Title
Recommendation to Approve Proposed Term Sheet for Development of Alameda Point Site A and Direct Staff to Negotiate a Sixth Amendment to the Disposition and Development Agreement with Alameda Point Partners Based Substantially on the Term Sheet, as well as Directing Staff to Negotiate Amendments to Ancillary Project Agreements. (Community Development 29061822)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
In June 2015, the City Council unanimously approved the “Site A” Development Plan, Development Agreement, and a Disposition and Development Agreement (DDA) with Alameda Point Partners (collectively, the Site A Agreements), the developer (APP). Several unforeseen events and timing issues have occurred over the years, resulting in five prior DDA amendments. After creating an estimated aggregate economic value exceeding $91.4 million since 2015, APP advised the City that the remaining project as approved is not financially viable. With authorization from the City Council, over the last several months, staff has been negotiating a Term Sheet (see Exhibit 1) with APP. The Term Sheet is designed to identify the key business and financial terms, which staff would use to develop a complete DDA amendment. Previously, the site had been entitled for 800 residential units as well as office and retail space. As drafted, the Term Sheet proposes the development of the following items to complete the remaining portion of Phase 1 and all of Phase 2: 416 residential market-rate units, 194 affordable units, one retail space, and the second phase of the waterfront park. Additional community benefits include: completion of a development pad with the infrastructure for a community facility (i.e., a performing arts center), $300,000 for future Site A improvements, such as for a recreational use, and a kayak launch.
By giving direction to staff to negotiate a DDA amendment with APP consistent with the Term Sheet for Site A, the City will have the opportunity to address approximately 25% of the units identified in the draft Housing Element for the Alameda Point area.
BACKGROUND
In June 2015, the City Council unanimously approved the “Site A” Development Plan, Development Agreement, and a Disposition and Development Agreement with Alameda Point Partners (collectively, the Site A Agreements), the developer The Site A Agreements provide for the construction of 800 housing units, 200 of which are affordable units, 600,000 square feet of commercial development, and up to 15 acres of public parks, all to be constructed over 15 years in three phases.
Over the seven-year period since execution of the Site A Agreements, through investment and construction there has been over $91.4 million of aggregate economic value created at Site A. In terms of specific project improvements, APP has accomplished the following on the 68 acres referred to as “Phase 1” of Site A:
• Constructed new infrastructure, including the reconstruction and realignment of West Atlantic Avenue, for all of Phase 1 of Site A at a cost of approximately $68 million (including direct and indirect costs),
• Constructed the neighborhood park at a cost of approximately $2.7 million,
• Constructed the first phase of the waterfront park at a cost of approximately $6.7 million,
• Designed and built the Seaplane Lagoon Ferry Terminal, which included APP making a $10,000,000 contribution to this project,
• Contributed $1,000,000 towards a future regional sports complex, and
• Contributed a total financial subsidy of $3 million for the 128 units of affordable housing constructed by Eden Housing, a non-profit affordable housing developer, including delivering the infrastructure improvements serving Block 8.
As a result of this work, the City has realized the construction of 546 market rate housing units and 128 very low- and low-income units at Alameda Point. This is the first housing constructed at Alameda Point since the adoption of the Naval Air Station (NAS) Alameda Reuse Plan was approved in 1996.
The 2015 Site A Development Plan includes two additional phases, “Phase 2” and “Phase 3,” that have not yet begun. In September 2021, City Council authorized staff to negotiate a “Term Sheet” revising the prior deal terms applicable to Phase 2. APP has advised the City that Phase 2, as currently entitled, is not financially viable, and APP will not be able to proceed with the development of Phase 2 unless the existing entitlements and Site Agreements are amended. To enhance the financial viability of the Phase 2 project, APP is seeking approval to increase the number of housing units at Site A from 800 to approximately 1,290 units. APP has suggested that a number of factors contribute to the challenges of successfully developing at Alameda Point, including:
• Cost and extensiveness of required infrastructure improvements;
• Requirement that 25% of all residential units be affordable (10% higher than other parts of the city);
• Costs arising from use of union labor consistent with the City’s project stabilization policy;
• Unforeseen site conditions;
• Increased costs of materials; and
• Costs related to providing significant front-loaded community benefits to the City as required by the DDA.
Staff and APP have been diligently working on a mutually acceptable Term Sheet establishing the material terms to be included in a DDA amendment. Central to these discussions has been shifting land entitled for commercial and retail purposes to residential use. Throughout these discussions, staff has used the following principles to guide the negotiations:
• Ensure draft Housing Element and Regional Housing Needs Allocation (RHNA) goals can be supported;
• Construct infrastructure to support future development;
• Deliver the required 25% affordable housing for the project; and
• Create a sense of place at Alameda Point.
At the February 28, 2022 Planning Board meeting, the Planning Board reviewed the City’s draft Housing Element and the critical role that continuing development at Alameda Point can play in meeting future RHNA goals. Through the City’s Housing Element, the City must identify lands that can be feasibly developed for housing during the 2023-2031 period to plan for over 5,353 units required to satisfy the City’s RHNA. A key feature of the City’s draft Housing Element is a plan to accommodate 1,482 of these 5,353 units on City-owned land at Alameda Point. To allow for 1,482 units at Alameda Point, the current entitlements for Site A must be revised to increase the housing units permitted in Phase 2.
On April 11, 2022, the Planning Board held a workshop on the Site A Development Plan Amendment (Exhibit # 2). At the meeting, the Planning Board endorsed (i) the proposal to increase the number of housing units from 800 to 1,290, and (ii) the overall site plan for Phase 2 with recommendations for relatively minor adjustments to the public streets and building placements.
The Planning Board also initiated a discussion about the large percentage of townhomes in the Phase 2 proposal. Approximately 416 of the 610 residential units (68%) are townhome or “walk up” units, which may not be fully accessible for people with disabilities and would require waivers from the City’s own Universal Design requirements. The Planning Board and the Commission on Persons with Disabilities will continue to evaluate the relative merits and challenges arising from the large number of townhomes and “walk up” units.
DISCUSSION
Over the last several months, staff has been negotiating with APP on the Term Sheet outlining the key business and financial terms of a DDA amendment. The Term Sheet includes a total of 416 new residential market-rate units across “Phase 1B” and Phase 2, and 194 affordable units at very low-, low- and possibly some moderate-income levels. Consistent with the Term Sheet, the phasing plan for the infrastructure work will be modified as described below, and contemplates that Phase 2 will be developed in three subphases referred to as “Subphase 2.1”, “Subphase 2.2” and “Subphase 2.3”.
|
Phase/Subphase |
Blocks |
Product |
Developer Contribution |
|
Phase 1B |
1A & 10A |
108 market rate townhomes |
$50k per very low- and low-income unit (Infrastructure for Phase 1B is already constructed.) |
|
|
10B |
1 Retail space (10,000 sf) |
|
|
|
|
91 very low- and/or low-income units* |
|
|
Subphase 2.1 |
15 |
147 market rate townhomes |
West Tower Infrastructure |
|
Subphase 2.2 |
14, 16, 17A |
161 market rate townhomes |
Backbone Infrastructure for applicable blocks |
|
|
17B |
103 very low- and/or low-income units* |
|
|
Subphase 2.3 |
12, 13 |
Community serving facility, such as a performing arts center |
Backbone infrastructure for a community serving facility |
|
|
19 |
Waterfront park (second phase) |
Waterfront park constructed |
* APP reserves the right to convert a portion of the very low- or low-income units in each phase to moderate-income units provided that the number of converted units is consistent with the requirements of the Renewed Hope Settlement Agreement and the City's Inclusionary Housing Ordinance.
Community Goals and Benefits
The following is a description of important community goals and community benefits the City will realize through this Term Sheet and a potential DDA amendment:
Significant Contribution to Address RHNA: By giving direction to staff to negotiate a DDA amendment with APP consistent with the Term Sheet, the City will have the opportunity to meet a significant portion (approximately 25%) of its RHNA at Alameda Point. Not proceeding with a DDA amendment will end the negotiations with APP. Identifying a new developer for Site A Phase 2 and negotiating a new term sheet with the new developer will require at least two (2) years. An additional two (2) years will be necessary for the new developer to (i) negotiate and sign a new development agreement and disposition and development agreement with the City, (ii) complete construction drawings, and (iii) begin work on the Phase 2 infrastructure. The West Midway/RESHAP project to the immediate north of Site A Phase 2 may be required to wait for Site A Phase 2 infrastructure. As a result, this four (4) year delay will reduce the City’s ability to plan for and reasonably expect the construction of housing over the next 8 years from 1,482 units to approximately 700 (approximately half the units in half the time), and the draft Housing Element will need to be adjusted. The number of units at Alameda Point will be reduced by about 700 units and the number of housing units in the residential areas of Alameda will be increased by about 700 units.
Continued Development of Alameda Point: Moving forward with Phase 1B and Phase 2 will allow Alameda Point to continue to become a vibrant and attractive destination, as envisioned by the City, while avoiding material delays in development. Continued development also delivers more critical infrastructure and affordable housing to the City.
Community Facility: The project will include completion of a development pad and the infrastructure for a community facility, such as a performing arts center on Blocks 12 and 13, anchoring the W. Atlantic corridor and waterfront park.
Kayak Launch: A kayak launch will be constructed as part of Phase 2 of the waterfront park.
$300,000 Contribution: A cash contribution of $300,000 will be made by APP for use in connection with future Site A improvements or other Recreation and Park Department facility, as elected by the City in its discretion.
Condominium Map: For all market-rate multifamily projects that are constructed in Phase 1B and Phase 2, APP will record against the property a condominium map, as approved by the Department of Real Estate, which will allow APP to sell or rent the units depending on market demand.
Key Provisions
Below are key provisions of the Term Sheet that are designed to mitigate risk to the City and ensure that critical elements of the project and important community benefits are realized.
Ensuring Affordable Housing is Constructed: The proposed revised plan for Phase 2 provides for 194 deed restricted affordable housing units (31% of the 610 units). In combination, Phase 1 and Phase 2 will meet the City’s 25% affordable housing commitments.
To ensure that these affordable units are constructed, APP will provide a subsidy of $50,000 for each low- and very-low income unit. As a further safeguard, this subsidy will be paid by APP prior to commencement of construction of the affordable housing project on a pro-rata basis each time APP pulls a market-rate building permit for a unit in Blocks 14, 16 and 17A. This subsidy will remain in escrow until APP has identified a qualified affordable housing developer and this affordable housing developer has secured necessary financing, at which time the subsidy will be paid to such developer.
Ensuring All Infrastructure and Phase 2 of the Waterfront Park are Constructed: Following conveyance to APP of Phase 2 and during 2023, APP will undertake all planning and engineering work for all of the infrastructure for Phase 2, including the balance of the waterfront park. This planning for all of Phase 2 infrastructure will occur immediately following conveyance even though, as described in the phasing/subphasing chart, the infrastructure will be constructed by APP in three subphases. This infrastructure planning work will require approximately one year to complete and will cost at a minimum approximately $12,000,000. The “Milestone Schedule” attached to the DDA amendment identifies dates by which this Phase 2 planning work will be accomplished. The significance of this Phase 2 planning related milestone is that if APP defaults on its obligation to construct the infrastructure for any of Blocks 12, 13, 14, 15, 16 or 17 and/or to complete Phase 2 of the waterfront park, the DDA amendment will provide for an assignment to the City all rights in and to the improvement plans and related construction contracts for Phase 2. This will allow the City to seamlessly bring in another developer to take on and complete these obligations if necessary.
Phase 1B/$1 Purchase Option - APP will grant the City a streamlined purchase option for Block 10B at a purchase price of $1. The City may exercise the purchase option if APP fails to meet any of the Milestone Schedule dates for Block 10B, plus the applicable cure period, or if the DDA is terminated for any reason. APP will not encumber Block 10B with any debt. The City’s purchase option will remain in effect until APP conveys Block 10B to the affordable housing developer. The purchase of Block 10B through this option will allow the City to quickly and efficiently take title to the property, and identify an alternative developer for the affordable units and efficiently proceed with development, particularly since the infrastructure for Block 10B is already complete. In addition to the land, the City will have collected the affordable housing subsidy of $50,000 for each low- and very-low income unit from APP, which can be used to assist an affordable housing developer to construct the affordable units.
Phase 2/$1 Purchase Option - APP will grant the City a streamlined purchase option for Phase 2 at a purchase price of $1, which option may be exercised by the City if APP is delayed in performance of any milestone, plus the applicable cure period. APP will not encumber Blocks 14, 16 or 17 with debt, but will encumber Block 15 to pay for the Phase 2 planning work, which as noted above, is anticipated to cost approximately $12,000,000. As a result, if the City exercises this purchase option, it would obtain Blocks 14, 16 and 17 for $1, but would need to repay to the lender the loan secured by Block 15. In exchange for this payment, the City would receive the ownership and benefit of all the planning work product and an assignment of any related contracts. The City’s purchase option will terminate with respect to any portion of Phase 2 that is transferred to an unaffiliated third party or that is subject to (i) a sub-phase final map and public improvement agreement, and (ii) vertical completion assurances. Staff notes that Block 12 and 13 and Phase 2 of the waterfront park have not been discussed in this provision, as ownership of these parcels will remain with the City and will not be transferred to APP.
Backbone Infrastructure Impacting West Midway/RESHAP Project - To avoid causing delay to the West Midway/RESHAP project, APP will prioritize completion of the infrastructure required for these projects. As part of Subphase 2.1, APP will complete the infrastructure for Block 15, which benefits the initial phase of the West Midway/RESHAP project. As part of Subphase 2.2, APP will complete the infrastructure for Blocks 14, 16 and 17, which benefits the later phase of the West Midway/RESHAP project. The prioritization of the Block 15 infrastructure, in particular, will allow the West Midway/RESHAP project to proceed according to its anticipated schedule.
Ensuring Phase 2 of Waterfront Park and Infrastructure for Community Space, Blocks 12 and 13, are Constructed - Subphase 2.3 of the Phase 2 infrastructure improvements will include the backbone infrastructure for Blocks 12 and 13 and Phase 2 of the waterfront park. As security for delivery of such items, APP will deposit cash with the City (to be held in escrow) equal to the estimated cost of construction on a pro rata basis ($71,082.79) for each market rate building permit pulled in Blocks 14, 16 and 17.
Indemnification - APP will fully defend/indemnify/hold harmless the City for all costs/fees/fines/damages (including attorney’s fees) relating to any legal challenge (administrative or judicial) against the approval of the proposed DDA amendments and related project approvals regarding Phase 2. This includes challenges raising California Environmental Quality Act (CEQA) or Surplus Lands Act (SLA) claims. However, APP will not be required to reimburse the City for any SLA penalties, including any potential penalties imposed by the California Department of Housing and Community Development (HCD) regarding Phase 2. Additionally, if any administrative or judicial challenge to the Phase 2 transfer is filed or if HCD rejects the City’s assertion that the sixth amendment is exempt from the SLA, the City retains sole and complete direction to not proceed with the transfer of Phase 2 or require APP to re-convey Phase 2 to the City in return for a payment for specified costs incurred by APP.
Existing Remedies - The City will retain all of its existing DDA remedies against APP for future DDA breaches.
Waivers - The sixth amendment will include a mutual California Civil Code Section 1542 waiver of all claims related to breaches of the DDA that may have arisen prior to the effective date of the sixth amendment, including, but not limited to claims that APP failed to comply with the Milestone Schedule with respect to the completion of the Phase 1 infrastructure and the conveyance of the Phase 2. Such waiver shall be effective upon the expiration of the judicial and administrative challenge period applicable to the City’s CEQA action for the sixth amendment and related project approvals.
Potential/Likely Impacts of Electing Not to Proceed with APP
While staff recommends the proposed Term Sheet and authorization to negotiate amendments to ancillary project agreements, such as the Development Agreement, the City Council may opt to terminate negotiations with APP. The below list describes relevant considerations if the City Council prefers not to continue conversations with APP:
• Removal of Site A, Phase 1B and possibly Phase 2 from the City’s draft Housing Element: This course of action would cause an increase in the amount of housing to be located in Alameda’s residential neighborhoods (R-2 through R-6), as described in the draft Housing Element, as a result of associated up-zonings.
• Significantly delay the development of Site A, Phases 2: If the DDA is terminated staff estimates that construction of Phase 2 would be delayed approximately 4 years, with construction beginning in 2027 instead of 2023. The delay would arise from the time needed to undertake the following steps: (i) surplus the parcels, (ii) if no deal was struck with a buyer through the SLA process, the City would issue a request for proposals for other developers to undertake development of Phases 2 and/or 3 (given the costs to develop at Alameda Point, as described above, staff believes that it is unlikely that an affordable housing developer will be able to redevelop Site A Phase 2), and (iii) select a new developer, enter an exclusive negotiating agreement and allow the developer time to conduct due diligence. Based on the time it took to conduct the due diligence and negotiate the DDA with APP, staff estimates that the DDA negotiation process alone would take at minimum of eighteen (18) months and could easily take longer. Once the DDA is executed with a new developer, that developer would need to review/revise/complete construction plans, and begin or complete the review by all the necessary agencies before construction can begin.
• Challenges for Future Developers: Based on staff’s work with the West Midway/RESHAP developer, we have verified that the development challenges experienced by APP are real issues similarly affecting the West Midway/RESHAP developer. A new developer of Phase 2 will be faced with comparable challenges and variables, but will have less familiarity with the property than APP. There is also no guarantee that the benefits and protections negotiated with APP and described in the prior section could be negotiated with a new development partner.
• Ability to Attract Future Developers: Ending the contractual relationship with APP could cause other potential development partners to shy away from considering partnerships with the City of Alameda for development at Alameda Point.
• Impact on West Midway/RESHAP Project: Regarding the West Midway/RESHAP project, there would likely be potential delay in development since funds for the West Tower Avenue infrastructure would need to be identified by the City and the West Midway/RESHAP developer would likely need to perform this additional work. This would likely require additional time for infrastructure planning.
• Litigation: If the City exercise its DDA remedies and terminates the DDA for Phase 2, litigation between the City and APP will likely result. Even if litigation is without merit and the City prevails, this will require the City to invest money and resources to achieve this result. During any litigation, the City most likely would be limited in its ability to seek a new developer and advance the project.
• Protracted Negotiation: A termination of the DDA could result in protracted negotiations with APP instead of litigation, which will require the City to invest money and resources to reach potentially a settlement. If no settlement is reached, litigation could subsequently occur. These efforts will take time and financial resources and development will be stalled.
ALTERNATIVES
• Approve the proposed Term Sheet with APP, with such changes as City Council may direct, and direct staff to prepare the DDA amendment and Development Agreement amendment, proceed with the Development Plan amendment initially reviewed by the planning board and update other ancillary documents, as necessary, to implement the revised Land Use Designation for Site A, Phases 1B and 2, as described above.
• Terminate negotiations with APP, which may result in some or all of issues described above in the staff report.
FINANCIAL IMPACT
The proposed action of approving the proposed terms and directing staff to negotiate a DDA amendment based on the Term Sheet has no fiscal impact. Should a project be developed that is consistent with the terms, staff will comply with the City’s overall policy of fiscally neutral redevelopment at Alameda Point.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action does not affect the Alameda Municipal Code and does not entail a binding project approval. Further approvals will be evaluated against planning and policy documents such as the Town Center and Waterfront Precise Plan.
ENVIRONMENTAL REVIEW
On February 4, 2014, per City Resolution No. 14891, the City Council certified a Final Environmental Impact Report (FEIR) under the California Environmental Quality Act (CEQA), California Public Resources Code Section 21000 et seq., and adopted written findings, a Statement of Overriding Considerations, mitigation measures, and a Mitigation Monitoring and Reporting Program (MMRP) for the Alameda Point Project, including the Town Center Plan area, which contains Site A (Alameda Point EIR) (State Clearinghouse No. 201312043).
Additionally, on December 1, 2021, per City Resolution No. 15841, the City Council certified a FEIR under CEQA, and adopted written findings, a Statement of Overriding Considerations, and a MMRP for the General Plan Amendment to Update the Alameda General Plan (General Plan Amendment EIR) (State Clearinghouse No. 2021030563).
Pursuant to CEQA Guidelines sections 15162 and 15163, none of the circumstances necessitating further CEQA review are present with respect to either the Alameda Point EIR or the General Plan Amendment EIR. The proposed project likely would not require major revisions to the Alameda Point EIR or the General Plan Amendment EIR due to new significant impacts or due to a substantial increase in the severity of the significant environmental effects. There have been no substantial changes with respect to the circumstances under which the project would be undertaken that would require major revisions of the Alameda Point EIR or the General Plan Amendment EIR due to new or substantially increased significant environmental effects. Further, there has been no discovery of new information of substantial importance that would trigger or require major revisions to the Alameda Point EIR or the General Plan Amendment EIR due to new or substantially increased significant environmental effects. For these reasons, no further environmental review with respect to either the Alameda Point EIR or the General Plan Amendment EIR is likely required. As project deal terms become more crystalized, staff will continue to evaluate potential environmental impacts and may undertake focused analysis as appropriate, prior to final Council approval.
SURPLUS LANDS ACT
The negotiations with APP are permitted under the SLA. The revisions to the SLA, contained in AB1486 (2019), do not apply to current negotiations with APP because the property is already subject to existing legally binding agreements to dispose of property. See Government Code Section 54234(a).
RECOMMENDATION
Approve the attached Term Sheet and providing direction to staff to negotiate a sixth amendment to the DDA based substantially on the Term Sheet, as well as amendments to other ancillary project agreement, as described above.
Respectfully submitted,
Lisa Maxwell, Community Development Director
By,
Lisa Fitts, Interim Base Reuse Manager
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibits:
1. Term Sheet, including Milestone Schedule
2. Development Plan Amendment
cc: Gerry Beaudin, Interim City Manager