Title
Staff Report for Consultant Service Agreement with Keyser Marston Associates for Development Agreement Negotiation Services for the Shoreline Development Project
Staffreport
SUMMARY AND RECOMMENDATIONS
The Shoreline Development Project is a public-private partnership between the City of San Leandro and Cal-Coast Development. The City will continue to own the 75-acre site upon which development will occur and requirements in terms of construction, use, maintenance and lease rates need to be negotiated. Given the size and complexity of the project, the significant investment it represents and the long-term nature of the lease, staff has requested the assistance of Keyser Marston Associates (KMA) in developing and negotiating a term sheet which will serve as the foundation for the Development Agreement. KMA has expertise in financial and market analysis, public-private and ground lease negotiations and experience working with Cities in negotiating leases. Staff recommends the City Council approve a resolution for a Consultant Services Agreement between the City of San Leandro and Keyser Marston Associates, Inc. for Shoreline Development Agreement and Ground Lease Negotiations at an amount not-to-exceed $110,980.
BACKGROUND
In 2005 the City began discussions regarding the boat harbor operations and potential development of the shoreline as the Shoreline Enterprise Fund was operating at an annual deficit and funding was not available for on-going dredging of the channel and harbor. Over the past ten years the City has worked with the community and Cal-Coast Development in a public-private partnership to identify a strategy for the development of the shoreline to meet the following objectives:
• Build an economically viable and vibrant mixed-use development which provides needed amenities and services to the citizens of the City of San Leandro including a banquet/conference center, limited-service hotel, multiple dining options, housing units, office space and an enhanced library/community building;
• Ensure that the project uses are synergistic and create a regional destination for dining, lodging, entertainment and recreation;
• Provide recreational opportunities such as bocce ball courts, a small boat launch, public gathering spaces, and a 20-foot-wide public promenade including lookout stations, to increase and enhance the public’s access to the Bay;
• Provide multiple areas for the public to enjoy scenic views and interact with the San Francisco Bay;
• Enhance connections between the San Leandro Shoreline and the San Francisco Bay Trail;
• Remove current blight, including the former Blue Dolphin site pillars and fencing and the fenced former Boatworks site;
• Ensure the redeveloped portion of the San Leandro Shoreline complements existing amenities and provides needed connection between the amenities and current shoreline uses;
• Ensure that development is provided in an environmentally sensitive manner, and promotes the latest trends in energy efficiency; and
• Recognizes the economic uncertainty of acquiring future funding for needed on-going channel and harbor dredging, the City’s existing debt burden related to past harbor improvements, and the City’s desire to plan for a successful transition from the existing blighted use to an environmentally and financially sustainable alternative that maintains the public’s access to the harbor and San Francisco Bay.
In November 2013, Cal-Coast submitted an application to the City of San Leandro for the Proposed Shoreline Project. The Shoreline Development Conceptual Master Plan is included as Exhibit A. The plan includes the redevelopment of the 52-acres of land and 23-acres of water owned by the City which encompass the San Leandro Marina and surrounding properties with residential, commercial and public recreational uses. The project includes the following:
• 200-room hotel;
• 15,000 square foot conference center;
• 150,000 square foot office campus;
• 3 restaurants;
• 2,500 square foot community library;
• 354 housing units;
• Bocce ball courts and recreational areas;
• 2 miles of pedestrian/bicycle promenade including a bridge and lookout piers;
• Aquatic Center, kayak storage building, docks and a small boat launch;
• Restoration of the natural shoreline within the interior of the harbor basin including a perched beach and sitting steps;
• An aeration fountain to aide in water circulation; and,
• Refurbishment of public restrooms on site.
In July 2015, the City Council certified the San Leandro Shoreline Development Project Environmental Impact Report, amended the General Plan land use designation for approximately 12 acres of the Shoreline Development Project and rezoned a portion of the project site.
Cal-Coast is now on a fast track to obtain the remaining entitlements and permits, including those from outside agencies. The Shoreline Development Project will come back to the City Council in late 2016 for approval of the Planned Development and vesting tentative map. Staff plans to bring the Development Agreement to the City Council for approval along with the remaining entitlements.
Analysis
The Development Agreement will be a comprehensive document that addresses all matters of construction, use, maintenance and lease rates including details regarding infrastructure, development schedule and phasing, performance and construction guarantees, redevelopment of the boat harbor, and issues such as default and right to terminate, transfer of the agreement, insurance and indemnification to name a few.
Given the size of the project and various uses as well as the significant investment that it represents and the long-term nature of the lease, staff has requested the assistance of Keyser Marston Associates (KMA) in developing and negotiating a term sheet which will serve as the foundation for the Development Agreement. KMA specializes in public-private real estate development, specifically the evaluation and negotiations of transactions that achieve the goals and objects of both the public sector and private developer. Their services include financial feasibility and market feasibility analysis, business term and ground lease negotiations and public private financing plans.
KMA would provide assistance to staff in support of the negotiations with Cal-Coast as directed by staff. The detailed Scope of Services can be found in Exhibit A of the Consultant Services Agreement. A summary of the tasks, budget and timeline follows.
Task 1: Draft basic term sheet /Request financials from Developer/Equity Partner
Timeline: January Budget: $16,800
§ Review goals and objectives of City
§ Assist City in developing a negotiating strategy
§ Summarize, interpret, and explain key aspects of developer proposal
§ Assist in preparing business terms for term sheet
§ Evaluate the return on the publicly owned asset. Identify possible public financing opportunities, such as EIFD and CFD, to replace expensive private funds with for infrastructure, harbor redevelopment, site development and public facilities.
§ Recommend guarantee’s, such as a completion guarantee, to protect the City
§ Discuss with City if fiscal neutrality should be demonstrated with a payment to the City’s General Fund for Phase 1 and each of the subsequent phases.
§ Request financials from developer/equity partner and other submittals in support of the Project, including: market studies, conceptual programs and phasing, development pro forma by land use, site development costs, debt and equity requirements, ground lease terms by land use, etc.
Task 2: Review financial feasibility based on development program and pro forma
Timeline: February Budget: $18,040
§ Review financials and submittals from developer, including the developer equity partner, to determine feasibility
§ Review developer’s proposed financial return requirements
§ Prepare an estimate of the property value on ground lease and compare with developer’s proposal
§ Evaluate real estate financial returns to City through ground leases. Does developer’s proposal provide a fair return to the publicly owned asset?
§ Evaluate the risk to City return
§ Review financing plan for infrastructure, site development costs, and the redevelopment of the boat harbor.
§ Findings from analysis would be included in the term sheet.
Task 3: Negotiation of term sheet with Lessee
Timeline: March/April Budget: $23,040
§ Attend negotiating meetings
§ Assist City in establishing primary and secondary negotiating positions
§ Update business terms as positions and project changes in negotiations
§ Assist in preparing term sheet for discussion with City Council
Task 4: Review of term sheet with City Council
Timeline: May Budget: $4,480
Task 5: Review of ground lease agreement prepared by City legal counsel
Timeline: June/July Budget: $16,800
§ Assist City’s legal counsel in preparing business term portions of the agreement
§ Attend negotiating meetings
Task 6: Prepare documents for public hearing with City Council
Timeline: August Budget: $10,540
§ Prepare consultant report summarizing transaction
Task 7: Public meeting for ground lease consideration
Timeline: September Budget: $4,480
An optional task is also included in order to assist the City in lease negotiations with the Marina Inn as the Marina Inn has requested a lease extension. KMA’s role would be assisting staff in determining appropriate business terms for a potential lease extension to increase the term based on the lessee’s compliance with the current lease and KMA’s experience with ground lease extensions. The budget for this optional task is $16,800.
The Consultant Services Agreement with KMA for negotiations of the Development Agreement with Cal-Coast is for a not-to-exceed cost of $94,180. Staff recommends that the optional task be included as part of the agreement as the two leases are related. Therefore, the agreement would be for a cost not-to-exceed $110,980.
KMA’s work will establish the foundation upon which the City Attorney’s Office will draft the Development Agreement for the project. KMA’s financial expertise, knowledge of public-private development agreements and experience assisting Cities in negotiating ground leases make them an ideal and important partner for this significant transaction.
Previous Actions
• On October 20, 2008 the City Council approved an Exclusive Negotiating Rights Agreement with Cal-Coast Development, LLC relating to development of the Shoreline-Marina area
• On November 10, 2008 the City Council ratified the composition of the Shoreline Development Citizens Advisory Committee
• On April 4, 2011 the City Council ratified three additional members to the Shoreline Development Citizens Advisory Committee
• On April 2, 2012 the City Council approved an Exclusive Negotiating Rights Agreement with Cal-Coast Development relating to development of the Shoreline consistent with the Conceptual Master Plan
• On June 4, 2012 the City Council approved a Minute Order which established the Shoreline Advisory Group
• On May 20, 2013 the City Council approved a Contractual Services Agreement Between the City of San Leandro and The Planning Center | DC&E to Prepare the Environmental Impact Report for the San Leandro Shoreline Development Project
• On July 20, 2015 the City Council certified the San Leandro Shoreline Development Project Environmental Impact Report
• On July 20, 2015 the City Council amended the General Plan Land Use Designation for the San Leandro Shoreline Development Project
• On July 20, 2015 the City Council rezoned the Shoreline Development Project site
Legal Analysis
This report has been reviewed and approved by the City Attorney.
Fiscal Impacts
This General Fund project will cost up to $110,980, which requires increasing the FY 2015-16 Budget, Account Number 010-41-003-5120, by $110,980 to be funded by the City’s Economic Uncertainty Reserves.
ATTACHMENTS
Attachment to Staff Report
• Exhibit A - Shoreline Development Conceptual Master Plan
Attachment to Resolution
• Consultant Services Agreement Between the City of San Leandro and Keyser Marston Associates, Inc. for Shoreline Development and Ground Lease Negotiations
PREPARED BY: Cynthia Battenberg, Community Development Director, Community Development Department