On August 18, 1998, the Sunnyvale Redevelopment Agency Board (Agency) approved a Disposition and Development Agreement (DDA) between the Agency and the Mozart Development Company, doing business as M-D Downtown Sunnyvale, LLC, (Mozart), for the sale and development of the Mathilda/Evelyn Corridor. The basic terms of the Agreement, including the sale price and development envelope or scope, were established by the Agency at its June 16, 1998 meeting. The DDA was signed and became effective on October 9, 1998.

The original DDA is being completely superceded by the new one (Attachment A). The Agency is being asked to consider a different development project program with corresponding changes in the terms of the Disposition and Development Agreement.

The Downtown Specific Plan requires that the first redevelopment project in Block 1 trigger the requirement for a Master Plan for the Block. The Master Plan has three main elements: a) land use, b) development standards and design guidelines, and c) circulation and parking. The Council approved a draft Master Plan on February 23, 1999. The Master Plan describes the requirements for Block I (also known as North of Washington) in particular to ensure that the mix of uses and the design of the buildings and the streetscapes are all compatible. The Block 1 Master Plan will be amended to reflect the changes to the Mathilda/Evelyn Corridor phase subsequent to the approval of the Special Development Permit for the site.

On April 7^th, 1998 the Redevelopment Agency Board (Agency) approved the concept of developing 450,000 square feet of Class A office space in three uniquely identifiable buildings, two of which would be 5 stories in height and the third building being no more than 6 stories. Also approved in concept for the Mathilda/Evelyn Corridor was a 120,000 square foot, 150-room, first class hotel, an underground parking structure, and a public plaza.

On June 16^th, 1998 the Agency approved the financial transaction of the Agency purchasing and selling land in the Mathilda/Evelyn Corridor. The financial terms of the agreement with the Mozart Development Company were based on the development program that was approved by the Agency Board. The terms were as follows:

• Mozart would design and construct a turnkey underground parking structure with a minimum of 320 parking spaces.
• Mozart would contribute $1 million towards the development of the public plaza and downtown identity elements.
• Mozart would reimburse the Agency for the costs of assembling the land up to an agreed upon cap.

The total financial package for the sale of the Agency-owned and assembled land was determined to be above the fair market value established by an independent appraiser based on the development program approved by the Agency in April 1998. The proposal provided sufficient funds to assemble the land, complete the replacement parking, and contribute to the public plaza and downtown identity elements.

The Agency directed the Executive Director to prepare a Disposition and Development Agreement based on these terms to be reviewed and approved by the Board in August. On August 18, 1998 the Sunnyvale Redevelopment Agency Board approved the DDA with Mozart.

The DDA contained all of the details summarized here, including a schedule of activity with milestones. Since the approval of the DDA, however, a number of circumstances arose which contributed to delays and, ultimately, changes to the program for the development of the Mathilda/Evelyn Corridor phase. Among the factors resulting in the delay were: (1) delays in the acquisition of the half-acre DAI parcel; (2) the purchase and subsequent plans for the expansion of the TownCenter Mall by American Mall Properties; (3) the fast-track funding cycle and planning process for the CalTrain Station; and (4) the active role played and feedback/guidance provided by the Downtown Resource Team with regard to project layout and massing.

Through a series of meetings over a period of months, it became apparent that significant tradeoffs would be required in order to accommodate the project in its entirety as originally conceived. Ultimately, it was concluded that the hotel component of the project program should be deferred to a later phase, in lieu of a substantially larger public plaza. This change set in motion a series of studies to more carefully plan building configurations, parking layouts, and access and circulation patterns. The process involved numerous meetings between the Mozart team and City staff. On September 10, 1999 Mozart filed a preliminary application for a project comprised of the following key program elements:

• 450,000 square feet of class A office space
• 10,000 square feet of ground level retail space
• 1600 underground parking spaces (250 public, 1350 private of which 320 are for shared public use)
• 100 additional surface parking spaces within Block 1
• 1.75 acre Public Plaza

Since the initial application was received, additional analyses have been performed to ensure project conformity with City requirements and compatibility with surrounding development.

In 1997 the Land Use and Transportation Element of the General Plan was adopted. Policy and Action Statements relating to the downtown include:

In 1993 Council adopted the Downtown Specific Plan. The Downtown Specific Plan provides a vision for the future growth and development of the downtown and provides guidelines and standards for development.

There are a number of elements that are included in the DDA. These include:

The Agency agrees to sell assembled parcels of land to the developer for a specified price. The developer agrees to purchase the property at a specified price. The DDA includes exhibits showing the overall project layout, building placement and underground and surface parking. The plans are consistent with those submitted to the City for approval of the Special Development Permit by the Planning Commission and the City Council. Actions on the SDP are currently pending.

The DDA clearly states the purchase price for the land, which is the same as was previously approved by the Agency. The total price for the sale of the land is $10,077,000 and is consistent with an updated fair market value appraisal.

Building I Office Site: (parcel size of approximately 44,431 square feet)

• 120,000 square foot Class A office building with ground level retail
• total purchase price of $2,625,330; includes

• $1,000,000 for public improvements such as the public plaza

• $1,077,000: to reimburse the City for the cost of purchase of the parcel acquired from Dubrovnick Associates Inc.

• $495,830 unspecified ($548,330 less $52,500 for surface parking

• Parking District levy payment: $55/space removed due to construction
• Hill Building demolition; construction of 30 public parking spaces
• Construction of 50 temporary public parking spaces on currently vacant half-acre parcel

Building II Office Site: (parcel size of approximately 41,382 square feet)

• 130,000 square foot office building
• $2,935,865 toward public parking garage

Building III Office Site: (parcel size of approximately 83, 635 square feet)

• 200,000 square foot class A office building with ground level retail
• $4,515,805 ($3,314,135 toward public parking garage; $1,079,170 unspecified ($1,201,670 less $122,500 for surface parking (70 spaces 

The sale of the land will occur in connection with building construction, with each closing occurring just before the start of construction. Prior to each closing, the following must have been completed to the satisfaction of the Agency: all Land Use Entitlements have been granted; building and construction permits for each phase have been obtained; and evidence of financing and construction contracts are obtained. Alternatively, the Developer has the option of doing the entire project as a single phase.

The Mozart Development Company agrees to purchase the land for development, according to a specific scope of development, including the use of the property, design characteristics, and a time schedule for completion. Exhibit G in the DDA is the timeline for completing the development.

The project described in the DDA is as stated in the Background section of this report and is consistent with the description of the modified project as previously reviewed by the Agency. The general requirements specify that each building will have a Class A quality and a unique identity and create a lively streetscape.

In exchange for the sale of the land, the City will receive: (1) reimbursement for the cost of acquiring the half-acre parcel from DAI ($1,077,000); (2) $1 million toward improvements to the future Public Plaza; (3) $1,575,000 in cash for as-yet unspecified City use; (4) 250 dedicated public parking spaces to be built at the developer’s expense and provided "turnkey" to the City upon completion; (5) 320 shared-use parking spaces available to the public weekdays after 6 p.m. and all day on weekends; and (6) 100 additional surface parking spaces within Block 1 to be developed at Mozart’s expense ($175,000).

The Developer, Mozart, receives assembled properties and development rights to build up to 450,000 square feet of office space and 10,000 square feet of retail space, with project parking to be provided in underground structures at the ratio of 3 parking spaces per 1000 square feet of office floor area. (The previous DDA required a minimum ratio of 3.2.) The DDA contemplates the likelihood of a phased development spanning three years.

The DDA requires that construction plans be submitted for the first phase within 180 days of the approval of the required land use entitlements for the entire project. The second phase is to be submitted within 270 days, with the third phase within 360 days. (See Attachment B- Project Schedule of Performance.) Extensions to the schedule for the second and/or third phase can be granted, subject to the payment of $50,000 per month, and a maximum delay of six (6) months. Closing on each phase is to occur within 30 days of building permit issuance, with construction commenced within 45 days thereafter. Completion of each phase will occur within 24 months.

The DDA reflects the procedure for submission of plans and elevations of the buildings by the developer and the review process by the Agency and City to maintain tight control over quality of design and construction.

The application included site plans, elevations, an environmental assessment and a traffic study for all phases of the development. The review process included informal public review and comment sessions. Within 6 months of receiving Land Use Entitlements, the Developer must submit construction drawings for the Phase I office and within 9 months and 12 months plans for Phase II and III, respectively.

Provisions required by lenders are included to assure that the transactions can be financed. At each phase the Developer must provide evidence of sufficient funds through equity and/or loans committed for the purchase of the land and construction of the development. The Developer must also provide evidence of construction contracts with a reputable builder.

The rights and remedies of both parties in the event of a breach of the agreement are described, and the conditions to the performance of both parties are specifically described.

The Remedies section is the City’s best insurance that the development will be completed on time and as described. During the first 120 days after this Agreement has been executed, the Developer can decide that the project is infeasible either financially or architecturally and the $500,000 deposit plus interest will be returned to the Developer.

Following this initial period, the deposit is at risk if the Developer fails to:

1. apply for building and construction permits plans within the time specified;
2. submit evidence of financing and construction contracts within the time specified;
3. accept conveyance of any portion of the site plans within the time specified or;
4. commence construction within the time specified;
5. decide not to build under the Land Use Entitlement Requirements.

If the Developer fails to remedy any of the above constraints and the Agreement is terminated prior to the closing of the first Phase, the Agency may retain the $500,000 deposit as liquidated damages. If at any point the Developer suspends construction, or fails to complete construction, the Agency has the right to reenter and take possession of the site and improvements and use its best efforts to resell the property consistent with Agency’s obligations and the Redevelopment Plan. The Developer is reimbursed for reasonable costs expended and if the Agency cannot sell the property for costs, the Agency may sue the Developer for damages.

Exhibit G of the DDA includes a timetable for the development. It is anticipated that the whole schedule could take up to three years to complete. Construction time for each building could be 24 months, with the second phase starting three months after the first phase and the third phase following the second by three months. The approval process through public meetings, Land Use Entitlements and construction permits is expected to take almost a year from the execution of the DDA.

In summary, the DDA is an agreement that includes the terms of a land sale between the Agency and Mozart and sets out the envelope of the development. It includes the uses allowed and the quality of the buildings required. It also contractually obligates the Developer to meet a specified time schedule and details the obligations of both the Agency and the Developer during this Agreement and the consequences of not meeting the terms of the Agreement. Staff and the Developer have been negotiating the terms of the proposed new DDA for the last six months. Staff is recommending that the Board of the Redevelopment Agency authorize the Executive Director to execute the DDA as presented in Attachment A.

The Downtown Specific Plan requires that the first redevelopment project in Block 1 trigger the requirement for a Master Plan for the Block. The Master Plan has three main elements: land use, development standards and design guidelines, and circulation and parking. The land use section of the Master Plan details future development potential in the Block including the types and the mix of uses that will be compatible with the new development as well as existing uses. The development standards and design guidelines address lot size, building coverage and setbacks, architecture and landscaping and open space. The parking and circulation addresses pedestrian and bicycle circulation, public transportation links and future parking requirements. The draft North of Washington Master Plan was approved by the City Council on February 23, 1999. A final plan will return with more detail on architectural requirements and revised siting of preferred land uses (e.g. the hotel).

There is both an immediate and longer-term fiscal impact from this proposal. In the short term, the Mozart proposal will provide sufficient funds to assemble the land ($1,077,000), build replacement parking ($6,425,000), contribute $1 million to the public plaza and downtown identity elements, pay for traffic mitigation and building permit fees, and pay an additional $1,575,000 to the City. In the longer term the development will annually contribute between $1,200,000 and $1,400,000 (depending on appraisal methodology) in additional property taxes, and $12 million in increased retail sales in the downtown, which in turn would add $120,000 in sales tax revenue to the City.

A notice of the review of the DDA by the Agency was published three times in the SUN.

Staff recommends Alternative 1.

Reviewed by:

David S. Boesch, Jr., Director
Community Development Department

Approved by:

Robert S. LaSala
Executive Director-Secretary

1. Disposition and Development Agreement
2. Exhibit G- Project Schedule of Performance Plans-