REPORT TO COUNCIL
SUBJECT
Title
Approve a $4 million Contribution to Sunnyvale Community Services (“SCS”) and Authorize the City Manager to Execute and Administer an Equity Sharing Agreement Giving the City an Equity Share in Property Owned by SCS Located at 1160 Kern Avenue in Proportion to the $4 Million City Contribution
Report
BACKGROUND
Sunnyvale Community Services (“SCS”) is an independent, nonprofit emergency assistance agency, founded in 1970. Their mission is to prevent homelessness and hunger in our local community. The City and SCS have a long history of collaboration and provide services supporting vulnerable City residents.
In 2020, SCS purchased a building located at 1160 Kern Avenue for their new headquarters using several funding sources including a traditional bank loan. SCS identified a need to liquidate that loan to reduce exposure to the volatile banking and lending market, as well as free up operating cash to continue delivering services to the community. In Spring 2023, SCS and the City began discussing how the City might assist and in August 2023 agreed to an equity sharing agreement that would give the City an equity interest in the Kern Avenue property in proportion to the City contribution of $4 million. SCS would use the City funds to pay off the bank loan.
EXISTING POLICY
Council Policy 5.1.1 Socio-Economic
Goal 5.1G: Enhance the provision of health and social services to Sunnyvale residents by providing opportunities for the private marketplace to meet the heal and social service needs of City residents.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(4) in that it is a fiscal activity that does not involve any potential significant impact on the environment.
DISCUSSION
In exchange for $4 million, the City and SCS propose to enter into an Equity Sharing Agreement that would give the City an equity interest in SCS’ property on Kern Avenue in proportion to the amount of the contribution. This arrangement would be mutually beneficial, with the contribution helping SCS meet immediate cash flow and risk mitigation needs and the equity share proving the City security for its contribution. The key components of the agreement are:
- Required use of funds: SCS shall combine the City’s $4 million contribution with its own funds to pay off its existing loan no later than ninety days from the date of the contribution.
- Equity Share: The agreement gives the City a 16.19% proportional equity interest in the property, calculated based on the City’s $4 million contribution and the property’s current appraised value of $24.7 million.
- Required Use of the Property: SCS shall continuously use the property to provide substantially the same or greater services to vulnerable residents in Sunnyvale. SCS will not sell the property without the City’s written consent.
- No additional mortgages or liens: SCS shall not cause any additional liens or mortgages to be recorded against the property without written approval from the City Manager.
- Improvements: SCS may make capital improvements that increase the value of the building. With advance written agreement from the City Manager, such improvements totaling $25,000 or more may cause an adjustment to the equity share of each party on sale of the property.
- Delegates administrative authority to the City Manager: The agreement delegates all administrative and approval authority for issues occurring during the term of the agreement to the City Manager.
The proposed Equity Sharing Agreement is Attachment 1 to this report and staff recommends that the Council authorize the City Manager to execute it in substantially the same form as attached.
FISCAL IMPACT
With adoption of the FY 2023/24 Budget, Council authorized a General Fund appropriation of $4 million for Sunnyvale Community Services tenant improvements in Project 836470 - Sunnyvale Community Services Facility Financing Support.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the NOVA Workforce Services reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
ALTERNATIVES
1. Approve a $4 million Contribution to Sunnyvale Community Services (“SCS”) and Authorize the City Manager to Execute and Administer an Equity Sharing Agreement Giving the City an Equity Share in Property Owned by SCS Located at 1160 Kern Avenue in Proportion to the $4 Million City Contribution in substantially the same form as Attachment 1 to this report.
2. Do not approve a $4 million Contribution to Sunnyvale Community Services and do not authorize the Execution of the Equity Sharing Agreement.
RECOMMENDATION
Recommendation
Alternative 1: Approve a $4 million Contribution to Sunnyvale Community Services (“SCS”) and Authorize the City Manager to Execute and Administer an Equity Sharing Agreement Giving the City an Equity Share in Property Owned by SCS Located at 1160 Kern Avenue in Proportion to the $4 Million City Contribution in substantially the same form as Attachment 1 to the report.
Staff
Prepared by: Tim Kirby, Director of Finance
Reviewed by: Connie Verceles, Deputy City Manager
Reviewed by: Teri Silva, Assistant City Manager
Approved by: Kent Steffens, City Manager
ATTACHMENTS
1. Equity Sharing Agreement Between the City of Sunnyvale and Sunnyvale Community Services