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File #: 2013-125   
Type: Regular Agenda Item
Body: City Council
On agenda: 11/5/2013
Title: Provide Direction on the Request for Proposals for Leasing and Property Management at Alameda Point and Other City Properties. (Base Reuse 819099)
Attachments: 1. 2013-11-05 6-H Presentation.pdf, 2. 2013-11-05 6-H Staff Submittal.pdf
Provide Direction on the Request for Proposals for Leasing and Property Management at Alameda Point and Other City Properties. (Base Reuse 819099)
To: Honorable Mayor and Members of the City Council
From: John A. Russo, City Manager
Re: Provide Direction on the Request for Proposals for Leasing and Property Management at Alameda Point and Other City Properties
In July 2011, the City Manager directed staff to prepare and release a Request for Proposals (RFP) for Leasing and Property Management of all City-controlled assets.  The RFP was released and staff held two bidders conferences.  However, the City subsequently postponed the solicitation: the City, became a finalist in the competition for the Lawrence Berkeley National Laboratory site selection at the time and determined the solicitation process might be disruptive to its competitive proposal.
In May 2013, the RFP was updated with information regarding the imminent conveyance from the Navy of more than two thirds of the Alameda Point property and the related planning processes.  Currently, the real estate portfolio for the City is comprised of eight cell tower leases, 62 commercial, marina industrial and residential tidelands leases, two Alameda Beltline and miscellaneous City leases, two Fleet Industrial Supply Center (FISC) leases and 156 Alameda Point leases.  The Alameda Point leases above represent 2.3 million square feet.  Of the "turn key" leasable spaces at Alameda Point, comprising 9 buildings, the City is currently in negotiations for 7 buildings.  The remaining spaces should be considered development opportunities.  These buildings do not have electricity, copper has been stripped out of them, hundreds of thousands of dollars in roof repairs are needed, seismic safety upgrades are required, and/or they are located in the historic corridor, requiring substantial investment in Secretary of the Interior-compliant renovations.
Of the City's properties, Alameda Point is the most challenging in the area of property management.  There are residential, commercial, and port tenants, requiring specialized areas of knowledge.  The aging infrastructure and lack of as-built drawings and plans available make troubleshooting and repairing service problems very difficult. Unlike traditional properties, Alameda Point has layers of complexities, restrictions and reporting requirements.   
Alameda intends to maintain a vibrant leasing program at Alameda Point as it transitions to development.  The 2011 Economic Development Strategy (Strategy) envisions a series of development parcels springing up across the property, with a strong lease revenue base in the historic corridor and the hangars along "Spirits Alley."  In the Strategy, it is contemplated that as development deals occur, lease revenue gradually declines but would be offset by land sales proceeds and property tax revenue as the land transfers from public to private ownership.  Alameda Point's successful development relies in large part on existing, and new, short-term lease revenues.
The 2013 RFP was for leasing and property management services only.  Leasing of existing facilities and property management needs to be differentiated from other services that the City might require in the future such as development advisory services, specific development opportunities, etc. It is important to note that any team that is selected for leasing and property management will be in a position to operate as City staff members.  As such, the selected team will have to adhere to conflict of interest laws which will prevent them from involvement in leasing, acquiring or developing the City's properties for their own benefit.  The Management Services Contract will explicitly state this restriction.
Over the years, the City's leasing and property management has taken many forms.  Initially, Alameda Point and FISC were handled by Alameda Reuse and Redevelopment (ARRA) staff. Tidelands properties were handled by the Public Works Department, and cell towers were negotiated by Economic Development staff, but managed by the Finance Department.  Later the Alameda Beltline leases were added to the Public Works portfolio.  In 2011, management of all of these properties was brought under the supervision of the Community Development Department.
In 2000, after the selection of the first master developer, ARRA turned its leasing responsibilities over to IRG, a member of the developer consortium, Alameda Point Community Partners (APCP).  IRG hired PM Realty Group to perform property management. In 2002, APCP brought in Cushman and Wakefield (C&W) to supplement leasing activities.  Through their marketing efforts, C&W attracted many interesting potential tenants, but were unable to complete deals as the developer would not agree to many of the locations or deal points for these potential leases; consequently, the leads went cold. C&W discontinued its relationship with APCP due to the inability to aggressively pursue potential leads.  Subsequently, when APCP was dismantling its partnership, ARRA contracted directly with PM Realty Group to provide property management services.  While PM Realty Group came to the City in the role of property manager, it expanded its duties to include leasing when it was determined that outside brokers faced challenges to leasing the property due to conflicting interests on the part of the master developer and/or lack of funds to do traditional deals.  
The City received four proposals in response to the 2013 RFP:
1.      California Capital Investment Group (CCG)
2.      Colliers International with Mission Bay Development Group
3.      Gallagher & Lindsey
4.      PM Realty Group
All four teams were scheduled for a selection panel interview.  The panel consisted of an Alameda Point tenant representative, a representative from the real estate division of the Presidio Trust, a representative from Kennedy Wilson Properties, which manages Mare Island, the Interim Community Development Director, and the City Attorney.  The top two teams were:
1.      PM Realty Group
2.      CCG
The panel provided the City with comprehensive feedback.  Members expressed that over the years PM Realty Group had a developed a strong property management component; however, the panel thought PM Realty Group's leasing approach was somewhat weak.  On the other hand, the panel liked CCG's leasing approach, but believed that its property management team lacked depth, especially given the complexity of the Alameda Point portfolio (i.e., piers, large single-purpose buildings, ground leases, etc.).  The panel also felt that because of CCG's significant experience and expertise developing historic, challenging projects, CCG could effectively lease and develop those properties that have remained vacant for a long period of time.  The median score for both teams were PM Realty Group, 90 and the CCG, 76.
As a follow-up to the panel's recommendations, staff approached both PM Realty and CCG with an opportunity to strengthen their proposals.  Both teams were asked the same questions: Would you be interested in a team approach to leasing and property management where each of the teams performs the area in which the selection panel felt you were strongest?  If not, how would you strengthen the area in which the panel found you weakest and change your approach to managing the properties?  
In response to City's feedback, PM Realty was willing to work with CCG; however CCG preferred to be the sole leasing and property manager. As an international property management company, PM Realty is used to working in conjunction with a broker and finds that to be a more traditional approach.  Because PM Realty's core strength and service is property management, it would welcome the opportunity to relinquish leasing to an outside broker.  Further, its response to strengthening its leasing program was to re-engage and designate C&W as the City's broker.  PM Realty asked that C&W receive a commission from the new leases to be paid under a traditional commission structure.  C&W has extensive knowledge of Alameda Point and has worked and marketed the property in the past.  The proposed C&W team would be led by John McManus, who is familiar with Alameda and is the broker responsible for the recruitment of VF Outdoors.
When posed the questions regarding their proposal CCG said it preferred to do both property management and leasing, and not parcel out the tasks. CCG thought it was vital to have management control over the property to ensure that expectations are met and to eliminate opportunities for miscommunication or poor coordination.  However, at the City's request, CCG submitted a leasing-only proposal which included a flat fee for the leasing services, plus a commission structure.  CCG's response to the panel's feedback regarding property management was a proposal to retain some of the existing property management staff to supplement its existing team and to maintain institutional knowledge.   
Staff recommends that the City Council consider the following options for proceeding with leasing and property management and provide direction to staff:  
1.      Direct staff to negotiate an agreement between CCG and PM Realty Group in response to what the selection panel identified as the strengths and weaknesses of each team.
2.      Select one of the top two teams:
Aggressive Leasing Program
Lacks depth of Property Management experience and has no experience with piers and marine services
Knowledge of Former Military Property
Fresh Perspective
One-stop shop leasing/property management
PM Realty Group/Cushman & Wakefield:
Extensive  Property Management Experience and Resources - in CA and worldwide
Two companies for coordination/communication.  Potential for fingerpointing.
Knowledge/History of Alameda Point
Experience with managing piers, marine services and housing
3.      Direct staff to reissue the RFP with an expedited timeline (e.g., 30 days) to try to attract a greater pool of candidates and still have a contract and team in place by February 2014.  Staff would aggressively advertise, call and solicit more respondents, and also allow the four current applicants to supplement their original proposals.  This option could give the Council more choices and could result in an application strong in both leasing and property management.  
There is no financial impact to the City's General Fund (Fund 001) or Base Reuse Department Revenue Fund (Fund 858) related to this action. However, the negotiated agreement will impact the various City funds receiving lease revenue.
The current budget for administration and property management fees is $1,190,164.  The cost of the new contract would be negotiated.
This action is exempt from the California Environmental Quality Act (CEQA) because it is not a project which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment, pursuant to CEQA Guideline section 15378.
Provide direction on the Request for Proposals for leasing and property management services at Alameda Point and other City properties.
Respectfully submitted,
Jennifer Ott, Chief Operating Officer - Alameda Point
Nanette Mocanu, Division Manager
Financial Impact section reviewed,
Fred Marsh, Finance Director