The Council of the City of San José convened at 7:10 p.m. to hear Item 7.1 in a Joint Session with the San José Redevelopment Agency in Council Chambers at City Hall.
Present: Council Members - Campos, Chavez, Cortese, Dando, Diquisto, LeZotte, Reed, Shirakawa Jr., Williams, Yeager; Gonzales.
Absent: Council Members - None.
7.1 Public Hearing and adoption of resolutions by the City Council and Agency Board.
(a)
Accepting the summary costs and findings of the Summary
33433 Report and the Estimated Reuse Valuation pursuant to the California
Health and Safety Code Section 33433 for the mixed-use development of three
downtown sites commonly known as, Block 3, Fountain Alley Parking Lot, and 2nd
and Santa Clara, finding that the sale of the three sites will assist in the
elimination of blight, will provide housing for low and moderate income
persons, is consistent with the Implementation Plans and that the consideration
for the sites is not less than the fair reuse value at the use and with the
covenants and conditions and development costs authorized by the sale; and,
(b)
Approving a Disposition and Development Agreement (DDA)
with California Urban Real Estate Fund, L.P., (CIM) a Delaware Limited
Partnership for the development of mixed-use infill projects in the Downtown
core and authorizing the Executive Director to execute the same and close
escrow subject to compliance with the terms of the DDA, and to negotiate and
execute amendments to the DDA substantially in conformance with the intent of
the DDA and as reasonably necessary to conform to lender requirements; and,
(c)
Authorizing the Executive Director to negotiate and
execute related agreements identified in the DDA, including but not limited to:
Covenants, Consideration Agreement, Affordability Restrictions, Reciprocal
Easement Agreements, Parking Agreements, Option Agreements, Disbursing
Agreements, Memorandum of DDA, Public Art Agreements and Site Clean-up Plans,
and CC&Rs and, at the First Implementation Event, to convey the Site and to
execute and deliver the Grant Deed in the form attached to the DDA and, at the
Second Implementation Event, to accept conveyance by Grant Deed in the form
attached to the DDA of the public parking parcels; and,
7.1 Public
Hearing and adoption of resolutions by the City Council and Agency Board. (Cont’d.)
(d)
Approving a Second Amendment to the existing Exclusive
Negotiations Agreement with CIM that will extend the time period for
negotiations by six months; and,
(e)
Approving the addition of a new project line, Parking
Plus, for $9,300,000 to the Adopted FY 2002-2003 Capital Budget in the Merged
Redevelopment Area; and,
(f)
Approving the additional funds of $36.3 million to the
Adopted FY 2002-2003 Capital Budget, Downtown Mixed-Use Project line in the
Merged Redevelopment Area; and,
(g)
Approving the add of $50,100,000 in revenue funds from
bond proceeds to the FY 2002-2003 Adopted Budget; and,
(h)
Approving the additional funds of $4,500,000 to the
Adopted FY 2002-2003 Capital Budget, Mixed Use Project Area Acquisitions and
Remediation line in the Merged Redevelopment Area; and,
(i)
Amending the FY 2002-2003 Agency appropriations
resolution.
CEQA: Resolution No. 71039.1 {MERGED}
Documents Filed: (1) Memorandum from Mayor Gonzales, dated December 9, 2002, recommending approval of Items a, b, c, d, f, and h, as outlined in the staff report; Refer item (e) back to the Executive Director to come back to the Council/Board as a separate agenda item with a clear description of how this proposal fits into the overall parking plan at the earliest date possible, and amend Items (g) and (i) to correspond with the direction above. (2) Supplemental memorandum from City Attorney Richard Doyle, dated December 9, 2002, recommending approval of said agreement with CIM California Urban Real Estate Fund, L.P., for the development of mixed-use infill projects in the Downtown core. (3) Memorandum from Redevelopment Agency Executive Director Susan Shick, dated December 10, 2002 recommending City Council and RDA adopt the summary costs and findings of the Summary 33433 Report and the Estimated Reuse Valuation, Disposition and Development Agreement with California Urban Real Estate Fund, L.P. for development of mixed-use infill projects in the Downtown core and authorizing the Executive Director to execute the same and close escrow, and to negotiate and execute amendments to the Disposition and Development Agreement as specified and to authorize the Executive Director to negotiate and execute related agreements identified in the Disposition and Development Agreement, and various related actions as specified. (4) Memorandum from Council Members Chavez, Cortese, and LeZotte, dated December 10, 2002 recommending approval of Items (a), (b), (c), (f), and (h) as outlined in the Staff report; Refer item (e) back to Staff to be brought back to the Council/Board as a separate item, and amend Items (g) and (i) to correspond to this direction; Direct staff to bring back to the Council/Board amendments to the Disposition and Development Agreement and/or additional agreements as appropriate around the following issues: Construction: Creation of a Construction Mitigation Plan for Agency Board approval prior to the start of construction; Develop a Project Labor Agreement on all three sites to assure quality construction and a timely completion of the project. Housing: CIM conduct a market survey to inform residential design and unit mix, thereby ensuring quick absorption into the market; Amend the Residential Affordability components of the DDA. While maintaining the overall 20% affordable requirement of the rental units on Fountain Alley and 2nd/Santa Clara, modify the affordability levels for the 26 units currently proposed for the project to include 17 VLI units and 9 ELI; While maintaining the over 20% affordable requirement of the for sale product at 2nd/Santa Clara, pursue Housing Department programs that would allow the 9 for sale units currently proposed to be purchased by 5 moderate and 4 low income qualified candidates; Promote the Housing Department’s homebuyer program to potential buyers of the residential units on Block 3 with a goal to make second mortgages available for at least 10% and up to 20% of the units on the site. Retail Space: The developer make best efforts to achieve the goal of 30% retailers from San Jose, 30% from the region, and 30% national to insure an effective and unique mix of retail. A 10% set aside of retail space for existing small businesses in the downtown. The developer will be responsible for reserving this space for 6 months and for aggressively marketing this opportunity for qualified firms. To insure quick lease up of the potential space, the Agency should consider review of the retail leasing efforts at appropriate intervals to determine if adjusting the cap upon businesses whose primary business is restaurants is necessary. Explore methods to apply the living wage provisions set forth in the City’s Living Wage Policy to grocery stores over 10,000 square feet, department stores with food service, and hotels. Parking Agreement: Provisions should include a parking strategy for demand caused by residential uses above and beyond the supply currently provided within the project. Childcare Goal: The developer should work with City staff and other specialists in the childcare field to determine whether childcare is a viable opportunity for the project. In addition strategies to test the market should also be considered. Formal acknowledgement of the Community Benefits Assessment Plan and provide the South Bay AFL-CIO Labor Council (as a representative of the Labor/Community Coalition that completed the Community Benefits Assessment) the rights to enforcement against the developer on various provisions included in the Community Benefits Assessment Plan.
Discussion/Action: Redevelopment Agency Executive Director Susan Shick made the Staff presentation with the aid of PowerPoint slides, and stated the City has an opportunity to move forward with a remarkable project that will enforce a strong effort on the City’s various goals for the downtown. She stated the project will provide many benefits to the community; principally it will provide choices in housing types, parking, jobs and retail opportunities not now available in the downtown area, and help to fill and tighten the City so the vacant lots on 2nd Street will be filled with active, delightful development that will work for everyone. She stated this project has been discussed at Study Sessions, numerous community meetings, and in response to many community comments and Council Members, Block 3 density had been increased to 335 residential units, including 68,000 square feet of retail, 502 residential parking spaces, 68 retail parking spaces, 179 high rise units and 156 low-rise units. She stated the project is proposing to provide 845 parking spaces that will meet the needs of the project, and additional parking spaces are proposed under the Parking Plus concept approved by the Board and Council last year. She stated a goal was set to provide over the next 5 to 8 years about 1,000 Parking Plus spaces, that the Redevelopment Agency (RDA) has the right to insert these spaces but is not obligated, and the project can move forward without any additional commitment for parking. She explained how the impact of the public parking spaces being removed would be addressed by other parking options throughout the City. She stated direct assistance for the proposed project is based on several principles, first, the subterranean parking carries a substantial cost premium, and is the principal way parking will be provided on these sites, that some spaces will be above grade but surrounded by the development, both retail and residential, and using below grade parking will produce an improved grade level environment, a more pleasant downtown and is probably the most efficient way to provide parking. She stated another factor is the economics of high density condominiums in the downtown, the increased construction costs for which are substantial, and to obtain the density desired, particularly the high-rise element, there is a cost premium that the Agency is accommodating in the direct assistance to the project. She stated that the developer has shown the ability to finance the project today, there are no pre-leasing requirements, and the City has an opportunity to quickly move this development into the downtown where it is desperately needed. She stated the assistance package proposed of $36.3 million, that will leverage a private investment of $148 million for a total project cost of $184 million, not including Parking Plus, which if the City wants to do, would come back for consideration of an additional $9.3 million. She explained that the deal structure with CIM would return to the City tremendous benefits, not only in the project itself but in revenue as well. She stated that this transaction is structured so that in return for the conveyance of the property without immediate consideration and cash, the City will have a strong participation in the future cash flow of the project both annually and as the project eventually comes up for sale. She stated that the summary of the City’s participation, in addition to the present value of the property tax revenue, and the City’s income from parking over time, should yield the $35 million in return. She reiterated that the City has had outreach with a variety of stakeholders and this project answers many of the stakeholder questions, issues that have been raised in many meetings, and stated the three major milestones that will come for approval are the architecture for the project, a schematic design process, and a construction mitigation plan.
Mayor Gonzales recalled that the last time Council discussed this item was at the September 2002 Study Session, where objectives were outlined and direction given to Redevelopment Executive Director Shick of concerns of the Council and Board about the concepts being presented, and as his memorandum indicates, the Disposition and Development Agreement under consideration today does meet those objectives. Stating that both parties have negotiated in good faith and CIM representatives are available to answer questions, he recommended serious consideration of this proposal, which is important for the downtown and the City of San José. He stated other developers who are interested in investing in the downtown are awaiting the outcome of the City’s actions on this proposed Disposition and Development Agreement (DDA) and that it is time to act, to send a signal to the retail community and others who want to develop in the downtown that the City is ready for their business.
Responding to questions by Council Member LeZotte regarding the remediation costs, Executive Director Shick clarified that if remediation costs go to $2.5 million, the issue will come back for adjustment, and costs are dependent upon the level of mediation needed at the site.
Mayor Gonzales opened the public hearing and the following individuals addressed Council: William Garbett, Christopher Denton, Janis Scheider, R & J Jewelry, Jim Cunneen, San José Silicon Valley Chamber of Commerce, Mike Fox Jr., M.E. Fox & Company, Inc., Mark Waxman, Shirley Lewis, Dennis Hickey, Daniel Fenton, S.J.C.U.B., Bill Carlson, Bella Mia Restaurant, Father Bill Leininger, the Interfaith Council, Loyd Williams, Plumbers, Steamfitters, and Refrigeration Fitters Union Local 393, John Cihi, Holy Spirit Parish, John Doherty on behalf of Santa Clara County Tenants Association, Bob Brownstein, Karita Hummer, St. Joseph Social Justice Committee, Olga Enciso Smith, Dehab Haili, Tony Alexander, UFCW Local 428, Josué Garcia, Building Trades Council, Baltazar Avila, A.C.O.R.N, Salvador Bustamante, Local 1877, Kirsten Isaacson, H.E.R.E. Local 19, Daniel Garcia, Local 95, Larry Boles, C.M.R.A.A., Neil Struthers, Building Trades Council, Amy Dean, South Bay AFL-CIO South Bay AFL-CIO Labor Council, Luis Moreno, Alejo Ricerdez, Carpenters Local 405, Rick Dinapoli, Chuck Hammers, Henry Cord, and Scott Knies representing the San José Downtown Association. Mayor Gonzales asked a representative of the CIM Group, Shaol Kuba, if he had reviewed the memorandum from Council Members Chavez, Cortese and LeZotte, dated December 10, 2002, and if so, what impact would this proposal have on their development, and Shaol Kuba replied that CIM would like the DDA approved the way it was negotiated with RDA, and discussed in the Study Session. He stated several components of the memorandum have different aspects of financial implication that were not addressed during the negotiations with RDA, and CIM would like to see no restriction on the retail space. Vice Mayor Shirakawa, Jr., moved approval of Mayor Gonzales’ memorandum of December 9, 2002 and the Staff recommendation dated December 10, 2002. Council Member Cortese seconded the motion. City Attorney Richard Doyle clarified that in the memorandum from Council Members Chavez, Cortese and LeZotte, the approval of Item (d) had been inadvertently omitted.
Addressing provisions in the recommendations by Council Members Chavez, Cortese and LeZotte, City Attorney Doyle stated it is not clear the requirement for a Project Labor Agreement on the construction site is legal when the City and/or the Agency is not the actual developer. He stated while he believes a compelling case can be made that it is legal, there is not guidance on that issue and it remains an open question which the courts have not decided. In cases where the City is a market participant such as at the airport and the Civic Center where the City has project labor agreements, he stated there is absolutely no question, but whether the City can impose on a third party is open to question. He stated the next issue deals with the retail space and the goal for local preference, which as a goal does not present a problem. However, he stated there are serious issues if it is a requirement and noted that he reads it as a goal only. He stated the living wage, which is an issue similar to the Project Labor Agreement but more difficult because as a market participant, the City can and does require Living Wage regulations at facilities the City or RDA owns or operates, but requiring the living wage provision be applied to a third party, as in this case, on a tenant of a developer that the City has an agreement with, raises questions. He stated the City of Berkeley is currently in the Court of Appeals on the issue of whether in their regulatory capacity, they can impose a living wage; and his memorandum addresses similar cases in Los Angeles of private agreements between community groups and the developer. He stated of greatest concern is the granting of third party beneficiary rights, something the City has never done; that to give a third party the right to enforce an agreement that the Redevelopment Agency is a party to, subjects the City to potential litigation. Although the recommendation limits the provision to rights against the developer, he stated it would still create a problem; for instance, if the Redevelopment Agency believes the developer is in compliance and the South Bay Labor Council, in this case, had a different view, the matter would end up in court. He stated giving the third party authority to delegate the function to enforce the agreement raises a real concern from a litigation standpoint, and would constrain future boards from amending the agreement without the consent of the third party beneficiary.
Council Member Cortese moved approval of the memorandum dated December 9, 2002, by himself and Council Members Chavez and LeZotte as a substitute motion. Council Member Chavez seconded the motion. City Attorney Doyle clarified that Council first needs to vote to accept the substitute motion which if accepted, would be voted on first. Council Member Cortese encouraged Council to support hearing his motion and provide an opportunity for discussion of the points raised. On a call for the question, the motion carried, and the substitute motion by Council Member Cortese was accepted for discussion. Vote: 7-4-0-0. Noes: Dando, Diquisto, Shirakawa, Jr.; Gonzales. Council Member Cortese stated the first part of this memorandum is basically identical to the first 2 bullet points of Mayor Gonzales’s memorandum, which refers Item (e) to come to the RDA Board as a separate agenda item, and amends Items (g) and (i) to correspond with that direction. He stated the next recommendation in his memorandum is the creation of a Construction Mitigation Plan for RDA approval prior to the start of construction, and the last bullet of the recommendation should read: “Formal acknowledgement of the Community Benefits Assessment Plan “as an enforceable agreement”, which is to say these provisions should be part of the enforceable agreement known as a Community Benefits Assessment Plan, and should be acknowledged that this agreement exists, and is being requested.
Council Member Chavez stated CIM’s project is an exciting, necessary project, and CIM is the first developer she has interest in developing in the downtown, primarily because of what they have done in Southern California, especially working in areas where there are high expectations for quality developments. She stated affordable housing would have to be negotiated because it does impact the finances of the project and CIM appears open to those discussions. She stated their memorandum asks Staff to come back with strong, thoughtful strategies to make this an incredible project, and to ensure that if there are opportunities not anticipated, those be brought back to the Agency. She explained that under the last bullet of Retail Space, there was an error in that the 10,000 square foot benchmark was to apply to department stores with food services specifically and to hotels, and would not apply to the majority of retail space not falling into those categories. She stated she is very interested in CIM being the developer on the project, that none of the goals included should prevent this from being a stellar project and urged her colleagues to support their memorandum. Council Member Reed stated he would not support the substitute motion. According to provisions of the CIM Project Labor Agreement and the Community Benefits Assessment Plan, he thought it possible that the terms and conditions of the proposed agreement could possibly cause a handicap to lease the retail space. Council Member Williams asked how the items in the Council Members’ memorandum would impact the DDA and Shaol Kuba replied that CIM had spent considerable time to produce the fully negotiated DDA which addresses all the issues identified in the Study Session. He stated that in their recent discussions with the South Bay Labor Council nothing was resolved, and having just seen the Council Member’s memorandum this afternoon, he has reservations about some issues which threaten their ability to proceed, and stated CIM would not agree to a third party becoming involved in the DDA. However, he stated if Council approves the DDA, CIM will continue to work with the Labor Council and is open to discussions on affordable housing, but would like Council to approve the fully negotiated DDA presented today.
Council Member LeZotte expressed concerns about how the project would affect small businesses in the downtown and stated recommendations, such as the goal for local preference, which help to local tenants is critical, especially where a subsidy is involved, in order to protect local business. She stated the main reason she supported the memorandum was the housing elements and expressed concerns about the lack of affordability of the project. She stressed that their recommendations are not an effort to defer or delay the project, which they want to move forward, but with additional issues discussed and brought back to Council with an additional agreement or language in the DDA, as appropriate, that the project as amended is viable and asked for her colleagues support. Council Member Diquisto stated he does not support the motion, since the DDA was negotiated at length and the community deserves the project to move forward. Council Member Yeager asked for clarification on whether the two proposals are the same for Items (a), (b), (c), (d), (f), and (h) of the Staff report, with the Council Members’ memorandum referring Items (g) and (i) to Staff, and at this point, are not conditions but rather issues for discussion. Council Member Chavez confirmed that his understanding was correct. Council Member Yeager stated all the recommendations are good ideas that should be in the agreement and to continue to discuss the referral issues is appropriate.
Mayor
Gonzales clarified that there is very little similarity between the two
proposals and from his perspective the Council Members’ proposal does more than
give direction to Staff to negotiate, but gives requirements necessary for
approval of the agreement. He stated Council has the opportunity today to
approve the negotiated agreement and rejecting the DDA would call for
renegotiation on the issues that differ and reiterated the two proposals are
not similar, and urged his colleagues to vote against the substitute motion and
proceed to the main motion. He expressed concern about sending the wrong
message to businesses and wanting to develop in the downtown, because the
retail commercial housing industry is going to watch the actions of the Council
tonight. He stressed that the City cannot develop the downtown without a
business partner, that efforts of the Redevelopment Agency to artificially
stimulate a market place did not work and the City needs the private sector to
achieve their objectives in the downtown. He expressed concerns about whether
CIM would be able to make this proposal work under these kinds of conditions,
stated the margins in retail are very tight and it is a difficult business in
which to survive, and CIM came in with their own resources, at the City’s
request, and is ready to develop this wonderful project. He pointed out that
San José has to compete with the retail region and no other city in Santa Clara
County has these kinds of requirements on retail. He stated no City Council in
Northern California has spent more money on housing or childcare, and while he
could support more affordable housing in the project, and pointed out that it
would be funded by the Redevelopment Agency, not the developer. In response to
questions from Council Member Williams, Council Member Cortese reiterated that
the motion would approve the DDA with direction to staff to attempt to
negotiate amendments as outlined in the memorandum, once the DDA has been
approved.
Mayor
Gonzales stated his interpretation is that the motion would approve the DDA but
direct Staff to further negotiate and bring back those elements that relate to
the memorandum that is being discussed in the motion and asked for
clarification from the City Attorney. City Attorney Doyle advised that the
motion, which incorporates the memorandum, calls for approving various items,
including the DDA that is on the table, and would direct Staff to bring back
amendments. He stated for that to be achievable requires a two party agreement
and consensus on the part of the developer to agree to those issues, but the
DDA would be approved, and Staff would be directed to try to negotiate
additional amendments. Responding to Council Member Williams’ query about the
status if Staff is unable to negotiate the amendments, City Attorney Doyle
stated the DDA would be in place and the developer would proceed with the
project; there is no obligation on the part of the developer to negotiate, and
while Staff is being directed to attempt to negotiate the issues, the original
DDA would be the agreement in place, with the caveat of the legal concerns
which he raised earlier in terms of the discussions with the developer on those
issues.
On
a call for the question, the motion carried, the public hearing was closed, and
the memorandum of December 10, 2002 by Council Members Chavez, Cortese and
LeZotte, recommending approval of Items (a), (b), (c), (d). (f), and (h) of the
Staff report, with Item (e) referred to Staff for further discussions of issues
listed therein, Items (g) and (i) amended to correspond to the above direction,
with additional direction to Staff specified, was approved, as revised at the
December 10, 2002 Joint Redevelopment/Council meeting by the memorandum’s
authors: (1) Under 1st bullet: “Approve Items (a), (b), (c),
(f), and (h), as outlined in the Staff report” was revised to include approval of Item (d) of the Staff report; (2) Under 3rd
bullet, last item: Revised to read only: “Formal acknowledge of the
Community Benefits Assessment Plan as an enforceable agreement”;
Resolution No. 71338, entitled: “A Resolution of the Council of the City of San
José Accepting the Summary of Costs and Findings of the Summary 33433 Report
and the Estimated Reuse Valuation Pursuant to the California Health and Safety
Code Section 33433; and, Approving a Disposition and Development Agreement with
CIM California Urban Real Estate Fund, L.P. for the Mixed-Use Infill Projects
in the Downtown Core”; and RDA Resolution Nos. 5397 and 5381 were adopted.
Vote: 6-5-0-0. Noes: Dando, Diquisto, Reed, Shirakawa, Jr.; Gonzales.
The Council of the City of San José adjourned
at 7:42 p.m.
RON GONZALES, MAYOR
ATTEST:
PATRICIA L. O’HEARN, CITY
CLERK