Evaluation of Pacific View Purchase of Sale

The following was emailed to the members of the City Council prior to the meeting when this was being discussed.  None of the suggested changes were proposed by any member although several council members confirmed that unless a low rate of interest were obtained for the financing bond we could cancel or renegotiate price.  My understanding of the city's broad right of cancellation if we are not satisfied with clause 4.1 b, suitability for use, was confirmed by the city attorney.  However the City Manager indicated no intent to broaden his due diligence to ascertain suitability for a specific use. 

May 28, 2014

Encinitas City Council and residents

It's time to take a deep breath before we dive into this one.  If we proceed, some changes in the proposed contract should be made.  These two related elements must be addressed in concert.  The first is the action plan on this purchase proposed by the City Manager:

• Point One: Complete the purchase of the property
• Point Two: Property clean up and evaluation of structures
• Point Three: Identify interim uses
• Point Four: Develop Public Outreach for Visioning/Conceptual ideas

This ignores the most relevant clause in the Purchase agreement, which is clause 4.1(b): 

Buyer’s acceptance of the condition of the Property, within sixty days (60)

days of the effective date of this Agreement, subsequent to Buyer’s
physical inspection of the Property which may, but is not limited to, a

Phase I Environmental Site Assessment, Geo-technical reconnaissance,

Hydrology Study, and/or other inspections or studies deemed necessary

by Buyer for determining the condition and suitability of the Property.

This clause allows the city to complete its traditional due diligence which is to determine whether this raw land we are purchasing at a premium price will meet our desired use.  but, no matter how much research we do, any project must be approved by the California Coastal Commission which means that any plan, even with city approval may be disallowed.  Thus planning costs could increase with multiple applications to this commission along with increasing construction costs.  The reality is that this commission has the final word on whether this concept can even be achieved.

This is clause 6. 4.2Waiver of Conditions. Buyer may unilaterally waive, in writing, any or all of the conditions described in Section 4.1 (above)

This would never be activated by a responsible city official, as it is abrogating the right of due diligence and should be stricken from the contract.  My concern is that this clause is an allowance for mischief that has no place in this sales contract.

This virtual raw land is being sold as an arts-performance center.  While these two uses were conflated to increase enthusiasm, a passive arts center such as galleries and teaching faciility requires different demands for access and peak parking than a performance space.  The first task is to do the feasibility and cost evaluations for both options, including a traffic and parking study, which according to the head of traffic engineering has never been done for this site.  The potental and capacity of underground parking must be part of this evaluation. This must be done well within the 60 day contractual period, but this is not even on the City Managers priority list, which could be a costly mistake.

Clause 1.3 reads:

1.3 Financing to Secure Funding for Purchase Price; Failure to Obtain Financing. Pursuant to the MOU and continuing immediately upon the effective date of this Agreement, Buyer shall use its best efforts to obtain the municipal bond financingnecessary to secure the funds for the Purchase Price prior to the Close ofEscrow. If, using its best efforts, Buyer cannot secure said financing, then the Buyer and Seller shall mutually agree to an alternative financing plan for the Purchase Price, or else the Seller shall refund said deposit to Buyer. 

The question is not whether we can get municipal bond financing but under what terms.  There is no doubt we could get underwriting for a C rating bond at an exorbitant rate of interest, the question is whether we could get underwriting at an investment grade which would provide low interest rate for an insured bond.  This higher rating must be a condition of the contract. as this would require the underwriter do his own evaluation of the merits of this purchase and its risk.

The city's abrogation of the right to move the Historic Schoolhouse (Clause 6.4) would be appropriate if we were purchasing this for a quarter of the value based on the original expectation under the law for abandoned school property.  But while we are paying top dollar, we are even allowing the seller to dictate this point, that no matter what unknown future events, we can't relocate the one room school house.  This defines the tone of this purchase -- obligate a project ultimately costing 20 to 40 million dollars to be paid by future residents who will not have these resources for their constituents' other needs, and then allow them no breathing room to get out of the bind we are bequeathing them. . 

Those hundreds of people who feel so passionately the need to "save Pacific View" can do exactly this as a non profit organization that they would fund and control.  They could define the type of performances and the type of art to be displayed.  They would fund it from within their organization and this would be their prime purpose, not streets, recreation and public safety as are a city's responsibilities.  I'm sure they could get just as good a deal from the School District as the city did, and would have the city's full cooperation. If we were behaving rationally, this sale would close when we have final approval from the California Coastal Commission,  whether the purchase is by the city or the suggested non profit arts organization. 
----------------
Council Discussion of this issue, final item on drop down menu