Reso. No. ___-23
RESOLUTION NO. ___-23
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RICHMOND,
CALIFORNIA REVIEWING, APPROVING, AFFIRMING AND
VALIDATING THE FIRST AMENDMENT TO THE LAND DISPOSITION
AGREEMENT DATED DECEMBER 29, 2022 (ALDA) REGARDING THE REAL PROPERTY ON DORMAN DRIVE (APN 560-420-006, 560-420-007 AND 560-420-010) AND ELECTING TO UNCONDITIONALLY WAIVE THE CITY’S RIGHT OF REVERTER UNDER SECTION 6.1.9.2 OF THE ALDA.
[ALTERNATE: ELECTING TO EXERCISE ITS RIGHT OF REVERTER UNDER SECTION 6.1.9.2 OF THE ALDA]
WHEREAS, on Au gust 6, 2014 the City of Richmond ( “City”) and Terminal One Development LLC, a Delaware limited liability company (“Developer”) executed that Terminal One Land Disposition A greement (“Original LDA ”) for the transfer to and develop ment by , Developer of that vacant real property described as the approximately 13.88 acres of dry land and approximately .71 acr es of submerged la nd located at 1500 Doman drive (APN 560 -420- 006, 560-420-007 and APN 560-420-010) (“Property”).
WHEREAS, in 2022 Developer proposed revisions to the Terminal One project that was originally approved by City Council i n July 2016 (“Original Project”). The Original Project included 323 condominium units (subsequently reduced by Developer and City to 316 units) consisting of 302 multi-family flats and 21 single -family residences, associated common areas, and site amenitie s. In addition, the Original Project included a pu blic waterfront park which incorporated reuse of the existing wharf as a public park facility, a shoreline extension of the San Francisco Bay Trail, an e xtension of Dornan Drive to provide vehicular access t o the waterfront park and shoreline, a central pedestrian promen ade, and an entry plaza with a small visitor - serving retail node.
WHEREAS, the Original Proj ect became financi ally infeasible due to a combination of economic factors including:
1. Approximately $21 Million in extraordinary costs to mitiga te hazardous conditions and otherwise prepare the Site for redevelopment and to construct the public park and public access improvements, including the costs associated with:
a) seismically stabilizing the site,
b) completing the clean-up of soil and groundwater contamination, c) structurally retrofitting the wharf,
d) addressing flood risk associated with sea level rise, e) engineering the unengineered artificial fill covering the entire site, f) demolishing the lead paint contaminated warehouse, and g) constructing the public waterfront park and public access improvements; and
2. The challenges posed by:
a) multi-family condominium constr uction costs that in recent years have been increasing at a much faster rate than the value s of multi -family condominiums,
b) a real estat e market where new home prices in Richmond are significantly below Bay Area averages while new home construction costs are at the same high level throughout the Bay Area, and c) a COVID-19 pandemi c that has adversely impacted demand for multi - family condominiums while, at the same time, driving further increases in construction costs.
WHEREAS, in 20 22, Developer s ubmitted a proposed re vised Project consists of 154 units of single -family housing, 30 units o f junior accessory dwelling units, which project will comply with the City’s inclusionary ho using ordinance (“Revised Project”) and where the City would retain the portion of the Origin al P roperty to be deve loped a s a park (“Revised Property”).
WHEREAS, The City’s economic consultant, Land Econ Group (“ LEG”) reviewed the economic f easibility of the Original Pro ject and the Revised Project and conclu ded that the Original Project was not economically feasible, and the Revised Project was feasible.
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WHEREAS, at the November 22, 2022 City Council meeting, the City Council declared the Property as excess surplus land under the Surplus Land Act (“SLA”) which would be exempt under the SLA as a pre -existing agreement provided that the closing occurred on or before December 31, 2022. This exemption was confirmed by the California Depar tment of Housing and Community Development by a letter dated December 15, 2022.
WHEREAS, at th e November 22, 2022 City Co uncil meeting, the City Council also authorized the City Manager and City Attorney to negotiate an amendme nt to the LDA upon the following material deal points (“Approved Terms”):
(a) Developer must waive the Entitlement Conditions.
(b) Purchase Price for the Site to be revised and paid as follows:
(i) Original Purchase Price : The $10M purchase price (“Original Purchase Price”) to be paid (i) the Original Deposit ($500K) to be nonrefundable; (ii) $500K paid at closing (“Closing Deposit ”); (iii) $2M paid when entitle ments granted, and all appeal periods have expired without challenge ; (iv) $2M paid when 1 st building permits granted; and (v) $5M paid earlier to occur of 50 th building permit or December 15, 2024.
(ii) Additional Purchase Price: As additional consideration for the deferral of payment of Original Purchase Price, Developer would pay additional compensation to th e City, p ayable upon sale of the last unit, the lesser of $5M or 15% of gross unit sales reve nue over $182M (“Additional Purchase Price ”). [i.e., total purchase price could be as much as $15M]
(c) Required to close on or before December 31, 2022.
(d) Right of reverter if nonperformance in normal RDA form. (e) Developer to contribute fair share for street maintenance caused by project development.
(f) Any legal challenge Developer pays the costs of defense. (g) All other terms of the Original Land Disposition Agreement shall remain the same except as set forth in Resolution 168-22 and the ALDA.
WHEREAS, At the November 22 Council meeting, over 20 residents spoke against the Revised Project, raising issues such as lack of disclosure of documents such as developer proforma and resolution of approval, density and layout of units, design issues, truck traffic, CEQA issues, access and safety, site remediation and other issues. On December 6, project entitlement recommendations were referred to the City Council from the Planning Commission recommending denial. Many objections were the same as on November 22. The City Council on December 6 referred the project entitlements back to the Planning Commission and Design Review Board. However, in light of the one-time chance to proceed with the Revised Project, the City Council, by a 6-1 vote (with the Mayor in the negative) adopted Resolution 168-22 directing the City Attorney and City Manager to proceed and finalize the ALDA pursuant to the terms above.
WHEREAS, In accor dance with the Approved Terms , and with extensive negotiations with citizens to incorporate Exh ibit C-2 in the ALDA, the City and Developer enter ed into that certain First Amendment to L and Disposition Agreement dated and executed on December 29, 2022 (“ALDA”) and the Revised Property was transferred to the Developer in accordance with the ALDA on December 30, 2022 and meeting the HCD deadline of December 31, 2002.
WHEREAS, the following is a summary of the ALDA deal terms:
(a) Negotiations. The City Attorney’s office prepared the initial draft of the ALDA ( including the attachments thereto) and submitted it to the Developer and Developer’s legal counsel on December 1, 2022. The parties extensively and continuously negotiated the ALDA until December 29th when it was executed and submitted to escrow to consummate the Closing. The ALDA is attached as Attachment 5).
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(b) Citizen Negotiations . Conc urrently, the City Attorney began a dialogue with a rotating group of about si x persons culminating in Exhibit C-1 to the ALDA. This document was also negotiated with Developer and went through 12 versions, more than any other part of the ALDA. (c) Closing. The transaction was closed, and title transferred to Developer on December 30, 2022 (“Closing”). The ALDA complied with the Approved Terms with certain modifications and additional provisions. (d) Grant Deed. The grant deed conveyed the Property to Developer subject to the terms of the ALDA.
(e) Remaining Title Issues and Right to Rescind . Developer raised a number of issues regarding title issues. The City Attorney’s office resolved the majority of the most serious title issues although the Developer did contin ue to express issues with certain remaining title exceptions including, but not limited to, two (2) PG&E easements which were not removed prior to the Closing (“ Remaining Title Issues ”).
Developer was reluctant to close with resolution of the Remaining Ti tle Issues. A compromise was rea ched where the L DA Section D(b)(ii) (amending LDA Section 3.3.1) provides that if the Remaining Title Issues are not resolved within 60 days after Closing, Developer has the option exercisable for up to 75 days after Closing , to deed the Property back to City subject to standard real estate requirements such as title insurance. (f) Purchase Price. The Purchase Price (the Original Purchase Price ($10M) and the Additional Purchase Price (contingent on sales up to $5M ) was paid as follows:
(i) Original Deposit: $500,000 was previously paid to City in 2014 and credited to the Original Purchase Price at Closing. (ii) Additional Deposit: An additional $500,000 was paid to City through escrow at Closing (less $3,750 escrow fees).
(iii) First Note Secured by Trust Deed: Developer executed a purchase money note in the amount of $4, 250,000* which bears interest at 4% per annum and provides for principal payments (a) $2,250,000 payable upon issuance of Entitlements and expiration of the all appeal periods; and ( b) $2,000,000 payable on first to occur of (i) issuance of first residential building pe rmit; and (ii) December 15, 2028 (which is the outside date no matter what happens with building permits). The note is secured by a deed of trust against the Property in first lien position insured by a loan title insurance policy. There are no provisions for subordination.
* $250,000 represents amount of city transfer taxes which amount was disputed by Developer as to the calculation methodology. See dis cussion below regarding City Transfer Taxes.
(iv) Second Note Secured by Trust Deed: Developer executed a purchase money note in the amount of $5,000,000 which bears interest at 4% per annum and provides for entire principal payable on first to occur of (i) is suance of the 50 th residential building permit; and (ii) December 15, 2028 (which is the outside dat e no matter what happens with building permits). The note is secured by a deed of trust against the Property in second lien position which is insured by a loan title insurance policy. The trust deed contains (a) provision for the subordination of this trust deed to a construction loan under certain conditions ; and (ii) partial release provisions to release the trust deed upon sale of homes but requires a part ial principal payment of $100,000 for each home.
(v) Shared Appreciation Note Secured by Trust Deed: Developer executed a purchase money note in the maximum amount of $5,000,000. The actual principal amount is to be the lesser of $5M or the amount of 15% of the difference between the actual Residential Unit sales prices and the sales prices of the Resident ial Units as projected by Developer prior to the commencement of Reso. No. ___-23
construction as reported to City and approved by ECON as reasonable. Developer is to provid e City with a monthly accounting report upon commencement of sales of the Residential Units and City has the right to audit. The note is secured by a deed of trust against the Property in third lien position which is insured by a loan title insurance polic y. The trust deed contains (a) provision for the subordination of this note to a construction loan under certain conditions; and (ii) partial release provisions to release the trust deed which provides that 15% of the actual sales price is to be deposited into escrow account until the final accounting.
(vi) Miscellaneous: All the Notes and Trust Deeds are cr oss-defaulted.
In addition, any default under the LDA as amended and the Grant Deed are defaults under the Notes and Trust Deeds.
(g) City Transfer Taxes. Developer requested that the City transfer taxes be deferred and included in the First Note. Escrow calculated the transfer taxes on the $10M calculated at the single category of sales prices up to $10M which would be $25 per $1,000 with a total $250,000. Developer argued that the tax should be calculated at a graduated scale under the ordinance with a total amount due of $207,000. The First Note includes the additional amount of $250,000 which is to be adjusted by endorsement on the Note upon final dete rmination of the amount due. Scope of Development & New Site Plan. A revised scope of develop ment is attached to the ALDA as Exhibit C. The revised Site Plan is attached to the ALDA as Exhibit B.
(h) Developer - Entitlements & Construction Obligations. Developer is obligated to exp editiously apply for and shall exercise commercially diligent efforts to obtain all entitlements in accordance with the Schedule of Performance (attached as Exhibit C-1). Developer has 24 months to obtain the entitlements and the r ight to extend same for 12 additional months (“ Outside Entitlement Period ”). Upon commencement of construction, Developer shall diligently prosecute same and not cease construction for any period of 180 days except for force majeure events. (i) City’s Discretionary Right of Reverter (75 days) . City has the sole discretion to exercise a right of reverter if the City Council public reviews the ALDA within 75 days of Closing which thereafter disapproves same and thereafter elects to exercise this right of revert er within 75 days of the Closing (Section 6.1.9.2).
(j) Developer’s Right to Deed Property Back to City. If Developer is not able to obtain all Entitlements by the Outside Entitlement Date despite its good faith diligent efforts, then for a period of 60 days aft er the Outside Entitlement Date, Developer may elect to deed the Property back to City pursuant to standard real estate procedures including title insurance. (k) City’s Conditional Right of Reverter (To Reacquire Property) . City shall have the right to requ ire the Site to be conveyed back to the City and City to repay the Purchase Price to the extent act ually paid by Developer upon the occurrence of a Triggering Event which are defined as:
(i) Developer fails to obtain Entitlements by Entitlement Outside Date.
(ii) Developer fails to commence construction pursuant to Schedule of Performance.
(iii) Developer ceases construction for more than 180 days. (iv) The First and Second Note become due and payable.
If City reacquires the Property, it shall be sold and proceeds shall be paid first to City to reimburse its costs, then Developer to reimburse its costs incurred with respect to the Property and any remainder amount retained by City.
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(l) Attorney Fees Reimbursement. Developer agreed to reimburse the City Attorney fees up to $ 85,000 to be paid by January 31, 2023. $44,462.15 was receive at Closing and the balance is due by the end of January.
WHEREAS, The original intent wa s for the City Manager to execute the ALDA as provided in the November 22 Resolution, but due to the ho lidays, she was unavailable and the Mayor also em ailed he was on vacation, including a photo of a snow -covered house in his automated email response and on social media . On December 2 9, it was learned that all the required documents (ALDA, grant deed, etc.) had to be delivered to the title company in the afternoon due to their early holiday closure an d so accordingly execution was arranged for the Vice Mayor and City Clerk. The documents were executed at approximate 1:30 p.m. on December 29 th. When Council was informed t hat evening, the Mayor responde d saying he should have signed the ALDA. The City Attorney contacted the Mayor and gave hi m two opportunities to re -sign the docum ents witnessed by the City Clerk for Friday afternoon, December 30th and Saturday morning, December 31st. However, the Mayor declined the first and did not appear for second appointment. He has now sued the City in the ca se of Butt v. City of Richmond, et al to invalidate the t ransaction due the Vice Ma yor (now Mayor ) executing the ALDA (“Butt Litigation”).
WHEREAS, Currently, there are two threatened claims of Brown Act violations by Brian Lewis, et al. and Daniel Butt on behalf of Fo rmer Mayor Tom But t, alleging that that the City’s actions approving the ALDA terms on Novem ber 22 violated the Brown Act (“Brown Act Violations”). The City contends there were no Brown Act violations but believes that the Brown Act permits corrective action to cure violations, and that the hearing conducted hereunder qualifies as corrective action.
WHEREAS, In anticipation of the Brown Act Violations and any other legal challenges, Section 6.1.9.2 of the A LDA provides the City with the sole discretion to exercise a right of reverter if the City Council , after reviewing the ALDA at a public hearing within 75 days of the closing (December 30, 2022), disapproves the ALDA (“City’s Right of Reverter”). If the C ity Council disapproves the ALDA and the transfer of title , the City Counci l may , in its sole discretion, exercise the City’s Right of Reverter within 75 days of the Closing. [ALTERNATE FINDING : WHEREAS, Notwithstanding the aforementioned recitals, the Coun cil hereby determines that substantial opposition to the Project exists and wish es to exercise its Right of Reverter, rescinding its approval and authorizing the return of the Deposit to Developer.]
WHEREAS, NOW, THEREFORE, THE CIT Y COUNCIL OF THE CITY OF RICHMOND, CALIFORNIA DOES HEREBY RESOLVE AS FOLLOWS:
Section 1. Recitals. The foregoing recitals a re true and correc t and incorpora ted into this Resolution by this reference.
Section 2. ALDA. The City Council h as reviewed the AL DA and hereby approves, confirms, and validates all the terms of the ALDA an d the subsequent transfer of the Revis ed Property to Developer.
[ALTERNATE: Section 2. ALDA. The City Council has reviewed the ALD A and does not approve, confirm, nor validate the terms of the ALDA and the subsequent transfer of the Revised Property to Developer.]
Section 3. Waiver of Right of Reversion. The City Council hereby unconditionally waives the City’s Right of Reverter in the ALDA subject to Developer’s like waiver of this right to cancel under Section 6.1.9.2 of the ALDA.
[ALTERNATE: SECTION 3. Right of Reversion. The City Council hereby exercises its Right of Reverter pursuant to the ALDA.]
Section 4. Action. The officers of th e City are hereby authorized and directed, for and in the name and on behalf of the City, to do any and all things and take any and all actions which they, or any of them, may deem necessary or advisable in order to effect the terms of this Resolution.
Section 5. Severability. If any pr ovision of this Res olution or the application of any such Reso. No. ___-23
provision to any person or circumstance is held invalid, such invalidity shall no t affect other provisions or applications of this Resolution that can be given effect without the invalid provision or application, and to this end the provisions of this Resolution are severable. The City Council declares that the City Council would have adopted this R esolution irrespective of the invalidity of any particular portion of this Resolution.
Section 6. Effective Date. This Resolution shall take effect immediately upon its passage. *****************
I certify that the foregoing resolution was passed and adopted by the City Council of the City of Richmond at a regular meeting thereof held February __, 2023, by the following vote:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
.
State of California }
County of Contra Costa : ss.
City of Richmond }
I certify that the foregoing is a true copy of Resolution No. ___-23, finally passed and adopted by the City Council of the City of Richmond at a regular meeting held on February __, 2023.
__________________________________________
Pamela Christian, Clerk of the City of Richmond