SAN RAFAEL CITY COUNCIL AGENDA REPORT

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1 W = -r<:.ac. 1. Agenda tem No: 6.a U_..- Meeting Date: July 20, 2015 SAN RAFAEL CTY COUNCL AGENDA REPORT Department: Ecouomic Development Prepared by: Stephanie Lovette, Manager City Manager Approvaln/14 SUBJECT: A RESOLUTON OF THE CTY COUNCL OF THE CTY OF SAN RAFAEL AUTHORZNG CTY STAFF TO PROCEED WTH NEGOTATONS AND PREPARATON OF AN EXCLUSVE RGHT TO NEGOTATE AGREEMENT WTH LENNAR MULTFAMLY COMMUNTES REGARDNG POTENTAL REDEVELOPMENT OF 1001 FOURTH STREET, 926 THRD STREET AND THE THRD AND LOOTENS PARKNG GARAGE RECOMMENDATON: Adopt Resolution. SUMMARY: Lennar Multifamily Cornmuruties ("Developer") has approached the City to redevelop the properties located at DOl Fourth (current tenant is Body Kinetics Gym) and 926 Third Street (current tenant is San Rafael Laundry and Cleaners) into a mixed-use housing development. As part of this project, the Developer proposes to rebuild the City's Third and Lootens parking garage, at no expense to the City, in return for the air rights above the garage. Staff requests authorization from City COlmcil to enter into negotiations with the Developer to prepare an Exclusive Right to Negotiate Agreement (ERNA) for this project. BACKGROUND: The City adopted "Our Vision of Downtown" in The Downtown Vision provides direction to staff to promote a Downtown that is vibrant throughout the work week, is the cultural activity hub of Marin County, and is "Alive after Five" in the evening and on weekends. The Rafael Theatre, the San Rafael Corporate Center (Bio Marin) and Artworks Downtown are examples ofprojects supported by the City which support the Downtown Vision. Another goal of the Downtown Vision was to create more housing to support the retail businesses and to create twenty four hour acti vi ty in the downtown area. General Plan policies and the technical support of staff resulted in the development of housing units at One H Street, Centertown, Lone Palm, Boyd Court and Artworks Downtown. One of the most important projects was the mixed-use development at Rafael Town Center located at Fourth and Court Street which includes 113 residential units. These catalyst developments all provide customers and vibrancy for the downtown. More recent examples of inti]] development within the Downtown include several housing developments under construction in the West End and the recently completed housing development at 1144 Mission Avenue. File No.: Council Meeting: Disposition: FOR CTY CLERK ONLY

2 SAN RAFAEL CTY COUNCL AGENDA REPORT / Page: 2 n addition to the Downtown Vision, the City policies to encourage housing developments which support Fourth Street include the City's Housing Element, the Downtown Station Area Plan, the City's Climate Change Action Plan and the City Council's Neighborhood and Economic Vitality and Quality of Life goals. ANALYSS: Lennar Multifamily Communities ("Developer") has approached the City with a proposal to build a mixed use development at 1001 Fourth Street and 926 Third Street, parcels across from the existing Rafael Town Center. The initial proposal is to develop up to 162 residential units in a sixty foot tall building ("Project"). Given parking requirements and other constraints, the privately available land does not provide enough space to achieve a sufficient economy of scale for a successful housing development on this site. To develop a housing project on this site, the Developer requests that the City grant the air rights to the existing parking structure located at Third and Lootens. The developer would replace the current 180 public parking spaces in addition to providing the required private parking spaces for the residential units. The Developer's proposal is the type of catalyst development that is contemplated by the City Council's adopted goals and objectives to provide neighborhood and economic vitality by supporting the development of key Downtown sites. To investigate the economics of the proposed partnership, staff engaged Seifel Consulting to provide a preliminary economic feasibility analysis of the proposed Project. The preliminary analysis by the consultant indicates that the current proposal provides adequate fmancial consideration for the City's contribution of the land and air rights. The relative merits of the project and the fmancial analysis of the City's contribution will continue to be analyzed as part of the ongoing negotiations.. Staff is requesting authorization to negotiate an 'Exclusive Right to Negotiate Agreement' CERNA") to allow the City garage to be included as part of this mixed-use development. f the ERNA is concluded successfully, staff would request additional City Council approval to negotiate a disposition and development agreement that would grant air rights on the City garage for the Development, subject to all CEQA and other City discretionary approvals. The City Council's Economic Development Committee has adopted eight priorities to inform their work for this year. One of these priorities is to "SUppOlt development of key sites such as Fourth Street". Staff discussed the Developer's proposal for Fourth with Mayor Phillips and Councilmember Gamblin at the Economic Development Committee meeting on July 9 th The Economic Development Committee agreed that staff should devote time and resources to this proposal and recommended that the full City Council authorize staff to begin the process to negotiate an ERNA. The Economic Development Committee further suggested that the City should consider releasing ownership of the garage parcel to the Developer with the caveat that a long term use agreement would allow the public parking on this site to operate with the same pricing, hours and other operational considerations as the other City owned garages and lots. At this time, staff is requesting authorization solely to proceed with negotiations with the Developer regarding the project. The project would have to go through a full City entitlement process (including CEQA review). No project approvals are being granted at this time.

3 SAN RAFAEL CTY COUNCL AGENDA REPORT / Page: 3 f the City Council agrees to proceed with further negotiations with the Developer concerning this project, staff would negotiate an ERNA. This document would be drafted by the City Attorney's office and Goldfarb & Lipman, the City's contract development attorneys. Goldfarb has been the SRRDA attorney for many years and negotiated the ERNA for SR Corporate Center as well as the development agreements for SR Town Center. FSCAL MPACT: At this time, the City is not committing any additional resources to this project other than funding to negotiate the ERNA. Economic Development has engaged the services of Seifel Consulting, a financial consultant to evaluate the real estate economics of the proposed transaction. Staff also has engaged the services of Goldfarb and Lipman, counsel to the former Redevelopment Agency. Goldfarb and Lipman have an expertise in public-private real estate transactions. There are sufficient funds in the Department's current contractual services budget to SUppOit these contracts. OPTONS: 1) Adopt the Resolution 2) Suggest changes to the proposed contract 3) Refuse to adopt the Resolution ACTON REQURED: Adopt Resolution. ATTACHMENTS: Resolution A: nitial development site area and section

4 RESOLUTON NO. A RESOLUTON OF THE CTY COUNCL OF THE CTY OF SAN RAFAEL AUTHORZNG CTY STAFF TO PROCEED WTH NEGOTATONS AND PREPARATON OF AN EXCLUSVE RGHT TO NEGOTATE AGREEMENT WTH LENNAR MULTFAMLY COMMUNTES REGARDNG POTENTAL REDEVELOPMENT OF 1001 FOURTH STREET, 926 THRD STREET AND THE THRD AND LOOTENS PARKNG GARAGE WHEREAS, the City of San Rafael ("City") owns the real property and parking garage known as the Third-Lootens Parking Garage ("Parking Garage"); and WHEREAS, THE City adopted "our Vision of Downtown" in 1993, which was incorporated into the goals of the General Plan as Goal 6 "provide a vibrant Downtown". General Plan Goal 6 includes the following implementation policies: NH 16 to substantially expand Downtown's economic success and increase opportunities for retail, office and residential development; NH 22 to create a popular and attractive residential environment that contributes to the activity and sense of community in Downtown; NH 34 to encourage activities that will promote the Fourth Street Retail Core as being "Alive after five"; and WHEREAS, one of the City Council goals is to provide neighborhood and economic vitality by supporting the development of key Downtown sites and the City Council's Economic Development Committee has also adopted "support development of key sites such as Fourth Street"; as one of their eight priorities; and WHEREAS, Lennar Multifamily Communities ("Developer") has proposed redeveloping the City Parking Garage at Third and Lootens and adjoining privatelyowned properties on which Developer holds an option to purchase, including the property located at 1001 Fourth Street into a mixed use development, including new multi-family housing and related amenities, private parking and replacement public parking ("Project"); and WHEREAS, staff engaged Seifel Consulting to evaluate the preliminary economic feasibility of the proposed Project and the preliminary analysis indicates that the current proposal provides adequate financial consideration for the City to consider further negotiations regarding the potential Project; and WHEREAS, funds have been appropriated in the Economic Development Department budget for the current Seifel Consulting contract; and WHEREAS, staff is seeking authorization from City Council to proceed with the negotiations and preparation of a draft Exclusive Right to Negotiate Agreement ("ERNA") between the City and the Developer, which will provide a framework and 1220\01 \

5 timeframe to negotiate an agreement for the development of the Project, which ERNA will be presented for consideration by the City Council; and WHEREAS, the City Council's Economic Development Subcommittee considered the staff's request to proceed with negotiations and the preparation of a proposed ERNA for the Project at its meeting on July 9, 2015, and recommended approval by the City Council; and WHEREAS, this Resolution does not commit the City to approve any land use approvals for the Project or approve any agreement with the Developer; and WHEREAS, the staff report accompanying this Resolution provides additional information about the potential project. NOW THEREFORE, BE T RESOLVED by the City Council of the City of San Rafael as follows: 1. The City Council hereby finds and determines that the above recitals are true, correct and incorporated herein. 2. City staff is hereby authorized to negotiate and prepare a proposed ERNA with Developer to develop the potential Project, provided that nothing in this Resolution or the conduct of the negotiations and preparation of the ERNA commits the City to approve any land use approvals for the Project or approve any agreement with the Developer. 3. This Resolution shall take immediate effect upon adoption., ESTHER C. BERNE, Clerk of the City of San Rafael, herby certify that the foregoing resolution was duly and regularly introduced and adopted at a regular meeting of the City Council of the City of San Rafael held on the twentieth day of July, 2015, by the following vote: AYES: NOES: ABSENT: ABSTAN: COUNCLMEMBERS: COUNCLMEMBERS COUNCLMEMBERS COUNCLMEMBERS ESTHER C. BERNE, City Clerk 1220\01 \

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