City of Palo Alto (ID # 6811) City Council Staff Report

Transcription

1 City of Palo Alto (ID # 6811) City Council Staff Report Report Type: Consent Calendar Meeting Date: 5/2/2016 Summary Title: Approval of 2257 Bryant St. Insurance Settlement Title: Approval of the Final Fire Insurance Settlement and Payment to Frank Benest for his Ownership Interest for Property Located at 2257 Bryant Street, Palo Alto, California and Approval an Amendment to the Budget in the General Fund From: City Manager Lead Department: Administrative Services RECOMMENDATION Staff recommends that the City Council: 1) Approve a pro-rata payment of $205, plus accrued interest to Mr. Frank Benest from a State Farm Insurance Company settlement. Council has previously authorized the insurance settlement and this related disbursement to Mr. Benest is based on his pro-rate ownership interest in property located at 2257 Bryant Street Palo Alto, California which was damaged in a fire. 2) Amend the Fiscal Year 2016 Budget Appropriation Ordinance for the General Fund by: a. Increase the Administrative Services revenue estimate for Other Revenue in the amount of $2,336,704; b. Increase the Administrative Services appropriation in the amount of $285,792; and c. Increase the Budget Stabilization Reserve in the amount of $2,050,912. EXECUTIVE SUMMARY Staff is seeking Council approval for the final insurance settlement involving the May 3, 2014 fire which severely damaged property located at 2257 Bryant Street in Palo Alto. The City coowned this property with Frank Benest, Palo Alto s City Manager from February 2000 through August The City and Mr. Benest are co-listed on the property insurance policy. The property was purchased jointly on June 27, 2001 to be used as the primary residence of the City Manager. Presently, the equity ownership of the property consists of 56.8% by the City and 43.2% by Frank Benest and Pamela S. Grady, Co Trustee of the Benest & Grady Family Trust dated November 13, City of Palo Alto Page 1

2 During the past two years, City staff and Mr. Benest worked together to negotiate with State Farm Insurance Company to settle the amount due for the fire damages and evaluated alternatives as to repair and rebuild the structure, sell the property as is or demolish the structure and sell as a single family lot parcel. Mr. Benest and the City agreed to the State Farm settlement in the amount $562, The property was listed and sold as a single family lot for $2.7 million. The proceeds from the sale of the property were distributed in escrow based on the percentages of ownership by the City and Mr. Benest. The net proceeds from payments from the insurance company for fire damages are being held in a City interest bearing account to be divided based on ownership percentages to complete the settlement with Mr. Benest. BACKGROUND The City of Palo Alto and Frank Benest are joint owners of the property located at 2257 Bryant Street. The City s recent practice has been to provide a housing subsidy as part of the City Manager s compensation because the City Charter requires the City Manager to live in Palo Alto. The property was purchased by Frank Benest on June 27, 2001 for his primary residence. Mr. Benest and his family were living on the property until a major house fire severely damaged the property on May 3, Since the occurrence, City staff has worked with Mr. Benest, the insurance company, contractors, an architect, a structural engineer, and real estate consultants toward the clean-up, rehabilitation, and development of architectural and structural plans, in order to reach a settlement with the insurance company and evaluate alternatives for the use of the property. Additional background information can be found via City Manager Reports 4963, 5891, and On December 14, 2015, City Council approved the fire insurance settlement and approved the sale of the property to the highest and most qualified bidder. The damaged structure was demolished and the property was sold for $2.7 million. The final settlement amount from State Farm Insurance Company after significant negotiation was $562, The related expenses totaled to $87, The net amount is to be divided between the City and Mr. Benest based on ownership rights is $474, which is held in a City deposit account. (See Attachment A: Insurance payment and expense records) DISCUSSION After Council s approval of the insurance settlement and sale of the property, the City and Mr. Benest considered the following options for the property: Option A: Rebuild the house as it was before the fire with required Building Code updates Option B: Sell the Property as is Option C: Demolish the structure and market the property as a Single Family lot After evaluating the pros and cons of each approach, it was decided that the best course of action was option C. This alternative provided a single family lot in a desirable location of the city and it allowed the purchaser to design and build a new home. The remaining structure was demolished and the property was listed on December 15, 2015 with Dreyfus Sotheby s City of Palo Alto Page 2

3 International Realty for $2,495,000. Three offers were received, the best one was selected and final sale price of $2.7 million cash was agreed by all parties. The escrow was closed on March 18, The City received a net payment in the amount of $1,455, and an existing loan on the property from the City to Mr. Benest in the amount of $325, was paid off. (Note Attachment B: Sellers Final Closing Statement) The final State Farm settlement offer equaled $562, This amount included: clean up and repair expenses such as roof work, asbestos abatement, and costs for rebuilding the structure which incorporate code upgrades, a dwelling extension (garage), landscaping and City permit expenses. The expenses totaled $87, The net remainder amount of $474, is to be divided between the City and Mr. Benest based on their percentage ownership of the property. This results in the payment of $205, plus accrued interest to Mr. Benest. The remainder of the payment will be retained by the City. RESOURCE IMPACT The original equity investment in 2001 totaled $900,000 and the loan from the City to Mr. Benest was for $500,000 for a grand total of $1,400,000. The proceeds from the sale and insurance settlement total $2,050,912. The net return on this investment equals $650,912. The proceeds of $2,050,912 are recommended to be allocated to the Budget Stabilization Reserve and staff will return to Council with future Council for direction on the use of these funds. The final disbarment of funds from fire damage payment will settle all claims by the City of Palo Alto and Mr. Benest regarding this property. City has received the following from the sale and insurance payments Revenues Proceeds from the Sale of Property $1,455,901 Loan Repayment $325,284 Insurance Proceeds* $555,519 Total Revenues $2,336,704 Expenses Mr. Frank Benest Insurance settlement ($205,145) Property Clean-up Expenses* ($80,647) Total Expenses ($285,792) Budget Stabilization Reserve $2,050,912 *Both Insurance Proceeds and Property Expenses are slightly lower than noted in the discussion above as $6,588 in property clean-up costs were paid directly by State Farm Insurance and deducted from the final This action will increase the current FY 2016 Budget Stabilization Reserve to $39.0 million or 21.0% of the FY 2016 Adopted Budget expenditures. Staff plans to bring forward recommendations as part of the Fiscal Year 2017 Proposed Budget process on the use of these funds. City of Palo Alto Page 3

4 POLICY IMPLICATIONS This recommendation is consistent with Council direction. ENVIRONMENTAL REVIEW None required Attachments: Attachment A: Insurance Payments and Expense Records (XLSX) Attachment B: Seller Final Closing Statement_March 2016 (PDF) City of Palo Alto Page 4

5 ATTACHMENT A 2257 Bryant Street, Palo Alto Frank Benest & City of Palo Alto - Revenue and Payment Charges for Project: PF Revenue and Payment Transactions Expenses Revenue Revenues Payment from State Farm (check number J) 1* $52, Payment from State Farm (check number J) 2* $435, Payment from State Farm (check number J) 3* $55, Payment from state Farm (check numbee J) 4* $11, Interest for the funds in the account Expenses /Payments Ward-Tek (Inv. #34063) $15, Alliance (Inv. #80899) $30, Boudreau Plumbing and Heating (Inv. # ) $1, Protera (Inv # 74746) $ Protera (Inv. #73443) Limited Survey, Site Visit Report, Bulk Asbestos Analysis $ De Jesus and Alatorre Architects, INC (Inv. # 1527) $3, Alliance (inovice 82256) $ Zonning Plan Check $1, Building Plan Check Fee $2, De Jesus and Alatorre Architects, INC (Inv. # 1600) $9, Fee for Buidling permit $0.00 Genuit Builders $ Demoliton Permit Paid to City Dev Center $ Demoliton Cost paid to Peninsula Demoltion $14, Total $80, $555, Balance in the Account $474, City's Proceed (City's Ownership Equity Percentage 56.8) $269, Frank Benest proceed (Frank Benest's Ownership Equity Percentage 43.2%) $205, Cost Center (for deposits) Account Jon Crase construction Inc (invocie Number 11462) (was paid by State Farm) $ Serve Pro (check number J) (was paid by State Farm) $6,065.23

6 ATTACHMENT A *All expenses/payments in the total amount of $80, were paid from revenue lines 1 through 4. Total Payments including two payments that were paid dircly by State Farm $562, Total expenses including two invoices that were paid dircly by State Farm $87, Net Proceed to be Divided between Mr. Benest and CPA $474,871.10

7 Settlement Date: March 18, 2016 Disbursement Date: March 18, 2016 Chicago Title Company 917 Alma St., Palo Alto, CA Phone: (650) FAX: (650) FINAL SELLER'S STATEMENT Buyer: The Qimera Trust U/T/D June 16, 2004 Escrow Number: CSC-2989-FWPS Escrow Officer: Tobi Langford Seller: The Survivor's Trust, established under the Benest and Grady Family Trust UTA dated 11/13/ Bryant Street Palo Alto, CA Seller: The Decedent's Trust, established under the Benest and Grady Family Trust UTA dated 11/13/ Bryant Street Palo Alto, CA Seller: The City of Palo Alto 250 Hamilton Avenue, 4th Floor Palo Alto, CA Property: 2257 Bryant Street Palo Alto, CA Parcel ID(s): ATTACHMENT B $ DEBITS $ CREDITS FINANCIAL CONSIDERATION Sale Price of Property 2,700, PRORATIONS/ADJUSTMENTS County Taxes/ at $8, /18/16 to 07/01/16 ($8, / 180 X 103 days) 5, COMMISSIONS Commission - Listing Agent Dreyfus Sotheby's International Realty 60, % = $60, Commission - Selling Agent Alain Pinel Realtors 67, % = $67, TITLE & ESCROW CHARGES Title - Escrow Fee Chicago Title Company 1, Title - Notary Janine Dietiker Title - Special Courier Fee Chicago Title Company Title - Mobile Signing Service Rhett Butler Title - Owner's Title Insurance Chicago Title Company 4, Policies to be issued: Owners Policy Coverage: $2,700, Premium: $4, Version: ALTA Homeowner's Policy of Title Insurance 2013 RECORDING CHARGES Santa Clara County Transfer Tax ($2,970.00) Chicago Title Company 2, Palo Alto City Transfer Tax ($8,910.00) Chicago Title Company 4, PAYOFFS Payoff of First Mortgage Loan City of Palo Alto ($325,631.42) Principal Balance 325, Additional Interest (From 03/01/16 To $ Per Diem) MISCELLANEOUS CHARGES Natural Hazard Diclosure JCP-LGS Natural Hazard Disclosures Seller Proceeds 56.80% The City of Palo Alto 1,455, Seller Proceeds 8.748% The Survivor's Trust, established under the Benest 158, Seller Proceeds % The Decedent's Trust, established under the Benest 623, Subtotals 2,705, ,705, TOTALS 2,705, ,705, CERTIFIED COPY Page 1 of 2 (FWPS /54) March 18, :16 PM P

8 ATTACHMENT B FINAL SELLER'S STATEMENT - Continued THIS IS A CERTIFIED COPY OF THE ORIGINAL DOCUMENT(S) BY CHICAGO TITLE COMPANY Chicago Title Company, Settlement Agent SAVE THIS STATEMENT FOR INCOME TAX PURPOSES CERTIFIED COPY Page 2 of 2 (FWPS /54) March 18, :16 PM P