The subject Property consists of a vacant 10,883 square foot restaurant/banquet hall situated on an approximately 0.48 acre site adjacent to the Hyatt Regency Orange County in Garden Grove (Hyatt).  The Garden Grove Agency for Community Development (Agency) acquired the Property in 2010. Prior to that time, the Property had been the site of various restaurant and night club uses, such as Bella Marris and J.C. Fandango. These restaurants operated as both restaurants and bars that allowed separate subleases that promoted events that were inconsistent with the adjacent Hotel operations and generated a high number of service calls to the City’s Police Department.  The Agency marketed the property for sale, but was unable to find a desirable buyer due, in part, to a deficiency in available parking serving the site.

As part of the redevelopment dissolution process, in 2015, the Property was transferred to the City at no cost for future development.  Pursuant to a Compensation Agreement entered into between the City and the other taxing agencies, net proceeds from any sale of the Property must be remitted to the Orange County Auditor-Controller for distribution as property tax to all of the taxing agencies, including the City, the Garden Grove Unified School District, the County of Orange, the Orange County Sanitation District, and the Rancho Santiago Community College District.

The Property does not have parking on-site; however, there is a reciprocal parking agreement for 50 parking spaces located on the neighboring Hyatt parking lot.  Pursuant to the City’s Municipal Code, a total of 109 parking spaces would be required for operation of a stand-alone restaurant in the existing building on the Property.  As a result of this parking deficiency, it has been difficult to find a buyer for the Property, and the Property has sat vacant for over five (5) years.

In October 2015, Shanghai Construction Group America (SCG), parent company to the Buyer, purchased the Hyatt.  With the acquisition of the hotel, SCG has control of the adjacent parking for the Property.  On February 9, 2016, SCG/Investel Resorts, LLC submitted an offer to the City to purchase the Property.  Along with its offer, the proposed buyer provided an appraisal prepared by CBRE estimating the current fair market value of the Property to be $1,100,000.  The City retained Lidgard and Associates to conduct an independent review of the CBRE appraisal.  Lidgard and Associates concluded that the final estimate of market value of $1,100,000, as of January 12, 2016, is reasonably accurate and supported by the market data and analysis contained in the CBRE appraisal report.

Pursuant to the proposed PSA, the Buyer would pay the full appraised value of $1,100,000 for the Property.  The PSA provides for a thirty (30) day due diligence period and sixty (60) day outside closing date.

The Buyer plans to use the 10,883 square foot vacant restaurant as a private banquet facility and use it as overflow space during conferences at the Hyatt.  The Buyer anticipates that use of the Property in this manner will result in the creation of approximately 25 new jobs, increased food and beverage sales, and increased hotel room nights sold.  In addition, sale of the Property will result in its return to the Orange County tax roll and generate approximately $211,000 in annual property tax to the City. 

The net proceeds from the sale of the Property will be remitted to the Orange County Auditor-Controller and be disbursed among the City’s taxing entities in proportion to their respective property tax shares.

Based on their proportionate property tax share, Staff anticipates that approximately $211,000 from the net sale proceeds will be returned to the City and Garden Grove Sanitary District, with the remainder being distributed to the other taxing agencies.  Use of the Property in conjunction with operation of the Hyatt is also anticipated to generate additional property, sales and transient occupancy tax revenues to the City. 

Staff recommends that the City:

• Adopt the attached Resolution approving the attached Purchase and Sale Agreement and Joint Escrow Instructions between the City and Investel Harbor Resorts, LLC for the real property located at 12361 Chapman Avenue for the full appraised market value of $1,100,000; and

• Authorize the City Manager to execute the Purchase and Sale Agreement and all related pertinent documents on behalf of the City, including modifications if needed.