Memo Regarding Public Hearing to Consider Introduction of Ordinance Amending the Disposition and Development Agreement between Alameda Point Partners, LLC and the City of Alameda for Site A at Alameda Point, July 5, 2017
1. Summary of Progress Made on Site A Project since Execution of the DDA in June 16, 2015
2. City of Alameda Notice of Default to Alameda Point Partners, dated April 12, 2017
3. Alameda Point Partners’ Response to City’s Notice of Default, dated April 12, 2017
4. Approved Amendment to the Site A Development Plan
5. Amendment to Disposition and Development Agreement between Alameda Point Partners, LLC and the City of Alameda for Site A at Alameda Point
6. Disposition and Development Agreement between Alameda Point Partners, LLC and the City of Alameda for Site A at Alameda Point (August 6, 2015), DDA Amendment No. 1, and Operating Memoranda
7. Alameda Point Partner’s Projected Financial Proformas for Site A by Phase
In June 2015, the City Council unanimously approved the Site A Development Plan and a Disposition and Development Agreement (DDA) with the private developer, Alameda Point Partners (APP), for a 68-acre area within Alameda Point that extends generally from the Main Street entrance of Alameda Point to the eastern edge of the Seaplane Lagoon. Site A includes 800 housing units (200 affordable), 600,000 square feet of commercial development, and extensive parks and utility infrastructure (Site A Project). The Site A Project represents the first major public/private development at Alameda Point since the base closed and lost 18,000 jobs in 1997. The DDA contemplates that the Site A Project will be constructed in three phases over the next 15 years.
Since the approval of the Site A Development Plan and DDA, APP and its team of architects, engineers, and design professionals, in coordination with City staff, have expended significant staff and financial resources, including $15 million to date in equity funds, making extensive progress on implementing the Site A Project over an 24-month period. A summary of the progress made on the Site A Project is provided in Exhibit 1.
On January 17, 2017, the City Council approved an amendment to the DDA to extend the closing on the Phase 1 property (Phase 1 Property) by four additional months from December 12, 2016 to April 11, 2017 (Phase 1 Closing Date) due to the rising cost and complexity of the project requiring more time to complete property due diligence items and to finalize financial commitments. Although significant efforts were made by APP to finalize these commitments, APP did not meet the requirements of the DDA necessary to accept conveyance of the Phase 1 Property by the Phase 1 Closing Date of April 11, 2017 and did not opt to make the payment to extend the date, which is allowed under the DDA. APP stated that they could not close on the Phase 1 Property because APP could not underwrite a financially feasible project due primarily to the extraordinary escalation and volatility in construction costs since execution of the DDA without commensurate revenue appreciation. In other words, the projected proceeds from land sales (the difference between development revenues and costs), especially for the apartment rental blocks (Blocks 9 and 11), were narrowing to such an extent that there was significant risk that these revenues would not sufficiently cover the cost of Site A’s complex infrastructure needs. More detailed information is provided below regarding the financial status of the Site A Project.
As a result of the uncertainty and APP’s inability to meet the requirements of the DDA, the City did not transfer the Phase 1 Transfer Property to APP and APP is in default under the DDA pursuant to Section 17.4 of the DDA. The City issued a Notice of Default to APP on April 12, 2017 (Exhibit 2). In response to the City’s Notice of Default, immediately sent a letter to the City outlining an explanation for the default and a detailed plan for curing their default under the DDA (Exhibit 3). As allowed under the DDA and explained in APP’s letter, APP committed to commencing the cure to their default within the 30-day cure period required in the DDA and completing the cure within the maximum 120 days allowed under the DDA. The addition of the maximum cure period of 120 days results in a new Phase 1 Outside Closing Date of August 9, 2017. In order to cure the default APP must meet all of the conditions necessary to close on the Phase 1 property by the August 9, 2017 date. If APP does not close on the Phase 1 Transfer Property by August 9, 2017, the DDA terminates.
If the DDA terminates, the Site A Project would not move forward and City staff would most likely recommend seeking interest from new developers. If the City Council decided to move forward with a new developer selection process, it may take 2-4 years to reach the point the City is with APP today assuming no delay related to an economic downturn over that time period. During this time, the existing substandard wastewater (sewer), storm drainage, and drinking water, and transportation facilities would continue to deteriorate. The delay would also represent a major setback for the funding of the Alameda Point Ferry Terminal, since $10 million of the funds are being supplied by APP upon closing of the first phase. Additionally, staff would expect that a new developer will likely experience similar cost challenges and may also require changes to the design, uses, amenities and type of housing currently planned as part of the Site A Project. To bridge the financial shortfall, a new developer may propose more townhomes and/or single family homes, fewer apartments, less rehabilitation and reuse of existing structures, and/or fewer waterfront amenities.
Since responding to the notice of default, APP has commenced the cure within the 30-day timeframe by submitting proposed changes to the Site A Development Plan and DDA to the City that enhance the financial underwriting of the Site A Project and improve the potential that APP will meet the financing requirements in the DDA and be able to close on the Phase 1 Transfer Property by August 9, 2017. These changes required that the Planning Board approve an amendment to the Site A Development Plan (Plan Amendment) (Exhibit 4) and the City Council approve an amendment to the DDA (DDA Amendment) (Exhibit 5). A complete copy of the executed DDA, as amended and clarified, is attached as Exhibit 6. The Planning Board unanimously approved the Plan Amendment on May 22, 2017 after hearing public comment from a number of community members in support of the Site A Project. This evening the City Council is considering approval of the DDA Amendment, as described in greater detail below.