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Home My WebLink About0258.091, May 9, 1991 HONORABLE CITY COUNCIL Palo Alto, California '. ,~ : Attention: Finance and Public Works committee -, 088 ABD D18PQ8JTlqR QP Tel MIDDLJlIELQ WILL 81T8 Members 0 f the Counci 1 : Report. in kief This report recomlflends that council dire.ct staff to prepare a Request for Bid Proposal (RFBPI for the sale of the Middlefield Well site. Background In 1988 1 Council approved a Utilities Department recommendation to abandon and dispose of four of the City's ten wells, including the Middlefield Well. On June. 25, 1990, Council approvea the Finance and ~lic works Committee's {F«PW} recommendation directing staff to ~ake applica tion to rezone the Middlefield Well site to Sinqle Family Residen tial (R-l) and reestablish two parcel sites by means of a Certifi cate of Compliance.. On October 15" 1990, Council approved an ordinanca rezoninq the site to R-l, and on November 16, 1990, a certificate of compliance establishing two parcels on the site was recorded with the county o£ Santa Clara~ On October 30, 1990, F'PW recommended to City Council that it adopt a Budget Amendment ordinance making funds available for the removal of the tank and auxiliary buildings located on the Middlefield Well site and that it approve the proposal to sell the Middlefield Well parcels.. On November 26, 1990, Council adopted the Budget Amendment Ordinance making funds availab1e fGr the removal of the tank and auxiliary buildings located on the Middlefield Well site .. ~lso, council diTected staff to further review and ~ake recommenda tions on the Middlefield Well site parcels as to City-directed and CMR: 258: 91 • o .aintained development of the site~ council also directed staff to explore extended opportunities in conjunction with the neighboring properties and report back to the F~PW committee~ Opportunities Involying Neighboring properties and Removal of FAcilit:ies As reported in CMR:22J~91, staff has explored possible opportuni ties for disposition ot the Middlefield Well site in conj~nction with neiqhboring properties, in particular, one neiqhbor who was reported to be interested in purchasing a portion of the site and then deeding it back to the City in the future. staff has met with the neighboring property owner in question and determined that the neiqhbor no longer has any interest in this option. The rellOval of the tank and buildinqs on the site is scheduled for June 1991. City-Directed and ~intnined pevelopment of the Site Staff bas considered the followinq possihle opportunities for City directed and maintained development ~f the site: 1. City develop.ent of the site with single family homes to be leased at .arket rate to private tenants. In three staff reports (CMR:49J:O, CMR:220:0, and CMR:274:0), staft proposed developinq thl!: Middlefield site with two single family homes and then holc1inq them for t..~eir income stream and appreciating value. y,PW expressed concern over the City aaklng this type of investlllent, and requested that staff explore this concept further and return to F&PW with its findings. After further exploration, and qiven the concerns of F'PW and the recent downturn in the real estate market, staff recommended sale of the two Middlefield parcels in CMR:545:0. In addition to the concerns of F'PW and the downturn in the real estate market, another reason for not pursuing this alternative is lack of st-aff to provide project management for the development. Stafl bad originally proposed that the City's Buildinq Division, through the Housing Improvement Program, act as Project xanager for the development of the sites. This position has now been eliminated, and eXisting staff does not have the expertise or the time to take on this project. 2. City to lease the site for private development of sinqle family homes. A second possibility is for the City to have the site devel oped privately, with the City retaining ownership of the land CMR:258: 91 2 3. / and leasill9 it under a lonq-term lease to a pl.""ivate. d.eveloper. This opti~nl however l would not be financially feasible. The eati.ated cost tor a private developer to build one 2200 square toot bouse on each lot is $440,000 ($100 per square toot). according to the city's Chief Building Official. The eati_ted maximum market rent ~or a ""'V 2200 square foot bouse is $2000 per month ($48.000 per year for two houses) and estiaated expenses (property management, l!Ia intenance and vacancy) are $360 per month ($8 1 640 per year for two houses}. After expenses, annual income from leasing the two houses would be $39,360 ($48,000 -$8,640). The estimated markat value of the lots developed vith sinqle family houses is $1,040,000. Assuming both the City and the developer would want 80me return on their invest.ents, the $39,360 annual inco_ fro. leasinq both houses provic1es less than a 4 percent return on the $1 ,040,000 value of the property, to be shared by City and developer. This return is insufficient to make this a feasible possibility for the City or the developer. Development of the site for City-assisted employee housing council bas been in the process of considering a number of housinq assistance programs for employees, and the possibility ·of develop.ent of the .Middlefield Well site .for employee housing vas mentioned by council Members at the November 26, 1990 meetinq. However, city-constructed houses on the site f~r employees would be expensive and would provide only two houses for two employees, doing little to solve the overall preble. of employee housillCJ. Use of proceeds from the sale of the site for a se~d fund for employee-assisted housing might be a more beneficial contribution to solving the problem. 4. City to retain the Middlefield site without development for its appreciation value. The City could retain the site for its appreciation I to be sold or developed at a later date ~ staff has pre· .... iously estimated appreciation to be 10 percent per year. Cost to maintain the site as it is would be approximately $900 per year~ Lost opportunity costs include the income from the sale of the property ($600,000 minimum) and the intere5t. Annual interest on $600,000 at the City's current rate cf return on investment (!.67 percent) is $52,000. Additional lost opportunity costs are the lost tax revenue to the Palo Alto Unified SChool Oi&trict (PAUSDJ and the City from the parcels not paying any property taxes. Estimated tax revenue for the parce.ls developed. with Single family homes is a minimum of $5,000 per year to PAUSO and a minimum of $1,600 per year to the City. CHR:256:91 3 i , • ./ -------------- o Sol., of the Site The City could sell the Xiddlefial~ Well site on the market usinq the same process ... waa recently used to sell the Seale Well site. The RFBP tor the Seale Well aite had a ainimu. bid of $750,000; the hiqh bid accepted by Council was $1,215,000. A recent market survey conducted by staff indicates the City could expect to sell the Middlefield lots tor a minimum of $300,000 each or a total of $600,000. This is lower than the $350,000 .inimum bid for each lot indicated by the .arltet survey conducted. in October 1989, and indicates the lots .ay not sell for as hiqh a price now as they would have prior to the downturn in the real estate lIIarleet. However, the market has recently been revived by lowered interest rates, and it is staff's opinion that there i8 a demand for vacant single faaily residential lots in Palo Alto and that the city would get a qood price for the lots if they were put on the market at this tiloe. Enyironmental Impact Assessment The City Council adopted a neqative declaration for the rezoning of the site on October 15, 1990. No further revll2:w under the Califor nia Environmental Quality Act is required concerning the sale of the property. Reeomm,ndati9D§ Staf'f reoo_ends that Council authorize staft to send out a Request for Bid Proposal (RPBP) for the sale ot the Middlefield Well site lots with a minimum bid o~ $300,000 eacb. Respectfully submitted, !doh..u... (() f.a:£ ma-v-/j: WILLIAM W. FELLJQ.N Real Property Manager {I -~rll_ .til.'_ L~£ EIIILY HARRISON Director of Finance Related Staff Reports: CMR:251:91 CMR 267 I CMR 497 9 CMR 220 0 CMR 374 0 CMR 545 0 CMR 223 91 4