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COUNCIIJAGENCYAGENDA REPOBmh flAY TO: ATTN: FROM: DATE: Office of the City Manager/ Agency Administrator Deborah Edgerly Community and Economic Development Agency June 8,2004 27 pfl 2 39 RE: CITY AND AGENCY RESOLUTIONS AUTHORIZING A DISPOSITION AND DEVELOPMENT AGREEMENT WITH ROTUNDA GARAGE, LP FOR THE DEVELOPMENT OF A PARKING GARAGE STRUCTURE BETWEEN 16TH AND 17TH STREETS AND SAN PABLO AVENUE, OAKLAND; THAT INCLUDES SELLING THREE PARCELS OF LAND FOR $99 EACH AND LEASING A FOURTH PARCEL FOR $1.
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  COUNCIIJAGENCYAGENDA REPO mh fl Y 27 pfl 2 39 TO: ATTN: Deborah Edgerly FROM: DATE: June 8,2004 RE: Office of the City Manager/ Agency Administrator Community and Economic Development Agency CITY AND AGENCY RESOLUTIONS AUTHORIZING A DISPOSITION AND DEVELOPMENT AGREEMENT WITH ROTUNDA GARAGE, LP FOR THE DEVELOPMENT OF A PARKING GARAGE STRUCTURE BETWEEN 16TH AND 17TH STREETS AND SAN PABLO AVENUE, OAKLAND; THAT INCLUDES SELLING THREE PARCELS OF LAND FOR 99 EACH AND LEASING A FOURTH PARCEL FOR 1.00 PER YEAR FOR 20 YEARS; AND ASSIGNING TO ROTUNDA GARAGE, LP, 4 MILLION PLUS INTEREST OF A 12 MILLION PROMISSORY NOTE PAYABLE TO THE REDEVELOPMENT AGENCY BY THE ROTUNDA BUILDING DEVELOPER, AND FURTHER REQUIRING AGENCY TO PAY THE NET PROPERTY TAX INCREMENT GENERATED BY THE NEW PARKING GARAGE FOR A PERIOD OF 10 YEARS TO ROTUNDA GARAGE, LP SUMMARY Resolutions have been prepared authorizing the Redevelopment Agency to sell and lease to Rotunda Gara e, LP (“Developer”) Agency-owned real property located on the block bounded by 16” Street, 17 Street and San Pablo Avenue, and authorizing the Agency Administrator to enter into a Disposition and Development Agreement (“DDA”) with Developer for the 17” Street Garage Project (see Exhibit B, Term Sheet for the full details of the material terms of the DDA). The Agency resolution will also authorize the transfer of one third of the $12 million Note from the Rotunda Building, and rebate for ten years of the net tax increment (after statutory pass throughs, ERAF payments to the state and housing set-asides are made) to Developer. The property will be sub-divided into four parcels. Developer will purchase three parcels for a purchase price of $99 each. Parcel 1 (23,445 square feet) would be used for the 320+ space parking garage. Parcel 2 (3,723 square feet) and Parcel 3 (2,775 square feet) would be developed as retail or other commercial uses within 5 years or the Agency would have the right to take them back at the Developer’s cost for site demolition and preparation. The developer will be granted a permanent vehicular and pedestrian easement and a lease for up to 20 years for $1 per year on Parcel 4. (See Exhibit A, Parcel Map, for a description of the four parcels.) The Agency will be allowed to sell Parcel 4 for a development in the future and the Developer will have the right to make a competing offer. Rotunda Garage, LP, is a new limited liability corporation to be set up for the development of the garage with Phil Tagami and Leonard Epstein as general partners and Rotunda Partners I as the limited partner. Messrs Tagami and Epstein are principals in Rotunda Partners I; Rotunda Partners I is the general partner in the partnership that owns the Rotunda Building. fi, CED tem: ommittee June 8.2004  Deborah Edgerly Page 2 FISCAL IMPACTS Approval of the DDA and sale of the 17‘h Street Garage site will cost the Agency $2.7 million in land write downs (the Agency paid approximately $1.8 million for the site, but the current fair market value is now $2.7 million), $4 million in principal and $600,000 in interest on the Rotunda Note and approximately $380,000 in tax increment rebates over ten years (the rebate for the first year, FY 2006-07, is estimated to be $35,000). When discounted by 4.85%, the federal long term cost of funds, the current value of the Rotunda Note, including interest, is $2.2 million and $270,000 for the tax increment rebates, for a total of $2.47 million. When discounted by 8.25%, the Developer’s required return, the current value of the note, interest, and rebate is $1.513 million. This is approximately 25% of the developer’s estimated costs for the garage (the Project will cost approximately $6.0 million, including $5.0 million to construct the garage). Approval of the DDA will free up approximately $4 million which would otherwise have been needed to fund part of the Agency-owned garage. It is anticipated that $3.8 million of this will be reallocated to fund the proposed Uptown lease disposition and development agreement. This reallocation will eliminate the need for a parking revenue bond (the bond would reduce the ability of the Public Works department to fund Traffic Engineering staff) and transfers this amount of Uptown fimding to the Agency rather than the having the City provide the funding. The City will receive approximately 70% more in parking tax revenue from the garage than it now receives from the surface lot presently on the site. This is approximately $40,000 per year in additional General Fund revenue beginning in FY 2006-07. The City will also receive its share of property tax which is not rebated to the project, about $5,000 per year to start. This $5,000 is the City’s portion of the statutory pass throughs that are required from the Central District since the Council passed Ordinance No. 12570 C.M.S. which eliminated the time limit on establishing debt. The Agency will receive approximately $175,000 in general tax increment revenue after the rebate is completed and $282,000 in 25% Low- & Moderate-Income Housing Set-Aside funds (see Exhibit C, Tax Increment Analysis). Other options for building a public garage on the site have even greater fiscal impacts. For the Agency to develop a larger garage (525 spaces instead of 320), the Agency would have to put in the land, $2.7 million value, an additional $4.2 million in cash and $10.0 million in debt. The debt would require a guarantee from the City or Parking Authority, which could have fiscal impacts in the future if the garage cannot cover debt service. The Agency-owned garage would have major short-term costs to the Agency and long-term benefits, including free and clear ownership of the garage after 30 years. BACKGROUND History of Site In June 1998 the Agency entered into a disposition and development agreement with Rotunda Partners I (the limited partner of the garage Developer) for the Rotunda Building. The Rotunda Building DDA included a $12 million loan from the Agency to the Rotunda Building developer, w Item: 1 CED Committee June 8,2004  Deborah Edgerly Page 3 profit sharing with the Agency of 50 of all sales proceeds over $38 million should the building be sold, and required that the City/Agency provide parking for the Rotunda Building tenants and customers. Accordingly, the City provides 50 monthly parking spaces plus short term visitor parking in the Daziel Building for the Rotunda Building tenants and customers, and the Agency leases the proposed garage development site to the Rotunda Building developer for its tenants’ parking. The Agency receives all net revenues from the surface parking lot. It was anticipated that the Agency would build or have another entity build a garage on the current garage development site primarily for use by Rotunda Building tenants and visitors. The Agency pledged 220 spaces in any new garage to the Rotunda Building. The Agency has pursued the development of this garage for several years. The Agency issued Requests for Proposals for the garage twice, in 1998 and 1999, and negotiated with two developers, Allright Parking and Aegis Realty Partners. Both times staff could not negotiate a deal that was supported by staff or the Agency Board. Instead the Agency Board authorized staff to pursue development of an Agency-owned garage. The Agency issued a Request for Proposals for a design project management team for the garage, hired a team made up of Aegis Realty Partners, Komorous-Towey Architects, and Watry Design Group and paid $750,000 to complete the design. The Agency concurrently pursued a $10 million garage construction loan from the State Infrastructure Bank. It should be noted that in order for the garage revenue to cover debt service the loan would have needed to be amortized over 30 years, 14 years longer than the life of the Central District Plan Area. As a result, a loan guarantee from the City General Fund or Parking Authority would have been necessary, thereby potentially putting the General Fund at risk of covering any debt service shortfalls. Current Proposal At about the time that Aegis completed the construction documents, Phil Tagami and Leonard Epstein submitted an unsolicited proposal to develop the garage. Messrs. Tagami and Epstein propose to form Rotunda Garage, LP (“Developer”) to construct a 320 space garage (the “Project”). Rather than bidding the project immediately and selecting a contractor, the Agency asked the Developer to refine its proposal to determine if it provided a viable alternative to a pledge of the General Fund. The Developer was always interested in owning the garage, which is tied to their office building (Rotunda) and will enhance the Rotunda Building’s value even more if it is under control of the same owner. Messrs. Tagami and Epstein pulled out of the 1998/1999 Requests for Proposals because they were concentrating on completion of the Rotunda Building. In 2001, the Developer also had put in a proposal for the Request for Proposals for design and project management of the garage but lost out to Aegis for the contract. A comparison of the various proposals that the Agency has considered, along with the current proposal are included as Exhibit D, Comparison of Proposals. After completing negotiations with the Developer, staff is bringing for approval a DDA with the following key terms (for the complete terms of the DDA, see Exhibit B, Term Sheet): Item: CED Committee June 8.2004  Deborah Edgerly Page 4 1) The Agency will divide the Site into four parcels as reflected on the attached Exhibit A, Parcel Map: Parcel 1- the garage site; Parcels 2 and 3- retail or commercial sites; and Parcel 4- a remainder site on 16 Street with garage access easements and reserved for future development by an Agency-selected developer. The Developer will purchase Parcels 1, 2 and 3 for $99, and lease Parcel 4 for $l/year until the parcel is ready for development by Developer or another developer in the future. All future development on Parcels 2, 3 and 4 would require separate Agency approval. (The Developer would retain an auto/pedestrian easement for the garage over Parcel 4); The Agency would assign to the Developer 4 million (plus interest on this amount) of the $12 million promissory note (with a NPV of $2.2 million) due from repayment of a loan the Agency made to the developer of the Rotunda Building. [In 1999, when the Agency sold the Rotunda Building to Rotunda Partners 11, LLC, of which the proposed garage Developer was the general partner, the Agency loaned Rotunda Partners $12 million. Rotunda Partners executed a promissory note (secured by a second deed of trust on the building) that requires it to pay the Agency accrued interest at 3% per annum starting in 2014 and repay the principle in 2019.1 The Agency would rebate to the Developer the net tax increment generated by the project (net of required pass-throughs for affordable housing, EMF, etc.) for 10 years; and, Developer will take all risk that the garage revenue will cover operating costs and debt service. 2) 3) 4) 5 The Developer will build a garage with at least 320 parking spaces on Parcel 1. The Developer will have 18 months from execution of the DDA to complete the new garage design, obtain approvals, and complete construction. The Developer's initial schematic design is attached hereto as Exhibit E. The Agency will give the Developer five years to develop retail or commercial uses on Parcels 2 and 3. If the Developer does not develop Parcels 2 and 3 within five years, the Agency will have the option to reacquire the parcels by reimbursing the Developer for its reasonable demolition, landscape and hardscape costs. Until the Agency executes its option, the Developer will landscape and hardscape (e.g., treewells and scored concrete with the same specifications as Kahn's Alley and Broadway for the Rotunda Building) and maintain the parcels. The Developer will grade, pave, stripe, secure, landscape, and maintain Parcel 4 until it is developed. The Agency can select a developer and proceed with development on Parcel 4 at any time after the garage is completed. Developer will have the option to make a comparable offer on the site when the Agency is ready for development. The garage is an important project that the Agency wants to make best efforts to complete. Because Developer is undertaking construction on Agency's behalf, Agency wants reasonable assurances that Developer will complete the garage, or, in the unlikely event Developer does not, Agency may wish to take the site back and try to complete the garage. As with other projects, - tem: / CED Committee June 8.2004
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