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SR-410-007-01 (3) , . . tjlO-- 007--0( Santa Monica, /I-E MAY 1 7 1988 C/ED: HD:JM: jt City council: 5/17/88 California TO: Mayor and city Council Members FROM: City staff SUBJECT: Recommendation to Approve Selection of Developer for Main Street Mixed Use Development INTRODUCTION The report recommends that the City Council (1) approve the selection of community Corporation of Santa Monica (CCSM) as the Developer for the housing portion of the Main Street project; and (2) direct the City Attorney to prepare resolutions authorizing the transfer of the air rights for the housing to the Developer. The report also describes the next steps to be taken by the city council. BACKGROUND The City Council directed staff at its February 23, 1988 meeting to prepare specific plans for a structure incorporating 460 park- ing spaces, 49 units of low and moderate income rental housing, and 3600 square feet of retail space. At the same time, the city Council also directed staff to prepare appropriate environmental analyses, investigate alternative construction-period parking options, and refine financing plans for the development. In order to implement Council direction, staff prepared a Request for Proposals (RFP) to identify an Architecture and Engineering team and a second RFP to identify a housing developer. Staff is //-E - 1 - MAY 1 7 I9Ba . . proposing that the city sell the air-rights for the housing units to a developer who will own, operate, and manage the units for a minimum 40 year term, as Council has chosen to do on the senior housing development on Third street. The city will work closely with the Developer in every aspect of the development of the housing component, and will retain responsibility for overall project management during the development phase of the project. DISCUSSION Request for Proposals Selection criteria Subsequent to Council direction to proceed, staff prepared a Request for Proposals soliciting developers experienced with low and moderate income housing development and management. The RFP outlined the project description, the qualifications to be sub- mitted, and the selection process to be utilized. The selection criteria included: 1. Demonstrated ability and experience of the developer in low and moderate income mUlti-family rental housing. 2. Financial capacity of the developer, including past financial history and current outlook, developer's ability to commit financial resources to the project, and the scope of the proj ect in relationship to the financial capacity of the developer. 3. Scope, extent, and quality of developer's experience in managing low and moderate income multi-family rental housing. - 2 - . . 4. Demonstrated ability of developer in serving the area where the project is to be located, and ability to work with and be responsive to local neighborhood groups, low income tenants, and interested citizens. 5. The degree to which the developer has demonstrated the ability to bring equity and/or other financing to the proj ect to leverage Ci ty funds in a cost effective manner. 6. The reasonableness of proposed development and manage- ment fees in relationship to the overall development program. The RFP was issued on April 1, 1988. A notice was also published in the Evening Outlook on April 1, 1988. Thirty-three (33) non- profit and for-profit developers in the Southern California region received copies of the RFP. Responses to the RFP were due May 2, 1988. Four developers submitted proposals. The following briefly outlines the qualifications of the developers who submitted proposals. 1. Century-West-De Castro Enterprises is a Santa Monica based joint venture organized for this project. Century West Development is a developer of residential and com- mercial properties, including multi-family projects managed by Century West. Luis De Castro has been a principal in several commercial projects in Santa Moni- ca including the AMC Theatres project. The partnership - 3 - . . did not submit detailed information regarding their development experience, management experience, or fi- nancial capacity. The Partnership proposed to develop the project for fee equal to 12% of total development costs. 2. Community Corporation of Santa Monica (CCSM) is a non- profit 501 (c) (3) corporation which has developed and manages 215 low and moderate income rental units in Santa Monica. CCSM proposed development fees of 1.5% plus $15,000, and management fees equal to $35 per door per month. 3. Topa-Malzman Properties is a recently formed Los An- geles based partnership comprised of Topa Development Company and Mark Malzman. As a Director of Shapell Government Housing, Mr. Malzman oversaw the development of approximately 6,000 units of low income rental hous- ing. Topa Management Company currently manages 3,500 low income rental units in California. The Partnership proposed a development fee equal to 10% of development costs, and a management fee of 5% of gross rents. 4. National Church Residences (NCR) is an Ohio based non- profit 50l(c) (3) corporation which has developed and manages some 6,000 units of low and moderate income - 4 - . . elderly housing. They have developed three such proj- ects in the Los Angeles area. NCR proposed a develop- ment fee of $100,000, or about 3% of development costs, and a management fee equal to 6% of gross rents. Evaluation Process The evaluation process consisted of an extensive review of the proposals submitted and interview of the top three developers. The submittals were reviewed by the Housing Division staff and ranked based upon the selection criteria described in the RFP. The interviews with the top three developers focused on organiza- tional capacity, qualifications of staff to be assigned to the project, development and management procedures, and community responsiveness. Developer Selection Based upon this extensive evaluation process, staff found Com- munity Corporation of Santa Monica to be the Proposer most qualified to be selected to develop the housing portion of the Main street Mixed Use Development. The following describes the qualifications of this developer in comparison to the criteria established in the RFP. 1. Development Capacity CCSM has developed 215 units of housing within the City of Santa Monica, and has an additional 140 units currently under construc- tion. CCSM has consistently demonstrated its ability to develop mUlti-family housing projects comparable in complexity to the - 5 - . . Main street Mixed Use Development, and will bring to this project a level of expertise not offered by any other Proposer. 2. Management Capacity CCSM manages all of the housing it develops. This housing serves a broad range of socioeconomic interests with differing needs and expectations, and the organization has compiled a track record characterized by both operating efficiency and attention to resi- dent concerns. The organization has clearly demonstrated the capacity to manage the proposed project. 3. Financial Capacity CCSM Financial statements indicate the corporation has assets of approximately $8 million, with cash on hand of approximately $.2 million. As a locally based non-prOfit the organization does not have the kind of liquid capital available to it that other Pro- posers possess, but CCSM does have sufficient financial capacity given the scope of the proposed project. 4. Community Responsiveness CCSM has demonstrated an ability to work with and be responsive to local communi ty groups, low income tenants and interested citizens which is unmatched by any Proposer. This ability will make an invaluable contribution to the success of the Main street Mixed Use Development. - 6 - . . 5. Leveraging and Cost Effectiveness In leveraging $l2 million dollars in private funds to supplement City funds for CCSM projects, CCSM has demonstrated the ability to bring financing to the proposed project in a cost-effective manner. 6. Fees Development and management fees proposed by CCSM are reasonable in relationship to the overall development program. CCSM's fees are lower than those requested by any other Proposer. Based upon these criteria staff recommends the selection of CCSM to develop the housing portion of the Main street project. Next steps Once the selection of the Developer has been made, the Developer will participate with staff in the selection of an Architect and Engineering team for the Main street Mixed Use Development. Staff will return in June with a recommendation to approve the selection of the Architect and Engineering team. An Option Agreement between the City and the Developer will give the Developer the exclusive right to purchase the air-rights for the housing development. Prior to the execution of this option Agreement, the City Council will be required to hold a publ ic hearing regarding the sale of air-rights to the Developer. This report recommends that the City Council direct the city Attorney to prepare the required resolutions and public notice of sale. - 7 - . . Transfer of the air-rights will be subj ect to execution of a Sales Agreement outlining the conditions of the sale to the Developer. Following execution of an option Agreement, Staff will return with the proposed terms of the Sales Agreement. staff will also return to Council for approval of specific financing plans for the project, certification of environmental review documentation, and approval of construction period parking plans. FINANCIAL/BUDGETARY IMPACT There are no financial or budgetary impacts as a result of the recommendations in this report. The housing component of the project will be financed by a mix of private debt financing, developer equity obtained through syndication, and the $2,652,909 in in-lieu fee payments from Southmark Corporation for the Colorado Place Phase II project. Staff will return with a specific financing proposal for council approval. No specific expenditure authorization is required at this time. RECOMMENDATIONS It is recommended that the City Council: 1. Approve the selection of Community Corporation of Santa Monica as Developer of the Main Street Mixed-Use Development. 2. Direct the City Attorney to prepared the necessary City Council Resolution and notice of intent to sell the - 8 - . . air-rights for the housing development contingent upon execution of a Sales Agreement with the Developer. Prepared by: Jeff Mudrick, Senior Development Analyst Candy Rupp, Housing Program Manager Department of Community and Economic Development - 9 -