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CITY OF SAN MATEO
Agenda Report
City Hall
330 W. 20th Avenue
San Mateo CA 94403
www.cityofsanmateo.org
Agenda Number: 10 Section Name: {{section.name}} Account Number: 26-3111 File ID: {{item.tracking_number}} TO: City Council
FROM: Alex Khojikian, City Manager
PREPARED BY: Community Development Department
MEETING DATE: March 17, 2025
SUBJECT:
4th and Railroad Parking Lot, Bespoke Development – Exclusive Negotiation Agreement Extension RECOMMENDATION:
Adopt a Resolution to approve Amendment No. 2 to the agreement with DTSM Housing LLC for exclusive negotiations related to the public-private partnership development project, commonly known as Bespoke, located partially on City owned property at 4th and Railroad, for a one-time extension of six (6) months from April 14, 2025, to October 14, 2025, approve the proposed schedule of performance, and authorize the City Manager to execute this amendment.
BACKGROUND:
The City is currently a party to an Exclusive Negotiating Agreement (ENA) for the redevelopment of the City-owned surface parking lot located at 4th and Railroad Avenue adjacent to the parcel where the former Talbot’s building is located. The ENA is with a three-party development team comprised of Prometheus, Harvest Properties, and Alta Housing (a non-profit affordable housing developer) and is intended to be in place throughout the entitlement phase of the project. The City entered into the ENA in October 2021 (Attachment 2) and has since been working with the development team to refine the project, now referred to as Bespoke, through the planning entitlement process, and prepare legal agreements that would accompany the entitlements. The ENA was amended in October 2024 to extend the term to April 14, 2025 (Attachment 3) and the proposed amendment would extend the ENA to October 14, 2025 (Attachment 4).
The Project includes a parcel owned by the City, which means the City is not merely acting in a regulatory capacity but is also acting in a proprietary capacity as a partner. As the project has evolved, so have the proposed deal terms related to the City’s provision of land and funding support for the affordable housing component of the project. Deal terms were last considered by Council at a study session on September 16, 2024 (Agenda Report included as Attachment 5). The critical items considered by Council at that meeting included assurances from the commercial development team should the affordable housing project on City land fail to secure funding and begin construction, and the project schedule for completion. The ENA was also set to expire on October 14, 2024, but consistent with City Council direction at this meeting, it was extended for six months to April 14, 2025, pursuant to ENA Section 1.3(b)(1).
This report is intended to provide the City Council with an update on the project status and to seek an additional six-month extension to allow for completion of all legal agreements and timely scheduling of public hearings before the Planning Commission and City Council for project approval.
Separate from the legal agreements, the Bespoke project completed the pre-application phase of its planning entitlement review and submitted their formal planning application in February 2023. The project was deemed complete on July 17, 2024, and the environmental analysis, in the form of an Initial Study/Mitigated Negative Declaration, was circulated for public review and comment between October 4, 2024 and November 4, 2024. Ten comments were received and the City is preparing final responses to comments, in preparation for the project’s public hearings, which are anticipated later this
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year (spring/summer).
Project History
The City Council adopted a Resolution declaring the surface parking lot at East 4th Avenue and South Railroad Avenue, known as the Talbot’s parking lot, as “Surplus Land” at their meeting on January 4, 2021, and, on July 19, 2021, the City Council directed staff to negotiate an Exclusive Negotiating Agreement (ENA) with the Prometheus/Harvest Properties/Alta Housing team (Development Team) to explore the redevelopment of the City’s parking lot site for a mixed- use development project. The City Council subsequently approved the ENA at their meeting on October 4, 2021.
The Development Team was selected based on their proposal to develop the full block; remove awkward transition and existing easement issues; and provide a mix of unit sizes that make the project family friendly, the highest ratio of on-site parking for the housing; and the ability to serve income levels of up to 70 percent of Area Median Income (AMI), which addressed the Council’s interest in serving both low- and middle-income households. A mixed-use project on this block was also identified as being able to help re-energize this part of B Street, have synergy with the project at the adjacent Draeger’s Market site, and contribute to the overall economic vitality of downtown.
The proposed Project includes the following components:
• A seven-story, 71-unit 100 percent affordable housing building on the City’s lot with community space for Self- Help for the Elderly on the first floor;
• A six-story 156,000 square-foot commercial and office building; • 137 parking spaces on-site in an underground parking garage (of which 37 would be for residents' use and 25 would be shared between commercial and residential uses); access would be on City lot; the remaining commercial garage would be accessible to the public on evenings and weekends; • A combination of at-grade open space and roof top common areas; and • Improvements in the public right-of-way area along all four street frontages.
Key Deal Terms
In May 2023 and September 2024, additional draft deal terms were presented to Council that form the basis of the Development Agreement (DA)/Disposition and Development Loan Agreement (DDLA) that the City and Development Team would enter into at the time that the project receives its entitlements. After receiving direction from the City Council at the September 2024 study session, the City and Development Team have continued to refine these terms while developing the DA/DDLA. A summary of the key project terms is provided below. It is important to note that each of these terms will be memorialized in greater detail in the applicable legal agreements:
• Alta Housing (Affordable Housing Developer) will enter into a 99-year ground lease with the City at the rate of $1 per year, and the Development Team will enter into a reciprocal easement agreement for the City’s parcel. • The City will contribute $3 million (m) to support the construction of the affordable housing from the City’s dedicated affordable housing funds. The specific source of funds from within the City’s housing funds is still to be determined.
• Prometheus/Harvest Properties (Commercial Developer) will contribute $2.9 million (m) to support the affordable housing project, which will be used for pre-development costs, as defined in the DDLA, such as architectural and engineering plans, upon City approval. The City will disburse the $2.9m to the Residential Developer in the form of a zero-interest, forgivable predevelopment loan.
• The Commercial Developer will finance and construct the shared underground parking garage across the entire site, including mechanical lift spaces dedicated to affordable housing, and create separate pads for the development of the affordable housing building and the commercial building, as described in the September 16, 2024 City Council study session.
• The Affordable Housing Developer will provide ground floor space in the affordable housing building at a
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substantially subsidized rent (the proposal is $1 per year) to Self-Help for the Elderly to allow for their relocation from the Central Park Recreation Center, which will be necessitated by the implementation of the Central Park Master Plan.
• In order to allow for the construction of the underground parking garage across parcel lines, the City and the Development Team will execute a lot-tie agreement.
• The Commercial Developer will provide additional assurances, including financial assurances in the form of deposits, given the project phasing. Due to the construction readiness requirements of affordable housing financing, the underground parking garage must commence construction and be substantially completed prior to the affordable housing project applying for federal Low-Income Housing Tax Credits (tax credits). The project application for tax credits also must be closely coordinated with other state and local funding sources, which must be obtained first. As a result, the commercial component is highly likely to be completed prior to the housing component. The length of this differential between the completion of the commercial and the affordable housing components of the project will also depend on whether the affordable housing goes through multiple cycles of funding requests in order to assemble its financing. If the residential meets the relevant milestones in the Schedule of Performance, (Attachment 6), these monies would no longer be required and would be returned to the Commercial Developer. The negotiated assurances include:
oA deposit of $3 million at building permit issuance for the garage, as described in the September 16, 2024, City Council study session; and
oAn additional deposit of $3.5 million at certificate of occupancy (C of O) of the commercial component, as described in the September 16, 2024, City Council study session; and oShould the Residential Developer be unable to proceed, the Commercial Developer will find an alternate affordable housing partner, with City’s approval, who can revise and deliver the affordable housing component within a to-be-determined prescribed timeframe; and
oAll plans and entitlements to revert to the City to find an affordable developer who can deliver the residential units or explore alternatives such as a market-rate project. • The project will be subject to prevailing wage and Department of Industrial Relations (DIR) registry requirements. • The shared parking will include a minimum of 37 reserved residential spaces, 25 commercial spaces shared with residential; and the additional spaces in the commercial garage will be publicly accessible on evenings and weekends.
• The Development Team shall make a good faith effort to propose a joint public art proposal for the residential and commercial components of the project at the project site. • A 10-year DA/DDLA term was the original timeline described in the proposal when the ENA was first executed.
However, due to the applicants’ proposed Schedule of Performance, including over three years’ lead time before breaking ground for the garage and multiple rounds of funding applications, this term will be longer. Project timing was discussed at the September 16, 2024, City Council study session and is explained further below under Project Schedule of Performance.
Project Schedule of Performance
While the ENA outlined a 10-year overall timeline, the Development Team originally proposed 14 years for completion, with a four-year timeline to submit building permit applications, the first step in the process. This proposed schedule and the ability to receive building permits for the residential component within the current Housing Element Cycle, which concludes in 2031, were key discussion points in the September 2024 City Council study session. As a comparison, the Kiku Crossing 100 percent affordable housing project with 225 units and a parking garage with over 525 spaces, was entitled and built within four years.
In September 2024, the City Council, directed staff to draft a project Schedule of Performance (Schedule of Performance)
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that provides time to the Residential Developer for multiple rounds of financing, as outlined in the timeline proposed by the Development Team. That timeline anticipated that the housing units receive building permits by 2031, to align with the current Housing Element Cycle. The attached draft Schedule of Performance (Attachment 6) lays out completion dates for each of the project’s key milestones, accounting for upfront delays in the project schedule for submittal and issuance of building permits (over 3years) and the cumulative effect of allowable extensions to those key milestones in the Schedule of Performance, referred to as buffers. Without buffers, the residential project would be completed by January 2034, assuming entitlements are obtained by May 2025. If the project utilized all stated buffers, the residential portion would not be completed until September 2039. It should be noted, however, that the Schedule of Performance must be adjusted based on the effective entitlement date, which remains to be determined; all dates will shift accordingly in the final version.
Staff is seeking Council approval of the amendment to extend the ENA to October 2025. If approved, staff will continue to work towards finalizing the required legal documents for the project following the key deal points outlined above and will bring them back to Council for final review and approval as part of the overall development application. The Planning Commission and City Council public hearings for this project are anticipated later this spring or early summer of this year.
BUDGET IMPACT:
Depending on Council direction regarding the ENA extension and potential project entitlements, the City would be committing its parcel to this project for a 99-year ground lease at $1 per year and providing $3 million to support the affordable housing development. This project will be subject to all of the City’s development impact fees, including but not limited to, traffic impact fees, commercial-linkage fees, and park impact fees. The residential project would pay the impact fees at occupancy due to recent state legislation (SB 937), but the Commercial Developer would be required to pay the full in-lieu and impact fees prior to building permit issuance.
Substantive staff time and cost has also been spent on the review and development of the legal agreements, which are accounted for in individual Department budgets. Staff and technical environmental consultant time on the entitlement will be covered by the Commercial Developer, although the Development Team has proposed drawing from the $2.9 million Commercial Developer contribution to reimburse 1/3rd of some costs associated with entitlement of the project. The reimbursement of these costs is still under discussion at the time of this report.
ENVIRONMENTAL DETERMINATION:
This item is not a project subject to CEQA, because it can be seen with certainty that it will not cause a physical change in the environment. (Public Resources Code Section 21065.) NOTICE PROVIDED:
All meeting noticing requirements were met.
ATTACHMENTS
Att 1 – Proposed Resolution
Att 2 -- Exclusive Negotiating Agreement
Att 3 – Amendment No. 1 to ENA
Att 4 – September 16, 2024 City Council Study Session Report Att 5 – Draft Amendment No. 2 to ENA
Att 6 – Draft Project Schedule of Performance
STAFF CONTACT
Christina Horrisberger, Assistant City Manager
[email protected]
650-522-7210
Rachel Horst, Housing Manager
[email protected]
(650) 522-7223