the relocation piece.
Ms. Alvarado stated they would need special approvals to sell below
appraised value.
Mr. Keene asked if they had done that before.
Ms. Alvarado stated her office had not done that, but she was sure it had
been done around the country.
Priscilla Bates was somewhat reassured by learning that the Postal Service
was interested in relocation, which is what she thought they needed. She
thought the City needed a Post Office location Downtown. She stated it
was easy to go to the Post Office while doing a number of other errands.
She hoped Palo Alto could consider buying that building and using it for
Post Office space and some of the other space the City needed for its
17 02/21/2012
services. She thought the Postal Service needed an efficient building
Downtown, maybe a high-story building, and wasn't concerned if the Post
Office was demolished.
Muriel Gravina was reassured by the Council's comments, because she was
afraid it was a done deal. She noted one reason for the disposal of the
Hamilton Post Office was the sluggish economy. She stated the economy
goes in cycles and thought Silicon Valley's economy would rise. She
thought prices for property and rental space would continue to rise. She
asked what percentage of the $5.1 billion deficit was attributable to the
Post Office in Palo Alto. She felt Washington, D.C. would ignore local
history and needs. She indicated the national retail figures on page 3 were
again national and not local figures.
Stephanie Munoz stated the most encouraging thing she had heard all
evening was the possibility of the Post Office remaining at the current
location. She also had the impression that this was a done deal and the
Federal Government was going to sell this property. She indicated the
Postal Service was planning on selling a building which was built with
taxpayer dollars as it was a gift to the City of Palo Alto. She stated the
value of the property depended entirely on zoning. She indicated the
parking lot could be intensively developed.
Jean Bozman stated the building was finished in 1932 and dedicated by
Ogden Mills, Secretary of the Treasury. She noted a lot had changed in the
intervening years. She indicated there were some benefits to being
grandfathered out of whatever happened in 1932. She said it was sad that
the building was constructed during the Great Depression and in the
current Great Recession it was being sold. She stated there were very real
monetary issues. She agreed with Council Member Burt's comments
regarding the dynamics of Palo Alto. She stated the building was unique,
located in the center of town, and an icon and symbol of Palo Alto's right-
sized architecture. She explained the scale, setbacks, landscaping and
classic design were emblematic of Palo Alto. She noted there was a lot to
recommend preserving it.
Robert Moss stated relocating Downtown would not save the Postal Service
money. He indicated a 3,500 square foot building located on the fringes of
Downtown would cost about $150,000 per year, so the Postal Service
would lose $50,000 a year. He explained the selling price would have to be
based on existing zoning; the Postal Service couldn't assume it would be
zoned anything other than PF. If the Postal Service remained in the
building and sold the remaining portions, he thought the City should
purchase it. He suggested the City move the Development Center there;
move Emergency Services, 911 or Public Safety there; or, utilize the
basement for Police Department storage and the upstairs for the
18 02/21/2012
Development Center. He felt the cost of purchasing the space would be
significantly less than purchasing new property.
Herb Borock believed it was appropriate for the Council and Staff to
consider acquiring this property. He noted the adjacent parking lot was the
site of the farmer's market, and an alternative location would need to be
found for that. He explained that a request for rezoning required action by
the Council and was subject to a referendum. He would have liked to see a
floor plan of the current site and the amount of square footage currently
being used by the Postal Service. Regarding the issue of a study or report
not available through the Freedom of Information Act, he suggested it
could be available at the request of a member of Congress.
Mayor Yeh asked the representatives of the USPS if they wished to respond
to comments and questions raised by the public.
Mr. Wigdell appreciated the community's input. He understood the Postal
Service was near and dear to everybody's heart. He stated Council
Member Burt's comments about the specialness of the Downtown area
were important. He indicated they were present to hear these comments.
He stated they had been taking notes, and would find answers to the
questions they couldn't answer specifically. With regard to the comment of
the financial information being national numbers, he explained the USPS
did not release local financial information. He stated the financial bind was
a national problem, and required drastic steps. He indicated it was not a
financial problem with the local Palo Alto Post Office; it was a national
problem with finances. He stated the retail Post Office with all services
would remain in the basic area. He thanked everyone for their comments
and feedback.
MOTION: Council Member Price moved, seconded by Council Member Schmid
that the City Council direct Staff to; 1) conduct an independent property
appraisal of the site, and 2) conduct a preliminary examination of various
adaptive reuse concepts and other uses of the immediate vicinity for further
Council consideration.
Council Member Price thought this was an opportunity for the Council to be
creative. She stated this was a key facility and location within the City of Palo
Alto. She thought an independent assessment of the value of the site was
critical information needed to fully engage in a discussion. She believed an
independent appraisal was appropriate. She said various concepts,
partnerships and financing models should be fully examined for the use of the
building, site and immediate vicinity. She suggested Staff contact the Asset
Management Group of USPS to clarify questions raised by Council Members
regarding the process and to determine examples of various outcomes in other
19 02/21/2012
parts of the country where there had been effective and productive use of a
public facility such as a Post Office building.
Council Member Schmid added that timing would be important. He indicated
there would not be much time to consider options once the clock started
running.
Council Member Klein suggested adding some of Council Member Price's
remarks as a third item. He stated decisions would be made in Washington,
D.C.; therefore, it made sense to talk with the actual decision makers. He
thought the City's Washington lobbyists could be helpful. He didn't understand
the USPS not disclosing information regarding expenses. He stated rents were
well known. He thought the only way to save money, as discussed, was to
retain space at 380 Hamilton. He believed the USPS would lose money other
than the proceeds from the sale.
INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE
MAKER AND SECONDER to direct Staff to establish contact with the USPS
Asset Management staff in Washington, D.C. using our Staff, Council Members
(if appropriate), and our Washington, D.C. Lobbyists.
Council Member Shepherd inquired how complicated would it be if the City
were to determine a venue that would allow the USPS to save the 3,500
square foot space, and what kind of considerations could the representatives
take back to Washington, D.C. for purchase price. She asked how would that
be evaluated and were they looking to remain in the building.
Ms. Alvarado stated she was not the decision maker, and asked the Council to
submit a proposal.
INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE
MAKER AND SECONDER that included in Staff’s evaluation consideration
of an option in a proposal that the USPS would have a lease tied to the
purchase price of the property at 380 Hamilton Avenue.
Mr. Keene stated it was clear this was an option, not a requirement, and
there could be variations.
Council Member Shepherd stated the Council could quantify it based on
market rents and market forces in exchange for dedicated space on some
City property in Downtown Palo Alto.
Council Member Schmid suggested changing lease to partnership, which
could be a lease, a partial purchase, or ownership of a part.
20 02/21/2012
Council Member Shepherd was fine with either term; although, she thought
the USPS did not want to be the deed holder on the property.
Mr. Keene stated discussions of proposals with price and terms could be
appropriate for Closed Session with the Council. Staff understood the
intent of the Motion was to be directive and illustrative rather than
prescriptive of everything to be considered. He thought Staff understood
they were to bring back a range of options and possibilities for
consideration. He suggested the Council not try to identify every possible
scenario, but keep it open-ended.
Council Member Shepherd wanted to bookmark the discussion so the USPS
would understand the City was interested in keeping the Postal Service
Downtown. She thought this would allow the USPS to meet changing
needs and keep public facility space at the highest and best use.
Council Member Espinosa supported the Motion. He was interested in
preserving the building and honoring it and its context within the street
and Downtown while thinking creatively about the maximum use of the
remainder of the space. He thought there were some unique opportunities
given the parking lots and the shape and structure of the building.
Mayor Yeh asked Staff when this Item would return to the Agenda so that
members of the public would be aware of additional opportunities for
comment.
Mr. Keene indicated the timeframe was constrained given the schedule the
Postal Service had noted. He noted there would be opportunity for Closed
Sessions, and anticipated an Open Session between now and the time of
submitting a proposal. He stated there would be at least one more public
meeting before the May timeframe identified by the Postal Service
representatives.
Mayor Yeh recalled the USPS was required to have one public meeting, and
stated an open meeting under the auspices of the City of Palo Alto would
be open to USPS participation.
Council Member Price thought it would be useful for the Council to
understand the impact of this on Staff's work plan.
Mr. Keene stated this was an important step and a wise move by the
Council. He argued that the City's interest in being a potential bidder
strengthened the City position as it related to maintenance of the existing
PF zoning on that location.
MOTION AS AMENDED PASSED: 7-0 Holman, Scharff absent