For City Council Meeting November 12, 2024
TO: Honorable Mayor and City Council
FROM: G. Michael Milhiser, Interim City Manager
AUTHOR: Colby Cataldi, Director of Community Development
title
Request City Council to Consider and Approve a Purchase and Sale Agreement between the City of Rialto and Aram & Yerva and Property Management LLC for the Property Located at 308 North Riverside Avenue (APN # 0130-033-31 and 0130-033-32) for an Affordable Housing Project Utilizing City General Funds and Adopt Budget Resolution No. 8307.
(ACTION)
Body
RECOMMENDATION
Staff recommends that the City Council
1. Approve the Purchase and Sale Agreement between the City and Aram & Yerva and Property Management LLC and the use of General Funds for the acquisition of 308 North Riverside Avenue for an amount of $640,000, plus related closing costs not to exceed $25,000 and site preparation costs not to exceed $50,000;
2. Authorize the City Manager to execute the Agreement, including non-substantiative modifications, amendments and/or other pertinent documents necessary to effectuate and/or implement the Agreement on behalf of the City;
3. Determine the Project is exempt pursuant to Section 15061 (b) (3) (General Rule Exemp-tion), of the California Environmental Quality Act for an administrative action; and
4. Adopt attached Budget Resolution.
BACKGROUND
On May 29, 2024, the Economic Development Committee discussed the opportunity to evaluate and acquire the property located at 308 North Riverside (the “Property”).
On June 11, 2024, City Council authorized staff to negotiate the purchase of 308 North Riverside Avenue for the purpose to construct an affordable housing project.
On August 27, 2024, City Council authorized City Manager and staff to negotiate and submit a final offer to purchase the Property.
On November 6, 2024, Staff presented to the Planning Commission the acquisition of the Property pursuant to Government Code Section 65402(a). The request to find the acquisition consistent with the General Plan was approved via Resolution No. 2024-68 (Exhibit D).
The Property was developed with a 13,700 square foot two-story office building (Exhibit A), which recently burned down in a fire. Since the fire, the property owner demolished the remaining structure and cleared the site of debris (Exhibit B). Per the Assessor’s mapping, the Assessor Parcel numbers are 0130-033-31 and 0130-033-32, combined, the lots are approximately 0.64 acres or 28,000 square feet (Exhibit C). The property owner, Mr. Aram Arakelyan from Aram & Yervand Property Management, LLC was contacted by the City of Rialto (the “City”) Community Compliance Division and Community Development Department for an enforcement clean-up. In the meeting, Mr. Arakelyan expressed interest in selling the Property for the amount owed to the bank securing the loan on the Property. Mr. Arakelyan agreed to an “AS IS” sale for $640,000.
NSP Funding Proposed for Future Affordable Housing Project
The United States Housing and Economic Recovery Act of 2008 (HERA) or NSP 1, established the Neighborhood Stabilization Program (NSP) for the purpose of providing emergency assistance to stabilize communities affected by foreclosures and abandonment properties. NSP 1 funds were provided to local and state governments based on an allocated formula. NSP 2 funds were appropriated under the American Recovery and Reinvestment Act (ARRA) and provided funds to qualifying nonprofits and government agencies. Similar to NSP 1, NSP 3 was appropriated under the Dodd-Frank Economic Reform and Consumer Protection Act of 2010 and was provided to local and state governments that were hit hardest by the foreclosure crisis based on an allocated formula. These three rounds of NSP funding were appropriated by the United States Congress as supplemental Community Development Block Grant funds and since then no additional funds have been allocated.
Under the NSP program, there are five eligible activities, which include: 1) establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties; 2) purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon; 3) establish and operate land banks for homes and residential properties that have been foreclosed upon; 4) demolish blighted structures, and 5) redevelop demolished or vacant properties. Additionally, foreclosed, abandoned, and vacant properties are the only property types that can be acquired or rehabilitated under the NSP program.
The Property is located in an NSP 3 area adjacent to an NSP 1 area (Exhibit E), which makes the future Affordable Housing project eligible to use NSP funds. Additionally, NSP regulations state that a property is considered abandoned if either: a mortgage, tribal leasehold, or tax payments are at least 90-days delinquent, a code enforcement inspection has determined that the property is not habitable and the owner has taken no corrective actions within 90-days of notification of the deficiencies, or the property is subject to a court-ordered receivership or nuisance abatement related to abandonment pursuant to state, local or tribal law or otherwise meets a state definition of an abandoned home or residential property.
In 2021, the Department of Housing and Urban Development (HUD) conducted an audit of the City’s NSP funds and advised the City of an open finding of NSP 1 funds that needed to be expended. The City has determined the best use of the remaining NSP funds is to develop the abandoned property with affordable housing units.
ANALYSIS/DISCUSSION
On July 2024, an independent appraiser determined the fair market value of the Property to be $505,000 (Exhibit F). The commercially zoned vacant Property “AS IS” market value appraisal included a $55,000 building demolition deduction. The remaining on-site improvements to be removed are the asphalt parking lot, concrete planters and building slab. The purchase and sale agreement (Exhibit G) calls for accepting the Property “AS IS” condition, with the said on-site improvements.
Based on an early discussion with Mr. Arakelyan, the City agreed to purchase the Property “AS IS” for $640,000. Although the proposed sales price is approximately 22% above the appraised fair market value, staff believes that the Property will offer the City strategic planning benefits for the future redevelopment of Downtown Rialto. The Property is located within the Civic Center area and is ideal to serve in the City’s affordable housing development strategy. Sometime after the City has acquired the Property, the City will issue a Request for Proposal to solicit an affordable housing developer.
The City’ remaining NSP funds total $1,004,022. To purchase the Property, the City will use $640,000 of City General Funds. The City will use NSP funds to pay for related soft and site preparation costs such as environmental testing, technical studies, reports and abatement (if needed), security fencing, utility disconnect, site demolition, grading, site best management practices, and NSP administration costs.
The City, during the 30-day due diligence period shall investigate the condition and suitability of the Property. If for any reason the City decides not to acquire the Property during the due diligence period, it may cancel the escrow. Following City Council consideration this evening, the City will complete the NEPA process and thereafter, coordinate with the escrow company and title officer to begin the acquisition process.
ENVIRONMENTAL IMPACT
The proposed action to approve the Purchase and Sale Agreement is exempt the project is exempt pursuant to Section 15061 (b) (3) (General Rule Exemp-tion), of the California Environmental Quality Act for an administrative action. The future development project shall comply with the California Environmental Quality Act (“CEQA”) as required.
All HUD-assisted projects require an environmental assessment to ensure the proposed projects does not negatively impact the surrounding environment or health effect on the end users. The City is responsible and is in the process of completing the NEPA document for this project. Once the NEPA has been completed, the City will complete the purchase of the Property.
GENERAL PLAN CONSISTENCY
Specifically, the land acquisition of approximately 0.64 acres is in compliance with the following General Plan Goals:
Goal 2-20: Require high-level quality multi-unit design, landscaping, and architecture.
Goal 2-21: Ensure high-quality planned developments in Rialto.
Goal 2-5: Develop Downtown Rialto as a lively, pedestrian friendly district typical of a small-town downtown, with a vibrant mix of residential, commercial, civic uses, and transit-oriented development.
LEGAL REVIEW
The City Attorney's Office has reviewed the agreement and approved it as to form.
FINANCIAL IMPACT
The purchase price for the property is $640,000 and is proposed to be funded with City General Funds.