HomeMy WebLinkAbout10 INTERIM LEASE MCAS 06-03-02AGENDA REPORT
NO. 10
06-03-02
TO:
FROM:
SUBJECT:
WILLIAM A. HUSTON, CITY MANAGER
REDEVELOPMENT AGENCY STAFF
POTENTIAL FOR INTERIM LEASE ACTIVITIES AT MCAS TUSTIN
SUMMARY
The Department of the Navy has recently conveyed or leased to the City of Tustin
approximately 1,153 acres of property at the former Marine Corps Air Station (MCAS)
Tustin. Councilman Doyle has requested that staff provide a report regarding the
potential for possible leasing of the subject property.
RECOMMENDATION
Pleasure of the Council
FISCAL IMPACT
The fiscal impacts of specific leases would be determined in the future as they are
reviewed and approved by the City Council.
BACKGROUND/DISCUSSION
Councilman Doyle has recently requested that staff investigate and report on the
possibility of pursuing interim leasing opportunities at the former base. The following
information is provided in response to his request.
On May 14, 2002, the Department of Navy executed an Agreement with the City of
Tustin for approval of an Economic Development Conveyance (EDC) transferring
approximately 977 acres of property at the former Marine Corps Air Station (MCAS)
Tustin to the City by deed and an additional 176 acres by a Lease in Furtherance of
Conveyance (LIFOC) (see Exhibit 1 and Exhibit 2). The Agreement also provides for
the following:
1. An additional ten acres of property might be conveyed to the City in the future,
subject to certain additional conditions being met (withdrawal of the site by the County
of Orange as a public benefit conveyance).
2. Certain portions of the site will need to be subsequently conveyed by the City to
other agencies including the South Orange County Community College District, the
Rancho Santiago Community College District and the Santa Ana Unified School District
(in the event the District accepts a proposed 22 acre school site). Approximately 101.8
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Interim Leasing, MCAS Tustin
June 3, 2002
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acres of property within the Learning Village at the former MCAS Tustin are affected by
this condition. A Finding of Suitability to Transfer has been issued and deed recorded
by the Navy on approximately 68 acres of this property which makes it now ready for
conveyance by the City and approximately 33 acres has been leased by the Navy and
will need to be subleased at no cost to the ultimate recipients pending completion of
environmental remediation and issuance of a Finding of Suitability to Transfer for the
property by the Navy. Both deeded and leased property subject to this condition include
a large number of buildings available for reuse at the former MCAS Tustin. Kutak Rock,
the City's special legal counsel is currently preparing all required legal documents for
conveyance and subleasing to the applicable public agencies.
In addition to the above conditions, there are also other portions of the acquired
property that is reserved for other public uses including but not limited to Tustin park
sites, proposed TUSD school sites, a Tustin child care facility, and required future
backbone arterial highway right-of-way. These areas need to be reserved for their
intended uses.
In considering any future leasing activities discussed in this agenda report, it should
be noted that the recently executed Settlement Agreement between the City and the
Santa Ana Unified School District (SAUSD) would require the City of Tustin to enter
into a letter of credit by August 15, 2002 to secure up to a $60 million dollar obligation
to the SAUSD. Since discussions with lenders are currently underway, the City does
not yet know what specific terms and conditions of such negotiation might preclude
certain encumbrances of property in the future. The City Attorney has, therefore,
recommended that no encumbrances be entered into until after a final letter of credit
has been issued. In addition, to ensure that costs to the City are minimized in
potentially having to draw on any future letter of credit, the City will need to focus on
selling enough property quickly to satisfy our financial obligations to SAUSD under the
Settlement Agreement, which could be as high as $60 million. Whatever the City does
on an interim basis should not in any way complicate the City's need to sell property as
expeditiously as possible. There is concern that certain interim uses could make it take
longer to sell the property and the City would not want to be marketing the site with any
constraining encumbrances.
The property recently acquired from the Navy contains approximately 278 family
housing units, military buildings including the southerly Blimp Hangar 2 ( outside of the
Learning Village), all of the existing utility systems, tarmac and runway areas and
vacant land. The subject property, buildings and facilities provide the City of Tustin
with a unique opportunity to facilitate and guide rapid private economic redevelopment
and job creation at the property. MCAS Tustin is the last large undeveloped parcel of
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Interim Leasing, MCAS Tustin
June 3, 2002
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land in central Orange County. The City's Business Plan calls for the City of Tustin to
rapidly market and transfer its acquired property to private developers who will assume
the City's current property management responsibilities, expenses and liability
exposure. Therefore, long-term leasing would not be consistent with the goals of rapid
marketing and early property disposal.
In the event that the City Council wishes to proceed with at least some interim leasing of
the property or its buildings/facilities, there may be specific instances in which
revenues could be generated to offset a portion of the City's current property
management costs. However, so as not to detract from marketing property for sale at
the base additional costs for staff and marketing support, lease management,
supervision and financial accounting.
The following narrative discusses the opportunities and considerations associated with
interim leasing of certain of portions of the property.
Family Housing Area (referred to by the Marfne Corps as "lrvine Park North") - A
36.4-acre military family housing area has been acquired near the southwesterly
corner of Edinger Avenue and Harvard Avenue. The property contains 278 2-
bedroom, 1-bath "flat" units built as 4-plex and 6-plex structures between 1979 and
1982. It is generally known that these units were the least desirable to the Marine
Corps families stationed at MCAS Tustin due their extremely poor design, lack of
amenities and privacy, etc. In fact, these units were the first to be vacated as MCAS
Tustin personnel and families began relocation to other bases in 1997, two years
prior to the final closure of MCAS Tustin on July 2, 1999.
Considerations:
In preparing the EDC Business Plan, the City's consultant team inspected this
housing area and determined that the housing units were significantly
dilapidated and could not be economically rehabilitated or reused without
prior significant aesthetic and structural upgrades. Current City of Tustin
development standards do not permit the interim reuse of these structures
and the housing must be demolished and reconstructed in a manner that
would be compatible with recently constructed residential neighborhoods in
Irvine and Tustin. Any interim occupancy of these units would introduce a
potential for the required aesthetic and structural improvements to be
deferred, expose residents to substandard housing conditions and harm the
City's ability to market, dispose and redevelop the site.
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Interim Leasing, MCAS Tustin
June 3, 2002
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II.
· Interim leasing of this housing could potentially expose the future developer
and/or the City with the requirement to pay significant relocation costs to
tenants prior to implementing reconstruction activities at the site (whenever a
disposition and development agreement results in displacement of current
tenants). These costs could exceed $15,000 per unit, potentially exposing
the City to relocation costs exceeding $4 million should all 278 units be
interim leased.
· Redevelopment goals for the site could also be harmed if the interim-
occupied "affordable" housing is later required by the State to be retained or
reconstructed elsewhere to meet the Southern California Association of
Government's (SCAG) Regional Housing Needs Assessment (RHNA) goals
for the City of Tustin. Redevelopment of the site in accordance with the
approved Reuse Plan will ensure the development of unit types that provides
for the broadest range of affordability.
· Utilities serving this site have been placed into a caretaker status. Interim
leasing of the buildings would require the City of Tustin to reestablish utility
and other services to the site (gas, electric, water, sewer, sanitary sewage
and drainage services, exposing the City to significant liability and financial
risk. The City would also immediately assume additional police and fire
services exposing the City to additional general fund expenses.
Various Buildings/Structures - There are approximately 41 buildings outside of the
Learning Village (this does not include unusable sheds, shacks, with no-reuse
potential). The majority of these buildings were constructed between 1942 and 1991
and were originally designed to support a variety of military missions and purposes.
In preparing the EDC Business Plan, the City's consultant team inspected these
buildings and structures and determined that only two or three of the existing
buildings would likely be rehabilitated and reused by the private sector in a manner
consistent with the approved Reuse Plan. All of the remaining buildings were
determined incompatible with the Reuse Plan and planned for future demolition.
Due primarily to their intended military intent, most of the existing buildings at MCAS
Tustin have no potential for interim use. However, approximately 13 of the 41
miscellaneous buildings may have design features or floor area that could make
them suitable for possible interim leasing only (see Exhibit 3 and 4).
Considerations:
· Utilities serving a majority of the site acquired or leased from the Navy have
been placed into a caretaker status. Interim leasing of the buildings would
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Interim Leasing, MCAS Tustin
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require the City and/or tenant to re-establish utility and other services to the
site, a potentially costly requirement since existing utility metering is limited to
six or seven locations along the base's perimeter.
Several of the buildings located within property transferred to the City by deed
have deed restrictions that preclude any use until the City and/or lease
performs an asbestos survey and costly asbestos abatement prior to
occupancy.
Prior to any use or occupancy of Building 250 located within property
transferred by LIFOC an indoor-air assessment would be required including
obtaining Cai-EPA concurrence that no hazard exists prior to occupancy.
The southerly Blimp Hangar 2 (Building 29) has a friable asbestos condition,
with potential radioactive contamination (One room was used to store
instrument panel dials and other aircraft parts). Neither the Navy nor Cai EPA
believes that any contamination will be found to exist. However, use of the
room cannot occur until it is conclusively tested and released for occupancy
by the regulators.
The southerly Blimp Hangar 2 attracts significant user interest, but the City's
experience was that very little leasing activity occurs given the operational
expenses associated with leasing the facility. The City leased this building
from the Navy from 1997 to mid-1999 for a variety of purposes, but primarily
motion picture production (From the Earth to the Moon, The X-Files Movie,
Austin Powers, etc.). However, because the location is outside of "the Zone"
(a geographical area that Hollywood unions and studios have established
requiring production crews and actors to be housed during filming), the
hangar remained vacant for a majority of the time that the City leased the
building. City staff or property managers will be required to commit a
significant amount of time to showing this property to location scouts and
others who frequently fail to commit to a lease.
III. Agricultural Leases - Prior to transfer to the City of Tustin, approximately 530 acres
of land at MCAS Tustin had been leased by the military for agricultural purposes.
Most of the property leased for this purpose is located within the future Golf Village,
an area of the property planned for primarily residential reuse.
Considerations:
The majority of former agricultural areas at MCAS Tustin are located adjacent
to existing public streets and utilities, have been largely cleared for future use
by the environmental regulators and have the highest potential for immediate
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Interim Leasing, MCAS Tustin
June 3, 2002
Page 6
transfer and redevelopment. A portion of previous agricultural areas are also
now proposed for future roadway and utility right-of-ways.
· Water for irrigation is a requirement for leasing. Many of the previous
irrigation lines serving former agricultural areas at MCAS Tustin were
removed with the termination of previous leases at the facility and in order to
complete testing and certify property as suitable for transfer. Other portions of
the water system that served these areas and a majority of the site acquired
or leased from the Navy have since been placed into a caretaker status.
Interim leasing for agricultural uses would require the City and/or lease re-
establish water services any agricultural site, which could be potentially costly
since existing utility metering is limited to six or seven locations along the
base's perimeter.
· Agricultural tenants typically desire lease terms that extend through more
than one growing seasons. City staff contacted Kathy Nikes at the Orange
County Farm Bureau who indicated that it was her opinion that the minimum
term for a lease to be financially feasible would be for at least two years. The
leases that were recently executed at El Toro were for a three-year period.
· According to the Orange County Farm Bureau a competitive solicitation
process could result in lease rates in the range of $3,400 to 3,700 acre a
gross acre with all water expenses paid for by the leasehold interest. In
examining those portions of the former MCAS that might be considered for
interim leasing, it appears that there may be up to approximately 150 acres of
property (see Exhibit 5) that might be leased for agricultural purposes (the
existing agreement with the Navy would preclude removal of existing private
roads on the base until completion of remediation activities in LIFOC area and
the highest and most immediate areas ready for development should not be
leased). Assuming at least the minimum lease rates obtained at El Toro, the
lease of up to 150 acres could have a value of approximately $510,000
annually.
· The presence of tenants and leasees can produce a negative stigma when
marketing the property for sale. This stigma is amplified if it is known that the
existing tenants do not want to vacate the property.
· The prior agricultural tenant at MCAS Tustin refused to vacate the site when
asked by the Navy and attempted to use political connections to influence the
Navy's decision to terminate the agricultural lease. In addition, the prior
agricultural tenant hired an attorney who contacted the City, the Navy and the
State of California in opposition to the proposed elimination of agricultural
uses at the base also threatening litigation.
· The prior agricultural tenant applied pesticides and herbicides on the property
in accordance with state law. However, the tenant also accidentally spilled a
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Interim Leasing, MCAS Tustin
June 3, 2002
Page 7
hazardous amount of these chemicals at the site requiring the Navy to
remove and remediate pesticide/herbicide-contaminated soil so that the
property could be reused for residential purposes. Reintroduction of an
agricultural lease could reintroduce these chemicals to the site which would
jeopardize the property's current "clean" status (a loss of the Navy's
guarantee that the property was cleaned and the Section 330 indemnification
under the Defense Authorization Act), potentially require the City to become
responsible for remediation of the new contamination at the site, and pose
future liability risks to the City following property transfer and redevelopment
where residential reuses are particularly proposed.
IV. Other Interim Uses - Private entities have also requested interim use of MCAS
Tustin property for other short term events and activities including: Automobile test
drives, swap meets, recreation vehicle storage, trash container storage, Christmas
tree sales, car races, etc. One or two day events can be accommodated with little
risk to the City of Tustin by utilizing the City's current temporary use procedures
which would require event/show coordinators to be held responsible for the provision
of utilities, security, traffic control, restroom facilities, clean-up, etc. However, there
are issues related to longer-term leasing for storage of Recreational Vehicles, trash
container storage, etc., that should be considered.
Considerations:
· The use of MCAS Tustin for storage lots may harm the City's interest and
ability to effectively market and dispose of the property. The existence of
these types of tenants can create a negative stigma to the development
community interested in redeveloping the property. Tenants may fight the
termination of their lease. For example, recreational vehicle (RV) storage has
been supported at MCAS El Toro. With the termination of the lease and
reversion of El Toro to the Navy, many RV owners are working aggressively
and politically to prevent the termination of the storage lease. Regardless of
the terms of the lease (30-day, 6-month, etc.), it can be expected that such
tenants will fight lease termination at MC^S Tustin if such activities are
permitted.
· Most outdoor storage activities cannot be screened from view. During the
next several months, staff will be aggressively marketing the EDC property
which will require several open houses and tours of the base property.
Outdoor storage can create an attractive nuisance that could harm the
marketing and potential value of the property.
William A. Huston
Interim Leasing, MCAS Tustin
June 3, 2002
Page 8
V. Other Revenue Opportunities- A considerable amount of personal property has
been conveyed to the City under a Bill of Sale and in conjunction with the Navy
transaction. These include things like refrigerators and stoves in the 278 residential
units. Staff have already begun the task of inventorying this equipment and
furnishings and will be offering property for sale which is not necessary for reuse to
generate revenue
CONCLUSION
As discussed above, it has been recommended by the City Attorney that the City not
actually proceed with any leasing until a letter of credit is secured pursuant to the
SAUSD Agreement. Once there are no known constraints to proceeding with any
encumbrances of the property, staff believes that limited short-term interim use of the
property can be accommodated at MCAS Tustin. Besides any potential revenues, there
will be expenses that will be necessary for lease management, supervision and
financial accounting. Based on any direction provided by the City Council, staff will
return with a preliminary business plan to estimate the costs of staff, marketing support
and lease management expenses related to any desired interim leasing. However,
long-term interim leases and uses inconsistent with the approved Reuse Plan should
not be supported.
Christine Shingleton ////
Assistant City Managbr'
Dana Ogdon
Program Manager
RDA\ccreportVncaslease.doc
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Exhibit 3
Potential Leaseable Buildings
Year Future
Bldg# Type Sq Ft Built Disposition Reuse Restrictions
ACM~LBP2
29 Hanger 298,108 1942 LIFOC C/C HIST3,
RADIO4
176 Office/Classroom 9,242 1967 Deed C/B ACM~, LBP2
190 Hangar/Ind. 42,818 1970 LIFOC C/B LBP2
212 Warehouse 3,700 1972 LiFOC C/B None
250 Warehouse 66,976 1984 LIFOC C/B Indoor-Air5
251/252 Industrial 24,400 1984 LIFOC C/C None
520 Hangar 66,289 1989 Deed C/B None
525 Hangar 44,454 1987 Deed C/B ACM°
528 Office 4,935 1988 Deed C/B None
529 Warehouse 15,000 1988 Deed C/B None
530 Industrial 5,029 1988 Deed C/B None
537 Industrial 35,717 1988 Deed C/B ACM°
568 Office 19,680 1991 Deed COM None7
Acronyms:
Note: Building 568 will be used by the City's caretaker/property management contractor
LIFOC - Lease in Furtherance of Conveyance
C/B - Commercial Business
ACM - Asbestos Containing Material
LBP - Lead Based Paint
HIST - Historical Resource
RADIO - Radiological
Indoor Air - Potentially harmful fumes from groundwater contamination
C/C - Community Core
C/B - Commercial Business
COM - Commercial
Asbestos survey completed--friable asbestos found and must be mitigated prior to occupancy.
Hazard disclosed, residential use/child occupancy prohibited.
Historic site - Property governed by Section 106 Memorandum of Agreement requirements.
Radiological - Radiological testing must be completed and occupancy approved by Navy/regulators.
Potential toxic fumes from groundwater contamination. Testing must occur and occupancy must be
approved by Navy/regulators.
Asbestos survey not yet completed. Potential requirement for remediation.
Identified for interim use by City caretaker contractor staff.
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