Title
Public Hearing to Consider Introduction of Ordinance Amending the Encinal Terminals Master Plan and Development Agreement (Entered into by the City Council on February 1, 2022) to Modify Interim Milestones and Related / Conforming Amendments Pursuant to Alameda Municipal Code (AMC) Section 30-4 and Sections 30-91 Through 30-95. General Plan: Mixed Use. Zoning: M-X, Mixed Use.
California Environmental Quality Act (CEQA) Determination: Exempt - prior environmental review was conducted for the project and none of the circumstances necessitating further CEQA review are present. Amending the implementation timeline has no foreseeable effect on the environment. (Planning, Building and Transportation 20962710)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
Staff recommends that City Council conduct a public hearing and adopt an ordinance approving an amended Master Plan and Development Agreement for the Encinal Terminals site to extend the internal milestones for performing certain actions due to the current economic climate that makes implementation infeasible. The milestone extensions would be granted under two conditions: that steady progress be made on the formation of the project’s assessment district and that biannual written reports be submitted to the City of Alameda (City) tracking economic conditions. Without amendments to certain internal milestones, the Development Agreement will expire, which will trigger expiration of the Disposition and Development Agreement. The recommended modifications will not change the end date of the DA or the design or scope of the proposed development. It will only extend the milestones and ongoing monitoring requirements.
The developer’s application is attached as Exhibit 1, the Master Plan is attached as Exhibit 2, the First Amendment to Development Agreement is attached as Exhibit 3, the Tidelands Trust Exchange Diagram is attached as Exhibit 4 and the recorded 2022 Development Agreement is attached as Exhibit 5.
BACKGROUND
The Encinal Terminals site is a vacant site located at 1521 Buena Vista Avenue between the Alaska Basin and the Fortman Marina north of Clement Avenue. The site is located within the Northern Waterfront Priority Development Area (PDA), part of the Bay Area’s regional sustainability plan (Plan Bay Area), and the site is designated as a multifamily housing opportunity site in the City’s Housing Element.
The site is comprised of four parcels including land, wharfs, and water: three are owned by North Waterfront Cove, LLC (applicant) and one is owned by the City in trust for the State of California (Tidelands Property). The Tidelands Property is located in the middle of the site (Exhibit 4).
In 2018, the City approved a Master Plan to facilitate redevelopment of the property consistent with the General Plan and zoning designations. The Master Plan provided for public waterfront parks and promenades adjacent to the Oakland Estuary where no public access currently exists. Further, the Plan allowed for the conversion of the site, which was previously used for shipping container storage, to a transit-oriented, mixed-use development with market-rate and affordable deed-restricted housing opportunities, retail and maritime commercial job opportunities and services, and pedestrian, transit and bicycle facilities.
On February 1, 2022, City Council adopted the Encinal Terminals Tidelands Exchange Master Plan, Development Agreement (DA), and Disposition and Development Agreement (DDA) and Tidelands Exchange to facilitate a viable redevelopment of the property that included certain milestones within the overall 15-year term of the DA/DDA to ensure completion of intermediate steps.
The City Council’s approval in 2022 allows for a mixed use plan for up to 589 multifamily housing units, 80 of which would be deed restricted affordable units, up to 50,000 square feet of commercial and maritime commercial space, a 160-slip marina, and 4.5 acres of public open space; a Density Bonus application; and a DA vesting the entitlements for 15 years in exchange for additional public benefits that could not be achieved without the DA and Tidelands Exchange Agreement.
The DA requires certain milestones, including the adoption of an assessment district or equivalent funding source within 24 months of the effective date (March 2022). On March 7, 2024, the City Manager approved an extension of one (1) year for this interim milestone, extending the deadline for the adopting of an assessment district or equivalent funding source to March 2, 2025.
On November 14, 2024, the applicant, North Waterfront Cove LLC, filed an application to request an amendment to selected internal milestones while retaining the overall 15-year timeline for implementation due to “circumstances beyond our control, specifically an economic environment that has obliterated the present residual land value of the property.”
Without amendments to certain internal milestones, the DA will expire, which will trigger expiration of the DDA.
In recognition of the current economic circumstances and the progress made by the Developer over the past nearly three years, the City and Developer seek to amend select internal milestones in the DA and Master Plan to allow additional time for the project to fulfill its obligations, while retaining the ultimate implementation deadline of 15 years from the March 2022 approval.
DISCUSSION
Pursuant to Alameda Municipal Code (AMC) requirements, the Planning Board must make a recommendation to the City Council on whether to proceed with an amended Master Plan (AMC Section 30-4.20.g) and Development Agreement (AMC Section 30-92.5). The Planning Board did so on December 9, 2024, adopting Resolution PB-24-15 by a vote of 6-0-1, in support of the proposed amendments presented in the Ordinance (Exhibit 5).
Recognition of Project Progress
Since receiving amended approvals from City Council in March 2022, the Developer has completed the unique, complicated and costly tidelands exchange process that is most critical to the future viability of the Encinal Terminals project, even with unfavorable real estate market conditions. Despite these economic headwinds, the Developer has completed all of the vital steps in this project with the State of California including:
• Negotiating the State Exchange Agreement, signed and recorded in February 2023;
• Securing legislation to allow the State to convey to the City all of the parcels it receives in the exchange of tidelands properties in July 2023; and,
• Completing a title validation action that confirmed the validity of the State Exchange Agreement and ensures clear title for future conveyances in February 2024.
March 2024 Extension
Section 3(b) of the DA states in part: “This Development Agreement shall terminate and be of no further force and effect (subject to Section 3.e) on the earliest of … (6) failure to adopt an assessment district or equivalent funding source acceptable to both parties within 24 months of the Effective Date for the maintenance of the Public Trust Lands in perpetuity.”
After determining that the Developer had made a good faith effort to meet the initial 24-month deadline in Section 3(b)(6) but that additional time was necessary to accommodate delays that were not the result of actions by the Developer, on March 7, 2024, the City Manager approved an extension of one (1) year for the Section 3(b)(6) deadline, which was the extent of the City Manager’s extension authority.
This extension was granted on condition that the Developer completed certain interim milestones with the intent to effectuate the formation of the funding source(s) for the maintenance of the public lands in perpetuity. However, due to the adverse economic environment, the Developer has not been able to complete the interim milestones and will not be able complete formation of the assessment district with the City by March 2, 2025.
Current Economic Environment
Current real estate conditions remain unfavorable for new residential development. In comparison to 2022, the present economic environment does not provide necessary conditions for the Developer or a successor to develop the project. While not a complete picture of the economic conditions, the following metrics are key to understanding how conditions have worsened since the project was approved by City Council in 2022.
• Rents have fallen by approximately 10-16%, from $4.50-$4.75 per square foot in 2022 to $3.69-$4.00 per square foot in 2024, with up to three (3) months rent concessions offered.
• Townhome sales prices have decreased by around 5%, from $650 per square foot in 2022 to $616 per square foot in 2024, in addition to builders offering incentives like loan buydowns and closing cost credits.
• Absorption rates have slowed significantly, with apartment leasing rates dropping from 25-30 units/month in 2022 to 15/month at higher rents, and townhome sales falling from 2-4.5 units/month to 1/month.
• Capitalization rates have increased by approximately 1.75%, from 4.25% in 2022 to 6% in 2024.
• Mortgage rates have more than doubled, rising from 3.25% for a 30-year fixed rate in 2022 to 7.25% in 2024.
• Construction costs have increased by roughly 10% since mid-2022.
The combination of slower unit absorption, lower sales prices, higher financing costs, and higher construction prices has caused multifamily residential construction to greatly slow throughout the East Bay, including in Alameda.
In recognition of the current economic circumstances and the progress made by the Developer over the past nearly three years, the City and Developer seek to amend select internal milestones in the DA and Master Plan to allow additional time for the project to fulfill its obligations.
Furthermore, to encourage the Developer to actively market the project to potential successors and remain committed to completing the project, staff recommends an extension of certain interim milestones (detailed below) with the following conditions:
Assessment District Formation
o No later than February 15, 2026, OR prior to the closing of an approved transaction (sale of the property) under Section 12 of the DA, whichever comes sooner, Developer will enter into a reimbursement agreement with the City. The reimbursement agreement will require a $75,000 deposit (Deposit) to reimburse City for staff time and consultant services in furtherance of efforts to form an assessment district or equivalent funding source (for necessary infrastructure and amenities).
o Developer shall request and participate in an informational kickoff meeting with City staff on the formation of an assessment district or equivalent funding source no later than December 31, 2026.
o Developer shall complete and submit to the City a draft Rates and Method of Apportionment (RMA) no later than December 31, 2026.
o The first public hearing for the formation of the assessment district or equivalent funding source shall occur no later than June 3, 2027.
Documentation of Progress and Economic Viability
o Twice per year, Developer shall submit a written report to City staff documenting project progress, including all marketing efforts and any other pertinent disposition efforts and demonstrating whether the project is commercially viable using the following market condition metrics and 2022 benchmarks described above:
• Apartment rents
• Townhome sales prices
• Condominium sales prices
• Absorption rates
• Capitalization rates
• Mortgage rates
• Construction costs
The Developer will monitor data for these key metrics in comparison to the 2022 benchmarks, seeking to substantiate a sustained positive trend towards the benchmark levels of 2022 for capitalization rates, mortgage rates, apartment rents, townhome and condominium pricing and sales paces, without material construction cost increases.
Biannual reports will be evaluated by an economic consultant of the City’s choosing. Consultant costs will be borne by the Developer.
Staff recommends amending the DA and Master Plan to extend the following interim milestones as detailed below (a redline of the Master Plan and the First Amendment to the DA are provided in Exhibits 2 and 3, respectively):
|
Agreement |
Description |
Current Deadline |
Amended Deadline |
|
DA |
Assessment District |
March 2025 |
March 2028 |
|
DA |
Site Preparatory Work |
March 2025 |
March 2028 |
|
Master Plan |
Public Trust Lands Waterfront Development Plan and Design Review approval |
March 2024 |
March 2028 |
|
Master Plan |
Assessment district for Public Trust Lands maintenance approval |
March 2024 |
March 2028 |
|
Master Plan |
BCDC site wide Permit |
March 2025 |
March 2028 |
|
Master Plan |
Site clearing and grading permits |
March 2025 |
March 2028 |
|
Master Plan |
Site wide preparatory improvements |
March 2025 |
March 2028 |
|
Master Plan |
Clement Public Improvement Area |
March 2026 |
March 2029 |
|
Master Plan |
Entrance Road/Estuary Road and Alaska Basin Park Improvement Area |
March 2027 |
March 2030 |
|
Master Plan |
Northwest Public Improvement Area |
March 2031 |
March 2034 |
The amendments to the DA and Master Plan:
• Do not change the overall term of the DA (15 years or until 2037).
• Do not modify the currently approved design or scope of the proposed development
• Do not modify the approved DDA.
• Would provide the opportunity for the construction of housing units over the course of the City’s 2023-2031 Housing Element cycle.
ALTERNATIVES
• Approve the first reading of the ordinance approving an amended Master Plan and DA for the Encinal Terminals site to extend the internal milestones for performing certain actions as recommended by staff.
• Approve the first reading of the ordinance with modified amendments to the DA and Master Plan related to extension conditions, length or other considerations.
• Take no action on amending internal milestones in the DA and Master Plan. In this scenario, the DA, Master Plan, and DDA will terminate in March 2025.
FINANCIAL IMPACT
Amending internal milestones to the DA and Master Plan will have no direct financial impacts on the City’s General Fund and other City Funds. Consistent with when City Council approved the amended project in 2022, once realized, the development of the site will have a positive financial impact on the General Fund and other City funds. Extending internal milestones as recommended by staff will provide an opportunity for the project to be development consistent with the Master Plan and therefore provide significant positive fiscal impacts.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The development of the Property is consistent with, and implements, the City’s General Plan and City’s Climate Action and Resiliency Plan (CARP). Provision of additional housing and additional affordable housing is consistent with General Plan Housing Element policies to support additional housing development in Alameda, Housing Element policy to support affordable housing, and Housing Element policy to support additional for-sale housing in Alameda. This action also supports the City’s Strategic Plan Priority to House All Alamedans and End Homelessness, specifically Project HH2 to Implement the Housing Element. This is a project subject to the Levine Act.
ENVIRONMENTAL REVIEW
On July 17, 2007, City Council adopted Resolution Nos. 14134 and 14135 certifying the Final Environmental Impact Report for the Northern Waterfront General Plan Amendment (Northern Waterfront Environmental Impact Report (EIR)) pursuant to CEQA, and on December 19, 2017, City Council adopted Resolution No. 15337 certifying a Focused Supplemental Environmental Impact Report for development of the proposed Master Plan and Exchange Agreement (“Focused Supplemental EIR”, and with the Northern Waterfront EIR, “Previous CEQA Documents”). All project-specific mitigation measures specified in the Focused Supplemental EIR and included in the Project-Specific Mitigation Monitoring and Reporting Program are included as conditions of approval for the project development plans required by the Master Plan.
The Master Plan includes the same development program as the preferred project in the 2017 Focused Supplemental EIR. The only significant difference between the 2021 Exchange Master Plan and the 2017 Exchange Master Plan is that the 2021 plan proposes to remove more of the existing wharf than in the 2017 plan, which proposed to rehabilitate and rebuild more of the existing wharf. The change results in greater daylighting of the Estuary and less construction activity within the marine environment, which is consistent with BCDC policies to reduce bay fill and state and local policies to minimize impacts in the marine environment. There is no evidence that any changes to the project since the 2017 Focused Supplemental EIR was certified would result in additional or more severe environmental impacts than the impacts that were disclosed in the 2017 Focused Supplemental EIR.
In the vicinity of the project and regionally, the development that was anticipated to occur in the 2017 Focused Supplemental EIR has occurred as expected (e.g. projects such as Del Monte, Site A, Alameda Marina, and Brooklyn Basin in Oakland). There is no evidence that the environmental conditions in the area have changed in a manner that was not anticipated in the 2017 Focused Supplemental EIR and therefore would result in additional or more severe environmental impacts than were disclosed in the 2017 Focused Supplemental EIR.
None of the circumstances necessitating further CEQA review are present, as the proposed project would not require major revisions to the Previous CEQA Documents due to new significant impacts or due to a substantial increase in the severity of the significant environmental effects. There have been no substantial changes with respect to the circumstances under which the project would be undertaken that would require major revisions of the Previous CEQA Documents due to new or substantially increased significant environmental effects, and there has been no discovery of new information of substantial importance that would trigger or require major revisions to the Previous CEQA Documents due to new or substantially increased significant environmental effects. For these reasons, no further environmental review is required.
Amending the intermediate timelines for completing certain actions to implement the project does not have any foreseeable effect on the environment.
CLIMATE IMPACT
Amending the intermediate timelines for completing certain actions to implement the project does not have any foreseeable effect on the environment.
RECOMMENDATION
Hold a public hearing to introduce an Ordinance pursuant to AMC section 30-4 and sections 30-91 through 30-95 to amend the Encinal Terminals Master Plan and DA (entered into by the City Council on February 1, 2022) to modify interim milestones and related / conforming amendments.
Respectfully submitted,
Allen Tai, Director of Planning, Building and Transportation
By,
Steven Buckley, Planning Services Manager, Planning, Building and Transportation
Walker Toma, Community Development Manager, Base Reuse and Economic Development
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibits:
1. Application for Modification
2. Redlined Encinal Terminals Master Plan
3. First Amendment to the Encinal Terminals Development Agreement
4. Tidelands Trust Exchange Diagram
5. 2022 Development Agreement