CITY OF CARMEL-BY-THE-SEA

CITY COUNCIL
Staff Report

September 11, 2018

ORDERS OF BUSINESS

TO: Honorable Mayor and City Council Members

SUBMITTED BY: Sharon Friedrichsen, Director of Budget and Contracts

APPROVED BY: Chip Rerig, City Administrator

Receive an Update on the Residential Curator and Ground Lease Options Regarding
the Use of the Flanders Mansion, Provide Direction to Staff on these Options and
SUBJECT: Consider the Adoption of Resolution 2018-089, Endorsing a Long-Term Curatorship for
the Flanders Mansion

RECOMMENDATION:
Receive an update on the residential curator and ground lease options regarding the use of the Flanders
Mansion, provide direction to staff on these options and consider the adoption of Resolution 2018-089,
Endorsing a Long-Term Curatorship for the Flanders Mansion
BACKGROUND/SUMMARY:
Council received a report regarding potential options for the use of the Flanders Mansion during its January 9,
2018 meeting and provided direction to staff to further explore the concepts of (1) using a residential curator to
restore the property and (2) selling the house and concurrently entering into a ground lease (an option under
which the City would retain ownership of the land, but not the building). The purpose of this staff report is to
provide Council with a summary of the process each option would require, including environmental review; to
receive direction from Council regarding the options and to receive authorization from Council to issue a
Request for Proposals for a curator for the Flanders Mansion.

Option: Residential Curatorship

Definition/Summary of Option: A curatorship is a public-private partnership between an individual(s) or an

organization whereby the private party donates its time and financial resources to rehabilitate, restore and
maintain a historic building on a public entity’s property in exchange for the long-term use of the building tax and
rent free. If a typical residential curator model is applied to this particular situation, then a prospective curator
(individual or organization) would enter into an agreement with the City to rehabilitate, restore and maintain the
Flanders Mansion property (building and land) at the curator’s expense and in accordance with preservation
guidelines, in exchange for the long-term use of the Mansion as a single-family residence free of rent.

Considerations:To aid Council deliberations, staff has included a summary of some of the benefits and
challenges associated with the curatorship model. One of the primary benefits of the curatorship model is that it
is the curator who incurs the cost of rehabilitation and historic renovation, and the City’s outlay for maintenance
and repair is mitigated. Upon the conclusion of the initial curatorship term, the City would regain possession and
the right to use the property in its rehabilitated state. During the term of the curatorship, the City would retain
ownership of both the Mansion and the land, thereby ensuring public access to the Mission Trail Nature
Preserve and preserving the City’s long-term options regarding the property. However, the City would forgoe
the revenue that could be generated through a sale or a lease that requires the payment of rent. This model is
not common in California and requires more ongoing involvement by the City in working with, and monitoring the
progress of, the curator; however, a curatorship approach also presents a unique opportunity for a partnership
related to the curator serving as a public docent.

Curatorship Criteria and Requirements: Staff has reviewed the residential curatorship model used in various
states. In the curatorship model, the public entity seeks people or organizations that are committed to historic
preservation and that want to live in a historic house, typically on parkland, and have the skills, knowledge,
interest and financial means to undertake the restoration within a specific timeframe. Some common features of
the curatorship include:

The restoration must follow the US Secretary of Interior’s Standards for Rehabilitation and Guidelines for
Rehabilitating Historic Buildings.

The curator typical does not pay rent. (In one model, the State does collect an annual rent of one
dollar.) However, the curator is responsible for the cost of restoration and maintenance of the house and
grounds, including after the restroation is completed, and the cost of utilities, fees and taxes as applicable.

The curator develops a Restoration Work Plan and Schedule that details the specific tasks to be
performed each year, the estimated cost of the work and the manner in which the work will be performed
(i.e. by the curator or by contractor).

The typical timeline for completion of the restoration is either five or seven years. Some states set a
minimum dollar amount of investment for the restoration work.

The curator documents all work performed through photographs or video, maintains records of funds
expended and the time/labor invested and submits an annual report to the public entity. The public entity
also conducts inspections.

Once the restoration is completed, the public is provided access to view the restoration either in person
and/or through other means. Public access visits range from one to five times a year depending on the
state.

The term of the curatorship is typically until the death or resignation of the curator. There is no right to
transfer the curatorship to an heir or the ability to sublet. Occupancy is limited to the curator and the
curator’s immediate family.

The financial ability of the curator to undertake the restoration is assessed through personal financial
statements listing assets and liabilities, credit reports and/or tax returns. A background check is also
performed in some states.

The curator accepts property “as is”, carries insurance and indemnifies the public entity. The curatorship
agreement also includes default provisions.

City Process: Staff has outlined a summary of the process that is likely to be used, should the City Council
direct staff to pursue a residential curatorship for the Flanders Mansion. Upon initial review, it does not appear
that any specific California State law would govern a curatorship, as the nature of the relationship between the
curator and the City is different than a typical lease agreement. Staff therefore recommends the City use a
similar process as other states, which begins with the issuance of a Request for Proposals (RFP) to solicit
interest from prospective curators. The sequence of activities that the City would likely undertake include:

The City issues a Request for Proposals.

The City advertises the RFP.

The City receives proposals, evaluates based upon the RFP criteria, and further evaluates a prospective
curator(s) as needed.

The City negotiates a residential curator agreement with the selected curator.

The City works with the curator to have the curator’s Historic Preservation Plan approved by the Historic
Resources Board; issues permits and other approvals regarding upgrades to electrical, heating and
plumbing systems, seismic and structural work as applicable and historical preservation and restoration
work.

The City implements mitigation measures prior to occupancy and/or prior to permits being issued and
monitors other mitigation measures as applicable as described in greater detail below under “Other
Factors to Consider”.

The City monitors progress on restoration work including requiring the submittal of an annual report until
restoration work is completed.

RFP Criteria: If Council directs staff to issue a RFP, staff requires direction from Council regarding the criteria
to use, including some of the basic components, as follows:

1. Term

Typically, the term of a curatorship is based upon the lifespan or resignation of the curator. Council has the
option to: (1) set the term to run concurrently with the life of the curator, (2) specify a minimum or maximum
length for a curatorship or (3) allow the prospective curator to propose the duration of the curatorship.

Staff recommends that Council seek an initial curatorship term of 20 years, but also allow prospective curators
to propose alternative terms within their proposals.

2. Schedule for Completion of Restoration Plan

Based upon staff’s review of the curatorship model used by other states, the restoration schedule is typically
between five and seven years. Council has the ability to set the completion time for all required repairs and
restoration. Staff recommends a restoration schedule of five years. The restoration plan includes both repairs
and upgrades to critical systems as well as the historic preservation work. Both the proposed term (#1) and the
restoration plan schedule (#2) should be considered in tandem. For example, staff recommends a term of 20
years with a restoration schedule deadline of five years. This timeframe would allow a curator to live in the
Mansion for 15 years after the restoration work has been fully completed. (The curator would be required to
maintain the property in its fully restored state).

3. Minimum Investment Requirement for Restoration Plan

Some states set a minimum threshold for the required investment (restoration work) to be completed over the
course of the restoration plan schedule. Council has the option to include a dollar amount in an effort to help
assess the interest, financial viability and capability of a prospective curator as well as help prioritize the value or
type of work to be performed. However, a set dollar amount may also deter prospective curators or constrain
the flexibility of a prospective curator’s approach to implementing a restoration plan. Staff recommends a
minimum annual investment of $50,000.

4. Deadline for the submittal of proposals

Staff is also seeking direction from Council regarding the length of time to solicit proposals. Staff recommends
a submittal deadline of six weeks from the issuance of the RFP to allow for advertising to potential prospective
curators as well as time for prospective curators to develop their responses to the proposal.

RFP Submittal Requirements: Staff recommends that the RFP include the submittal of the following items by a
prospective curator:

1. Letter of Interest

a. The letter should state the prospective curator’s interest and objective for the restoration of the
Flanders Mansion and intended use of the property.

b. The resume or personal history statement should include all professional positions held regardless
of whether the positions are relevant to serving as a curator.

c. The materials should demonstrate the prospective curator’s experience in restoration, historical
preservation, labor trades, artisan skills or other experience that make the prospective curator an ideal
candidate for serving as the curator of the Flanders Mansion. The prospective curator may also include
the experience and qualifications of any consultants, contractor or other specialized tradesperson the
prospective curator intends to use as part of the restoration of the Flanders Mansion.

d. If the prospective curator has undertaken similar projects in the past, photographs and/or other
information regarding prior projects may also be submitted as part of the proposal.

2. Term of Curator

a. The prospective curator should indicate his/her willingness to accept a term of 20years.

b. The prospective curator may propose an alternative term for the curatorship and the rationale for the
proposed term.

3. Financial Statement

a. The prospective curator shall submit a personal financial statement using the attachment to the RFP.

b. The prospective curator shall submit a summary of a plan for financing if applicable.

4. Restoration Plan and Schedule

a. The prospective curator shall submit a detailed and itemized “task by task” breakdown of restoration
activities to be undertaken by the curator with cost estimates for each phase of the proposed restoration.
 b. The prospective curator shall identify which tasks will be accomplished in each year of the project.

c. The prospective curator shall identify the tasks that will be undertaken by the curator and the tasks
that will be the responsibilities of consultants, contractors or others.

d. The prospective curator shall include the cost breakdown for each task that includes the cost of
contract labor, materials and the estimated value of the curator’s labor (“sweat equity”).

5. Approach to facility use, mitigation measures and public access

a. The prospective curator shall describe how the proposed use of the facility aligns with the City's
objectives and integrates with the surroundings, including the Mission Trail Nature Preserve.

b. The prospective curator shall indicate he/she understands the mitigation measures and will cooperate
with the City to implement these measures. The prospective curator may include ideas and comments
regarding the approach to implementing the mitigation measures.

c. The prospective curator shall provide some conceptual ideas to allow public access to the restoration
once completed as well as ongoing access to the Preserve while minimizing the impact to the
neighborhood.

Evaluation Criteria: The RFP would also include the evaluation criteria that the City intends to use to help guide
its selection process for a prospective curator for the Flanders Mansion. Staff recommends that the evaluation
be based upon the following criteria:

1. The quality, applicability and level of specificity contained within the restoration plan; realistic cost estimates
and the feasibility of adhering to the plan’s schedule.

2. The financial ability of the prospective curator to complete the restoration plan within fiveyears.

3. The experience of the prospective curator(s) or their contractor(s) with historic preservation as provided
within the cover letter and resume.

4. The capacity of the prospective curator to perform based upon the plan’s schedule, the appropriateness
and ability of consultants and contractors to perform, and the ability of the prospective curator to manage the
project.

5. The prospective curator’s approach to the length of the curatorship, to addressing mitigation measures and
to facilitating public access to the house once restored and to the surrounding parkland.

Option: Sale and Ground Lease Hybrid Model

Unlike the curatorship approach, which includes a more qualitative evaluation of a prospective curator’s
proposal, the sale of the Mansion is more straightforward in terms of the selection process, as it is based on the
highest offer received to buy the house. However, the combination of selling the house and retaining the land
also has some specific challenges regarding the process, as explained below.

Definition/Summary of Option: A ground lease is a lease of (typically unimproved) land for a long period of time
(usually 50-99 years) so that the tenant may construct or improve buildings on the property. In this particular
application, the City would sell the Mansion and retain the land and then enter into a ground lease with the
homeowner for the use of the parcel as a single family residence. Typically, on expiration of the term of the
ground lease, ownership of the building would revert to the landlord.

Considerations: This option has some advantages when compared to a curatorship. By using this model, the
City can (temporarily) divest itself from the ownership of the Mansion. The would allow the City an opportunity to
earn one-time revenue from the sale of the Mansion and ongoing revenue from the lease of the land, while
avoiding maintenance and repair costs. However, the City would forfeit certain of its long-term options pertaining
to ownership and use of the Mansion. The retained ownership of the landwould help ensure public access to the
Preserve. However, if some of the current mitigation measures in place for a lease that pertain to public access,
such as additional parking, are extrapolated to the sale and ground lease option, then the measures are likely to
take time and be costly to implement. In addition, there may be a potential for disputes over responsibilities and
maintenance pertaining to the grounds (as compared to a curatorship in which the curator is responsible for both
the structure and the grounds). Moreover, there may be a limited market for homeowners that are willing, and
able to obtain financing, to buy the Mansion, but not own the land.

Sale and Ground Lease Criteria and Requirements: This option is a hybrid approach of a typical ground lease
and there are not many models to replicate, as most ground leases are used to develop or improve commercial
properties rather than improve an existing residential structure. One example that is most relevant however is
Stanford University in which the University owns the land and allows Stanford faculty and staff to purchase
homes and then upon their departure from Stanford resell the homes to other faculty and staff.

If the City elects to pursue a sale/ground lease scenario, the City would sell the Mansion on the open market,
accept the highest purchase price, and then enter into a ground lease with the purchaser of the Mansion for the
use of the land. Restrictive covenants would be contained in or recorded in connection with the deed, so that
both the historic preservation requirements and the obligation to continue to carry out any applicable mitigation
measures would perpetually runs with the land. These covenants would ensure that specific conditions are
transferred with the property in the event that the Mansion is re-sold.

City Process:The City must follow State law requirements pertaining to the sale of surplus properties. Staff, in
consultation with the City Attorney’s Office, have researched California State law and have determined that the
following statutorily required process would apply to the sale of the Mansion, even when the City still retains
ownership of the land.

First, the sale of the Mansion, would follow State requirements pertaing to the sale of buildings and sites as
outlined within Government Code §37420-37430. This process includes:

Adopting a resolution of finding and intention to sell the property.

Publishing the resolution at least once in a daily general newspaper.

The ability for any person to file a written protest of the proposed sale prior to final action by Council.

The ability for Council to proceed with the sale if no protests are recevied or if the Council overrules the
protest by a four-fifths vote of its members.

If four-fifths of the Council do not vote to complete the sale, Council may not take further steps calling for
the sale of the property for six months after final action unless Council first calls a special election on the
question.

The Council may adopt an ordinance calling and fixing the date of a special election at which the
proposition of sale of the property will be submitted to the City electors. If a majority of the votes is for the
 proposition, the Council may sell the property.

Second, the City would enter into a lease with the prospective homeowner for the use of the land, which would
trigger the lease requirements contained within Government Code §37380-37396. Government Code
§37380(a) that states “a city may lease property owned or held or controlled by it, or any of its departments, for
not to exceed 55 years.” However, per Government Code §37380(b), a city may lease property for a period
exceeding 55 years but not exceeding 99 years by:

Periodically reviewing the lease and taking current market conditions into consideration.

Authorizing a lease by ordinance adopted by the legislative body.

Holding a public hearing prior to the adoption of the ordinance.

Awarding the lease to the bidder, which, in determination of the legislative body, offers the greatest
economic return to the city, after competitive bidding conducting in a manner determined by the legislative
body.

In addition to these requirements, the sequence of activities that the City would likely undertake to pursue this
option include:

The City issues a Request for Proposals and selects a real estate agent.

The City obtains an appraisal of the property (structure and land).

The City and the real estate agent list the house and advertise.

The City receives an offer, negotiates and potentially counter offers, and then selects the best (highest)
offer.

The City negotiates the term of the ground lease.

The Council approves the ground lease agreement by adopting an ordinance.

The City prepares and records the lot line adjustment, conservation easement, ground lease agreement,
the historic preservation protective covenants (and possibly a rehabilitation agreement that requires the
homeowner to make improvements within a specified time frame).

The City works with the homeowner to have the homeowner’s Historic Preservation Plan approved by the
Historic Resources Board.

The City prepares environmental review documents and implements mitigation measures prior to
occupancy and/or prior to permits being issued and monitors other mitigation measures as applicable as
described in greater detail below under “Other Factors to Consider”.

Sale and Ground Lease Criteria: If Council directs staff to move forward with the sale and ground lease hybrid
option, staff requires direction from Council regarding some of the basic components of a ground lease,
including:

1. Term
In accordance with State law, Council has the option to determine the duration of a ground lease as long as the
term does not exceed 99 years. Staff recommends an initial ground lease term of 55 years, with an optional
renewal of 40 years. The challenge of this approach is trying to have the ground lease term align with the length
of the ownership of the home; however, if the Mansion is resold during that time frame and the purchaser is
sufficiently creditworthy, the City may consnet to an assignment of the ground lease to the new homeowner.

2. Rent

Under the curatorship model, the curator makes an investment to repair and restore the Mansion instead of
paying rent. The City retains ownership of both the Mansion and the land. As part of the sale and ground lease
option, the City still retains ownership of the land, and the parcel retains its tax exempt status in terms of property
taxes. This means the homeowner will pay taxes on the structure, but not on the value of the land. (However, the
homeowner, as a ground tenant, may be required to pay a possessory interest tax in lieu of real property taxes.)
Staff recommends that the City charge the homeowner for the use of the land.

The value of the land and potential rent and payment options is contingent on both an updated appraisal and
negotiations with the potential purchaser of the Mansion. However, Council may consider providing direction to
staff at this time regarding payment options so that staff may incorporate this into its marketing efforts related to
the sale of the Mansion. Council may consider the rent for the ground lease be either (1) paid in one lump sum
or (2) paid on a more frequent basis, such as annually.

When developing the criteria for a curatorship, the length of the curatorship is driven in part by the restoration
plan schedule completion timeline so that a curator has a reasonable return on investment, defined as the
amount of time to live in the Mansion after the restoration work is completed. Similarly, under a sale/ground
lease scenario the payment options are conditioned in part by the length of the ground lease. Should Council
seek a lease that is greater than 55 years, then, as required by State law, the lease must be periodically
reviewed and adjusted. If Council selects a term greater than 55 years, then staff recommends the adjustment
of rent be made on an annual basis.

Environmental Review: The 2012 Final Environmental Impact Report (FEIR) considered several project
alternatives, including the leasing of the property (Mansion and land) and the sale of the Mansion with various
parcel sizes. Staff, in consultation with the City Attorney’s Office, have reviewed the FEIR and have outlined the
environmental review process that a curatorship or a sale-lease hybrid would require.

The 2012 FEIR was certified and the associated Mitigation Monitoring Program was adopted for the lease
alternative only. In terms of the environmental review process, a curatorship could be considered a type of lease
and no additional environmental review is needed. However, should the Council choose to sell the Mansion
rather than lease it, the FEIR would have to be decertified and the associated resolution rescinded, becuase the
original certification was specific to the lease alternative only. The FEIR would have to be recertified for the sale
of the Mansion, which is subject to legal challenge. In addition to recertifying the FEIR, the City would also be
required to complete an addendum to address the sale-lease hybrid, because this was not identified as a project
alternative in the FEIR.

Environmental Mitigation: The 2012 FEIR included the adoption of a Mitigation Monitoring Program intended
to substantially lessen the environmental impacts associated with leasing the property. A similar Program was
not adopted for the sale of the Mansion, because the FEIR was certified for the lease option only. The
following is a bullet point summary of the requirements of the Mitigation Monitoring Program that must be
executed prior to signing the lease or occupying the Mansion:

In order to minimize potential impacts to the two (2) public viewing areas located adjacent to the Flanders
 Property, the City of Carmel-by-the-Sea shall provide additional trail access to these viewing locations
from either the Doolittle or Mesa Trails. Subject to the review and approval of the Forest and Beach
Commission.

In order to ensure the long-term preservation of existing scenic vistas within the Mission Trail Nature
Preserve and adjacent to the Flanders Mansion parcel, the City of Carmel-by-the-Sea shall permanently
preserve these locations through scenic deed restrictions or easements. The area of the scenic
easements shall include the adjacent meadow area located south/southwesterly from the Flanders
property as well as the two (2) viewing areas.

A historic preservation easement, or similar legally-binding document, shall be executed, requiring the
adherence to a comprehensive Preservation Plan for the Flanders Mansion historic resource consistent
with the Secretary of Interior’s Standards and the Carmel-by-the-Sea Municipal Code historic preservation
provisions. A Preservation Plan shall also be completed and approved by the Historic Resources Board
within 12 months of signing the lease.

Prior to the preparation of the comprehensive Preservation Plan, required by Mitigation 4.3-1, the City of
Carmel-by-the-Sea shall document the Flanders Mansion so that a record of the property as it exists today
is preserved. (Note: This was completed and reviewed by the Historic Resources Board.)

The City shall provide additional public parking to facilitate visitor access to the surrounding Preserve and
Arboretum. The parking area shall have at least three (3) parking spaces and shall be surfaced with
appropriate materials such as wood chips or other materials appropriate to the site. Subject to review of
the Forest and Beach Commission.

Although these mitigation measures are associated with a lease, the City does have some flexibility in its
implementation approach. For example, the City could require a prospective curator to allow public access to
the Preserve by allowing the use of the driveway for public parking as is the current practice. However, if the City
chooses to sell the Mansion rather than lease it, a new Mitigation Monitoring Program must be adopted along
with the recertified EIR. The mitigations for the sale of the Mansion would be very similar to what is required for
the lease. The City would likely need to implement any forthcoming mitigation measures prior to the sale as it
would have limited ability to condition the sale on such items as allowing the public to use a private driveway
public nor would potential homeowners be willing to pay fair market value with such conditions in place.

Recommendation: At this time, staff recommends Council pursue the curatorship model and direct staff to
issue a Request for Proposals for a curator. The City has received several inquiries regarding a potential
curatorship already and believes there is interest regarding this approach. In addition, the curatorship appears to
be less costly and time consuming to implement as compared to the sale and ground lease option.
FISCAL IMPACT:
There are fiscal impacts associated with both options. The curatorship approach initially appears to be less
expensive to implement, primary based upon potential costs for environmental mitigation measures and drafting
of environmental review documents. In addition to staff time, other costs include advertising and legal
assistance with any forthcoming negotiations and drafting of a curatorship agreement. The City would not
receive revenue under this model.

A sale and ground lease approach would include costs related to the sale, such as advertising, commission to
the real estate agent, potentially closing costs, escrow and fees and legal costs to draft restrictive covenants and
negotiate and draft a ground lease agreement. In addition, the sale with a ground lease option would incur costs
associated with the environmental review process. However, all of these costs would be offset by the receipt of
revenue from the sale of the Mansion and from rent through the ground lease if the City is successful in finding a
buyer.
PRIOR CITY COUNCIL ACTION:
Most recently, Council considered options regarding the use of Flanders Mansion on August 8, 2017, January 9,
2018 and August 7, 2018.
ATTACHMENTS:

Resolution No. 2018-089

 Attachment 1
CITY OF CARMEL-BY-THE-SEA
CITY COUNCIL

RESOLUTION NO. 2018-089

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA ENDORSING A LONG-

TERM CURATORSHIP FOR THE FLANDERS MANSION

WHEREAS, the City purchased the Flanders Mansion and surrounding property in 1972; and
WHEREAS, the City has a long history of trying to determine the best use of the Mansion; and
WHEREAS, the City Council certified the 2012 Final Environmental Impact Report on April 2, 2013 and
determined that the lease of the property for residential use would be the environmentally superior project; and
WHEREAS, the City issued a Request for Proposals for the long-term lease of the Mansion that
required a lessee to restore the Mansion and pay fair market rent; and
WHEREAS, the City was unsuccessful in entering into a lease agreement under these criteria; and
WHEREAS, the City Council wishes to explore the feasibility of a long-term curatorship whereby a
curator restores and cares for the Mansion in exchange for the long-term use of the property as a single-family
residence rent and tax free; and
WHEREAS, the issuance of a new Request for Proposals would provide an evaluation and selection
process for prospective curators in order to create a competitive bidding process and provide Council with a
process to select a curator and with the intent of entering into a curatorship agreement with a curator.
NOW THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF CARMEL-BY-
THE-SEA DOES HEREBY FINDS AND ORDERS THE FOLLOWING:
1. Endorses the concept of a long-term curatorship for the Flanders Mansion.
2. Authorizes City staff to issue a Request for Proposals for a curator for the Flanders Mansion.

PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA this
11th day of September, 2018 by the following roll call vote:

AYES: COUNCILMEMBERS:
NOES: COUNCILMEMBERS:
ABSENT: COUNCILMEMBERS:
ABSTAIN: COUNCILMEMBERS:

SIGNED: ATTEST:

___________________________________ ________________________
Steve G. Dallas, Mayor Thomas A. Graves, MMC
City Clerk