SR-02-25-2014-8BCity Council Meeting: February 25, 2014
Agenda Item: B
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Bergamot Station Arts Center Exclusive Negotiating Agreement
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute an Exclusive Negotiating Agreement (ENA) with 26Street TOD Partners LLC
( "Development Team ") to develop the City -owned property located at 2525 Michigan
Avenue, home to the Bergamot Station Arts Center.
Executive Summary
On November 27, 2012, Council directed staff to issue a Request for Proposals (RFP)
for the Bergamot Station Arts Center Development Opportunity to the top three teams
that were selected through an initial Request for Qualifications (RFQ) process.
After reviewing the proposals submitted in response to the RFP for the 5.6 -acre,
City -owned site located at 2525 Michigan Avenue ( "Site "), and conducting
comprehensive review and due diligence, the evaluation panel determined that 26Street
TOD Partners LLC best addresses the RFP selection criteria and the Council- endorsed
public objectives. Staff recommends that Council authorize staff to enter into exclusive
negotiations with the Development Team to initiate community outreach, in anticipation
of negotiating entitlements and ground lease terms.
Background
The Site, known as the "Bergamot Station Arts Center," is located at 2525 Michigan
Avenue. It consists of 5.6 acres and contains five buildings totaling approximately
62,000 square feet. In 1989, the City purchased the parcels with transit funds with the
goal of serving future transit needs in Santa Monica and providing a source of revenue
for the Big Blue Bus. The Exposition light rail line is scheduled to open in 2016, with a
stop immediately adjacent to the Site, at the corner of Olympic and 26th Street.
Anticipation for light rail, which will bring significant changes to the Site and the area,
informed the development of the RFP criteria for the City -owned property, as well as the
creation of the broader Bergamot Area Plan.
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Bergamot Station Arts Center is currently occupied by approximately 30 small, creative
businesses, including art galleries, product designers, and a non - profit theatre
company, as well as a cafe. These tenants sublease the spaces from Bergamot
Station Ltd, who leases the Site from the City for $528,000 a year. The current lease,
with options, expires on December 31, 2017. The lessee, who is part of one of the
proposing development teams, owns land adjacent to the City -owned property, which
contains additional art galleries and the Santa Monica Museum of Art.
Another proposing development team owns property adjacent to the Site as well.
The RFQ and RFP sought proposals for only the City -owned portion of Bergamot
Station Arts Center.
In anticipation of the operation of the Expo Light Rail's Bergamot station, City staff
began conducting extensive public outreach regarding the Site and the surrounding
area in 2011. Staff solicited community input on both the future of the City -owned Site
and on a community vision for the area within the larger context of the Bergamot Area
Plan. The planning effort has been guided by community participation that has included
stakeholder interviews, focus groups, online surveys, community workshops,
neighborhood meetings, and public hearings before the City Council, Planning
Commission and other City boards and commissions. Throughout the planning period,
the project's website, www.bergamotplan.net, has provided a consistent opportunity for
public information sharing.
The Bergamot Area Plan was adopted by the City Council on September 10 2013.
The Plan seeks to maintain the essence of the district while allowing for attractive public
open spaces, increased opportunities to ensure the presence of creative businesses
and to provide access to the arts and culture, and new uses and amenities that serve
art lovers, families and visitors. The Bergamot Area Plan identified the Site as the
Conservation Art Center District (CAC). The Plan limits the intensity of development to a
floor -to -area ratio (FAR) of 1.0 on the Site, and 1.5 FAR on the two adjacent, privately
owned parcels. The vision was developed as part of the extensive community outreach
process that included eight months of community consultation focused on the Site, as
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well as a preliminary economic feasibility analysis of the development concepts.
Members of the Arts Commission, the Landmarks Commission, the Planning
Commission and individual gallery owners, artists and arts professionals expressed
strong support for preserving Bergamot Station Arts Center, acknowledging its
importance as a cultural destination along with its unusually long -lived concentration of
small arts businesses. They reached consensus on the importance of building upon
Bergamot Station Arts Center's success by fostering a greater variety and diversity of
arts options and cultural offerings at the site, including non - profit arts organizations and
performing arts activities. Other, complementary components of this vision for
Bergamot 2.0 included expanding dining opportunities for tenants and visitors,
balancing the "funky" nature of existing warehouse buildings with a new, state -of -the art
museum, and adding a hotel component to complement the transit stop and further
enhance the visibility and viability of the Center. From this input, a preferred concept for
the Site was created. The Bergamot Station Arts Center Preferred Concept ( "Preferred
Concept ") was established as an overarching vision for the Site that was developed in
accordance with the principles, policies and recommendations set forth in the LUCE and
the City's Creative Capital strategy.
The Preferred Concept balances the City's three primary goals for the Site: 1) support
the arts; 2) deliver a transit- oriented development; and 3) maximize revenue for the Big
Blue Bus operations. The Concept emphasizes retaining the concentration of art
galleries and other cultural uses, providing space for a museum, creating
revenue - producing and visitor - serving uses, including a hotel and restaurants /bars, and
delivering infrastructure improvements to complement the Arts Center and new Expo
station.
On March 20 2012, Council endorsed the Preferred Concept and authorized staff to
prepare and release an RFQ to solicit development team qualifications. Five teams
responded to the RFQ in July 2012. On November 27, 2012, Council directed staff to
issue an RFP to the top three teams that were selected through the RFQ process.
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In February 2013, staff issued the RFP to solicit proposals from development teams led
by 26Street TOD Partners LLC (formerly referenced as The Lionstone Group /Industry
Ltd.), Bergamot Station Ltd./Worthe Real Estate Group, and REthink Development /Kor
Group. The RFP also included the opportunity for the development teams to propose
developing a shared use parking structure on the adjacent City Yards site, and required
them to outline the pricing and management of the parking operation if proposed.
Proposals were received on May 1, 2013. The proposals, staff reports, supporting
documents and additional information related to the planning initiatives are available for
review or can be downloaded at www.smqov.net /Bergamot. The section below outlines
the due diligence process leading to the staff recommendation. One -page summaries
of each proposal are attached (Attachment A), along with a Summary Table of the three
development components (Attachment B).
Discussion
The following discussion outlines the selection process and the evaluation panel's
review of 26Street TOD Partners LLC, Bergamot Station Ltd./Worthe Real Estate
Group, and REthink Development/Kor Group teams' proposals, including their
responses to follow -up questions. The following discussion also describes the purview
of an Exclusive Negotiating Agreement (ENA) and the next steps, if Council authorizes
exclusive negotiations.
Selection Process
After receiving the proposals on May 1, 2013, staff initiated a review and due diligence
process. An evaluation panel comprised of eight City staff members from Big Blue Bus,
Community and Cultural Services, Housing and Economic Development, Planning and
Community Development and Public Works, as well as two real estate finance
consultants from Keyser Marston Associates (KMA), reviewed the proposals. KMA also
completed extensive review of each development team's financial capacity to undertake
a project of this scale and scope.
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The proposals were reviewed according to the selection criteria outlined in the RFP, as
follows:
• Development Strategy — understanding of the potential market demand, the
existing development context, and the development review process; preliminary
selection of land uses and product types; integration of public benefits; creation
of an iconic, compelling and synergistic arts center development.
• Design Approach - architectural excellence; responsiveness to the City's design,
sustainability, and circulation objectives.
• Community Approach — how the development team would promote community
involvement in the project development stage; tenanting; community /cultural
events programming; open /event space programming.
• Financial Analysis and Capacity — project's economic vitality; anticipated ability to
get financing; financial benefit to the City as the property owner.
These four broad selection criteria encompass more specific Council- endorsed
development objectives and priorities gleaned from community input prior to issuing the
RFP. The RFP identified eight development objectives to be addressed, summarized
as follows:
1. Inclusion of at least 75,000 square feet of arts- related space that is affordable to
non - profit cultural organizations and for - profit art galleries, and provision of space
for the Santa Monica Museum of Art (SMMOA);
2. Provision of open space, infrastructure and other amenities to support public
access to the light rail station and improvement of the environment and
functionality of the Site;
3. Preservation of existing buildings, where feasible;
4. Inclusion of a mix of uses such as hotel, restaurant and bar, and other creative
office and cultural uses to create a vibrant development;
5. Provision of parking in accordance with LUCE guidelines with an emphasis on
shared parking opportunities;
6. Payment of ground lease based upon fair market values (at a minimum, provide
$610,000 per year in ground rent to the City);
7. Exceptional architecture and sustainable design with a focused transit - oriented
development approach; and
8. Coordination with the Bergamot Area Plan.
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After reviewing the proposals, the evaluation panel conducted follow -up interviews with
the three development teams and was attentive to the flexibility of each team in their
ability to respond to evolving community priorities. The teams responded to questions
regarding their ability to modify certain aspects of proposals to better meet public
objectives or address community concerns, including business retention, building
preservation, contextual development as part of the overall Bergamot Area Plan,
demonstrated experience with community engagement, and ability to undertake
community- focused arts center programming and foster community collaboration.
One variable in the RFP which extended the due diligence process was the opportunity
for a shared parking structure at the adjacent City Yards. Development teams were
given the option of proposing to develop a shared parking structure on the City Yards
site in association with their development proposals for the Site. Two of the teams
proposed developing a shared parking structure on the City Yards to accommodate
their proposed developments' parking requirements. In both cases, the proposals
suggested the City utilize its bond financing for the proposed shared use parking
structure. As part of the due diligence process, staff evaluated the City's financial
capacity and timing potential to partner in the creation of a shared parking structure at
the City Yards as a part of proposed Site development. After further deliberation, staff
determined that the City's ability to commit to a coordinated construction timeline was
not feasible, particularly if the proposals depended on the City financing the parking
structure. Staff recommends moving forward without a City Yards shared parking as a
component of Site development to avoid delaying the Bergamot Station Arts Center
project.
In late 2013, staff issued follow -up questions to the three development teams and
sought clarifications and statements of commitment regarding their proposals. All three
teams were asked questions about their proposals related to parking, financial
estimates, art center management and design objectives. In light of concern regarding
the timing of and financing for a shared parking structure on City Yards, staff requested
that the two teams that proposed shared parking on the City Yards property modify their
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proposals to accommodate their proposed project's parking on Site and indicate how
that would impact their proposed ground lease payment, building retention and site
configuration. Staff received the teams' responses on January 10, 2014. The evaluation
panel reconvened to review the responses, and the City's financial consultant KMA
reviewed the additional information from the teams with an emphasis on the proposals'
economic feasibility and financial impacts to the City.
Proposal Review
The selection panel felt the proposals were thoughtful, creative, well prepared, and
addressed the public objectives for the Site. The following section outlines the
evaluation panel's review of the three proposals relative to the four selection criteria.
26Street TOD Partners LLC
The 26Street TOD Partners LLC team is led by Jim Jacobsen of Industry Ltd, Scott
Ginsburg of Boulevard Partners and Lew Wolff of Wolff Urban Management Inc.
The Lionstone Group serves as the development sponsor. Rios Clementi Hale Studios
is the architecture, landscape design and branding team. Carol Goldstein is the cultural
planning consultant, Mark Pally is the art advisor and curator, and Greer /Daily and the
Karie Group are the community outreach and engagement leaders. Cedd Moses
serves as the team's hospitality, food and beverage curator. Wolff Urban Management
Inc. is the hotel developer and manager.
Development Strategy: The evaluation panel found this team's development strategy to
be the most exciting, visionary and creative in its approach to realizing a vibrant arts
and cultural center that would retain and build upon the success of the current center by
retaining art galleries, supporting both emerging and established artists, and expanding
the array of cultural offerings on the site, in particular in regard to public programming.
The development strategy in this proposal consists of a mixed -use development
comprised of a hotel, creative office, retail, and museum space as well as contemporary
art galleries, non - profit cultural uses and event spaces totaling 221,664 gross square
feet. The proposal clearly articulates the significant regional role the Site can play as a
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critical cultural gateway to Santa Monica and its arts scene. The team proposes to build
a space for the Santa Monica Museum of Art totaling 20,000 square feet that would
directly front the Bergamot Expo Station and help serve as a gateway to the Site.
The proposal also includes a 93 -room, limited- service, six -story hotel totaling 68,777
square feet. The hotel development would be art - themed with each floor dedicated to
celebrating a California artist.
Eating and socializing opportunities would be dispersed throughout the Site with a total
of 18,000 square feet of space dedicated to restaurant, cafe and bar operations.
The development includes 40,000 square feet of creative office space, the least amount
of the three proposals, and a 200 -seat public amphitheater. All tenant spaces would be
designed to open directly onto ground - floor, outdoor walkways that accommodate both
public art installations and spillover space for gallery events, helping to create a vibrant
site beyond individual gallery opening events.
A total of 442 subterranean parking spaces are proposed to be built on site in a tandem
configuration. Parking would be shared among all on -site uses and could be used by
the public during Bergamot's off -peak hours. In the event that spillover parking is
needed for larger gatherings, the team manages 2,000 parking spaces in the Bergamot
Area that can be shared on evenings and weekends.
Design Approach: The evaluation panel valued the design team's history of preserving
historic buildings and developing creative spaces within the community. Based on the
preliminary design work in the proposal, the panel felt the proposed project's design
was the most compelling. The proposed project delivers iconic architecture from all
elevations, balanced with the preservation of at least two buildings (34,700 square feet)
and possibly up to four buildings (46,100 square feet). The proposal includes the largest
dedicated tenant improvement budget ($95 per square foot) of the three proposals to
help ensure that existing buildings are preserved well into the future. Proposed tenant
improvements include creative use of the large ceiling heights for mezzanine storage to
support the art galleries and maximize space utilization in building B that is sited along
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the Expo line. The new buildings are envisioned to be built in a complementary,
industrial- design style, with sustainable methods of utilizing materials and building
elements from the existing warehouses, as well as incorporating solar generation.
The team also has the largest dedicated tenant improvement budget for the new
museum building ($350 per square foot, equating to $7 million for overall construction)
in effort to ensure the realization of a world - class, transformative museum building and
overall gateway to the site.
The evaluation panel expressed concern with the initial design proposal to preserve just
one of five buildings. The development team indicated a willingness and flexibility with
respect to preserving two additional buildings on site and creating additional open
space, though the iconic project design, amount of parking, and development
economics would be impacted. The overall goal of the team's design is to create an
authentic place inspired by the Site's industrial heritage while also recognizing its new,
multi- faceted role as an arts center, a gateway to Santa Monica, a regional transit hub,
and an arts connector. The evaluation panel considered the project approach to be the
most innovative. The team gave considerable thought to physically incorporating art
throughout the fabric of the Site, including the creation of eight public art plazas with
sculptures and media walls, and creation of five cultural programming spaces within the
Site.
Community Approach: The evaluation panel found the team's vision of how the
Bergamot Arts Center could transform the area while supporting the arts to be creative,
thoughtful, and exciting. The evaluation panel recognizes the team's current
experience developing in Santa Monica; they have a proven track record in transforming
historic buildings and existing urban spaces into vibrant, creative hubs of activity
throughout the region, such as 2700 Pennsylvania ( "Penn Station ") and 1800 Stewart
Street ( "Agensys "), as well as the Dallas Design District (TX). The team introduced
KCRW and CalArts as the proposed cultural non - profit partners to work in collaboration
with the museum and galleries to establish arts education initiatives and an array of
cultural programs for the public. The team proposes to introduce a Culture Lab
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managed by CalArts that would serve as a community and business hub for digital arts,
technology and media education and incubation.
The evaluation panel found the team's proposed arts programming to be the most
sustainable over the long -term due to the team's commitment to creating a Cultural
Trust Fund with initial seed funding of $200,000, and a business plan where portions of
the rental revenue from commercial spaces, parking and naming rights would produce a
dedicated and ongoing funding source. The proposed annual program budget for the art
center is $180,000, which is the second highest of the three proposals. The team also
proposes to make the outdoor performance spaces on the Site available at no cost to
Santa Monica -based organizations that want to stage performances, workshops,
classes and concerts for 50 days per year. Additionally, significant attention is given to
retaining Bergamot Station Arts Center tenants, with the opportunity for temporary
relocation to the team's adjacent property on Michigan Avenue.
The team envisions the development as a community and cultural gathering spot that
will engage the broader Bergamot Area's emerging residential base and workforce.
The large amount of open space dedicated to outdoor performance and public art,
coupled with the non - profit programming partners and large arts center budget,
contribute to a new, exciting, and sustainable arts- focused community gathering
location.
Financial Analysis and Capacity: 26Street TOD Partners LLC is well financed and has
the capacity and access to capital to finance the development. The project is estimated
to cost approximately $92 million to construct. The development team is proposing an
initial $750,000 annual ground lease payment to the City, which is the second highest of
the three proposals. The team has also made a commitment to raising the initial
match - funding of up to $10 million to the Santa Monica Museum of Art's capital
campaign.
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Bergamot Station Ud/Worthe Real Estate Group
The Bergamot Station Ltd team is led by Jeff Worthe of Worthe Real Estate Group, with
Frederick Fisher and Partners as architect. The Office of Jim Burnett is the landscape
architect, SBE Hotel Group is the hotel developer, Community Arts Resources (CARS)
is the community arts planning firm, Looking is the team's branding firm and Wayne
Blank is the arts curator.
Development Strategy: The development strategy consists of a mixed -use development
comprised of a hotel, creative office, art gallery, retail, restaurant and museum space
totaling 221,300 gross square feet. The development team possesses a unique
understanding of the Site, by including the founder and original architect of the current
Bergamot Station Arts Center, Wayne Blank and Frederick Fisher and Partners.
The development team envisions a new, two -story building of 21,100 square feet for the
Santa Monica Museum of Art. As the gateway to the complex, the museum would be
located in the middle of the Site adjacent to the Expo light rail station. The entrance to
the museum would be located in the interior of the Site, as opposed to the Expo light rail
station frontage. The evaluation panel expressed concern with the Museum turning its
back on the Expo station, thus creating the potential for an inward- focused arts center
that misses the opportunity to integrate with the new station. The proposal outlined
approximately 61,600 square feet of space dedicated to art galleries, the highest
amount of for - profit art gallery space of the three proposals. The proposal did not
include any non - profit cultural organizations as part of the development plan apart from
the museum and the existing theater, which was a concern for the evaluation panel as
there was not a vision for incorporating a new set of community arts or event uses on
the site in comparison to other proposals.
The proposed 120 -room, 83,000- square foot, seven -story hotel would be located in the
Site's northwest corner, envisioned as an "upscale Redbury" type of concept with 106
below -grade parking spaces beneath the hotel. Two creative office buildings totaling
48,500 square feet would occupy the southeast corner of the Site. Overall, the Site
maintains the broad open space area between the existing buildings with plans to
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dedicate the 31,000 square feet for open space adjacent to the museum and utilize the
remaining 103,000 square feet of the Site for surface parking and deliveries as per
existing operations at Bergamot. The surface parking area could also be used as
flexible space for outdoor events, in which case shared, off -site parking would be
needed. Worthe Real Estate Group owns and operates approximately 1,000 parking
spaces within walking distance from Bergamot and has offered to use these spaces
when off -site parking is needed on evenings or weekends. A small bike center, as well
as retail and cafe space of 7,600 square feet is proposed in the center of the Site.
Initially, the team proposed to develop a shared parking structure on the City Yards site
for the proposed development. Upon request from staff to revise the proposal in order to
self -park on site, the team proposed building a 250 - space, subterranean parking
structure on site in addition to the 106 below - grade, hotel parking spaces and
27 surface parking spaces, for a revised total of 383 parking spaces.
Overall, the evaluation panel deemed this team's overall development proposal to be
most consistent with the existing Bergamot Station in terms of operations and site plan.
However, apart from the new hotel, the selection panel found that the development
concept did not maximize the synergy of the new transit station and therefore missed
the opportunity of taking Bergamot Station Arts Center to a new level of community
access, cultural programming, and long -term viability.
Design Approach: The evaluation panel expressed confidence in the architect, who has
helped shape the existing Bergamot Station, but also expressed concern that the overall
approach was not as compelling as the other proposals' designs. The proposal
maximizes preservation of the existing buildings, but there was concern that the
proposal did not have the iconic design that the community expects of the Site.
The proposal includes a dedicated tenant improvement budget of $18 per square foot,
an amount significantly lower than the recommended team, thus resulting in significantly
less investment in the existing building infrastructure. The selection panel expressed
concerns about whether the proposed hotel design complements its surroundings.
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While the inclusion of the Site's original design firm is valued, the selection panel felt
that the proposal did not add to or diversify the Site's overall design potential and
circulation objectives in a way that would be beneficial to help usher Bergamot Station
into a new phase of operations. Bergamot Station LtdtWorthe Real Estate Group's
proposal preserves three of the existing buildings, totaling 41,500 square feet.
Dedicating a large proportion of the open space (103,000 square feet) to surface
parking was also a concern as the site is anticipated to attract more pedestrians due to
the adjacent light -rail station.
Community Approach: The evaluation panel found this team's community approach to
be the least developed, but valued the team's local presence and reputation in the arts
community and creative office sector. The team proposed to work with Community Arts
Resources to plan and develop an interim community outreach program. While the
development team demonstrated a commitment to retaining all existing tenants, it did
not have a well- developed community arts center management plan for sustaining or
expanding cultural programs for the public at the Site.
The proposed 31,000 square feet of open space is second largest of the three
proposals, and offers long -term flexibility of open space programming. Worthe Real
Estate Group, the lead developer, proposes to manage the arts center and open space
programming. While the team proposes retaining Wayne Blank, the founder of
Bergamot Station, his role in the proposed development and management of the art
center is undefined. Worthe Real Estate Group has extensive experience with creative
office and retail property management, but not as much experience as some of the
other teams in working with non - profits and art galleries. The proposed annual program
budget for the art center is $70,000, which is the lowest of the three proposals.
The team's proposal anticipated that the galleries and museums would be individually
responsible for most of the arts and cultural programming, which concerned the
evaluation panel. The development team also expressed a commitment to providing
event space at the Site to support non - profit and community groups (averaging five to
ten events per month) similar to how Bergamot Station Arts Center operates today.
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The evaluation panel expressed disappointment that the team's arts center
management strategy was not more robust and was the least developed in regard to
open space programming and community cultural activities.
Financial Analysis and Capacity: Bergamot Station Ltd/Worthe Real Estate Group is
well financed and has the capacity and access to capital to finance the development.
It is estimated that the project would cost approximately $80.4 million to construct.
The revenue assumptions are conservative, which reduces the amount of ground -lease
payments that can be supported. The development team is proposing an initial
$700,000 annual ground -lease payment to the City with a one percent annual increase
compounded every five years, representing the lowest ground -lease payment of the
three proposals. To mitigate this, they proposed a potential revenue share with the City
if net retail income were to exceed the proposal's initial projections.
REthink Development/Kor Group
The Rethink /KOR team is led by Greg Reitz of Rethink Development in partnership with
KOR Group as the hotel developer and operator. Westport Capital Partner, LLC and
Mission Capital are the investors. Michael Maltzan Architecture is the museum
architect, David Hertz Architect is the master planner, and Hornberger + Worstell is the
hotel architect. Katherine Spitz Associates and Rebar Group are the landscape
architects, and Sussman Prejza is the wayfinding designer. Lord Cultural Resources is
the arts management consultant, Merry Norris is the proposed interim director for the
Bergamot Arts Center, and Imprint Projects is the communications consultant.
Development Strategy: The development strategy in this proposal consists of a
mixed -use development project comprised of a hotel, creative office, retail, a black box
theater, and a museum space, totaling 221,000 gross square feet. The development
team likens the planned concept to a small village with the intent to preserve the
collaborative nature of the current site. A six -story hotel of 85,000 square feet includes
8,000 square feet for a restaurant /bar and 3,300 square feet of meeting room and event
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space. The Santa Monica Museum of Art would be located in a three - story,
20,000 square foot building adjacent to the Expo Station. The development also
includes 54,000 square feet of art gallery space, utilizing four of the existing buildings
(totaling 45,300 square feet), a 3,500 square foot, 99 -seat performance theater, an
additional restaurant (5,000 square feet) and 59,487 square feet of creative office with
limited on -site, surface parking. The hotel, museum, theater and retail uses cluster
around a public plaza that compose a town square at the Site's center, while the art
galleries and creative offices occupy the lower- height periphery.
The evaluation panel questioned the team's overall experience and ability to deliver a
project of this complexity, given that the collective team has not worked together
previously. While the proposed uses are all identified in the Bergamot Preferred
Concept, the location of the hotel in the middle of the Site is inconsistent with
community planning efforts. There is concern that the hotel would become the
epicenter and focus of the development, and potentially detract from the Arts Center
activities.
Initially, the team proposed to develop a shared parking structure on the City Yards site.
Upon request from staff to revise their proposal in order to self -park the project on site,
the team proposed to build 380 spaces on site, subterranean and at grade. Overall, the
selection panel felt the proposed location of the various uses on the Site along with the
inclusion of multiple architects on the team led to a confusing development that lacked
overall synergy. The panel commended the inclusion of a variety of public benefits
throughout the Site, including a bike station, a Big Blue Bus transit station and turnout
area, an electric car charging station, and significant, environmentally sustainable
development objectives. However, the panel did not find a holistic synergy to the
overall development approach.
Design Approach: Based on the preliminary design work, the selection panel felt the
design approach was the least compelling. While the proposed design delivers unique
architecture, the overall site lacks a continuity of integrated design throughout the
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project. The team incorporates the greatest level of environmentally sustainable design
elements throughout the project with a thoughtful approach, in particular, to the
landscaping on the Site. REthink Development's proposal preserves four to five existing
buildings on Site, totaling 58,900 square feet of building space being retained, which is
the highest amount of building preservation of the three proposals.
Community Approach: The evaluation panel viewed the community approach proposed
by this team favorably; however, the development included the least amount of
community open space (13,500 square feet) of the three proposals. The development
team demonstrated a commitment to a high level of community involvement in the
project's design development by making public engagement central to the process.
The evaluation panel considered the proposed crowd - funding techniques to garner
community ownership a fresh approach, though questioned the tenants' capacity to
support it. The proposed annual program budget for the art center is $300,000, which is
the highest amount of the three proposals and involved an overly ambitious, and likely
unrealistic approach to funding the program.
Financial Analysis and Capacity: There was concern that the REthink development
team might not have the capacity and access to capital to finance the development. It is
estimated that the project would cost approximately $82 million to construct.
The team's financial assumptions are aggressive, which resulted in a higher ground
lease payment than may actually be supportable. The development team is proposing
an initial $600,000 annual ground lease payment to the City escalating to $1.2 million
annually after construction, representing the highest ground rent at project stabilization.
The proposal had a number of innovative development and business concepts such as
the formation of a "B" or Benefit Corporation, creation of a Business Improvement
District and crowdfunding, though the panel and the City's financial consultant felt that
that assumptions may be overly optimistic in terms of timing, implementation, and
revenue generation. Rethink Development proposes to provide a $1.7 million donation
to the Santa Monica Museum of Art to initiate their fundraising effort so that they could
fund the design and construction of the museum, which concerned the selection panel
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since the Museum may have difficulty self- funding a project of this scope and scale.
The proposal also assumes that the Museum will construct their building on the Site,
which could also be problematic.
Proposal Comparison: Fiscal and Economic Impacts
This section provides a more in -depth analysis of the projected fiscal and economic
impacts of the 26Street TOD Partners LLC, Bergamot Station Ltd.Morthe Real Estate
Group, and REthink Development /Kor Group proposals. This data is strictly
development team - reported and varies based on the teams' assumptions, and
estimated construction and design costs. The table below outlines the development
teams' proposed ground rent terms and reported estimates of annual revenues to the
City. Attachment B provides an overall comparison matrix outlining additional details of
the three proposals.
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BERGAMOT STATION LTD
26STREET TOD
I WORTHE
PARTNER LLC
KOR / RETHINK
Estimated
Public
Revenue
$700,000
$750,000
$600,000 during
Base Ground
construction; $1.2
Rent
million /yr. post -
construction
Increases annually,
Increases every 10
Not stated.
compounded every 5
years based on CPI
years; Potential retail
or cumulative 15%
revenue share.
increase over period.
55 yrs. + two(2) x 10 yr.
55 yrs. + 44 yr.
55 yrs. + extensions
Lease Terms
extensions
extension
Property Tax
$155,529
$121,200
$168,577
Sales and Use
$645,000
$315,000
$180,600
Tax
Utility User Tax
$55,243
$64,100
$84,074
Hotel Transient
$1,330,950
$1,024,100
$1,395,623
Occupancy Tax
Total
Estimated Tax
Revenue
$2,186,722
1 $1,524,400
$1,828,874
17
The revenue stream dedicated to supporting the arts is a very important element to the
development proposals in regards to creating a sustainable and vibrant arts center.
All teams addressed the development objective of providing at least 75,000 square feet
of arts- related space that is affordable to non - profit cultural organizations and for - profit
art galleries. Below is a comparison table of the Arts Center Management and
Marketing Budgets that are proposed by each team and information on each team's
tenant retention strategy.
Arts Center Management + Marketing
BERGAMOT STATION
26STREET TOD
KOR / RETHINK
LTD / WORTHE
PARTNER LLC
Annual Budget
$70,000 /yr.,
$200,000 (Yr. 1
$295,000 /yr. at
escalating every 5
Cultural Arts Trust
stabilization, up to
yrs. + 3% of
seed funding);
$700,000 1yr. (incl. BID
revenues (Mgmt.
$150,000 /yr. annually
fees, private
Fee)
from Parking Fees
memberships &
Additional $
sponsorships)
anticipated from
Naming Rights.
Tenant Retention
100 %, temporary
All who commit to
Budgeted tenant
Goal
space w /adjacent
long -term; temporarily
retention funds, free
private owned bldgs.;
relocate to adjacent
valet parking + offsite
CARS marketing
property; interim
parking rental
support
marketing + branding
strategy
The table below compares the capital investments projected under each proposal, both
in terms of total project capital investment and capital investment in major public
benefits.
W
In summary, the City's financial consultant KMA confirmed that two of the development
teams are well financed and have the capacity and access to capital to finance the
development. There were some concerns raised about the REthink Development/Kor
Group partnership's financing plan. Most of the cost assumptions presented by the
development teams were reasonable but each team had a few aggressive assumptions
within their proposals. However, once Council authorizes staff to enter into an ENA with
one of the teams, there will be additional analysis and negotiations that will go into the
development of a Disposition and Development Agreement (DDA) that will stipulate the
specific financial terms of a ground lease.
19
BERGAMOT STATION
26STREET TOD
LTD I WORTHE
PARTNER LLC
KOR / RETHINK
Total Development
$80,365,350
$92,032,617
$81,693,426
Costs
Per SF GBA
$363.15
$414.56
$406
Includes Museum
Yes; $8,917,986
Yes; $7,000,000
No. Includes
Costs
($136/sq ft)
($350 /sq ft)
$1.70 million
museum
contribution.
Museum to be
developed
separately,
Budgeted Tenant
$18.49/sq ft for core +
$95 /sq ft on
$15- $35 /sq ft;
Improvements -
shell TI's on existing
existing buildings;
$1.82 M overall
Existing Buildings
buildings; $82 /sq ft site
$3.1 M - $4.4M
work (landscape, public
overall (depending
amenities) - -$2.36 M
on Bldg. A
overall in core, shell +
retention);
site work
Budgeted Tenant
Improvements - New
$25 /sq ft
Build (retail,
$100 1sq ft
$50 /sq ft
restaurants;
restaurant, creative
$35 /sq ft creative
office )
office
Includes Prevailing
Yes. But does not
Wage
Not stated
Yes
appear to include
financing /leasing
costs.
In summary, the City's financial consultant KMA confirmed that two of the development
teams are well financed and have the capacity and access to capital to finance the
development. There were some concerns raised about the REthink Development/Kor
Group partnership's financing plan. Most of the cost assumptions presented by the
development teams were reasonable but each team had a few aggressive assumptions
within their proposals. However, once Council authorizes staff to enter into an ENA with
one of the teams, there will be additional analysis and negotiations that will go into the
development of a Disposition and Development Agreement (DDA) that will stipulate the
specific financial terms of a ground lease.
19
Evaluation Panel Recommendation
Through its review as outlined above, the evaluation panel concluded that the proposal
submitted by 26Street TOD Partners LLC (Development Team) best responded to the
Council's adopted development objectives and the RFP selection criteria through their
original proposal and their responses to staff's follow -up questions. KMA reconfirmed
that the Development Team has the financial resources and development experience to
complete the project. The proposal offered a development strategy that demonstrates
the team's capability to successfully deliver the project. The evaluation panel
appreciated the attention given to integrating the arts throughout the Site, providing
affordable space for emerging and existing artists, and creating extensive public open
space for community cultural events, along with the addition of experienced cultural
programming partners and a robust, sustainable budget allocated to on -site cultural
programming to elevate Bergamot Station Arts Center. The overall development
provides a diverse mix of uses that responds to Council's adopted project objectives.
The design approach offers iconic architecture, sustainable design and construction,
and blends building preservation objectives with sensitive new infill development and
plentiful open space. The cultural programming approach is robust. Finally, the proposal
represents the largest amount of viable economic investment in the Site and the local
economy.
Staff recommends entering into an exclusive negotiating agreement (ENA) with the
recommended Development Team to further advance the development proposal, and
seeks Council direction to work with the Development Team to initiate a community
planning process that ensures that the project remains financially feasible.
Staff's recommendation to enter into an ENA with 26Street TOD Partners LLC does not
indicate full endorsement of all aspects of their proposal. The selection panel identified
some concerns with the proposal, and seeks Council direction to work with the
Development Team to initiate a community planning process that ensures that the
20
project meets all public objectives for the future of the Bergamot Arts Center while
remaining financially feasible.
To ensure the ethos of Bergamot Arts Center is maintained, it is recommended that this
team (or the selected final team) be required to submit annual Arts Center Management
Plan to the City's Community & Cultural Services Department in order to ensure
affordable space and cultural community programming is provided for the duration of
the lease. The team has readily agreed to this request and submitted additional ideas
for measurements that should be required in the Arts Plan. To ensure that at least
75,000 square feet of the development remains affordable to art and non - profit cultural
organizations, the development team should be required to provide copies of leases
and annual rent rolls for the duration of the ground lease.
Further, recognizing the significance of Wayne Blank's vision and knowledge to the
creation and longevity of Bergamot Station Arts Center, staff also recommends that the
team seek to include him in some capacity in the project. His expertise and
relationships could help ease the transition from the existing Bergamot Station Arts
Center and assist with the retention of the existing tenants.
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 ENA. An ENA affirms that the City will not negotiate with any other
development team for the development of the site for the duration of the ENA. Entering
into an ENA does not convey project approval or obligate the City to grant any
entitlements. The ENA would require that the Development Team make a good faith
deposit with the City and demonstrate evidence of financing prior to execution of a
ground lease.
21
The purpose of an ENA is to set forth the terms and conditions under which the City and
development team will work together to develop the scope of the project. The ENA
would establish a schedule of performance for the Development Team to solicit
community input and pursue Council approval of design concept plans. Once design
concept plans are approved, the ENA would stipulate an additional negotiation period,
typically six to twelve months including a base period and extension options, to fully
negotiate a Disposition and Development Agreement (DDA). A DDA would fully
stipulate the project details and lease agreement terms and would be subject to Council
approval.
If the schedule of performance outlined in the ENA is met, community input is
incorporated, design concept plans are approved, and negotiations regarding business
terms proceed favorably, staff would return to Council with a recommendation to enter
into a DDA with the Development Team at a later date. If these benchmarks are not
met, the City would have the right to terminate the ENA and cease negotiations with the
development team.
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 to give staff additional or alternative direction regarding
the development and ongoing negotiations.
Environmental AnalVsis
Authorization to negotiate and execute an ENA is exempt from CEQA. The project may
also require additional environmental review and may conduct a project EIR, if
necessary.
22
Public Outreach
As part of the development of the Bergamot Area Plan, extensive outreach was
conducted and provided the basis for the project objectives included in the RFP.
Public outreach conducted from July 2011 to March 2012 included two community
workshops; multiple focus groups with local gallery owners, regional cultural arts
organizations, and entrepreneurs; individual meetings with over 25 local stakeholders;
and feedback received from the Arts Commission, Planning Commission and City
Council.
Once Council selects a team, 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.
The project would go through the standard development application process, including
float ups and board and commission presentations, and entitlements would be subject
to Council approval.
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, in accordance with the Bergamot Area Plan.
A development agreement application would not likely be submitted until sometime in
2015 and construction would not be expected to commence until 2017 at the earliest.
23
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: Jason Harris, Economic Development Manager
Jennifer Taylor, Economic Development Administrator
Andy Agle, Director
Housing and Economic Development
Attachments:
A. Proposal Summary Sheets
B. Development Summary Table
Forwarded to Council:
Rod Gould
City Manager
24
Attachment A
;allery E
Cafe /Bar
ce
Restrooms, Bike Center) 7,600
Public Open Space So Ft 31,000
Total Parking 383 '! Proposal Summary: The developer possesses a unique understanding of the site,
Subterranean 356 having collaborated with the founder and original architect of the current Berga-
Surface 27 mot Station Arts Center. As proposed, the design maximizes preservation of the
existing warehouse buildings. Disruption to current tenants is minimized in an
Building Preservation Sa Ft effort to retain as many galleries as possible. The development team envisions a
3 buildings, 41;500 new building for the Santa Monica Museum of Art , with museum activities spill-
ing out into the surrounding public plaza and courtyards. A new 120 -room hotel
Elevation and Massing is located in the site's northwest corner, envisioned as an "upscale Redbury" con -
Hotel stories 7 cept, while two creative office buildings occupy the southeast. Two small build -
Museum, office stories 2 ings constructed in the central public plaza will contain retail space, a bike center
Gallery stories 1 and a cafe. In keeping with the existing design aesthetic, newly constructed
FAR 0.9 buildings will feature corrugated metal siding, exposed steel and permeable con -
crete. Approximately 40% of the Site area will be utilized for surface parking and
deliveries for the galleries, with the remaining parking spaces located under the
Development Team: j hotel and creative office developments. An appointed site curator will coordi-
Worthe Real Estate Group, develop nate event development and marketing, with oversight from the development
er; Wayne Blank, Arts Curator +.
advisor; Frederick Fisher and Part- group.
ners, LLC, architect; The Office of Public Objectives and Economics: As proposed, the project offers subsidized
James Burnett, landscape architect;
SEE Hotel Group, hotel operator, space to the art galleries and museum. Three existing buildings are preserved for
Community Arts Resources, arts the galleries in effort to retain the existing tenants, and new facilities are being
programming; Looking, brand iden - added for the museum, office, hotel and retail. Total development costs are an-
tityconsultant. ticipated to be approximately $80.4 million. The developer proposes an initial
I $700,000 annual ground lease payment to the City with 1% annual increase com-
pounded every 5 years. During the construction phase, the developer will work
with an arts resource consultant to develop a governance structure and manage-
ment plan, and to hire a site curator. The developer estimates an annual program
Proposai summary sheet prepared budget of $70,000 per year to support marketing and events. Arts Center ten-
by City staff for Informational ants and non -profit and community groups utilizing the Center will be expected
purposes. to contribute to their own marketing and event - related costs, thereby contrib-
uting to the overall arts center programming and activities.
ublic Open Space Sg Ft 64,900
otal Parking
ubterranean +at -grade 442
Proposal Summary: Inspired by both the station's industrial past and current
uilding Preservation Sg.Ft. arts- related uses, 26Street TOD Partners envisions the site as a major gateway to
4 buildings 34,700 46,100 , Santa Monica and its arts scene. The proposed development preserves and en-
hances Building B, E and possibly also Buildings A /C, while constructing additional
levation and Massing buildings in a complementary, industrial design. A mix of gallery and retail spaces
lotel stories 6 is anchored by the newly constructed Santa Monica Museum of Art, a 93 -room
luseum'stories 4 hotel and a 200+ seat public ampitheatre. A vine - covered garden concourse bi-
iallery stories 1 sects the site, intersecting public spaces landscaped with succulents and wild -
AR 0.9, flowers. All tenant spaces open directly onto outdoor walkways that accommo-
date both public art installations and spillover space for gallery events. The devel-
ievelopment Team: oper targets LEED gold -level certification with rooftop solar units, rainwater col -
idustry, LTD and Boulevard lection and irrigation system, and natural ventilation and lighting of tenant spac-
artners developer /managers; es. By day, the structure's physical orientation and translucent materials allow
Volff Urban Management, hotel ! natural light to flood interior spaces; by night, interior light spills out, transform -
eveloper /manager,• Lionstone ing the station into an illuminated marker of the vibrant neighborhood. The de-
iroup, developer /sponsor; Rios velopment self - parks, served primarily by a single - level, below -grade parking
lementi Hale Studios, architect/ structure with limited surface level parking along the eastern periphery of the
'esign; Carol Goldstein, cultural Site. Bike parking and a full- service bike center are planned. The overall vision is
lanning; Marc Pally, art advisor/ to create a distinctive and sustainable arts and cultural center for established and
urator; Greer /Dailey and The emerging artists, along with synergistic media and technology companies, con -
arie Group, community outreach / necting internal uses with other distinctive areas along the Light Rail.
ngagement; Cedd Moses,
ospitalitycurating; W.E. O'Neil, Public Objectives and Economics: As proposed, the project offers affordable,
ontractor. subsidized space for non -profit arts organizations and for -profit galleries, nearly
1.5 acres of public and civic space, preservation of at least 54% of existing build -
ings, night and weekend site - activation uses, public parking, bike facilities and
sustainable, transit - oriented design. Total development costs are anticipated to
_ Proposal summary sheet be $92 million, with an initial annual ground lease payment to the City of
prepared by Cpry staff for $750,000. CalArts and KCRW are the proposed non -profit partners to work along-
informational purposes. side the Museum and galleries in creating arts education and programming, in
„ collaboration with other local organizations. The developer will contribute a por-
tion of parking revenues to arts programming, - estimated $150,000 per year.
2
Total Parking 380
Proposal Summary: Rethink /KOR proposes a plan that preserves the collabora-
tive nature of the current site while using in -fill development to activate public
Elevation and Massing
plazas and engage pedestrians. The developers liken the planned concept to a
Hotel stories 6
small village, with a 125 -room hotel, museum, theater, and public plaza compos-
Creative office stories 3
ing a town square at the site's center. Galleries and creative offices occupy the
Gallery stories 1
quieter, low- density periphery. All existing buildings will remain with only Build -
FAR 0.9 j
ing T modified by expansion. The new, in -fill structures will utilize complemen-
tary construction materials. The proposal embraces the site's transit - oriented
Development Team:
vision, designed to enhance the experience of pedestrians, train passengers, and
Rethink Development, lead develop-
cyclists. On -site parking includes a total of 380 spaces (subterranean and at-
er; KOR Group, hotel developer,
';
grade). A small station with turnaround space is provided for Big Blue Bus. The
Westport Capital Partners, LLCland
W port spit
new museum building will enhance visibility of the Santa Monica Museum of Art
ss investors; Michael
from the station platforms and passing Expo line trains. Exterior walls of certain
Mission Architecture, museum ar
Mal t zt;
structures have been identified for installation of outdoor galleries. A 99 -seat
David Hertz Architects; sus-
black box theater will become a local performance venue for Not Man Apart, Jac -
tainability architect /master planner,
Hornberger+ Worstell, hotel archi
aranda Music, Virginia Avenue Project, City Garage, and other organizations. Non
tect Katherine Spitz Associates and
- profit tenants will contribute to arts programming and education and the overall
Rebar Group, landscape design;
development is anticipated to operate as a "B" corporation with crowd funding
Sussman Prejza, wayfinding design;
techniques used to garner community ownership. A net zero energy grid, solar
Morley. Builders, construction team;
panels, grey water irrigation system, and reflective materials target LEED gold or
Imprint Projects, communications;
platinum certification.
Lord Cultural Resources, arts man-
agement consultant; Merry Norris,
Public Objectives and Economics: As proposed, the project offers affordable
interim director.
space for non - profits and galleries, preservation of existing buildings, bike facili-
ties, and sustainable, transit- oriented design. Construction is phased to minimize
tenant disruption. Total development costs are anticipated to be approximately
$82 million. The budget includes $1.7 million contribution towards the Museum
Proposal summawsheet
to assist with construction. The developer proposes an initial $600,000 in ground
prepared by City star! for <
rent escalating to $1.2 million annually post- construction. A newly- created non -
inro rnat7onatpurposes.
profit board will coordinate facility management and programming in collabora-
tion with other local organizations. The developer estimates an annual program
budget of nearly $300,000.
3
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