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File #: 2014-1024   
Type: Regular Agenda Item
Body: City Council
On agenda: 11/18/2014
Title: Recommendation to Approve an Exclusive Negotiation Agreement (ENA) with Alameda Point Partners for Development of Site A at Alameda Point. (Base Reuse 819099)
Attachments: 1. Exhibit 1 - Map of Site A Boundaries, 2. Exhibit 2 - Request for Qualifications for Developers for Site A, 3. Exhibit 3 PART 1 - Alameda Point Partners' and Brookfield Residential's Statement of Qualifications for Site A, 4. Exhibit 3 PART 2 - Alameda Point Partners' and Brookfield Residential's Statement of Qualifications for Site A, 5. Exhibit 4 - ENA with Alameda Point Partners, 6. Presentation, 7. External Correspondence, 8. Submittals
Recommendation to Approve an Exclusive Negotiation Agreement (ENA) with Alameda Point Partners for Development of Site A at Alameda Point. (Base Reuse 819099)
To: Honorable Mayor and Members of the City Council
From: John A. Russo, City Manager
Re: Approve an Exclusive Negotiation Agreement with Alameda Point Partners for Development of Site A at Alameda Point
In April 2014, the City Council provided direction to staff to issue a Request for Qualifications (RFQ) from developers for a residential mixed-use development site at Alameda Point, which consists of approximately 68 acres within the Waterfront Town Center (WTC) zoning sub-district (Site A) (Attachment 1).  That evening the City Council also approved a form of Exclusive Negotiation Agreement (ENA).  The RFQ process and the selection of a preferred developer for Site A is the culmination of an extensive community planning process for Alameda Point that will not be truly finalized until a development plan and agreement are approved by the City Council next year, as described in more detail below.  
Over the last three years, the Alameda community, City Council, Planning Board, and City staff have been working together to prepare the necessary regulatory documents for Alameda Point (i.e., Zoning Ordinance Amendment, Master Infrastructure Plan, Waterfront Town Center Plan, Environmental Impact Report, and Transportation Demand Management Plan) through a wide-ranging community process. This planning process included:
·      Preparation of a Planning Guide for Alameda Point, which re-confirmed and updated the community priorities for the redevelopment of Alameda Point generally consistent with the 1996 Community Reuse Plan, which emphasized jobs and limited housing development. The Planning Guide was endorsed by the Planning Board on July 8, 2013, and endorsed by the City Council on July 23, 2013.
·      Approximately 30 public hearings, public workshops, and public presentations with the City Council, Planning Board, Transportation Commission, Historical Advisory Board, Recreation and Parks Commission and Commission on Disabilities.  
·      Nineteen (19) presentations to community groups, with close to 700 people attending.
·      Ten (10) community events involving approximately 450 people, including a bike tour of Alameda Point attended by over 130 people.
·      E-mail blasts announcing upcoming meetings and opportunities for involvement reaching over 10,000 people.
·      Facebook posts and Twitter feeds with over 4,000 hits to followers.
·      Three public surveys.
·      Numerous front-page articles and advertisements in the local press and website announcements.
The RFQ process and selection of a preferred developer is the first step in implementing the community's plan for Alameda Point.  The details of the preferred developer's plans, consistent with the City's documents prepared during this recent community planning process, will be decided initially, through an extensive public process by the Planning Board, and then, ultimately, by the City Council next year.  The development contract between the City and the preferred developer, as well as other key implementation steps will also be decided by the City Council next year.  
The RFQ was issued on May 1, 2014 (Attachment 2) and solicited interest from developers interested in developing a mixed-use project consistent with the recently approved Town Center Waterfront Plan (Town Center Plan) and Master Infrastructure Plan (MIP).  The Statement of Qualifications (SOQs) were due to the City by June 16, 2014.
The City received nine complete qualified responses to the Site A RFQ.  City staff reviewed and evaluated all the responses and, in concert with community stakeholders, interviewed four of the top development firms.  On September 2, 2014, the City Council approved staff's recommendation to narrow the field of candidates to the following two finalists for Site A: (1) Alameda Point Partners (a partnership of Thompson Dorfman Partners, SRM Ernst Development Partners, Madison Marquette, and Tricon Capital, with Tableu Development Company and O2-blu as development consultants, and Eden Housing as the affordable housing development partner); and (2) Brookfield Residential.  Additionally, both finalists included very qualified urban design and planning firms, architecture, and landscape architecture firms, presented in greater detail in their SOQs.  The finalists' SOQs are attached as Attachment 3.  The City also held an open house for the developer finalists on September 29, 2014, which gave the Alameda community an opportunity to meet the developers and discuss their past projects.  The event was well-attended by the community.
Over the last two months, the City negotiated key business and financial terms of a subsequent Disposition and Development Agreement (DDA) for Site A with each of the two finalists.  By negotiating with two finalists instead of a single preferred developer, the City created a more competitive environment that staff believes resulted in a more favorable outcome for the City. These negotiated terms serve as the basis for the Term Sheet that is attached to the ENA.  City staff focused on negotiating terms that obligate the developer to bring transit infrastructure to Alameda Point before any new development occurs; utility infrastructure that serves the entire Alameda Point property that will catalyze additional employment uses in the Adaptive Reuse and Enterprise areas; and near-term park amenities for the entire Alameda community.  
Based on the recent negotiations with both finalists and their SOQs, City staff recommends entering into an ENA with Alameda Point Partners for the development of Site A (Attachment 4).  As a reminder, Alameda Point Partners is a custom partnership created specifically for Alameda Point comprised of high-quality regional and national developers specialized in the various aspects of development relevant to Site A: base reuse, infrastructure, multi-family vertical mixed-use, retail and affordable housing development.  The SOQ demonstrated that the partners involved in Alameda Point Partners have a successful history of working together. Their SOQ also demonstrated a proven track record in developing complicated, multi-year, mixed-use, waterfront retail and residential infill developments within the Bay Area and, in certain instances, in the country, and an in depth understanding and knowledge of the site and Alameda community. The team of people the City would be working with on a day-to-day basis are the principals or high-level executives of the individual development firms.  Alameda Point Partners has also entered into an agreement with a strong and financially capable capital partner, Tricon Capital Group, that is also a partner in the Alameda Point Partners limited liability company, Alameda Point Partners.  
Staff's rationale for selecting Alameda Point Partners; a summary of the key terms of the ENA, including the Term Sheet; and, a description of the key next steps after the ENA is approved are provided below.
I.      Recommendation of Alameda Point Partners as the Site A Developer
Both developer finalists are highly qualified to implement the development of Site A. Both have agreed to the same key financial and business terms and both provided strong evidence of having access to sufficient capital to not only fund the ENA period, but the entire development project.  The City is fortunate to have two such strong and qualified developers willing to become a private partner in developing one of Alameda Point's first major development projects.  However, there can only be one developer for Site A.  As a result, City staff is recommending Alameda Point Partners for the following reasons:
·      They consist of a diverse team of highly qualified best-in-class developers that specialize in a particular land use, but at the same time have extensive experience on urban mixed-use infill projects, which provides greater potential for successfully achieving the community's vision for Alameda Point of a more vertically and horizontally mixed-use transit-oriented development;
·      The Site A development will comprise one of the most valuable assets in Alameda Point Partners' portfolio, which creates a strong incentive for prioritization of resources and focus towards implementing the project;
·      The day-to-day project manager for the team, Joseph Ernst, who lives in Alameda, is a strong project manager with a proven track record at successfully implementing high-profile projects in Alameda, such as the VF Outdoor campus at Harbor Bay; and
·      Alameda Point Partners are proposing a more incremental approach to developing the property. This will allow for greater potential for reuse of existing buildings and concentration of development along the extension of Ralph Appezzato Memorial Parkway (RAMP), the primary transit corridor within Alameda Point.
For these reasons, staff recommends Alameda Point Partners, and if approved by the City Council this evening, looks forward to working with them to facilitate near-term development of Site A.
II.      Summary of ENA and Term Sheet
The ENA is a document that permits the developer to negotiate terms of development with the City, during a set period of time.  The ENA period is expected to result in an approved DDA (i.e., price and terms of payment for the land and development obligations), and an approved Development Plan (i.e., detailed site plan, including backbone and in-tract street alignments and sections, building footprints and massing, landscape concepts, and a phasing plan).  
The following provides a summary of the ENA, which includes the Term Sheet negotiated with Alameda Point Partners over the past two months:
1.      Term of ENA. The ENA period is contemplated as a compact 6-month process, with the potential for two three-month administrative extensions by the City Manager.
2.      Assignments and Transfers.  The ENA prohibits any assignments or transfers of the rights under the ENA to another developer.
3.      City Obligations. The City's obligations during the ENA period are limited to negotiating exclusively the terms of the DDA with Alameda Point Partners and to considering approval of the Development Plan. There is no obligation by the City to approve the DDA or Development Plan.
4.      Non-Refundable Deposit. The ENA also requires that the developer provide a $200,000 non-refundable deposit for reimbursement of City expenses for negotiation of the DDA within five days of the execution of the ENA.  Funding for staff time for review and processing of the Development Plan will be handled through the City's standard planning process.  
5.      Term Sheet. Exhibit C of the ENA consists of the Term Sheet that the City negotiated with Alameda Point Partners, which outlines the key business and financial terms of a subsequent DDA.  These key terms include:
a.      Project Description. The project description will include 800 housing units and 200,000 square feet of commercial uses, including 100,000 to 150,000 square feet of retail, consistent with the City's Town Center Plan and other planning documents.
b.      Developer Responsibilities. Alameda Point Partners will assume responsibility for all aspects of the development process; will prepare a feasible financing plan and obtain all necessary financing; and comply with the requirements of the City's planning documents.
c.      City Responsibilities.  The City will facilitate conveyance of all of the Site A property from the Navy; facilitate public financing mechanisms, such as a Community Facilities District; secure approvals for a ferry terminal at the Seaplane Lagoon using commercially reasonable efforts.
d.      Term.  20 years
e.      Phasing. The DDA will include a Phasing and Milestone Schedule.  Additionally, a map of the proposed Phase 1 boundaries, a Phase 1 development schedule, and a preliminary Phase 0 plan are attached to the Term Sheet. The Phase 1 boundaries concentrate development along the northern boundary of RAMP and the Phase 1 schedule contemplates commencement of infrastructure construction in fall 2015 and completion of Phase 1 by the end of 2018.  
f.      Infrastructure and Amenity Package.   City staff focused on negotiating upfront infrastructure and amenities that obligate the developer to bring transit infrastructure to Alameda Point before any new development occurs (i.e., ferry terminal and dedicated bus rapid transit lanes); major utility infrastructure that serves the entire Alameda Point property (i.e., sewer line extension to northern boundary) that will catalyze additional employment uses in the Adaptive Reuse and Enterprise areas; and park amenities that serve the entire community.
As part of the Site A project, Alameda Point Partners will build all of the infrastructure included in the City's RFQ (Infrastructure Package), which includes a neighborhood park/greenway; eight acres of the Seaplane Lagoon waterfront park and promenade; and all new utilities and roads within Site A, and, in some instances, for other parts of the base.  
Phase 1 infrastructure will include the following improvements from the Infrastructure Package:  the crucial Ralph Appezzato Memorial Parkway (RAMP) transit and utility corridor between Main Street and the Seaplane Lagoon and the new sewer line extension between Site A and the pump station at the northern boundary of Alameda Point.  Both of these infrastructure items have significant benefits for the entire Alameda Point property not just for Site A.  Additionally, as part of its land payment (discussed below) Alameda Point Partners has agreed to fund amenities at Alameda Point beyond its required Infrastructure Package, including the Ferry Terminal at the Seaplane Lagoon and an initial phase of the Sports Complex.  As discussed above, City staff's focus was on maximizing the upfront infrastructure and amenities at Alameda Point with site-wide and community-wide benefits.
g.      Land Payments.  Alameda Point Partners has agreed to pay approximately $108 million for Site A (or $1.6 million per acre), with a credit of approximately $88 million (or $1.3 million per acre) towards infrastructure and a credit of $5 million for accelerating an initial phase of permanent waterfront park improvements at an equivalent value. $15 million will be contributed toward an initial phase of the Sports Complex and an initial Ferry Terminal at the Seaplane Lagoon.    The following table summarizes the agreed upon land payment.
Total Land Payment
$108 million
Less Infrastructure Credit
($88 million)
Less Acceleration Credit
($5 million)
Total Cash Payment to City
$15 million
      * $10 million for initial ferry terminal and $5 million or initial phase of sports complex
h.      Option Payments.  Alameda Point Partners will be required to pay an option payment for the acreage within Site A not purchased according to the Phasing and Milestone Schedule as follows:  $50,000 per acre before 50 percent of the Phase 1 infrastructure is completed and $10,000 per acre after 50 percent of the Phase 1 infrastructure is completed.  This structure of option payments creates a financial incentive for the developer to start investing and to continue to invest in Site A, especially before the developer has made its initial Phase 1 infrastructure investment.  Once the developer has invested tens of millions of dollars in implementation of Phase 1, the option payment decreases to recognize the built-in incentive that this substantial investment already creates.
i.      Rate of Return and Profit Participation. Internal rate of return (IRR) is a standard measure of a developer's return on its investment over the life of a project taking into account the time value of money.  Projects that pose greater risks (i.e., market fluctuations, construction cost, inflation risks) will have expectations for a higher IRR than projects that pose less risk.
The City's profit participation is an opportunity for the City to participate in profits from land development once the developer has met its market rate of return.  As stated above, City staff focused on obtaining agreement from the developer for significant upfront infrastructure investment since this will create near-term benefits for the Alameda community and will improve the feasibility of developing other parts of the base.  The Term Sheet proposes that as the developer meets greater unleveraged IRR thresholds, the City participates at an increasing rate:
City Profit Participation
j.      Financing.  The properties within Site A will include a maximum tax burden such that the combined rate for property tax and other special taxes for financing of infrastructure, municipal services, transportation demand management, community benefits, and levee maintenance does not exceed 1.9 percent and 1.8 percent for residential and commercial development, respectively.
k.      City Cost Reimbursement.  In addition to the $200,000 non-refundable deposit, Alameda Point Partners will provide an additional $100,000 for City expenses at execution of the DDA.
l.      Prevailing Wage Ordinance.  The development will be subject to the City's prevailing wage ordinance.
m.      Master Lease Agreement. The DDA will include a Master Lease Agreement (MLA) for reuse of existing buildings and land within Site A that is not yet acquired by Alameda Point Partners.  The MLA will state that the Developer must use all lease proceeds towards any capital expenditures related first to the lease facility and then to the development of Site A for the first two years, including towards implementation of their Phase 0 plans.  After two years, the Developer must pay the City a negotiated market rent or acquire the building.  Nothing in the MLA will relieve the Developer of any obligations under the Phasing and Milestone Schedule contained in the DDA.
III.      Post-ENA Transaction Process
If the City Council approves staff's recommendation this evening, City staff, along with Alameda Point Partners, will immediately begin on the following key tasks:
·      Preparation of a Development Plan application and any other relevant entitlements desired by Alameda Point Partners, and commencement of an extensive public process with the Alameda community, stakeholders and the Planning Board.  As with the City's previous Alameda Point planning documents, the Planning Board will be the primary community forum for discussing the Site A detailed development plans.  The plans for Site A will also be presented to the Historical Advisory Board and Recreation and Park Commission.
Negotiation of a DDA document that implements the Development Plan previously approved by the Planning Board and builds upon the key terms contained in Exhibit C (Term Sheet) of the ENA, which will need to be approved by the City Council.City staff will continue to meet with stakeholders on an ongoing basis and use its email lists, webpages, and social media to inform the Alameda community about next steps at Site A.
There is no financial impact to the City's General Fund related to the approval of the ENA for development of Site A.  City staff from various City departments and its consultants and attorneys will be expending significant time and effort on negotiation of a DDA and Development Plan for Site A over the next six to 12 months.  These expenditures will be funded by the $200,000 non-refundable deposit provided within five days of execution of the ENA and through the City's standard cost recovery process for formal planning applications.
The development of Site A at Alameda Point is implementing the recently approved Waterfront Town Center Plan for Alameda Point.
On February 4, 2014, the City Council certified a Final Environmental Impact Report (State Clearinghouse No. 2013012043) for the Alameda Point project (including Site A), in compliance with the California Environmental Quality Act ("CEQA").
Approve an Exclusive Negotiation Agreement with Alameda Point Partners for development of Site A at Alameda Point.
Respectfully submitted,
Jennifer Ott, Chief Operating Officer - Alameda Point
Financial Impact section reviewed,
Juelle-Ann Boyer, Interim Finance Director
1.      Map of Site A Boundaries
2.      RFQ from Developers for Site A
3.      Alameda Point Partners' and Brookfield Residential's Statements of Qualifications for
Site A
4.      ENA with Alameda Point Partners for Site A at Alameda Point