To: HONORABLE MAYOR AND From: Paul Krutko/Stephen Haase

CITY COUNCIL

Subject: eBay DEVELOPMENT Date: November 25, 2003

AGREEMENT

COUNCIL DISTRICT: 4 and 6

RECOMMENDATION

Public Hearing and approval of an ordinance:

(a) Approving a Development Agreement to facilitate the expansion of eBay Inc.’s business operations to allow for the development of 2 million square feet of Industrial Park development on the subject site including the transfer of 1,150,000 square feet of floor area credits to the subject property.

BACKGROUND

On April 22, 2003 the City Council approved business terms facilitating eBay Inc.’s (eBay) purchase and future development of the former Novell site located at 2211 North First Street, (eBay North). eBay anticipates expanding from approximately 500,000 square feet of space it now occupies at 2145 Hamilton Avenue (eBay Park), to two million square feet at the eBay North Site. eBay anticipates that employment in San Jose will rise from 1,500 employees to 6,000 employees over the next ten years.

City staff and the eBay team have completed all work related to the negotiation of the Development Agreement and all related actions and supporting documentation for the project Environmental Impact Report and General Plan Amendment. Corresponding applications for a Vesting Tentative Map, Site Development Permit, Special Use Permit and a partial street vacation of O’Nel Drive are also pending and are anticipated to be successfully completed prior to the end of the calendar year. This will complete the work plan described in the Terms Sheet within the shortest timeline envisioned in April.

eBay is a global leader that facilitates Internet transactions, creating the world’s largest on-line market place. eBay sales are projected to grow by an additional 75% to $2.1 billion this year, increasing profits by 70 percent. eBay is one of a handful of large companies that have been adding employment throughout the downturn. It is significant that a company of eBay’s importance chooses to reside in San Jose. It is important that the City can work creatively with the largest, most innovative companies in the world and deliver on what it promises.

ANALYSIS

Development Agreement

The following is a summary of the Development Agreement to govern the 47.8-acre proposed development located at 2211 North First Street:

Adjacent Property

Should eBay acquire and determine to occupy adjacent property consisting of two buildings totaling 200,000 square feet during the term of the Agreement, the acquired property shall be automatically deemed to be included in and subject to the Agreement. In such an event, the eBay project will increase to 2.2 million square feet of development.

Term

The term of the agreement extends for a period of twenty years, or until December 2023. It is customary for Development Agreements to run for twenty-year periods when companies are making major capital investments of the scale contemplated by eBay. Participating entities seek to obtain certainty over the development of their projects.

Amendment or Cancellation of Agreement

The procedure for amendment or cancellation of the project shall be in accordance with the City’s Development Agreement Ordinance. An amendment may be granted upon a finding by the City Council that an amendment is consistent with the General Plan and zoning codes in effect at the time of the effective date or at the time of the amendment.

Development of the Subject Property

Vested Elements – The permitted use of the subject property, the maximum density and intensity of use, the maximum height and maximum size of the proposed buildings, the timing and rate of development, provisions for reservation or dedication of land for public purposes, and provisions for public improvements, and other terms and conditions of development applicable to subject property are referred to as the Vested Elements.

Transfer of Floor Area Credits – As of the effective date of the Agreement, the City will allocate five hundred thousand (500,000) square feet of floor area credits from the City’s pool of transferable floor area under the North San Jose Area Development Policy. In addition to the initial 500,000 square foot allocation, once the City has accumulated 150,000 square feet in the pool of transferable floor area, the Planning Director shall, on behalf of City, allocate to eBay seventy-five percent (75%) of all future additional floor area credits from the pool, if and when available, up to six hundred fifty thousand (650,000) square feet. Additionally, the Planning Director may allocate additional floor area credits from the pool to eBay if requested and needed by eBay.

Development Timing – There is no requirement under this Agreement that eBay must initiate or complete development of any portion of the Project within any specific time frame. eBay is currently expanding at a rapid rate. It is likely the build out of the project will be completed within a ten year time frame. Prudent business practice and difficulty in predicting future market behavior necessitates that the company not be required to perform within an arbitrary development schedule that would not necessarily comport with market demand.

Discretionary Approvals – All building permits and other permits shall be expeditiously processed. The section does not limit the authority of the City to hold necessary hearings or limit the discretion of the City with respect to existing laws.

Rules, Regulations and Official Policies – Development of the project shall be subject to all standards of the existing laws, including without limitation, any monetary exactions, impact fees or other applicable requirements as of the effective date of the Development Agreement. To the extent any changes in existing laws are in conflict with the vested elements in a manner that would unduly interfere with development of the project the vested elements shall prevail. If any future changes to existing laws are applicable to all privately-owned property on a citywide basis regardless of land use classification, are not in conflict with the vested elements and do not fall disproportionately on the subject property compared to other commercial/industrial real property within the City of San Jose, then changes to the existing laws shall be applicable to the subject property.

If existing law is amended to increase or eliminate floor area limitations on commercial and industrial properties, eBay may elect to receive the benefit of such floor area change in an amount of floor area for the subject property up to 2.2 million square feet, at no cost to eBay. If the combination of floor area change and the prior allocations would cause the floor area allocated to eBay to exceed the 2.2 million, all excess floor area allocated to eBay shall revert to the North San Jose Development Area pool. No additional mitigation measures shall be placed on the project when the FAR policy or North San Jose deficiency plan is amended except to the extent that the Congestion Management Agency or any federal or state agency imposes such measures and specifically requires that such measures be imposed on the project and all similar commercial and industrial projects in North San Jose.

Assignment

eBay shall have the ability to sell, transfer or assign eBay’s rights, interests, duties or obligations under the Development Agreement as to any portion of the property. The first 500,000 square feet of additional floor area are granted to eBay upon effectiveness of the Development Agreement and could be transferred by the company if eBay Inc. chooses to sell the property. The final 650,000 square feet of additional floor area are transferable only if the company sells the subject property to no more than three corporate entities that will occupy the site and that have each at least 500 employees. eBay cannot transfer any entitlements to the final 650,000 square feet of floor area if it sells the property for speculative land use. eBay is required to provide written notice of any proposed transfer.

O’Nel Drive

In order to achieve a well designed pedestrian-oriented campus a portion of O’Nel Drive will be vacated and become a private drive.

Economic Development

The proposed project retaining eBay will retain 1,500 jobs in San Jose. An additional 4,500 jobs may be created over the term of the Development Agreement. San Jose will receive direct economic benefit in terms of increased revenues from the presence of these jobs and eBay’s economic activity. The retention of corporate headquarters and driving industries are key elements of the draft Economic Development Strategy. San Jose has been able to retain eBay while providing no direct financial incentives.

Headquarter operations also bring an increased level of corporate responsibility and community involvement as an extraordinary public benefit. eBay is already well known for the generosity of the eBay Foundation. As a result of the retention of eBay headquarters at eBay Park located at 2145 Hamilton Avenue, eBay has agreed to direct a certain portion of the eBay Foundation exclusively to San Jose companies. City staff and eBay staff continue to work cooperatively exploring the possibility of capturing some of eBay’s meeting and convention business in San Jose facilities. eBay has also agreed to be a lead participant in a Silicon Valley Workforce Investment Network (SVWIN) application to receive HB-1 Visa grant funds. The grants are federally funded and provide incumbent worker training. EBay’s participation along with IBM and Sanmina will make San Jose’s grant proposal particularly competitive.

Future Actions

EBay has indicated that, at some point in the future, the company will work with the City to explore the opportunity to better utilize the company’s property on Hamilton Avenue. The property is adjacent to the light rail line and proximate to Hwy 880 and major arterials such as Bascom Avenue.

PUBLIC OUTREACH

A notice of the Planning Commission and City Council public hearings was distributed to the owners and tenants of all properties located within 1,000 feet of the project site. The applicant hosted a community meeting for the proposed project on October 16, 2003 that two local businesspersons attended. The attendees had questions regarding the design of the future facility; however, no significant project comments/concerns were made by the community at the meeting.

COORDINATION

Staff has coordinated the Development Agreement with the Department of Planning, Building and Code Enforcement, the City Attorney’s Office, and the Redevelopment Agency.

CEQA

The Final Environmental Impact Report for the eBay North Development Project and General Plan Amendment was certified by the Planning Commission on November 18, 2003, Resolution No. 03-098.

PAUL KRUTKO, Director STEPHEN HAASE, Director

Economic Development Planning, Building, Code Enforcement