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February 15, 2022
ITEM TITLE
Agreement and Appropriation: Approve an Agreement Between the City and CBRE Group, Inc. For Real Estate Advisement, Marketing and Brokerage Services and Appropriating Funds for that Purpose Report Number: 22-0051
Location: University-Innovation District
Department: Economic Development
Environmental Notice : The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
Recommended Action
Adopt a resolution waiving the consultant selection process, approving a two -party agreement (“Agreement”) between the City and CBRE Group, Inc. for real estate advisement , marketing and brokerage services for the University -Innovation District, appropriating funds for th e advisement and marketing services portions of the agreement in the amount of $653,500 and authorizing the City Manager to execute Agreement, and the brokerage services implementing exclusive listing agreement, all in final forms approved by the City Attorney. (4/5 Vote Required)
SUMMARY
Consultant will provide professional real estate advisory and consulting services to negotiate terms and conditions with HomeFed for development of the University-Innovation District (“UID”). Consultant will also provide landlord representation and marketing materials and services for institution and industry.
ENVIRONMENTAL REVIEW
The proposed activity has been reviewed for compliance with the California Environmental Quality Act (CEQA) and it has been determined that the activity is not a “Project” as defined under Section 15378 of the state CEQA Guidelines; therefore, pursuant to Section 15060(c)3) of the State CEQA Guidelines, the activity is not subject to CEQA.
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BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
DISCUSSION
Since the adoption of the Otay Ranch General Development Plan in 1993, the City of Chula Vista has maintained a vision of locating a university within eastern Chula Vista. This vision is also reflected in the Otay Ranch General Development Plan and Sectional Planning Area Plan for a new University-Innovation District (UID). Under the adopted planning documents that govern the development of the site, the UID planning provides the ability to accommodate up to 20,000 students with an innovation district capab le of building approximately 10 million square feet of mixed-use development, 4.4 million square feet of academic space, 2 million square feet of commercial space for business innovation uses and 3.6 million square feet available for development of market rate and student/faculty housing. The City’s goals for the UID are as follows:
Develop a university campus offering four-year degrees consistent with the City’s binational and multi-institutional university vision;
Establish a business environment within the Innovation District that embraces the technology and/or higher education sectors to serve as a talent pipeline for the University(ies); Create an on-going income stream and/or one-time capital event; Support increases in tax revenue;
Support equitable access to higher education;
Foster additional economic development and education opportunities for the community at large; and
Develop a financial model that allows development to occur with as little out -of-pocket cost to the City as possible.
The City has assembled, and currently owns, a total of 383 acres of land intended for the UID. In November 2018, the planning effort culminated in the adoption of the UID Sectional Planning Area (SPA) Plan, Environmental Impact Report and relate d technical documents. The UID SPA Plan defines: the vision, land use character and mix, design criteria, pedestrian, bike and vehicular circulation systems, and the infrastructure requirements for an approximately 10 million square-foot University-Innovation District that will ultimately serve 20,000 students with supporting uses including office, retail, residential and research space.
Additionally, the City of Chula Vista acquired one of three United States Olympic Training Centers, now named the Chula Vista Elite Athlete Training Center. The Chula Vista Elite Athlete Training Center occupies 155 acres in eastern Chula Vista, approximately 2 miles from the University site. This unique and valuable City asset is potentially available to the institution(s) that develop a presence on the UID site for athletic, innovation and research uses, on terms to be negotiated with the then facility operator and/or the City.
HomeFed Corporation (HomeFed), the master developer for neighboring Villages 8 West and East, 9 and 10, is positioned to serve as the Master Developer of the UID including 4,000 market rate student housing units.
HomeFed’s land holdings across Villages 8 west, 8 east, 9 and 10 includes approximately 1,562 gross acres (636 gross acres for adjacent Villages 9 and 10) and 11,245 housing units (5,635 units in adjacent villages 9 and 10). HomeFed’s land holdings, combined with the 383-acre University site and 155-acre Chula Vista Elite Athlete Training Facility offer approximately 1,200-acres of opportunity for a higher education institution(s) P a g e | 3
to create a 21 st century world -class campus community in eastern Chula Vista that is well -supported by surrounding industry and housing.
On February 25, 2020, with the approval of the SPA plan form-based code amen dment initiation for the University-Innovation Overlay Zone (UI Overlay Zone) and University Villages 9 and 10, the City Council directed staff to develop a partnership agreement with HomeFed to facilitate the development of the UID with the Overlay Zone.
In first quarter 2020, staff began the planning process for the creation of the UI Overlay Zone to increase opportunity to attract educational users to the City of Chula Vista. The UI Overlay Zone would be applicable to the SPA Plan areas of Otay Ranch Village 9, Village 10, and the University Innovation District -- an area of approximately 560 developable acres across 1019.4 gross acres. It would expand the area available for establishment of academic and innovation users, currently limited to the UI District SPA Plan area. This new regulatory tool would enable flexible redistribution of currently approved land uses based on existing entitled development capacities, while meeting all open space and off -site preservation commitments and mitigations. The inc reased area available for establishment of educational and innovation uses would incentivize establishment of educational user(s) in the area by allowing development based on user - identified preferred location and space needs anywhere within the three SPA Plan areas. The UI Overlay Zone would promote rapid response to potential users through a partnership between the City and HomeFed Corporation and it would include a built-in review process to enable streamlined approvals to get university uses established efficiently. Development would be consistent with the adopted vision, land use character and mix, transects, and open space and mitigation requirements of the underlying three SPA plans. Through a recently approved Three-Party Agreement, staff is continuing efforts on the UI Overlay Zone.
On June 8, 2020, The University Subcommittee authorized staff to draft a Master Development Agreement with HomeFed for City Council consideration. After having taken a brief “COVID-pause” due to the education and industry constraints imposed by the pandemic and the competing demands on staff time for COVID- response and economic recovery , staff has created several iterations of draft term sheets for discussion purposes between the City and HomeFed as the propose d deal structure(s) have evolved . HomeFed continues to be a cooperative partner who is eager to advance a shared vision of success. However, to continue to make tangible and expeditious progress towards reaching an amicable term sheet and subsequent resul ting agreements, the assistance of a professional real estate firm would assist in negotiations and provide trusted advisement and marketing services.
The City now seeks the professional real estate expertise and advisement services of CBRE Group, Inc. (CBRE), a uniquely qualified firm, to assist in the negotiations between City and HomeFed. Specifically, CBRE will aid in the drafting of a term sheet and will evaluate, advise and advocate for the City’s best interests to be represented within the term shee t and Exclusive Negotiating Agreement (ENA). Once a term sheet is completed to both parties’ satisfaction, City will draft a Master Development Agreement (MDA) by and between the City and HomeFed . Additionally, d esired consultant services also include brok erage and marketing services to ensure the UID is marketed to reputable institutions and companies. Details of these phases are outlined within the attached proposed agreement. This effort will run concurrently with the Overlay Zone in anticipation of completion in fourth quarter 2022. An overview of each phase of the proposed agreement and associated costs is outlined below.
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Phase I – ENA and Term Sheet Negotiation and Completion Commencement: February 2022
CBRE will assist the City in negotiating a Term Sheet and potentially an Exclusive Negotiating Agreement (“ENA”), based on that term sheet, for a Master Development Agreement, with HomeFed as the Master Developer of the UID. Terms and conditions of the Term Sheet shall include but are not limited to:
The creation of a Master Plan for the phased development of City into the UID Land Development Work for each phase to be financed or caused to be financed by HomeFed Accounting for the respective values of infrastructure installed by HomeFed on City-owned land Provision for a master overlay zone that would allow for the transfer of additional development rights to HomeFed (including residential, commercial and educational uses.) Requirements for assuring City-preferred development
During the term of the ENA and beyond, due diligence/performance milestones Cost allocation/sharing
Reimbursement of Land Development Work costs and the payment of a Developer Fee out of land sale proceeds
City Council approval of key master plan elements, including UID projects City reservation of legally required discretion and rights Phase II – Master Development Agreement Negotiation and Completion Anticipated Completion: November 2022
Pursuant to the terms of the ENA and the Term Sheet, CBRE will assist the City in negotiating with HomeFed the terms of a final Master Development Agreement, and related documentation. CBRE assistance shall include:
Recommend key business terms for the proposed agreements Participation as needed in negotiation sessions with the City and HomeFed Review and comment on iterations of key drafts and proposed final agreements Throughout this process CBRE will cooperate and collaborate with City staff and all other consultants City may engage in connection with the project.
Phase III – Marketing
Timeframe: Commencing concurrently with Phase I and II
CBRE will assist the City to market the University -Innovation District to recruit eligible university institutions and industry partners to implement the UID. CBRE will also leverage their network of occupiers, along with higher education, life sciences and tech relationships to ensure the Innovation District will be marketed to both local firms looking to relocate or add additional space, and national/international firms looking to enter the Chula Vista market or expand their current presence.
CBRE will help identify and engage all relevant industry markets with high quality employment and university tie-in opportunities including, without limitation:
Aerospace
Cleantech
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Cybersecurity
Defense
Engineering
Life Sciences
Medical Device
Media and Entertainment
Software
Telecommunications
CBRE will take the following additional steps to marketing, recruitment and leasing success:
Broker outreach and events
Marketing materials catering to specific targeted users Offer commute, talent/employment and demographic studies to potential relocating firms Press/social media coverage
Engage brokers to fill possible smaller start-up/collaborative spaces Utilize drone footage to highlight area advantages
Target tenants being priced out of other submarkets
Support the development of a marketing center
Develop “Why Chula Vista?” marketing materials for potential new-to-market large firms Advertise with industry-specific websites
Signage at site to highlight superior visibility from access roads Work with economic development groups, chambers of commerce, and county to promote the Innovation District as an ideal headquarters location
Brokerage Services and Exclusive Listing Agreement
To complement the marketing effort, CBRE’s brokerage services will also be provided. The City and CBRE will negotiate in good faith a mutually agreeable Exclusive Listing Agreement (“ELA”) subject to the review and approval of the City Attorney. The ELA s hall have an initial term of 24 months, subject to earlier termination by the City with ninety (90) days written notice, and extensions beyond the initial term by mutual agreement of the parties.
Marketing costs are absorbed into the brokerage fee per the below table. Seller/Landlord brokerage fees are based on the following:
Brokerage Fee Rate Total Project Value Tranche
3.00%* $0 M - $10 M
2.50% $10 M - $20 M
2.00% $20 M - $30 M
1.50% $30 M - $50 M
1.25% $50 M - $100 M
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1.00% $100 M or greater
Agreement Budget
The below table shows the breakdown of costs across the three contract phases and includes a provision for month-to-month additional support, if necessary.
Phase Cost
Phase I
Exclusive Negotiating Agreement (ENA) and Term
Sheet Negotiation
$195,000
Monthly retainer of $19,500/month for February –
November services (payment for services to begin
following a Notice to Proceed)
Phase II
Master Development Agreement (MDA) Negotiation
and Completion
$300,000
Success fee payable by the City upon full execution
of the MDA
Phase III
Marketing
$100,000
Three (3) Month-to-Month Agreement Extension(s)
Contingencies
$58,500
Should the parties not reach an agreement by the
end of November, CBRE and the City may mutually
agree to continue the effort on a month -to-month
basis for a period of three (3) months maximum
paying the monthly retainer rate of $19,500/month.
Total Funds to Appropriate from V3 Development
Agreement (no General Fund impact)
$653,500
About CBRE
CBRE is uniquely qualified to perform as the consultant for this work as they are the largest and most successful commercial real estate services firm in the world . CBRE has significant and varied resources, including a dedicated Public Institutions Education Solutions business group which has advised over 100 non-federal agencies and universities on complicated and high-profile projects. CBRE also possesses access to significant technological industry advances due to recent investments. Additionally, the proposed consultant provides access to development, university, public -private partnership specialists and local market experts to execute a transaction in the best interests of the City. CBRE touts an extensive network of occupiers, higher education, life sciences and tech relationships that the City will be equipped to leverage to advance the UID. The CBRE team holds over 150+ years of combined experience, has over 20 public-private- P a g e | 7
partnership projects underway and completed, has repr esented over 100 public sector clients, transacted over 100 million square feet and has recently generated $3 billion in revenue for government clients.
Based upon these unique qualifications, staff is recommending that the City Council waive the normally applicable consultant selection process and hire CBRE on a “sole source” basis as permitted under Sections
2.56.070B(3) and 2.56.070B(4) of the Chula Vista Municipal Code.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council members and has found no property holdings within 1,000 feet of the boundaries of the property which is the subject of this action. Consequently, this item does not present a disqualifying real property -related financial conflict of interest under California Code of Regulations Title 2, section 18702.2(a)(7) or (8), for purposes of the Political Reform Act (Cal. Gov’t Code §87100, et seq.).
CURRENT-YEAR FISCAL IMPACT
There will be no current-year fiscal impact to the City’s General Fund. The agreement expenses of $595,000 with a $58,500 contingency for additional months of negotiation, for a total of $653,500, will be appropriated from funds contributed by HomeFed Village III Master, LLC per the Development Agreement approved by City Council on July 13, 2021 by Ordinance No. 3505.
ONGOING FISCAL IMPACT
There is no ongoing fiscal impact to the City’s General Fund. Should an agreement not be reached between the City and HomeFed by the end of November 2022, three optional month-to-month extensions payable by the $19,500 monthly retainer fee will be subject to approval of both the City and CBRE. These costs will also be appropriated from funds contributed by HomeFed Village III Master, LLC per the Development Agreement approved by City Council on July 13, 2021 by Ordinance No. 3505.
ATTACHMENTS
Two-Party Agreement – CBRE Group, Inc.
Staff Contact: Miranda Evans, Special Projects Manager