TO: HONORABLE MAYOR FROM: Nanci Klein
AND CITY COUNCIL John Ristow
SUBJECT: SEE BELOW DATE: October 3, 202 2
Approved Date
10/3/2022
COUNCIL DISTRICT: 3
SUBJECT: LAND ACQUISITION FOR THE LOT E PUBLIC PARKING FACILITY,
RESOLUTION OF NECESSITY DECLARING THAT THE
ACQUISITION BY EMINENT DOMAIN OF A FEE INTEREST IN THE
PARCEL LOCATED AT 517 WEST SAINT JOHN STREET AND 150
NORTH MONTGOMERY STREET ARE NECESSARY FOR
CONSTRUCTION OF THE LOT E PUBLIC PARKING FACILITY
PROJECT; AUTHORIZING THE CITY ATTORNEY TO FILE SUIT IN
EMINENT DOMAIN TO ACQUIRE SAID PARCEL, AND TO DEPOSIT
MONEY NOT TO EXCEED THE APPRAISED VALUE OF THE
PARCELS INTO THE STATE TREASURY CONDEMNATION FUND.
RECOMMENDATION
(a) Adopt a resolution adopting the Lot E Parking Structure Addendum to the Downtown Strategy 2040 Final Environmental Impact Report (Resolution No. 78942 and SCH #2003042127) and the associated Mitigation Monitoring and Reporting Plan, all in accordance with the California Environmental Quality Act, as amended.
(b) Adopt a resolution authorizing the City Manager to negotiate and execute all documents and contracts necessary for the relocation of tenants currently occupying 517 West Saint John, including approval of the Final Relocation Plan and disbursement of necessary payments as required by relocation statute, not to exceed $350,000.
(c) Adopt a resolution of public interest and necessity required for the acquisition through condemnation of 517 West Saint John Street, identified as Assessor’s Parcel Number 259-29- 091 in Attachment A (consisting of ±19,166 square feet and owned by Arlethea K. Thorson, The Trustees of Richard Della Maggiore and Joan Della Maggiore), with the Parcel referred to as a “Property” for the Lot E Parking Facility Project in conformance with California Code of Civil Procedure Section 1245.220, et. seq., and making the following findings and determinations to declare that:
COUNCIL AGENDA: 10/18/22
FILE: 22-1530
ITEM: 8.1
HONORABLE MAYOR AND CITY COUNCIL
October 3, 2022
Subject: Lot E Property Acquisitions
(1) The City is authorized to acquire the Property and exercise the power of eminent domain to and in accordance with Article 1, Section 19 of the California Constitution, the California Eminent Domain Law (Code of Civil Procedure Sections 1230.010 et seq.), Section 200 of the City of San José Charter, and Government Code Sections 37350, 37350.5, 37351, 37353 and 40404;
(2) The public interest and necessity require the project, described below, which is in the footprint of the Lot E Parking Facility as described in Attachment A, proposed resolution of necessity, to be posted separately and by reference made a part hereof, for the Lot E Parking Facility Project;
(3) The Property to be acquired for the proposed Lot E Parking Facility Project is planned or located in the manner which will be most compatible with the greatest public good and the least private injury;
(4) The acquisition of Property, as described in Attachment A, proposed resolution of necessity, to be posted separately, is necessary for the public uses proposed in the Lot E Parking Facility Project;
(5) The offer required by Section 7267.2 of the Government Code, together with the accompanying statement of the amount established as just compensation for the acquisition of the Property, has been made by the City to the owner of record; (6) All conditions and statutory requirements necessary to exercise the power of eminent domain to acquire the Property have been complied with by the City; (7) Authorizing the City Attorney, or their designee, to institute, maintain, and prosecute to final judgment, in the name of the City of San José, proceedings in eminent domain in the Superior Court of the State of California, County of Santa Clara, for the condemnation of the Property herein described, and to take all steps necessary, including applying for an Order for Possession before Judgment, for said condemnation in the name of the City and correcting any errors or to making or agreeing to non-material changes in the description of the Property interests to be acquired that are deemed necessary for the conduct of the condemnation action; and
(8) Authorizing the City Attorney, or their designee, to make a deposit in the State Treasury Condemnation Fund from lawfully available funds of the City, in the amount of the summary appraisal of the Property, $4,800,000, or as determined by the court in which eminent domain proceedings concerning the Acquisition Parcels herein authorized are commenced, or which may otherwise be required by law for the maintenance of the proceeding in eminent domain.
(d) Adopt a resolution of public interest and necessity required for the acquisition through condemnation of 150 North Montgomery Street, identified as Assessor’s Parcel Number 259- 29-003 in Attachment B (consisting of approximately 7,060 square feet and owned by Rodolfo Alvarez Duenas, Raul Jimenez and Yolanda Jimenez), with the Parcel referred to as a “Property” for the Lot E Parking Facility Project in conformance with Cal. Civ. Proc. Code Section 1245.220, et. seq., and making the following findings and determinations to declare that:
HONORABLE MAYOR AND CITY COUNCIL
October 3, 2022
Subject: Lot E Property Acquisitions
(1) The City is authorized to acquire the Property and exercise the power of eminent domain to and in accordance with Article 1, Section 19 of the California Constitution, the California Eminent Domain Law (Code of Civil Procedure Sections 1230.010 et seq.), Section 200 of the City of San José Charter, and Government Code Sections 37350, 37350.5, 37351, 37353 and 40404;
(2) The public interest and necessity require the project, described below, which is in the footprint of the Lot E Parking Facility as described in Attachment B, proposed resolution of necessity, to be posted separately and by reference made a part hereof, for the Lot E Parking Facility Project;
(3) The Property to be acquired for the proposed Lot E Parking Facility Project is planned or located in the manner which will be most compatible with the greatest public good and the least private injury;
(4) The acquisition of Property, as described in Attachment B, proposed resolution of necessity, to be posted separately, is necessary for the public uses proposed in the Lot E Parking Facility Project;
(5) The offer required by Section 7267.2 of the Government Code, together with the accompanying statement of the amount established as just compensation for the acquisition of the Property, has been made by the City to the owner of record; and (6) All conditions and statutory requirements necessary to exercise the power of eminent domain to acquire the Property have been complied with by the City; (7) Authorizing the City Attorney, or their designee, to institute, maintain, and prosecute to final judgment, in the name of the City of San José, proceedings in eminent domain in the Superior Court of the State of California, County of Santa Clara, for the condemnation of the Property herein described, and to take all steps necessary, including applying for an Order for Possession before Judgment, for said condemnation in the name of the City and correcting any errors or to making or agreeing to non-material changes in the description of the Property interests to be acquired that are deemed necessary for the conduct of the condemnation action; and (8) Authorizing the City Attorney, or their designee, to make a deposit in the State Treasury Condemnation Fund from lawfully available funds of the City, in the amount of the summary appraisal of the Property, $1,770,000, or as determined by the court in which eminent domain proceedings concerning the Acquisition Parcels herein authorized are commenced, or which may otherwise be required by law for the maintenance of the proceeding in eminent domain.
OUTCOME
Approval of the resolution of necessity will allow the City to file a complaint in Santa Clara County Superior Court to acquire, through eminent domain, the real properties located at 150 North Montgomery Street, identified as Assessor’s Parcel Number 259-29-003 and 517 West Saint John Street, identified as Assessor’s Parcel Number 259-29-091. Authorizing the City
HONORABLE MAYOR AND CITY COUNCIL
October 3, 2022
Subject: Lot E Property Acquisitions
Attorney to file the condemnation action, including petitioning for early possession, and to transfer funds to the State Treasury Condemnation Fund, which will allow the City to begin the legal process of condemnation and to take early possession of the parcels so that construction activities can begin prior to the City acquiring a fee interest at the conclusion of the proceedings.
The condemnation of these parcels will allow construction of the Lot E public parking facility, which is required to provide adequate public parking proximate to the Diridon train station and the SAP Center arena.
The acquisition of the subject properties will allow the City to consolidate the properties needed for construction of a necessary public parking facility (Lot E). The total cost to acquire the two properties is anticipated to be $6,570,000, plus escrow transaction fee.
BACKGROUND
In 2016, a dispute with Sharks Sports & Entertainment LLC (SSE) arose over Google’s planned redevelopment of Lots A, B, C, and D near the SAP Center. A settlement of this dispute between the City, SSE, and Trammel Crow, acting on behalf of Google, was executed on December 1, 2016 (Settlement Agreement). The City and SSE are parties to the Second Amended and Restated Arena Management Agreement dated August 15, 2018, first amended on December 14, 2018, and amended for a second time on June 8, 2021(AMA). The AMA incorporates terms of the Settlement Agreement and provides that the City must ensure certain available parking requirements for SAP Center patrons.
In the AMA, the City has committed to provide 6,350 parking spaces within 1/2 mile of the SAP Center, of which 3,175 parking spaces shall be available within 1/3 mile, with provisions for up to 400 additional employee parking spaces within 1/3 of a mile. The Lot E footprint has been planned and located in the manner which is most compatible with the greatest public good and the least private injury to assemble the parking necessary for the surrounding uses.
The Settlement Agreement specified that Trammel Crow would contribute $4,000,000 to be restricted for the acquisition of properties necessary to construct Lot E north of the SAP Center.
The City agreed to “use its best efforts” to purchase the necessary properties with the funds provided. The Settlement Agreement also specified that the Sharks lease its adjacent property to the City for $1 per month.
Pursuant to Section 3.1 of the First Amendment to AMA, the City must acquire all parcels within Lot E, including the Property, to facilitate construction of the Lot E public parking facility, and therefore fulfill the City’s Settlement Agreement obligation for provision of adequate public parking proximate to SAP Center.
On October 31, 2017, the City Council approved the acquisition of the 525 West Saint John Street property located at the northeast corner of North Montgomery Street and West Saint John
HONORABLE MAYOR AND CITY COUNCIL
October 3, 2022
Subject: Lot E Property Acquisitions
Street for a purchase price of $2,966,436. This acquisition provided two of the parcels necessary for the construction of Lot E.
ANALYSIS
The two subject properties each have a General Plan designation of Downtown and zoning of Downtown Primary Commercial. The properties are within the Diridon Station Area Plan. Per City-commissioned appraisals, the highest and best use of the properties is for construction of a high-density commercial project as allowed by the Downtown General Plan designation, Downtown Primary Commercial zoning designation, and the Diridon Station Area Plan.
517 West Saint John Street
517 West Saint John Street is a 19,166 square foot property (0.44 acres) located at the northwest corner of West Saint John Street and North Autumn Street. The property is owned by Arlethea K. Thorson as to a 50% interest and the Trustees & Successor Trustees of the Richard Della Maggiore and Joan Della Maggiore Trust as to the other 50% interest.
The site is currently improved with an approximately 10,020 square foot industrial building. A sports apparel company and SSE both lease space on the property. Staff engaged Overland, Pacific, & Cutler (OPC) for relocation services to determine appropriate relocation benefits due to the tenants. The City’s required relocation payments will be calculated by OPC. The recommendations in this memorandum will authorize the City Manager to proceed with the final relocation plan for the businesses on this property, as drafted by OPC in conformance with California relocation law, provided the relocation payments do not exceed the City Manager’s contract authority of $350,000.
The City first made an offer to acquire the property for $1,700,000 on November 1, 2016. The offer price was based on an appraisal of fair market value commissioned by the City at the time.
The City’s offer was ultimately rejected, and the property owner did not provide a counter-offer at the time. The City made a revised offer to purchase the property for an updated purchase price of $2,370,000 on October 23, 2018. The City’s offer was rejected, and the property owner countered at $7,666,400 ($400 per square foot), which was more than three times the appraised fair market value at the time.
The City again made a revised offer to purchase the property for an updated purchase price of $4,800,000 on October 26, 2021, based on an appraisal update. The City received a counter-offer of $5,500,000 on January 18, 2022, based on an appraisal report commissioned by the property owner.
A City-commissioned review appraisal of the property owner’s appraisal concluded that it did not adequately account for the Property’s inclusion in the Diridon Station Area Plan. The Diridon Station Area Plan, adopted May 25, 2021, has several applicable development regulations including maximum building height and use considerations for properties within the
HONORABLE MAYOR AND CITY COUNCIL
October 3, 2022
Subject: Lot E Property Acquisitions
Outer Safety Zone of the Norman Y. Mineta San José International Airport, which prohibits any use that is mostly occupied by children, the disabled, or the elderly to protect the public’s safety.
Non-residential uses are encouraged over residential uses. The property owner’s appraisal considered comparable sales that included residential use, which provide an inappropriately high basis for the valuation of the property. However, in an effort to avoid the potential use of eminent domain, the City made a subsequent higher offer for the purchase price of $5,000,000.
Staff received a phone call response from the property owner indicating that they are not interested in selling the property for the City’s final offer. Staff have exhausted opportunities to negotiate for an arm’s length deal with the property owner and the use of eminent domain power will be necessary to acquire the property for construction of a public parking facility.
150 North Montgomery Street
150 North Montgomery Street is an approximately 7,060 square foot property located at the east side of North Montgomery Street just north of West Saint John Street. The property is owned by Rodolfo Alvarez Duenas (50% interest) and Raul and Yolanda Jimenez (50% interest). The site is rectangular in shape and is a vacant field.
On October 26, 2021, staff emailed an offer package to the property owner that included an offer to purchase for the property for $1,770,000, which was determined to be fair market value by an independent appraisal, a title report, an appraisal valuation summary statement, and an information pamphlet regarding the City’s acquisition. The offer included the City’s provision of a 1033 Letter. On May 10, 2022, the City made a subsequent higher offer for an updated purchase price of $1,925,000 in an effort to avoid the use of eminent domain. Staff received a telephone call and emailed response from the property owner indicating that they are not interested in selling the property on the City’s final offer. Staff have exhausted opportunities to negotiate for an arm’s length deal with the property owner and the use of eminent domain power will be necessary to acquire the property for construction of a public parking facility.
CONCLUSION
Redevelopment, including of existing surface lots, is expected to exacerbate a shortage of public parking spaces in the Diridon Station/SAP Center area. This is a significant issue for the ongoing operations of the SAP Center and the Sharks. The City agreed to provide public spaces to address this shortfall in the Settlement Agreement. Acquisition of the subject properties is necessary to facilitate construction of the Lot E public parking facility, which will provide necessary public parking in the Diridon Station area once surface parking south of the arena is redeveloped.
Staff will continue to exhaust every opportunity to negotiate for consensual deals, but since the current asking prices for the two subject properties are too high to justify, the use of eminent domain is likely required for the project to proceed as planned.
HONORABLE MAYOR AND CITY COUNCIL
October 3, 2022
Subject: Lot E Property Acquisitions
EVALUATION AND FOLLOW-UP
Approval of the recommendations will direct staff and authorize the City Attorney to begin eminent domain proceedings for the land located at 517 West Saint John Street and 150 North Montgomery Street. In total across the two properties, the City will acquire 0.61 acres of land located on the block of North Montgomery to the north of SAP Center, which will facilitate development of the Lot E public parking facility. Prior to completing the land acquisitions, staff will perform title and environmental due diligence and prepare a compliant relocation assistance plan for current occupants of the acquired properties.
After the City acquires the necessary land, the Public Works Department will be responsible for delivery of the Lot E public parking facility.
CLIMATE SMART SAN JOSE
The recommendation in this memorandum aligns with one or more Climate Smart San José energy, water, or mobility goals. Specifically, the proposed garage will be available to the public (shared) at a cost, and is expected to serve various local needs, including parking for transit riders accessing Diridon Station; patrons of the SAP Center; and local businesses and amenities (e.g., Arena Green, Little Italy). Having the parking be shared and priced at market rate aligns with the City’s strategy to make efficient use of parking resources and to charge for them, helping to reveal the full cost of driving. The Lot E garage will also partially offset parking expected to come offline nearby due to new development and transit projects, making much of this parking a replacement of, rather than addition to, existing spaces.
PUBLIC OUTREACH
This memorandum will be posted on the City’s Council Agenda website for October 18, 2022, City Council meeting.
COORDINATION
This memorandum has been coordinated with Department of Public Works, Department of Planning, Building, and Code Enforcement, the Environmental Services Department, the City Attorney’s Office, and the City Manager’s Budget Office.
COMMISSION RECOMMENDATION/INPUT
No commission recommendation or input is associated with this action.
HONORABLE MAYOR AND CITY COUNCIL
October 3, 2022
Subject: Lot E Property Acquisitions
COST SUMMARY/IMPLICATIONS
The purchase of the two properties totaling $6,570,000 will be funded by the Greater Downtown Parking Inventory appropriation in the General Purpose Parking Capital Fund. Funds for additional land acquisition, construction of the new parking facility, and the associated operations and maintenance costs will be proposed as part of future City Council actions.
The funds available in the General Purpose Parking Capital Fund for capital projects depend on revenue received from garage, lot and meter activity, and associated revenue. During the pandemic period, a large portion of the reserve in the General Purpose Parking Capital Fund was used to offset revenue losses in the General Purpose Parking Operating Fund resulting from reduced parking activity due to a decrease in economic activity in the downtown area. Although parking activity has increased over the last couple years, it remains below pre-pandemic levels and is anticipated to take several more years to return to pre-pandemic levels. As a result, funding is limited within the General Purpose Parking Capital Fund in the near term to fully provide for the construction phase of new parking in the Diridon area.
BUDGET REFERENCE
The table below identifies the fund and appropriation proposed to fund the purchase of Property recommended as part of this memorandum.
Fund
#
APPN
# Appn. Name Total Appn.
Amount for
Contract
2022-2023
Proposed
Capital
Budget Page*
Last
Budget
Action
(Date, Ord.
No.)
559 7885 Greater Downtown
Parking Inventory
$9,400,000 $6,570,000 660 6/21/2022,
30790
*The 2022-2023 Capital Budget was approved on June 14, 2022 and adopted on June 21, 2022 by the City Council.
HONORABLE MAYOR AND CITY COUNCIL
October 3, 2022
Subject: Lot E Property Acquisitions
CEQA
Initial Study/Addendum to the Downtown Strategy 2040 Final Environmental Impact Report (Resolution No 78942) for the Lot E Parking Structure Project.
/s/ /s/
NANCI KLEIN JOHN RISTOW
Director of Economic Development Director of Transportation
For questions, please contact Kevin Ice, Real Estate Manager, at (408) 535-8197 or Jessica Zenk, Deputy Director, Department of Transportation, at (408) 535-3543.
Attachments
ATTACHMENT A
Assessor’s Parcel Map of Subject Property
517 West Saint John Street
ATTACHMENT B
Assessor’s Parcel Map & Subject Property
150 North Montgomery Street