Title
Recommendation to Reject the Developer Finalists for Site B and Postpone the Decision on Development of Site B at Alameda Point for Six Months. (Base Reuse 819099)
Body
To: Honorable Mayor and Members of the City Council
From: John A. Russo, City Manager
Re: Reject the Developer Finalists for Site B and Postpone the Decision on Development of Site B at Alameda Point for Six Months
BACKGROUND
In April 2014, the City Council provided direction to staff to issue a Request for Qualifications (RFQ) from developers for an 82-acre commercial development site at Alameda Point (Site B) and a 68-acre mixed-use development site (Site A) (Attachment 1) consistent with the recently approved rezoning, Town Center Plan and Master Infrastructure Plan. The Site B RFQ was issued on May 1, 2014 and solicited interest from developers/users interested in developing commercial projects with a focus on a corporate "build-to-suit" user(s) that generates significant jobs, business-to-business sales tax or other catalytic economic benefits consistent with the City's regulatory documents. The SOQs were due to the City by June 16, 2014 and the City received seven responses to the Site B RFQ. Three of the Site B responses were not submitted in a timely fashion and/or did not meet the minimum requirements of the RFQ. These responses were disqualified and not reviewed. As a result, there were four complete qualified responses to the Site B RFQ:
1. Catellus Development Corporation (Catellus)
2. CIM Group
3. Mission Bay Development Group (MBDG)
4. Trumark Homes
While the RFQ stated that the City would give preference to a developer that included a letter of intent from a specific business user as part of their submittal, none of the developers furnished a letter of intent or included a corporate tenant as part of their team. City staff reviewed and evaluated all the responses and, in concert with community stakeholders, interviewed three of the top development firms. The Site B interview panel recommended two developers as finalists for Site B: CIM Group and MBDG. However, CIM Group withdrew their interest in Site B due to the uncertainty of the market for commercial uses at Alameda Point. As a result, staff selected Catellus as the other proposed finalist for Site B.
On September 16, 2014, the City Council approved Catellus and MBDG as the two developer finalists for Site B. On September 29, 2014, the City held an open house for the developer finalists, which gave the Alameda community an opportunity to meet the developers and discuss their past projects. Over the last two months, City staff negotiated potential business and financial terms of a subsequent Disposition and Development Agreement (DDA) for Site B with each of the two finalists.
During these negotiations, neither of the developers were willing to commit to upfront infrastructure, land payments or a milestone schedule for implementing Site B development due to the uncertainty of the market for new commercial development at Alameda Point and the high cost of infrastructure. As a result, City staff is recommending postponing any decision on Site B until next year.
DISCUSSION
The recent negotiations with both Site B developer finalists produced no upfront commitment to invest funds on infrastructure or land payments or to adhere to a performance milestone schedule. Instead, they requested a long-term (i.e., 15 years) development agreement that would afford them significant and exclusive development rights over the Site B property. Both developers did agree to expend ongoing funds to prepare plans for the property and market the property for potential users, contribute to a Phase 0 plan, and, in the case of MBDG, pay for ongoing shuttle services. While these contributions are helpful, City staff does not believe they are sufficient to justify providing either developer with exclusive long-term development rights over 82 acres of property at Alameda Point.
In response to staff's concerns regarding the lack of developer commitment, coupled with the length and extent of the proposed development agreement, MBDG was willing to consider an alternative transaction that limited the term to three years without any ongoing developer expenditures other than for marketing and no land or development rights afforded by the City unless a major user was secured. While Catellus proposed maintaining the DDA transaction, they were willing to limit the initial term to three years with extensions, if undefined performance milestones were met.
When discussing with staff their unwillingness to commit to upfront infrastructure and land payments, both developers cited the significant challenge in attracting a corporate build-to-suit user to Alameda due to the less desirable location relative to other strong regional locations, such as downtown San Francisco and Mission Bay, the lack of an attractive "gateway" and amenities for employees, and the high cost of infrastructure. Both developers also commented on the importance of Site A development to begin to address some of these issues.
As currently proposed, Site A will bring a "gateway" extension of the street and utilities of Ralph Appezzato Memorial Parkway into Alameda Point, an initial ferry terminal, a waterfront park, Phase 0 placemaking events and amenities, and an intangible momentum of "activity begetting activity." These improvements and amenities help reduce the cost and risk of attracting new commercial development at Alameda Point and increase the potential value of commercial sites adjacent to Site A, therefore making it possible to attract a corporate user to the site and to incentivize upfront investment in infrastructure. In short, Site B is not currently attractive to job creating, commercial development. Site B is unlikely to garner substantial investment interest until amenities such as those contemplated in the Site A plan are well on their to fruition.
While City staff appreciates the time and effort expended by the Site B developers and their response to City staff's concerns regarding their proposed arrangements, staff recommends rejecting their submittals and waiting six months to determine the appropriate next steps for Site B until there is more certainty regarding Site A development and its related infrastructure and amenities. City staff believes the momentum of Site A and its investment in Alameda Point will increase the potential for attracting a major corporate user and maximizing infrastructure investment in Site B. In the meantime, the City will continue to have its commercial broker, Cushman & Wakefield, market Alameda Point to commercial businesses and will keep its lines of communication open with any corporate user or commercial developer that expresses an interest in committing to improving and developing Site B, consistent with the community's vision for Alameda Point.
FINANCIAL IMPACT
There is no financial impact to the City's General Fund or Base Reuse Department budgets (Fund 858) related to staff recommendations.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The development of Site B at Alameda Point is implementing the recently approved rezoning and Waterfront Town Center Plan for Alameda Point.
ENVIRONMENTAL REVIEW
No environmental review is required as rejecting the Site B developers' submittals and postponing a decision on Site B is not a project as defined under CEQA. CEQA Guidelines, section 15378(a).
RECOMMENDATION
Reject the developer finalists for Site B and postpone the decision on development of Site B at Alameda Point for six months.
Respectfully submitted,
Jennifer Ott, Chief Operating Officer - Alameda Point
Financial Impact section reviewed,
Juelle-Ann Boyer, Interim Finance Director
Exhibit:
1. Map of Site A and Site B Boundaries