Alameda Point
Disposition Strategy: City
Approach to Leasing and Selling
its Buildings
March 7, 2023
Presentation Overview
• Purpose:
• City Council to provide feedback to staff on preliminary disposition and leasing strategy and guiding framework for Alameda Point
• Today’s presentation:
• Background
• Goals
• Keyser Marston Associates Analysis and Recommendations • Feedback from Alameda Point Owners/Tenants and Developers • Recommended Preliminary Strategy
• Next Steps
Background – History
• Base Decommissioned in 1997
• City responsible for maintaining infrastructure thereafter • Alameda Point Community Partners Master
Developer (2000-2006)
• SunCal Master Developer (2007-2010)
• City-Led Entitlement effort (2011-present)
• Phased Conveyances to City (2013-present)
• Alameda Point Zoning (General Plan Chapter 9 Amendments 2003; Municipal Code Amendments 2014)
• Master Infrastructure Plan (MIP) (2014; amended 2020) • Town Center and Waterfront Specific Plan (2014)
• Main Street Neighborhood Specific Plan (2017)
• Transportation Demand Management Plan (2018)
• Climate Action and Resiliency Plan (CARP)(2019)
• Surplus Lands Act
• Amendment impacting Alameda Point (2020)
• AB 2319 exempts Alameda Point (2023)
• Ongoing Commercial and Residential Leasing
Background - Some Sites
Unavailable for Sale and/or
Lease
Public Trust Lands (“Tidelands”)
AUSD owned land
Previously sold / existing disposition plans
Environmental Issues
• Navy Owned Land (FED)
• Ongoing clean-up (HAZ)
• Under Investigation (FOST)
• Tarry Refinery Waste Area
• Reuse Area
TL
AUSD
FED
S
FOST
HAZ
FOST
FOST
Background - Importance of Backbone
Infrastructure Replacement
• Existing infrastructure is over 70 years
old - Aging infrastructure results in
reduced reliability of service and
increased repair costs
• Precursor to new construction and
long-term use - Cannot facilitate long-
term private use or build new housing,
parks, or businesses without new
infrastructure with total costs
estimated at approximately $700
million or $2 million per acre
Background - Infrastructure Challenges
• Existing infrastructure is old (and getting older),
designed for Navy use and costly to repair
• two water systems – domestic and “deluge” system
• steam trench no longer used with failing vault lids
• street lighting not to current standard
• lack of bike/pedestrian facilities
• leaky sewer system contributing to regional wet weather issues • Flooding in certain areas at high tide
• Ongoing operating expenses for utilities (ex. water and gas) until replacement with PGE and EBMUD owned facilities
Background - Development vs. Reuse Areas
• Master Infrastructure Plan: Defines
different implementation
approaches due to site
characteristics and constraints
• Reuse Areas: Building sales will
fund infrastructure
• Nationally Registered Historic
District inhibits significant building
demolition and large-scale new
development
• Single buildings / small parcels
unable to support large cost of
infrastructure
• Development Areas: Infrastructure
funded by new development
• Economy of scale enables
infrastructure development to be
funded by private developers (e.g.
Site A, West Midway Projects)
Background - Alameda Point Master
Infrastructure Plan
• Provides for the phased replacement of backbone
infrastructure at Alameda Point
• Different approach for Development Areas (grey
shaded) versus Reuse Areas
• In Reuse Areas – revenue from building sale funds the construction of new utilities and roadways under the
City’s Capital Improvement Program
• EBMUD Water Infrastructure Agreement - Phases
Background - Reuse Areas Backbone
Infrastructure
• First building sale in 2017, 5 sold to date
• Reuse Areas Backbone Infrastructure Project
programmed in 2019-21 CIP
• March 15, 2022 Council award of first construction
project
Reuse Area Backbone Infrastructure
2 water only
3 1
All utilities, new roads
water only
Under Construction Now:
• Bring EBMUD facilities from Main St to
Phase 1
• All Backbone Infrastructure in Phase 1
• Water Only in Phase 2
Estimated Completion Early 2024
Background - What’s Next for Reuse Areas
Infrastructure
• Mid-year budget request for design services for
phase 2 and 3 remaining backbone infrastructure
• As construction dollars becomes available,
appropriate funds to CIP for second construction
project
• Continued reliance on Master Infrastructure Plan
in Reuse and Development Areas
• Continue maintenance of existing infrastructure
with creative solutions in the interim – ex. solar
street lighting
1. Implement New Cohesive Backbone Infrastructure System • Risk exposure of old existing infrastructure
• Significant annual cost to maintain old existing system • New infrastructure precursor to long-term private use and new construction
2. Generate Sufficient Lease Revenue to Cover Operating Expenses • Leasing to cover ongoing operating expenses (staffing, maintenance) and contribute to contingency fund
3. Deliver Community Benefits to Alameda Point/City of Alameda • Ferry Terminal
• Public parks, including development of new regional sports complex • Job creation
• Affordable housing
• Growing tax base (property, sales, possessory interest, etc.) Goals of Alameda Point Disposition Strategy
“Transform NAS Alameda into a transit oriented, mixed use residential district and employment center with unique waterfront parks, recreational, entertainment and retail opportunities.” – Reuse Plan (1997)
KMA ANALYSIS
• Focus on Reuse Area where existing historic buildings are to be adaptively reused
• Evaluate tradeoffs between sale and lease
• Financial testing of alternatives:
• Sale and leasing of an individual building
• Sale and leasing of the entire Reuse Area portfolio
CONTINUE HOLDING BUILDINGS – PROS / CONS
On-going Lease Revenues provide
operational funding
City Selects Tenants: can consider
economic development, policy factors
Exposure to Real Estate Upsides: rent
growth, increase in value
Unclear Path to Adequately Fund New
Infrastructure
Exposure to Real Estate Downsides:
recession, value decrease
Unexpected Repair Costs
Private Investment in Major Building
Upgrades Less Likely
Pros Cons
SALE OF BUILDINGS – PROS/CONS
Lump Sum $$s to Replace Infrastructure
Reduced City Operational Responsibility
and Expense
Tax Revenue Increase
Increase Private Investment in Building
Renovations
Reduced Lease Revenue
(new tax revenue replaces only ~15-20%
of lost lease revenue)
Operational Expenses may need to
Transition to Other City Funding
Pros Cons
REUSE AREA GENERATES ~45% OF LEASE REVENUE
Reuse Area,
$7.7
Enterprise
District, $5.7
Residential,
$1.9
Northwest
Territories,
$1.0
Other,
$0.5
Alameda Point Gross Lease Income: ~$16.7 Million
Includes Pending Leases
Reuse Area
45% of Lease
Revenue
Enterprise
District
34% of
Revenue
Residential
11%
NW
Territory 6%
Hangars:
90% of
Reuse Area
Revenue
SIMILAR FINANCIAL RESULTS TO CITY OVER TIME
IN LEASE AND SALE SCENARIOS
Tested four lease and sale scenarios
for an individual building
Similar dollar results over time in
lease and sale scenarios (includes sale
proceeds, taxes, lease revenues)
Major Difference:
Selling means upfront $$$ for infrastructure
Holding means on-going lease revenues for
operations
Total to City Over 30-Years ($Millions)*
Hold ten years, then sell $24.4
Sell Year 1, no renovation after sale $22.0
Sell Year 1, renovation by new owner after sale $24.3
Hold 30 years, renovation by tenant with costs
credited to rent, then sell $21.8
* Net Present Value calculated using a 6% discount rate.
HANGARS: GREATEST POTENTIAL SALES PROCEEDS
Hangars are Premium Assets
Proven income-generators, large clear spans & heights, views to Bay.
Large share of potential sale proceeds (2/3)
Selling reduces lease revenue the most
Need to be strategic about hangars, balance capital / operating needs
Other Buildings
Aside from hangars, ~85% of remaining space in Reuse
Area is vacant
Vacant space may be costly to make useable, more
difficult to market, proceeds more uncertain
Sales Proceeds, Preliminary Estimate ($Millions)
Hangars $110 to $160
Other Reuse Area Buildings $50 to $90
Total Reuse Area $160 to $250
Note: preliminary estimate for planning purposes, actual will vary based on future market conditions and other factors.
ADEQUATE OPERATIONAL FUNDING
ACROSS VARIETY OF DISPOSITION SCENARIOS
1. Existing
2. Sell All Reuse
Area Bldgs excl.
Tidelands / Haz
3. Sell Reuse
Area Served by
Ph1 Infra
4. Sell Reuse
Area Served by
Ph1 & 2 Infra
5. Sell Vacant
Space + Bldgs 41,
92, 525, 29
6. Sell
Hangars
Gross Lease Income* $17 $10 $16 $12 $16 $11
Expenses ($11.4) ($8.5) ($10.7) ($9.5) ($10.1) ($9.3)
Net Lease Income Available $5.2 $1.5 $5.3 $2.1 $5.6 $1.3 Added City/CFD Revenue $0.0 $3.3 $0.5 $1.5 $1.7 $1.5
Total $5.2 $4.8 $5.8 $3.6 $7.3 $2.8
Delta vs. existing $0.0 ($0.4) $0.6 ($1.6) $2.1 ($2.4)
Adequate Operational Funding in Variety of Scenarios
• Lease revenue reduces as buildings are sold
• O&M / leasing expense estimated to decreases as portfolio under management reduced • Tax revenues replace portion of lost lease revenue, but timing lag of five years for CFD revenue • More reliance on revenues from development areas as Reuse Area buildings sold * For all of Alameda Point, includes pending leases
USE OF LEASE REVENUES TO FUND INFRASTRUCTURE:
LESS FUNDING, SLOWER PACE
City could hold buildings and use lease revenue to finance infrastructure. Ability to fund infrastructure more limited, slower paced Preliminary estimate is $35 - $40 Million for infrastructure if commit half ($3M/year) of Reuse Area net lease income to debt service
Not sufficient to fund phases 2 and 3 of Reuse Area infrastructure ($56 M cost estimate as of 2019) Growth in lease revenue over time may enable City to fund additional infrastructure, but pace likely slower than if pursue building sales.
Unclear path to adequately fund Reuse Area infrastructure Committing lease income to debt may limit flexibility to sell buildings in the future and counteracts a benefit of retaining the buildings to maintain operational funding
DISPOSITION ALTERNATIVES FOR REUSE AREA
Sale
• Prioritize building
sales near-term to
provide funds for
infrastructure
Long-Term Hold
• Continue to lease
• Retain public
ownership for long
term
• Use annual lease
revenue and debt
to fund
infrastructure
Mixed / Phased Sale
[Recommended]
• Phase sales
strategically with
infrastructure
investments
• Transition to
private ownership
over time
Portfolio Sale to
Master Developer
• Sale of entire
portfolio to private
master developer
• Developer installs
the infrastructure
SUGGESTED CRITERIA:
ASSETS TO SELL VS. HOLD WITH PHASED APPROACH
Assets to Hold
Not benefited by new infrastructure
Strong desire to preserve specific uses,
unless preservation accomplished with
conditions on sale
Cannot be sold: Tidelands Trust, Navy still
owns and/or toxic concerns
Assets to Sell
Expected to generate substantial proceeds
to fund infrastructure
Benefited by new infrastructure
Upon vacancy when purchaser can improve
building and recover costs through new
lease
Opportunity to attract catalytic user or use
22 Preliminary Staff Recommendation: Mixed
Portfolio Phasing Strategy
• Reflects recommendations by KMA as well as input from Alameda Point owners/tenants and developers
• Building sales to fund continued backbone infrastructure development based consistent with phasing in MIP
• Over time City portfolio shrinks as buildings are sold resulting in reduced ongoing expenses and the need for leasing revenues (i.e. smaller portfolio and new infrastructure reduces
maintenance and contingency needs)
• Result is primarily private ownership served by new backbone infrastructure developed by City and limited ongoing expenses Recommended Guiding Framework
• Maximize land value and sale proceeds by selling adjacent to new infrastructure
• Coordination between land sales and infrastructure phasing • Potential sales should be focused in Reuse Areas
• Continue progress from Site A; generally east to west • Retain high-value leasing assets until operational costs are significantly reduced
• Continue leasing of hangars until adjacent backbone infrastructure has been completed (Phases 3 and 4)
• Maintain flexibility; provide ability to be nimble, opportunistic Feedback from Alameda Point Tenant/Owner
Meeting
• February 7, 2023 – In Person at WETA Maintenance Facility • Attendance: ~60 Members of the Community & City Staff • Key Takeaways:
• General agreement with strategy
• Questions whether private developers could move faster • City leasing Process is challenging for tenants
• Ongoing safety concerns, particularly about foot traffic at night • Strong desire for more amenities, services and destinational draws • Support for business diversity and unique, opportunistic approach • Thankful to be involved and heard!
Feedback from Developer Focus Group
• February 16, 2023 – Virtual Meeting
• Attendance: ~25 Real Estate Developers & City Staff
• Key Takeaways:
• Mixed portfolio approach makes sense
• Funding building investment and infrastructure costs up-front extremely difficult to finance; preference for sales or purchase options to finance • Lease-purchase option structure is extremely helpful for smaller developers • City maintaining flexibility with framework key for new opportunities • Can City explore other means to fund operations besides leasing? • “Keep Embers Together” to build synergy and keep momentum Next Steps
• Incorporate Council feedback into proposed disposition strategy and guiding framework
• Return to Council for approval?
• Continue negotiating and recommending leases and
buildings sales in Reuse Area guided by the goals, strategy and framework
Council Feedback
• Are these identified goals in alignment with yours (continuity of infrastructure development, generating sufficient revenue to cover both operating and capital expenses, and deliver
community benefits)?
• Do you agree with a mixed portfolio phased strategy that leverages building sales to fund continued backbone
infrastructure development?
• Do you agree with the recommended framework that will guide leasing and sales efforts (e.g. maximizing sale proceeds by selling adjacent to new infrastructure and continue leasing hangars until operational costs are minimized)?
Other Background Slides
KMA ANALYSIS
• Focuses on Reuse Area where existing historic buildings are to be adaptively reused
• Financial Analysis of Sale and Lease Alternatives:
• Sale and leasing of an individual building (four scenarios) • Sale and leasing of the entire Reuse Area portfolio (six scenarios) ALAMEDA POINT LEASE REVENUE ($MILLIONS)
Reuse Area,
$7.7
Enterprise
District, $5.7
Residential,
$1.9
Northwest
Territories,
$1.0
Other,
$0.5 $16.7 Million gross revenue
Reuse Area ~$7.7 Million / Year
45% of Alameda Point Total
Hangars ~90% of Reuse Area Revenue
Uses of Lease Revenue:
Costs of ownership (O&M, leasing): $4.1M
AP-related staff / 3rd party costs: $6.5 M
Debt service: $0.9 M
Balance for capital projects, reserves
Note: includes revenue from pending leases
LEASE/SALE SCENARIO TESTING –
INDIVIDUAL BUILDING
Test Four Scenarios for an Example
Building
Similar dollar results (includes sale
proceeds, taxes, lease revenues)
Obvious Difference:
Selling now means upfront $$$ for
infrastructure
Holding means on-going lease revenues for
operations
Total to City Over 30-Years ($Millions)*
Hold ten years, then sell $24.4
Sell Year 1, no renovation after sale $22.0
Sell Year 1, renovation by new owner after sale $24.3
Hold 30 years, renovation by tenant with costs
credited to rent, then sell $21.8
* Net Present Value calculated using a 6% discount rate.
LEASE/SALE SCENARIO TESTING –
ENTIRE REUSE PORTFOLIO
Hangars are the Premium Assets
Proven income-generators, large clear spans & heights, views to Bay Greatest potential sale proceeds, but selling also reduces lease revenue the most Limiting Sales to Primarily Vacant Buildings is More Difficult Path Aside from hangars ~85% of remaining space in Reuse Area is vacant Selling vacant buildings increases tax revenues without losing lease revenue Challenges: likely costly to make useable, more difficult to market
1. Existing
Condition
2. Sell All Reuse Area
Bldgs excl. Tidelands
/ Haz
3. Sell Reuse Area
Bldgs Served by
Ph1 Infra
4. Sell Reuse Area
Served by
Ph1 & 2 Infra
5. Sell Vacant
Space + Bldgs
41, 92, 525, 29 6. Sell Hangars
Sales Proceeds Prelim. Estimate
($Millions) none $159 to $250 $33 to $50 $105 to $156 $61 to $105 $109 to $162 Operating Revenues ($Millions/Year)
Lease Income After Expenses $5.2 $1.5 $5.3 $2.1 $5.6 $1.3 Added City and CFD Taxes $0.0 $3.3 $0.5 $1.5 $1.7 $1.5
Total $5.2 $4.8 $5.8 $3.6 $7.3 $2.8
Delta vs. existing ($0.4) $0.6 ($1.6) $2.1 ($2.4)
CONTINUE HOLDING BUILDINGS – PROS / CONS
On-going Lease Revenues provide
operational funding
City Selects Tenants: can consider
economic development, policy factors
Exposure to Real Estate Upsides: rent
growth, increase in value
Unclear Path to Adequately Fund New
Infrastructure
Exposure to Real Estate Downsides:
recession, value decrease
Unexpected Repair Costs
Private Investment in Major Building
Upgrades Less Likely
Pros Cons
SALE OF BUILDINGS – PROS/CONS
Lump Sum $$s to Replace Infrastructure
Reduced City Operational Responsibility
and Expense
Tax Revenue Increase
Increase Private Investment in Building
Renovations
Reduced Lease Revenue
(new tax revenue replaces only ~15-20%
of lost lease revenue)
Operational Expenses may need to
Transition to Other City Funding
Pros Cons
SUGGESTED CRITERIA: ASSETS TO SELL VS. HOLD
Assets to Hold
Not benefited by new infrastructure
Strong desire to preserve specific uses,
unless preservation accomplished with
conditions on sale
Cannot be sold: Tidelands Trust, Navy still
owns and/or toxic concerns
Assets to Sell
Expected to generate substantial proceeds
to fund infrastructure
Benefited by new infrastructure
Upon vacancy when purchaser can improve
building and recover costs through new
lease
Opportunity to attract catalytic user or use
36