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November 22, 2022
Community Development
DATE: November 22, 2022
TO: Mayor Butt and Members of the City Council
FROM:
Dave Aleshire, City Attorney
Lina Velasco, Community Development Director
James Atencio, Senior Assistant City Attorney
Subject:
Terminal One Disposition: Notice to California Department of Housing and Community Development (HCD) and of
Community Benefits
FINANCIAL IMPACT: None at this time. Upon closing of the proposed sale of Terminal One, the City anticipates receiving ultimately $10M in sale proceeds and potentially $5M upon
successful completion and sale of all units along with
community benefits from the developer including an
accessible restored wharf and community park and trail, sea defense, and hazardous soil remediation with a
cost/value of up to $20M paid by Developer.
PREVIOUS COUNCIL
ACTION:
None
STATEMENT OF THE
ISSUE:
Whether to revise the 2014 LDA for Terminal 1 based on
the financial consultant’s determination that the prior housing project was not developable due to financial
infeasibility, determine that the property is exempt from the Surplus Land Act, and close on the sale by
December 31, 2022.
AGENDA
REPORT
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November 22, 2022
RECOMMENDED ACTION:
APPROVE (1) Terms of Amendment to Land Disposition
Agreement for Terminal One Project with Developer; (2)
Authorize the city manager and city attorney to finalize the Amendment incorporating the approved terms; (3)
ADOPT a resolution Declaring Terminal One Property
Exempt From Surplus Land Act; and RECEIVE INPUT on
Community Benefits proposed as part of the Project –
City Attorney’s Office/Community Development
Department (Dave Aleshire/Lina Velasco/James Atencio
510-620-6509). RESOLUTION TO FOLLOW
DISCUSSION:
A. BACKGROUND
Terminal One Development, LLC (“Developer”) and City are parties to a Land Disposition Agreement entered into in August 2014 (“LDA”) concerning the disposition of the project site located at 1500 Dornan Drive (“Property”). The LDA provides that the City will sell the Developer approximately 10 acres of the overall 13.8 -acre site for construction of a medium density residential project and retain ownership of the remaining portion for development of a public park.
Until the early 1990s, the project site was a port terminal, used by the Port of Richmond for shipping, transport, and related industrial activities. Most buildings and structures have been demolished and removed from the site, except for an approximately 94,000 square- foot former port operations warehouse (Terminal One Warehouse) building that is partially supported by the existing pier along the southern portion of th e site, and some building foundations, railroad tracks, and other concrete surfaces.
The Developer has proposed revisions to the Terminal 1 Residential Project that was originally approved by City Council in July 2016. The approved 2014 Project included 323 units consisting of condominiums and townhomes, associated common areas , and site amenities on approximately 13.8 acres at the Property. According to the Developer, the previously approved project became financially infeasible, which is why the Developer now requests consideration of a revised project (“Project”). Based on this the City retained Land Econ Group (“LEG”) to analyze the two proposals.
B. LAND ECON GROUP ANALYSIS
Staff received an economic analysis of the feasibility of the original project from LEG which concurred with the Developer’s feasibility assessment. LEG found that the high construction cost of parking podiums and midrise buildings with elevators push the cost well beyond the projected selling prices. LEG therefore deemed the project c urrently unfeasible and likely unfeasible for years to come. LEG determined that the Developer’s
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November 22, 2022
proposed revised project would be marginally feasible, in that it would be able to carry its agreed to land cost and likely its site work for seismic stability, remediation and clean up.
Staff, with the assistance of LEG and Developer engaged in ongoing discussions regarding a revised Project scope for the Property that would be economically feasible.
The proposed Project, currently known as the Latitude Res idential Subdivision, includes 154 detached single-family houses and duplexes with 30 JADUs incorporated into some of the single-family homes (see Attachment 2, Project Plans). Staff anticipates the Project will be agendized for Council consideration at its December 6 meeting.
C. AMENDED LDA
Staff and the Developer have had ongoing discussions on the terms of an amendment to the LDA to reflect the revised Project scope that is feasible for the Developer and acceptable to the Cit y. The City Attorney and Developer’s representatives have negotiated the terms of a n LDA amendment that will differ from the original LDA as discussed here.
The Land Disposition Agreement which is being amended was an agreement providing the terms of a sale, and it described the project contemplated, but it did not approve the project entitlements —those still were and are subject to the City’s land use approval process. It described the proposed housing project and the public and private infrastructure improvements contemplated, but it made it clear that all of this was subject to the City’s land use process including the Design Review Board, Planning Commission and City Council, and would include the CEQA process . The LDA specifically stated, “Developer shall be solely responsible for processing and securing all of the Entitlements required to develop the Project and construct the Offsite Improvements . . . Nothing shall be deemed to require City to grant any Local Approvals or otherwise to exercise its discretionary authority in any particular manner.” (4.1.3/4.1.5) Besides the change in the nature of the project which has occurred, when the State amended the Surplus Land Act (discussed below) , it grandfathered in existing sales agreements but only if they closed by December 31, 2022. The 2014 LDA contemplated that at closing all of the Entitlements would have been granted —and in fact there were conditions so that parties did not have to close if the permits were not granted.
If the sale does not close by th e end of the year and the property had to go through the Surplus Land process, the City might have to start over with a new developer who didn’t have the extensive history with the site —environmental conditions, seashore protection, rehabilitation of the h istoric wharf, land remediation , and so forth —or have the capacity to deal with the added costs of development created by these conditions. The concern is that starting over with a new developer could end up leaving the site vacant and undeveloped for another decade. This is why it seems worthwhile to make this effort to modify the LDA with the Project still subject to completing the entitlement process.
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The Developer has agreed to waive the conditions of the sale protecting the Developer by having the entitlements in place before closing, while the City agrees to creating a phased payment of the purchase price. However, in terms of the public infrastructure and the community benefit, all these remain the same; requirements for Project Labor Agreement remain in place; as do requirements for local hiring . The City’s requirements for inclusionary housing still apply . In fact, the only changes to the LDA , other than as discussed here, will be those specifically provided in the Amendment —and generally relate to the real estate closing aspects of the transaction.
These deal points are as follows:
1. Initial Purchase Price $10M paid as follows:
$500K previously paid and nonrefundable . Second $500K paid at closing . $2M paid when entitlements granted, and all appeal periods have expired without challenge. $2M paid when 1 st building permits granted. $5M paid earlier to occur of 50th building permit or December 15, 2024.
2. Additionally, in consideration for the deferral of payment of purchase price, upon sale of th e last unit, Developer shall pay the lesser of $5M or 15% of gross unit sales revenue over $182M.
3. Developer shall enter Project Labor Agreement.
4. Project shall construct all specified improvements . There shall be no impact fees contributed from other projects.
5. Closing to be before December 31, 2022.
6. Right of reverter if nonperformance in normal RDA form.
7. Developer to provide Project Description and Schedule of Performance immediately.
8. Developer to contribute fair share for street maintenance caused by projec t development.
9. Parties will develop mechanism for maintenance of infrastructure.
10. Any legal challenge Developer pays the costs of defense.
The extraordinary costs the capital project faces include the following:
• Remediation of the hazardous seismic and envi ronmental conditions at the site – The seismic cost is estimated at $5M, remediation at $3M, demolition of warehouse (90,000 sq. ft.) at $5M, mitigate unengineered fill at $1M [Total $10.5M] • Structural retrofit of the wharf to address hazardous seismic con ditions – Developer estimates at $3.5M plus $1M for mitigation to address sea level rise
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• Waterfront park development - Developer estimates cost at $5M • Shoreline Drive retention - Developer has agreed but has also offered alternative that increases park acreage and removes Shoreline Drive extension • Community Benefits Contribution – Developer committed to contribute $500,000 and has already distributed $150,000
• Full Compliance with the City’s Inclusionary Housing Requirements – The Project will fully comply with the 10% inclusionary requirements without counting the 43 ADUs
• Payment of Site Security Cost – Developer agreed
Special comment should be made on one point . The surrounding communities are in Brickyard Cove. The Terminal 1 Project along with other development projects in the area will bring construction traffic, and truck traffic related to the import/export of soils . That is being analyzed and addressed through the development and CEQA process. Currently the Brickyard roadway is private and maintained by the Homeowners Associations—and as the roadway ages, maintenance costs will increase . It has long been contemplated that these roadways would be dedicated to the City and maintained by the City thereafter.
The Amended LDA will include the Developer’s commitment to pay its fair share cost to the rebuilding of the roadway so that when the City takes over the roadway, it will meet City standards.
The City Attorney is seeking authorization from the Council to finalize the terms of an amended LDA consistent with this report.
D. SURPLUS PROPERTY
The Property has been deemed to be surplus land of the City and as such is subject to the provisions of the Surplus Land Act (SLA) (Government Code sections 54220-54234).
The SLA was amended in 2020 and 2021 to expand the requirements that local agencies must follow prior to disposition of surplus property. However, since the Property is subject to an existing disposition agreement, it may be exempt from the new SLA requirements so long as the Property is transferred prior to December 31, 2023.
In anticipation of closing the transaction by the end of the year and in accordance with the SLA, the Council should adopt a resolution finding t hat the Property is exempt from the standard SLA process. The resolution must be filed with the HCD in order for the SLA exemption to apply to the Property, and notice must be given to HCD 30 days in advance of the closing.
Accordingly, staff is seeking Council approval of the attached resolution which de clares the property “exempt surplus” land based on findings supporting the applicability of the exemption.
E. PUBLIC INPUT ON COMMUNITY BENEFITS
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In accordance with Chapter 15.04 of the Richmond Municipal Code (RMC), the Project must comply with the City’s Community Benefits Policy. The Community Benefits Policy provides, among other things, that developers of certain large projects should contribute to the City’s Community Benefits Fund due to a project’s impact on public funds, City planning, and community i nterests. The Community Benefits Fund can be used by the City for community benefits as provided in RMC section 15.04.816.060.
Developer has committed to contribute $500,000 to the City’s Community Benefits Fund and has already contributed $150,000. In a ddition, the Developer has committed to providing an accessible, restored wharf and community park and trail as part of the Project.
Pursuant to the Community Benefits Policy Enhanced Transparency and Review procedures set forth in RMC section 15.04.816.050, the Council must review and receive public input regarding the community benefits proposed by the Developer as part of the Project as well as the proposed terms of the Project.
DOCUMENTS ATTACHED:
Attachment 1 – Site Plan
Attachment 2 – LDA
Attachment 3 – HCD Resolution (to be provided at Council meeting)