Sparks Redevelopment Agency Meeting (following the City Council Meeting) 3/10/2014 2:00:00 PMMonday, March 10, 2014 2:00 PM
City Council Chambers, Legislative Bldg, 745 Fourth St., Sparks
Item Number: 5
A Business Impact Statement is not required because this is not a rule.
The Redevelopment Agency formally solicited offers by issuing a “Request for Offers to Purchase a 10.2 Acre Parcel – APN 037-020-50” on October 11, 2013. LandCap submitted the sole response and offer to purchase the property by the submittal deadline of November 13, 2013. Staff presented their offer to the Redevelopment Agency’s Board of Directors on December 9, 2013 and the Agency Board directed City staff to negotiate a sale and purchase agreement with LandCap. This agenda item asks the Agency Board to approve an Agreement for Purchase and Sale with Landcap. The City Council is scheduled to consider a resolution approving the Redevelopment Agency’s sale of the property on March 10th. The Agency may sell property only after the City Council approves the sale by resolution after notice and public hearing, as prescribed by NRS 279.630 (3). If the Council granted its approval, the Redevelopment Agency Board can consider and approve the Agreement for Purchase and Sale (attached).
The agreement calls for a sales price of $2,250,000, which is equal to the appraised value of the property, and for the Agency to carry a Promissory Note and Deed of Trust in the amount of $1,750,000 at an interest rate of 4 percent for three years. In addition to payments totaling $500,000 ($100,000 in deposits plus $400,000 due at closing), LandCap would make six semi-annual principal reduction payments of $150,000. A balloon payment in the amount of $850,000 would be due at the end of the three year loan term. LandCap would also make monthly interest payments on the outstanding loan amount but may pre-pay the loan balance at any time without a penalty.
On September 23rd the Agency Board directed staff to proceed with soliciting offers for purchase of the Redevelopment Agency’s 10.2 acre parcel located on the east side of Marina Gateway Drive (the “Property”). Steps in the sale process include:
• Updating the appraisals to establish the property’s fair market value. In a summary appraisal, Reese Perkins of Johnson-Perkins & Associates, Inc. estimated the Property has a market value of $2,250,000 ($5.064 per square foot) as of September 24, 2013. The appraisal also supposes that the buyer would assume special assessments (the current unbilled principal amount is $584,335). The Johnson-Perkins appraisal was reviewed by William G. Kimmel; he concluded that the “value conclusion is reasonable.”
• Market the property. On October 11, 2013 staff issued a “Request for Offers to Purchase a 10.2 Acre Parcel – APN 037-020-50”. The solicitation was noticed in the Reno Gazette-Journal on October 11 and 23 and a “for sale” sign was posted on the property. Parties who had previously expressed interest in the Property were sent the solicitation.
• Submittal of buyer offers. The deadline for submittal of offers was November 13th. LandCap Sparks, LLC submitted the sole offer to purchase the Property from the Redevelopment Agency. The firm’s principals are Stephen Hinckley, Jeffrey Holbrook, and Bruce Degler. David Dahl and Doyle Barker are associates with the firm.
• Presentation of offers to the Agency Board. This step occurred at the December 9, 2013 Agency Board meeting with the presentation of LandCap’s offer to the Agency Board. The Agency Board directed staff to negotiate an agreement with LandCap for City Council and Agency Board consideration.
• City Council and Redevelopment Agency Board approvals of the sale. City Council approval is required, after conducting a public hearing and adopting a resolution, before the Redevelopment Agency can approve the attached Agreement for Purchase and Sale (the “Agreement”). The City Council’s approval of the sale is required to comply with the requirements of NRS 279.630(3).
After the Agency Board directed staff to negotiate an agreement with LandCap, staff solicited revised terms from LandCap with the objective of increasing the cash payments the Agency receives during the period it carries a note for $1,750,000 (i.e., the difference between the payments due by or at the close of escrow and the final balloon payment). The basic terms of the Agreement, and how they vary from the original offer, are as follows.
• Price. A $2,250,000 purchase price, which equals the appraised value of the property. LandCap’s original offer was for $2,400,000.
• Deposits. LandCap would still make deposits totaling $100,000 ($25,000 with acceptance of offer, $25,000 upon approval of the Agreement and $50,000 upon expiration of the due diligence period). These deposits would be non-refundable after the due diligence period. In reality, LandCap would be unlikely to make the $50,000 deposit at the end of the due diligence period if they do not wish to continue pursuing acquisition of the Agency property at that juncture.
• Seller (i.e., Agency) Carry. The Agreement calls for the Agency to carry back a Promissory Note and Deed of Trust in the amount of $1,750,000 at an interest rate of 4 percent, payable monthly, for three years. LandCap would make six semi-annual principal reduction payments of $150,000; this equates to $300,000 annually in principal reductions. A balloon payment in the amount of $850,000 would be due at the end of the three year loan term. Interest must be paid monthly. LandCap may pre-pay the loan balance at any time without a penalty. In comparison, the original offer provided for the Agency to carry a loan for $1,900,000 at an interest rate of 6%, also payable monthly, and a balloon payment in the amount of $1,900,000 due at the end of the three year term.
• Due diligence period. LandCap would have a 30 day due diligence period that would begin upon approval of the Agreement by the Agency Board. If LandCap elects to move forward with the purchase at the end of the due diligence period, the Buyer (through the escrow Trustee) would release to the Agency $100,000, which would be creditable to the purchase price.
• Approval of a development plan. Following the due diligence period, LandCap would have 90 days to submit a land use plan that conforms with the zoning standards in place at the time of application. Review and approval of LandCap’s application would be the responsibility of the City, through its land use approval process and in its regulatory capacity, and not of the Redevelopment Agency.
• Termination. LandCap would be able to terminate the escrow if they fail to receive City approval of their development application within nine months of its submission.
• Close of escrow. LandCap would be required to close escrow within 60 days of receiving approval of their land use entitlement application for the Property. They would pay the Agency $400,000 in cash (in addition to the $100,00 of previous deposits) at close of escrow.
Regarding LandCap’s potential use of the property, they envision developing the site – and the adjacent 9.7 acre parcel to the south, which they have recently purchased – with a mix of housing products. The conceptual development plans submitted with LandCap’s original offer are not binding on either party and LandCap will need to go through the City’s land use entitlement process to fully define their development proposal for the Agency property.
The transaction documents (the Agreement for Purchase and Sale, which includes a Promissory Note as Exhibit A, and a Deed of Trust as Exhibit B) were prepared with the assistance of Taggart and Taggart, the Agency’s contracted legal counsel, and have been reviewed by the City Attorney. These documents are intended to facilitate the reversion of the property to the Agency in the event of LandCap’s failure to pay off the note or other default. The Property will be the primary security for the note so the Agency’s interests are served by minimizing encumbrances on the property during the proposed three year carry period. For example, the documents include provisions, such as requiring full payment (or possibly partial payment, if the project is to be phased and the property can be subdivided) of the note, before construction can commence.
After close of escrow LandCap would assume all maintenance and financial obligations, including responsibility for payment of property taxes and the Special Assessment District No. 2 assessment lien and payments.
Under NRS 279.630(3), the Agency’s sale of real property is subject to gaining City Council approval by resolution after notice and a public hearing. The statute provides no specific criteria for the Council to consider or findings to make before granting that consent. Notice that sale of the Property was scheduled for consideration by the Sparks City Council and Sparks Redevelopment Agency on March 10, 2014 was printed in the Reno Gazette Journal on February 28, 2014.
Staff recommends that the Agency Board approve the Agreement because it provides the Agency a fair price for the land, a reasonable interest rate on the proposed carry of $1,750,000 of the purchase price, and because the transaction would substantially advance the Agency’s redevelopment objectives for the Marina district.
The Agency Board’s alternatives include: (a) withholding approval for the Agreement to sell the 10.2 acre Property and (b) providing alternative direction such as asking staff to seek revised terms for the sale of the Property.
Recommended Motion: I move to approve the Agreement for Purchase and Sale of the Agency’s 10.2 acre property with LandCap Sparks, LLC.
Purchase & Sale Agreement Final 2-25-14.pdf
Promissory Note Final 2-25-14.pdf
Deed of Trust Final 2-25-14.pdf