Title
Introduction of Ordinance Approving a 33-Year Lease, with One 33-Year Option to Renew, and Authorizing the City Manager to Negotiate and Execute Documents Necessary to Implement the Terms of a Lease with the Carnegie Innovation Hall, a California 501(c)3 Non-profit Organization, for 2264 Santa Clara Avenue (the Carnegie Building) and 1429 Oak Street (Foster House). [Requires Four Affirmative Votes] (Community Development 001)
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To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
On October 16, 2018, the City Council approved a Request for Qualifications (RFQ) for the Alameda Carnegie Building and adjacent Foster House. In February 2019, the Carnegie Innovation Hall was chosen as the successful proposal. The Carnegie Innovation Hall is envisioned as a center that pairs educational programming and entrepreneurship with arts, performance, music and technology. The proposed lease term is for 33 years, with one option to renew for an additional 33 years. The Carnegie Building and the Foster House require significant capital improvements, and the proposed lease includes rent abatement for the first 33 years to cover the cost of the restoration.
In addition to the restoration of the Carnegie Building and the Foster House, the Carnegie Innovation Hall would bring several other key benefits to the Alameda community, including increased access to educational and entrepreneurial programming and public access to the historic Carnegie Building, which has been vacant for over 20 years.
BACKGROUND
The historic Carnegie Building, located at 2264 Santa Clara Avenue, was one of the first three libraries funded by Andrew Carnegie to be built in California. Constructed in 1903, the Carnegie Building was designed by William H. Wilcox and John M. Curtis, and built by Alameda-based Foster & Son, at a cost of $30,842. In 1982, the City Council designated the building a Historical Monument, and later that year the building was added to the National Register of Historic Places.
The Foster House, located at 1429 Oak Street, was originally the home of C.H. Foster, the contractor who built the Carnegie Building. C.H. Foster died in 1915, and his house was converted into the Children’s Library in 1926. The Carnegie Building and Foster House remained in continuous operation as a public library until 1998, when the library moved into an interim building and later into the new Main Library. There were two reasons for the move: the buildings were found to be seismically unsafe and the buildings were too small for the needs of the highly utilized, growing library.
In 2001, the City of Alameda (City) invested over $3 million in the Carnegie Building to seismically upgrade the building, repair leaks, install a new roof, and repair the historic exterior. This work included demolition of existing heating, electrical wiring, and lighting systems, which were not replaced at that time due to limited funds.
In 2007, the City hired Muller & Caulfield Architects to test alternative uses and develop cost estimates for the complete restoration of the Carnegie Building. Muller & Caulfield found that a number of upgrades were necessary for occupancy, including new electrical and interior lighting systems, a new heating system, fire sprinklers, more complete disabled access to the entire building, additional restrooms, and additional restoration of historic elements. At the time, the cost of these improvements was estimated at $4.7 million. In 2017, the City hired Muller & Caulfield to update these cost estimates. Using an escalation index and incorporating code changes since 2007, the same improvements were estimated to cost approximately $6.6 million in 2018.
DISCUSSION
In September 2018, the City Council approved an RFQ for the Alameda Carnegie Building and adjacent Foster House (Exhibit 1). The goal of the RFQ was to find a tenant for the Carnegie Building that would provide cultural, educational and/or economic benefits to the Alameda community, restore and maintain the historic character of the building, and provide for public use of the building as frequently as possible.
Two Statements of Qualifications were received in response and in February 2019, a Selection Panel chose the Carnegie Innovation Hall (Exhibit 2).
The Carnegie Innovation Hall, proposed by Michael Sturtz and Christopher Bently, is envisioned as a versatile space combining education and entrepreneurship with the arts, performance, music and technology. As the founder of the Crucible and an Alameda resident, Michael Sturtz brings considerable experience to the development and day-to-day operation of a creative non-profit. His partner, Christopher Bently, has led the historic restoration of several prominent Bay Area buildings, including the former Federal Reserve Bank of San Francisco (today, the Bently Reserve).
On February 13, 2019, the City held a community meeting to provide more information and gather feedback on this proposal, which received widespread support at the meeting. On April 13 and September 15, 2019, the Carnegie Innovation Hall team held the first of a series of independent community meetings, with the goal of better understanding community wants and needs for the space.
Potential Benefits of the Carnegie Innovation Hall Proposal
The renovation and reuse of the Carnegie Building and Foster House, as proposed by the Carnegie Innovation Hall team, would bring several key benefits to the City:
• Restoration of the historic Carnegie Building. The Carnegie Innovation Hall team proposes to complete the restorations necessary to re-open this historic building to the City’s community, following more than 20 years of vacancy. Renovations will include new electrical, lighting, and heating systems, fire sprinklers, more complete disabled access, and the restoration and preservation of many historic elements. All work on the building will be conducted at prevailing wage, and performed in a manner consistent with the Secretary of the Interior’s Standards for historic buildings as required under Alameda Municipal Code Section 13-21.
• Access to educational programming. Once completed, the Carnegie Innovation Hall will serve as a center for education and innovation, combining entrepreneurial skills with the arts, performance, technology and music. Programming will include workshops and classes for youth and adults, with discounts for Alameda residents. While exact programming is still in the development stage, potential ideas include:
o The creation of a state-of-the art video production facility featuring cameras, editing suites, and sound rooms, with capabilities ranging from public broadcasting to Youtube content generation. Local students and residents would have the opportunity to take classes in video and content creation, combining creativity with real world video production skills.
o Workshops on topics such as sustainable design, videogame design, product innovation, and creative management skills, leveraging partnerships with local and international educational institutions such as the Stanford D. School, THNK in Amsterdam, and the Sustainable Design School in Nice, France.
The exact programming for the CIH will be shaped by the needs of the Alameda community, and the CIH team is in the midst of an extensive outreach effort to establish program interests and direction.
• Public Access to the historic Carnegie Building. Together, the restoration of the Carnegie Building and the operation of the Carnegie Innovation Hall will provide the Alameda community with substantial opportunities to access the historic Carnegie Building. Alameda residents will receive a minimum 10 percent discount on the cost of classes, workshops, and performances, and Alameda community-based organizations will have the opportunity to rent the venue at a 10 percent discount up to 36 times per year. In addition, this lease will include the opportunity for the City to hold up to 12 events per year at the venue with the rental fee waived and only direct costs required to be paid.
These community benefits are consistent with the objectives established in the RFQ.
Potential Lease Terms
The proposed lease for the Carnegie Building and the Foster House will be substantially in the form of the document attached as Exhibit 3. Exhibit 4 shows the buildings and parcel.
The proposed lease term is for 33 years, with one option to renew for an additional 33 years. For the first 33 years, rent will be fully abated to account for the capital improvements that need to be made to the buildings and the substantial cost of such improvements. “Starting 48 months after commencement of operations, the tenant must pay a fee on for-profit special events, in the amount of 2 percent of gross revenue generated from for-profit special events, after the first $300,000 (REVISED) earned.”
All capital improvement and construction projects are subject to prevailing wage and compliance relevant legal requirements, and the tenant must endeavor to negotiate an agreement to ensure labor peace prior to commencement of construction. Should the extension option be exercised by tenant, then starting in year 34, rent will equal two percent of the organization’s gross revenue, minus any income taxes paid by the tenant.
The lease contains the standard insurance, indemnity, assignment and termination clauses that the City requires in all its leases. The following summarizes the major business terms of the lease:
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Terms |
2264 Santa Clara Avenue & 1429 Oak Street |
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Square Footage |
15,251 |
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Uses |
Community space to promote education and ideas, and to provide space for public and private events and performances, with food and bar services. |
|
Length of Term |
33 years |
|
Extension Options |
One 33-year option to extend the term |
|
Monthly Base Rent |
$15,597.61 (fully abated for initial 33 years) |
|
Capital Improvement Credit |
$6,176,655 (to be abated over 33 years) |
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For-profit Special Event Fee |
Starting 96 months from commencement of operations, 2% of gross revenue generated from for-profit special events, after the first $300,000 earned gross revenue. To be remitted annually to the City, with a report. |
|
Rent for Months 397+ (Extension Option) |
2% of gross revenue (as indicated in audited financial statements), minus any income taxes paid by tenant. |
|
Project Milestone Schedule |
Tenant is required to demonstrate incremental progress towards the restoration of the Carnegie Building and Foster House for public use, culminating in completion of construction within approximately two years, and initiation of operations within approximately 28 months of lease effective date. |
|
Community Benefit Benchmarks |
Tenant is required to meet the following Community Benefit Benchmarks over the course of the lease term: • A minimum of 200 youths (under 18) per year will participate in recurring course offerings. • A minimum of 100 adults (18 and older) per year will participate in recurring course offerings. • CIH will hold at least 10 community events per year with discounts available to Alameda residents for each event. • CIH will hold at least 1 open house per year (free entry to learn about programs and events). • CIH classes will offer at least 5 different course offerings for youths per year. • CIH hours of operation for non-profit activities will be an average of 30 hours/week over at least 5 days/week. • 10% discount on applicable fees for up to 36 events per year for Alameda community-based organizations and public entities (e.g., AUSD). • 10% discount on applicable fees for Alameda residents. |
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Reporting Requirements |
Monthly: tenant to submit monthly reports to City on applications for discounted community use, including the status of all requests. Annual: tenant to submit an annual report of program activities and organization finances, and a course catalog containing course descriptions. Tenant and City to have annual check-ins to ensure Community Benefit Benchmarks are met. Every 5 years: every 5 years (after the first 10-year period of the term) the tenant must provide a 5-year plan summarizing its upcoming program goals. If needed, the Community Benefit Benchmarks can be adjusted (by mutual agreement) to reflect any changes to the organization's goals and mission. Any material changes must be approved by City Council. |
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City Use |
Free (no rent) use of the facility for up to 12 city-sponsored events per year. |
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Labor Peace/Prevailing Wage |
Tenant will endeavor to negotiate an agreement to ensure labor peace prior to commencement of construction.1 Prevailing wages required for all capital improvement and construction projects. |
ALTERNATIVES
Alternatives include:
1. Authorize the City Manager to execute a 33-year lease with the Carnegie Innovation Hall for the Alameda Carnegie Building and adjacent Foster House.
2. Direct staff to renegotiate specific lease terms. Under this alternative, staff would continue to negotiate lease terms with the Carnegie Innovation Hall team based on City Council input.
3. Direct staff to seek other prospective tenants. If the Carnegie Innovation Hall is not the desired tenant or if mutually agreeable terms could not be reached with Carnegie Innovation Hall, staff could market the properties to other prospective tenants.
The second and third alternatives would cause a delay in the rehabilitation and reuse of the Carnegie Building and Foster House, and may result in another period of long-term vacancy.
FINANCIAL IMPACT
There is no material financial impact from approving a lease for the Carnegie Building and Foster House. All building renovations will be undertaken by the Carnegie Innovation Hall team in exchange for a rent credit for the first 33 years.
Any future revenue generated by the lease (either by fee or by rent payments) will be deposited into the General Fund.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The reuse of the Carnegie Building located across the street from City Hall has long been a community and economic development goal, as described in the Civic Center Vision Plan. It is also consistent with the Economic Development Strategic Plan, which includes strategies to support artists, tourism and hospitality, retail and restaurants, and workforce preparedness.
ENVIRONMENTAL REVIEW
Approval of the lease is intended to facilitate restoration and preservation of a historic building, and is exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Sections 15183 (projects consistent with General Plan and Zoning), 15061(b)(3) (general rule, no significant effect on the environment), 15325(e) (Transfers of Interest in Land to Preserve Historical Resources), and 15331 (Historical Resource Restoration/Rehabilitation).
In addition, none of the exceptions in CEQA Guidelines section 15300.2 apply. The Carnegie Building is on the City’s Historical Monument List and listed on the National Register of Historic Places, and all work on the building will be performed in a manner consistent with the Secretary of the Interior’s Standards for historic buildings. Restoration of the building will not cause a substantial change in the significance of this resource because it would not materially alter in an adverse manner those physical characteristics that account for the historic nature of the resource.
CLIMATE IMPACTS
The restoration and reuse of the Carnegie Building and Foster House have a variety of potential positive climate impacts:
• Reduced environmental impact by re-using the buildings, compared to new construction.
• Encourage biking, walking and use of public transportation through:
o Location that is well-served by public transportation;
o Provision of new bicycle parking spaces; and
o No new automobile parking spaces.
• Reduced need for trips out of the City by providing local access to youth educational programming and event venue rentals.
• Reduced vulnerability due to location outside of 100 year flood zone and inundation zones.
RECOMMENDATION
Introduce an Ordinance approving a 33-year lease, with one 33-year option to renew, and authorizing the City Manager to negotiate and execute documents necessary to implement the terms of a lease with the Carnegie Innovation Hall, a California 501(c)3 Non-profit Organization, for 2264 Santa Clara Avenue (the Carnegie Building) and 1429 Oak Street (Foster House).
CITY MANAGER RECOMMENDATION
The City Manager recommends approval of the proposed lease with the Carnegie Innovation Hall. The negotiated lease contains several provisions in it including:
• A 33 year lease with a 33 option to provide ability to Fund Raise from Foundations and other financing options for the required capital costs.
• In consideration of a 66 year lease it is anticipated that there will be approximately $6 million in construction and improvement costs to the Carnegie Hall.
• Also, in consideration of a 66 year lease it is the desire within the lease to have high quality labor to ensure that the construction provides for high quality improvements and ensure safety of the facility to go along with the $3 million the City previously put into the building.
• The Contract outlines City and community benefits.
While there is give and take in the contract, I believe overall this contract provides an opportunity for an excellent benefit to the community with its proposed programming.
Respectfully submitted,
Debbie Potter, Community Development Department Director
By,
Amanda Gehrke, Development Manager
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Request for Qualifications for the Alameda Carnegie Building
2. Carnegie Innovation Hall Statement of Qualifications
3. Lease
4. Aerial Map of Building
cc: Eric Levitt, City Manager
Footer 1 - The City requests this provision pursuant to its proprietary / market-participant capacity and seeks to avoid any potential disruption of this important City project. The City’s proprietary / market-participant interests include, but is not limited to, the significant financial investment the lease permits and expects the developer to make on the City’s behalf at this City property, the unique value of this historic property to the City, the exceptional place this property holds in the City’s civic core, and the importance of having the highest quality of work product on the construction in the building and effective delivery of public services post commencement.