It is recommended that the Redevelopment Agency Board approve an Exclusive Negotiations Agreement with CIM California Urban Real Estate Fund, L.P. (CIM Group), a Delaware Limited Partnership for the proposed development of mixed-use infill projects in the Downtown core for four months with the possibility of a two-month extension.

In June 2000, a panel from the Urban Land Institute reported on strategies to increase retail and entertainment uses in the Downtown core. Using recommendations in that report, Agency staff spent approximately 12 months in negotiation with a developer called The Palladium Company to develop a single large mixed-use project over several blocks of the downtown. In March 2002, Palladium and the Agency mutually agreed to terminate negotiations on the project for a variety of reasons, including shifts in the economy, reduced financing options for high-risk retail projects, and the difficulties associated with assembling multi-block land parcels in an historic downtown.

Since March 2002, Agency staff has been pursuing other strategies to increase downtown retail activity, including new business loan programs, increasing funding for the Façade Improvement Program, and programs designed to activate currently vacant downtown storefronts. Additional resources include the recently certified Mixed-Use Environmental Impact Report which has evaluated the impact of significant new development in the Downtown, a Parking Management Plan and plans for new public parking garages, and substantially completed Historic Preservation and Reuse Guidelines to assist both public and private development efforts in the Downtown.

Using these tools, and after meeting with numerous community groups including the Downtown Residents Association, the Historic Landmarks Commission, the Downtown Association, and the San Jose Chamber of Commerce, Agency staff recommend an exclusive right to negotiate with the CIM Group to develop a program focused on filling in the existing vacant and underutilized parcels along Second Street in the Downtown core.

CIM Group has successfully developed numerous projects requiring the rehabilitation and adaptive re-use of historic landmarks, including six National Register eligible properties. CIM Group is currently renovating the Twohy Building in downtown, maintaining its status as a City Landmark and creating 36 new loft apartments in the process. It is expected to be open in Spring 2003. CIM is currently building out a large project in downtown Los Angeles which will yield 1,300 newly constructed units of both for-rent and for-sale housing and over 70,000 square feet of neighborhood retail and restaurants in both new and existing buildings. CIM Group recently completed revitalization of several blocks in downtown Brea, California featuring 225,000 square feet of new retail stores in partnership with the city of Brea.

CIM’s initial concepts for development along Second Street will build upon the existing scale and character of the historic buildings, with a focus on pedestrian-oriented shopping at the street-level. During the term of the ENA, they will develop a program which may include housing opportunities including loft rentals, affordable housing, and for-sale condominiums as well as new retail opportunities featuring local, regional, and national tenants. On the large Block 3 parcel they intend to evaluate several anchor retail tenants on the ground floor and mid-rise or high-rise housing above.

The purpose of the ENA is to set the parameters between the Agency and CIM Group that will guide the negotiations of a Disposition and Development Agreement (DDA). No specific project is defined or approved by the ENA. The DDA will set the contractual relationship between the Agency and CIM Group; define the project to be developed, the financial relationships, and the performance milestones for both parties. Prior to any request for action on the DDA, all financial parameters and obligations of the Agency and Developer will be fully discussed with the Agency Board.

There are four parcels included in the Exclusive Right to Negotiate: the Agency-owned Block 3 parking lot; the City-owned parking lot adjacent to Zanotto's, the privately-owned Western Dental building, and the privately-owned Dr. Eu building (see attached map). A fifth parcel, the Fountain Alley parking lot, will be brought back to the Board for consideration and inclusion in the project subsequent to successful conclusion of the eminent domain effort now underway. The owner of the Western Dental building has been contacted by the Redevelopment Agency regarding their interest in selling their property to the Agency or a developer, or participating in the development of their properties through independent development. Staff has been unsuccessful in their attempts to contact the Dr. Eu family regarding their interest in participating in the possible redevelopment of their building, and will continue in their attempts.

The Agency and Developer desire that the four parcels be developed consistent with the principles articulated in the Strategy 2000, a strategy proposed for Greater Downtown Area and accepted by the Agency Board on February 27, 2001 and consistent with the development parameters defined by the Mixed-Use Environmental Impact Report, and Historic Preservation and Re-Use guidelines.

The four-month duration of the proposed ENA will require enthusiastic cooperation by both CIM Group and Agency staff in partnership with any specialized consultants CIM Group’s proposal may require – such as parking or historic rehabilitation specialists. The proposed term of the ENA may be extended by the Executive Director for a maximum of two months, in order to prepare the DDA and issue a public notice. The complete schedule of milestones for the ENA is attached.

The Project as proposed would consist of new construction, renovation, preservation and adaptive reuse throughout some or all of the four parcels. The Developer must pay a $200,000 fee. $100,000 is non-refundable and the balance is to be applied toward third-party costs incurred by the Agency during negotiations. Any difference between the amount of third-party costs and $100,000 will either be credited toward the public costs of a project or refunded to the Developer if we do not enter into a DDA.

Staff proposes to schedule a Study Session for Agency Board Members toward the end of the ENA term to review CIM Group’s initial development proposals, discuss issues related to the transaction, and to establish a development timeline and phasing schedule.

Preparation of this action has been coordinated with the Agency’s General Counsel.

Third-party costs incurred by the Agency during the term of this ENA will be funded out of the Developer’s Fee of $200,000. Any fiscal impact for the proposed project will be established prior to DDA approval.

Enclosure (Available at the Agency’s offices)