Title
Introduction of Ordinance Authorizing the City Manager or His Designee to Execute an Amendment to the Lease with Pacific Shops, Inc. for the Tidelands Property Located along Clement Street between Alameda Marina Drive and Willow Street, Generally Known as Alameda Marina. (Community Development 216)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
On May 16, 2012, the City of Alameda (City) entered into a Tidelands lease agreement (Lease) with Pacific Shops, Inc. (PSI) for a portion of the property referred to as the Alameda Marina. The initial term of the Lease is 25 years and continues until May 15, 2037, unless terminated sooner. The Lease provides PSI an option to extend the initial term for 41 years, subject to three conditions precedent. PSI has satisfied all but one of the conditions precedent to exercising its option to extend the Lease term. However, PSI anticipates that it will not be able to obtain all permits and land use entitlements (collectively, Approvals) required by governmental agencies exercising jurisdiction over the Alameda Marina Master Plan development project by December 31, 2019, as required under the Lease. Staff is recommending that City Council amend the Lease to allow PSI to exercise its option to extend the Lease term and grant PSI an extension of time to obtain the Approvals until December 31, 2020 (Approvals Deadline). The amendment will reflect that if the Approvals are not obtained by the Approvals Deadline, the City may revoke PSI’s prior exercise of the option causing the Lease to expire at the end of the initial Term.
BACKGROUND
The Alameda Marina property is a 44-acre site located on Clement Avenue between Alameda Marina Drive and Willow Street comprised of approximately 27 acres of uplands and submerged lands owned by PSI and an adjacent 17 acres of waterfront land and submerged lands owned by the City in trust for the State of California. Neighboring land uses include Alameda Municipal Power to the west, the Navy Operational Support Center to the east, and a variety of light industrial, retail and residential uses across the street on Clement Avenue.
The 2012 Lease includes premises that were previously the subject of two prior leases dated 1965 and 1996 that were terminated (see Exhibit A, Map of Leasehold Area). The initial term of the Lease is 25 years with an option to extend the term for an additional 41 years subject to conditions precedent, as described above.
PSI has a total of 464 boat slips on ten piers, 368 of which are on leased land. The remaining slips are on land owned in fee by PSI. In addition to the slips, PSI has office space and shore-side facilities for vessels. PSI owns approximately 27 acres of uplands and submerged lands adjacent to the approximately 17 acres of leased Tidelands property, and has interest in developing its upland property in accordance with the Alameda Marina Master Plan, approved by City Council on July 24, 2018. One of the primary purposes of the Lease’s extension option structure was to facilitate private reinvestment and improvement of the City-owned Tidelands property.
DISCUSSION
The initial term of the Lease commenced on May 16, 2012, and continues for 25 years until May 16, 2037, unless terminated sooner. The Lease provides PSI with an option to extend the initial term for an additional 41 years, subject to three conditions precedent:
1. PSI shall have submitted a development plan application for the Development project by the end of Year five (2017).
2. By the end of Year eight (2019), PSI shall secure City’s final approval of the proposed development plan and all Approvals required for the Development Project have been obtained.
3. By the end of Year eight (2019), PSI shall have closed or be ready to close escrow for Development Project construction financing, and shall be ready to commence construction of an initial phase of the Development Project that includes a new investment of not less than $10-million for demolition, construction, remediation of Hazardous Materials, financing costs (including, without limitation, loan fees, commitment fees, closing costs, placement costs and interest), and soft costs relating to any of the foregoing (including, without limitation, design, engineering, City fees, permit fees, development impact fees and legal and other consulting fees).
Further, the Lease states if for any reason PSI fails to satisfy each and every condition to the option exercise, as set forth in subsections 1-3, within the time periods described, PSI shall have no right to extend the initial term of the Lease and the Lease expires on the expiration of the initial term (May 2037).
While PSI has satisfied all but one of the conditions precedent to exercising its option to extend the Lease term, PSI will not be able to obtain all Approvals by December 31, 2019. Without a Lease amendment, PSI will not be eligible to exercise its option and the Lease will expire May 16, 2037. Without the additional years being added to the Lease term through the option exercise, PSI will be unable to obtain the financing required to build out the Development Project approved in the Master Plan.
PSI is requesting that the City Council approve an amendment to the Lease to permit PSI to exercise its option to extend the Lease term and granting PSI an extension of time to obtain the Approvals until December 31, 2020, which is the end of Lease Year nine. PSA has agreed that the amendment will reflect that if the Approvals are not obtained by the Approvals Deadline, the City may revoke PSI’s prior exercise of the option causing the Lease to expire at the end of the initial Term.
PSI has agreed that the following will be included in the Lease amendment:
1. Boatyard: The Master Plan currently envisions a boatyard on the property and despite combined efforts from City staff and PSI, no viable boatyard operator has been identified. PSI has proposed a timeline, with a deadline of May 1, 2020, to find a potential boatyard operator.
If the process does not yield a qualified boat operator in the proposed time period, PSI will work with Planning Department staff and present a joint report to the City Council that will include a proposal to repurpose the boatyard flex space for alternative maritime commercial uses consistent with uses specified in the Master Plan.
2. Electrification: In support of the recently adopted Climate Action and Resiliency Plan (CARP), PSI commits to 100% electric development for the townhomes (24% of the development). In the multi-family units, PSI commits to providing all electric appliances.
PSI also commits to install 44 EV ready charging stations in the surface parking lots within the approved master plan, 29% more than required by the 2020 California Building Code.
If the Lease amendment is not approved before the end of the year:
• PSI will not be able to obtain construction and permanent financing for the Development Project due to the shorter Lease term;
• The approximately $18.5 million repair of the shoreline and seawall, more than 80% of which is on City property, will not occur;
• The added property value enhancement will not occur; and
• The Lease will expire in 2037, and the liability of the sea wall and shoreline will revert back to the City.
ALTERNATIVES
• Amend the Lease to permit PSI to exercise its option to extend the Lease term and grant PSI an extension of time to obtain the Approvals until December 31, 2020, which is the end of Lease Year nine (2020). If the Approvals are not obtained by the Approvals Deadline, the City may revoke PSI’s prior exercise of the option causing the Lease to expire at the end of the initial Term.
• Direct staff to renegotiate specific Lease terms. Under this alternative, staff would continue to negotiate Lease terms with PSI based on City Council input.
• Decline to amend the Lease. If the City Council does not amend the Lease, PSI will be unable to secure financing for its Development Project and unable to move forward with the project. Improvements to the City-owned seawall and shoreline for which PSI is currently obligated, would return to the City as on-going liability.
FINANCIAL IMPACT
Money from this Lease go into the Tidelands Trust Fund and are limited to the support of waterfront uses and activities.
The Lease requires PSI to prepare a Master Plan for the entire site with higher value uses to fund the major investments necessary to improve the City Tidelands property, including renovated seawalls and bulkheads, public access, and supporting infrastructure. A 2017 analysis of the City’s property shoreline, prepared by a City consultant, estimates the cost of the seawall improvements alone to be between $15 million and $17 million.
Pursuant to the Lease, if PSI is unable to obtain all Approvals, its financial responsibility for the improvement on City property will terminate, along with the Lease, in 2037. If that were to occur, the City would then have the financial responsibility for the improvement of the City-owned property.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with the Alameda Municipal Code and the Alameda Marina Master Plan.
ENVIRONMENTAL REVIEW
On July 10, 2018, the City Council certified the Final Environmental Impact Report (EIR) for the Alameda Marina Master Plan in accordance with the California Environmental Quality Act (CEQA) (State Clearinghouse #2016102064). The proposed Development Plan and Design Review for a 360-unit multi-family building implement the Master Plan and do not change the environmental impacts already disclosed in the EIR. No further environmental review is required.
CLIMATE IMPACTS
As part of negotiating the Lease amendment, PSI has agreed to several initiatives in support of CARP, including electrification and additional EV ready charging stations.
RECOMMENDATION
Introduce an ordinance authorizing the City Manager or his designee to execute an amendment to the Lease with Pacific Shops, Inc. For the Tidelands property located along Clement Street between Alameda Marina Drive and Willow Street, commonly referred to as Alameda Marina, to allow PSI to exercise its Lease option.
CITY MANAGER RECOMMENDATION
The City Manager recommends approval of the introduction of an ordinance authorizing the City Manager to execute an amendment to the Lease with Pacific Shops, Inc.
Respectfully submitted,
Debbie Potter, Community Development Director
By,
Nanette Mocanu, Assistant Community Development Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Leasehold Area
2. Lease Amendment
3. May 2012 Tidelands and Marina Lease
4. Draft Tenant Letter
cc: Eric Levitt, City Manager