March 29, 2005

SUBJECT:       A Resolution of the Redevelopment Agency of the City of Sunnyvale Approving the Second Amendment to the Disposition and Development and Owner Participation Agreement Between the Agency and Fourth Quarter Properties XLVIII, LLC, With Regard to the Redevelopment of Town Center Mall

REPORT IN BRIEF

On March 23, 2005, Executive Director Amy Chan received a letter from David Broderick, Senior Vice President of Lehman Brothers, Inc., sole owner of Fourth Quarter Properties XLVIII, LLC, requesting that all performance dates imposed upon the developer in the DDOPA be extended by 60 days, with exception of the deadline for entering with an agreement with a residential developer. Staff recommends that only the date for the developer to acquire the property from the Mall and Lehman be extended sixty days, from its present deadline of March 31, 2005 to May 31, 2005.

BACKGROUND

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. Incorporated into the DDOPA are required performance dates by the developer as summarized below:

          Purchase property from Mall and Lehman                       12/31/04

          Agreement with housing developer                               03/31/05

          Completion of construction plans for                             07/01/05

               demolition, grading, utilities and foundation                       

          Completion of total construction plans                          09/01/05

          Closing on land swap with Agency                                12/01/05

          Begin construction                                                    12/01/05

          Opening of retail portion                                             09/30/07

All of the above performance dates except for the opening of the project may be extended up to 90 days by the Agency Executive Director if she finds that such extension is reasonably necessary to successfully complete the project.

On January 20, 2005, David Broderick, Executive Vice President of Lehman Brothers, Inc., asked the Agency Executive Director to extend the date for the developer to acquire the property from the Mall and from Lehman because Fourth Quarter Properties XLVIII had recently been acquired by Lehman from the Forum Development Group. The Executive Director granted the extension to March 31, 2005.

Upon acquisition of Fourth Quarter Properties, Lehman proceeded to solicit developers to assume responsibilities and rights under the DDOPA for redevelopment of the Mall property. In accordance with Section 6.03(v) of the DDOPA, Lehman submitted to the Executive Director a list of six potential developers. On March 4, 2005, the Executive Director informed Lehman that four developers were acceptable to the Agency. The four were ranked in priority order, and Lehman proceeded to negotiate with the prospective developers in the order recommended by the Executive Director.

On March 23, 2005, David Broderick wrote to the Executive Director requesting that the required date to acquire the property and all other performance dates in DDOPA, with the exception of the date to enter into an agreement with a residential developer, be extended by 60 days through an amendment to the DDOPA (see Attachment A). Broderick cited the complexity of the negotiations with the potential developers as the reason that an extension was needed. By separate letter of March 23, 2005 (see Attachment B), Broderick requested the Executive Director to grant the 90-day extension provided in the DDOPA for entering into an agreement with a residential developer. Because the Agency Director had already granted a 90-day extension of the date to acquire the property, no further extension of this date is possible under the DDOPA other than to amend the DDOPA itself.

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

 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

The following table shows the extended dates requested by Lehman in comparison to the existing performance dates in the DDOPA:

                                                                   Existing                      Proposed

                                                                                    Date                       Extension

          Purchase of property from Mall and           03/31/05                 05/31/05

                   Lehman

          Agreement with housing developer            03/31/05                 06/31/05

          Completion of construction plans              07/01/05                 09/01/05

                   demolition, grading, utilities

                   and foundation

          Completion of total construction plans       09/01/05                 11/01/05

          Closing on land swap with Agency             12/01/05                 02/01/06

          Begin construction                                 12/01/05                 02/01/06

          Opening of retail portion                          09/30/07                 11/30/07

If the proposed amendment of the DDOPA to extend all of these performance dates were approved, the DDOPA would still allow the Agency Executive Director to extend any one of the dates up to an additional 90-days for cause except for the date for opening of the retail portion of the project.

FISCAL IMPACT

The proposed amendments to the DDOPA would allow the developer two additional months to complete the project. If the project opened two months later than now required, the City would not realize sales tax income from the project for that 60-day period (approximately $333,000).

Conclusion

Lehman has requested that the DDOPA be amended to extend all performance dates for the developer by 60-days in order that they may successfully conclude negotiations and designate a developer for the project.

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. Approve the Resolution (Attachment C) adopting the Second Amendment to the DDOPA between the Redevelopment Agency and Fourth Quarter Properties XLVIII, LLC, to extend the date for acquiring the property from March 31, 2005 to May 31, 2005.

2. Approve a Resolution adopting the Second Amendment to the DDOPA between the Redevelopment Agency and Fourth Quarter Properties XLVIII, LLC, to extend all developer performance dates by 60-days, except for the date for entering into agreement with a residential developer.

3. Do not amend the subject DDOPA.

RECOMMENDATION

Staff recommends Alternative 1, which would extend only the deadline for acquiring the property by 60 days to May 31, 2005. If this is approved by the Agency, the Executive Director would also exercise her authority under the DDOPA to extend the date for entering into agreement with a residential developer to 6/31/05, as requested by Lehman.

Staff believes that Lehman has proceeded in good faith to attempt to designate a new developer in a timely manner such that the new developer could acquire the property by March 31, 2005.  As stated in Mr. Broderick’s recent letter, it is in the financial interest of Lehman to select a new developer as soon as possible. It is not unreasonable in a project of this size and complexity for negotiations for transfer to a new developer to require three months to successfully complete.

Although staff understands that the extension of the date to acquire the property is likely to make it difficult for the new developer to achieve the other performance dates, it believes that extension of these dates at this time is premature. Each performance date, except for completion of the project, can be extended for cause up to 90-days by the Executive Director. These extensions have not yet been requested or granted. Staff believes that it is prudent to wait until a new developer is designated, and that developer works with staff to put together a realistic overall schedule for project completion, before amending the performance schedule in the DDOPA.

Prepared by:

Robert Paternoster, Secretary

Approved by:
Amy Chan,

Executive Director

Attachments

1. Letter from David Broderick of March 23, 2005, requesting amendment of the DDOPA. (.pdf)
2. Letter from David Broderick of March 23, 2005, requesting 90-day extension of date to enter into agreement with residential developer (.pdf)
3. Resolution Approving the Second Amendment to the Disposition and Development and Owner Participation Agreement Between the Agency and Fourth Quarter Properties XLVIII, LLC, With Regard to the Redevelopment of Town Center Mall (.pdf)