Loading...
2008-06-04 Joint CC ARRA CIC Packet/~,' "r f ~yV `n ~~~~,~.~:,~~ ~~ CITY ~F ALAMEDA • CALIFORNIA ~ ~ ~`' , ~' .~ u~i~A!'r',I.Y 7Ellll~.~~5h ~A p ~~~1J lv SPECIAL JOINT MEETING OF THE CITY COUNCIL, ALAMEDA REUSE AND REDEVELOPMENT AUTHORITY ~ARRA7, AND COMMUNITY IMPROVEMENT COMMISSION CIC} WEDNESDAY - - -- JUNE 4, 2008 - - - 7:01 P.M. Location: City Council Cha~mb~rs, City Hall, corner of Santa Clara Avenue and oak Street. Public Participation Anyone wishing to address the Council/Board/Commission on agenda items or business introduced by the Council/Board/Commission may speak for a maximum of 3 minutes per agenda item when the subject is before the Council/Board/Commission. Please file a speaker's slip with the Deputy City Clerk if you wish to speak. 1. ROLL CALL - City Council, ARRA, CIC 2. AGENDA ITEM 2--A. Authorize the City Manager/Executive Director to Execute a Transfer of the Exclusive Negotiation Agreement with SCC Alameda Point LLC to a New Entity with D.E. Shaw or a Transfer of an ownership Interest in the Master Developer Entity, SCC Alameda Point LLC to D.E. Shaw, Pursuant to Specific Terms and Conditions. Development Services} 3. ADJOURNMENT - City Council, ARRA, CIC Beverly Jo s Ma or Chair, Alam us ~ and Redevelopment Authority and Community Improvement Commission CITY OF ALAMEDA Memorandum To: Honorable Mayor and Members of the City Council Honorable Chair and Members of the Alameda Reuse and Redevelopment Authority Honorable Chair and Members of the Community Improvement Commission From: Debra Kurita City ManagerlExecutive Director Date: June 4, 2005 ' Cit Mana erlExecutive Director to Execute a Transfer of Re. Authorize the y g lusive Ne otiation A reement with SCC Alameda Point LLC to a the Exc g g . ntit with D.E. Shaw or Transfer of an Cwnership Interest in the New E y , , meda Point LLC to D.E. Shaw Pursuant to Specific Terms and SCC Ala Conditions BACKGROUND the Alameda Reuse and Redevelopment Authority ARRA}, Qn July ~ 8, 2001, t Commission CIC ,and City together "Alameda"} approved Commun~t Improvemen ~ } y Point LLC Deveio er , reement ENA with SCC Alameda ~ p ~ an Exclusive Negot~at~on Ag ~ } unGal Com anies SunCal}, for the redevelopment of Alameda which is an entity of S p ~ ENA established ke erformance milestones; provided for Pont. The 24-month y P staff and third art costs; identified activities to be completed reimbursement of ARRA p Y entities s ecified ke ersonnel assigned to the project; and involving third party p y p described the process for transferring the ENA. ded in March 2008 to rovide more time to complete two tasks: The ENA was amen p ment Conce t and related documents, and preparation of the preparation of the Develop p ition SunCal was re uired to deposit $350,000 a quarter, and draft master plan. In add q nth for consultant costs to ensure progress on developing the spend $117,000 a mo , required documents. nested authorization to secure a financial partner to complete its SunCal has now req fer ' the ENA. The addition of a financial partner is considered a Trans obi~gat~ons under Tres a royal b the boards of the ARRA and the CIC, and by under the ENA and requ pp y the City Council, Agenda Item #2-A CCIARRAJCIC 6-4-08 Honorable Chair and June 4, 2008 Members of the Alameda Reuse and Redevelopment Authority Page 2 of 5 Honorable Mayor and Members of the City Council Honorable Chair and Members of the Community Improvement Commission DISCUSSION Alameda selected SunCal as the Alameda Point master developer based on its expertise in developing complex mixed-use projects, the experience of its key personnel, and its financial wherewithal to spend the necessary funds to entitle a large project over a 24-month timeframe. Each of these factors is critical to assuring the successful completion of property conveyance from the Navy, environmental remediation of the site, and receipt of planning approvals to build amixed-use project. Although SunCal indicated from the beginning that it would secure a financial partner to assist in redeveloping Alameda Point, the company initially said that it would self-fund the ENA-period expenditures. However, with the changing rea! estate market, SunCal is now requesting authorization to either transfer the ENA to a new developer entity, or to transfer an Ownership Interest has defined in the ENA} in the master developer entity, SCC Alameda Point LLC, to a financial partner. Given the importance of the master developer's role in redeveloping Alameda Point, the decision to modify the master developer entity, SCC Alameda Point LLC, is significant. Therefore, transferring the ENA or transferring an interest in the existing master developer entity is prohibited under the ENA without the prior written consent of Alameda, which is given at Alameda's sole discretion. SunCal has selected D.E. Shaw, an international hedge fund headquartered in New York, as the financial partner. D.E. Shaw is SunCal's financial partner on a 5?,000-acre project outside of Albuquerque, New Mexico. That project is currently in the pre- development stage. Financial information on D.E. Shaw was delivered to the City's economic consultant, Economic & Planning Systems CEPS}, and EPS confirmed that D.E. Shaw has liquid assets sufficient to fully fund the investment required to develop any foreseeable Alameda Point development plan. The analysis by EPS indicates that D.E. Shaw's core areas of investment.are in high tech companies. Although its portfolio includes some significant investment in real estate, D.E, Shaw's experience with the development of complex real estate projects is limited in comparison to other specialized real estate funds. SunCal and D.E. Shaw have negotiated a term sheet that will form the basis of an operating agreement for the new relationship. The term sheet has been signed by the parties, and, pursuant to the ENA, was delivered to EPS on Wednesday, May 28, 2008. SunCai has elected to treat this information as confidential, which is its right under Section 10 of the ENA. Consequently, the term sheet was made available only to EPS and is not available for review by the ARRA staff, Alameda, or the public. Honorable Chair and June 4, 2008 Members of the Alameda Reuse and Redevelopment Authority Page 3 of 5 Honorable Mayor and Members of the City Council Honorable Chair and Members of the Community improvement Commission Atypical term sheet contains provisions such as the amount of money pledged by each party, how the money will be spent, which party is responsible for day-to-day project management, how profits will be disbursed among the parties based on an established internal rate of return, and under what circumstances the managing member of the partnership and its key staff can be fired. These issues were of key concern to Alameda when the ENA was originally approved last July and are reflected in the ENA provision that gives Alameda the absolute discretion to approve or reject any proposed transfer of an ENA interes#. The executed term sheet, which is anon-binding summary of terms and conditions, addresses some of these issues but leaves much of the detail to be specified in an operating agreement, which has yet to be finalized. without an operating agreement that contains the precise business provisions of the new relationship or entity, and that reflects key provisions essential to successful project execution, it may not be appropriate to consent to the requested transfer of the ENA or transfer of an ownership interest in the ENA. Therefore, staff is recommending the ARRA Board, CIG, and City Council establish key provisions that must be part of any executed term sheet, leading to a fully signed and negotiated operating agreement, as a condition of consenting to the requested transfer. Staff is recommending that any term sheet or operating agreement introducing a new partnership entity include a limited number of core provisions. These provisions are lar el based u on the concerns expressed by Board members during the hearing at gY p which the original ENA was approved and are as follows: • SunCal retains responsibility for the day-ta~day management of the new entity. SunCal was selected as master developer because of its expertise, and the new entity should retain that expertise to move Alameda Point through the entitlement process. This is especially important if the new financial partner is less experienced with complex real estate development projects. • SunCal maintains 15% of the equity in the new relationship or entity through the term of the ENA..SunCal has self-funded its due diligence and ENA activities to date. It should retain a financial stake in the new venture to help ensure its commitment to the project. • SunCal cannot be removed as managing partner during the term of the ENA except ~~ for cause, such as breach of fiduciary duty or causing a default under the ENA, and then only if Alameda accepts the replacement managing member. This provision ensures that Alameda receives the experience and expertise it bargained for when it Honorable Chair and June 4, 2008 Members of the Alameda Reuse and Redevelopment Authority Page 4 of 5 Honorable Mayor and Members of the City Council Honorable Chair and Members of the Community Improvement Commission selected SunCal as its master developer and entered into an ENA for entitlement of Alameda Point as a mixed-use project. • Require an initial capital contribution from the members of the entity of $10 million. Staff estimates that $~ 0 million will be required to conduct all of the obligations under the ENA, such as preparing the Development Concept and master plan, conducting environmental review, completing conveyance, and negotiating the Disposition and Development Agreement ~DDA}, Staff recommends that the entity have sufficient funds available and under the control of the managing partner to fulfill its obligations under the ENA. • As managing member, SunCal should retain the authority to make all decisions except major decisions. Major decisions should be limited to the terms and conditions of the conveyance of Alameda Point from the Navy and the terms and conditions of the DDA. Retaining decision-making authority is key to carrying out the obligations of master developer and ensuring timely completion of the project. It is a key interest of Alameda that its selected master developer, SunCal, retain complete control over the master planning and entitlement process. • Prohibit cross-default and cross-collateralization. D.E. Shaw is a financial partner with SunCal on other real estate deals. In no event should the operating agreement for the Alameda Point entity provide that a default ~ by a party under a different agreement be a default under the operating agreement, nor should the operating agreement provide an opportunity for funds generated by this project, or the value created through successful entitlement of Alameda Point, to be pledged to another project, thereby adversely affecting the viability of Alameda Point. EPS's review of the executed non-binding term sheet has concluded the following: • SunCal will have day-to-day management responsibility, but D.E. Shaw retains complete discretion on removing SunCal and providing a "Replacement Managing Investor" subject to Alameda's approval. This would permit SunCal to be removed for any reason including across-default on another project. • The term sheet does not require SunCal to have an equity investment in the entity. • There is no minimum financial commitment or initial up-front contribution of dollars. ' and June 4, 2008 Honorable Char lamella Reuse and Redevelo meat Authority Page 5 of 5 Members of the A p Honorable Mayor and Members of the City Council Honorable Chair and Members of the Community improvement Gommission • I will have authorit to take actions to complete the obligations of the ENA, but SunCa y aw must authorize all ma'or decisions. Major decisions are not defined in D.E. Sh 1 the term sheet. commends that if SunCal rovides Alameda with an executed term sheet Staff re P containin the rovisions recommended by staff and outlined above, then the Executive g p endin recei t of DirectorlCit Manager should grant written approval of the Transfer, p g p y .. xecuted o eratin a regiment consistent with the prov~s~ons of the term sheet as an e p g g ' in this staff re ort within 30 da s of Alameda action. in the event that the outlined p y tell term sheet andlar o erating agreement does not contain the provisions execu p . ove staff would seek direction from the ARRA Board, the C1C, and the City autl~ned ab , , Council re arding the requested transfer and proposed conditions. 9 GET C4NSlDERATI~NIFINANCIAL IMPACT BUD thorizin the Executive Direc#orlCity Manager to execute a transfer of the ENA or a Au g . r of an awnershi interest in the master developer entity, SCC Alameda Pont transfe p oes not modif the financial provisions contained in the ENA regarding LLc, d y ' bursement of staff and ARRA third party consultant costs. Therefore, there is no ream ' t to the Cit 's Genera! Fund to granting a transfer of the ENA or a transfer of fiscal impac y nershi Interest in the master developer entity, SCC Alameda Pont LLC. an 0w p REC~MMENDATIaN the Executive DirectorlCit Manager to execute a transfer of the Exclusive AuthorEZe y otiation A regiment with SCC Alameda Point LLC to a new entity with D.E. Shaw or Neg g . fer of an Ownershi interest in the master developer entity, SCC Alameda Pont a trans p LLC to D.E. Shaw, pursuant to the terms and conditions outlined above. Res e Ily submitted, Leslie Little Development Services Director By. Debbie Potter Base Reuse and Community Development Manager