Title
Adoption of Resolution Authorizing the Interim City Manager to Execute a Fourth Amendment to the Disposition and Development Agreement (DDA) and all Other Necessary Documents between the City of Alameda and Alameda Point Partners, LLC for the Site A Development at Alameda Point; and
Adoption of Resolution Authorizing the Interim City Manager to Execute a Fifth Amendment to the Disposition and Development Agreement and all Other Necessary Documents between the City of Alameda and Eden Housing, Inc. for the Site A Development at Alameda Point. (Base Reuse 819099)
Body
To: Honorable Mayor and Members of the City Council
From: David L. Rudat, Interim City Manager
EXECUTIVE SUMMARY
Staff recommends that the City Council adopt two resolutions authorizing the Interim City Manager to execute Fourth and Fifth Amendments to the Disposition and Development Agreement for Alameda Point - Site A (DDA). The Fourth Amendment to the DDA would allow Alameda Point Partners, LLC (APP) to extend the date for closing escrow on Phase 2 for up to one year, from October 1, 2018 to October 1, 2019, by paying the Extension Fee that would be due if 50% or more of the Phase 1 Backbone Infrastructure was complete even though at this time less than 50% of the Phase 1 Backbone Infrastructure is complete. APP has requested the change in the applicable Extension Fee because, while it has been diligently pursing backbone infrastructure improvements, progress has been slowed as a result of unforeseen conditions.
The Fifth Amendment would amend the Affordable Housing Milestone Schedule in the DDA and two ground leases for Block 8, to allow Eden Housing (Eden) an additional two years (until December 31, 2020) to secure all of its financing and meet all of its conditions precedent to property transfer. While Eden will secure all its financing for the 60-unit senior housing project by November 2018, and complete construction on that project by July 2020, it needs more time to secure financing and meet its conditions precedent to property transfer for the 70-unit family project.
BACKGROUND
On August 6, 2015, the City entered into a DDA with APP for the development of Site A, a 68-acre area within Alameda Point that extends generally from the Main Street entrance of Alameda Point to the eastern edge of the Seaplane Lagoon. Site A includes 800 housing units (200 affordable), 600,000 square feet of commercial development, and extensive parks and utility infrastructure (Site A Project).
The DDA has been amended three times since it was approved:
• First Amendment: Approved on January 17, 2017, it extended the outside date for the acquisition of Phase 1 for four months until April 11, 2017.
• Second Amendment: Approved on July 5, 2017, it allowed APP to make a $1.4 million extension option payment to extend the date for the acquisition of Phase 1 to April 9, 2018. It also incorporated amendments to the development plan approved by the Planning Board that changed Phases 2 and 3 to swap Phases 2 and 3 and to move the residential in the original Phase 2 to what is now Phase 2 and accelerated the outside conveyance date for Phase 2 by four years from August 24, 2022, to October 1, 2018.
• Third Amendment: Approved on March 7, 2018, it de-linked the obligation to secure tax credit reservations for the affordable housing projects from the construction of market rate housing for Phase 1 only. [Prior to the Third Amendment, the DDA allowed the City to withhold building permits for any market rate units in excess of 395 (the metering requirement) if the affordable housing developer had not received tax credit reservation for the affordable housing units.] It also stipulated that the Phase 2 and 3 conveyances could not go forward without tax credit reservations for both affordable housing projects.
In addition, on March 7, 2016, APP and Eden entered into a Partial Assignment and Assumption Agreement, which designated Eden as the Qualified Affordable Housing Developer for Site A. As part of the Partial Assignment and Assumption Agreement, APP assigned to Eden certain obligations with respect to the DDA including the obligation to construct 130 units of very low- and low-income housing as required under the DDA.
The executed DDA and amendments and Partial Assignment and Assumption Agreement can be found at the following link: https://alamedaca.gov/alameda-point/final-planning-documents.
Pursuant to the DDA as amended, APP acquired Site A Phase 1 and commenced demolition of existing improvements and construction of backbone infrastructure earlier this year. At the time of the closing, APP deposited its $3 million affordable housing contribution into an escrow account governed by a three-party escrow agreement among the City, Eden and APP. APP also provided its required funding commitment to the seaplane ferry terminal ($10 million).
Since closing on the Phase 1 property, APP has worked diligently on infrastructure construction but has not moved forward with acquisition of Phase 2 land, which under the DDA as amended by the Second Amendment, it is obligated to do by October 1, 2018. In addition, Eden Housing has pursued all required project financing, including submitting applications for Affordable Housing and Sustainable Communities (AHSC) funding and 9% Low-Income Housing Tax Credits (LIHTC). Unfortunately, Eden Housing will be unable to secure sufficient financing to fund both affordable housing projects by the required DDA deadline of October 31, 2018.
As a result, both APP and Eden have requested amendments to the DDA which will allow APP to extend its conveyance date on Phase 2 for up to one year and allow Eden to move forward with the senior housing project immediately and continue to pursue funding for the family project. The amendments are discussed in greater detail below.
DISCUSSION
Fourth Amendment
As noted above, the Second Amendment to the DDA swapped Phases 2 and 3 so that what was initially Phase 3 became Phase 2, moved the residential development that had been planned in the original Phase 2 to what was previously Phase 3, and accelerated the conveyance of the new Phase 2. The new outside conveyance date is October 1, 2018. Prior to the Second Amendment, it was August 24, 2022. Phase 2 includes the construction of 70 moderate-income housing units and 56 market rate units and the construction/renovation of approximately 200,000 square feet of commercial space and the required infrastructure to support this development. APP has submitted an executed letter of intent with Alameda Unified School District that documents the parties’ desire to develop the 70 moderate-income units into a teacher/workforce housing development for AUSD employees.
The Phase 1 extension and the acceleration of Phase 2 created a schedule where the Phase 1 property closed just six months prior to the requirement to close on Phase 2. Given the complexities of redeveloping the base, the large amounts of upfront capital invested, the pace of securing the affordable housing funding, and the challenges of working with a number of regulatory agencies, APP has notified staff that it is unable to meet the October 1, 2018 date to close on Phase 2. Under the DDA, APP can pay for a one-year extension on outside closing dates as follows:
• If less than 50% of the Phase 1 infrastructure is completed, the Extension Payment is $50,000 x the number of acres of the affected portion of the property ($50,000 x 22 acres (Phase 2) = $1.1 million). This extension payment is non-refundable to APP and is not applied toward any of APP's obligations to the City.
• If more than 50% of the Phase 1 infrastructure is completed, the Extension Payment is $10,000 x the number of acres of the affected portion of the property ($10,000 x 22 acres (Phase 2) = $220,000). This extension payment is non-refundable to APP and is applied toward APP's obligation to fund up to $10 million toward the construction of the ferry terminal.
APP has requested an amendment to the DDA to allow (a) its Extension Payment to be calculated based on the formula that is used if more than 50% of the Phase 1 infrastructure is completed (APP would pay the City $220,000 for the one-year extension rather than $1.1 million, which payment would be applied toward APP's ferry terminal obligation), and (b) removal of the receipt of Tax Credit Reservation as a condition to the Phase 2 closing. APP is proposing these amendments because it has worked in good faith to meet all of its obligations, including diligently constructing the required Phase 1 infrastructure and because the proposed extensions to the milestone schedule for the Family Affordable Housing Project in the Fifth Amendment (discussed below) extend the dates beyond the Phase 2 closing date. In the last six months, APP has entered into a Public Improvement Agreement, provided surety bonds for the completion of the Phase 1 Backbone Infrastructure, completed site demolition, and commenced installation of underground infrastructure; however, it has encountered numerous unforeseen conditions.
Unforeseen conditions include:
• Utilities
o Delay of subsurface work due to an unknown active gas line missed by PG&E during the initial gas shutoff.
o Delays to electrical relocation work due to AMP crews being dispatched as support during the Redding Fire.
• Navy Project Environmental Review Forms (“PERF”)
o Delayed electrical relocation and key backbone infrastructure work, including the outfall and bulkhead, due to 30- to 90-day Navy PERF review process.
• Water system redundancy
o As-builts inaccurately reflected a redundant system, which required on-site valve reconnaissance and repair by the City and contractor.
• Additional building and site demolition work including storage in the existing water tanks, extra concrete thickness and unknown composition, and unknown subsurface structures (including underground storage tanks).
• Modifications to the approved backbone infrastructure plans by the City, AMP and Navy.
Taken together, the unforeseen conditions have resulted in slower progress and have required APP to spend more construction contingency than initially anticipated. Nevertheless, APP is working through these issues with the Navy, EBMUD, AMP and Public Works staff and is confident that it will continue to move the infrastructure work forward.
APP has indicated that if the City requires APP to pay the Extension Fee required if less than 50% of the infrastructure is completed, it will create an additional financial burden that the Project cannot support. That Extension Fee is $1.1 million. APP will not recover all of its initial equity ($15 million) in Phase 1 and, as a result, the Project cannot support a $1.1 million extension fee which does not get re-invested in the project. If APP does not pay to extend its option on the Phase 2 land conveyance, it will be in default under the DDA. APP has also indicated that it may be unable to move forward with Phase 2 without additional housing units. While approval of additional units is not being requested as part of the fourth amendment, the issue is further addressed below.
Staff recommends that the City Council approve an amendment to the DDA, which allows APP to extend the outside date for acquiring Phase 2 for up to one year based on an Extension Payment calculated as if more than 50% of the Phase 1 infrastructure is complete. Such an extension will allow Phase 1 to move forward in a focused manner, provide an opportunity for APP to pursue approval of additional housing units to enhance Phase 2 feasibility, and provide additional time to secure funding for the affordable housing required for both Phases 1 and 2. The extension payment paid by APP will be applied to APP's ferry terminal payment. As Council is aware, the City and APP are moving forward with procuring the float for the seaplane lagoon ferry terminal.
Fifth Amendment
The proposed Fifth Amendment would modify the Affordable Housing Milestone Schedule in the DDA and ground leases for Block 8 (the site of the affordable housing projects). Pursuant to the Partial Assignment and Assumption Agreement, Eden is responsible for securing financing and building the affordable housing projects. While Eden has diligently pursued funding for both the senior and family projects and financed nearly 100% construction drawings for both projects, it has been unsuccessful in securing sufficient funding for both projects by the required deadline of October 31, 2018. As a result, Eden has requested a two-year extension to its outside date for meeting the conditions to closing on the family housing portion of Block 8. As part of its request for an extension, Eden has proposed a new approach to financing and building the affordable housing. Rather than waiting to fully fund both projects and constructing them simultaneously, a difficult undertaking that was not achieved, Eden is proposing to move forward immediately on the 60-unit senior housing project and, once that funding is secured, to then focus on funding the 70-unit family housing project.
To that end, Eden submitted an application for 4% tax credit funding, which is not competitive, on September 14, 2018, for the senior housing project. The 4% credits will be awarded in November 2018. This award will allow Eden to use 25 of the 40 Veterans Administration Supportive Housing (VASH) vouchers previously awarded to the combined project that are slated to expire. With the 4% tax credits, the VASH vouchers, and other funding secured to date, sufficient financing will be available to close and commence construction on the senior project by March 2019. The units will be completed by July 2020. Eden has provided staff with a list of funding sources for the family housing project that is realistic and obtainable over the next 12-18 months, should a time extension be granted.
Staff recommends the proposed approach to fund the Senior project now and work on securing funding for the Family project on a parallel track. Funds for the senior housing project will be secured within the next 60 days and it makes sense to expedite the funded project given the overwhelming need for affordable housing for seniors. If the senior project does not move forward, the 25 VASH vouchers will be lost, making it even more challenging to fund the affordable housing for any subsequent affordable housing developer. Therefore, staff recommends approval of the Fifth Amendment to the DDA amending the Affordable Housing Milestone Schedule. If City Council approves the amendment, staff will be recommending adoption of a resolution approving the issuance of bonds by the California Municipal Finance Authority, a joint powers authority that issues bonds on behalf of its members, at the Council’s October 16 meeting. The bonds are not backed by the City nor is the City obligated to repay the bonds. This approval will allow Eden to obtain tax-exempt bonds, which are necessary to use the 4% tax credits.
Other Issues
As part of its discussions regarding an extension of the Phase 2 conveyance outside date with staff, APP has indicated that it would like to pursue the entitlement of approximately 80 additional units (25% of which would be affordable) to be built in that Phase. At the present time, APP indicates that Phase 2 is not feasible without additional residential construction. The DDA and related approvals cap the number of residential units in Site A at 800. Any additional units would trigger a General Plan Amendment, a development plan amendment, new environmental review, and a DDA amendment. While it is anticipated that APP would work on these subsequent approvals during the 12-month time extension granted by the fourth amendment, nothing in the fourth amendment secures any approvals for the potential additional units. The required approvals would go through the standard City entitlement process involving staff, the Planning Board and ultimately the City Council.
The recommended approval of the Fourth and Fifth Amendments to the DDA do provide additional time that APP indicates will be used, in part, to pursue the additional entitlements. However, the primary purpose of the amendments is to maintain and build on APP’s successful work over the last six months and to position Eden to be successful in completing the senior housing project and securing financing for the family housing project in the next 24 months.
FINANCIAL IMPACT
There is no financial impact to the General Fund or Base Reuse Fund in approving the fourth and fifth amendments to the Alameda Point DDA.
ENVIRONMENTAL REVIEW
On February 4, 2014, the City of Alameda certified the Alameda Point Final Environmental Impact Report (EIR) in compliance with the California Environmental Quality Act (CEQA). The Final EIR evaluated the environmental impacts of redevelopment and reuse of the lands at Alameda Point consistent with the Town Center Plan, which included Site A. Pursuant to CEQA Guidelines Section 15162, no subsequent environmental review shall be required when, as here, an EIR has been certified for a project unless certain events have occurred. As explained below, none of the conditions specified in CEQA Guidelines Section 15162 requiring subsequent or supplemental environmental analysis have occurred; therefore, no new environmental analysis is required to comply with CEQA.
Specifically, the amendments to the DDA do not include any substantial changes in the Town Center Plan, and there is no evidence in the record that the amendments to the DDA would result in new significant environmental effects or a substantial increase in the severity of previously identified significant effects necessitating major revisions to the EIR. Similarly, there is no evidence in the record that substantial changes have occurred with respect to the circumstances under which the Site A development is to be undertaken that will require major revisions of the EIR. Finally, there is no new information of substantial importance, which was not known and could not have been known with the exercise of reasonable diligence at the time the EIR was certified, in the record that shows new or considerable different significant effects, mitigation measures, or alternatives than were analyzed in the EIR.
Because no new effects could occur or no new mitigation measures would be required under CEQA Guidelines Section 15162, CEQA Guidelines Section 15168(c)(2) permits the approval of the DDA amendments as an activity within the scope of the EIR, and no new environmental document is required.
None of the changes proposed by the DDA amendments change the overall amount of development and therefore, no further review is required for these amendments.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
These actions are consistent with the approved General Plan, Zoning Ordinance, Town Center Plan, and Master Infrastructure Plan.
RECOMMENDATION
Adopt a Resolution authorizing the Interim City Manager to execute a Fourth Amendment to the Disposition and Development Agreement and all Other Necessary Documents between the City of Alameda and Alameda Point Partners, LLC for the Site A Development at Alameda Point.
Adopt a Resolution authorizing the Interim City Manager to execute a Fifth Amendment to the Disposition and Development Agreement and all other necessary documents between the City of Alameda and Eden Housing, Inc. for the Site A Development at Alameda Point.
Respectfully submitted,
Debbie Potter
Base Reuse and Economic Development Director
Financial impact section reviewed by,
Elena Adair
Finance Director
Exhibits:
1. 4th Amendment to DDA
2. 5th Amendment to DDA