Title
Recommendation to Authorize the City Manager, or Designee, to Execute an Exclusive Negotiation Agreement (ENA) with Brookfield Bay Area Holdings and Catellus to Develop the West Midway Project at Alameda Point. (Community Development 819099)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
On May 19, 2020, the City Council selected the Brookfield Properties/Catellus team (Developer) to develop the West Midway Project at Alameda Point and authorized the City Manager to negotiate an Exclusive Negotiation Agreement (ENA) with Developer consistent with the Form of ENA included in the Request for Qualifications (RFQ). The ENA that was negotiated with Developer includes certain terms that are materially different than those included in the form of ENA, specifically, the length of the initial term of the ENA, the phasing of the project and the use of the $225,000 deposit to be made by Developer were modified from the form. Therefore, staff is requesting that City Council authorize the City Manager to execute the negotiated ENA, a copy of which is attached as Exhibit 1.
BACKGROUND
On March 9, 2020, the City of Alameda (City) issued an RFQ for the development of the West Midway Project. The RFQ included a required Acceptance of Conditions Certification Form, which asked respondents to describe any requested modifications to the form of the ENA and stated that no changes to the ENA would be considered that were not raised as part of the response to the RFQ. On March 30, 2020, Developer submitted a Statement of Qualifications (SOQ) in response to the RFQ in which with no modifications to the form of ENA were requested. On May 19, 2020, the City Council selected Developer and authorized the City Manager to negotiate an ENA with Developer consistent with the form of the ENA included in the RFQ.
Staff, Developer and/or the Collaborating Partners have met on four occasions over the last several months:
1) June 3, 2020: Project kick-off and review of the content and format of the ENA and Disposition and Development Agreement (DDA) Term Sheet to be negotiated during the ENA term.
2) June 17, 2020: Staff and Developer met with the Collaborating Partners and Mid-Pen for initial discussions regarding financing, phasing, grant opportunities and potential uses of the $350,000 from the City in order to advance the project.
3) July 8, 2020: Staff, Developer and their respective attorneys met to discuss Developer’s suggested modifications to the ENA. The suggested modifications were determined to include material changes to the draft ENA prepared by staff consistent with the City Council-approved form of ENA.
4) August 6, 2020: Staff, Developer and the Collaborating Partners met to refine a proposal to expend the $350,000 approved as part of the mid-year budget cycle by the City Council to jump-start the RESHAP project. That proposal will come to the City Council for its consideration at the October 6, 2020 meeting.
Staff and Developer have negotiated an ENA that contains certain terms that are materially different than those contained in the City Council-approved form of ENA. Therefore, staff is returning to City Council requesting authorization for the City Manager to execute the ENA, as negotiated. The proposed changes are discussed below.
DISCUSSION
Listed below are the ENA terms to which the Developer has proposed material changes. Each section describes the original ENA language, Developer’s rationale for the change and staff’s recommendation based on negotiations with Developer.
1. Term
The form ENA called for an initial term of twelve (12) months with two (2) three (3) months extensions. In the form ENA, the City Manager was authorized to grant the extension(s) in his/her sole discretion.
Developer instead proposed an eighteen (18) month initial term in light of the uncertainty in the market with the changing economic environment due to the COVID-19 pandemic. The intent is to return to City Council with a DDA Term Sheet in six months (consistent with the form ENA) and use the additional twelve months, if needed, to develop a financially feasible development plan that reflects greater knowledge of the economy, financing and project construction costs.
Staff recommendation: Staff is in agreement with Developer’s rational for the recommended change that providing for an 18-month ENA term.
2. Deposit
The RFQ and form of e ENA stated that Developer would provide a non-refundable deposit of $225,000 within five days of executing the ENA. The $225,000 deposit is in addition to the $25,000deposit that was made by Developer following its selection.
During the negotiations, Developer initially proposed delivering to the City a fraction of the requested $225,000 deposit and instead allowing sums spent by Developer conducting financial, property, and entitlement due diligence investigations over the f five month period during which the the DDA Term Sheet was being negotiated to be credited toward the deposit sum
Developer’s justification was rather than apply the deposit to staff and City-related third party costs, Dovekie should be given credit for expenditures it will incur investigating the feasibility of the project, since many changes have occurred since Developer submitted its SOQ in March, including the on-going economic impacts of the pandemic and the instability and uncertainty of financial markets.
Negotiations between staff and the Developer resulted in the recommended deposit below:
Developer will provide a $125,000 non-refundable deposit in three-stages - 1) $25,000 upon selection (paid); 2) an additional $25,000 within 30 days following execution of the ENA; and 3) $75,000 within 30 days after execution of a Term Sheet. The remaining $125,000 will be provided as “Minimum Due Diligence Expenditures” incurred Developer, where Developer will, during the first five months of the ENA term, invest no less than $25,000 per month in conducting due diligence investigations associated with advancing the project. The ENA specifies that all due diligence materials will be provided to the City if the ENA is terminated. Therefore, if Developer terminates the ENA for any reason, including lack of project feasibility, the City will own all of the due diligence documents prepared by Developer. These documents will further the City’s and the Collaborating Partners’ knowledge of the property and inform further decision-making.
Staff recommendation: Staff is in agreement with Developer’s rational for the proposed changes and recommends that the negotiated deposit and Minimum Due Diligence Expenditures, as described above, be accepted.
ALTERNATIVES
• Authorize the City Manager to execute an ENA with Developer, as described above, to develop the West Midway Project.
• Direct staff to renegotiate one or both of the two above described terms based on City Council direction and authorize the City Manager to execute an ENA that is consistent with that direction.
• Direct staff to renegotiate one or both of the terms described above based on City Council direction and return to City Council for approval.
• Decline to modify the form of the ENA that was provided as part of the RFQ. Developer would then need to determine its willingness to proceed with the project through use of the form of the ENA and in light of changed market conditions.
FINANCIAL IMPACT
Approval of the ENA has no financial impact on the General Fund. Developer paid $25,000 to the City upon its selection. Those funds were deposited into the Base Reuse account and will be used to cover initial staff and third party costs during the ENA period. The negotiated ENA requires an additional $100,000 payment to be paid in two payments during of the ENA term. These funds will also be used to cover City staff and third party costs. The ENA also requires Minimum Due Diligence payments of $25,000 per month over a five-month period on due diligence activities. Should the ENA be terminated for any reason, the City would take ownership of any due diligence reports prepared during that period.
Any budget adjustments needed to implement this agreement will be included in the October budget update.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The recommended actions are consistent with the General Plan, Zoning Ordinance, Master Infrastructure Plan, Main Street Specific Plan and RESHAP DDA.
ENVIRONMENTAL REVIEW
On February 4, 2014, the City Council adopted the Alameda Point EIR, which evaluated the potential environmental impacts of the Alameda Point Zoning Ordinance and development in the MSN Plan area. The EIR analysis helped shape the MSN Plan to minimize potential environmental impacts and support a sustainable development. All development within the MSN Plan area is required to comply with the mitigation measures adopted by the City Council for Alameda Point.
CLIMATE IMPACTS
There are no climate impacts associated with execution of the West Midway ENA.
RECOMMENDATION
Authorize the City Manager to execute an Exclusive Negotiation Agreement that includes the changes to the form ENA, as described above, with Brookfield Bay Area Holdings and Catellus to develop the West Midway project at Alameda Point.
CITY MANAGER RECOMMENDATION
The City Manager requests authorization to execute an Exclusive Negotiation Agreement with changes with Brookfield and Catellus.
Respectfully submitted,
Debbie Potter, Community Development Director
By:
Michelle Giles, Base Reuse Manager
Financial Impact section reviewed by,
Nancy Bronstein, Interim Finance Director
Exhibit:
1. Proposed ENA