This report reviews Amendment No. 3 to the Construction, Operation and Reciprocal Easement Agreement (REA) involving American Mall Properties (AMP), the owners of Town Center, the Sunnyvale Redevelopment Agency (Agency) and the three major department stores at Town Center (Attachment A). The REA describes the rights and responsibilities of all the property owners involved in Town Center. The REA describes the upgrade to the existing parking structure, the exchange of land, the demolition of the center section of the existing parking structure, the development of two new parking structures and additional space at the Mall, and the operation and maintenance of the new parking structures. The Agency reviewed the agreement on June 15, 1999. Since that time a number of changes have been made regarding the timing of the construction of the two new parking structures, new bridges have been added connecting Penney’s to the parking structures and the retail building along Washington has been deleted from this phase of the development. The REA has been agreed to and signed by all signatories except the Agency. The final approval rests with the Sunnyvale Redevelopment Agency. Staff is recommending approval of the REA by the Agency.

At its meetings on March 11, 1999, the City Council and the Agency approved the land exchange between the Agency and American Mall Properties, and approved the Special Development Permit and the Tentative Map for AMP’s remodeling of the Town Center.

On June 11, 1999, the Agency approved agreements involving AMP and the City and the Redevelopment Agency. These agreements described: the upgrade to the existing parking structure, the exchange of land, the demolition of the center section of the existing parking structure, the development of two new parking structures and additional space at the Mall, and the operation and maintenance of the new parking structures. Since that time AMP has been negotiating with the three major department stores over the terms and conditions of the REA.

The Socio-Economic Sub-Element of the General Plan states an objective:

The Redevelopment Plan includes:

Amendment No. 3 to The Construction, Operation And Reciprocal Easement Agreement (REA) is an agreement that involves the Redevelopment Agency, AMP, Macy’s, Montgomery Ward, and J.C. Penney. The REA describes the rights and responsibilities of all the property owners involved in Town Center. Macy’s, Montgomery Ward, and J.C. Penney each own their own land and building. The REA was initially signed in 1978 when Town Center was built. In 1992 it was amended to include Penney’s in the agreement. The attached agreement is the third amendment to the REA. The REA is the critical agreement because it must be signed by all parties before any land can be exchanged or any construction can start. As of December 3^rd, 1999 all parties had signed the agreement and the Agency approval is the last approval for the agreement to be finalized.

The conceptual plans and the amendments to the REA were first reviewed with the department stores in January 1999. The REA has been under negotiation since that time. The Agency reviewed it on June 15, 1999 and the following are the major amendments that have since been included in the agreement:

• The development of the theatres and retail on the Mathilda side and the construction of two new parking structures have remained the same. One of the new parking structures must be finished by November 1, 2000; how- ever, the intent is to have it finished by August to meet the needs of the "back to school" shoppers. The second structure must be available for use at the ground floor level by November 1st for holiday shopping and complete by May, 2001 for the opening of the theatres. Given the delays in getting the REA approved, this will be a very tight construction schedule. Currently, it is anticipated that the structure to the south, or on the Iowa side, will be constructed first. The decision, however, is dependent on how quickly utility drawings can be produced and approved.

• The operating covenant for Penney’s has been reduced. In the second amendment to the REA, Penney’s had a 15 year operating covenant which obligated them to operate their store until 2007. Macy’s and Ward’s operating covenants expire in September of 2001. Penney’s wanted to bring their obligation more in line with the other two stores even though the existing agreement allowed Penney’s to leave if Macy’s and Ward’s left. In negotiating this amendment, it was felt that if Town Center is successful, the department stores will be successful and the actual dates of the operating covenants will not be an issue.

Due to the difficulties in having five parties negotiate an agreement, the construction schedule has been considerably delayed. The schedule anticipated currently is that one parking structure will open in August of 2000, some of the retail on the west (Mathilda) side will open for the holiday season 2000, and the theatres will open in May 2001 in concert with the second parking structure.

To open the first parking structure by August 2000, AMP is considering changing the financing structure that the Agency approved in June. Originally, the City was going to issue bonds to finance the construction of the parking structures. However, in order to save time, AMP is proposing to use private financing for the first parking structure and the RDA will purchase it for a fixed price on completion. Though the cost of financing will increase, it will lower the City’s risk by purchasing a completed structure for a fixed price. Since there is more time before the second structure starts, it can follow the original process and use the bond proceeds for financing the construction. If AMP decides to proceed on this basis, staff will bring an amended Public Improvements Acquisition and Development Agreement (PIDA) to the Agency and City Council for review in January. The PIDA is the agreement between AMP and the City and Redevelopment Agency that describes the construction and payment process for the two new parking structures. This agreement outlines a schedule by which the Developer must complete the different phases of construction and ties the new parking structure construction to the theater and retail additions that AMP is undertaking. It also requires coordinated openings of the theaters and the parking structures, and outlines the events that will occur if AMP does not construct the theatres or only constructs partial improvements.

Staff is recommending that the Agency approve the amendments to the REA as described.

Approval of the REA will allow the redevelopment of Town Center to proceed. It is also one of the conditions that will allow the bonds to be issued for the construction of the parking structures. It is anticipated that the redevelopment of Town Center will increase the tax increment to the Agency and will increase sales tax to the City’s General Fund.

This report was noticed through the publication of the City Council and Redevelopment Agency agenda.

Staff recommends approval of Alternative 1.

Prepared by:

Dyane Matas
Redevelopment Manager

Reviewed by:

David Boesch
Director, Community Development

Approved by:

Robert S. LaSala
Executive Director-Secretary