DATE: November 28, 2023
TO: Board of Supervisors
SUBMITTED BY: Robert W. Bash, Director of Internal Services/Chief Information Officer
Kirk Haynes, Chief Probation Officer
SUBJECT: Purchase and Sale Agreement of 200 W. Pontiac Way, Clovis, CA 93612
RECOMMENDED ACTION(S):
TITLE
1. Approve and authorize the Chairman to execute, and to direct the Director of Internal Services/Chief Information Officer, or their designee (“Director”) to deliver, the County’s Notice of Purchase Option to Pontiac 4 LLC, a California limited liability company (“Seller”), for the County’s purchase of 200 W. Pontiac Way, Clovis, CA 93612, including the building and improvements (APN 493-070-88) (“Property”);
2. Approve and authorize the Chairman to execute the Purchase and Sale Agreement with Seller for the County’s purchase of the Property from Seller, with an expected escrow closing date of January 2, 2024, for the sum of $15,700,000 (“Purchase Agreement”);
3. Authorize and direct the Director to take any action as deemed necessary or appropriate, all of which shall be consistent with the Purchase Agreement, and the foregoing Board approvals and actions, to:
a. Open, carry out, and close escrow for the County’s purchase of the Property from Seller; deliver the County’s refundable $100,000 deposit into escrow; deliver the County’s acceptance of Seller’s Grant Deed; and obtain title insurance in favor of the County for the Property in the amount of the purchase price of the Property at escrow closing;
b. Review, approve, execute, and/or deliver any agreements, documents, certificates, notices, and instruments, and any amendments to any of the foregoing (subject to prior review and approval as to legal form by County Counsel, and, as applicable, as to accounting form by the County Auditor-Controller/Treasurer-Tax Collector), and to take any other actions to initiate, carry out, and finalize the County’s purchase of the Property from the Seller; and
c. Perform any other obligations, or exercise any other rights, of County under the Purchase Agreement to finalize the County’s purchase of the Property;
4. Adopt Budget Resolution increasing the FY 2023-24 appropriations and estimated revenues for Probation Org 3430 in the amount of $15,273,057 (4/5 vote);
5. Adopt Budget Resolution increasing the FY 2023-24 appropriations and estimated revenues for County Buildings Org 0131 in the amount of $15,730,000 (4/5 vote); and
6. Adopt Budget Resolution increasing the FY 2023-24 appropriations for Local Assistance Fund Org 1034 in the amount of $456,943 (4/5 vote).
REPORT
There is no additional Net County Cost associated with the recommended actions. The Property consists of one parcel that includes a building. The purchase price of the Property is $15,700,000. An additional amount of $30,000 in appropriations is being requested for the County Buildings Org 0131 to facilitate additional costs associated with the purchase of the Property. The purchase price was established by the parties under a negotiated purchased option that is one of the terms of the existing lease-purchase agreement. The building located on the Property is 102,534 square feet, comprising 37,282 square feet of office space and 65,252 square feet of warehouse space.
Approval of the first recommended action will authorize the Chairman to execute, and direct the Director to deliver, the County’s Notice of Purchase Option to Seller for the County’s purchase of the Property at the foregoing agreed upon purchase price. Approval of the second recommended action will authorize the County’s acquisition of the Property at the foregoing agreed-upon purchase price. Approval of the third recommended action will authorize and direct the Director, to take the necessary actions required to complete the County’s purchase of the Property. Approval of the fourth, fifth, and sixth recommended actions will allow for the transfer of the full purchase price of $15,700,000, in addition to the contingency amount of $30,000, from the Probation Org 3430 and Local Assistance Fund Org 1034 into the County Buildings Org 0131 to pay for the Property. Any remaining funds will be returned to their source after the purchase is complete.
This item pertains to a location in District 3.
ALTERNATIVE ACTION(S):
Your Board could decline to authorize the County’s purchase of the Property, and direct the Department to continue to lease the Property and pursue other facility acquisition options.
However, it would result in a lost opportunity to acquire a property that would satisfy many County needs for public safety purposes, discussed below. The County’s continued leasing of the Property would also require the County to continue paying rent on the space at the building. This recommended purchase is the result of a negotiated purchase option by the parties under their existing lease-purchase agreement for the Property.
If the purchase option is not exercised, base rental payments will continue at $93,583 per month for the first year and will increase 2% annually for the remainder of the lease period. The additional operational costs will continue at $72,184 per month. This remaining rent will total $12,015,690 plus operational costs associated with the building totaling an estimated additional $10,000,000 over the remainder of the lease term.
FISCAL IMPACT:
There is no increase in Net County Cost associated with the recommended actions. The total cost of the purchase is $15,730,000, which consists of $15,700,000 for purchase of the Property and approximately $30,000 for potential closing costs associated with the purchase of the building.
The recommended purchase will be funded, if allocated by your Board, by the County’s Proposition 172 Local Public Safety revenues in the amount of $15,273,057, and the Local Assistance Fund Org 1034 in the amount of $456,943, which is allocated proportionately based on proposed square footage occupancy primarily by the Probation Department (97%), for public safety purposes under Proposition 172, and a dedicated Emergency Operations Center (3%).
Approval of the fourth, fifth, and sixth recommended actions will increase the FY 2023-24 appropriations and estimated revenues for the Probation Org 3430 by $15,273,057 and County Buildings Org 0131 by $15,730,000; and will increase the FY 2023-24 appropriations in the Local Assistance Fund Org 1034 by $456,943 to accommodate the purchase of the Property. Sufficient revenues have been included in the FY 2023-24 Adopted budget for Org 1034.
DISCUSSION:
1. The Lease Agreement.
On December 12, 2017, your Board approved Agreement A-17-645 (Lease Agreement), for a lease of 200 W. Pontiac Way, Clovis (Property) from the then-current Lessor and owner, Pontiac 3 & 5 LLC. The Lease Agreement term was originally not to exceed ten years, effective upon the execution of a written acknowledgement of County’s occupancy. The Property at that time was intended for use by the County’s Department of Social Services (DSS) Child Welfare Services (CWS) branch.
The Lease Agreement was approved alongside county leases for two other buildings on the Clovis Campus, Buildings 1 and 3, that have since been occupied by DSS. The Lease Agreement for this Property did not commence at that time, as it continued to be occupied by the previous owner, Schneider Electric. This occupation by Schneider Electric was a condition of sale for Pontiac Buildings 1, 2, 3, and 4 to the new owner, Pontiac 4 LLC (the current lessor), as discussed below. Schneider Electric’s continued occupation of the Property would have delayed CWS occupying the Property until at least 2024. Due to this delay, your Board, on February 25, 2020, approved a lease for 380 Ashlan Avenue from 380 Ashlan LLC, to accommodate CWS on a much-accelerated timeline. Since then, CWS has successfully occupied their building under that lease after tenant improvements were completed in early 2022.
Because of the substitution of the 380 Ashlan Avenue building for the County’s CWS division, the original purpose for the Lease Agreement no longer existed, as the County no longer had a department or program with subvented state and federal funding to cover the lease payments for the Property. Over the past year, the County and Pontiac 4 LLC, the new owner, have discussed possible alternative arrangements for the Property.
2. Change of Owners (Assignment) and First Amendment to Lease Agreement.
On March 6, 2020, Pontiac 3 & 5 executed an assignment of the Lease Agreement over to Pontiac 4 LLC (the current owner and lessor) without the County’s knowledge.
On July 18, 2023, your Board approved and accepted the assignment above and executed the First Amendment to Lease Agreement, Agreement A-17-645 (the “First Amendment”) with Pontiac 4 LLC, (1) establishing the County’s purchase option to purchase the Property at $15,700,000, (2) establishing the date of rent commencement as September 1, 2023, and (3) removing the “termination for non-funding” clause from the Lease Agreement. This purchase option gives the County the right and option to purchase the Property for that purchase price any time between January 1, 2024, and June 30, 2024.
3. The Recommended Actions.
Approval of the first recommended action will complete the County’s Notice of Purchase Option pursuant to the purchase option authorized under the First Amendment.
Approval of the second recommended action will authorize the County to enter into the Purchase Agreement for the Property, and take advantage of the purchase option added in the First Amendment approved by the Board on July 18, 2023.
Approval of the third recommended action will direct the Director to take necessary and appropriate actions to complete the purchase of the Property on January 2, 2024.
Approval of the fourth, fifth, and sixth recommended actions will allow for the transfer of the full purchase price of $15,700,000, in addition to the contingency amount of $30,000, from the Probation Org 3430 and Local Assistance Fund Org 1034 into the County Buildings Org 0131 to pay for the Property. The contingency funds added to County Buildings Org 0131 above the purchase price are to account for various closing costs and any unanticipated costs associated with the purchase. After the purchase of the building is completed, any unexpended funds will be returned to their source in the same square footage occupancy proportion as allocated for the purchase.
Should your Board reject the adoption of the recommended actions, the County will be obligated to continue paying rent through the full ten-year term of the Lease Agreement, totaling $12,015,690 plus operational costs associated with the building totaling an estimated additional $10,000,000. The Lease Agreement, as amended by the First Amendment, now has fixed term of 10 years and no longer contains an early termination due to a non-funding option.
4. Due Diligence.
The Due Diligence period in the recommended Purchase Agreement for the Property is 10 days, which is much shorter than usual. However, in the time since the County entered into the First Amendment, including the purchase option on July 18, 2023, County staff has completed all normal due diligence activities including a preliminary title report and a Phase 1 Environmental Site Assessment. The Phase 1 Environmental Site Assessment found no significant environmental concerns. The Department intends to continue with minor soil sampling during planned remodels of the Property site, and to ensure that no additional mitigation measures are needed. The Department believes the shortened Due Diligence period provides sufficient time to allow for the handling of these issues and anything additional which may arise.
5. Recommended Purchase Agreement.
Following the County’s provision of the Notice of Purchase Option to the Seller, the recommended Purchase Agreement is the means by which the County may purchase the Property. The terms and conditions of the County’s purchase of the Property, as set forth in the recommended Purchase Agreement, have been negotiated by the parties in connection with the First Amendment to the Lease Agreement.
Under the recommended Purchase Agreement, the Seller is required, at its cost, to clear a $5.5 million deed of trust in favor of Premier Valley Bank, from the title to the Property before the closing of escrow. As of this time, the deed of trust has been reconveyed and this reconveyance has been recorded against the Property. As a matter of policy, the title insurer requires confirmation of any reconveyances recorded within the past calendar year. As a result, the Purchase Agreement requires the Seller to approve Premier Valley Bank providing written confirmation of the reconveyance to the escrow holder prior to the escrow closing.
Also, under the recommended Purchase Agreement, the County will provide a $100,000 good faith deposit. This deposit is refundable until the end of the Buyer’s Due Diligence Period. If the County cannot finalize the sale and close escrow after the end of the Due Diligence Period, the deposit will not be refunded.
6. Proposed Use of the Property:
The intended use of the facility will be to provide a County-owned facility to consolidate the operations of the Probation Department’s Adult services that are currently based out of several separate leased facilities. These are public safety services for purposes of Proposition 172. These separate leased facilities create several operational inefficiencies that the single proposed site will help alleviate. In addition, the County will allocate a specific area (2,979 square feet) for its Emergency Operations Center, which can be activated immediately when needed. This will enhance the County's preparedness and emergency response capabilities. When not in use, the Probation Department will have access to these facilities to provide for improved staff training.
Initial considerations for use of the facility also included occupancy by the Department of Public Health and the Recorder; however, neither of those options are feasible at the Property at this time. Should the need and feasibility of occupancy change, for example so that Probation cease occupancy of some portion of the facility, and one or both of those other departments takes up occupancy in that portion of the facility, the applicable funding sources from those departments will be used to refund the Proposition 172 Local Public Safety and the Local Assistance Funds accordingly, in proportion to the occupation of the facility by those departments.
7. CEQA Compliance.
The proposed purchase is exempt from California Environmental Quality Act (CEQA) review. CEQA Guidelines, sections 15060(c)(2),(3) and 15378(a) state that where an action is not a “project” (meaning the whole of the action which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment), that action is not subject to CEQA. The proposed action does not result in a direct or indirect change in the environment. Therefore, at this time, the proposed acquisition is not considered the approval of a project under CEQA and is, therefore, exempt from CEQA review. (Pub. Res. Code §21065, CEQA Guidelines §§15060(c), (2)(3) and 15378(a).)
8. Publication Notices.
The public notice of the County’s intention to purchase the Property at the purchase price stated in this item (e.g., today, the Board will meet to consider and consummate the County’s proposed purchase of the Property for the proposed close of escrow on January 2, 2024), as required by California Government Code Section 25350, was published in the Business Journal on November 8, 15, and 22, 2023.
REFERENCE MATERIAL:
BAI #10, July 18, 2023
BAI #12, February 25, 2020
BAI #45, December 12, 2017
ATTACHMENTS INCLUDED AND/OR ON FILE:
On file with Clerk - Notice of Purchase Option
On file with Clerk - Purchase Sale Agreement
On file with Clerk - Budget Resolution (Org 3430)
On file with Clerk - Budget Resolution (Org 0131)
On file with Clerk - Budget Resolution (Org 1034)
On file with Clerk - Public Notice
CAO ANALYST:
Ahla Yang