:
RICHMOND FORD ASSEMBLY BUILDING
SUMMARY REPORT PURSUANT TO
SECTION 33433
OF THE
CALIFORNIA COMMUNITY REDEVELOPMENT ACT
ON A
DISPOSITION AND DEVELOPMENT AGREEMENT BY AND BETWEEN
THE REDEVELOPMENT AGENCY OF
THE CITY OF RICHMOND
AND
ORTON DEVELOPMENT, INC.., A CALIFORNIA CORPORATION
INTRODUCTION
The California Health and Safety Code, Section 33433, requires that if a redevelopment agency vishes to sell or lease property to which it holds title and if that property was acquired in whole o in part with property tax increment funds, the agency must first secure approval of the propose sale or lease agreement from its local legislative body after a public hearing. A copy of the roposed sale or lease agreement and a summary report that describes and contains specific financing elements of the proposed transactions shall be available for public inspection prior to the public hearing. As contained in the Code, the following information shall be included in the summary report:
The cost of the agreement to the redevelopment agency, including land acquisition costs, clearance costs, relocation costs, the costs of any improvements to be provided by the agency, plus the expected interest on any loans or bonds to finance the agreement;
The estimated value of the interest to be conveyed or leased, determined at the highest and best use permitted under the redevelopment plan; The estimated value of the interest to be conveyed in accordance with the uses, covenants, and development costs required under the proposed agreement with the Agency, i.e., the reuse value of the property;
An explanation of why the sale or lease of the property will assist in the elimination of blight, as required by Section 33433; and
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The purchase price or sum of the lease payments which the lessor will be required to make during the term of the lease. If the sale price or total rental amount is less than the fair market value of the interest to be conveyed or leased, determined at the highest and best use consistent with the redevelopment plan, then the agency shall provide as part of the summary an explanation of the reasons for the difference.
This report outlines the salient parts of the proposed Disposition and Development Agreement draft version 5 dated October 31, 2003 ("Agreement" or "DDA") by and between the Redevelopment Agency of the City of Richmond ("Agency") and Orton Development, Inc., a California Corporation ("Developer"), which requires the Developer to redevelop the subject property ("Site") for a mixed use development including public assembly, industrial, research and development, office, and residential uses. The purpose of this analysis is to determine the cost of the Agreement to the Agency.
This report is based upon information in the proposed Agreement and is organized into the following five sections:
Summary of the Proposed Agreement - This section includes a description of the Property, the proposed project and the major responsibilities of the Agency and the Developer.
Cost of the Agreement to the Agency - This section outlines the cost of the Agreement to the Agency. It presents the terms of the land conveyance to the Developer by the Agency, and sets forth the net cost of the Agreement of the Agency.
3. Estimated Value of the Interest to be Conveyed - This section summarizes the value of the property to be conveyed to the Developer.
Consideration Received and Reasons Therefore - This section describes the purchase or lease price to be paid by the Developer to the Agency. It also contains a comparison of the price and the fair market value at the highest and best use consistent with the redevelopment plan for the interests conveyed.
5. Elimination of Blight - This section includes an explanation of why the sale or lease of the property will assist in the elimination of blight and the supporting facts and materials.
Conformance with AB 1290 Implementation Plan - This section describes how the Agreement is in conformance with the Agency's Implementation Plan.
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SUMMARY OF THE PROPOSED AGREEMENT
A. Description of the Site and Project
Site
The Site is located at 1414-1422 Harbour Way South, in the Harbour Redevelopment Project Area No. 11-A, adjacent to the Port of Richmond, the Richmond Marina, and the Marina Bay mixed-use development. It is bounded by Harbour Way South, Marina Way South, Hall Avenue, and San Francisco Bay.
The Agency acquired the approximately 560,000 square foot (SF) buildings (gross) on the 26.5 acre waterfront site in March, 1979. In the intervening time, two storage structures have been demolished and the Agency intends to convey the remaining approximately 517,000 SF structure, and the total property to the Developer for consideration as described below:
• Payment of $5,400,000 at the close of escrow.
* Payment of a $1 Million nonrefundable deposit. Under a Program Management Agreement (PMA) with the Agency, a portion of the deposit can be used by the developer for the hard costs of performing certain improvements to the building prior to conveyance, but only after expenditure of $2 Million of Developer funds independent of the deposit.
The deposit not expended by the developer will be a credit against the purchase price. • Participation payments equivalent to 10% of the excess, if any, in annual gross revenues over a participation threshold rent equal to $2/SF per month, or $24/SF per year. The agreement also calls for participation payments of 10% of the excess, if any, of the sales revenue over a sales price threshold based on the threshold rent level. It is CCG's opinion that these participation payments are unlikely to occur unless the project is successful beyond that which can be reasonably projected from current market conditions.
The total purchase price is therefore $5,400,000.
Developer
The Developer is Orton Development, Inc., a California Corporation.
Project Description
The proposed Ford Assembly Building Project ("Project") will consist of the rehabilitation and adaptive reuse of the historic former Ford Assembly Building and adjacent Oilhouse building totaling approximately 524,000 gross SF, as a mixed use project with approximately 517,000 rentable SF including 160,000 SF of residential uses, 40,000 SF of public-serving uses, Conley Consulting Group Page 3 of 11
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22,000 SF of office space (including a 7,000 SF building management office), and 295,000 SF of space to be developed for use by a blend of industrial, research and development businesses. The public-serving uses include a National Park Service Visitors' Center, exhibition space, assembly space, educational and cultural functions, retail and café uses, and public waterfront access.
B. Agency Responsibilities
The Agency's responsibilities under the proposed Agreement are as follows:
Project Schedule: The Agency shall complete its role in all tasks by the dates and times shown in the DDA.
Removal of Tidelands Trust Restrictions: Prior to conveyance, the Agency shall execute a settlement agreement in accordance with state law or utilize such other means to quiet title which: (i) terminates the claim of the State Lands Commission to any fee ownership of the Site and (il) removes the public trust easement over the Site, except for the Craneway.
Approvals: The Agency shall review on an expeditious basis any matter submitted under the terms and conditions of the DDA and advise Developer of approval or of why approval is being withheld. The Agency's approval, where called for in the DDA, shall in all instances be evidenced in writing.
C. Developer Responsibilities
The Developer's responsibilities under the proposed Agreement are as follows:
• Construction of the project according to the DDA.
• Project Schedule: Developer shall complete its required tasks by the dates and times shown in DDA.
• Financing: Developer shall obtain binding commitments for all construction and permanent financing needed for the Project as shown in the DDA, and shall prepare or negotiate appropriate documentation to close such financing or obtain such funding. All financing placed on the Site shall be subject to the review and approval of the Agency.
Lease to National Park Service: Developer shall offer a long-term lease with the National Park Service ("NPS) on terms mutually acceptable to Developer and the NPS, and for a period under which NPS shall operate an approximately 10,000 square foot visitor's center honoring the historic activities on the Site in conjunction with NPS' "Rosie the Riveter" exhibit.
• Approvals: Developer shall, on an ongoing and timely basis, advise the Agency as to the status of the processing of all applications necessary to obtain all governmental approvals required in accordance with the DDA and all applicable federal, State and local laws, rules and regulations.
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• Applications: Developer shall keep the Agency fully informed, and consult with the Agency concerning, the development of all applications for government assistance and public or private financing.
• Cooperation and Skill: Developer recognizes the relationship of trust and confidence established between it and the Agency by the DDA and agrees to (i) keep itself and the Agency fully informed as to the progress of the Project, (i) consult and cooperate fully with the Agency in furthering the interest of the Agency in the Project, (ili) furnish its best skill and judgment in the accomplishment of the Project, and (iv) furnish sound business administration and superintendence. • Developer will enter into a $3 Million loan with the Agency, with repayment provisions parallel to the repayment provisions of the Section 108 loan between the Agency and HUD.
D. City of Richmond Responsibilities
In order for the Project to be developed, the City of Richmond has or will provide the following funds to complete the seismic improvements and hazardous materials mitigation. • FEMA funds in the amount of $14.2 million were expended prior to entering into an agreement with Orton Development;
• HUD funds in the total amount of $4.5 million, consisting of a grant of $1.5 million and a loan of $3 million.
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IIICOST OF THE AGREEMENT TO THE AGENCY
This section presents the total cost of the Agreement to the Agency, as well as the "net cost" of the Project after consideration of the project revenues. The net cost can be either an actual cost, when expenditures exceed receipts, or a net gain, when revenues created by implementation of the Agreement exceed expenditures.
Gross Costs to the Agency
The estimated Agency costs for this Agreement are as follows':
Estimated Costs
Property Acquisition Costs $7,726,000
Clean Up, Repair, and Seismic Strengthening 2 $6,027,000 Interest on Agency Bonds 3 $171,000
Total Agency Costs $13,924,000
As shown above, the estimated cost to the Agency is $13,924,000.
B. Gross Revenues to the Agency
The Agency will sell the building for $5,400,000. In addition, if the project is more successful than current market conditions suggest, the Agency will receive participation revenues. The Project is located within the Amended Harbour Redevelopment Area Redevelopment Project Area (11-A). As a result, the Agency will receive Property Tax Increment from the Project based on the increased valuation in the project area. The Project is estimated to generate the following revenues to the Agency:
1 All figures rounded.
2 Net of the City's contribution of $14,243,000 towards building remediation costs, funded by a grant from FEMA, and $4,500,000, financed by HUD Section 108 funds, for additional building improvements Agency used $2,050,000 in bond proceeds to fund improvements prior to conveyance. Upo conveyance, land sales proceeds will be used to replace bond funds, which will be available for another tax exempt purpose.
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Estimated Revenues
Purchase Price $5,400,000
Gross Tax Increment $12,979,000
< Less > Housing Set-Aside Funds (See Table 1) (2,515,000) <Less> Pass Thru Agreements (2,515,000)
Net Tax Increment Revenue (See Table 1) $7,949,000
NPV of Net Tax increment Revenue $3,946,000
NPV, Total Agency Revenues $9,346,000
C. Net Cost to the Agency
As a result of Agency revenues exceeding Agency costs, the Agreement is estimated to generate a net LOSS to the Agency as summarized below:
Agency Cost $13,924,000
(Less) Agency Revenues (9,346,000)
Net Cost / (Gain) to Agency $4,578,000
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IV VALUE OF THE INTEREST TO BE CONVEYED
Reuse Value
The reuse value of the Site is directly a function of the specific Project and economics as specified in the terms and conditions of the Agreement.
The reuse appraisal prepared by CCG on November 3, 2003, concluded that the fair reuse value of the property is $5,109,078. The Agency will convey the Property to the Developer for the amount of $5,400,000. Thus, the value of the transaction exceeds the fair reuse value of the property.
Estimated Value at Highest and Best Use
CCG has also estimated the value of the interests conveyed to the Developer if sold by the Redevelopment Agency at its highest and best use allowed under the redevelopment plan.
The proposed project is to rehab the existing building, which is on the national register of historic places. In previous proposals to rehabilitate the Ford Building by other developers, the costs of remediation and retrofit of the property in addition to the improvements required for the proposed use exceeded the value created by the redevelopment scheme, even after application of the available sources of subsidy. These proposals were therefore deemed infeasible.
Thus the proposed development program is the highest and best use of the property. The residual property value under the subject proposal is the highest and best value for the property.
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V... CONSIDERATION RECEIVED AND REASONS THEREFOR
Under the terms of the DDA the Agency will convey the site to the Developer. Consideration for the conveyance will be paid to the Agency by the Developer in the form of participation payments as follows:
• Payment of $5,400,000 at the close of escrow.
• Participation payments equivalent to 10% of the excess, if any, in annual gross revenues over a participation threshold rent equal to $2/SF per month, or $24/SF per year, after an allowance to amortize tenant improvement expenses. Participation payments of 10% of the excess, if any, of the sales revenue over a sales price threshold based on the threshold rent level. It is CCG's opinion that these participation payments are unlikely to occur unless the project is successful beyond that which can be reasonably projected from current market conditions.
In addition, the Developer will use best efforts in an attempt to secure Historic Tax Credit investment for the project.
The reuse appraisal prepared by Conley Consulting Group indicates that the fair reuse value for the property is $5,109,078. Therefore, the Agency is entering into this Agreement for a consideration that is above the fair reuse value.
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VI. ELIMINATION OF BLIGHT
In May 1999, the Richmond Redevelopment Agency prepared its Report to the City Council on the Proposed Amendments to the Redevelopment Plans Including the Merger of the Richmond Redevelopment Projects. In the Report, the Agency delineated the scope of blighting conditions in the Redevelopment Project Areas according to a field survey conducted in 1998. 4 The following sections summarize the blighting conditions described in the Report for the Harbour 11-A portion of the merged Project Area:
• Outdoor storage in several locations indicates inadequate internal space to properiy store materials.
• Some structures are clearly in need of maintenance and show signs of dilapidation and deterioration such as peeling paint, broken windows and non-structural damage. • Abandoned storage tanks.
• Six parcels contaminated by hazardous materials.
• Functionally obsolete dry docks.
• Infrastructure is functionally obsolete.
The proposed Project is a major step in implementing the objectives of the Amended Harbour Redevelopment Plan ("Plan"), which was adopted in July 1999. Rehabilitation of the Ford Assembly Building, including the costs of site improvements, design, and construction, is specifically identified in the Plan as a public improvement action to be undertaken in furtherance of the Plan's objectives.
Thus, the Agency is entering into this agreement in order to achieve its objectives of removing blight; rehabilitating those structures that are culturally, historically, physically and aesthetically worthy of rehabilitation; stimulating private investment; and providing the public improvements needed to support other objectives of the Redevelopment Plan, including recreational and community facilities.
* Richmond Redevelopment Agency Five Year Implementation Plan.
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vil. CONFORMANCE WITH AB 1290 IMPLEMENTATION PLAN
The proposed Project is a major step in implementing the objectives of the Amended Harbour Redevelopment Plan ("Plan"), which was adopted in July 1999. Rehabilitation of the Ford Assembly Building, including the costs of site improvements, design, and construction, is specifically identified in the Plan as a public improvement action to be undertaken in furtherance of the Plan's objectives. The Ford Assembly Building project will eliminate physical and economic blight that negatively impact economic development of the community.
Rehabilitation of The Ford Assembly Building addresses 4 of 7 of the Implementation Plan Goals for the merged project area. The Implementation Plan "aims to:
• Eliminate physical and economic blight in the Project Areas. • Stimulate... commercial, and industrial... development in the Project Areas. • Provide for a range of commercial and industrial uses to stimulate a strong growing local economy and job opportunities for residents.
• Remove impediments to land development, guide development toward a high level of design standards, and aid in the removal or rehabilitation of functionally or structurally substandard buildings." 5
To this end, the Agency selected the Developer for the Site. The Agency plans to convey the Site to the Developer for a payment of $5,400,000 at the close of escrow. The project will result in the rehabilitation and reuse of a vacant, deteriorating building which, when returned to active use, will complement the Agency's investment in removal of blight and upgrading the waterfront in the Harbor 11-A Project Area. Therefore, the proposed Project will conform to the Implementation Plan, and will achieve the goals specifically defined in the Implementation Plan. 5 Richmond Redevelopment Agency Five Year Implementation Plan 2000-2004 Conley Consulting Group Page 11 of 11
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Table 1
Tax Increment Revenue Projections
Ford Assembly Plant Building
City of Richmond
Increase in Assessed Value Tax Increment to Agency Agency Obligations Net Tax Increment Added by Added by Assessed Total Agency Available for Housing Net Tax Increment Inflationary Land & New Value Basic Tax 2% County Tax Pass- Available to Agency Increase Inflation Debt Admin Programs
Year Fiscal Over Admin Increment to Through
AdjustmentsDevelopment At End Revenues Fee Service Expense Allocation Agency Payments
(N) Year During Year During Year of Year Base Value Annual Cumulative Annual Cumulative 28 2002/ 03
2003/04 47,544,667 475,447 9,509 5,230 460,708 92,142 92,142 92,142 276,425 276.425 30 2004/ 05 950,893 48.495.560l 484,956 9,699 5,335 469,922 93,984 93.984 186,126 281,953| 558,378 31 2005/06 969,911 49,465,472 494,655 9,893 5,441 479,320 95,864 95,864 281,990 287,592 845,97 32 2006/07 989,309 50.454,781l 504,548 10,091 5,550 488,907 97,781 97,781 379,771 293,344 1,139,3 33 2007/ 081
1,009,096 51,463,877 514,639 10,293 5,661 498,685 99,737 99,737 479,508 299,211 1,438,525 34 2008/ 09 1,029,278 524,932 10,499 5,774 508,659 101,732 101,732 581,240 305,195 1,743,720 35 2009/ 10 1,049,863 D000000000
53,543,017 535,430 10,709 5,890 518,832 103.766 103,766 685,007 311,299 2,055,020 36 2010/11 1,070,860 54,613,878 546,139 10,923 6,008 529,208 105,842 105,842 790,848 317,525 2,372,545 37 2011/ 12| 1,092,278 55,706,155 557,062 11,141 6,128 539,7930 107,959 107,959 898,807 323,876 2,696,420 38 2012/13 1,114,123 56,820,278 568,203 11,364 6,250 550,588 110,118 110,118 1,008,924 330,353 3,026,773 39 2013/14 1,136,406 57,956,684 579,567 11,591 6,375 561,600 112.320 112,320 1 121 244 336. 3,363,733 40 2014/ 15 1,159,134 59,115,817 591,158 11,823 6,503 572,832 114,566 114. 566 235.811 343. 699 3,707,433 41 2015/ 16 1,182,316 0 60,298,134 60,298,134 602,981 12,060 6,633 584,289 116,858 11 858 - 352,669 350,573 4,058.006 42 2016/ 17 1,205,963 61,504,096 61,504,096 615,041 12,301 6,765 595,975 119,195 119. 471.864 357. 585 4,415,591 43 2017/ 18 1,230,082 62,734,178 62,734,178 627,342 12,547 6,901 607,894 121,579 79 1,593,442 364.737 4,780,327 44 2018/ 19 1,254,684 63,988,862 63,988,862 639,889 12,798 7,039 620,052 124,010 010 mute 717,453 372, 031 5, 152,359 45 2019/ 20 1,279,777 65,268,639 65,268,639 652,686 13,054 7,180 632,453 126,491 491 843. 944| 472 531.0 831 46 2020/ 21 1,305,373 66.574,012 66,574,012 665,740 13,315 7,323 645,102 129,020 020 77 .964 061 5.918,892 2021/22 1,331,480 0 67 905.492 67,905,492 679,055 13,581 7,470 658,0040 131.601| 601 2,104,565 394,803 6,313,694 48 2022/ 23 1,358,110 0| 69,263,602 69,263,602 692,636 13,853 671,164 134,233 1.233 2,238,798 402,699 6,716,393 49 2023/ 24 1,385,272 0| 70,648.874 70,648,874 706,489 684,588 136,918 •0000 2,375.715 410,753 7,127,146 50 2024/ 25 1,412,977 0. 72.061.852 72,061,852 720,619 250 27 205025350) 2,515,371 418,968 7,546,113 TOTAL 24.517.185 47,544,66720 42205404 12,979,211 7,546,113 Cumulative Tax Increment Available to the Agency $7,546,113 Present Vatue of TI $3,945,843
Assumptions:
Ford Building AV based on Value of Improvements at Completion (see Reuse Appraisal) Annual AV Inflation Adjustment:
Present Value Discount Rate: 6.0%
County Admin Fee as a % of "Basic Tax Revenues" 1.1%
Property Tax Rate: 1.0%
Pass-Through Proportion for New Development 20%
Low/Moderate Housing Distribution 20%
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33433 Report for Ford Assembly Building Site
15110.013 33433 Agency TI 11-3