February 15, 2005
SUBJECT: A Resolution of the Redevelopment Agency of the City of Sunnyvale Amending the Disposition and Development and Owner Participation Agreement Between the Agency and Fourth Quarter Properties XLVIII, LLC, in Connection with Redevelopment of Town Center Mall
REPORT IN BRIEF
On December 21, 2004, the Redevelopment Agency approved a Disposition and Development and Owner Participation Agreement (DDOPA) with Fourth Quarter Properties XLVIII, LLC, regarding the redevelopment of Town Center Mall. The DDOPA called for the developer to close on the purchase of the Mall by December 31, 2004. When Forum Development Group, owner of Fourth Quarter Properties, failed to close on the property on December 31, 2004, Lehman Brothers, ALI, claimed to be the sole owner of Fourth Quarter Properties and requested the Executive Director of the Agency to grant a 90-day extension of the deadline to close on the purchase of the Mall. During that time period, Lehman intends to select a new developer to purchase the property and redevelop the Mall in accordance with the plans and business agreement approved by the City and the Agency.
In January and February 2005, Lehman sent letters which identify two issues with regard to the DDOPA which contributed to Forum’s inability to close on the purchase in a timely manner: (1) the fact that Macy’s had not agreed to the Operation and Reciprocal Easement Agreement (OREA) because Macy’s lacked approval authority over City sponsored events in Redwood Plaza, and (2) potential developer concerns with the reluctance of a lender to commit to provide financing if the ownership of the parking structures remained with the Agency. Staff recommends a minor amendment to the DDOPA to address the Redwood Plaza issue. Based on prior Agency direction staff is not recommending any changes to the parking structure ownership provisions.
BACKGROUND
On December 21, 2004, the Redevelopment Agency approved a Disposition and Development and Owner Participation Agreement (DDOPA) with Fourth Quarter Properties XLVIII, LLC (the developer), regarding the redevelopment of Town Center Mall (the project) (see Attachment A). Among the provisions of the DDOPA is a requirement that the developer close escrow on purchase of the Mall property from Sunnyvale, LLC and the J.C. Penney store site and the WHL Architects site from Lehman, ALI, by December 31, 2004.
The December 21, 2004 agency action made minor amendments to the DDOPA approved on August 17, 2004 as outlined in the staff report and included a minor change to the use of the Redwood Plaza to leave the original provision in the agreement regarding the 60-day notice for City use of the Redwood Plaza up to 15 days per year, except that if Macy’s and/or Target object, that the Council hold a public hearing to consider the objections of Macy’s/Target.
On January 20, 2005, David Broderick, Senior Vice President of Lehman Brothers, Inc., wrote to Agency Executive Director Amy Chan (Attachment B) to inform her that Lehman had acquired 100% ownership and control of Fourth Quarter Properties XLVIII, LLC due to the failure of its former owner, Forum Development Group, to close on the purchase of the Mall and related properties by December 31, 2004. Mr. Broderick reported that Lehman intends to acquire the Mall property and sell it to a developer who will redevelop the Mall in accordance with the Special Development Permit approved by City Council on August 17, 2004 and the DDOPA approved by the Redevelopment Agency on December 21, 2004.
In the January 20, 2005 letter, Mr. Broderick also noted that Forum’s inability to close escrow in a timely manner was due to the fact that agreement had not yet been reached with Macy’s and Target on the Operation and Reciprocal Easement Agreement (OREA) and the fact that they had not obtained a loan commitment to finance acquisition of the property and construction of the project. In subsequent communications, Lehman informed staff that the major outstanding issue with regard to the OREA was that the department stores wished to have some ability to review and approve of the City’s use of Redwood Plaza for public events. With regard to the loan, staff was informed that the lender was concerned that the Agency would own the parking structures which were necessary for the success of the project, and could jeopardize their continued availability if they were placed as collateral for some future Agency borrowing.
On January 26, 2005, at the direction of the Agency, the Executive Director responded to Mr. Broderick’s letter (Attachment C). On the advice of Agency Counsel, she requested written confirmation from Forum Development Group that the ownership interests in Fourth Quarter Properties XLVIII, LLC have been transferred from Forum to Lehman. Also suggested, was a possible revision to Section 10.06 of the DDOPA which might address the issues raised by the department stores over City use of Redwood Plaza. With regard to the issue over ownership of the parking structures, she stated that the Agency wished to retain ownership, but is willing to encumber them such that they cannot be used by the Agency as collateral for a loan.
EXISTING POLICY
Implementation Plan, Sunnyvale Central Core Redevelopment Project:
Goal 1 Meet the Agency’s Existing Financial and Administrative Obligations.
Objective 1.5 Continue to invest in downtown and encourage and nurture private investment in commercial developments.
Goal 2 Establish the downtown as the cultural, retail, financial and entertainment center of the community, complemented by employment, housing and transit opportunities.
Objective 2.1 Establish a 24-hour downtown with Class A office buildings around a vibrant retail district with easy parking and public transportation and easy access from a variety of housing types.
Objective 2.2 Continue public/private partnerships in the development of office, retail, housing, hotel and open space facilities.
Objective 2.3 Create a unique shopping, dining, entertainment experience in Downtown, combining new restaurants with small shops, major retail stores and theatre with easy, available parking and strong pedestrian connections to other parts of the Downtown.
Goal 3 Implement Specific Actions such as the Provisions of Public Improvements in an attractive and cohesive physical form, which clearly identifies Sunnyvale’s downtown.
Objective 3.2 Complete priority streetscape projects to facilitate an attractive pedestrian environment and to promote development on adjacent parcels.
Goal 4 Development and implementation of an overall parking strategy that meets the needs of retail, office, housing and visitor demand
Objective 4.1 Implement overall parking strategy that optimizes parking use based on office, retail, and entertainment peaks.
Objective 4.2 Replace existing public parking as required.
Goal 5 Increase housing opportunities.
Objective 5.2 Encourage mixed housing consisting of market rate and affordable housing in appropriate locations on transit corridors in or near the downtown.
Downtown Specific Plan:
Goal B. Establish the Downtown as the cultural, retail, financial and entertainment center of the community, complemented by employment, housing and transit opportunities.
Policy B.3.
Improve the Town Center area by reinforcing connections into and through the mall and improve the quality of the tenant mix and the mall’s physical environment
Land Use and Transportation Element:
Action Statement C1.2.1 Promote Downtown as a unique place that is interesting and accessible to the whole City and the region.
Policy N1.12
Permit more intense commercial and office development in the downtown, given its central location and accessibility to transit
Action Statement N1.12.1 Use the Downtown Specific Plan to facilitate the redevelopment of downtown.
Socio-Economic Element:
Goal 5.1C Endeavor to maintain a balanced economic base that can resist downturns of any one economic sector
Policy 5.1C.
Support efforts to establish Sunnyvale’s downtown area as a strong commercial center for the city.
Community Development Strategy Goals:
Tax Base: to retain and attract businesses which will provide a stable tax base to support City services
Retail Services: to retain and attract businesses which provide a variety of needed retail services for our residents at locations which are convenient for them.
DISCUSSION
On February 3, 2005, Mr. Broderick responded to the Executive Director’s letter of January 26, 2005 (Attachment D). He provided a letter from Forum Development Group confirming that the ownership interests in Fourth Quarter Properties XLVIII, LLC have been transferred from Forum to Lehman. He also reported that Lehman found the proposed revision to Section 10.06 acceptable; they have indicated through conversations to staff that Macy’s and Target have verbally agreed as well.
Although the February 3, 2005 letter only raised the issue of parking garage ownership as a concern with some of the potential developers, a subsequent letter from Mr. Broderick (received via Fax on February 9, 2005, Attachment E) requested the Agency to re-address the ownership of the parking structures.
Based on this response, staff drafted the following revision to replace the entire Section 10.06 in the adopted DDOPA relative to the Redwood Plaza:
Section 10.06:
10.06 City Use of Plaza. The City and Agency shall be entitled to use the outdoor plaza that is part of improvements on the Private Improvements Parcel (the "Redwood Plaza Area") on the terms and conditions hereinafter set forth.
(a) City or Agency may use the Redwood Plaza Area only for special events that are (i) City or Agency sponsored and consistent with a First-Class Facility, and not sponsored by a third party, and (ii) not likely to interfere with the operations of the occupants of the Project, including but not limited to the operations of the Macy's and Target facilities. The conditions described in the prior sentence are called the “Redwood Plaza Use Conditions”. The City or Agency shall be entitled to such use no more than fifteen (15) days each calendar year. Notice of the intent to schedule a public event in Redwood Plaza ( a "Notice") by the Agency or City shall be given to the Plaza Events Committee (as described in subsection (b) below) at least sixty (60) days prior to the applicable event or such shorter period on which the Plaza Events Committee and Agency or City may agree. The Notice shall be in writing, shall be given by a duly authorized representative of the Agency or City and shall contain (i) a certification by such duly authorized representative on behalf of the City or Agency that the Redwood Plaza Use Conditions are satisfied and (ii) a statement describing the planned event in reasonable detail.
(b) Each such Notice shall be promptly reviewed by the Plaza Events Committee, a five-member committee consisting of a representative of the City appointed by the City Manager and representatives of the following private entities or their successors who shall be an employee or manager of each entity whose primary work location is within the Project: the Developer, Macy’s, Target, and one other merchant in the Project selected by and representing merchants other then Macy’s and Target, which representative should preferably be a local business owner. The Plaza Events Committee shall act to approve or disapprove the Notice within twenty (20) days following receipt of the Notice. The Plaza Events Committee's action to approve or disapprove a Notice shall be taken by majority vote of the members of the committee. If the Plaza Events Committee fails to approve or disapprove the Notice within that twenty day period, the Notice shall be deemed approved. The Plaza Event Committee's approval of a Notice shall not be unreasonably withheld. Any Plaza Events Committee disapproval shall be made only if the committee finds that the event proposed in the Notice is in conflict with another event already planned in the Plaza or is likely to interfere with the operation of the Project, its tenants and/or the Macy or the Target facilities.
(c) The Agency and City shall plan and operate events at the Redwood Plaza Area so as to minimize interference with pedestrian circulation through the Redwood Plaza Area and to stores facing or otherwise adjacent to the Redwood Plaza Area. The Agency or City shall reimburse Developer for the reasonable costs of all services associated with City or Agency use of the Redwood Plaza Area (including but not limited to security and common area clean-up) to the extent that the City or Agency does not provide such services.
(d) Nothing set forth in this section is intended to, or shall be construed so as to, dedicate the Redwood Plaza Area to the public, create any third party beneficiary rights, grant any rights to the City or Agency other than the rights expressly set forth in this section, or grant any rights to the City or Agency for any time periods in excess of the time periods described in this section. The Agency acknowledges and agrees that the Redwood Plaza Area is private, not public, property.
Staff understands the previous Agency direction not to reconsider the ownership of the parking structures, therefore staff has not prepared any language to that effect.
FISCAL IMPACT
The proposed amendment to the DDOPA regarding the Redwood Plaza should have no fiscal impact. A limitation on using the parking structures as collateral for a loan could theoretically reduce the Agency’s ability to borrow money in the future, the Agency and the City have such other real assets that sufficient collateral exists for any foreseeable future borrowing without encumbering the parking structures.
Conclusion
Lehman has identified two issues with regard to the DDOPA which might make it difficult for a potential developer to proceed with the project. Staff has addressed the Redwood Plaza issue with an amendment to the DDOPA proposed herein.
PUBLIC CONTACT
Public contact was made through posting of the Agency 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
- Adopt the Resolution (Attachment F) amending the DDOPA between the Redevelopment Agency and Fourth Quarter Properties XLVIII, LLC, pertaining to City use of the Redwood Plaza by the City.
- Do not amend the subject DDOPA.
- Direct staff to prepare an amendment to the DDOPA that addresses the ownership of the parking structures.
- Amend the DDOPA in a manner proposed by the Redevelopment Agency.
RECOMMENDATION
Staff recommends Alternative 1, amend the DDOPA regarding City use of the Redwood Plaza area.
Staff believes that the revised wording addresses the concerns of the property owner and major department stores regarding the City use of the Redwood Plaza while maintaining the basic business agreement and without contradicting the stated policies and objectives of the Redevelopment Agency.
Based on prior Agency direction, staff is not recommending any modification to the language regarding the ownership of the parking structures.
Prepared by:
Robert Paternoster, Secretary
Approved by:
Amy Chan,
Executive Director