Exhibits:

1. Lease with Alameda Point Redevelopers

2. Premises Map - Building 8

3. Recent Comparables for Sale of Building 8

File #: 2016-2624
Type: Regular Agenda Item
Body: City Council
On agenda: 3/15/2016
Title: Introduction of Ordinance Authorizing the City Manager to Execute Documents Necessary to Implement the Terms of a Ten-Year Lease with Two Ten-Year Renewal Options and an Option to Purchase with Alameda Point Redevelopers, LLC for Building 8, Located at 2350 Saratoga Street at Alameda Point. (Base Reuse 819099)
Attachments: 1. Exhibit 1 - Lease with Alameda Point Developers, 2. Exhibit 2 - Premises Map - Building 8, 3. Exhibit 3 - Recent Comparables for Sale of Building 8, 4. Ordinance

Title

Introduction of Ordinance Authorizing the City Manager to Execute Documents Necessary to Implement the Terms of a Ten-Year Lease with Two Ten-Year Renewal Options and an Option to Purchase with Alameda Point Redevelopers, LLC for Building 8, Located at 2350 Saratoga Street at Alameda Point. (Base Reuse 819099)

To: Honorable Mayor and Members of the City Council

From: Jill Keimach, City Manager

Re: Introduce an Ordinance Authorizing the City Manager to Execute Documents Necessary to Implement the Terms of a Ten-Year Lease with Two Ten-Year Renewal Options and an Option to Purchase with Alameda Point Redevelopers, LLC for Building 8, Located at 2350 Saratoga Street at Alameda Point

BACKGROUND

Alameda Point Redevelopers (APR), an experienced master developer of multi-tenant small industrial and creative “maker” spaces, proposes leasing and developing Building 8 at Alameda Point. Building 8 is an approximately 270,000 square foot (sf), 3-story warehouse building constructed in 1940. The building has been vacant since decommissioning of the Naval Base (Base) in 1997, has no electricity or water and is in need of a complete re-roofing. The multiple stories, size and condition of the building has prevented the City from finding tenants with sufficient resources and experience to make the significant investment to bring the building up to code and make it marketable to potential tenants. APR has a vision for making the building an enterprising, multi-tenant entrepreneurial and creative “maker” space that is comparable to their other projects in the Bay Area.

APR, led by Jonah Hendrickson and Kenneth Schmier, is a local developer with experience in preserving historic buildings while finding new, exciting uses serving small entrepreneurs in many sectors. Mr. Hendrickson recently developed the Berkeley Kitchens building in West Berkeley, a historic building renovated into a vibrant center for small food and bakery entrepreneurs within a beautiful adaptive design including an inviting façade and commercial kitchens for tenant use. Their team has over 40 years of experience and successfully completed more than 1,000,000 square feet of this type of development throughout the Bay Area.

DISCUSSION

In recent leasing and development presentations, staff has said that most of the desirable “low hanging fruit” buildings at Alameda Point have been leased and that it is time to look at buildings that need more investment. Whenever staff talks about this strategy, the adaptive reuse buildings within the Naval Air Station Alameda Historic District (Historic District), such as the Bachelor’s Officer’s Quarters, Chapel, Post Office and buildings along the civic mall area are used as examples of those buildings needing investment. Building 8 is also a prime example of this type of building and a contributor to the Historic District. Additionally, it is one of the only buildings at the Base with coveted truck loading docks that run along both sides of the building.

Like many buildings at Alameda Point, Building 8 is reported to have lead based paint (LBP), asbestos containing material (ACM), fluorescent light fixtures containing suspected PCB-containing ballasts and mercury-containing light tubes. APR anticipates investing up to $20 million in abating these hazards, fixing the roof, installing electricity and water, and delineating the building for occupancy by multiple small-scale “maker” tenants.

APR's goal is to transform the building into a vibrant center for commercial activity and social interaction as envisioned by the Alameda Point zoning ordinance and other planning documents. Reuse of Building 8 will focus on place-making, including a well-designed, fully furnished streetscape and storefront facades that open to the right-of-way, transforming the experience of working at and visiting Alameda Point.

APR’s vision is to divide the building into spaces of varying sizes, allowing individual businesses to find a home as a start-up, and then grow to scale in a supportive environment. Potential uses for Building 8 include light manufacturing, work-live spaces, and workshops for artisans, craftspeople, design professionals, administrative / office uses along with accessory uses to support the community including cafes, restaurants, galleries, and ground floor retail accessible from the exterior facades. The square footage of retail space within the Building 8 project has been limited to 5% of total square footage in order to ensure that the success of the retail concept envisioned in the Waterfront Town Center Plan is fully realized. Their improvements will honor the architecture and history of Alameda Point, while creating a critical mass of creative businesses to incubate and catalyze an entrepreneurial community at Alameda Point.

Staff and its advisors believe there is significant pent up demand for small-scale manufacturing and creative “maker spaces” and that these uses, along with the uses planned within Building 9 and 91, can co-exist successfully. According to Atmel, a major backer of the Maker movement, there are approximately 135 million U.S. adults who are makers, and the overall market for various maker services hit $2.2 billion in 2012 which is expected to reach $6 billion by 2017 and $8.41 billion by 2020. The maker movement is important because it has the potential of giving anyone the tools they need to become makers and move them from passive users to active creators. The “Maker Movement” has the potential to bring techies and non-techies alike into the world of being creators - some hobby-related, but for many, they could end up making great products and selling them online. Etsy <http://etsy.com>, a website for “makers”, has over 1 million artisan retailers and has enabled them to sell their products to users around the world. Based on this, bringing in makers could increase the City’s sales tax revenue.

The uses contemplated for Building 8 include some commercial work-live uses consistent with the Alameda Point Zoning Ordinance and the goals of the work-live section of the Alameda Municipal Code (AMC). The AMC says the purpose of these developments are to:

• Provide for and make feasible the reuse of existing commercial or industrial buildings

• Provide cost-efficient alternative work space that will provide an incentive for entrepreneurs, business owners, artists, artisans and other individuals to continue to work in Alameda and contribute to the City’s economy;

• Reduce traffic and associated adverse impacts on air quality, energy resources and the quality of life in the City by reducing the number and length of work-related trips by employed Alameda residents; and

• Promote the preservation and reuse of commercial or industrial buildings that contribute to the historic character of the community in a manner that is consistent with other community goals and policies.

The AMC defines the work-live studios function as predominantly work spaces with incidental residential accommodations that meet basic habitability requirements. Each work-live shall include at least one thousand square feet (sf) of gross floor area, with not more than 30% or 400sf, whichever is greater, reserved for living space. The rest of the gross floor area of each work-live studio shall be reserved and regularly used for working space. Any work-live spaces are commercial uses and are not considered residential under the City’s AMC and are not considered as units under the Navy’s residential development cap.

The APR lease also includes a purchase option with an option price of $10.3 million. Staff believes a purchase option is warranted in this case because of the significant investment needed in the building coupled with the development of additional small, creative spaces, enabling entrepreneurship and creating jobs. These attributes are highly compatible with the City’s 1996 Community Reuse Plan and the City’s other planning documents for Alameda Point. Additionally, APR plans on investing approximately $20 million in Building 8, which is a significant investment that would unlikely be possible without the security of a purchase option. The project is backed by a qualified, single investor ready to rapidly realize the potential of Building 8. The City does not otherwise have the funds to invest this level of improvement into Building 8 without private owners and users that have access to private capital.

City staff and its leasing agent, Cushman & Wakefield, believe that the option price of $10.3 million dollars represents a reasonable market price for Building 8, a multi-story industrial building in poor condition that cannot be occupied without significant upfront investment. Assuming a typical 50 percent building to land coverage ratio, the 90,000 square foot building footprint on the 173,369 square foot parcel results in a coverage ratio of 51.9%. Therefore, we do not believe that there is any additional land area being delivered with the building that should be accounted for in the valuation. The $10.3 million dollar purchase price over the 270,000-square-foot building equates to $38 per square foot, which for an atypical multi-story industrial building in poor condition that cannot be occupied without significant investment is a reasonable market price. Class C single-story manufacturing/warehouse space that can be occupied is estimated at a range of $53 to $70 per square foot (Exhibit 3). It is very difficult to obtain exact comparable sales for multi-story buildings in similar poor building and infrastructure condition as Building 8. It is highly unusual for industrial buildings to be multi-story as industrial buildings are typically single-store buildings. If the purchase price of $10.3 million is spread over just the first-floor square footage of 90,000 square feet since this is the most usable and marketable directly comparable type of industrial space, the price per square foot is approximately $114 per square foot.

As set forth in the Master Infrastructure Plan for Alameda Point (MIP) and the Development Impact Fee Ordinance for Alameda Point, all new development and property owners are required to pay their fair-share of the overall cost of new infrastructure planned for Alameda Point. The option price for Building 8 will be used to fund new infrastructure at Alameda Point and significantly exceeds the minimum infrastructure allocation for this parcel by more than $6.9 million [$10.3 million purchase price less $3.40 million infrastructure burden (3.39 acres x $1,003,439 per acre infrastructure cost for commercial uses)].

Lastly, this property, similar to other properties at Alameda Point, will be subject not only to all of the relevant provisions of the City’s Alameda Municipal Code (such as Design Review Ordinance, Historic Preservation Ordinance, and Sewer Lateral Ordinance), but also specific restrictions applied solely to Alameda Point, such as the Alameda Point Zoning Ordinance, mitigations in the Alameda Point Environmental Impact Report, the Declaration of Restrictions setting forth the biological restrictions on the property, and any conditions placed on future parcel maps for the property. These regulations on future property owners at Alameda Point will help ensure that any future development and improvements to the properties performed under private ownership will be consistent with the City’s long-term vision for Alameda Point.

FINANCIAL IMPACT

The monies from the new lease will be deposited into the Base Reuse Fund lease revenue fund and are limited to uses permitted under the Economic Development Conveyance Memorandum of Agreement (EDC MOA) with the United States Navy. The $10.3 million option price will be used to fund infrastructure at Alameda Point pursuant to the MIP and EDC MOA.

MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE

This action is consistent with Chapter 9 of the General Plan, the MIP, Alameda Point Zoning Ordinance, and 1996 Community Reuse Plan.

ENVIRONMENTAL REVIEW

This action is exempt from the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines Section 15301(c) (Existing Facilities).

RECOMMENDATION

Approve an ordinance authorizing the City Manager to execute documents necessary to implement the terms of a ten-year lease with two ten-year renewal options and an option to purchase with Alameda Point Redevelopers, LLC for Building 8, located at 2350 Saratoga Street at Alameda Point.

Respectfully submitted,

Jennifer Ott, Chief Operating Officer -Alameda Point

By,

Nanette Mocanu, Assistant Community Development Director

Financial Impact section reviewed,

Elena Adair, Finance Director

Exhibits:

1. Lease with Alameda Point Redevelopers

2. Premises Map - Building 8

3. Recent Comparables for Sale of Building 8