COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Manager’s Office

DATE:

January 10, 2011

BOARD MEETING DATE:

January 25, 2011

SPECIAL NOTICE/HEARING:

Publish once per week for 3 weeks

VOTE REQUIRED:

4/5ths

TO:

Honorable Board of Supervisors

FROM:

Steve Alms, Manager, Real Property Services Division

SUBJECT:

The Purchase of Real Property Located at One and Two Circle Star Way in San Carlos, California from Circle Star Investors, LLC for $39,950,000

RECOMMENDATION:

A. Adopt a Resolution authorizing the:

1. President of the Board of Supervisors to execute a Purchase and Sale Agreement for the acquisition of One and Two Circle Star Way, San Carlos, from Circle Star Investors, LLC for $39,950,000; and

2. County Manager or his designee to execute notices, documents and agreements associated with the acquisition, including, without limitation, escrow instructions and a certificate of acceptance, in order to facilitate the acquisition of the Property and to meet the intent of the Resolution and the Board; and

B. Approve an Appropriation Transfer Request (ATR) transferring $40,650,000 from Non-Departmental ERAF Reserves to various accounts in the Capital Projects Fund for the acquisition of the Property and related fees and costs, including title and escrow, due diligence and other planning expenses.

BACKGROUND:

The property at One and Two Circle Star Way in San Carlos consists of approximately 6.40 acres of land on Assessor’s Parcels 046-240-180 and 052-103-170, together with the improvements thereon (the “Property”). The improvements consist of two four-story Class A office buildings of approximately 104,000 square feet each, for a total of approximately 208,000 square feet. Also included is an adjacent three-story parking structure of approximately 400 spaces, which is supplemented by surface parking. The Property is on the border between San Carlos and Redwood City. The majority of the Property is in San Carlos, and the cities have entered an agreement vesting planning jurisdiction with the City of San Carlos. The Property is zoned PC, Planned Community, and is located 0.8 miles from County Center and approximately one mile from the Redwood City Caltrain Station.

DISCUSSION:

The Real Property Division has negotiated the price and terms of an agreement for the acquisition of One and Two Circle Star Way. The agreement provides for a thirty (30) day due diligence period, ending on February 25, 2011 (the “Approval Date”), and requires completion of the transaction by March 10, 2011 (the “Closing Date”). A refundable earnest money deposit to escrow of $250,000 is required upon execution of the agreement. If all conditions are approved or waived by the Approval Date, an additional deposit of $250,000 is due, and the entire $500,000 deposit becomes non-refundable. The deposits apply to the purchase price at Closing.

The purchase price of $39,950,000 is approximately $192 per square foot of office area, a calculation which excludes the area of the parking structure. The price of the Property is significantly below replacement cost. As part of the due diligence process, Real Property Services has contracted for an independent real estate appraisal that will be completed prior to the Approval Date. Closing costs will be shared equally between the parties, with the seller paying the standard California Land Title Association title insurance premium.

An ATR from Non-Departmental ERAF Reserves in the amount of $40,650,000, submitted together with the accompanying Resolution, is sufficient to fund the acquisition of the Property, including title and escrow fees, due diligence costs, and fees for other property related studies. It is anticipated that the acquisition and improvement of the Property will be bond funded at a future date, including reimbursement to County Reserves of the cost of acquisition.

Acquisition of the Property enables the County to implement many of the recommendations in the draft Facility Master Plan, and facilitates a variety of capital projects contained in the Plan. In the near term, the Property provides interim use during renovation and replacement projects at the County Center and the Health Campus on 37^th Avenue in San Mateo. On a long term basis, the acquisition will enable the County to meet the Master Plan recommendation to eliminate a variety of costly leases in favor of occupying owned facilities. The Human Services Agency and the Health System are primary candidates to shift from leased to owned office space as existing leases expire.

The goal of the acquisition is to dramatically reduce expenditures on overhead in the form of facility costs, and to ensure that those savings accrue to local, state and federal budgets. The projected cost of stabilized occupancy for the Property is $2.25 - $2.35 per square foot per month, which is less than the current market for comparable office rents. The current market is at an historical low, providing an opportunity to purchase the Property at a price that enables the County to stabilize facility costs and avoid escalating rents.

As part of due diligence, the County will evaluate the limits on facility reimbursements as set forth in Circular A-87 published by the Federal Office of Management and Budget, to assess the impact on reimbursement available for leased facilities as opposed to those that are owned.

Any change of use resulting from the County’s acquisition of the Property will be de minimis. Your Board, as the lead agency, is required to comply with the California Environmental Quality Act (CEQA) and applicable State and County guidelines. Staff has determined and believes your Board can find that the acquisition of the Property is categorically exempt under the California Environmental Quality Act (CEQA).

Consistent with Government Code §65402(a), on January 6, 2011 letters were mailed to the City of San Carlos and the City of Redwood City requesting the issuance of findings that the acquisition of the Property by the County conforms with the respective General Plans of each city.

A Notice of Intent to Purchase Real Property has been published once each week for three weeks in compliance with Government Code §25350. County Counsel has reviewed and approved the Purchase Agreement and the Resolution as to form. The Director of Public Works concurs in this recommendation.

Approval of this action will contribute to the Shared Vision 2025 outcome of an Environmentally Conscious Community by consolidating County departments and office space and thereby contribute to the County’s goal to use land and resources more efficiently.

FISCAL IMPACT:

Purchase of the Property and related costs will be funded from the transfer of $40,650,000 from Non-Departmental ERAF Reserves. The ATR provides $39,950,000 for the purchase price, $200,000 for due diligence, title and escrow fees, and $500,000 for other planning expenses that will be incurred in preparation to take occupancy. A Reimbursement Resolution will be submitted for consideration within sixty days of the Closing Date in order to preserve the County’s ability to reimburse reserves from a future bond issue.