Loading...
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 -2- 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 -3- 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 -4- 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 -5- 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 -6-