Title
Introduction of Ordinance Authorizing the City Manager to Execute a Fifteen-Year Lease with Two Five-Year Options to Extend, Substantially in the Form of the Attached, with Nautilus Data Technologies, Inc., a Delaware Corporation, for Building 530, an 82,251-Square Foot Building Located at 120 West Oriskany Avenue, and the Adjacent Building 529, a 3,200-Square Foot Building, and Building 600, a 343-Square Foot Building, at Alameda Point. [Requires Four Affirmative Votes] (Base Reuse 819099) [Continued from April 2, 2019 to May 7, 2019; please note: public comment was closed on April 2, 2019]
Body
Body
To: Honorable Mayor and Members of the City Council
From: Eric Levitt, City Manager
EXECUTIVE SUMMARY
Nautilus Data Technologies uses innovative water cooling technology to operate data centers that reduce the cost of computing, cut power usage, eliminate water consumption, decrease air pollution, and lower greenhouse gas emissions. This action will authorize the City Manager to execute a fifteen-year lease with two five-year options with Nautilus Data Technologies, Inc, a Delaware corporation, for the development of a water-cooled data storage facility in Building 530, Building 529, and Building 600 at Alameda Point. The project includes $6 million in building improvements and an investment in infrastructure that will result in millions of dollars in electrical system improvements, water intake/discharge and recirculation systems, and high performance internet fiber and connections.
BACKGROUND
Nautilus Data Technologies has been interested in developing a data storage facility at Alameda Point for approximately two years. Initially, Nautilus was interested in locating its water-cooled data storage system on a barge at the piers, a technology it is currently piloting at the Port of Stockton. However, after touring Alameda Point and seeing Building 530 with its proximity to the water, its lack of windows, and privacy, the company thought the building would be ideal for a land-based, water-cooled data storage facility. Exhibit 1 is a map of the premises.
Over the years, the City of Alameda (City) has been approached by numerous data storage companies interested in locating at Alameda Point. Typically, this has not been an industry that meets the Base redevelopment goals for job and sales tax generation. However, Nautilus’ sustainable data center design won the 2016 European Breakthrough Innovation Award and the 2015 U.S. Startup of the Year Award. Innovative technologies, especially green energy, are a key sector of the Alameda economy and are supported in the City’s Economic Development Strategic Plan (<https://www.alamedaca.gov/EDSP>).
At its build out, Nautilus will become one of the largest consumers of energy from Alameda Municipal Power (AMP), which is important for the infrastructure development at Alameda Point and the community. At Alameda Point, the growth of Nautilus will hasten the upgrades for the Cartwright Substation that provides power to the Base, in turn attracting other large energy consumers to the Enterprise District. The community may benefit because a large consumer of power has the potential to result in significant electric rate revenues for AMP, which helps all customers in the City by putting downward pressure on future rate increases.
The proposed lease with Nautilus (Exhibit 2) was originally presented to the City Council at its April 2, 2019 meeting. At that meeting, Council continued consideration of the lease approval to its May 7, 2019 meeting with the intention that it be heard after an April 22, 2019 special meeting to tour the Enterprise District, where Nautilus is proposed to lease Building 530, and re-affirm its goals and objectives regarding redevelopment of the District. Staff continues to recommend that the City Council introduce an ordinance authorizing the City Manager to execute a lease with Nautilus consistent with the proposed terms discussed below.
DISCUSSION
Nautilus is interested in creating the first water-cooled data center at Alameda Point. The project is estimated to include $6 million in improvements to the building, which include a new roof, façade improvement, environmental/asbestos/mold remediation, landscaping, security, and parking upgrades.
Nautilus estimates that its investment in the City’s infrastructure will result in several million dollars in electrical system improvements, water intake/discharge and recirculation systems (mostly beneficial to the water cooling aspect of its project), and $5 million in high performance internet fiber and connections. Nautilus has agreed to pay 40% of the Development Impact Fees (DIF) for Base-wide infrastructure improvements, 25% of which must be paid over the initial term of the lease (within the first 15 years). The tenant cannot exercise its five-year renewal option without completing the 25% payment described above. The remaining 15% will be paid during the optional renewal periods, 7.5% over each of the subsequent five-year renewal options, for a total of 40% of the DIF - a sum of approximately $1,562,971. If Nautilus purchases the buildings, it will receive credit for funds already paid into the DIF. Payment of 40% of the DIF is based on the “usable life” of the building during the 25-year lease term; whereas, full payment of the DIF is required when a building is sold. In addition, Nautilus has committed to providing the City data storage space in its facility.
Nautilus must secure the appropriate environmental permits and certifications from regional and state regulatory agencies to build its water-cooling technology. These include:
• California Environmental Quality Act
• Bay Conservation and Development Commission
• California State Lands Commission
• California Department of Fish and Wildlife
• National Marine Fisheries Service
• U.S. Fish and Wildlife Service
• U.S. Army Corp of Engineers
• Clean Water Act Section 401 Water Quality Certification & Construction Storm Water National Pollutant Discharge Elimination System
• State of California San Francisco Bay Regional Water Quality Control Board
• Alameda County Flood Control and Conservation Board
• City of Alameda planning and building permits, including Marsh Crust and Use Permits
One concern brought up previously is the potential impact that the warming of the Bay water could have on the environment and wildlife. This would need to be evaluated during the regulatory agency reviews.
The Nautilus site is not in the buffer zone for the California least tern and this development will have no impact on the tern. In addition, staff consulted the marine biologist who worked with the community on the harbor seal haul-out and he determined that the project will have no impact on the seals. As part of the lease terms, Nautilus will have an early termination provision, which allows the tenant to terminate after fifteen months in the event it is unable to obtain its required permits. If this occurs, the tenant is required to pay the City an early termination fee of $47,705.58, and it forfeits the security deposit of $68,312.27.
AMP is supportive of the Nautilus proposal because at full build-out there will be a significant revenue contribution (estimated at $1.5-$2.5 million per year), which will put downward pressure on future rate increases for all customers. Upon lease approval, AMP will execute one or more special agreements with Nautilus to address issues such as power infrastructure needs. AMP is not anticipating many capital cost impacts associated with providing service to Nautilus. However for power procurement, AMP has already begun evaluating different short- and long-term options, and will likely require Nautilus to provide a deposit to reduce risk during the term of the power purchase agreement.
The current Cartwright substation has space capacity to accommodate much of the projected demand from Nautilus, but AMP will require Nautilus to make a contribution to the expansion and future replacement of the facility if Nautilus exceeds a certain amount of capacity. AMP will also work to ensure there is sufficient capacity for other customers at Alameda Point and for future development.
Nautilus has provided the following information regarding job generation, with additional details in the attached Letter of Interest (Exhibit 3):
• Phase I (Years 1 and 2), 100 union trade jobs (electrical, plumbers, pipefitters, etc.)
• Phase 2 (Years 3 - 5), 50 union trade jobs
• At build-out, 30 full-time data center employees: technical, facilities, security ($50,000 - $90,000/annually)
The Building and Construction Trades Council of Alameda County, AFL-CIO, has offered its support for this project and the platform it provides for economic growth and job creation in the attached letter (Exhibit 4).
Nautilus also cites numerous examples of new businesses drawn to locations near data centers/technology infrastructure, as well as increased exposure of the Enterprise District due to the 20-plus customer representatives who will rotate on-site throughout the lease term.
The rent schedule for the lease is:
|
Months |
Monthly Base Rent |
|
1 - 12 |
$ -0- |
|
13 - 24 |
$ 46,060.56* |
|
25 - 36 |
$ 47,705.58* |
|
37 - 48 |
$ 47,705.58 |
|
49 - 60 |
$ 50,831.12 |
|
61 - 72 |
$ 52,356.05 |
|
73 - 84 |
$ 53,926.73 |
|
85 - 96 |
$ 55,544.53 |
|
97 - 108 |
$ 57,210.87 |
|
109 - 120 |
$ 58,927.19 |
|
121 - 132 |
$ 60,695.01 |
|
133 - 144 |
$ 62,515.86 |
|
145 - 156 |
$ 64,391.33 |
|
157 - 168 |
$ 66,323.07 |
|
169 - 180 |
$ 68,312.77 |
* Months 13-36 subject to partial abatement pursuant to Section 4.1(b) of the attached Form of Lease stating that Nautilus Data Technologies, Inc. will spend approximately $100,000 on capital improvements to the Buildings during the first twelve (12) months of the Term and an additional approximately $6,000,000 on capital improvements and tenant improvements before the expiration of the thirty-sixth (36th) month of the Term (Tenant Work).
FINANCIAL IMPACT
The monies from the lease will be deposited into the Base Reuse Fund (Fund 858) Lease Revenue account and are limited to uses permitted under the Economic Development Conveyance Memorandum of Agreement with the United States Navy.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
In accordance with the California Environmental Quality Act (CEQA), this project is Categorically Exempt pursuant to CEQA Guidelines section 15301(c) - Existing Facilities.
The attached Water Intake and Discharge Pathways provides a design overview and locations of the water intake/discharge structures for Nautilus’s water-cooled system (Exhibit 5).
Environmental impacts of Nautilus’s water-cooled design received evaluation during the permitting and regulatory approval process for Nautilus’s Stockton data center, which is currently under development. The required approvals for the Stockton facility and the regulatory bodies that authorize them are provided in Exhibit 6.
Anticipated approvals to meet permit and compliance requirements for construction of an Alameda Point data center are found in Exhibit 7.
RECOMMENDATION
Introduce an ordinance authorizing the City Manager to execute a fifteen-year lease with two five-year options to extend, substantially in the form of the attached, with Nautilus Data Technologies, Inc., a Delaware Corporation, for Building 530, an 82,251-square foot building located at 120 West Oriskany Avenue, and the adjacent Building 529, a 3,200-square foot building, and Building 600, a 343-square foot building, at Alameda Point.
Respectfully submitted,
Debbie Potter, Community Development Director
By,
Nanette Mocanu, Assistant Community Development Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Premises
2. Form of Lease
3. Letter of Interest
4. Trade Council Letter of Support
5. Water Intake and Discharge Paths
6. Stockton Environmental Approvals
7. Permit Agencies and Requirements