April 27, 2004
SUBJECT: Selection of Master Developer for Redevelopment of the Town Center Mall Site
BACKGROUND
On December 2, 2003, the Redevelopment Agency designated certain properties on Block 18 in Downtown Sunnyvale as a Master Development Area, and directed staff to solicit proposals for Master Developer of the subject area from property owners and from those who have entered into agreements to purchase property on the site. On December 3, 2003, staff delivered a Request for Proposal to the following entities:
American Mall Properties
Federated Department Stores
Target Corporation
Harvest Partners
WHL Architects
Forum Development Group
The original deadline of January 12, 2004, for submittal of proposals was subsequently extended to February 13, 2004, at the request of two property owners.
One response was received, from Forum Development Group of Smyrna, Georgia. Each member of the Redevelopment Agency will receive under separate cover a copy of the Request for Proposal, a copy of Forum’s proposal, a supplement to Forum’s proposal from the housing developer which Forum has selected to develop the residential portions of the project, Standard Pacific Homes, and revised schematic site plans as of April 22, 2004. Forum proposes to create a new entity to develop the project, Fourth Quarter Properties XLVIII, LLC, consisting of the principals of Forum Development, LLC, and Lehman ALI, Inc.
This report provides the Agency with the information necessary to make a decision on the Master Developer. Once selected, a Master Developer will be granted an exclusive night to negotiate with the Agency for redevelopment of Town Center Mall. A successful negotiation will result in a Disposition and Development Agreement (DDA) between the Agency and the developer.
DISCUSSION
A committee consisting of Director of Public Works Marvin Rose (chair), Director of Finance Mary Bradley and Jerry Keyser of Keyser Marston Associates has reviewed the Forum proposal. The committee’s evaluation of the proposal is summarized in the following paragraphs, organized in accordance with the evaluation criteria described in the Request for Proposal.
1. Consistency of the development proposal with the Downtown Specific Plan
The overall vision of the Downtown Specific Plan is to create “an enhanced, traditional downtown serving the community with a variety of destinations in a pedestrian-friendly environment”. The Specific Plan lists two goals for the Commercial Core District, of which this project (Block 18) is a part: “to link the different blocks together into a cohesive downtown core and to create a lively street life on all primary streets. Reestablishment of the street grid, increased pedestrian connections, architectural designs and consistent streetscape features will also contribute to linking different areas of the downtown. In addition, street life and vitality are keys to providing a vibrant downtown. Ground floor retail, restaurant, and entertainment land uses increase street activity with residential uses facilitating use of the downtown during day and night. High levels of architectural detail for pedestrian interest are important to create a pleasant pedestrian experience”.
Because of the acquisition and proposed demolition of the former J.C. Penney building, Forum is able to reestablish more of the traditional street grid than anticipated in the Specific Plan. The mix of uses, the continuity of retail and restaurant uses on the ground floor, and the wide and attractive sidewalks will support the vision and goals of the Specific Plan.
The proposal is not fully consistent with the development standards of the Downtown Specific Plan. Although it complies with height and setback requirements, it proposes increased residential and office density as follows:
|
|
Specific Plan |
Forum Proposal |
|
Retail |
1,007,876 sq. ft. |
950,000 sq. ft. |
|
Residential |
200 units |
300 units |
|
Office |
202,000 sq. ft. |
300,000 sq. ft. |
The Request for Proposal states that “the Agency will consider requests to modify the entitlements set forth in the Specific Plan but cannot approve such modifications without approval by the Sunnyvale City Council”. Should the Agency choose Fourth Quarter as Master Developer, it would not be approving Forum’s conceptual plan or the requested increase in residential units and office floor area.
2. The quality of the design of the development
The conceptual site plan and the three-dimensional images present the genesis of a development proposal which would be of the quality which Sunnyvale seeks. The vocabulary of the architecture is drawn from Bay Area examples. The variety and mix of materials and architectural styles is typical of the eclectic architectural style of Sunnyvale. Nevertheless, just as Sunnyvale has no distinctive architectural style, the proposal contains few distinctive elements that make it unique to the city. The mass and scale of the buildings are not representative of historic development of the city, but they could be considered compatible with the evolving densification of Sunnyvale and surrounding Silicon Valley communities. Elements which relate strongly to Sunnyvale are the attempt to recreate the feel of the original City Hall building on the site, and the sensitive preservation of the six majestic redwood trees within a newly created “Town Square”.
Overall, the committee believes that the development team has demonstrated the ability and sensitivity to create a development of the design quality which is desired for this critical central area of Sunnyvale.
3. The amount of revenue that the proposed development will generate for the City and the Agency.
The proposal stated that the development will generate “incremental real estate taxes of $2,500,000” per year, and “incremental sales taxes of $6,000,000” annually. The later figure is an incorrect overestimate, in that the City receives only a portion (equal to 1% of total sales) of the total new sales tax created. The committee estimates that the project as proposed would generate the following new income to the City and Agency:
Secured property tax
approx. $2.4 million / yr. to the Agency through 2025
Sales tax
approx. $1.5-2.0 million/ yr. to the City
These revenues are significant and are at the level which should be expected from full development of the site within the permitted development intensity of the Downtown Specific Plan.
4. The economic feasibility of the development requested.
The type and scope of development proposed is generally economically feasible in the opinion of Keyser Marston Associates, Inc., which undertook the initial economic analysis for the Downtown Design Plan and has since monitored changes in the local real estate market. Specifically, Keyser Marston believes that there exists a strong residential market which could comfortably absorb the proposed 300 units of for-sale housing. The retail market appears sufficiently strong to support the additional retail square footage proposed, particularly since the uses include clothing and other soft goods which are not readily available in Sunnyvale today. The movie theaters should do well, because the area is presently under-screened. Keyser Marston warns that the office component is risky in today’s market, given the huge vacancy which currently exists; over time, the office market should rebound to absorb the square footage proposed.
Despite the relatively strong market, Keyser Marston has anticipated that the economic feasibility of a downtown project of this size and complexity would likely require public support. It is difficult for new retail centers to provide expensive structured parking and survive in a competitive market where surface parking is the rule. In addition, in accordance with City desires, the proposal includes a high level of public infrastructure (streets, sidewalks, public plazas) which may not generate incremental income in terms of increased sales commensurate with its cost.
5. The amount of Agency or City financial assistance requested.
In light of the comments in the preceding paragraph, the committee is not surprised that the developer proposes a public subsidy through the Redevelopment Agency. Specifically, the developer states that “the incremental real estate taxes will be required to fund…the reconstruction of parking decks and streets to be included in the redevelopment of Sunnyvale Town Center”.
Although the stated need for public support is a factor which the Agency should consider, the Agency’s action to select a Master Developer will in no way commit it to any level of public support for the project.
6. The financial capability of the developer to undertake and complete the proposed development.
The proposal states that “equity in financing the project will be provided by Lehman ALI, Inc., and is anticipated to be $30,000,000.” In addition, the developer has indicated that the construction loan of approximately $240 million will be guaranteed by Stan Thomas, a member of the development team.
Mary Bradley, Director of Finance, will be reviewing the financial statements of both Lehman ALI and Stan Thomas when they are submitted. She will report verbally at the Redevelopment Agency meeting on the financial capability of the development team to complete the proposed development.
7. The experience of the developer and the development team in undertaking similar projects.
According to the supporting documentation submitted with the proposal, the development team, individually and together, has developed over 20 million square feet of retail space. Most of this development, however, has been “big box” development in “power centers”, a retail model which is significantly less complex than the mixed-use project proposed in Sunnyvale. The following two recent projects are cited as examples of the development team’s experience in mixed-use development:
The Forum Peachtree Parkway in Norcoss, Georgia
398,000 sq. ft. of specialty retail and restaurants on one level
182,000 sq. ft. of office on second level
All parking in surface lots
The Forum at Carlsbad in Carlsbad, California
265,000 sq. ft. of specialty retail on one level
Incidental office use
All parking in surface lots
Both of these examples are primarily retail centers, with no residential and limited office uses, on suburban sites. Neither was located within a redevelopment project area. The committee checked with local public officials involved in both projects, and learned that the developer proceeded expeditiously with both projects in accordance with their initially approved plans, and that the relationships between the developer and the local jurisdictions were positive.
Standard Pacific Homes is a 45-year-old publicly traded homebuilding company that has produced over 61,000 housing units, ranging from single-family homes to multi-family condominiums. The supplement to the proposal submitted by Standard Pacific states that “the company is moving aggressively into vertically integrated mixed-use development, a new product form which combines subterranean parking and ground floor retail space with 3 to 5 levels of residential housing above. Mixed-use projects in design include the Glendale Forum Center, a 100-unit condominium project; the Concert Park Condominiums, a 116-unit condominium project over ground floor retail and restaurants in Playa Vista; and North Lake Lofts, an innovative transit-oriented development project which combines 103 condominiums and ‘live-work’ units with ground floor retail space one block from a new metro station in the City of Pasadena”.
8. The need for acquisition of property or property rights.
The developer is not requesting that the Agency acquire any land for the project. This is an important attribute of the proposal. The development team is in escrow to purchase Town Center Mall, and has obtained control over the former J.C. Penney building and the WHL Architects building. The proposal would require the exchange of land between the developer and the Agency. Although the specifies of the exchange are not clear in the proposal, it would appear to the committee that such an exchange would not require the Agency to give up more land than it would receive.
Overall, the selection committee found the proposal submitted by Forum Development Group on behalf of Fourth Quarter Properties XLVIII, LLC, to be of high quality and consistent with the intent of the Downtown Specific Plan. The principals of the firm are competent, experienced developers, although the team has never attempted a mixed-use project of this complexity. The financial capability of the development team will be reported at the Agency meeting of April 27.
The Agency is being asked to take action on selection of a Master Developer for the Town Center Mall site. Once selected, a Master Developer will be granted an exclusive right to negotiate with the Agency for redevelopment of the site, in accordance with the attached Exclusive Negotiating Rights Agreement. The agreement provides for a relatively short period of negotiation: 60 days plus an additional 30 days if, in the judgment of the Executive Director of the Agency, it is necessary to satisfactorily reach agreement (total of 90 days). The agreement also requires the developer to make a non-refundable cash deposit of $50,000, which may be used by the Agency to defray its costs for third party assistance in the negotiations (developer deposits ranging from $25,000 to $150,000 are typical in redevelopment projects of this type). Although staff is proposing a cash deposit in the amount of $50,000, the Agency could alter the amount of cash deposit or eliminate this requirement from the Exclusive Negotiation Rights Agreement.
FISCAL IMPACT
There is no direct fiscal impact of designating Fourth Quarter Properties as the Master Developer. If the project is developed, it is anticipated to generate approximately $2.4 million per year of secured property tax increment and approximately $1.5-2.0 million per year of sales tax income for the City. The proposal states that the secured property tax increment will be required to fund the public streets and reconstruction of parking decks. This matter will be a subject of the real estate negotiations, the results of which will be brought back to the Agency in the form of a Disposition and Development Agreement. Should the Agency choose Fourth Quarter as Master Developer, it would not be approving at this time the allocation of tax increment funds to the developer.
PUBLIC CONTACT
Public contact was made through posting of the Council agenda on the City's official notice bulletin board, posting of the agenda and report on the City's web page, and the availability of the report in the Library and the City Clerk's Office.
ALTERNATIVES
1. Designate Fourth Quarter Properties XLVIII, LLC, as the Master Developer for the Town Center Mall redevelopment and grant a 90-day exclusive right to negotiate upon receipt of a $50,000 non-refundable deposit.
2. Reject Fourth Quarter Properties XLVIII, LLC, as Master Developer for the Town Center Mall redevelopment.
3. Reject Fourth Quarter Properties XLVIII, LLC, as Master Developer for the Town Center Mall redevelopment and direct staff to redistribute the Request for Proposal to a larger number of potentially qualified retail and mixed-use developers.
RECOMMENDATION
The staff committee will make a recommendation at the meeting of July 27, upon completion of the review of the financial statements.
Prepared by:
Robert Paternoster
Secretary, Redevelopment Agency
Reviewed by:
Mary Bradley
Treasurer, Redevelopment Agency
Marvin Rose
Director, Public Works and Chair of the Master Developer Selection Committee
Approved by:
Amy Chan
Executive Director, Redevelopment Agency
Attachment:
A. Exclusive Negotiating Rights Agreement (pdf format)
Under Separate Cover: (Attachments B - F are available for viewing at the City Clerks Office)
B. Request for Proposal, December 3, 2003
C. Response to Request for Proposal from Forum Development Group, Feb 11, 2004
D. Letter from Forum Development Group providing additional information, February 20, 3004
E. Letter & Annual Report from Standard Pacific Homes, April 14, 2004
F. Revised Schematic Site Plans, April 22, 2004