The City has received a request from Sunnyvale Community Services (SCS) for a loan of up to $2.5 million to use as a bridge loan for the purchase of a building as a permanent home for the agency. Staff is recommending that Council approve a loan with SCS for a time period not to exceed two years, with certain conditions that fully protect the City from loss of principal or interest earnings.

Sunnyvale Community Services currently occupies approximately 3,700 sq. ft. of space in the Sunnyvale Senior Center which has been provided to the agency free of charge by the City for over 20 years. Additionally, SCS has had the free use of approximately 4,000 sq. ft. in the Sunnyvale Town Center for storage of food and supplies for more than eight years. SCS must vacate its office in the Sunnyvale Senior Center when the existing lease runs out in June, 2003. Further, the Sunnyvale Town Center is in the process of being sold and will begin undergoing renovation in the near future, which will require the relocation of the storage area used by SCS. Therefore, SCS needs a new facility to house both its offices and food storage areas on an on-going basis.

To provide resources for SCS to obtain a permanent facility, a local corporation has donated a 3.26 parcel of land to the agency. It is anticipated that the agency will sell the donated parcel and use the funds to buy a building of adequate size in a location convenient to its clients. To save SCS the expenses involved in insurance, taxes, and security, the corporation will finalize the donation on the day the agency sells the land.

SCS is currently looking for a suitable building to buy as soon as possible for its permanent facility. It is to the agency’s advantage to buy a building now to take advantage of the high vacancy rate in commercial property that Silicon Valley is experiencing. SCS has a $400,000 Community Development Block Grant to use toward purchase of a building, but does not have cash to complete the land transaction until the donated property is sold. Since SCS currently does not hold title to the land parcel to be donated, it cannot borrow against it to complete the purchase. Because SCS cannot make an all-cash offer, the agency is at a disadvantage in the real estate market and has lost at least one suitable property to another all-cash bid.

The proposed City loan would provide SCS with interim cash to effect a purchase of suitable property until the donated land is sold. Monies from the land sale would be used to immediately pay off the City loan. Other terms of the proposed agreement include:

• The loan would be secured by a first deed of trust on the acquired property
• The loan would be up to $2.5 million, but not to exceed the purchase price of the property
• SCS would pay an interest rate equivalent to the City’s earnings rate on its pooled cash, calculated and compounded monthly. The interest could be deferred until the end of the loan term, but would have no pre-payment penalty.
• The maximum term of the loan would be two years, with the time beginning when the money is actually transferred for the sale.

These terms have been reviewed and agreed upon in concept by representatives of Sunnyvale Community Services.

Sunnyvale Community Services has provided an essential service to the citizens of Sunnyvale for many years, as evidenced by the City’s provision of free space and financial support. Staff is therefore recommending that Council approve the proposed loan with the conditions stated.

The proposed loan would be made from existing cash reserves of the General Fund. The terms of the loan have been structured to hold the City harmless from any financial loss of principal or interest earnings.

Public contact was made through posting of the Council agenda on the City's official notice bulletin board, posting of the agenda and report on the City's web page and the availability of the report in the Library and City Clerk's office.