Subject
Council is being asked to consider issuing a letter of intent to dispose of 7.18 acres of city-owned property to Paradigm Compass, LLC for the purposes of developing a 65 unit senior living community.
Summary and Background
The Property: The property in question is part of the larger 20 acre “Green Property,” which was acquired for $420,000 in 2005 for the purposes of addressing temperature discharges from our wastewater effluent in to the Umatilla River. The theory was to land-apply all of our discharge in to open trenches on the property, which would allow it to percolate through the soil and cool down before reaching the Umatilla River, thus improving salmon survival. After running two tests of this concept on the property in 2006, the concept was deemed not viable, and the solution was abandoned.
At the time that the property was acquired, there was an owner-occupied single-family home, as well as two large shops/out-buildings on the property. All of those structures have been removed.
The property is zoned R-1 for low-density residential, is inside of the City Limits, is served by all necessary utilities, and is surrounded by properties outside of the City Limits.
Previous Council Action: The City Council, at it’s August 10, 2020 meeting, directed staff to advertise approximately 8 acres of the Green Property, at no cost, for development of senior housing while retaining approximately 12 acres for future municipal stormwater treatment, and approximately 4 acres for future public recreational access to the Umatilla River.
Justification: City Council’s 2020 Goal #2 focused on “Fiscal Prudence,” Goal #3 focused on expanding housing options, and Goal #4 focused on economic development. A comprehensive staff report outlined the justifications for this action, and is available for review here: https://hermiston.novusagenda.com/agendapublic/CoverSheet.aspx?ItemID=2365&MeetingID=342
In summary, the justifications were:
- Fiscal Prudence: Disposition of the property would liquidate currently non-value generating property.
- Fiscal Prudence: It was determined that this is a situation where the whole is worth less than the sum of the parts; particularly in the event of a pure public auction. It was determined that due to the condition of the property, an auction of the entire site was unlikely to recoup the City’s original investment of $420,000.
- Fiscal Prudence: It was determined that a wholesale auction of the entire site would not only generate relatively low immediate cash return, but that the high-bidder would most likely continue the existing rural residential ultra-low density development pattern in the vicinity, and generate very low property tax and utility fund revenues in the long run. This determination was validated by public comment given at the August 10 Council meeting of a desire by adjacent land owners to purchase the property at auction and subsequently de-annex it from City Limits.
- Fiscal Prudence: It was determined that the likely net revenue to the City after 20 years from an auction of the entire property, including land sale, property taxes, and utility fees, would not exceed $400,000 if the property remained in City Limits.
- Fiscal Prudence: It was determined that a strategic offer of 8 acres for free to a developer who could develop senior living facilities with total assessed valuation of $7 million, would generate nearly $3 million in net revenue to the City after 20 years accounting for a $0 sale price, $1.14M in City property taxes, and $1.8M in City utility user fees.
- Fiscal Prudence: It was determined that a strategic offer, as outlined, in generating $1.8M in utility fees over 20 years, would more than return the original principal value of $420,000 in Utility Funds used to acquire the property.
- Expanding Housing Options: It was determined that this proposal would directly lead to additional housing options within the community.
- Expanding Housing Options: It was determined that more dense infill of the NW quadrant of the City’s UGB is necessary for long-range community growth, and that a development like this will help stimulate more infill housing development in that quadrant.
- Economic Development: It was determined that this proposal was likely to generate gains in local healthcare employment at the site and elsewhere throughout the city.
- Economic Development: It was determined that this proposal would increase livability for working professionals in Hermiston & increase professional retention.
Alternatives: Prior to the August action to proceed with surplussing the property, it was determined that the property no longer held any value to the Recycled Water Department for future treatment processes, and that river access and future wetland/greenspace were appropriate uses for the property in conjunction with residential development.
Process: This opportunity was advertised to residential and commercial developers with current and recent developments within Hermiston, as well as through direct solicitations to all existing senior living providers in Hermiston, and to a network of regional and national senior living providers. Throughout the Fall, City Staff fielded significant inquiries from:
- Regional and National Real Estate Investment Trusts (REIT), who specialize in Assisted Living Facilities (ALF’s).
- Operators of existing ALF’s in Hermiston.
- Operators/Developers of subsidized multi-family housing facilities throughout the Pacific Northwest.
- Single-family home builders from across Oregon & Washington.
- Regional Non-Profit organizations operating various types of housing, including for residents with mental disabilities, as well as for housing veterans with combat-related injuries.
The City received proposals from Paradigm Compass, LLC, which is outlined in the attachments, as well as several other senior-living proposals; including from a current senior living operator in Hermiston. Those proposals were asked to more fully detail their proposals through November, December, and January. A review committee consisting of Councilor Spicerkuhn, Councilor Meyers, Planning Commission Member Jim Sheffield, City Manager Smith, Assistant City Manager Morgan, and City Planner Spencer reviewed the final submissions, and recommended that Council proceed to transfer the property to Paradigm Compass, LLC.
The City of Hermiston’s Land Use Attorneys at Schwabe-Williamson-Wyatt worked with City Staff and the developer to negotiate the enclosed Letter of Intent (LOI). The LOI establishes a basis for Paradigm to move forward in their due diligence and process with some certainty, and outlines a timeline to arrive at a final Disposition and Development Agreement (DDA).
The LOI does not transfer the property. The LOI clearly outlines that a final DDA will include “clawback” provisions that require the developer to construct senior housing within set timeframes. The LOI also clearly outlines that a final DDA will include a 25 year covenant that the property must remain operational as a senior housing operation, rather than converting in to apartments, or some other form of housing, during that timeframe.
Tie-In to Council Goals:
Fiscal Information
Approval of this LOI commits no City financial resources, but establishes a good-faith schedule toward transfer of 8 acres of the Green Property. Upon completion of a future DDA, it is projected that this transaction will result in roughly $3 million in net new revenue to the City over 20 years in the form of property tax and utility user fees.
Alternatives and Recommendation
Alternatives
- Issue the Letter of Intent to Paradigm Compass.
- Direct Staff to modify the language of the LOI prior to issuance to Paradigm Compass.
- Direct Staff to modify the language of the LOI and return to City Council for approval before issuance to Paradigm Compass.
- Direct Staff to terminate this process.
Recommendation
Approve Agreement
Requested Action/Motion
Motion to approve Agreement
Submitted By: Mark Morgan