The City of Del Mar will be holding a special meeting to discuss possible revision of the terms of the purchase price of the DMUSD Shores property.
TIME:
LOCATION:
6:00 pm
Del Mar Communications Center
240 Tenth Street, Del Mar, CA
More information:
City of Del Mar
Memorandum
FROM:
DATE:
SUBJECT:
Deputy Mayor Crawford and Councilmember Carl Hilliard
April 14, 2008
Shores Property 215/225 Ninth Street
ISSUE:
Whether (1) to approve new terms for the purchase of the Del Mar Union School District (DMUSD) property (Shores), and (2) to use City resources, including borrowed funds or the sale of property, to assist in fundraising efforts.
RECQMMENDATION:
The City Council should consider the options presented here and, following public input and discussion, determine a) whether City resources should be used to assist in the fundraising efforts to purchase the Shores property, and b) whether the City should tentatively accept the School District's proposal to amend the terms of the Purchase Agreement.
FISCAL IMPACT:
Unless the purchase money for the Shores property is raised privately by community funds, the City could find its general fund and budget at risk.
ENVIRONMENTAL IMPACT:
CEQA review for the purchase of the Shores property was done previously. Various categorical exemptions apply. No review is required for the City's financing decision.
BACKGROUND:
On July 30, 2007, the City entered into an agreement with the Del Mar Union School District for the purchase of the Shores property. Among other things, the Purchase Agreement called for deposit into escrow the full purchase price of $8.5 million by February 28, 2008.
On August 6, 2007, by Resolution 2007-35, the City Council announced the acquisition of the Shores property and set forth the purpose of the acquisition and its intentions regarding the use of the Shores property. Resolution 2007-35 cited the City's inability to finance the acquisition and the Council's support for the joint fundraising efforts by the community and the Winston School, which fundraising efforts would make the purchase possible.
The first three benchmark payments required by the purchase agreement were made; however, fundraising efforts have fallen approximately $3.5 million short of the goal for the February 28 deadline. By letter dated February 19, the Campaign for Del Mar Shores presented a direct proposal to the School District to extend the deadline for escrow. Specifically, the Fundraisers sought additional 12-months to complete the fundraising effort. That proposal was not acceptable to the School District. The City and the District have since negotiated to extend the deadline and amend the terms of the Purchase Agreement.
Two extensions of the closing date have been granted by the School District, during which time the City and the District have discussed various options for amending the terms and conditions in the Purchase Agreement. The District's final extension of time to reach a tentative agreement on the amendment expires on April 15, 2008.
Recently, the District conveyed a proposal to the City that requires the City to close escrow not later than May 15, 2008. Upon the close of escrow, the City will deliver $5 million together with its promissory note for $3.5 million secured by the property, with monthly interest payments, and with periodic principal payments. The payment schedule would be as follows: $250,000 on August 15; $1.5 million on November 14; $250,000 on February 13, 2009 and the balance of $1.5 million and all accrued but unpaid interest on May 15, 2009. The District's proposal also requires the City to reimburse the District's legal and consultant costs relating to the amendment in an amount not to exceed $10,000 and to complete the execution of the Lease Agreement for the District's lease back of its administrative office space no later than May 9, 2008. The District's representatives have made it clear that no further extensions of the closing date (past May 15, 2008) will be granted.
Representatives from the fundraising committee, The Campaign for Del Mar Shores, and from the Winston School will provide the Council and the community with an update regarding the current status of the campaign and the total funds received and pledged at tonight's special meeting.
DISCUSSION:
As noted above, efforts to raise community funds for the_purchase of the Shores property have resulted in deposits to the escrow account totaling approximately $4.8 million. There remains, however, a shortfall of approximately $3.7 million required to fully fund the purchase price. Furthermore, additional funds must be raised to cover the loans made to the fundraising campaign as well as the costs of fundraising.
Given the May 15, 2008, deadline for closing escrow, the purchase of the Shores property can only be accomplished with assistance from the City. Such assistance might include short term financing secured by the City, which arrangement would give the Fundraisers additional time to raise the balance of the funds required. However, municipalities may not acquire real property by entering into installment sales contracts or mortgage agreements unless the total amount of the purchase price is paid in the year the property is acquired. The use of City-backed "bridge" financing, therefore, obligates the City's resources and could put the City's AA credit rating at risk. This risk must be carefully considered. Tonight's special meeting should include a discussion of the options available to the City in the event the fundraising efforts fall short of the funds necessary to satisfy the promissory note that would become due and payable in 12-months.
Options for consideration and discussion include the following:
- sale of a portion of the Shores property
- use of the City's open space funds - one time money (approximately $400,000)
- use of interim financing (bank loan, commercial paper program, shortterm notes)
- exchanging the Balboa lot for an equivalent portion of the Shores
- property and liquidating the Balboa lot to help retire the City's indebtedness for the Shores purchase relocating City Hall to the School District administrative office site on the Shores property
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