Exhibits:
1. Updated City Council, Planning Board and Other Community Comments
2. Development Plan Prepared for May 11th 2015 Planning Board
3. Resolution and Conditions of Approval Prepared for May 11th 2015 Planning Board
4. Draft TDM Compliance Strategy and Financial Program Memorandum
5. Overview of the Organization and Content of the DDA
6. Draft Development Agreement
7. Letters from APP Requesting Waiver of AMC 30-53
8. Annual Cash Flow Analysis
9. Fiscal Impact Analysis of Alameda Point and Site A Development
10. Special Tax Burden Analysis for Site A Development
11. Environmental Compliance Checklist

Status Report on Site A Development at Alameda Point, including Presentation on City Council Approval Process, Financing Plan, and Fiscal Impact Analysis. (Base Reuse 819099)

To: Honorable Mayor and Members of the City Council

From: Elizabeth D. Warmerdam, Interim City Manager

Re: Status Report on Site A Development at Alameda Point, including Presentation on City Council Approval Process, Financing Plan, and Fiscal Impact Analysis.

BACKGROUND
On November 18, 2014, the City Council approved an Exclusive Negotiation Agreement (ENA) with Alameda Point Partners (APP), the preferred developer for a 68-acre mixed-use development site at Alameda Point (Site A) consistent with the Waterfront Town Center Plan. The ENA requires that APP complete a Disposition and Development Agreement (DDA) and a Development Plan for Site A before the end of the 6-month ENA period with two possible 3-month extensions. The first 3-month extension was granted by the City Manager in May extending the ENA until September 1, 2015. APP has also requested a Development Agreement (DA) that would vest the Site A's current and future project approvals for the term of the DDA. Generally speaking, a DA allows greater latitude and flexibility in imposing conditions and requirements on a project in the form of public benefits, and affords the developer greater assurance that once approved, the City's regulatory structure, e.g. its zoning code, will remain the same.
This evening's meeting is part of the ongoing extensive community process that has included monthly hearings before the City Council and Planning Board, meetings with other boards and commissions, stakeholder meetings and community open houses. The following is a summary of the meetings that were held to date:
· January 20, 2015: The City Council held a public meeting to review the initial development concepts and development terms.

· January 26, 2015: The Planning Board held its first public workshop on the APP conceptual Development Plan.

· January 29th: APP and the City held a community open house at Building 15 at Alameda Point.

· February 5, 2015: The Historical Advisory Board (HAB) reviewed the draft Development Plan.

· February 12, 2015: The Recreation and Park Commission reviewed the draft Development Plan.

· February 17, 2015: The City Council reviewed an updated Development Plan; comments from the various boards and commissions; and staff's initial responses to those comments.

· February 23, 2015: The Planning Board reviewed an updated Development Plan.

· February 25, 2015: At the joint meeting of the Transportation Commission and the Planning Board, the Transportation Commission reviewed the draft Development Plan for the first time and both boards provided initial comments on a transportation strategy for Site A consistent with the recently approved Alameda Point transportation strategy.

· March 4, 2015: APP and the City held a second open house at Bladium for the community to review updates made to the draft Development Plan since the January 29th open house.

· March 23, 2015: The Planning Board reviewed an updated Development Plan, and an outline of the transportation strategy for Site A.

· March 28, 2015: APP and the City held a public walking tour and lunch at Site A, highlighting key areas in APP's Development Plan.

· April 21, 2015: The City Council reviewed an updated Development Plan, a draft Transportation Demand Management (TDM) Compliance Strategy, the proposed commercial strategy, and a summary of the DDA for Site A.

· April 27, 2015: The Planning Board reviewed an updated Development Plan, a draft TDM Compliance Strategy and a draft DA.

· May 7, 2015: The HAB reviewed the updated Development Plan.

· May 11, 2015: City staff recommended that the Planning Board approve the Development Plan and General Plan consistency findings for the DA and provide final comments on the TDM Compliance Strategy. Because this staff report was released before May 11, the results of the May 11 meeting will be provided verbally at this evening's meeting.
Based on comments received by City staff and APP over the last five months, the APP team revised and improved the Development Plan, TDM Compliance Strategy and other transaction documents. These reflect responses to comments from the City Council, Planning Board, other board and commissions, and community. Exhibit 1 provides an updated summary of the comments received at these meetings, including responses to comments from the most recent April 21, 2015 City Council meeting.

Exhibits 2 and 3 represent the Development Plan and conditions of approval presented to the Planning Board on May 11, respectively. Exhibit 4 includes the updated TDM Compliance Strategy and financial program memorandum based on comments received by the City Council and Planning Board. The Planning Board's approval of the Development Plan is a final approval unless a City Council member calls the approval for review.
DISCUSSION
This staff report is divided into sections to provide information on three important topics related to the proposed Site A development: (1) a description of the upcoming City Council approval process for Site A; (2) a summary of the Site A financing plan, including a cash flow analysis; and (3) the approach to fiscal neutrality, including a fiscal impact analysis and mitigation plan for Alameda Point and the Site A development.
1) City Council Approval Process

City staff anticipates recommending to the City Council approval of the following documents at the regularly scheduled June 16, 2015 City Council hearing:
· Disposition and Development Agreement. An ordinance to approve the DDA, which outlines the price and terms of payment for the Site A property and development obligations over a 20-year term. Exhibit 5 provides the latest overview of the DDA organization and content for Site A. Other important transaction documents that will be attached to the DDA for approval include:

o The TDM Compliance Strategy;

o Affordable Housing Implementation Plan, which outlines APP's specific obligations for providing 25% affordable housing consistent with the Renewed Hope Settlement Agreement, the City's Inclusionary Housing Ordinance and the City's Density Bonus Ordinance;
o A Milestone Schedule outlining key performance milestones for completing development of the Site A development;

o A Phasing Plan for the phasing of development and public amenities;

o The package and phasing of infrastructure consistent with the Master Infrastructure Plan and the Request for Qualifications from Developers for Site A;

o A Mitigation Monitoring and Reporting Program (MMRP) specifically tailored to the Site A development consistent with the MMRP approved on February 4, 2014 by the City Council as part of the certification of the Alameda Point Final Environmental Impact Report (FEIR) in compliance with the California Environmental Quality Act (CEQA);

o A Master Lease that governs the interim use of existing buildings outside of the State tidelands areas before they are transferred to APP;

o A Master Trust Lease that governs the long-term use of land plus existing and new buildings within the State tidelands area;

o A form Subdivision Improvement Agreement to be used for each subsequent subdivision of property within Site A;

o A license agreement for the short-term use of land for Phase 0 activities.

· Development Agreement. An ordinance to approve the DA that vests the Site A's Development Plan and future project approvals for the term of the DDA. The DA is attached as Exhibit 6.

· Multifamily Housing Waiver. Approval of a waiver from AMC 30-53, which prohibits construction of multifamily housing. APP's letter requesting a waiver is attached as Exhibit 7. The Site A development is providing 25% affordable housing and, therefore, qualifies for affordable housing density bonuses, concessions, incentives and waivers pursuant to State law and AMC section 30-17 (Density Bonus Ordinance). Consistent with the Town Center Plan, the Development Plan does not include any single family housing; therefore, APP is requesting a waiver from AMC 30-53. APP is not requesting any density bonus units or financial concessions.

2) Financing Plan

The ENA requires that APP prepare a financing plan for the development of the Site A property that includes sources and uses of funds for financing the improvement of the Site A land and any rate of return requirements. APP has presented the financing plan to the City in the form of an annual land development cash flow or project proforma (Exhibit 8). A cash flow for land development means a comparison of revenues and costs associated with the development of land over time. As land owner and "seller" of the Site A land, it is important for the City to understand the economics of the land transaction. As a result, the cash flow is in the form of a land development analysis. The following is a summary of the components of the annual cash flow for land development:
· Revenues. The revenues in the Site A cash flow include proceeds from the sale of improved land (i.e., land that now has backbone infrastructure and parks) and proceeds from the creation of a Community Facilities District (CFD), which allows APP to issue debt upfront to fund infrastructure that is then paid back through a special tax on private property owners within Site A. Another source of funds for the development includes developer equity. The amount of developer equity is not found under "revenues" in the cash flow analysis, but instead is the sum of all of the negative annual cash flows. In other words, in any year that costs exceed revenues the developer must use its equity to fund the net costs of the project.

The proceeds from improved land sales are estimated by subtracting the cost of constructing the vertical development (i.e., buildings) from the amount of revenue generated from renting or selling the completed new development. As a result, Exhibit 8 also presents summary information on the costs and revenues associated with the vertical development of each residential and commercial product type planned for Site A.

· Costs. The costs in the Site A cash flow analysis include all of the costs required to entitle and improve the land to make it ready for vertical development. These costs include: predevelopment costs, such as planning and transaction costs necessary to obtain the right to construct infrastructure and buildings; any environmental remediation; site preparation (i.e., demolition, grading and geotechnical remediation); backbone utility and street infrastructure; parks; fees and permits for infrastructure; professional services; developer overhead; phase 0 events and plans; and other public amenities or land payments (i.e., ferry terminal and sports complex payments).

· Return Requirements and Profit Participation. As a windfall protection, the City is entitled to share in profits after APP has achieved a market rate of return on the land development of Site A (referred to as profit participation or contingent purchase price). This market rate of return is approximated and measured by APP's reaching two rates of return: an 18 percent internal rate of return (IRR) and a cash flow ratio of 1.6. There is no guarantee that APP will meet either of these return thresholds and the risk of the performance of the development is borne by APP. If APP achieves higher IRR thresholds, as well as the 1.6 cash flow ratio, the City will receive a gradually increasing percentage of profits, as described in more detail in Exhibit 5.

IRR is a common measure of the performance of a real estate project over an extended period of time. The IRR measures the profitability of a project by, in part, discounting the net cash flow (revenues less costs) to account for the time value of money (i.e., a dollar today is worth more than a dollar next year). The cash flow ratio is a comparison of profit (sum of all gains and losses over duration of the project) to the amount of the developer's equity investment, referred to as "peak equity" in the cash flow analysis.

· Land Payments to City. As presented in the ENA and in the cash flow analysis, the City's land payment for improved land is provided by APP in the form of $103 million of investment in Site A and other parts of the Alameda Point property, including $88 million of backbone infrastructure and parks within Site A, a $5 million payment towards an initial phase of the Sports Complex, and $10 million towards a new ferry terminal at the Seaplane Lagoon. The payment for the unimproved land is the $103 million less the $88 million in infrastructure, resulting in $15 million for the sports complex and ferry terminal payments. Many of these payments are made upfront or as part of the Phase 1 development, heavily frontloading the major amenities, and transit and utility infrastructure, which creates significant benefits for the rest of Alameda Point and Alameda community. As required by the no-cost conveyance agreement with the United States Navy, all land and lease proceeds (not tax revenues) must be reinvested back into the Alameda Point property.

The cash flow analysis shows that: (1) the Site A project is feasible, achieving a 22% IRR; (2) there is little to no land value after the land payments required by the City (described above) are made; and (3) based on the current projections in the cash flow, the City would not receive any windfall profit participation. City staff had its economic consultant, Willdan Financial Services (Willdan), perform an independent review of the assumptions in APP's cash flow analysis and their analysis confirmed that the City is achieving a fair value for its land. The DDA requires that a financing plan for Site A will be updated by APP before the City transfers ownership of each phase of land to APP to ensure each phase and the overall project remains feasible.
3) Approach to Fiscal Neutrality

The City adopted a fiscal neutrality policy for Alameda Point in 2003 that requires that City revenues from new development at Alameda Point balance against the cost of providing municipal services and maintaining public infrastructure. As a result, City staff retained Willdan to: (1) help the City develop a fiscally prudent and consistent approach to fiscal neutrality as the City moves forward incrementally with new development at Alameda Point; and (2) prepare a fiscal impact analysis of both the entire Alameda Point development at buildout and the Site A development by phases (Exhibit 9). In consultation with City staff, Willdan has taken a reasonably conservative approach to preparing the fiscal impact analysis because the results of this analysis will be used to set the special tax mitigation amounts that will be paid by property owners at Alameda Point now and into the future. Once the special tax for municipal services is set, it cannot be changed easily as it will require a vote of either property owners or voters, depending on certain factors. One of the key conservative assumptions includes Alameda Point only attracting 3.5 million square feet of commercial instead of the maximum development envelope of 5.5 million assumed in the Alameda Point planning documents and EIR (along with the 1,425 housing units) since there is market uncertainty about how much commercial space will ultimately be built at Alameda Point, and the results of the net fiscal impact improves the more commercial development is established.
Results of Fiscal Impact Analysis
Willdan estimated the net fiscal impact to the City (i.e., the difference between annual City revenues and expenditures) that is likely to be generated by the development at buildout of Alameda Point (see Table A of Exhibit 9). Willdan evaluated the impacts to the following City funds: General, Urban Runoff, Gas/Measure B Tax, Sewer Service and Library Funds. This evaluation was conducted in coordination with the City's Finance, Police, Fire, Public Works, Recreation and Parks and Library Departments. As shown on Table N, based upon the assumptions presented in the fiscal impact analysis report, the development at Alameda Point is expected to generate a net positive impact on the City's General Fund of approximately $162,000, a net positive impact on the City's Library Fund of $177,000, and a net adverse impact on the City's street-related funds of $1.2 million. When these three fund types are combined, the net fiscal impact is expected to be negative at $871,000. The fiscal impacts to other City Funds are anticipated to be neutral.
The fiscal impacts analysis of Site A and each of its three phases was also estimated, as presented in Table B of Exhibit 9. The fiscal impact analysis for Site A was based on the public facilities actually planned to be completed at buildout of Site A. For instance, the cost of a new fire station was not assumed in the Site A analysis since it is not needed yet; however, average costs of Fire Department expenditures were projected for Site A. As shown on Table B of Exhibit 9, the completed Site A development is expected to generate an annual net fiscal benefit of $766,000. Only Phase 1 is expected to generate a temporary annual deficit of $248,000 after special tax mitigation revenues are collected.
Approach to Fiscal Mitigation
The following describes the approach that City staff and Willdan propose taking to achieve fiscal neutrality for Site A and all other subsequent developments at Alameda Point:
1. Determine the net fiscal impacts of the entire Alameda Point development and all of its planned parks and public facilities at buildout, assuming the conservative 3.5 million square feet of commercial development instead of 5.5 million. As described above, the fiscal impact analysis in Exhibit 9 estimates this impact to be a negative annual impact of $871,000 at buildout (see Table A).

2. Assign each incremental development its fair share of the adverse fiscal impacts associated with the entire Alameda Point development, which will be used to set the amount of the special tax burden for that development. Site A's "fair-share" portion of this impact and resulting annual special tax burden for municipal services is estimated to be $311,000 (see Table A), therefore, mitigating its share of the overall impact.

3. Estimate the net fiscal impacts of each incremental development by phase assuming the impacts from public facilities that will exist at completion of that individual project, such as the number of completed park acres and the existence of a new fire station. This phased analysis will then be used to determine if there are any net fiscal impacts on a phased basis in excess of projected annual special tax mitigation revenue that must also be mitigated. As shown on Table B of Exhibit 9, the Site A development must make fiscal mitigation payments in addition to the annual special tax during Phase 1 of the Site A project. This may be reduced by the property transfer tax revenue paid at first sale of the new development, which is not accounted for in the annualized fiscal analysis. The exact terms of this additional mitigation will be determined in the DDA.

4. Determine whether there are any single large uses that generate substantial positive fiscal benefit that, if not developed, could create significant risk to the City's fiscal situation. These uses may include a hotel, which generates substantial transient occupancy tax; or a single large retailer, which generates substantial sales tax. Then establish which use may require additional mitigation payments until developed. In the case of Site A, there is a hotel planned, and without the hotel, the Site A development remains fiscally positive at buildout. Therefore, no additional mitigation payments are required.

5. Lease revenues generated at Alameda Point are currently used, in part, to offset Alameda Point's maintenance and operations costs, including certain City services. As development is implemented and revenue-generating buildings are demolished, it will be crucial that the fiscal impacts of this transition be evaluated. This analysis has been performed for Site A and there will be no impact to the Base Reuse Department's lease revenue budget or to its ability to continue payments to the General Fund.

The mitigation of the aforementioned fiscal impacts depends on creation of a special tax for municipal services on Alameda Point property owners. Additionally, the total amount of special tax and/or annual fee revenue burden that can be placed on property owners at Site A is limited due to market considerations and restrictions in the ENA (1.9 percent for residential and 1.8 percent for commercial, including all existing tax burdens). As a result, Willdan, in concert with City staff and APP, have also prepared a special tax burden analysis to ensure that there will be sufficient special tax revenue for all of the different potential uses of special taxes (i.e., municipal services, annual TDM expenses, flood control maintenance and reserve, and infrastructure bonds) (Exhibit 10). While the exact amounts of these special taxes and/or annual fees are likely to change marginally before the DDA is finalized, this analysis demonstrates that there is sufficient annual special tax revenue to pay for all of these uses, including the municipal services mitigation. The DDA will memorialize APP's commitment to create special taxes and/or fees for these various uses consistent with the amounts presented in the fiscal impact and special tax burden analyses presented in this staff report.
FINANCIAL IMPACT
There is no financial impact to the City's General Fund or Base Reuse Department budget from the acceptance of this report. The report provides a detailed financial and fiscal analysis of the proposed Site A development at Alameda Point, as summarized above.

ENVIRONMENTAL REVIEW
On February 4, 2014, the City of Alameda certified the Alameda Point FEIR in compliance with CEQA. The FEIR evaluated the environmental impacts of redevelopment and reuse of the lands at Alameda Point consistent with the Alameda Point Waterfront and Town Center Plan, which included Site A. Consistent with the February 2014 action, on May 11, 2015, City staff recommended approval by the Planning Board of a resolution containing conditions of approval that require that the Site A development comply with, and implement, all the relevant mitigations measures adopted by the City Council in February 2014. The DDA will include the MMRP as an exhibit and require compliance with all of the relevant mitigation measures.

Under Public Resources Code Section 21083.3 and Section 15183 of the CEQA Guidelines, where a project is consistent with the development density established by existing zoning, a community plan, or a general plan for which an EIR was certified, additional environmental review is not required. The density and land uses of the proposed Site A development are consistent with the Town Center Plan and Alameda Point Zoning District. As documented in the environmental compliance checklist (Exhibit 11), Site A would not result in significant impacts that: (1) are peculiar to the project or project site; (2) were not already identified as significant effects, cumulative effects, or off-site effects in the FEIR; or (3) were previously identified as significant effects, but are determined to be substantially more severe than discussed in the EIR. Thus, the streamlining provision of Public Resources Code Section 21083.3 and Section 15183 of the CEQA Guidelines apply and no further environmental review is necessary.
RECOMMENDATION
No action required. This report is for information only.
Respectfully submitted,
Jennifer Ott, Chief Operating Officer - Alameda Point

Financial Impact section reviewed,
Elena Adair, Finance Director

Exhibits:
1. Updated City Council, Planning Board and Other Community Comments
2. Development Plan Prepared for May 11th 2015 Planning Board
3. Resolution and Conditions of Approval Prepared for May 11th 2015 Planning Board
4. Draft TDM Compliance Strategy and Financial Program Memorandum
5. Overview of the Organization and Content of the DDA
6. Draft Development Agreement
7. Letters from APP Requesting Waiver of AMC 30-53
8. Annual Cash Flow Analysis
9. Fiscal Impact Analysis of Alameda Point and Site A Development
10. Special Tax Burden Analysis for Site A Development
11. Environmental Compliance Checklist