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SR-08-27-2013-8A10 City cil Report City of Santa Monied City Council Meeting: August 27, 2013 Agenda Item:�—Vq To: Mayor and City Council From: Andy Agle, Director of Housing and Economic Development Subject: 4th/stn and Arizona Exclusive Negotiating Agreement Recommended Action Staff recommends that the City Council: 1) Authorize the City Manager to negotiate and execute an Exclusive Negotiating Agreement (ENA) with the team led by Metropolitan Pacific Capital, Clarett West, and DLJ West Capital "Development Team") to develop the City -owned property between 4th and 5 h Streets, south of Arizona Avenue ("Site"); and 2) Direct staff to work with the Development Team to incorporate affordable housing into the proposed development. Executive Summary After reviewing the proposals submitted in response to the RFP for the 0/5th and Arizona development site, the selection panel concluded that the proposal submitted by Metropolitan Pacific Capital, Clarett West Development, DLJ Real Estate Capital Partners, and their designers and consultants best addresses the evaluation criteria outlined in the RFP. Staff recommends that Council enter into exclusive negotiations with the Development Team to initiate community outreach, in anticipation of negotiating entitlements and business terms. Staff also recommends that Council direct staff to work with the Development Team during the exclusive negotiating period to incorporate an affordable housing component into the proposed development. Background The Site consists of nine contiguous parcels comprising 112,000 square feet. The parcels were purchased by the City between 2007 and 2010. On December 14, 2010, Council endorsed guiding principles for the Site and approved initiation of a community planning process. In March 2011, the Planning Commission and Downtown Santa Monica Inc. held two community workshops to solicit community input on the future of the Site. The results of those meetings and an update on the visioning process were 1 presented to Council at a Study Session on May 10, 2011. Another community workshop was held on January 26, 2012, to discuss alternatives for development of the Site within the context of the Downtown Specific Plan process. On April 10, 2012, Council authorized the issuance of a Request for Qualifications (RFQ) to solicit development team qualifications for the Site. On November 13, 2012, Council directed staff to issue an RFP to the top three teams that were selected through the RFQ process. At that time, Council adopted project objectives that were incorporated into the RFP, including: the development of programmable gathering space; ground -floor retail, restaurant and cultural space; a mix of uses such as retail, cultural, office, hotel and residential; exceptional architecture and sustainable design; public access to views; a minimum of 339 public parking spaces; a highly flexible development approach; and the incorporation of concepts identified in the Downtown Specific Plan process. On February 1, 2013, staff issued the RFP to solicit proposals from development teams led by Forest City Development, Metropolitan Pacific Capital, and Related California, and received their proposals on May 1, 2013. The proposals and the RFP are available online at www,smgov.net/4thandarizona. Upon receiving the proposals, staff completed a review and due diligence process. A selection panel comprised of eight City staff members from Planning and Community Development, Community and Cultural Services, Public Works, and Housing and Economic Development, as well as two real estate finance consultants from Keyser Marston Associations (KMA), reviewed the proposals and conducted interviews with the three development teams. Teams responded to questions from the selection panel regarding their proposals and their flexibility to modify certain aspects of proposals to better meet public objectives or address community concerns. The selection panel felt that each of the proposals was thoughtful, creative, well prepared and capable of achieving the public objectives for the site. Staff issued an 2 Information Item on July 10, 2013 summarizing the selection panel's review of each proposal against the selection criteria and recommending selection of the Development Team comprised of Metropolitan Pacific Capital, Clarett West Development, DLJ Real Estate Capital, and their designers and consultants ("Development Team"). The selection panel concluded that the Development Team's proposal, summarized below, best responded to the RFP selection criteria. The Development Team has the financial resources and development experience to complete the project. Additional details of the selection panel's review are outlined in the July 10, 2013 Information Item. Staff recommends entering into an ENA with the recommended Development Team to further advance the development proposal, and seeks Council direction to pursue affordable housing as a component of the development. Proposed Development The recommended Development Team's proposal encompasses multiple uses, including hotel, office, cultural space, ground -level retail, significant public open space, and flex space that could be used for office or residential. The proposed development strategy responds to Council's adopted project objectives by providing a diverse mix of uses for both the ground floor and upper levels. The hotel use would serve as an activity generator to support nearby restaurants and retail in the downtown district, and would allow hotel guests to help activate the open space day and night. The placement of the ground -floor public plaza, which opens to the corner of 4t" Street and Arizona Avenue, connects the development effectively to adjacent downtown uses. The project's tiered design creates another large public open space on the second level, as well as additional programmable open spaces on the upper rooftop levels. The proposed 580 public parking spaces exceed the amount of replacement public parking required. The proposed design delivers iconic architecture from all elevations, as well as a highly flexible interior space design that could most easily accommodate potential design 9 modifications and adjust to market demand changes in the future. The design is conducive to activating all areas of the site and providing public access to multiple portions of the site. Additionally, the site design maximizes the public view corridor toward the open plaza areas and integrates the project within the framework of downtown and adjacent properties. The Development Team indicated flexibility with respect to the height of the proposed development—currently proposed at 148 feet— although the project's economics are expected to be impacted with height modifications. The Development Team demonstrated a commitment to a high level of community involvement in the project's design development, in the form of a series of community workshops, online resources, and mailings. The community open space would be managed by Biederman Redevelopment Ventures, a special purpose entity that manages well-known public spaces such as Bryant Park in Manhattan. The open space would be managed in conjunction with several local partners. The budget allocated to open space management is $831,000 annually by year three of the development's operation. The Development Team is well financed and has the capacity and access to capital to finance the development. It is estimated that the project would cost over $330 million to build with a proposed annual ground lease payment of approximately $1.3 million. A one-page summary of the proposed development is attached (Attachment A), and the proposal, as well as the proposals submitted by the other two finalist teams, are available in their entirety at www.smgov.net/4thandarizona. Affordable Housing Component In recommending the proposal, staff seeks Council direction to pursue affordable housing as an element of the development. As proposed, the development would include hotel, office, cultural space, ground -level retail, significant public open space, and flex space that could be used for office or residential. Unless the flex space were n used as residential, affordable housing would not otherwise be required under the City's Affordable Housing Production Program (AHPP). In spite of this, staff recommends including affordable housing to augment the other public objectives achieved through the proposal. The development represents a significant opportunity to contribute to affordable housing in Santa Monica, which is especially critical in light of the recent elimination of redevelopment as the City's primary funding source for affordable housing. As the proposal's flex space was designed to accommodate office or housing, the Development Team indicated a willingness to incorporate affordable housing into the development, though it would be expected to affect the proposed economics of the project. At this stage, it is too early to determine how much and what types of affordable housing could potentially be provided, but that would be defined through community process and project negotiations. Exclusive Negotiating Agreement If Council concurs with staff's recommendation to move forward with negotiations with the Development Team, then staff recommends that the City and Development Team enter into an Exclusive Negotiating Agreement (ENA). The ENA would establish a schedule of performance for the Development Team to conduct community outreach and pursue entitlements. In addition, during the term of the ENA, the parties would negotiate lease terms, continue soliciting community input and defining the parameters of the proposed development, incorporate an affordable housing component, and negotiate other related matters. The ENA would also require that the Developer make a good faith deposit with the City and demonstrate evidence of financing prior to execution of a ground lease. Alternatives Council may elect not to follow the selection panel's recommendation regarding a preferred development team, and may decide not to enter into an ENA with the recommended Development Team or to enter into an ENA with an alternate development team. Council may also decide not to direct staff to pursue an affordable 5 housing component in the development, or to give staff additional or alternative direction regarding the development and ongoing negotiations. Environmental Analysis Authorization to negotiate and execute an ENA is exempt from CEQA. As the proposal progresses, this site will be studied as part of the Downtown Specific Plan Program EIR. The project may also require additional review, particularly with regard to shade, shadow, parking, and circulation impacts. In particular, shared parking as proposed for the site is an important commodity in the downtown and enables the "park once" strategy that is crucial to continued success for the district. The impacts of this commodity on circulation around the site, specifically ingress and egress from the garage and vehicle -pedestrian interaction, will be studied. Public Outreach Community workshops were held in advance of issuing the RFQ in order to establish community objectives for the Site. Upon issuing the July 10, 2013 Information Item, staff solicited feedback about the proposals in advance of Council consideration. As of August 9, staff had not received any feedback. Once a team is selected by Council, opportunities for community input on the proposed project will be extensive. During the ENA period, the Development Team would begin a community process focused on the proposed development, and has committed to incorporating community input throughout the development approval process. Next Steps During the exclusive negotiating period, the Development Team would begin community outreach efforts on the project design and open space programming, and incorporate feedback from the community and from City Council, boards, and commissions gleaned during initial float -up presentations. A disposition and development agreement and environmental analysis would follow. This project will proceed in tandem with the Downtown Specific Plan process, and the two efforts will continue to be coordinated. lei A development agreement application would not likely be submitted until sometime in 2014 and construction would not be expected to commence until 2016. Financial Impacts & Budget Actions There is no immediate financial impact or budget action necessary as a result of the recommended actions. Staff will return to Council if specific budget actions are required in the future. Prepared by: Sarah Johnson, Principal Administrative Analyst Andy Agle, Di Housing and Attachments: Development A. Proposal Summary Sheet 7 Forwarded to Council: Rod Gould City Manager Attachment A - Proposal Summary Sheet 40,271 12,046 10,753 ( on.Stn 4,19. c on 4th 3,93: nce/drive 5,051 )ike lane 7,20 !rrace 12,96' is 1,220 580 640 nd Massing ieight 148' itories 12 3.75 int Team: t partner; Clarett West it, co developer; DU -apital Partners, city partner,• Office for n Architecture, lead ' tect; Van Tilburg, oderbergh, AIA, local in, landscape ederman lent Venture Corp, space management Goldsmith & Delvac ients•Boomerang Parking System Inc., ip, IPD,'and Crain& r.consultan t services. Proposal Summary: Metropolitan Pacific Capital, DU Real Estate Capital Partners, and Clarett West Development are proposing a hotel and office development with ground level retail and cultural space, as well as some flex space that could be used for office or residential. The public plaza is at the corner of 4th St. and Arizona Ave. A se- ries of rectangular, block -length bars step up from the middle of the site toward the southern edge, reaching a height of 148 feet. The diagonal placement of the building's blocks creates four elevated terraces, the lowest of which is public space. Floors 2-4 are proposed as office space, floors 5-7 are flex space for office or residential, and floors 8-12 are hotel. The rooftop contains a hotel pool and bar with public access for viewing. A 1,220 space underground parking garage is proposed; 580 of the spaces would be public. A special purpose entity would manage public open space and ensure active year-round programming, including a seasonal ice skating rink. Public Objectives and Economics: As proposed, the project would provide several public gathering spaces, pedestri- an passages through the site, neighborhood serving retail, cultural facilities, a bicycle station and related facilities, public parking, iconic architecture, and possi- bly affordable housing or a financial contribution. The development would cost $331.3 million to build. The developer proposes providing an annual ground lease payment of $1.3 million. The proposed annual open space management budget starts at $704,000 in year one and reaches $860,000 by year 4. 0 Proposal summarysheet prepared by City staff for informational purposes. .L. .