Agenda Item   

AGENDA STAFF REPORT

 

                                                                                                                        ASR Control  17-001384

 

MEETING DATE:

02/27/18

legal entity taking action:

Board of Supervisors

board of supervisors district(s):

3

SUBMITTING Agency/Department:

County Executive Office   (Approved)

Department contact person(s):

Scott D. Mayer (714) 834-3046 

 

 

Richard Sanchez (714) 834-2830

 

 

Subject:  Approve Purchase and Acceptance of Grant Deed for 265 S. Anita Drive, Orange

 

      ceo CONCUR

County Counsel Review

Clerk of the Board

          Concur

No Legal Objection

Discussion

 

 

4/5 Vote

 

 

 

    Budgeted: No

Current Year Cost:   See Financial Impact Section

Annual Cost: See Financial Impact Section

 

 

 

    Staffing Impact:

No

# of Positions:

Sole Source:   N/A

    Current Fiscal Year Revenue: N/A

  Funding Source:      See Financial Impact Section

County Audit in last 3 years: No

 

 

    Prior Board Action:          12/5/2017 #49

 

RECOMMENDED ACTION(S):

 

 

1.

Find that the subject activity is not a project within the meaning of CEQA Guidelines Section 15378 and is therefore not subject to review under CEQA.

 

2.

Approve the purchase of the office building located at 265 S. Anita Drive, Orange, for Health Care Operations by the Health Care Agency in the amount of $7,799,050.

 

3.

Authorize the Chief Real Estate Officer, or designee, to execute the Certificate of Acceptance of the Grant Deed from the Fountain Valley School District in substantially the form attached.

           

4.

Direct Auditor-Controller, upon notification from County Chief Real Estate Officer, or designee, to issue checks or wire funds for escrow to Fountain Valley School District’s account in the total amount of $7,799,050 for the purchase price, including an initial deposit of $50,000, upon approval to purchase and additional funds of up to $35,000 (Not included in the purchase price) as required for Title Insurance, escrow fees and other fees associated with the escrow and closing costs, as applicable.

 

5.

Authorize the Chief Real Estate Officer, or designee, to negotiate and execute a contract with RiverRock Real Estate Group to provide property management services while the property is occupied by tenants.

 

6.

Direct Auditor-Controller, in accordance with Government Code Section 29125 and upon Board approval, to increase appropriations in the Capital Projects Budget Control (100-036-036-PH27-4200) by $7,834,050 for the purchase of the office building located at 265 S. Anita Drive, Orange, including escrow and closing costs, offset by an increase to cost apply (100-036-036-PH27-5100) of $7,834,050 to Health Care Agency (100-042-042-7000-1900).  Health Care Agency, Budget Control 042, will use existing budgeted appropriations and Net County Cost to reimburse $7,834,050 to Budget Control 036.  The County will be substantially reimbursed by Mental Health Services Act Funds when the building is available for mental health services.  (Requires four-fifths vote.)

 

7.

Authorize the Chief Real Estate Officer or his designee to approve and authorize payment for relocation services provided to the existing tenants of up to a cumulative $1,270,000 for all existing tenants and direct the Auditor-Controller to make payments based on approved relocation claims.     

 

 

 

 

SUMMARY:

 

Approval of the purchase of the property located at 265 S. Anita Drive, Orange, will enable the County to secure the property for use by the Health Care Agency to provide a co-location of behavioral health care services for mental illness and substance abuse issues.

 

 

BACKGROUND INFORMATION:

 

On December 5, 2017, the Board of Supervisors (Board) authorized the Chief Real Estate Officer, or designee to complete negotiations and execute a Purchase and Sale Agreement substantially in the presented form with the Fountain Valley School District for acquisition of the property located at 265 S. Anita Drive, Orange ("Property"), and to spend up to $300,000 to conduct due diligence investigations.

 

The Board directed the Chief Real Estate Officer, or designee to return to the Board to report the results of the due diligence investigations and to detail the funding plan to complete the purchase of the Property.

 

The Property was identified as a viable solution for meeting Health Care Agency (HCA) criteria for co-location of behavioral health services for the provision of mental health and substance use disorder services.  Services provided may include a crisis stabilization unit, outpatient mental health and substance use disorder treatment and crisis residential services.

 

The Property is a freestanding, two-story, stucco and glass exterior office building of approximately 44,556 square feet, with a landscaped, open-air atrium, situated on approximately 2.1 acres of land containing approximately 155 surface parking spaces. The multi-tenant office building is currently leased to 18 private sector tenants that presently occupy approximately 84% of the building.

 

The creation of a campus-like setting for the co-location of behavioral health care services was identified as a strategic priority in the 2016 and 2017 Strategic Financial Plans. HCA has been working in collaboration with CEO/Real Estate to identify potential sites to meet this need. While many of the services considered for inclusion in this HCA campus already exist in the community, the co-location of these services at a single site would result in improved outcomes due to better integrated services and community relations. 

 

The Board previously approved the Purchase Agreement substantially in the form in Attachment D, subject to approval of the due diligence investigations, findings and cost estimates presented herein.

 

CEO/Real Estate, in collaboration with OC Public Works Facilities, conducted due diligence investigations which included a physical inspection to assess the Property condition and to estimate the costs associated with the findings and recommendations. The physical inspections included mechanical, electrical, plumbing, heating ventilating and air conditioning systems, roof, exterior building components, sewer systems and a safety inspection. Consultants were also engaged to conduct investigations and report on seismic, structural and compliance with Americans with Disabilities Act (ADA). Due diligence research also included an environmental site assessment, an appraisal, an American Land Title Association compliant survey, and, a title report in preparation for issuance of a title insurance policy. All were conducted and reviewed to identify any issues associated with the property that might negatively affect County ownership and future use.

 

Consultants were also requested to estimate the following:

 

·           The cost of temporarily relocating existing tenants to other spaces within the building to accommodate the initial contiguous office space requirements of HCA;

·           The cost of meeting the statutory requirements for relocating tenants to other properties; and,

·           The cost of renovating and remodeling the building for HCA use.

 

Due diligence reports and a summary of findings and recommendations regarding these estimated costs are found in Attachment E.

 

SUMMARY OF ESTIMATED COSTS

 

Purchase price

$  7,799,050

Escrow and title insurance costs

$       35,000

Relocation of current tenants

$  1,270,000

Renovation/remodeling of building for HCA

$16,896,959

Total estimated cost

$26,001,009

 

The relocation cost estimate and the renovation/remodel cost estimate both include a 20% contingency. Renovation costs are for the conversion from an office building to a 24/7 program facility as estimated by the consulting Architectural and Engineering firm, IDS Group (IDS). The renovation estimates provided by IDS ranged from a base cost excluding contingencies and alternates of $9.6M to the $16.9M presented above which includes all contemplated alternates and the 20% contingency. For comparison, IDS estimated the cost to build a similar facility from the ground up at $31.3M, adding an estimated land cost of $4M that brings the total for a comparable new facility to $35.3M, an increase of approximately 35% over $26M.

 

This property could be serving HCA’s clients in 24 to 36 months. The time to place a new ground up facility in service is estimated at 36 to 40 months.

 

As noted above, the building is currently identified as an office building and is 84% occupied. The intended purpose of this building as a co-location of behavioral health services requires a special entitlement and permit processing to modify the building’s use from office services to health care facility which may take up to 18 months to complete. If the purchase of the property is approved, the permit and entitlement process will be pursued promptly and concurrently with the County’s efforts to relocate the existing tenants as soon as the purchase escrow is closed.

 

The existing tenants will remain at the property until arrangements for relocation have been completed, which the relocation consultant has estimated to take from one to two years. During the transition period, the property must be professionally managed. Accordingly, proposals were requested from three potential property managers for the interim period. Commercial property management is a competitive field and the proposals came in with nearly identical pricing of $3,600 per month. With pricing the same, other important factors in managing a multitenant office property include, a robust accounting system, depth of experience with commercial office management and ability to hit the ground running. In addition to meeting these criteria, the existing property manager currently serving the Seller, RiverRock Real Estate Group, can provide other important benefits to the County. 

 

RiverRock Real Estate Group has a long-term relationship with the tenants that will be important to facilitating communications and supporting each tenant in the relocation process. RiverRock also has history with the physical property that will allow them to quickly resolve any issues associated with the building itself.  Perhaps most important, RiverRock has demonstrated a professional, highly communicative approach to management of the property from the time the County first considered it for purchase, and RiverRock has steadily facilitated the relocation consultant’s communications with tenants. These considerations support the recommendation to engage RiverRock for one-year and then on a month-to-month basis, as needed, to manage the property if the purchase is approved.     

 

General Plan Conformity: A letter was sent to the City of Orange on October 11, 2017, requesting a review and response regarding project conformance with the City’s General Plan. The statutory 40-day period elapsed without a response from the City which the statute deems to constitute conformance.

 

Compliance with CEQA: This action is not a project within the meaning of CEQA Guidelines Section 15378 and is therefore not subject to CEQA, since it does not have the potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. The approval of this agenda item does not commit the County to a definite course of action in regard to a project since the proposed actions will not change the physical environment. This proposed activity is therefore not subject to CEQA. Any future action connected to this approval that constitutes a project will be reviewed for compliance with CEQA.

 

 

 

FINANCIAL IMPACT:

 

There are sufficient General Fund resources in the FY 2017-18 budget for this purchase. Budget adjustments will be made to reallocate up to $7,834,050 in Net County Cost from HCA Budget Control 042, to Capital Projects Budget Control 036 for this acquisition.  Due to the restrictions on the use of Mental Health Services Act (MHSA) funds, the purchase of the building will initially be funded by the General Fund with anticipated reimbursements from MHSA funds once the property is vacant. Current projections on the use of space has funding estimated at 80% MHSA ($6.3M) with the remaining 20% funded by the General Fund ($1.6M).

 

Tenants will remain in place until they are each relocated, generating income and expense for the property. During the remainder of FY 2017-18, anticipated lease revenue for General Fund is estimated at $196,000. Operating expenses for the same period including property management expense are estimated at $97,000, for a net estimated income of $99,000. As tenants are relocated, revenue and expense will generally fall proportionately. When few tenants remain, expenses are expected to exceed revenues until the property is turned over to HCA and OC Public Works for the renovation work phase.  Net revenue or loss will be absorbed in the current budget for CEO Real Estate Development Program, Fund 135.       

 

Renovations will begin once the property is vacated, which is expected in 2019 or early 2020. As noted earlier, during the tenant relocation process, the entitlement, planning and permitting processes will be underway and are anticipated to be completed. Once all the space is vacated, it will be accounted for as available for HCA service delivery. Funding for relocation costs and renovations is estimated to be 80% MHSA ($14.5M) and 20% General Fund ($3.6M) and will be included in the budgeting process, as applicable, in subsequent fiscal years.

 

 

 

STAFFING IMPACT:

 

N/A

 

 

 

REVIEWING AGENCIES:

 

Health Care Agency

 

ATTACHMENT(S):

 

Attachment A - Certificate of Acceptance of the Grant Deed
Attachment B - Public Notice and Confirmation of Publication
Attachment C - Real Property Questionnaire
Attachment D - Purchase and Sale Agreement
Attachment E - Summary of Due Diligence Findings
Attachment F - Government Code Section 29125