Loading...
HomeMy WebLinkAbout13 - NB-2 - Status Report on Potential Acquisition - 5/4/2010CITY COUNCIL AGENDA REPORT MEETING DATE: MAY 4, 2010 ITEM NUMBER: IX -2 SUBJECT: STATUS REPORT ON POTENTIAL ACQUISITION OF THE ORANGE COUNTY FAIRGROUNDS DATE: MAY 2, 2010 FROM: CITY MANAGER'S DEPARTMENT, CITY ATTORNEY'S OFFICE PRESENTATION ALLAN L. ROEDER, CITY MANAGER BY: FOR FURTHER INFORMATION Allan L. Roeder at (714) 754-5328 CONTACT: Special Note: Because various aspects of this report were still the subject of intense negotiations as late as the close of business on April 30, 2010, routine preparation and submittal of this agenda report was delayed. Our sincere apologies for the delay which was necessary to provide the City Council and the public the information contained herein. DISCUSSION: Almost one year ago, the Governor announced his intention to sell State assets including the OC Fair & Event Center (OCFEC) to address State budget deficits. In July 2009 as part of the authorizing legislation adopting the State budget, ABX4 22 was approved which authorized the sale. The State conducted a bid process for sale of the property beginning October 2009 and concluding in early January 2010. The bid process was followed by an auction among those bidding for the property. Ultimately, the highest offering at auction was rejected by the State in March of this year. The City of Costa Mesa supported the "Stop the Sale" effort and widely communicated its commitment to preserve the OC Fair & Event Center. The City Council adopted refined General Plan language to strengthen the Orange County Fairgrounds' designation and approved a ballot initiative that requires the public to vote on any future land use changes to the property. The initiative measure will appear before Costa Mesa voters in June 2010. Finally, the City actively supported Assembly Members Tran and Solorio in the form of Assembly Bill 1590 to rescind the budget authorization to sell the OCFEC. Following the formal bid submission and the auction, the City initiated contacts with the State Department of General Services (DGS) and the Governor's Office in an effort to explore options to sale of the property. After a considerable effort to engage the State, the City submitted a request for the right to exclusive negotiations for public acquisition 1 of the property. The Governor's Office ultimately granted the City's request, but limited the exclusive negotiations to no more than 30 days. The Governor also stipulated the selling price ($96 million) and the required time in which escrow must close (October 2010). Given the above constraints, the City moved forward on multiple, concurrent fronts. These include but were not limited to: 1. Preparation of proposed Terms & Conditions for the Sale & Purchase Agreement; 2. Legal research regarding options and authorities for City purchase of the OCFEC; 3. Detailed review of OCFEC finances, lease commitments, capital investment and operating expenses; 4. Review of options to acquire the property without financial obligation or risk to Costa Mesa residents; and 5. Solicitation of private sector proposals to operate the OCFEC on a contract basis. The preceding tasks were completed in a timely fashion for submission to the Governor's Office on April 21, 2010. To date, the proposal has been well received at the State level although there has been no written confirmation to proceed further as of this date. The proposal included a draft Sales & Purchase Agreement; written proposals from four private sector parties and one public sector entity expressing an interest in working with the City towards acquisition of the OCFEC; a legal opinion regarding the constitutional limitations as to the method of acquisition of the property by the City and a draft agreement to extend the exclusive negotiations. While the preceding was accomplished in an extremely short period of time, it was done so without the benefit of applying standards which the City would normally require of any such transaction, especially an acquisition of this magnitude. Before addressing further the current status of negotiations, it is important to make note of the key impacts of the State's extremely short timeframe on this effort. • Request for Proposals Under normal conditions, the City would follow a process of drafting a detailed Request for Proposals (RFP) for a private sector operator for the OCFEC. Typically, this would involve a very detailed RFP, distribution State-wide or nationally (given the size and complexity of the OCFEC), evaluation of the submittals to the RFP, interviews with the private sector operators, identification of the highest rated proposal followed by negotiations for a lease or site management contract. Under ideal circumstances, the preceding could be expected to take a minimum of 6 months. Because of the very short deadlines placed on the City by the State, the City opted to contact those firms that previously had submitted bids to the State for purchase of the property. This is not standard practice and while the firms submitting proposals to the State did follow a lengthy formal process, the process was designed for sale of the property and not for operation of the OCFEC. Despite the limitation created by the State's deadline, the City was successful in obtaining four private sector proposals. E • Due Diligence The City is legally obligated to conduct its due diligence as it pertains to the condition of the OCFEC. This involves a very close review of the condition of the structures and improvements on the property, adequacy and physical condition of utilities serving the site, examination for any hazardous materials, Phase I Environmental Review of the site and required CEQA review. While the City has received a considerable amount of documentation relative to the physical condition of the property, it has not completed the above steps as yet. Based on information received to date, the City does not have any reason to believe that subsequent studies and analysis of site conditions will impact any purchase proposal. However, those possibilities exist and all of the preceding steps and those others required for the City to complete its due diligence will be completed in advance of close of escrow. OWNERSHIP & FINANCING STRATEGY: There has been a good deal of questions as to how the City can submit a viable proposal to the State to acquire the OCFEC in these very difficult economic times. Those questions are legitimate and are at the heart of one of the principles put forth by the City Council in its effort to preserve the OCFEC. Specifically, the City Council has committed "to purchase the OCFEC without utilizing Costa Mesa public funds or putting Costa Mesa taxpayers at risk." In order for this to be accomplished, it is necessary for the City to identify private sector businesses to operate the OCFEC on a long-term lease arrangement satisfactory to meet debt service for the purchase. The attached diagram (see Exhibit A) is a very simplified explanation of the process the City is seeking to complete. It involves the sale of the OCFEC by the State to the City in an amount of $96 million. The State has committed to an all cash transaction or will finance the sale with a 30 to 40 -year note. Concurrent with the purchase of the property from the State, the City would establish a separate public entity to oversee the OCFEC, assume all legal obligations on behalf of the City, be subject to all open meeting laws and contract for private operation of the OCFEC. The separate public entity will most likely be a Joint Exercise of Powers Authority (JPA), but that has not been determined at this time nor has the composition of its Board or Advisors. The separate public entity would then enter into a long term lease agreement for operation of the OCFEC, the terms of which would require the operator to guarantee debt service. The terms of the guarantee are to be negotiated but under no circumstance will the City be obligated for any debt service payments. Given the need for a private sector operator to successfully manage the site under mutually agreeable terms & conditions, the City pursued discussions with the four private entities that expressed interest during the 30 -day exclusive negotiating period. Those four entities (Craig Realty; American Fairs and Festivals, Inc.; Advanced Real Estate Services, Inc. and Facilities Management West, Inc.) responded to the City's RFP. Ultimately, their proposals were submitted to the Governor as an indication of the level of interest in the private sector for cooperation with the City in the acquisition. At the April 21, 2010 meeting with the Governor's Office, the City was advised verbally that if negotiations were to continue, it would have 30 days additional to make a decision 3 regarding the future operator and have the terms of its agreement with the operator substantially complete. Accordingly, the City followed up with each of the submitting firms including the solicitation of questions to a number of specific details regarding the OCFEC operations, financial capacity, ownership, preservation of key elements of the OCFEC and related details. This was followed by a series of interviews with the firms making proposals to the City. Ultimately, Craig Realty chose not to continue further with the City. Advanced Real Estate Services went into partnership with American Fairs and Festivals and Facilities Management West has continued its interest. Both Facilities Management West and American Fairs and Festivals/Advance Real Estate Services have been invited to make brief (15 minute) presentations at the City Council meeting as an overview of their proposals. American Fairs and Festivals/Advance Real Estate Services has accepted the offer while Facilities West Management declined to make a presentation but has submitted the attached letter (see Exhibit B). CONCLUSION: Due to circumstances outside the control of the City of Costa Mesa, the process depicted in the preceding has been undertaken in an extremely short period of time. Because of the unique nature of the transaction (combining purchase of the property and retention of the Annual Fair and related aspects of the OCFEC), the City has had to establish much of the process along the way. While not desirable and an impediment to the preferred, more thoughtful, inclusive process, the only option would be for the City to withdraws its efforts and allow the State to proceed with sale of the property through a pending RFP. Allan L. Roeder City Manager Attachments: Exhibit A City Process Explanation Diagram Exhibit B Letter from Facilities West Management Distribution: City Attorney Project Manager n EXHIBIT A State of California • Sells property for $96 million • Conveys all authority for 32nd District Agricultural Association to City • Commits to Assist in Transition of Fair employees • May hold note City of Costa Mesa • Agrees to purchase property for $96 million • Negotiates Purchase & Sale Agreement • Establishes Joint Powers Authority or equivalent public oversight • Negotiates Agreement with Site Operator/Lessee Joint Powers Authority • Assumes legal and contractual responsibilities for OCFEC • Organizes to insure Open Governance and Public Participation • Works with Private Operator/Lessee • Collaborates on production of Annual Fair Private Operator/Lessee • Manages daily operation of OCFEC • Is responsible for debt service on $96 million purchase • Works with Joint Powers Authority in conducting Annual Fair • Insures OCFEC continues historic traditions but evolves as County needs dictate EXHIBIT B FACILITIES MANAGEMENT WEST, INC. 190 Newport Center Drive, Ste. 100 Newport Beach, CA 92660 Telephone: (949)644-1860 Telecopier: (949)644-1142 May 3, 2010 City Council Katrina Foley and Gary Monaghan City of Costa Mesa 77 Fair Drive Costa Mesa, CA 92626 Dear Honorable Council Members Foley and Monaghan: In the past three weeks, it has been our pleasure to meet confidentially with you twice in your capacity as a City Council subcommittee considering Costa Mesa's municipal response to the proposed sale of the Orange County Fair and Event Center by the State of California. We appreciate the very professional and courteous guidance of your talented staff, as well as your patient and constructive efforts to convey the thinking, vision and concerns of the city's representatives. In the spirit of the confidential process underway, we have shared detailed management and operational approaches we would employ if our group has the honor and opportunity to own and manage the fairgrounds. We will simply summarize key points in this letter, which we invite you to share with your colleagues as the city approaches a final decision on how to respond to the state's deadline for action. Facilities Management West, Inc., represents three multi -generational Orange County families and investors who love the Orange County Fair and are prepared to commit substantial resources to see it — and its associated exposition facilities — improved for the long-term enjoyment of the public and the community. Our proposal is a simple, uncomplicated, straight -forward purchase. It does not require or anticipate the financial involvement of the City of Costa Mesa, nor does it expose the taxpayers of the city to any future unanticipated costs or financial liability. It satisfies each of the eight goals and objectives outlined by the City Council. Significantly, our plan does not contemplate public ownership of the fairgrounds. But it is structured in ways that respect, honor and address the most significant historic concerns expressed by the city and its residents regarding operations at :►cu 312:3 Page 2 of 3 the site. In this sense, we anticipate a public-private collaboration and ongoing alliance to assure that the year-round fairground operations are run well and in the best interests of the broad surrounding community. We are local, community oriented, accessible, accountable, and we are confident we can make the fairgrounds a better, more varied and more appealing gathering place for the public, young and old. Put most simply, we are prepared to purchase the fairgrounds, at pricing consistent with the state's proposal and the city's response. This transaction poses absolutely no risk to the City of Costa Mesa, now or anytime in the future; no outlay of taxpayer funds for purchase, maintenance, improvements or operations; and, no exposure to future municipal liability or costs for staffing and management of the fairgrounds. Paramount to us is the continued successful operation of our annual fair in a manner that honors the integrity and traditions of its agricultural roots, and which has made our "small town" fair iconic among urban fairs in the state. To do so, we will engage a sophisticated advisory group, well versed in the history, priorities, and special relationships that have contributed to the success and diversity of the fair attractions. Specifically: * Our public-private alliance anticipates the private purchase, improvement, maintenance and operation of the fair by local owners, but with formal, binding covenants and agreements with the City of Costa Mesa that the fairground operations will be consistent with the city's existing land use plans (including those that might be imposed by a pending initiative), zoning restrictions, and nuisance ordinances. * Property and exposition facilities will be professionally managed marketed and operated using national best practices that focus on customer satisfaction. * We are prepared to devise a satisfactory mechanism that will produce new and ongoing city revenues from fairground operations, and have discussed possible options with the city. * We will review all existing agreements between the fair and community groups with a bias toward continuing those relationships and understandings. Our intention is to aggressively engage the community, and increase the use of fair facilities for community events and organizations. * We will pay particular attention to operational concerns posed to residents living nearest to the fairgrounds, and most impacted by it. ecu 3r�:3 Page 3of3 In short, we believe we have the available resources and sophisticated expertise to noticeably improve the operations of the fair and other activities on the 150 - acre fairgrounds site. And, we believe our proposed public-private collaboration aligns our interests with those of the city and its residents in the most imaginative, promising and cost-effective way to achieve our shared goal to retain the fair and exposition facilities for the increased enjoyment of the public. To date, the City Council has only expressed its strong preference for a "publicly financed option" in which the city would gain ownership and management oversight of the fairgrounds. We believe that given the alternative detailed proposal that we have advanced, there is a more advantageous alternative for the city. Before we proceed to more detailed negotiations with the city, we, therefore, respectfully request that the council indicate a desire to entertain a "privately financed option" that achieves the city's eight key objectives without a future financial risk on the city and its taxpayers.. We seek a positive, constructive and respectful relationship with the City of Costa Mesa, its representatives, and its residents — many of whom will be our neighbors and customers -- as we pursue a mission to create an even more valuable, attractive, enjoyable and utilized year-round multi -use community asset and source of community pride. Thank you for your consideration. Most cordially, Facilities Manag in W. Lemmon cc: City Manager Allan Roeder