Oversight Board for Redevelopment Agency Successor Agency Report 915 I Street, 1 st Floor, Sacramento, CA

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1 Oversight Board for Redevelopment Agency Successor Agency Report 915 I Street, 1 st Floor, Sacramento, CA File ID: Consent Title: Disposition of Sacramento Housing and Redevelopment Agency Administration Building Location: District 4 Recommendation: Pass a Resolution authorizing the Redevelopment Agency Successor Agency (RASA) to transfer its interest in the th Street building to Sacramento Housing and Redevelopment Agency (SHRA) once the debt is retired. Contact: Leslie Fritzsche, RASA staff and Economic Investment Manager, (916) , Office of Innovation and Economic Development Presenter: None Attachments: 1-Description/Analysis 2-Resolution Susana Alcala Wood, City Attorney Mindy Cuppy, City Clerk John Colville, City Treasurer Howard Chan, City Manager Page 1 of 6

2 File ID: Consent Description/Analysis Issue Detail: The building at th Street serves as the headquarters for the Sacramento Housing and Redevelopment Agency (SHRA). The building was purchased by five entities: SHRA, the City Housing Authority, the County Housing Authority, the City Redevelopment Agency and the County Redevelopment Agency. SHRA staff serve as staff to the housing authorities and previously the redevelopment agencies, as well as the City of Sacramento and the County of Sacramento. Due to the dissolution of the redevelopment agencies, the City and County redevelopment successor agencies now own a portion of this building. This asset was not addressed in the Long-Range Property Management Plan because the debt exceeded the property value. Once the debt is paid off, the City Redevelopment Agency Successor Agency (RASA) would need to dispose of its property interest. Because the building will continue to house government agencies (i.e., SHRA and the housing authorities staff), RASA is requesting authority to transfer its interest to SHRA under the government purpose provisions of the Dissolution Law. Acquisition - On June 5, 2008, the Redevelopment Agency of the City, along with four other entities, was authorized to purchase and rehabilitate the building located at th Street to serve as the administrative office for each of the five entities. On June 26, 2008, title to the property was transferred to the following entities: Sacramento Housing and Redevelopment Agency (SHRA), Redevelopment Agency of the City of Sacramento (City RDA), Redevelopment Agency of the County of Sacramento (County RDA), Housing Authority of the City of Sacramento (HACS) and Housing Authority of the County of Sacramento (HACOS). The five entities hold title to the property as tenants in common, but they do not own an equal 1/5 share as noted below. The property was purchased for $8,959,000 and improvements were made for a total cost of $13,000,000. Banc of America Public Capital Corp (Banc) provided the financing for the acquisition and improvements under a Ground and Facilities Lease and a Sublease, both dated June 30, These agreements allowed for Banc to be the building lessor in order to take tax depreciation deductions and to issue tax exempt debt financing to fund the loan, and the Banc then subleased the building to the five entities, which arrangement is known as a lease-lease-back. Lease/Sublease Terms - The Sublease is for a 20 year term with an expiration date of June 30, 2028, but it can be extended under certain circumstances if the loan is not paid off by that date. The loan carries an interest rate of 5.175%. The monthly payments are $87, and currently about half of the payment is divided between interest and principal. As long as the required lease payments are made, the Banc debt will be fully repaid by June of Although the debt may be repaid early without penalty (the prepayment provision having City of Sacramento powered by Legistar Page 2 of 6

3 File ID: Consent expired on June 30, 2015), none of the entities that own the building have the resources to pay off the loan early. Successor agencies cannot accelerate repayment of the prior agency s debts under the Dissolution Law. The remaining debt is $8,089, as of June 30, Building Value/Rental - The building contains 50,949 square feet. The building has ground level parking and lobby, with five floors of office space above which were fully renovated in Although a formal appraisal has not been performed, information from Colliers and CBRE brokers last year indicated that building is likely no longer upside down as far as its debt to equity ratio. The commercial market in Sacramento has stabilized; however, demand for this this type of office space at this location remains soft. The type of funding used to purchase and rehabilitate building has strict limitations on what type of entities can occupy the building. The Sublease includes a Tax Certificate which means that it is impermissible for building tenants to be private businesses, so only governmental entities performing government functions pursuant to these tax exempt financing documents can occupy the building until the debt is repaid. Also, section 4(iv) of the Sublease provides that the Premises can only be used for essential governmental functions of the agency, meaning the five entities. SHRA staff occupy most of the building and it is expected that SHRA will continue to need most of the building for its administrative offices. A small portion of the building of approximately two thousand (2,000) square feet has been rented, with permission of Banc, to the Sacramento Transportation Authority (STA), a local transportation authority pursuant to the California Public Utilities Code Section This sub-sublease is for ten years expiring in December The required tenant improvements associated with this lease were paid for by SHRA and will be repaid by STA in monthly installments beginning in Year 4 of the Sub-sublease. The successor agencies did not contribute to these tenant improvements. Ownership Interest - SHRA provided staffing services to the four other entities which, along with SHRA, own the building (City RDA, County RDA, HACS and HACOS), as well as the City of Sacramento and the County of Sacramento which are part of the SHRA Joint Powers Agency. As a result, SHRA allocated the lease payments to each entity based on the amount of sq. ft. that staffing for that entity occupied the building. As of 2012 when the redevelopment agencies were dissolved, the allocation of lease payments among the entities became fixed. RASA s share of the lease payment was set at approximately 24%. Based on that allocation, SHRA has requested funding on the ROPS for the City RDA s portion of the lease payment obligation since The State Department of Finance (DOF) has reviewed the Banc documents and approved these Sublease payments. City of Sacramento powered by Legistar Page 3 of 6

4 File ID: Consent Since 2012, there have been major capital expenses related to the building that were borne by SHRA that are typically paid for by building owners, such as repairs, upgrade to elevators, and the HVAC system. The successor agencies did not contribute to these capital expenses. Disposition of Ownership Interest Once the Banc debt is paid off in 2028, RASA would be able to dispose of its interest in this building. Because SHRA staff are expected to continue to occupy the majority of the building, RASA is recommending that the Oversight Board allow for transfer of that equity interest to SHRA under the government purpose provisions of the Dissolution Law. DOF has allowed for other successor agencies to transfer office buildings owned by redevelopment agencies and occupied by government employees to their respective cities and counties at no cost. Staff recommends that once the loan to Banc is repaid, RASA would convey its interest (along with the County Successor Agency) to SHRA pursuant to California Health and Safety Code section (a)(1), which provides that: the oversight board may instead direct the successor agency to transfer ownership of those assets that were constructed and used for a governmental purpose, such as local agency administrative buildings, to the appropriate public jurisdiction pursuant to any existing agreements relating to the construction or use of such an asset. Policy Considerations: Payments for enforceable obligations and disposition of assets is addressed in the Dissolution Law. Economic Impacts: None. Environmental Considerations: Not applicable. Sustainability: Not applicable. Commission/Committee Action: None. Rationale for Recommendation: The Dissolution Law requires continued payment of the debt service in the form of the lease payments for the City and County RDAs share of the building ownership. Financial Considerations: At $87, per month the Lease payment is $1,044, annually. The amount paid by RASA per ROPS 14-15B is $249,484 annually, which means RASA is liable for 23.88% of the debt service for the th Street building. Local Business Enterprise (LBE): Not applicable. City of Sacramento powered by Legistar Page 4 of 6

5 RESOLUTION NO Adopted by Oversight Board for Redevelopment Agency Successor Agency AUTHORIZING THE REDEVELOPMENT AGENCY SUCCESSOR AGENCY TO TRANSFER ITS INTEREST IN THE TH STREET BUILDING TO THE SACRAMENTO HOUSING AND REDEVELOPMENT AGENCY (SHRA) AFTER THE EXISTING DEBT IS RETIRED BACKGROUND: A. The building at th Street has serves as the administrative office for SHRA since The building was purchased by five entities: SHRA, the City Housing Authority, the County Housing Authority, the City Redevelopment Agency and the County Redevelopment Agency. SHRA staff serve as staff to the housing authorities and previously the redevelopment agencies, as well as the City of Sacramento and the County of Sacramento. Due to the dissolution of the redevelopment agencies, the City and County redevelopment successor agencies now own a portion of this building. B. The property acquisition and improvements were financed a total cost of $13 million by Banc of America Public Capital Corp (Banc) under a Ground and Facilities Lease and a Sublease. The remaining debt is $8,089, as of June 30, The Redevelopment Agency Successor Agency (RASA) for the dissolved Redevelopment Agency of the City of Sacramento share of this debt is 23.88% and $249,484 annually is paid from the Redevelopment Property Tax Trust Fund (RPTTF) through the Recognized Obligation Payments Schedule (ROPS) process. C. Once the Banc debt is fully paid in 2028, RASA would need to dispose of its interest in this property. Because SHRA staff are expected to continue to occupy the majority of the building, RASA is recommending that the Oversight Board allow RASA to transfer its equity interest to SHRA under the government purpose provisions of the Dissolution Law. BASED ON THE FACTS SET FORTH IN THE BACKGROUND, THE OVERSIGHT BOARD FOR REDEVELOPMENT AGENCY SUCCESSOR AGENCY RESOLVES AS FOLLOWS: Section 1. The building located at th Street, which is occupied primarily by SHRA staff and is partially owned by SHRA qualifies as property used for a government purpose under a Health and Safety Code section (a)(1). Page 5 of 6

6 Section 2. RASA is authorized to transfer its interest in the property at th Street to SHRA once the debt under the Banc of America Public Capital Corp (Banc) Ground and Facilities Lease and a Sublease is fully paid. Adopted by the Oversight Board for Redevelopment Agency Successor Agency on May 21, 2018 by the following vote: Yes: Noes: Abstain: Absent: Attest: Chair, Jay Schenirer Mindy Cuppy, Redevelopment Agency Successor Agency Clerk Page 6 of 6