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Home My WebLink AboutS13 - Sale of Ackerman Property - 2214-2122 W Ocean Front & 106-110 22nd StreetCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. s13 September 9, 2003 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dave Kiff, Assistant City Manager, (949) 644 -3002 Robin L. Clauson, Assistant City Attorney, (949) 644 -3131 SUBJECT: SALE OF THE ACKERMAN PROPERTY (2214 -2122 WEST OCEAN FRONT AND 106 -110 22ND STREET) RECOMMENDATION: Adopt the attached Resolution authorizing the sale of the Ackerman Property to 2116 Ocean Front Associates, a California limited partnership, for the purchase price of One Million Nine hundred and Forty Thousand Dollars ($1,940,000) and: 1. Authorize the City Manager to execute all documents associated with the sale of the Ackerman Property. 2. When the sale is complete, direct the Finance Director to establish a lifetime annuity or other investment of the proceeds to the City in a manner that dedicates 75% of interest income to high -tech library equipment and 25% to scholarships for "needy, qualified students." 3. Direct the City Manager to review and report back to City Council on any recommended changes to the administration of the scholarship portion of the Ackerman Fund. DISCUSSION: The City of Newport Beach ( "City') received property located at 2114 - 2112 West Ocean Front and 106 - 110 22nd Street on October 19, 1993 as a gift from the Carl Ackerman Trust ( "the Property "). The Property was given to the City subject to a December 18, 1992, 15 -year lease with 2116 Ocean Front Associates, a California limited partnership (Lessee). The Lease gives the Lessee an option to purchase the property and sets out in detail the method of exercise of the Option, the Option price and conditions of purchase. On August 8, 2003, the Lessee exercised the Option to Purchase in accordance with the provisions of the Lease. (Attachment "A ") We have reviewed the letter exercising the option and the Lease and have determined that the Sale of the Ackerman Property September 9, 2003 Page 2 City is now required to sell the Ackerman Property to 2116 Ocean Front Associates for $1,940,000. The relevant documents controlling the City's ownership of the Property and use of the income from the property which will be discussed in more detail below are: the Carl Ackerman Family Trust and Amendments (which describe how Ackerman directed the property's proceeds to be used), the December 18, 1992 Lease (which describes rental payments, property management, and contains the Option to Purchase), and the City Council's Policy F -16 (which re- affirms the distribution of proceeds per Mr. Ackerman's Trust Agreement). Background: In 1991 the City learned of a pending gift of the Property from the Carl Ackerman Trust. The City was to be given the Property with the proviso that income from the property was to be dispersed 40% to the City and 60% to the University of California, Irvine Foundation, for scholarship funding for needy, qualified students. Under a subsequent Amendment to the Trust dated March 16, 1991, the City was authorized to spend "up to 75%" of its share of the property for the purchase of "high tech student hands -on equipment for the Newport Beach Public Library to be made available for students using the Public Library." The Ackerman Property 2114 -2122 West Oceanfront Sale of the Ackerman Property September 9, 2003 Page 3 106 -110 22nd Street The 2114 -2116 W. Oceanfront building includes • Scotty's Fish Fry (restaurant) • Henry's Grocery • The Beach Ball (bar) • Blackies by the Sea (restaurant & bar) • PJ's Surfrider (surf and sporting goods) and • Four apartment residences. The 106 -110 22nd Street building includes: • Let it Roll (skate shop) • Newport 32 Flavors, and • Ocean Nail Salon. The City also learned that the Property would be granted to the City subject to a Lease with 2116 Ocean Front Associates. The Trident Capital Group is the general partner of 2116 Ocean Front Associates and has managed the Ackerman Property since 1992. Under the terms of the Lease, Trident pays the City $185,000 per year in rent. The rent is split 60 0/6-40% with UCI. Thus, UCI receives $111,000 annually from the property, while the City receives $74,000. The Lease also gave the Lessee an Option to purchase the Property. Sale of the Ackerman Property September 9, 2003 Page 4 When the Property is sold, Ackerman's Trust, as amended on March 16, 1991, says that the gift of property "is made to the City of Newport Beach with the understanding that 60% of the net proceeds available for distribution from the income of the property or from the sale or refinancing of the property shall be given to the University of California, Irvine Foundation (UCI) for the purpose of scholarship funding for needy, qualified students." We believe that the direction set forth in the March 16, 1991 amendment obligates the City to distribute 60% of the net sale proceeds to UCI and to invest the City's 40% sale proceeds at going -rate interest and distribute interest according to Council Policy F- 16's 75 % -25% split. Policy F -16 reads in pertinent part: "The proceeds (of the Ackerman Property) are to be distributed ... sixty (60) percent ... to the University of California, Irvine, to be used for scholarship funding for needy qualified students... (and) forty (40 %) ... to the City of Newport Beach to be used ... to acquire high -tech library equipment (75 %)" and for "scholarship funding for needy qualified students (25 %). "It shall be at the City's discretion what high tech library equipment to acquire, and how to award the scholarship funds to needy qualified students." Scholarships and High -Tech Equipment. The City has chosen to use 25% of the City's share of the Ackerman revenue (25% of 40 %) to establish a Scholarship Fund for children who reside in Newport Beach and for the children of City employees. Recent practice has been for the City to allocate only a portion of the interest from this Fund for scholarships — as such, the Ackerman Donation Fund Balance (scholarship portion) has grown overtime. Here is a summary of recent distributions: $ 9,250 to two NB residents and to nine children of City Employees (2003) $ 10,000 to five NB residents and to six children of City Employees (2002) $ 8,000 to two NB residents and to six children of City Employees (2001) $ 6,000 to four children of City Employees (2000) In 2001, the City Council amended Policy F -16 to make any "needy, qualified" young person in Newport Beach eligible for the Ackerman - funded scholarships, not just children of City employees. Sale of the Ackerman Property September 9, 2003 Page 5 Since 1991, the other 75% of the City's share of the Ackerman Fund (75% of 40 %) has enabled the Library to purchase over $500,000 worth of high -tech library equipment. The Library Board of Trustees works with the City Librarian to determine which technologies to purchase. Here is a summary of the amounts budgeted for high -tech library equipment recently: 2002 -03 -- $55,485.96 2003 -04 -- $55,500.00 Sale of Oceanfront Land. The City Charter ( §1402) prohibits us from "selling or conveying any waterfront or beach property, excepting to the State or County for use as a public beach or park." The voters have amended this section six times. The City Attorney believes that §1402 of the Charter does not prohibit the City from selling the Ackerman property, since a public street, sidewalk, and parking facility separate the building from the waterfront. Prepared by: Submitted by: G D Kiff, Assistant City Manager b-f ` tt_,� Robin Clauson, Assistant City Attorney ATTACHMENTS: Attachment A —Resolution Attachment B — August 8, 2003 Exercise of Option F:\ users\ cat\ shared\ da\ CCstaffReports \SellAckermanProperty. doc RESOLUTION NO. 2003- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH AUTHORIZING THE CITY MANAGERTO EXECUTE REQUIRED DOCUMENTATION FOR SALE OF THE ACKERMAN PROPERTY WHEREAS, the City of Newport Beach ( "City ") inherited property located at 2114 - 2112 West Ocean Front and 106 - 110 22nd Street on October 19, 1993 ( "the Ackerman Property ") pursuant to the provisions of the Carl Ackerman Family Trust. The Trust provided that 60% of the income from the Ackerman Property be given to the University of California, Irvine, Irvine Foundation for scholarship purposes for needy, qualified students. WHEREAS, the Ackerman Property was given to the City subject to a December 18,1992, 15 year lease with 2116 Ocean Front Associates, a California limited partnership, with an Option to Purchase. On August 8, 2003, 2116 Ocean Front Associates exercised the option in accord with the provisions of the Lease. NOW, THEREFORE, BE IT RESOLVED as follows by the City Council of the City of Newport Beach: Authorize the sale of the Ackerman Property to 2116 Ocean Front Associates and authorize the City Manager to execute all documents associated with the Option to Purchase the Ackerman Property, with 60% of the net proceeds of the sale to be paid to University of California, Irvine Foundation. When the sale is complete, direct the City Managerto establish a lifetime annuity or other investment of the City's proceeds to the City in a manner that dedicates 75% of interest income to high -tech library equipment and 25% to scholarships for "needy, qualified students." Direct the City Manager to review and report back to City Council on any recommended changes to the administration of the scholarship portion of the Ackerman Fund. Adopted this 9th day of September, 2003. MAYOR ATTEST: CITY CLERK T R I D E N T G R O U P I N C August 8, 2003 Via Federal Express And U.S. Mail. City Manager City of Newport Beach 3300 Newport Blvd. Newport Beach, CA 92663 Re: 2114 —2122 W. Ocean Front Avenue Notice of Exercise of Option to Purchase Sir / Madam: Reference is made to that certain Lease and Option To Purchase Agreement ( "Master Lease ") made and entered into as of December 18, 1992 by and between 2116 Ocean Front Associates, a California Limited Partnership ( "Lessee ") and Carl Ackerman Trust ( "Lessor "). The Master Lease has been assigned by the Lessor to the City of Newport Beach. Notice is hereby given pursuant to the provisions of Section 41 d. of the Master Lease of Lessee's election to exercise the Option To Purchase as defined in Section 41. This election is made within the Option Exercise Period referred to in Section 41 c (i) and the Option Price is, pursuant to the provisions of Section 41 e (1), the sum of $1,940,000. Lessee shall within 10 (ten) days hereof, cause an escrow to be opened with Chicago Title Company, 16969 Von Karmen, Irvine, CA 92606, which is the escrow chosen by Lessee, and will deposit the Escrow Deposit therein. Lessee desires that the escrow instructions provide for a closing on August 26, 2003. kindly acknowledge receipt of this notice. Very truly yours, 2116 Ocean Front Associates a California limited partnership By: (indent Cwital Group, Inc. Its: dianeral ner IC David B. rrad=F President cc: Mickey 7annol (Imperial Capital Bank by fax) K:�mg\wpCOC &d Vcttm'trtu va 1460 West"od Boulevard, Suite 300 Los Angeles, California 90014 -4946 310.470.4777 Far 310.474.5414