TO:
Honorable Mayor and Members of the City Council
THROUGH:
John Jalili, Interim City Manager
FROM:
Quinn Barrow, City Attorney
Bruce Moe, Finance Director
SUBJECT:Title
Consideration of City's Option to Purchase Remaining Fifty Percent Interest in the Former City Manager's Residence Located at 2913 Pacific Avenue (City Attorney Barrow).
DISCUSS AND PROVIDE DIRECTION
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council discuss and provide direction on the City's option to purchase the remaining fifty percent of the former City Manager's residence located at 2913 Pacific Avenue.
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FISCAL IMPLICATIONS:
The City currently maintains a fifty percent interest in the residence of former City Manager David Carmany and his spouse. The City also serves as the lender for the Carmanys' loan on their half of the property. If the City Council wishes to exercise its option to purchase the Carmanys' interest in the property, the value will need to be determined through an appraisal process outlined in the Tenancy in Common agreement (Attachment 1).
BACKGROUND:
Former City Manager David Carmany's employment contract provided for housing assistance. This arrangement is a common practice in cities where it is desirable to have the Manager live in the community, but where the cost of housing is high, as is the case in Manhattan Beach. The City had previously made this arrangement for a prior City Manager and a prior Police Chief (however, in both of those situations the City acted as lender only and did not have equity in the property).
DISCUSSION:
The housing assistance package provided to former City Manager Carmany included an equity sharing arrangement where the Carmanys and the City, both owned a 50% share of the property. Additionally, the City acted as the lender on the Carmanys' loan (see staff report dated January 18, 2011 - Attachment 2).
The original purchase price of the property was $1,080,000, with the City and the Carmanys each depositing 10% for a total down payment of $216,000. The remaining balance of $864,000 was equally divided, with the Carmanys and the City each owing $432,000 (the City paid cash for its share). The Carmanys then borrowed $432,000 from the City, with interest-only payments due for the first five years at an annual interest rate of five percent (years 6-25 are scheduled to be fully amortized at a fixed rate of 5%).
The Tenancy in Common agreement (attachment 1) includes purchase option language for both the Carmanys and the City (see paragraph 9 - Purchase Options). With the City Manager's recent separation from City service, the City's purchase option needs to be discussed by the City Council for a final determination. The agreement includes language that the Carmanys may purchase the City's interest at any time by giving written notice, or that the City may elect to purchase the Carmanys' interest if the Carmanys do not elect to purchase the property. If neither party elects to purchase the other's remaining interest, the property will be sold.
Additionally, nothing in the agreement prohibits either party at any time from approaching the other with an offer from a third party to purchase the property. As the City Council may have noticed, the Carmanys have listed the property for sale and invited offers. At this time, any offer would require acceptance by both the Carmanys and the City. If the Carmanys receive an offer that they believe is worthy of consideration, they intend to present the offer to the City for the Council's consideration.
If the residence is sold, it is expected that the City will receive its initial investment ($540,000), the balance of the Carmany loan ($432,000), and any accrued equity from appreciation of the property (to be determined). The City will pay half of the closing costs as outlined in the agreement.
If the City Council wishes to purchase the Carmanys' equity rather than have the property sold to a third party, an appraisal process outlined in the agreement would be followed. Possible options if the residence is purchased include retaining the home for use by the next City Manager as part of a compensation package, or leasing the home to private party.
CONCLUSION:
Staff recommends that the City Council discuss and provide direction on the disposition of the former City Manager's residence located at 2913 Pacific Avenue.
Attachments:
1. Tenancy in Common Agreement
2. Staff report dated January 18, 2011 regarding Carmany Home Loan
3. Housing Assistance Agreement