The project site is located on Monte Verde Street 2, northeast of 7th Avenue in the Residential and Limited Commercial (RC) District. The existing hotel is known as L’ Auberge Carmel. It is a three-story, wood-framed hotel surrounding an open interior courtyard, designed by architect Albert Farr in the Medieval Revival style and constructed circa 1930 by M.J. Murphy.
A Department of Parks and Recreation (DPR) Form 523A was completed for the property in 2002 by Kent L. Seavey (Attachment 1, Exhibit B), and the property was added to the Carmel Inventory on May 25, 2005. A Resolution Designating a Historic Resource for the “Sundial Lodge” was recorded with the County Recorder on October 19, 2006 (Document #2006092967).
On July 2, 2021, on behalf of Esperanza Carmel Commercial, LLC, David Fink applied for a Mills Act Historical Property Contract. The Mills Act is an incentive program for owners of historic resources listed on the Carmel Inventory and the local Register of Historic Resources. The property was placed on the local register on September 15, 2003, and the local inventory on May 25, 2005.
On January 24, 2022, the Historic Resources Board adopted Resolution 2022-001-HRB (Attachment 2), recommending that the City Council enter into a Mills Act Contract with Esperanza Carmel Commercial, LLC for the historic “Sundial Lodge” property.
Contract Value
The Monterey County Assessor’s Office determines the value of a property under Mills Act Contract in accordance with sections 439 through 439.4 of the Revenue and Taxation Code. Properties with a Mills Act Contract are not valued based on sales data but by a prescribed income capitalization method (Attachment 3). After the City Council approves a Contract, it is forwarded to the Monterey County Assessor, who determines the Mills Act value.
On March 1, 2022, the Mills Act contract application for L'Auberge Carmel was presented to the City Council with a recommendation to adopt Resolution 2022-024 and enter into a Mills Act contract. Government Code Section 36936 requires three yes votes to adopt a resolution. The mayor and one council member were recused from the item, requiring the three remaining Councilmembers to vote in the affirmative to pass the Resolution.
During deliberations, concerns were raised regarding the tax implications of entering into the contract, and on a motion to adopt the Resolution, the motion failed by a 2-1 vote. Staff was directed to return to the Council for reconsideration without a Resolution.
Members of the Council also requested that staff obtain a preliminary calculation of Mills Act Contract value to understand the potential local tax revenue offset. The Assessor’s Office typically does not provide preliminary amounts, but in this case, agreed to give an estimate if staff could provide recent income information for the business.
On August 2, 2022, Staff returned to the City Council without a Resolution and without a preliminary calculation of the Mills Act Contract value. At the meeting, the applicant, Mr. Fink, requested that the City Council continue the item to give him additional time to work with the County on a preliminary calculation. Staff returned to the City Council on December 6, 2022 and the item was again continued.
Staff discussed the Council's request for additional information on numerous occasions with Mr. Fink and also researched the formula for the calculation and provided this information to the Council. If the Council is unable to find that approval of the contract represents an equitable balance of public and private interests and will not result in a substantial adverse financial impact to the City, the Council could deny the request. Staff is bringing forward the recommendation of the Historic Resources Board to approve the request.
STAFF ANALYSIS
A Mills Act contract under State law is an agreement between the City of Carmel and a property owner of an historic building listed on the Carmel Register. The property owner benefits from a reduction in property taxes, and the City is assured that the historic building is rehabilitated, maintained and preserved. All Mills Act contracts shall be established, processed and approved in conformance with California law. The primary purpose for offering Mills Act contracts in the City of Carmel-by-the-Sea is to assist in the rehabilitation or restoration and long-term maintenance of historic resources.
All properties listed on the City’s Historic Register in all districts that have been, and will be, preserved in their historic size, form and design without significant alterations or additions are eligible for Mills Act contracts.
All Mills Act contracts shall have a term of 10 years and one year shall be added to this term annually upon each anniversary date of the contract unless one or both parties have taken action to terminate the contract. The City Administrator shall be authorized to initiate contract termination on behalf of the City based on recommendations of the Department. The contract rights and obligations are binding upon all successive owners of the property during the life of the contract. The property retains the lower Mills Act tax rate when the property is sold. To end a contract, either party may submit a notice of nonrenewal to the other party. Such notices shall cause the contract to terminate at the end of the then-current 10-year contract period. Cancellation of a contract by the City due to noncompliance requires a public hearing and, if cancelled, results in the immediate termination of the contract and a penalty equal to 12.5 percent of the assessed market value of the property.
The contract will require that the historic elements of the property are maintained in good condition. This will include a plan for rehabilitation and maintenance and may include a program to restore deteriorated elements. All recipients of Mills Act contracts are required to implement a rehabilitation/restoration and maintenance plan prepared by a qualified professional and to submit an annual report to the Department specifying all work that has been done to maintain and preserve the historic resource over the year in compliance with the approved rehabilitation/restoration and maintenance plan. All rehabilitation/restoration and maintenance work shall be completed in conformance with the Secretary of Interior’s Standards for Rehabilitation. All Mills Act contracts shall specify that the rehabilitation/restoration and maintenance plan shall be updated at least every 10 years by a qualified professional and approved by both parties.
One of the duties and powers of the Historic Resources Board is to advise the City Council on proposed Mils Act contracts. On January 24, 2022, the Historic Resources Board adopted Resolution 2022-001-HRB (refer to Attachment 2), recommending that the City Council enter into a Mills Act Contract with Esperanza Carmel Commercial, LLC for the historic “Sundial Lodge” property.
The City Council considers the recommendation from the Historic Resources Board at a public hearing and resolves to approve, approve with conditions, or deny the proposed contract with sufficient time for action by the City Clerk so that recordation of approved contracts occurs before December 31st of the year in which the application is received.
To approve a Mills Act contract, both the Historic Resources Board and the City Council must make all of the following findings:
i. The building is designated a historic resource by the City and is listed on the Carmel Register.
Staff Response: The property was designated as a historical resource on May 25, 2005, and a Resolution was recorded with Monterey County on October 19, 2006. According to a September 15, 2003 staff report to the Historic Preservation Committee, the property was voluntarily placed on the local historic inventory by then-owner Auberge Carmel, LLC, represented by Mr. David Fink. The application meets this finding.
ii. The proposed rehabilitation/restoration and maintenance plan is appropriate in scope and sufficiently detailed long-term rehabilitation/restoration and maintenance. Required maintenance and rehabilitation should be more significant than just routine maintenance that would be expected for any property.
Staff Response: The proposed plan includes rehabilitation and maintenance activities that will protect the integrity of the resource by replacing aging infrastructures such as plumbing and heating, ventilation, and air conditioning systems and repairing character-defining features such as the original wood windows. On-going maintenance activities include foundation inspections, roof maintenance, cleaning and inspecting all chimneys and flues, and termite testing. All exterior modifications are subject to Design Review approval and a determination of consistency with the Secretary’s Standards. Therefore, the application meets this finding.
iii. Alterations to the historic resource have been in the past, and will continue to be in the future, limited to interior work and to exterior rehabilitation and alterations that:
(A) Comply with the Secretary’s Standards (future additions only); and
(B) Do not significantly alter, damage or diminish any primary elevation or character-defining feature; and
(C) Do not increase floor area on the property by more than 15 percent beyond
the amount established in the documented original or historic design of the resource; and
(D) Do not result in any second-story addition to a single-story historic resource.
Staff Response: After purchasing the property in 2002, Mr. Fink applied to the City to remodel the hotel. The renovation was reviewed by Ms. Sheila McElroy of Circa: History Property Development for consistency with the Secretary of the Interior’s Standards for the Treatment of Historic Properties. The renovation was consistent with the Secretary’s Standards by the Historic Preservation Committee and did not include any increase in floor area. The hotel’s primary elevation and character-defining features were preserved, and the Planning Commission approved the project. The application meets this finding.
iv. The Mills Act contract will aid in offsetting the costs of rehabilitating and maintaining the historic resource.
Staff Response: Construction was completed on the hotel circa 1930 and renovated 20 years ago. A rehabilitation and maintenance plan prepared by Mr. Christopher Barlow, AIA, EDAC, LEED AP, NCARB, with input from historic preservation professional Mr. Kent Seavey, proposes the following rehabilitation work: replace existing plumbing throughout the building; replace the existing heating, ventilation, and air conditioning systems; repair and rehabilitate existing windows for thermal performance; and, repair and replacement of insulation. Proposed maintenance activities include foundation inspections and repairs; exterior paint; roof maintenance; cleaning, inspecting, and repairing chimneys and flues; and termite testing/treatment (refer to Attachment 1, Exhibit C). The total cost of rehabilitation and maintenance is estimated to be $850,000 over the next ten years. The savings in property taxes would aid in offsetting these costs. The application meets this finding.
v. Approval of the Mills Act contract will represent an equitable balance of public and private interests and will not result in a substantial adverse financial impact on the City.
Staff Response: Approval of the Mills Act Contract would be consistent with Goal 1-5 and Objective 1-16 of the Land Use & Community Character Element of the General Plan, which encourages providing incentives for property owners to preserve and rehabilitate historic resources. Although the adoption of a Mills Act Contract would decrease property tax revenue to the City, the financial impact would be minimal because:
1) The City Council adopted Resolution 2016-068 on September 13, 2016, limiting the number of Mills Act Contracts approved to fifteen (15) in three calendar years. On March 3, 2020, the Council reviewed the policy and determined that 15 contracts over 3 calendar years remained appropriate. During calendar years 2020-2022, a total of four (4) Mills Act contracts were approved.
2) Carmel currently has +283 historic resources. Since the adoption of the Mills Act program in 2004, the City has entered into a total of fourteen (14) Mills Act Contracts.
3) The City would continue to receive a portion of the property tax revenue. Additionally, the investment in rehabilitation and maintenance of the historic hotel would further support local tourism, which benefits both private and public interests.
4) The value of preserving the historic hotel offsets the loss of property tax revenue.