FROM: Debby Cherney, Chief Executive Officer
Amy McInerny, Chief Financial Officer
SUBJECT: Transfer of Property from Hospitality Office, Inc. to SBCERA; Dissolution of Hospitality Office, Inc.
RECOMMENDATION:
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Recommend that the Board approve and adopt SBCERA Resolution No. 2025-2: Approve the Transfer of 348 W. Hospitality Lane to SBCERA, and the Dissolution of Hospitality Office, Inc.
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BACKGROUND:
In 2001, SBCERA entered into an agreement to purchase 348 W. Hospitality Lane, San Bernardino, California (the Building), with the intent to use the building as its principal offices. At that time, there were some concerns that about potential liabilities stemming from owning and operating the Building, and SBCERA elected to form a separate corporate entity for the purpose of holding the Building.
Hospitality Office, Inc. was incorporated in the State of Delaware on March 7, 2001; SBCERA is its sole shareholder. Until 2024, the San Bernardino County Assessor’s Office treated the property as exempt from property tax assessments. The Assessor changed that position in 2024, reversing its policy position on property tax exemptions available to subsidiaries of government agencies. The Building was therefore subject to property tax in 2024-25, although staff is continuing to work with the Assessor to reverse the tax and abate any penalties.
SBCERA has treated Hospitality Office, Inc. as an investment for purposes of its accounting records. Previously included as part of the American Realty Advisors (“ARA”) portfolio, the relationship with ARA was terminated by mutual agreement in 2021, and SBCERA took the primary responsibility for managing the corporation, with the assistance of an outside property management firm.
In the past five years, SBCERA has programmatically taken more responsibility for the management of the Building, as it now occupies substantially all of the building space, with the exception of a lease of first floor office space to the Children’s Fund. SBCERA has given notice to the property manager of its intent to terminate the existing contract, and will bear responsibility for property management responsibilities effective on July 1, 2025.
The practical impact of this transition will be to cease the current accounting treatment as part of SBCERA’s investment portfolio, cease paying rent to Hospitality Office, Inc., and incorporate the net revenues/expenses of the Building into SBCERA’s Annual Operating Budget.
Staff will make all the requisite filings to wind-up Hospitality Office, Inc., including filings with the State of Delaware, State of California, Internal Revenue Service, Franchise Tax Board, and San Bernardino County.
BUDGET IMPACT:
Costs for this item are included in the current year administrative and/or non-administrative budget.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Quality Employer and Workplace
Prudent Fiscal Management
STAFF CONTACT:
Debby Cherney
Amy McInerny
Joseph Michael
Barbara Hannah
ATTACHMENTS:
Exhibit A: [Proposed] Resolution to Approve the Transfer of 348 W. Hospitality Lane to SBCERA, and the Dissolution of Hospitality Office, Inc.