M E M O R A N D U M PLANNING AND COMMUNITY DEVELOPMENT DEPARTMENT CITY OF SANTA MONICA PLANNING DIVISION

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1 M E M O R A N D U M PLANNING AND COMMUNITY DEVELOPMENT DEPARTMENT CITY OF SANTA MONICA PLANNING DIVISION DATE: September 10, 2007 TO: FROM: The Honorable Landmarks Commission Planning Staff SUBJECT: 11A. Consideration of Mills Act Contract Applications for Designated Landmarks and Contributing Structures to the Third Street Neighborhood Historic District 1. (07MA-001) 822 Euclid Street; Applicant: Gregory and Gaby Chazanas 2. (07MA-002) 2544 Third Street; Applicant: Scott Campbell INTRODUCTION & BACKGROUND This report provides background information about the two applications for Mills Act Contracts and recommends that the Landmarks Commission forward to the City Council a recommendation in support of both Mills Act Contract requests. A copy of each application and all supporting documentation are attached (Attachments A B). Mills Act Summary The Mills Act is a State law that enables cities to enter into property-tax reduction contracts with property owners of qualified historic structures, provided that certain conditions are met. The City adopted the Mills Act as part of its Landmarks Ordinance in The property owner of a building or structure that is designated as a local Landmark, Structure of Merit or as a contributing building in a designated Historic District qualifies as a candidate for a Mills Act Contract. The Mills Act Contract is one of the most valuable incentives offered by the City to property owners. Mills Act Contracts can provide tax benefits for both owner-occupied and incomeproducing properties. Once approved by the City Council, a Mills Act Contract requires the Los Angeles County Assessor s Office to determine the value of the historic property based upon its ability to generate income ("Income Approach" to value), rather than the regular method of assessment commonly known as the "Market Approach. In the Income Approach, after a contract has been executed, the County Assessor values the property according to the capitalization of income, whereby the property's potential income is divided - 1 -

2 by a pre-determined capitalization rate to determine the new assessed property value. In the case of an owner-occupied property, the income projection is based on comparable rents for similar properties in the area, or, if insufficient rental information is available, the income that the property could reasonably be expected to produce. The income amount on a commercial property is based on the actual rent received. The property tax break realized by the property owner is subject to initial review and annual reassessment by the Los Angeles County Assessor s Office. In exchange for a reduction in property taxes, the Mills Act Contract requires the property owner to undertake specific restoration tasks as necessary, and to properly maintain the historic structure. Mills Act Contract terms are for a ten-year period, and are renewed automatically each year on the contract s anniversary, unless the owner or City submits a notice of non-renewal. If such a notice is submitted, the contract would terminate at the end of the then current ten year term. Alternatively, the owner may petition the City to initiate an immediate cancellation, which would result in payment of a penalty equal to 12.5% of the property s assessed current fair market value of the property, as determined by the County Assessor as though the property were free of the contractual restriction. The City may also cancel the contract in the case of breach of the contract conditions, whereby the property owner would be subject to pay the same 12.5% penalty. The obligations and property tax reduction benefits associated with the Mills Act Contract are also binding upon successive property owners during the contract term. Santa Monica Mills Act Contracts The City requires Mills Act Contract applicants to provide a report prepared by a qualified architect regarding the condition of the structure and the need to restore/rehabilitate in order to ensure the resource s historic integrity and structural stability. Staff conducts a site visit with the property owner and/or architect to verify the information contained in the report. Staff may identify additional restoration/rehabilitation and maintenance items as necessary. The recommendations in the architect s report are reflected in the proposed 10- year restoration/maintenance plan which becomes an attachment to the Mills Contract entered into between the City of Santa Monica and the property owner(s). It is important to note that property owners will be required to obtain all applicable entitlements such as a Certificate of Appropriateness approved by the Landmarks Commission or Landmarks Commission Secretary, and all associated building permits for work prior to commencing proposed in the ten-year maintenance/rehabilitation plan. Furthermore, all work proposed in the ten-year restoration/maintenance plan must comply with The Secretary of the Interior s Standards for the Treatment of Historic Properties with Guidelines for Preserving, Rehabilitating, Restoring & Reconstructing Historic Buildings (Weeks & Grimmer, 1995). Property owners are also required to submit a report to the City on a biennial basis to demonstrate compliance with Contract terms. City staff also may conduct site visits every - 2 -

3 other year to ensure that restoration and maintenance plans are implemented in accordance with Contract terms. Financial data is also requested in order to calculate an estimate of the potential tax reduction and provide guidance to the Landmarks Commission and Council in making a decision on this request. The County Assessor is responsible for making the final determination of the taxes due when the approved Contract is submitted and recorded, and will continue to conduct property tax assessments on an annual basis. Los Angeles County Assessor s Office data showed that for the tax year, property value assessments of thirty-seven of the thirty-nine Santa Monica historic properties with executed Mills Acts Contracts have been reduced by 12% to 90%, with the average reduction being 51%, when compared to their Proposition 13 values. From these Mills Act Contract property value assessments, correspondingly lower taxes have been levied on these properties. Each year, the County Assessor will reassess taxes due for properties with Mills Act Contracts. Data for the tax year has not yet been received from the County Assessor s Office; however, it is anticipated that the average reduction in property taxes will be similar to last year s data. 1 ANALYSIS The two applications submitted in 2007 include a Streamline Moderne multi-family apartment complex located at 822 Euclid Street and a Craftsman style residence and Contributing Structure to the Third Street Neighborhood Historic District located at 2544 Third Street. In addition to the specific restoration and repair obligations listed below for each property, each Mills Act Contract will include a standard requirement for ordinary maintenance and upkeep throughout the Contract s term for work such as additional roof maintenance, and plumbing and electrical systems maintenance. 822 Euclid Street A Mills Act Contract application was filed on August 14, 2007 for the Streamline Moderne style apartment building located at 822 Euclid Street. Key character-defining features of the primary building include its massing, roof form, curvilinear eaves, corner windows, curvilinear handrails, horizontal bands and fascia, and unique scored concrete stairwells. The property was constructed in 1938 by builder Frank Bivens. The Landmarks Commission designated the apartment building and associated accessory garage as a City Landmark on August 13, The applicants recently purchased the apartment complex at 822 Euclid Street and have identified several significant maintenance and repair tasks that are necessary in order to : 14%-75% reduction with an average reduction of 47%; : 6%-74% with an average reduction of 42%; : 12%-90% with an average reduction of 51%; and : 12%-90% with an average reduction of 51%

4 protect the structural and architectural integrity of the property. As part of the Mills Act application, an architect s report was prepared by the property owner, Gregory Chazanas, AIA. The report assesses the condition of the primary building and accessory garage and identifies repair, restoration/rehabilitation and maintenance needs (Attachment A) along with a schedule for completion of necessary tasks. A site visit was conducted by staff on September 4, Although the subject property is generally in good condition, the building has suffered from some deferred maintenance over the past several years. The new property owners have proposed a series of significant work items in the first two years of the Contract term in order to protect the integrity of the building and its architectural features. Examples of work proposed during the first year of the Contract include the following: repair and repaint the building s exterior stucco finish; repair and reinforce the building foundation; repair, refinish and repaint roof eaves, fascia boards and the horizontal wood bands on the building exterior; and repair, refinish and repaint or replace in-kind as necessary existing wood windows throughout the building. The concrete stairs will also be resurfaced and repainted while still maintaining the scored concrete design details, and the distinctive metal columns and handrails on the building exterior will be cleaned and repainted. Work proposed for the detached garage structure at the rear of the parcel includes repair of garage doors and repair of drywall and properly covering exposed wood framing. A full inventory of proposed work items is included in the ten-year maintenance/rehabilitation plan that will be an attachment to the Mills Act Contract. Attachment A also contains the estimate financial analysis for the property Third Street A Mills Act application was filed on August 15, 2007 for a three-story Craftsman Style bungalow constructed in 1912 located at 2544 Third Street. This residence is a Contributing Structure to the Third Street Neighborhood Historic District which was established by the City on July 24, As part of the Mills Act application, a report was prepared by Beckmeyer Carver Architects to assess the condition of the property and its restoration and maintenance needs (Attachment B). The report also proposes a schedule for completion of necessary work. A site inspection was conducted by staff on August 24, The subject residence is both a contributor to the Third Street Neighborhood Historic District and is also individually noteworthy for its airplane bungalow design which features a smaller upper story and a lower story roof form that is characterized by its broad horizontality and deep eaves. Other key features of the residence include its multi-gabled, low pitched roof with overhanging eaves with rafters and beams, its wood cladding, woodframed fenestration, and wrap-around porch

5 The residence is currently in excellent condition and has been well restored, rehabilitated and maintained by the current property owners since beginning extensive work on the home in Page two of the architect s report summarizes the work already undertaken in conjunction with an expansion of the square footage of the residence. The ten-year maintenance/rehabilitation plan includes a list of exterior work recommended during the initial ten-year term of the Contract. The vast majority of work items are scheduled for These exterior work items include the following: repair and replacement of shingles on the south side of the residence; refinish and seal all existing wood shingles on the exterior of the residence; add copper caps to exposed rafter tails and beam extensions; repair existing windows; and repair retaining wall on west side of property. General maintenance items proposed include annual inspection and repair of exterior shingles, roof overhangs, wood trim, the building foundation, roof flashing, and the concrete porch; as well as annual termite inspection and treatment as needed; and annual maintenance and repair of masonry finishes. The applicant has included the construction of a new detached garage with second floor living space as a work item in the rehabilitation plan. However staff has advised the applicant that a future construction project on site is not appropriate for inclusion in the work plan for a Mills Act Contract. Therefore, this item will be excluded from the final work plan for the property when presented to the City Council for final approval. A full inventory of proposed work items is included in the ten-year maintenance/rehabilitation plan that will be an attachment to the Mills Act Contract. Attachment B contains the estimate financial analysis for the property at 2544 Third Street. RECOMMENDATION It is recommended that the Commission make a recommendation to the City Council to enter into a Historic Property Preservation Agreement (Mills Act Contract) for the designated City Landmark property at 822 Euclid Street and the Contributing Structure to the Third Street Neighborhood Historic District located at 2544 Third Street. Attachments: Documents for the properties at 822 Euclid Street and 2544 Third Street: Architect s Report on Condition of Property Proposed 10-year Maintenance Plan and 10-Year Rehabilitation Plan Estimate Financial Analysis Spreadsheet Property Photos F:\CityPlanning\Share\Landmarks\MILLSACT\2007\Mills Act Contract LMC Staff Report (2007).doc - 5 -

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