HomeMy WebLinkAbout09/27/83 MINUTES RA JOINT MTG MINUTES
BAKERSFIELD REDEVELOPMENT AGENCY
Special Joint Meeting--September 27,
1983
Minutes of a Special Joint Meeting of the Council of the City
of Bakersfield and the Bakersfield Redevelopment Agency, held in
the Council Chambers of City Hall at 5:00 P.M., September 27, 1983.
The meeting was called to order by Mayor Shell and Agency
Chairman Barton, followed by the Pledge of Allegiance and Invocation
by Father Timothy Cardoza of St. Joseph's Catholic Church.
The
Present:
City Clerk called the roll of the Council, as follows:
Mayor Shell, Councilmen Rockoff, Barton, Christensen,
Means, Payne
Absent: Councilman Ratty
The City Clerk called the roll of the Agency, as follows:
Present: Agency Members Rockoff, Barton, Christensen, Means, Payne
Absent: Agency Member Ratty
Informational discussion with City's
Consultants regarding Development
Agreement for the Truxtun Galleria
Office/Retail Complex.
City Manager Kelmar stated tonight's Joint Meeting between
the City Council and Redevelopment Agency ls for the purpose of an
explanation of the Development Agreement of the Truxtun Galleria
Office and Retail Project. It is a very complex Development Agree-
ment and instead of simply having the public hearing and trying to
explain it all in one evening, it was felt it would be beneficial
to try to have an informational discussion whereby the consultants
could explain the nature of the development agreement. He introduced
Mr. Cal Hollis and Mr. Dick Botti from the Financial Consultant's
office, Keyser-Marston Associates; and Mr. Dave Beatty, the Agency's
Legal Counsel in Sacramento.
Mr. Calvin Hollis stated he would explain the physical project.
The project as it is now proposed is to be constructed in two
phases. The first phase is comprised of a fourteen-story office
tower, with approximately 150,000 square feet of office space,
approximately 50,000 square feet of shops, and 19,000 square feet of
common mall area. The first phase includes subterranean parking of
approximately 100 spaces and a three-level above-grade parking
structure which includes approximately 600 spaces. The Development
Agreement allows for a subsequent second-phase, which would include
the balance of the project with another 40,000 square feet of shops
and 19,000 square feet of enclosed mall area, and an office tower
of up to 250,000 square feet (20 stories). This is a very aggressive
project and very risky in terms that it has not been done before in
Bakersfield. It is a major statement to Downtown. Its' attractions
are meant to make Downtown Bakersfield once again an office location
and bring with it the people and vitality that an office location
physically brings. In Phase II there are a total of six hundred
and fifty parking places. In Phase I there are a total of seven
hundred parking places. There are more parking spaces built in
Phase I than initially required. Some of the parking places in the
Phase II are a function of design. There is a total of 1,350 parking
spaces when both Phase I and Phase II are completed.
Mr. David Beatty, Special Counsel for the Redevelopment Agency
explained that if a public hearing is called for October 18, 1983,
the Council will have an Agreement that has been signed by the
developer with basic concept drawings and a Good Faith Deposit of
$200,000 with perhaps a credit of $25,000 in expenses of the
developer. In an Agreement of this size, basically both sides are
attempting to structure the risks in a rational way so that neither
party makes a commitment or move that cannot be recalled or be
unwise if the other party does not proceed. The Agency wants to
be certain that before the land is acquired, the development is
actually going to occur. The Development Agreement has been
structured so that several conditions must occur before the Agency
goes out and acquires property or issues tax exempt financing. It
is the acquisition of property which is a key point in terms of
the Agency's risk. After that point, the Agency wants to be sure
the development of Phase I is actually going to proceed. Assuming
the Development Agreement is signed by both the Developer and
Agency after the public hearing, the Developer would have ninety
days with which to submit construction financing for approval by
the Agency. Obviously, it is that financing linked to tenants,
which is a key concern to the Agency whether this project will
really go forward or not. In addition, there must be presented to
the Agency an Agreement between the California Republic Bank showing
that the development, as it relates to the acquisition of land,
and a provision of parking for the bank has been worked out.
Finally, there must be approval of an Agreement between the City
and the Agency and the County and Agency, with respect to the
purchase of the County Hall of Records. The Agency will not wish
to proceed and acquire property until these three basic conditions
are met. If the three conditions are met within 90 to 120 days
after the execution of the Development Agreement by the Agency, the
Agency will be in a position to use its good faith effort in
attempting to sell tax exempt financing for the acquisition of land
for and construction of the parking, If financing is successful,
the Agency will then start to acquire property. So, it is basi-
cally to do two things; one, agree to acquire property and sell
it to the redeveloper, and two, issue financing for the parking at
tax exempt rates. The Redevelopment Agency will make or lease a
certain number of parking spaces for a period of ten years and make
payments to the developer during that ten years. The number of
spaces and amount of payments will depend upon whether it is
Phase I or whether it is Phase I and Phase II. After completion
of Phase I, the Agreement requires the redevelopers to guarantee
the Agency will receive at least $500,000 in tax increments after
completion of construction. The $500,000 is the amount needed by
the Agency to pay the costs of land acquisition, parking, and lease
payments for parking. If tax increment montes do not equal $500,000,
the developer is stating he will make in lieu payments. If that
does not occur, then the lease payments made by the lease agency
to the developer for the parking is reduced to cover that amount
of money that has been lost because of lack of tax increments or
in lieu payments. Also, the Agency has the option to terminate
the ability of the redeveloper to exercise his option on Phase II.
Within five years after completion of Phase I, the redeveloper has
the option to acquire the second parcel needed for the second major
office tower and the retail space that will go with it. The
consultants believe the economics of the project make it a real
incentive for the redeveloper to proceed with Phase II. It is
basically an option of the redeveloper whether to proceed with
Phase II or not. The Agency will have acquired the property
already, so there will not be an additional obligation at that
time. Escrow will open and the developer will submit drawings,
financing, etc. The land will be conveyed initially at a minimal
purchase price. However, unlike when escrow closes on Parcel I,
the developer will be required, when escrow closes on Phase II
to sign a deed of trust and a promissory note paying what is
called an adjusted purchase price for the property on Phase II.
The adjusted purchase price is basically a way to evaluate the
true value of the property; the development value of the property
to the developer after it is opened instead of when escrow closes.
It is being structured somewhat to the advantage of the agency.
One year after Phase II is constructed and the project is opened,
the property will be appraised. At that point, the developer will
pay over a five-year period to the Agency an adjusted purchase
price for that land which is basically 5% of the ownership interest
of the appraised value of that property, Basically, the Agency
is receiving a de~ayed payment for the purchase price for the
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second parcel. If the developer does not exercise his option to
acquire the Phase II parcel, the Agency will retain the parcel and
will be able to sell to another developer to complete this project
or whatever project is deemed feasible at that point by the
Agency. Presumably, the property will have increased in value
because of the existence of Phase I. It is written into the
Agreement that Phase I and Phase II can be coordinated together if
in fact it proceeds with a different developer. The Agency is
protected on the parking so that the second developer is able to
get the development rights needed to construct the parking.
In answer to a question by Councilman Means, Mr. Hollis stated
the Development Agreement provides that the developer has 90 days
in which to obtain financing. If he cannot get financing within
90 days there is no penalty to either party. If the developer
comes to the Agency at that time and states he cannot get financing
and would like to continue under the agreement, and the City agrees,
but he is still not able to get financing within the second 90
days, the agreement is terminated and the developer loses $25,000
of the Good Faith Deposit. If the City were to give him another
90 days to obtain financing, and then the agreement is terminated,
the developer loses another $25,000 of that Good Faith Deposit. It
has been the opinion of the consultants all along that this project
should be phased because of its complexity and size. Throughout
negotiations with the developer it has been suggested to phase
this project. The developer independently came to the same
conclusion. He stated he felt the project is much stronger and more
likely to proceed if broken into two phases than if the Agency
required the entire 400,000 square feet of office space be built
at one time. Because of the complexity and uniqueness of this
project, a forfeiture of deposit would not be appropriate if the
developer is unable to obtain financing. The Consultants are not
representing to the City Council that this project is a sure project
to be financed. This is not a standard office project. It is
believed by the Consultants that a Disposition and Development
Agreement is needed by the developer to have the opportunity to
get financing.
Mr. Dave Beatty stated, the Agency has two responsibilities,
one is to assemble the site. the second is to lease for a period
of ten years certain parking spaces. A non-financial responsibility
is to offer tax exempt financing for the structured parking
facility and for a portion of the first office building. The
offering of tax exempt financing, which are in effect industrial
revenue bonds, places the Agency under no obligation. To the
extent the parking is financed in a form of industrial revenue
bonds, the parking spaces must be public and available to the
public for the life of the bond issue. The developer's obligation
is to be responsible for debt service on all private improvements
which include the office towers, mall area, retail area, and all
the parking. In looking at and evaluating the economics of this
project, one of the responsibilities of the Consultants is to
analyze and make estimates as to what kind of rents could be
obtained in the retail and office portions of the project, To
analyze the development costs including parking, land and financing
and; to compare this development with other developments in the
Bakersfield area in terms of rent, make projections as to rent
levels in Bakersfield today, and determine what kind of rents this
project could command. Through this analysis, determine what
portion of the project's cash flow should support a land value.
That is, once the costs of construction are provided for, the debt
on the construction, and a reasonable return for the developer on
this project is allowed, what revenue is available to support a
land value. The Consultants concluded that the Agency should sell
this first phase property to the redeveloper for the price of one
dollar. The purchase price of Phase II, if constructed, has not
been set at a dollar amount, but a formula amount. The formula
price takes into account what income to that project actually is
when it is built. This method of determining purchase price has
become increasingly common in redevelopment projects. Primarily,
because most redevelopment projects involYe redevelopment brought
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into areas of unproven market, no one can say how successful a
project can be or what revenues will be generated and therefore,
what value that land has. The Consultant has attempted to
determine what the land value is for this project, not what the
land value is in Bakersfield generally. Not what's land value
at the highest and best appraisal sense, but if this is the project
the Agency wants constructed, or if this is the project the agency
is going to allow to be constructed, what land values does this
project support. In the establishment of land values, there are
normally two approaches. One approach is strictly in line with
the economics of the project. That is, the developer is committed
to build a certain project that has certain costs applied with
provision for parking, an air conditioned mall, retail and office
space based upon the cost, anticipated revenue and financing.
This is in regard to land value that the developer can afford to
build that project. It is what is termed a reuse value. The Agency
will ask the Consultants what the developer can afford to buy
the property for. It is a land value of a project that contains
420,000 square feet of office space, one or two levels of under-
ground parking, and an air conditioned mall. The other way to
approach the determination of land values, as a cross check to the
income approach, is to determine what other developers have paid
for land and parking within a geographical area. What is repre-
sented to the Council is a comparison between a suburban develop-
ment and the downtown project. The developer in the downtown will
be forced to compete with the suburban developer. In the suburban
location, the developer will buy 20 acres of land at $10 or $12
a foot. He will construct inexpensive surface parking and will
have a very competitive package. He will spend the entire amount
that he could spend on land and parking, 80 or 90% on land, and
very little on surface parking. Surface parking costs $1.50 a
square foot. Whereas in the suburban location the developer is
spending a couple of dollars per square foot of gross building
area for land, in the Downtown he is providing very costly struc-
tured parking. So, the entire amount he can afford in a competi-
tive sense to spend on land and parking he is now spending all or
a great portion of that on parking. This means the developer
can afford to spend less for the land. An additional cost in
the downtown location is that the developer has to complete
$4,000,000 to $5,000,000 worth of underground parking and carry
it all the way through construction of the first office tower. The
developer has also agreed to make the total tax payment to the
Agency of $500,000 per year. It is the Consultant's estimate,
based on the value of the Phase I project, that the developer's
out-of-pocket expense, above the taxes being generated by Phase I,
is a quarter of a million dollars per year. That represents the
costs of doing business Downtown. If the Agency did not require
the in lieu payment to be made, they could charge more for the
land. The Agency will be making payments to guarantee the $500,00G
payment per year. The Phase I development the developer is
committed to only generates $250,000. Costs for the entire project
in the downtown location, with the Agency only charging a minimum
amount for the land, is greater than in the suburban location.
It is known the developer is spending money on the parking garage
and therefore, this land now has a depreciable asset which returns
certain tax benefits to the developer. Even after the tax benefits
are taken into account, as a result of having a depreciable asset,
the downtown project is exactly equivalent to a suburban location
for the entire project. One of the reasons for the developer
to be committed to making the project work is that he has to get
to Phase II because his rate of return in Phase I is a little
below what would normally be expected. Part of the rationale
for the developer agreeing to the $500,000 per year, is that it
can be considered to be an option price on the right to develop
Phase II. In the analysis of the economics of the Downtown
Project, the Consultants have been very bullish in respect to the
rent levels expected to achieve. The developer has provided
amenities in this package that won't be found in a suburban location,
such as the air conditioned mall. Currently, rent levels on
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suburban locations are averaging around $1.85 per month per square
foot. Our economic analysis of Phase I indicates the land is worth
$1.00 on the assumption there is a total rent level in the downtown
project including the parking payments which are $1.85 per square
foot. The current rent level downtown is $12.00 per year per
square foot. This is an average of the current lease of space on
the market. Space in the Bank of America is closer to $1.50 or
$1.60 per month. He wished to emphasize what was stated by Mr.
Hollis that this is a pioneering project and very difficult from
the private developer's side. Even assuming the top rental rate
in the Bakersfield market, it is a very difficult set of economics
both for the City and developer.
Councilman Means stated that he supports this project and
believes it will be a landmark but, he would like the Agreement
to specify a time period for payment by the Redevelopment Agency
to the City for both the parking lot and Eye Street.
Mayor Shell stated she has been excited about this project
since its inception. In light of the budget problems the City has
incurred during the past year, she feels the citizens of the City
of Bakersfield would be interested in being compensated for any
property that is used for this project.
Councilman Barton made a motion to set October 18, 1983, at
7:00 P.M., for a Joint Public Hearing by the City Council and
Redevelopment Agency on the Development Agreement for the Truxtun
Galleria Office/Retail Complex.
Councilman Rockoff stated he received a telephone call from
Mrs. ~artha Walters asking if she could ask questions at tonight's
meeting. He did not feel there would be a problem with her asking
questions, if there were no editorial comments.
Mr. Beatty stated he would prefer the Council use extreme
caution and not allow someone from the audience to ask questions.
This is a project that requires very specific procedures for a
public hearing, and it would mean the Council is giving opportunity
to some people to participate that is not available to everybody,
simply because they have not been notified.
Councilman Means made a substitute motion to allow members
of the audience to ask questions at tonight's meeting~
In answer to a question by Councilman Christensen, City
Attorney Oberholzer stated that he would defer to Mr. Beatty, who
is an expert on Redevelopment Law. If Mr. Beatty has a legal
problem with allowing members of the audience to speak tonight,
he would also caution the Council and Agency to be wary of pro-
ceeding because of the possibility of becoming involved in a law-
suit that could tie up the project for months. Mr. Beatty has
rendered an opinion on this issue and the Council and Agency should
consider it. The Council desires to allow everyone an opportunity
to speak and State Law guarantees that right on this Disposition
and Development Agreement. But, a Special Notice was issued,
pursuant to the Brown Act for tonight's meeting and that notice
must contain all agenda items. The notice for tonight's meeting
did not have a provision in there that there would be a public
discussion of this issue tonight. The notice is very specific and
indicated the Council would have an informational discussion with
the Agency's Consultants regarding the Development Agreement for
the Truxtun Galleria.
Councilman Heans stated he did not agree and felt that City
Attorney Oberholzer's opinion was not appropriate. He feels the
Council can set any rules of order desired and that this project
could not be held up for a year.
~r. Beatty stated it is a matter of public participation.
Public notice and a public hearing do two things, both of which are
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equally important. One, is to give rights to the public to speak,
and the other is to give an opportunity for everyone to appear and
speak, and that implies notice. That is an important part of
public participation and a right to speak to the Mayor and Council
Members. The notice for others to be able to speak and contribute
tonight is what is not available. Under Redevelopment Law, there
is specific notice and hearing requirements.
Councilman Means' substitute motion to allow members
audience to ask questions at this time, failed to pass by
following roll call vote:
AYES: Councilman Means
NOES: Councilmen Rockoff, Barton, Payne
ABSENT: Councilman Ratty
ABSTAINING: Councilman Christensen
of the
the
Councilman Christensen stated he abstained because he could
not afford legal counsel.
Councilman Barton's motion to set October 18, 1983, at 7:00 P.M.
for a Joint Public Hearing by the City Council and the Redevelopment
Agency on the Development Agreement for the Truxtun Galleria
Office/Retail Complex was passed unanimously.
Upon a motion by Redevelopment Agency Member Rockoff, October
18, 1983, at 7:00 P.M., was the time set for a Joint Public
Hearing by the City Council and Redevelopment Agency on the Dis-
position Agreement for the Truxtun Galleria Office/Retail Complex.
ADJOURNMENT
There being no further business to come before the Council,
upon a motion by Councilman Christensen, the meeting was adjourned
at 6:43 P.M.
There being no further business to come before the Redevelop-
ment Agency, upon a motion by Agency Member Christensen, the
meeting was adjourned at 6:44 P.M.
J~ES J. BK~RTON, Chairman
Bakersfield Redevelopment Agency
BakerSfield Redeve~l~m~t Agency
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