Title
Recommendation to Hold a Work Session and Provide Feedback on a Proposed Disposition Strategy for the Leasing and Sale of Buildings within the Reuse Area at Alameda Point. (Community Development 29061822) [This item is a Work Session to obtain Council feedback]
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
Given recent Council and community discussions about City staff’s approach to the lease and sale of buildings at Alameda Point, staff retained Keyser Marston Associates (KMA), a real estate economics consulting firm, to undertake an analysis of the real estate assets at Alameda Point specifically within the Reuse Area, and to make recommendations regarding a potential strategy for future leasing and sale of buildings (Exhibit 1). Additionally, staff conducted two stakeholder meetings to obtain input from developers and existing Alameda Point property owners and tenants.
Based on the KMA analysis and findings, input from the stakeholder meetings, and goals for Alameda Point gleaned from key City documents, staff proposes a strategic, phased approach to both leasing and sale of buildings in the Reuse Area (Mixed Portfolio Phasing Strategy). In general, the Mixed Portfolio Phasing Strategy, means buildings are sold selectively, and as needed, to fund the ongoing implementation of a new, cohesive backbone infrastructure system, while also maintaining a portfolio of buildings for lease to continue generating ongoing lease revenue to fund maintenance and operational needs arising from the aging existing infrastructure. The proposed Strategy also addresses the need to allow for flexibility in order to take advantage of new and unexpected opportunities that meet the City’s goals, and to leverage City investment and land for community amenities and benefits, such as jobs, parks, and transportation facilities.
Staff seeks City Council review and feedback on the proposed City’s goals and the recommended Mixed Portfolio Phasing Strategy for the lease and sale of buildings within the Reuse Area at Alameda Point.
BACKGROUND
The following provides a summary of key information regarding Alameda Point that provides the background context for the development of the proposed Strategy for the lease and sale of buildings in the Reuse Area of Alameda Point.
Alameda Point Planning and Policy Context
Since the decommissioning of the former Naval Air Station Alameda, now known as Alameda Point, the City developed and approved numerous documents and plans that guide reuse and development of Alameda Point, which include the following:
• Naval Air Station (NAS) Alameda Community Reuse Plan (1996)
• Alameda Point General Plan Amendment Chapter 9 (2003)
• Alameda Point Zoning and Municipal Code Amendments (2014)
• Master Infrastructure Plan (MIP) (2014)
• Town Center and Waterfront Specific Plan (2014)
• Main Street Neighborhood Specific Plan (2017)
• Transportation Demand Management Plan (2018)
• Climate Action and Resiliency Plan (2019)
• MIP Amendment (2020)
These key documents articulate a vision and goals that guide the reuse and redevelopment of Alameda Point.
Approach to Backbone Infrastructure
The approved MIP provides the master plan for the phased replacement of all of the Navy’s outdated and substandard utility infrastructure, including water, sewer, storm drain, electrical, gas, telecommunications, and surface street improvements at Alameda Point. Ongoing use and maintenance of the existing infrastructure at Alameda Point is challenging with its reduced reliability of service and increased repair costs. In addition, the City is responsible for and has ongoing operational expenses related to Navy installed water, gas and telecommunication facilities. When the new infrastructure is built out, EBMUD, PGE and outside telecommunication providers’ facilities will be installed and this responsibility transferred.
Replacement of the backbone infrastructure at Alameda Point, as outlined in the MIP, is critical to the successful reuse and redevelopment of Alameda Point and new infrastructure is necessary prior to new construction and long-term use of Alameda Point real estate assets. The City cannot facilitate long-term private use of Alameda Point or build new housing, parks or businesses without new infrastructure. Consistent with the MIP, the backbone infrastructure cost is currently estimated at approximately $700 million or $2 million per acre.
The approach to replacing the Alameda Point backbone infrastructure pursuant to the MIP varies significantly depending on site characteristics and constraints. Specifically, the infrastructure replacement approach differs between the Reuse Area and the Development Area outlined in Exhibit 2.
• Reuse Area: The Reuse Area is bound by Spirits Alley to the West, the Seaplane Lagoon to the South, Pan Am Way to the East, and Main Street to the North, and also includes the “Big Whites”, the single family homes in the Northeast corner of the base that are historic in nature. Important aspects of the approach to infrastructure in the Reuse Area include:
ü It is a Nationally Registered Historic District that highly restricts significant building demolition and large-scale new “ground up” development;
ü Single buildings / small parcels are unable to support the large cost of implementing cohesive backbone infrastructure;
ü Building sales are primarily used to fund infrastructure replacement costs; and
ü Phase 1 of new infrastructure in the Reuse Area is currently under construction, and Phase 1 and future phases of new infrastructure in the Reuse Area consistent with the MIP are depicted in Exhibit 3.
• Development Area: The Development Area is bound by Pan Am Way to the West, Hornet Avenue to the South, Main Street to the East and Essex Drive to the North. The approach to infrastructure in the Development Area includes:
ü Unrestricted by a historic district, new “ground up” development can occur in a larger and more traditional fashion;
ü Economies of scale enable infrastructure development to be funded by private developers (e.g. Site A, West Midway Projects);
ü Infrastructure replacement costs are funded by new development and developers; and
ü The Phase 1 development of Site A implemented significant new infrastructure primarily along the central and eastern corridors of Alameda Point.
The focus of the KMA analysis and staff’s proposed Strategy for leasing and sale of buildings is specifically on the Reuse Area due to the large portfolio of existing building assets and the need to finance infrastructure in a less traditional and more incremental manner.
Sites Not Available for Sale
Currently at Alameda Point, a proportion of the land is either not available for sale and/or is not currently in a condition to be leased or sold due to environmental factors or the presence of existing disposition and development agreements. A map of these unavailable parcels is depicted in Exhibit 4. Some parcels, such as tidelands trust properties that are held in trust by the City for the State of California, are not allowed to be sold.
Surplus Land Act (SLA)
In January 2020, development at Alameda Point, including the previous approach to leasing and sale of buildings, came to a halt when the SLA was amended by the State. As a result of this SLA amendment, the City was unable to sell Alameda Point properties or lease such properties for a term greater than 12 months in the same way it leased and sold property in the past. However, effective January 1, 2023, pursuant to AB2319, all of Alameda Point was made exempt from the SLA allowing sale and leasing activities at Alameda Point to commence again in a less prescribed and limiting way.
DISCUSSION
Given recent Council and community discussions about City staff’s approach to the lease and sale of buildings at Alameda Point and the change in the SLA, staff retained Keyser Marston Associates (KMA), a real estate economics consulting firm, to undertake an analysis of the real estate assets at Alameda Point specifically within the Reuse Area, and to make recommendations regarding a strategy for future leasing and sale of buildings (Exhibit 1). Additionally, staff conducted two stakeholder meetings to obtain input from developers and existing Alameda Point property owners and tenants described in greater detail below.
Based on the KMA analysis and findings, input from the stakeholder meetings, and goals for Alameda Point gleaned from key City documents, staff proposes the Mixed Portfolio Phasing Strategy, a strategic, phased approach to both leasing and sale of buildings in the Reuse Area. In general, the Mixed Portfolio Phasing Strategy, means buildings are sold selectively, and as needed, to fund the ongoing implementation of a new, cohesive backbone infrastructure system, while also maintaining a portfolio of buildings for lease to continue generating ongoing lease revenue to fund maintenance and operational needs arising from the aging existing infrastructure. The proposed Strategy also addresses the need to allow for flexibility in order to take advantage of new and unexpected opportunities that meet the City’s goals, and to leverage City investment and land for community amenities and benefits, such as jobs, parks, and transportation facilities.
Staff seeks City Council review and feedback on the proposed City’s goals and the recommended Mixed Portfolio Phasing Strategy for the lease and sale of buildings within the Reuse Area at Alameda Point.
Goals for Leasing and Sale of Buildings in the Reuse Area
In considering how to approach the development of a disposition strategy for the Reuse Area at Alameda Point, KMA and staff considered the vision and goals for reuse and redevelopment of Alameda Point based on the key guiding planning documents listed above. The vision presented in the 1996 NAS Alameda Community Reuse Plan was to “transform NAS Alameda into a transit oriented, mixed use residential district and employment center with unique waterfront parks, recreational, entertainment and retail opportunities.” Based on this vision and the other key planning documents, staff gleaned the following three overarching goals for the reuse and redevelopment of the Reuse Area at Alameda Point that has guided the development of the proposed Strategy:
• Implement New Cohesive Backbone Infrastructure Development Consistent with the MIP. A primary goal of Alameda Point is to ensure that reuse and redevelopment implements and ultimately, is served by, a new and cohesive backbone infrastructure system guided by the MIP.
• Generate Sufficient Lease Revenue to Cover Operating Expenses. Another goal is to ensure that there is sufficient lease revenue to cover ongoing operating expenses (e.g. staffing and maintenance costs), as well as contingency funds for unexpected repair and maintenance costs resulting from aging infrastructure.
• Deliver Benefits to the Alameda Community. A third goal is to leverage the City’s public land asset to bring community benefits to the City of Alameda, such as:
ü Transportation facilities
ü Public parks, such as Whale Park, Seaplane Lagoon Promenade and the future regional sports complex
ü Job creation
ü Affordable housing at varying income levels
ü Tax base growth, including property, sales and possessory interest taxes
While the above goals were gleaned by staff from key guiding documents and informed by past and current staff experience working at Alameda Point, staff would like to receive feedback from the Council on these goals.
KMA Key Findings
KMA performed an analysis of Alameda Point’s assets in the Reuse Area and made recommendations regarding a potential disposition strategy (Exhibit 1). KMA analyzed alternative approaches to leasing and selling buildings at Alameda Point within the Reuse Area to help inform City approaches from an economic and financial perspective and provide recommended criteria for structuring the approach. The report also describes the financial advantages and disadvantages of leasing, selling and holding its existing assets. In addition to a mixed portfolio approach, KMA also analyzed the pros and cons of selling all real estate assets in bulk, selling all real estate assets incrementally, and leasing all real estate assets.
The recommended criteria to inform the sale, leasing and development of City assets in the Reuse Area of Alameda Point are generally summarized as follows:
Assets for which the City should prioritize sale include those that:
• Are expected to generate substantial proceeds to fund infrastructure
• Benefit from the close proximity of new infrastructure
• Have a lease term that is close to its end, such that a purchaser can improve the building and recover costs through a new lease
• Provide an opportunity to attract a catalytic user or use
Assets for which the City should prioritize continuing to lease include those that are:
§ Not benefited by new infrastructure
§ Have an existing use the City wants to preserve, unless preservation of the use can be accomplished through a covenant or comparable restriction
§ Are located in areas and/or have ownership structures that inhibits a sale (e.g. tidelands trust properties, Navy or AUSD ownership, existing toxic concerns)
Mixed Portfolio Phasing Strategy
Based on recommendations from KMA, stakeholder input (described below), and the above goals, City staff proposes a Mixed Portfolio Phasing Strategy, which in general, means buildings are sold selectively, and as needed, to fund the ongoing implementation of a new, cohesive backbone infrastructure system, while also maintaining a portfolio of buildings for lease to continue generating ongoing lease revenue to fund maintenance and operational needs arising from the aging existing infrastructure. The proposed strategy also addresses the need to allow for flexibility in order to take advantage of new and unexpected opportunities that meet the City’s goals, and to leverage City investment and land for community amenities and benefits, such as jobs, parks, and transportation facilities. The following outlines the proposed Mixed Portfolio Phased Strategy for the Reuse Area in greater detail:
• Prioritize backbone infrastructure replacement. The importance of the replacement of infrastructure at Alameda Point cannot be overstated: new infrastructure is necessary prior to new private development and long-term uses. Further, the existing old, deteriorating infrastructure is unreliable and costly for the City to maintain.
• Rely primarily on building sales to fund continued backbone infrastructure development consistent with phasing in MIP. The strategy relies on selling buildings to fund continuous backbone infrastructure replacement consistent with the MIP. New infrastructure development is slated to generally move east to west, building off of the Site A backbone infrastructure that has already been completed and the Phase 1 Reuse Are infrastructure currently under construction.
• Maximize value and sale proceeds by selling buildings that are located adjacent to new infrastructure. To maximize land value and sale proceeds and recapture the City’s investment, building sales should generally occur after new infrastructure is installed adjacent to a building, requiring close coordination between building sales and infrastructure phasing.
• Account for the fact that the sale of City properties will result in reduced ongoing expenses and the related need for significant leasing revenues. As buildings are sold and additional infrastructure at Alameda Point is replaced, the City’s need to maintain a robust leasing portfolio will decrease because the City’s operational and maintenance needs arising from old, deteriorating infrastructure will also decrease.
• Retain high-value leasing assets until operational costs in the Reuse Areas are significantly reduced. High-value leasing assets, such as certain hangars, would not be targeted for immediate sale until adjacent backbone infrastructure was completed, although leases with future purchase options may be an option to incentivize building investment from building owners and developers.
• Maintain flexibility and provide for the ability to be nimble and opportunistic. The City’s approach should maintain ample flexibility to pursue opportunities that may not perfectly align with the described strategy, but would result in achieving significant City benefits.
Over time, the sale of buildings and parcels in the Reuse Area will reduce the City’s real estate portfolio at Alameda Point, in turn reducing operation and maintenance expenses and the corresponding need for significant leasing revenues. In parallel, as more of the existing infrastructure is replaced, the City will increase the reliability of services and decrease the City’s repair and maintenance costs. The long-term result of the proposed Mixed Portfolio Phasing Strategy is that the Reuse Area of Alameda Point will ultimately consist of primarily privately owned and improved parcels that are served by new and reliable infrastructure that can be cost-effectively maintained by the City.
Community Outreach
In addition to commissioning the KMA report, staff sought feedback from key stakeholders and those with expertise in the real estate industry. To that end, two separate meetings were held: one meeting focused on obtaining input from Alameda Point tenants and owners, and the other meeting gathered input from Bay Area developers. The following is a summary of those meetings and the key themes that emerged. Exhibits 5 and 6 provide detailed notes from both meetings.
Alameda Point Tenant and Owner Meeting
On February 7, 2023, staff facilitated a discussion with Alameda Point building owners and tenants to gather feedback on the City’s proposed approach to the sale, leasing and development of parcels in the Reuse Areas of Alameda Point. The gathering was attended by over 50 owners and tenants and 11 City staff and included a presentation by the City Manager and David Doezema from KMA, followed by small group discussions facilitated by City staff. During the small group discussions, participants provided feedback on the proposed strategy and shared general thoughts about their experiences as owners and/or tenants at Alameda Point. Representatives from each small group then shared their key takeaways with the entire group. A few consistent themes emerged from the group discussions including:
• General support for the proposed Mixed Portfolio Phasing Strategy;
• Concerns over the safety and reliability of infrastructure and overall sense of public safety at Alameda Point;
• Favorable perspectives on the uniqueness of the buildings, diverse business community, desirability of the location and the excellent views available at Alameda Point;
• The advantages and disadvantages of being somewhat isolated at Alameda Point; and
• A desire to have more amenities at Alameda Point, such as cafes and restaurants.
Developer Roundtable
On February, 16 2023, staff facilitated a focus group discussion with Bay Area real estate developers to gather information on the City’s proposed strategy on the sale and leasing of buildings in the Reuse Area. Participants in the focus group included both developers that have current interests in Alameda or have shown interest in pursuing projects in the past, as well as other Bay Area developers who are not active in the Alameda market. Specifically, this meeting was intended to gather feedback from experts within the real estate industry regarding the proposed strategy. Key take-aways include:
• General support for the proposed Mixed Portfolio Phasing Strategy;
• In selecting future developers for Alameda Point and the Reuse Areas, a developer’s proven track record should be considered;
• When a developer is making a significant investment in a property, it will prefer to (or need to) own the parcel in order to justify financially the upfront investment or obtain financing for the investment;
• Alternatively, smaller developers may prefer to lease a parcel with an option to purchase, as this allows the lease structure to serve as the initial deal financing, which is otherwise challenging for a smaller developer to obtain;
• Longer leases are needed to support greater upfront building investment;
• The City should be careful about the length of leases in the Development Areas so as not to create additional development hurdles;
• There may be alternatives ways to help finance infrastructure in the Reuse Area besides building sales, such as through the use of Community Facility Districts (CFDs) or other funding mechanisms; and
• Reuse and redevelopment at Alameda Point requires flexibility and creativity from all parties involved.
Proposed Council Discussion Questions
Staff is seeking Council feedback on the goals, and proposed disposition strategy for the Reuse Area of Alameda Point, including the following questions:
• Goals. Does Council agree with the identified goals (implementation of new cohesive infrastructure, generation of sufficient revenue to cover both operating and capital expenses, and delivery of community benefits)?
• Overall Mixed Portfolio Phasing Strategy. Does Council agree with a Mixed Portfolio Phasing Strategy that phases and leverages building sales to fund continued backbone infrastructure development, while maintaining sufficient leasing revenues to cover ongoing operating costs?
• Components of Mixed Portfolio Phasing Strategy. Does Council agree with the specific aspects of the Strategy that will guide the leasing and sales efforts in the Reuse Area (i.e., maximizing sale proceeds by selling adjacent to new infrastructure and continuing to lease the high-value hangars until operational costs are minimized)?
ALTERNATIVES
• Provide feedback to staff on the proposed Mixed Portfolio Phasing Strategy for the lease and sale of the City’s real estate assets within the Reuse Area at Alameda Point.
• Provide feedback to staff on an alternative approach to the lease and sale of buildings in the Reuse Area of Alameda Point, as outlined in the KMA report, such as:
ü Selling all real estate assets in bulk
ü Selling all real estate assets incrementally
ü Leasing all real estate assets
• Direct staff to seek further third-party information.
FINANCIAL IMPACT
Pursuant to a City Council policy (Resolution No. 13643, adopted November 4, 2003), Alameda Point development is expected to be fiscally neutral to the City. The policy states, “revenues created by a development project, coupled with assessment district or community facilities district financing where appropriate, will provide sufficient funding to the City of Alameda to pay its cost of providing municipal services for that development. As a result, revenue generated from sale and leasing activity, as well as revenues generated from a community facilities district for services, is used to benefit Alameda Point. Specifically, revenue from building sales fund the construction of new infrastructure in the Reuse Area and leasing revenue helps fund maintenance and operational costs at Alameda Point.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
Key documents that established the guiding vision for Alameda Point are as follows:
• NAS Alameda Community Reuse Plan (1996)
• Alameda Point General Plan Amendment Chapter 9 (2003)
• Alameda Point Zoning and Municipal Code Amendments (2014)
• Master Infrastructure Plan (MIP) (2014)
• Town Center and Waterfront Specific Plan (2014)
• Main Street Neighborhood Specific Plan (2017)
• Transportation Demand Management Plan (2018)
• Climate Action and Resiliency Plan (2019)
• MIP Amendment (2020)
ENVIRONMENTAL REVIEW
This presentation and discussion regarding a proposed disposition strategy to guide development at Alameda Point, which does not commit the City to any definite course of action, does not constitute a “project” as defined in California Environmental Quality Act (CEQA) Guidelines Section 15378 and therefore no further CEQA analysis is required.
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this work session. However, Alameda Point’s Climate and Action Resiliency Plan (CARP) does address sea-level rise and new infrastructure at Alameda Point will assist in the implementation of the CARP.
RECOMMENDATION
Recommendation to hold a work session and provide feedback on a proposed disposition strategy for the leasing and sale of buildings within the Reuse Area at Alameda Point.
Respectfully submitted,
Lisa Maxwell, Community Development Director
By,
Walker Toma, Development Manager
Scott Watson, Base Reuse Manager
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibits:
1. Keyser Marston Associates Report
2. Map of Infrastructure Phasing
3. Map of Reuse Areas vs. Development Areas
4. Map Showing Land Not Available for Sale
5. Notes from Owner/Tenant Meeting
6. Notes from Developer Roundtable