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
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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
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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
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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
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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
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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.
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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
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Forwarded to Council:
Rod Gould
City Manager
Attachment A - Proposal Summary Sheet
40,271
12,046
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( on.Stn
4,19.
c on 4th
3,93:
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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.
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Proposal summarysheet prepared by City staff for informational purposes. .L. .