CITY OF SIGNAL HILL CITY COUNCIL AS SUCCESSOR AGENCY

Transcription

1 CITY OF SIGNAL HILL CITY COUNCIL AS SUCCESSOR AGENCY 2175 Cherry Avenue Signal Hill, California AGENDA ITEM TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL HONORABLE CHAIR AND MEMBERS OF THE SUCCESSOR AGENCY FROM: CHARLIE HONEYCUTT DEPUTY CITY MANAGER SUBJECT: PUBLIC HEARING ADOPTION OF A RESOLUTION APPROVING A PURCHASE AND SALE AGREEMENT Summary: The City Council and City Council as Successor Agency will consider the sale of a portion of a City owned property located at 3100 California Avenue. Pursuant to the California Health and Safety Code, Section 33433, a Summary Report has been completed for this project. The purchase and sale agreement is subject to review and approval by the Oversight Board of the City Council as Successor Agency. Recommendations: 1. Waive further reading and adopt the following resolution, entitled: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, AND THE CITY COUNCIL AS SUCCESSOR AGENCY MAKING AND APPROVING CERTAIN FINDINGS AND APPROVALS UNDER SECTION OF THE CALIFORNIA HEALTH AND SAFETY CODE, AND APPROVING A PURCHASE AND SALE AGREEMENT BETWEEN THE CITY OF SIGNAL HILL, THE CITY COUNCIL AS SUCCESSOR AGENCY AND SIGNAL HILL PETROLEUM, INC.

2 Purchase and Sale Agreement 3100 California Avenue Page 2 2. Direct the City Manager/Chief Administrative Officer to execute the Purchase and Sale Agreement; and 3. Forward the Purchase and Sale Agreement to the Oversight Board for approval. Fiscal Impact: The value of the property being sold is $730, Compensation received will include the value of surface rights to be released over the police station site and the freeway advertising sign parcel valued at $586, and a cash payment of $143, A down payment of $23, is required. The balance of $120,000 will be paid over a period of five years. As former Signal Hill Redevelopment Agency properties, the proceeds are required to be placed into the Redevelopment Obligation Retirement Fund (Fund 115) pursuant to Health and Safety Code Section Background: The City Council and City Council as Successor Agency will consider a Purchase and Sale Agreement for a portion of City owned property at 3100 California Avenue. Under the agreement, the City will sell to Signal Hill Petroleum 58, square feet of the 1.6 acre property for $730, The City will retain 11, square feet for the operation and maintenance of the electronic Signal Hill freeway advertising sign. The sale will allow Signal Hill Petroleum to continue their oil and gas operations on the property and the City will preserve the long term benefit of the freeway advertising sign. The City will receive as compensation the release of surface use easements over the Signal Hill Police Station site located at 2745 Walnut Avenue and the freeway advertising sign parcel. These easements are valued at $586, In addition, Signal Hill Petroleum will pay the City $143, to cover the balance of the sale price. This money will be placed in the Redevelopment Obligation Retirement Fund. In May 2008, the Signal Hill Redevelopment Agency purchased a property located at 3100 California Avenue as part of a major property acquisition program aimed at turning vacant blighted properties into properties that could be transformed into productive uses and broaden the City s tax base. The property acquisition program focused on properties that have remained vacant for decades because of problems such as small lot sizes, irregular shape, soil contamination, improperly abandoned oil wells, title issues, and lack of utilities. The property was deeded from the Agency to the City in 2011 with the requirement that the City follow certain public disclosure requirements prior their sale. Under the requirements of AB1x26, the purchase and sale agreement must be reviewed and approved by the Successor Agency and the Oversight Committee. It is expected that the Oversight Committee will review this Purchase and Sale Agreement after the Committee is organized in May of this year. The acquisition of

3 Purchase and Sale Agreement 3100 California Avenue Page 3 the 3100 California Avenue property also placed the Agency in control of the of the long term status of the freeway advertising sign California Avenue 3100 California Avenue is zoned Auto Center SP-4, Auto Center Specific Plan. A portion of the property is used for the Signal Hill freeway advertising sign and the remainder of the property is used for oil and gas production as well as a contractor s storage yard. The Signal Hill Auto Center constructed the freeway sign in The Signal Hill Redevelopment Agency received a permit to operate the sign on October 1, 1993 from the State Department of Transportation. The permit was valid for a period of 20 years and the advertising was restricted to businesses within the redevelopment project area. The sign is operated by Regency Outdoor Advertising, which subleases the sign to the Signal Hill Auto Dealers Association. The freeway advertising sign is vital to the success of the Auto Center because the sign is visible from the 405 Freeway, but the Auto Center itself is not freeway visible. The sign advertises the Signal Hill Auto Center and also provides an important medium that is used by the City to notify the public of important information such as public safety alerts, upcoming events, and public service announcements. The information broadcast on the sign is seen by a broad audience of 400,000 motorists each day. For example, the Police Department uses the sign to discourage unsafe driving behavior such as driving under the influence. The Police Department also uses the sign to recruit police officers. The sale of the property while retaining the freeway advertising sign parcel is consistent with the goals and objectives of the City s General Plan, Strategic Plan, and the former Redevelopment Agency Five-Year Implementation Plan. Goal 1 of the Land Use Element of the General Plan includes Policy 1.7 and 1.8 listed below: Policy Broaden the City s tax base by attracting commercial and industrial development to the City which will provide economic and employment benefits to the community while ensuring compatibility with other general plan goals and policies. Policy Focus major commercial activity into economically viable and attractive centers. Concentrate retail, office, and complimentary uses in or near the City s Town Center. Support the Spring Street corridor as a secondary commercial location. The auto industry, particularly auto sales, plays a significant role in the national, state and local economies. The decline in auto sales was a contributing factor to the Great Recession that led the federal government to fund the 2009 Cash for Clunkers program aimed at stimulating auto sales.

4 Purchase and Sale Agreement 3100 California Avenue Page 4 The Signal Hill Auto Center has been very successful at generating employment and sales tax revenue benefiting the State, transportation agencies, and the City. Annual sales tax revenues attributed to the Auto Center account for 35% of the City s General Fund revenue. This revenue is used by the City to fund vital services provided to the community such as public safety, street and park maintenance, graffiti removal and programs for children and seniors. Every successful auto center has found freeway signage to be an important tool in their success. Auto center freeway signage can be seen throughout southern California including Cerritos, Carson, Huntington Beach and Garden Grove. The Signal Hill freeway advertising sign is operated by Regency Outdoor Advertising, which subleases the sign to the Signal Hill Auto Dealers Association. The 3100 California Avenue property was purchased by the Agency to preserve the long term ability to promote the auto center and to broadcast important public information through the use of the freeway advertising sign. The Agency also considered the freeway adjacent property as having the potential to provide a freeway-visible auto display and storage area. The freeway advertising sign supports the Signal Hill Auto Center and dealerships located along the Cherry Avenue and Spring Street corridors. The Auto Center provides over 500 jobs and approximately 35% of the City s overall General Fund revenue as stated earlier in this report. The Auto Center appears to have withstood the economic downturn of the Great Recession, is expanding with the addition of Boulevard Cadillac, and other dealerships are showing interest in the Signal Hill Auto Center. The freeway advertising sign will improve the chance of success of this new dealership and broaden the City s tax base. Another significant source of revenue is Oil Production Taxes. This tax generates approximately $700,000 to $800,000 per year to the City s General Fund. Signal Hill Petroleum currently conducts oil and gas production on the property pursuant to the Signal Hill West Unit Agreement. Signal Hill Petroleum is and has been in possession of the Site as lessee (and assignee to Texaco, Inc.) and operator for many years under the terms of the Oil/Gas Leases and the site has been operated and used as a site for oil and gas production for many years. The company has recently made a significant investment in the study of the Signal Hill and Long Beach oil field to better understand the geology lying below surface. This study may produce data that enables Signal Hill Petroleum to extend the life of the oil field and prolong the production of oil and gas. The sale of the property to Signal Hill Petroleum will allow the company to continue their oil and gas production operations on the site and continue to generate Oil Production Taxes now and in the future. The City of Signal Hill Strategic Plan includes a goal for the development and adoption of a specific plan to guide and facilitate the development of the 40 acres bordered by Spring Street, Atlantic Avenue, California Avenue, and Willow Street. Within the 40 acres is a four block area consisting of approximately eight acres that has been zoned

5 Purchase and Sale Agreement 3100 California Avenue Page 5 Auto Center Specific Plan. The freeway advertising sign is needed to attract new auto related uses to the Auto Center and assist those new uses to succeed. Objective No. 2 of the former Redevelopment Agency Five-Year Implementation Plan is entitled Retention of Auto Dealers. The objective states The Agency is interested in retaining existing automobile dealerships. The current recession has been difficult for the automobile industry owners. The Agency s planned program included continuing to lease properties to the automobile dealerships until Another program included assisting the dealerships with the freeway sign as well as working on a joint marketing program. In addition, the Agency worked with dealerships as needed on other retention programs. The freeway advertising sign is used to promote the Signal Hill Auto Center and is available to the individual dealerships for dealership specific promotions. The acquisition of the freeway sign property assisted in preserving the long term success of the individual dealerships and the Auto Center. The sign also provides the opportunity to work on a joint marketing program with the Auto Dealers Association that would be displayed on the sign and reach approximately 400,000 motorists per day. Limited Development Potential Development potential of the 3100 California Avenue property has been limited because of the property s irregular shape, ongoing oil production activities, and potential environmental impacts. The general dimensions of the property are 100 feet in width by 704 feet in length and. The property is a remnant of the construction of the I-405 freeway and its irregular shape is not well suited for development unless it can be assembled with the adjacent property to the south. The 3100 California Avenue property is encumbered with the Signal Hill West Unit Agreement, which allows the Unit Operator (Signal Hill Petroleum) to explore, develop, and conduct oil operations. The intention of the Unit Agreement is to provide for the cooperative development of operation of the tracts and for the sharing of Unitized Substances. The Unit Agreement grants, from the Working Interest owners, to the Unit Operator, the exclusive right to conduct unit operations. The Unit Operator has the right to use as much of the surface of the land within the unit area as deemed necessary for reasonable unit operations, together with the right to use all of the subsurface of the land within the unit area. This encumbrance on the property further complicates the development potential of the site. A Phase 1 Environmental Site Assessment performed by Dr. Susan Mearns in 2008 raises concern that the property has been impacted by petroleum hydrocarbon contamination and heavy metals including arsenic and lead. The Phase 1 assessment contains a series of recommendations, including the need to conduct a limited subsurface investigation near abandon oil wells and sumps. Soils testing would be conducted for total petroleum hydrocarbons, volatile organic compounds, semi-volatile organic compounds, and total threshold limit concentrations of metals. Dr. Mearns also recommended performing a methane assessment in order to determine if methane

6 Purchase and Sale Agreement 3100 California Avenue Page 6 concentrations warrant mitigation and the need to complete a Human Health Risk Assessment and soil management plan prior to any development. Staff has evaluated the area needed to continue the operation and maintenance of the freeway advertising sign and is recommending the sale of the surplus property to Signal Hill Petroleum, Inc., which desires to acquire the property for its oil and gas operations. The City will retain 11, square feet of the property and sell the remaining 58, square feet (Site) of the 1.6 acre property. A report has been prepared pursuant to the California Health and Safety Code Section to determine the value of the interests being exchanged. Analysis: AB1x26 dissolved all California Redevelopment Agencies effective February 1, The legislation establishes Successor Agencies and Oversight Boards that are required to expeditiously dispose of the former redevelopment agency s assets, including land owned by the former redevelopment agency. The Successor Agency and the Oversight Board are to sell the property for the highest reasonable price. AB1x26 did not specify a process for the disposal of property. However it is important that the process provide an opportunity for public review and a procedure in order to determine if the Successor Agency is receiving fair compensation based on comparisons with established values. Absent direction from the Legislature on a specific property disposal process, the City has chosen to follow the disclosure and review procedures that were adopted for former redevelopment agencies pursuant to California Health and Safety Code Section (Section 33433). Staff duly noticed this Hearing to consider the Purchase and Sale Agreement in accordance with California Health and Safety Code Sections and The public notice ran in the Signal-Tribune on February 10 and 17, 2012 in accordance with the noticing requirements of this statute. The public hearing was opened and continued. Section requires that cities prepare a report with an analysis of the terms of the Purchase and Sale Agreement, the cost of the agreement, the value of the interests to be conveyed at the highest use under the General Plan, the reuse value and how the project will eliminate blight. The Purchase and Sale Agreement (Exhibit A ) specifies that the City and City Council as Successor Agency will sell the Site for consideration totaling $730, in value ($12.48 per square foot), which is equal to the price originally paid by the Agency. In exchange for the site, the Buyer has agreed to relinquish rights of surface entry over 106, square feet of City owned land being developed with the Signal Hill Police Station and Emergency Operations Center located at 2745 Walnut Avenue and over freeway advertising sign parcel consisting of 11, s.f. The value of these surface rights total $586, ($5 per square foot). The Buyer will pay the City $143, to cover the balance of the purchase price.

7 Purchase and Sale Agreement 3100 California Avenue Page 7 When a city sells or leases property, California Health and Safety Code Section requires that it complete a summary report including the salient points of the Purchase and Sale Agreement, the cost of the Agreement to the City, the Estimated Value of the Interests to be Conveyed Determined at the Highest Use Permitted under the Redevelopment Plan, and the Reuse Value of the Interests to be conveyed. The report also outlines the consideration received and comparison with the established value, how the project will eliminate blight, and the project s conformance with the City s General Plan. The report (Exhibit B ) outlines that the City will sell 58, square feet of property valued at $730, to Signal Hill Petroleum, Inc. The value represents the interests being conveyed at the highest and best use. The development potential of the Site is limited because of the site s irregular shape and existing surface use easements and ongoing oil and gas production associated with the Signal Hill West Unit Agreement. The property is a remnant of the construction of the I-405 freeway and its irregular dimension of 100 feet wide by 704 feet long is not well suited for development. The use of the property is further constrained by the surface use easements. No development can occur on the site without the relinquishment of these easements. The site contains three active wells and is traversed by a series of petroleum pipelines that interfere with development. There is evidence that the property has been environmentally impacted by former oil production operations and will require remediation and potentially the need to re-abandon formerly abandoned oil wells. Historically, two above ground storage tanks existed on the site, one for petroleum storage and the other for waste water storage. There is also evidence of at least one sump associated with an abandoned oil well. The constraints on the property including current and former oil operations combined with the irregular shape of the property presents a major challenge to development. The report outlines the fair reuse value which is defined as the fair market value of the interests being conveyed, less the economic value of any development restrictions placed on a project by a city. The Site is zoned Auto Center SP-4, Auto Center Specific Plan and is encumbered by the Signal Hill West Unit Agreement. The property is likely contaminated from former oil production operations. The property was originally purchased for $12.48 per square foot. This purchase price took into account the zoning, encumbrances, and environmental impacts that must be mitigated prior to development of the property. The City is selling to the buyer 58, square feet of the property for $731, and retaining 11, square feet. The selling price of $12.48 per square foot is equal to the original purchase price. Real estate values in the area have not risen since 2008 due to the continuing recession. An appraisal prepared in association with the original purchase concluded that the highest and best use is generally land speculation, as the various site constraints would give the property a negative value if a cost of development scenario were utilized. Through the Purchase and Sale Agreement, the City and City Council as Successor Agency will retain a portion of the property to operate and maintain the freeway advertising sign and sell the remainder of the property to Signal Hill Petroleum and meet

8 Purchase and Sale Agreement 3100 California Avenue Page 8 the goals and objectives established in the City s General Plan, Strategic Plan and former Redevelopment Agency Implementation Plan. The City will preserve the long term economic benefit provided by the freeway advertising sign and the ability to broadcast important public information. The Agreement will also allow the continuance of ongoing oil and gas production activities as permitted under the Signal Hill West Unit Agreement. The project is listed among the classes of projects that have been determined not to have a significant effect on the environment and exempt from the provisions of the California Environmental Quality Act (CEQA). Specifically, the project qualifies for a Class 32 exemption as an urban infill development meeting the five criteria contained in Section of the CEQA Guidelines. Approved by: Kenneth C. Farfsing City Manager Attachments: Resolution Purchase and Sale Agreement Report

9 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, AND THE CITY COUNCIL AS SUCCESSOR AGENCY MAKING AND APPROVING CERTAIN FINDINGS AND APPROVALS UNDER SECTION OF THE CALIFORNIA HEALTH AND SAFETY CODE, AND APPROVING A PURCHASE AND SALE AGREEMENT BETWEEN THE CITY OF SIGNAL HILL, THE CITY COUNCIL AS SUCCESSOR AGENCY AND SIGNAL HILL PETROLEUM, INC. FOR THE PROPERTY LOCATED AT 3100 CALIFORNIA AVENUE WHEREAS, the City of Signal Hill is a municipal corporation and a charter city organized and existing under the Constitution of the State of California ( City ); and WHEREAS, the Redevelopment Agency of the City of Signal Hill ( Agency ) was a public body, corporate and politic, organized and existing under the California Community Redevelopment Law (Health and Safety Code et seq.) ( CRL ) in 1974; and WHEREAS, by previous action of the Agency, and by the City Council of the City of Signal Hill (the City Council or City, as appropriate), the Redevelopment Plan for the Project Area No. 1 was established; and WHEREAS, the goals of the Plan included the elimination of blight, through the acquisition of property, cleanup of property contaminated by oil operations and the installation of public improvements and infrastructure; WHEREAS, on December 29, 2011, the California Supreme Court issued its opinion in the case California Redevelopment Association, et al. v. Ana Matosantos, etc., et al., Case No. S196861, and upheld the validity of Assembly Bill 1x26 ( AB1x26 ) and invalidated Assembly Bill 1x27; and Resolution No. Page 1 of 5

10 WHEREAS, the Court s decision results in the implementation of AB1x26 which dissolved all the redevelopment agencies in the State of California as of February 1, 2012; and WHEREAS, the City is, by operation of law, the Successor Agency to the Redevelopment Agency for purposes of winding-down the Redevelopment Agency under AB1x26; and WHEREAS, in transferring this property from the Agency to the City of Signal Hill ( City ) on March 4, 2011, pursuant to Resolution No , the City was granted authority that the Agency has under Community Redevelopment Law ( CRL ) to carry out the redevelopment of these Properties, and carry out the activities pursuant to CRL; and WHEREAS, the City and City Council as Successor Agency has negotiated a Purchase and Sale Agreement (the Agreement ) by and between the Agency and Signal Hill Petroleum Inc. ( Buyer ); and WHEREAS, the Agreement provides terms for the Buyer s purchase of a portion of the proper located at 3100 California Avenue; and WHEREAS, the City has prepared a Summary Report and a notice of a public hearing of the City Council concerning the proposed Agreement has been given in accordance with applicable law; and WHEREAS, a major challenge facing the City is the redevelopment of oil properties like this one; and WHEREAS, the property is constrained by its irregular shape, Signal Hill West Unit Agreement encumbrance, ongoing oil production activities, and potential environmental impacts; and Resolution No. Page 2 of 5

11 WHEREAS, the Signal Hill Auto Center provides nearly 700 jobs and generates approximately 35 percent of the City s overall General Fund revenue; and WHEREAS, the Signal Hill freeway advertising sign has played a significant role in the success of the Signal Hill Auto Center; and WHEREAS, Oil Production Tax provides approximately $700,000 to $800,000 annually to the City s General Fund; and WHEREAS, the City will retain a portion of the 3100 California Avenue property for the continued operation of the freeway advertising sign; and WHEREAS, the sale of this property to the Buyer will provide for continued oil and gas production activities as permitted by the Signal Hill West Unit Agreement while preserving the long-term benefits provided by the freeway advertising sign. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, AND THE CITY COUNCIL AS SUCCESSOR AGENCY DOES HEREBY RESOLVE AS FOLLOWS: Section 1. General Plan and Zoning. The project outlined in the Agreement is consistent with the Section 2. The value of the interest being conveyed at the highest use permitted by the Redevelopment Plan is $730,132.04, which equates to the original purchase price. Section 3. The project will assist in the elimination of blight in the Project Area and the redevelopment of the area. Section 4. The project is listed among the classes of projects that have been determined not to have a significant effect on the environment and exempt from the provisions of the California Environmental Quality Act (CEQA). Specifically, the project qualifies for a Class 32 exemption as an urban infill development meeting the five criteria contained in Section of the CEQA Guidelines. Resolution No. Page 3 of 5

12 Section 5. The City and City Council as Successor Agency hereby approves the terms and conditions of the Agreement by and between the City and Signal Hill Petroleum, Inc., herein by reference and on file in the Office of the City Clerk. Section 6. The Mayor and City Manager are authorized and directed to take such actions and execute such documents as may be necessary to implement and effect this resolution and the Agreement on behalf of the City respectively. hereof. Section 7. The City Clerk shall certify to the passage and adoption PASSED, APPROVED, AND ADOPTED at a regular meeting of the City Council this 17 th day of April ATTEST: TINA L. HANSEN MAYOR KATHLEEN L. PACHECO CITY CLERK STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES )ss. CITY OF SIGNAL HILL ) ATTEST: TINA L. HANSEN CHAIR KATHLEEN L. PACHECO CITY CLERK Resolution No. Page 4 of 5

13 STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES )ss. CITY OF SIGNAL HILL ) I, KATHLEEN L. PACHECO, City Clerk of the City of Signal Hill, does hereby certify that Resolution No. was adopted at a regular meeting of the City Council of the City of Signal Hill, California, held on, by the following vote: AYES: NOES: ABSENT: ABSTAIN: KATHLEEN L. PACHECO CITY CLERK Resolution No. Page 5 of 5

14 SUMMARY REPORT PURSUANT TO SECTION OF THE CALIFORNIA HEALTH AND SAFETY CODE ON A PURCHASE AND SALE AGREEMENT BY AND BETWEEN THE CITY OF SIGNAL HILL, THE CITY COUNCIL AS SUCCESSOR AGENCY AND SIGNAL HILL PETROLEUM, INC. The following Summary Report 1 has been prepared pursuant to California Health and Safety Code Section (Section 33433). The report sets forth certain details of the proposed Purchase and Sale Agreement (Agreement) between the following parties: 1) The City of Signal Hill (City); and 2) Signal Hill Petroleum (Purchaser). Normally, a Summary Report such as this, and attendant public hearing, would only be undertaken in conjunction with a conveyance of land by a Redevelopment Agency. In this case, however, the subject property is owned by the City because on March 8, 2011, the Agency transferred the subject property to the City of Signal Hill pursuant to a transfer agreement that requires the City to comply with aspects of the Community Redevelopment Law, including Section The purpose of the Agreement is to effectuate economic development by selling 58, square feet (Site) of an approximately 1.6 acre property located at 3100 California Avenue to the Purchaser. The sale will provide for continued oil and gas production activities as permitted 1 Pursuant to Section 33433, a Summary Report is required to include a copy of the proposed sale agreement, as well as the following information: 1. The cost of the agreement to the agency, including land acquisition costs, clearance costs, relocation costs, the costs of any improvements to be provided by the agency, plus the expected interest on any loans or bonds to finance the agreements. 2. The estimated value of the interest to be conveyed determined at the highest and best uses permitted under the plan. 3. The estimated value of the interest to be conveyed determined at the use and with the conditions, covenants, and development costs required by the sale or lease. The purchase price that the buyer will be required to make during the term of the conveyance. If the sale price is less than the fair market value of the interest to be conveyed, determined at the highest and best use consistent with the redevelopment plan, then the agency shall provide as part of the summary an explanation of the reasons for the difference. 4. An explanation of why the sale of the property will assist in the elimination of blight, with reference to all supporting facts and materials relied upon in making this explanation SH /18/09

15 by the Signal Hill West Unit Agreement, while preserving the long-term benefits provided by the freeway advertising sign. The Purchaser currently holds surface use easements over the Site and conducts oil field operations including the operation of three active wells and pipelines. The City will sell the Site to the Purchaser at a cost of $730, The following Summary Report is based upon information contained within the Agreement, and is organized into the following seven sections: I. Salient Points of the Agreement: This section summarizes the major responsibilities imposed on the City and Purchaser by the Agreement. II. III. IV. Cost of the Agreement to the City: This section details the total cost to the City associated with implementing the Agreement. Estimated Value of the Interests to be Conveyed Determined at the Highest Use Permitted under the Redevelopment Plan: This section estimates the value of the interests to be conveyed determined at the highest use permitted under the requirements imposed by the Redevelopment Plan. Estimated Reuse Value of the Interests to be Conveyed: This section summarizes the valuation estimate for the Site based on the required scope of development, and the other conditions and covenants required by the Agreement. V. Consideration Received and Comparison with the Established Value: This section describes the compensation to be received by the Agency, and explains any difference between the compensation to be received and the established value of the Site. VI. Blight Elimination: This section describes the existing blighting conditions on the Site, and explains how the Agreement will assist in alleviating the blighting influence. This report and the Agreement have been made available for public inspection prior to the approval of the Agreement. I. SALIENT POINTS OF THE AGREEMENT Project Description The City owns a 1.6 acre property located at 3100 California Avenue. The property includes a 11, square foot parcel used for the Signal Hill freeway advertising sign (the "Sign Parcel") and the remainder of the property is used for oil and gas production and a contractor s storage yard. The property was acquired by the Signal Hill Redevelopment Agency in 2008 as part of a major property acquisition program aimed at converting vacant blighted properties into properties that could be turned into productive uses and broaden the City s tax base. The SH /023.1/31/09 2

16 acquisition of this property also placed the Agency in long term control of the freeway advertising sign. The property is encumbered by the Signal Hill West Unit Agreement, which gives Signal Hill Petroleum the exclusive right to conduct Unit operations and to use as much of the property as deemed necessary for reasonable Unit operations. Currently, Signal Hill Petroleum is using a majority of the property for their Unit operations. The property is narrow and irregular in shape. Its general dimensions are 100 feet wide by 704 feet deep. The irregular shape of the property combined with the Signal Hill West Unit Agreement encumbrance significantly limits the development potential of the property. Additionally, two environmental studies have identified historic oil production uses on the Site including the existence of a former tank farm and a historic sump location used in oil drilling operations. Therefore, the studies concluded that the property is potentially contaminated with petroleum hydrocarbons and heavy metals such as arsenic and lead. A Phase 1 Environmental Site Assessment recommends additional environmental studies including testing for methane and the need to complete a Human Health Risk Assessment prior to any development. The City will sell the Site to the Purchaser for $730, The Site's Purchase Price shall be paid as follows: 1. Purchaser will Release to City Surface Rights Over the Police Station Property Valuing $531, The City will receive the release of Signal Hill West Unit Agreement surface use easements over the City-owned property at 2745 Walnut Avenue, which is location of the new Police Station and Emergency Operations Center. The easements to be released to the City are valued at $531,176.20, or $5.00 per square foot. 2. Purchaser will Release to City Surface Rights Over the Parcel With the Auto Center Sign (Value of $55,185.55). As noted above, the City will retain ownership of the 11, square foot Sign Parcel for the freeway advertising sign. To this end, Buyer will relinquish its surface rights over the Sign Parcel for the value of $55,185.55, or $5.00 per square foot. 3. Cash Payment. Additionally, the Purchaser will pay the City $143, to cover the balance of the Site's purchase price SH /023.1/31/09 3

17 The following sections summarize the major responsibilities imposed on the City and Purchaser by the Agreement. City Responsibilities: The Agreement specifies the following: 1. The City will sell the Site to the Purchaser for $730,132.04, or $12.48 per square foot. The sale price of the Site equates to the original purchase price. 2. The City will prepare and enter into a Surface Use Release, Gas and Easement Release Agreement with the Purchaser for its release of surface rights over the Sign Parcel and 2745 Walnut Avenue. Purchaser Responsibilities: The Agreement specifies the following: 1. Purchaser will release Signal Hill West Unit Agreement surface use easements over the Signal Hill Police Station and Emergency Operations Center property located at 2745 Walnut Avenue and the Sign Parcel, which releases are collectively valued at $586, Purchaser will pay to the City $143, representing the balance of the purchase price. 3. Purchaser shall make payment of a down payment of $23, The remainder $120,000 shall be paid to City over a period of five years pursuant to a Promissory Note. 4. Purchaser will enter into a Surface Use Release, Gas and Easement Release Agreement with the City for Purchaser's release of surface rights over the Sign Parcel and 2745 Walnut Avenue. AB 26 Issues: Because the Site was once owned by the Signal Hill Redevelopment Agency, the City and Purchaser must account for the possible impacts of AB1x26 upon the proposed conveyance. As the Council is aware, AB1x26 dissolved all California Redevelopment Agencies effective February 1, The legislation establishes Successor Agencies and Oversight Boards that are required to expeditiously dispose of the former redevelopment agency s assets, including land owned by the former redevelopment agency. Here, the Site was conveyed to the City prior to the effective date of AB1x26; nonetheless, there are some ambiguities as to whether AB1x26 impacted the validity of such March 8, 2011, conveyance to the City. Therefore, in order to ensure compliance with AB1x26, the Agreement expressly conditions the Close of Escrow for SH /023.1/31/09 4

18 the conveyance of the Site upon the City and Purchaser receiving written confirmation or approval of the proposed conveyance as consistent with AB1x26 from the Oversight Board. II. COST OF THE AGREEMENT TO THE AGENCY The Site is being sold at a per-square-foot price equal to the original purchase price. Therefore, there is no cost to the City. Some minimal, routine escrow costs might be uncured by the City, likely less than $2, III. ESTIMATED VALUE OF THE INTERESTS TO BE CONVEYED DETERMINED AT THE HIGHEST USE PERMITTED UNDER THE GENERAL PLAN Section requires the City to identify the value of the interests being conveyed at the highest use allowed under the requirements imposed by the General Plan. The valuation must be based on the assumption that near-term development is required, but the valuation does not take into consideration any extraordinary use imposed on the development by the City. The Site is zoned Auto Center SP-4, Auto Center Specific Plan, but is encumbered by the Signal Hill West Unit Agreement and is likely contaminated from former oil production operations. The Site will remain under the current zoning and continue to be used for oil and gas production pursuant to the Signal Hill West Unit Agreement. The Site is being purchased for $730,132.04, or $12.48 per square foot, which represents the per square foot value for which City purchased the Site in The real estate value in the area has not risen since 2009 due to the continuing recession, thus the fair market value is no more than $12.48 per square foot. An appraisal prepared in association with the original purchase of the Site concluded that notwithstanding the zoning, the highest and best use is generally land speculation, as the various site constraints would give the Site a negative value if a cost of development scenario were utilized. IV. ESTIMATED REUSE VALUE OF THE INTERESTS TO BE CONVEYED The fair reuse value can be defined as the fair market value of the interests to be conveyed, less the economic value of any development restrictions placed on a project by a City. In this case, the zoning on the property is remaining Auto Center Specific Plan. Therefore, the Site can only be developed with auto center related uses allowed by the Specific Plan as contemplated when the Site was purchased by the Agency. Also considered in the original purchase price were the encumbrances of the Signal Hill West Unit Agreement. With these considerations, the fair market value of the Site is equal to the Agency s original purchase price of $12.48 per square foot. Notably, the Agreement does not impose any development restrictions on the use of the Site, except that the Site must be utilized in conformance with all laws and zoning regulations. Given SH /023.1/31/09 5

19 the absence of specific use restrictions under the Agreement, the fair re-use value is equal to the fair market value. V. CONSIDERATION RECEIVED AND COMPARISON WITH THE ESTABLISHED VALUE As noted above, it is estimated that both the fair market value and fair re-use value for the Site is $709, The City will receive consideration totaling $709, Therefore, the consideration received is equal to the established valuations of the Site. VI. BLIGHT ELIMINATION Redevelopment Agencies are specifically formed for the elimination of blight within a specific geographic boundary. That being said, the primary goal of the Agency is to eliminate blight. The Redevelopment Plan ( the Plan ), which was adopted when the Agency formed in 1974 outlines the blighting characteristics of the project area as well as goals and objectives that are to be achieved over the life of the plan. The Plan terminates in 2017 with the last day to collect tax increment and pay indebtedness on July 16, The City of Signal Hill s history is interesting because of its roots in the oil industry spanning back to 1921 when the first well was drilled. The City was incorporated in 1924 and the community was dedicated towards oil production and related industrial activities throughout much of the early 20 th Century. The Signal Hill Field was of international importance because it was one of the few fields to produce over 1 billion barrels. After World War II, oil production declined and in the 1970 s an innovative water flood program failed to reverse this decline. As a result, the major oil companies (Shell, Texaco, Chevron) sold their interests to Signal Hill Petroleum. The oil industry kept the City mostly undeveloped as post World War II suburbanization occurred in Long Beach and throughout Southern California. The City did not adopt their own property taxes either because it believed it would be able to survive off of other oil industry related revenues. This policy decision created challenges for the City as the residential base began to expand and an economic development strategy was needed to address underdeveloped infrastructure designed for oil field operations rather than urban development and land that was severely contaminated. The adoption of the Plan provided a mechanism for raising revenue through increases in property values. Redevelopment funds would be used for the development of much needed infrastructure throughout the City. Another impediment to economic development was the contaminated oil properties. The Agency would be able to use redevelopment funds for the acquisition and clean up of properties which were then sold to developers. Adoption of the Plan SH /023.1/31/09 6

20 also allowed for the development of an economic development strategy designed to attract services and businesses for its residents. Signal Hill Petroleum s oil and gas operations are important to the Signal Hill economy. The City s general fund revenue is used to fund public safety, street and park maintenance, and programs for seniors and children. Signal Hill Petroleum generates tax revenue to the City through an Oil Production Tax annually. This tax generates approximately $700,000 - $800,000 per year to the City s General Fund. Furthermore, the sale of this property to Signal Hill Petroleum will allow the company to continue oil and gas operations at this site in perpetuity. The sale of a portion of the site allows the City to keep the freeway advertising sign portion, which will allow the Signal Hill Auto Center to continue advertising. Auto sales are important to the City of Signal Hill as they make up approximately 35% of the General Fund revenue SH /023.1/31/09 7