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22-1114_26874 ORTEGA HWY LLC_Agenda Report_D1City of San Juan Capistrano Agenda Report TO: Honorable Mayor and Members of the City Council FROM: Benjamin Siegel, City Manager SUBMITTED BY: Charlie View, Project Manager DATE: November 14, 2022 SUBJECT: Proposed Sale of Approximately 1.2-acres of City-owned Property Located at 31776 El Camino Real and 26874 Old Mission Road (formerly Ortega Highway) (Assessor Parcel Numbers: 124-160-55, 124-160-56, and 124-160-57) to 26874 Ortega Highway LLC, Approval of Disposition and Development Agreements, Master Agreement for Taxing Entity Compensation, and Finding the Actions Exempt Under CEQA Guidelines Exemption Class 32 for Infill Development RECOMMENDATION: 1.Adopt resolutions approving Disposition and Development Agreements, substantially in the form attached, to sell 1.2-acres of City-owned property located at 31776 El Camino Real and 26874 Old Mission Road (formerly Ortega Highway) to 26874 Ortega Highway LLC. 2.Approve and authorize the City Manager to execute the Master Agreement for Taxing Entity Compensation, substantially in the form attached, with all taxing entities who receive a share of the Playhouse Property sale proceeds. 3.Find the Actions Exempt Under CEQA Guidelines Exemption Class 32 for Infill Development. EXECUTIVE SUMMARY: On October 18, 2022, the City Council adopted a resolution declaring the City’s intent to sell 1.2-acres of City-owned property located at 31776 El Camino Real and 26874 Old Mission Road (formerly Ortega Highway) to 26874 Ortega Highway LLC, and set a public 11/14/2022 D1 City Council Agenda Report November 14, 2022 Page 2 of 8 hearing date of November 1, 2022, to consider Disposition and Development Agreements for the properties. A graphic of the two City-owned properties is provided below. To allow additional time to finalize the terms of the proposed agreements, on November 1, 2022, the public hearing was continued to November 14, 2022. The sale of these properties fulfills the intention of the Long Range Property Management Plan adopted as part of the State-required dissolution of the San Juan Capistrano Community Redevelopment Agency. Further, the property sale will facilitate construction of the recently approved El Camino Specific Plan mixed-use project, consisting of an approximately 27,457 square foot retail, restaurant, and office building, and an approximately 196 space, four-story parking structure with approximately 2,600 square feet of retail space. DISCUSSION/ANALYSIS: The San Juan Capistrano Community Redevelopment Agency (Redevelopment Agency) was dissolved effective February 1, 2012, in accordance with state law. The Redevelopment Agency held certain properties at the time it was dissolved that were City Council Agenda Report November 14, 2022 Page 3 of 8 subsequently transferred to the Successor Agency to the San Juan Capistrano Redevelopment Agency. The Successor Agency, in accordance with the statutes governing the dissolution of redevelopment agencies, prepared a Long Range Property Management Plan (LRPMP) addressing the disposition of the properties. A copy of the LRPMP (and amendment) is provided as Attachment 1. The State directed those properties owned by the City’s former Redevelopment Agency to be sold and the proceeds distributed to the taxing entities, including not just the City but also the County of Orange, school district and special districts in which the properties were located. The downtown properties located at 31776 El Camino Real and 26874 Ortega Highway are included in the LRPMP. Subsequent to the adoption of the initial LRPMP, there was a change in redevelopment law and the Successor Agency modified its disposition plan and received State approval to retain the Parking Lot Property for future public parking. Though no longer required to dispose of the Parking Lot Property, it is recommended to be sold to facilitate the proposed development project for the site. Proposed Development Project In recognition of the public interest in the development of these downtown properties, in 2016 the City retained commercial broker CBRE to market these properties as well as Lower Rosan Ranch, the other former Redevelopment Agency property. After an extensive marketing program, the City received 11 proposals for the purchase and development of the Downtown properties. After careful review of the proposals and the qualifications of the potential buyers, the City Council identified four proposers to participate in a community workshop on April 26, 2017. In October 2017, the properties were included in an Exclusive Negotiation Agreement (ENA) with 26874 Ortega Highway LLC (Frontier Development) for potential sale and development. Since that time, the City and 26874 Ortega Highway LLC have negotiated a Disposition and Development Agreement (DDA) for each property to effectuate the real estate transaction and memorialize performance measures for construction of the proposed development project for the site. The DDA is a standard sales agreement commonly utilized by public agencies for real estate transactions. The DDA establishes the terms of the sale including sales price, escrow schedule, scope of proposed development of the property, and any specific considerations or restrictions. The two DDAs for consideration require the Developer to construct the recently-approved El Camino Specific Plan project consisting of an approximately 27,457 square foot retail, restaurant, and office building, and an approximately 196 space, four-story parking structure with approximately 2,600 square feet of retail space. The schedule of performance, provided as Exhibit C in both proposed DDA documents, establishes the timeframe for the escrow process and calls for construction to begin no later than three years after close of escrow, and completion of the project within two years from that date. In addition, the DDA for the Playhouse City Council Agenda Report November 14, 2022 Page 4 of 8 Property requires that the Developer receive approval from the City Manager prior to demolishing the existing Playhouse structure and includes a provision that allows the South Orange County Community Theatre to continue to operate within the existing structure until 30 days prior to demolition. Although the initial concept for the proposed development project included space that could accommodate a future performing arts center, the approved project has shifted the scope to development of a vibrant mixed-use project that expands the availability of downtown public parking. There are ongoing efforts by a non-profit organization to develop a funding plan to support a future performing arts center in San Juan Capistrano. The availability of easily accessible public parking in multiple locations could support a future performing arts center at a location to be determined. Property Valuations The fair market value of the Parking Lot Property, established through an independent appraisal process, is $1,900,000. The DDA requires the recording of a covenant preserving 65 public parking spaces in the new development as a requirement of the City’s prior retention of the Parking Lot Property for public parking. Although the spaces will be retained for public use, the retention of these spaces was not a factor in the appraisal process or sales negotiations. In recognition of the benefit to downtown businesses and visitors of providing parking to the public, the DDA also calls for the retention in perpetuity of 20 additional public parking spaces and offsets the purchase price by $599,000, the estimated cost of constructing these 20 spaces in the proposed parking structure. Reducing the purchase price by the one-time cost of these additional parking spaces for long-term public use provides the community with significant benefit. The combined 85 spaces will be provided for use by the public in perpetuity, supporting the varied operations of downtown business. The fair market value of the Playhouse Property, established through an independent appraisal process, is $1,330,000. The State-approved Lang Range Property Management Plan (LRPMP) designated the Playhouse Property for future development and called for the City to enter into a compensation agreement with the taxing entities to complete the sale of the property. The purpose of the proposed Master Agreement for Taxing Entity Compensation (Attachment 2) is to define the process for remitting the share of sale proceeds to the affected taxing entities. The proposed Master Compensation Agreement provides for the net unrestricted proceeds from the Playhouse Property sale, less actual costs for expenses incurred by the City in connection with the management and disposition of the property, to be remitted to the Orange County Auditor- Controller for distribution to the taxing entities in accordance with their respective share of the base property taxes. In addition, the agreement calls for the entities to receive their proportionate share of revenues received from the annual license agreement payment received from the South Orange County Community Theatre (El Camino Real Playhouse). City Council Agenda Report November 14, 2022 Page 5 of 8 Surplus Land Act In 2019, the State took several actions to make public lands available for affordable housing development including modifications to the Surplus Land Act. The Surplus Land Act requires that prior to the sale of surplus land, unless an exemption applies, cities must provide notice to affordable housing developers that a property is potentially available for development. In working with the City Attorney’s office, staff determined the City-owned properties to be exempt from the Surplus Land Act due to the fact that the City entered into an Exclusive Negotiation Agreement to dispose of the property prior to the effective date of the Surplus Land Act noticing requirements. Staff recommends that the City Council approve and authorize the City Manager to execute a Disposition and Development Agreement for sale of the Playhouse Property (Attachment 3) for the fair market value of $1,330,000, a Disposition and Development Agreement for sale of the Parking Lot Property (Attachment 4) for the fair market value of $1,301,000 (appraised value less the cost to construct 20 public parking spaces), and a Master Agreement for Taxing Entity Compensation for the disbursement of the Playhouse Property sale proceeds. Prior to disposition of the property, State law requires the Planning Commission determine the sale of the City-owned property is consistent with the City’s General Plan. The Planning Commission acted to approve the matter at its November 9, 2022, meeting. FISCAL IMPACT: Approval of the recommended action would result in $1,301,000 in one-time gross sales proceeds from the sale of the Parking Lot Property and approximately $130,000 in one- time gross sales proceeds to the City from sale of the Playhouse Property. The costs for completing the sales transactions such as escrow costs and title insurance will be deducted from the gross sales proceeds. Additionally, a portion of the cost borne by the City to facilitate the disposition of the Playhouse Property would be recovered from the property sale proceeds prior to disbursement of funds to the Affected Taxing Entities. ENVIRONMENTAL REVIEW: The proposed Project is categorically exempt from further environmental review under State CEQA Guidelines, Section 15332, In-Fill Development Projects (Class 32). The entire Project (which includes the project approvals on October 4, 2022, adoption of a Resolution of Intention on October 18, 2022, to sell the subject properties, and any other follow-on actions including consideration of purchase agreements) is exempt per Section 15332 because the Project meets the required conditions for Class 32. The City filed and posted a Notice of Exemption for the Project on October 7, 2022, with the Orange County Clerk-Recorder. City Council Agenda Report November 14, 2022 Page 6 of 8 As explained in the October 4, 2022, staff report on the El Camino Specific Plan, the Project is consistent with the applicable General Plan designation and all applicable General Plan policies as well as with applicable zoning designations and regulations outlined in the El Camino Specific Plan; in all respects where the El Camino Specific Plan does not specify a development standard, the Project is consistent with the San Juan Capistrano General Plan and Title 9 of the Municipal Code, Land Use. The Project occurs within city limits on a project site of less than five acres and is substantially surrounded by urban uses. Specifically, the Project is located at 31776 El Camino Real in the City of San Juan Capistrano, consists of 1.68 acres, and is surrounded by Town Center (commercial), Community Park (public), and Town Center Edge (commercial) zoning to the north, south, and east, respectively, and Town Center (commercial) zoning to the west. The Project site has no value, as a habitat for endangered, rare, or threatened species because the majority of the Project site has already been developed and is currently improved with a commercial building, parking lot, and associated improvements on the parcels. Therefore, the site is not habitat for endangered, rare, or threatened species. Approval of the Project would not result in any significant effects relating to traffic, noise, air quality, or water quality. Analysis has been conducted to ensure the Project does not result in any significant effects relating to traffic and water quality, including the following: a Traffic Sensitivity Analysis accepted by the City Traffic Engineer and the Preliminary Water Quality Management Plan approved by the Public Works Department. Further, there is no evidence that the Project would result in significant effects relating to air quality or noise. The site can be adequately served by all required utilities and public services; the Project site is currently serviced by all required utilities, including but not limited to electricity, gas, garbage, water, and sewer and therefore would remain adequately serviced. None of the exceptions to the categorical exemptions identified in CEQA Guidelines, section 15300.2 apply. There is nothing unusual about the Project site or the Project itself that would lead to a potentially significant impact. And, even if an unusual circumstance did exist (one does not), based on the studies performed, there is no reasonable possibility that the Project would have a significant effect on the environment. The Project site is already developed with a commercially operating playhouse, the Project’s Traffic Sensitivity Analysis concluded that the Project would not result in a significant increase of inbound and outbound traffic, would provide adequate access, and would provide adequate off-street parking. Further, the Project will not result in damage to scenic resources within a highway officially designated as a state scenic highway; the closest officially designated state scenic highway is located near Anaheim and therefore the Project will not result in damage to scenic resources within or near such highway. Further, the Project is not located on a site which is included on any list compiled pursuant to Government Section 65962.5; the Project site has not been designated as a hazardous waste site. Further, the Project will not cause a substantial adverse change in the significance of a historic resource; specifically, there would be no substantial adverse change in the significance of the Blas Aguilar Adobe for the reasons outlined in this report City Council Agenda Report November 14, 2022 Page 7 of 8 and staff’s presentation. Thus, the exceptions are not triggered, and the Class 32 categorical exemption applies. PRIOR CITY COUNCIL REVIEW: • On November 1, 2022, the City Council continued the Public Hearing for consideration of the purchase agreements for the properties to November 14, 2022. • On October 18, 2022, the City Council adopted a Resolution of Intention declaring its intent to sell the City-owned properties, declaring the properties exempt surplus land pursuant to the Surplus Land Act, and set a hearing date of November 1, 2022, for consideration of purchase agreements to effectuate the transaction. • On October 4, 2022, the City Council approved the entitlement actions for the proposed development of an approximately 27,457 square foot retail, restaurant, and office building, and an approximately 196 space, four-story parking structure. • On October 17, 2017, the City Council approved an Exclusive Negotiation Agreement with Frontier Real Estate Investments (26874 Ortega Highway LLC) for the possible sale and development of the properties. • On May 16, 2017, the City Council voted to enter into exclusive negotiations with Frontier Real Estate Investments for the potential sale of the Parking Lot and Playhouse properties. • On April 26, 2017, the City Council conducted a Community Workshop to review development proposals for the Parking Lot and Playhouse properties. COMMISSION/COMMITTEE/BOARD REVIEW AND RECOMMENDATIONS: • On August 24, 2022, the Planning Commission reviewed the Ortega and El Camino Project proposed for the subject property and adopted a resolution recommending that the City Council approve the Applicant’s requested General Plan Amendment, Rezone and Code Amendment and finding that said action is categorically exempt from the California Environmental Quality Act (CEQA) under CEQA Guidelines Section 15332, In-Fill Development Projects (Class 32). • On July 26, 2021, the Cultural Heritage Commission reviewed the Ortega and El Camino Project proposed for the subject property and in accordance with City Council Policy 603, found that the proposed land use improvements associated with the El Camino Specific Plan are physically and aesthetically compatible with the Blas Aguilar Adobe, a structure identified on the City’s Inventory of Historic and City Council Agenda Report November 14, 2022 Page 8 of 8 Cultural Landmarks, the California Register of Historical Resources, and the National Register of Historic Places. • On December 9, 2021, the Design Review Committee reviewed the conceptual plans of the proposed Ortega and El Camino project proposed for the subject property and forwarded a recommendation of approval to the Planning Commission. • On January 14, 2021, the Design Review Committee reviewed the conceptual plans for the proposed Ortega and El Camino project proposed for the subject property and provided preliminary feedback on the design aspects of the project to the Applicant. NOTIFICATION: 26874 Ortega Highway LLC Adjacent Property Owners Interested Parties Notification List ATTACHMENT: Attachment 1—Long Range Property Management Plan and Amendment Attachment 2—Proposed Master Agreement for Taxing Entity Compensation Attachment 3—Resolution Approving Proposed Playhouse Property Disposition and Development Agreement Attachment 4—Resolution Approving Proposed Parking Lot Property Disposition and Development Agreement