Memorandum TO: HONORABLE MAYOR AND CITY COUNCIL. FROM: Kim Walesh SUBJECT: SEE BELOW. DATE: March 17, 2017 COUNCIL DISTRICT: 2

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1 COUNCIL AGENDA: 3/28/17 ITEM: 4.2 CITY OF SAN TOSE CAPITAL OF SILICON VALLEY TO: HONORABLE MAYOR AND CITY COUNCIL SUBJECT: SEE BELOW Memorandum FROM: Kim Walesh DATE: March 17, 2017 Approved COUNCIL DISTRICT: 2 SUBJECT PARKING OPERATIONS AND MAINTENANCE AGREEMENT OF THE EDENVALE GARDEN PARK PARKING FACILITY WITH ASHA COMPANIES, THE PROPOSED BUYER OF THE HAYES MANSION FACILITY RECOMMENDATION Adopt a resolution authorizing the City Manager or his designee to negotiate and execute a Parking Operations and Maintenance Agreement of the Edenvale Garden Park Parking Facility with Asha Companies, based upon the terms and conditions outlined in the memorandum to Council. OUTCOME City Council adoption of the resolution will allow Asha Companies to operate and maintain the City-owned Edenvale Garden Park Parking Facility, at no cost to the City, and will allow guests and employees of the Hayes Mansion Facility to use the Parking Facility. Asha Companies has indicated that the Parking Operations and Maintenance Agreement is a condition to close the sale of the Hayes Mansion, so adoption of the resolution will allow staff and Asha Companies to move forward with the sale at a purchase price of $47 million. This action will allow staff to bring forward appropriation actions to fund the repairs to the Parking Facility.

2 HONORABLE MAYOR AND CITY COUNCIL March 17,2017 Subject: Parking Operations and Maintenance Agreement Related to Hayes Mansion Page 2 BACKGROUND The City's Ownership of the Hayes Mansion The City purchased the Hayes Mansion in 1984 from the former Redevelopment Agency and embarked on a major restoration and development of the property, done over three phases, and funded with approximately $56 million in bond debt. Bonds initially issued for Phases I, II and III have since been refunded and are now represented by Series 2007A, Series 2008C and Series 2008D bonds which are currently outstanding in the collective amount of approximately $36 million. In 2003, City Council approved a management agreement with Dolce International Holdings, Inc. to operate the Hayes Mansion property. In addition to performing on-site management of the hotel and conference center, Dolce provides routine maintenance and security for the parking garage in the adjacent City-owned Edenvale Garden Park and minor routine maintenance for Park improvements. Over the years, the Hayes Mansion has not generated sufficient revenue to fund both annual operating expenses and debt service. As a result, the City has subsidized the asset on an ongoing basis through the General Fund. In November 2008, the City Manager submitted a General Fund Structural Deficit Elimination Plan to address the City's worsening financial situation and identified the Hayes Mansion as an under-performing City-owned property that should be sold. In addition, former Mayor Reed and Mayor Eiccardo, along with former and current Councilmembers, have directed staff to sell the Hayes Mansion to eliminate the financial burden that has impacted the City's General Fund. In prior years, City staff engaged in conversations with potential buyers of the Hayes Mansion, but the real estate market had not supported a property valuation that would allow the City to retire the total outstanding debt. However, recent economic conditions have been such that the sale of the Hayes Mansion is a financially viable prospect. In 2016, staff received an unsolicited Letter of Intent ("LOI") with an offer to purchase the Hayes Mansion. The City Council directed staff to announce the City's intent to sell the Hayes Mansion and invite LOI's from other prospective buyers that would maintain the current use of the property. After several weeks of engaging with prospective buyers, Asha Companies submitted the best and highest offer to purchase the Hayes Mansion for $47 million. On June 14, 2016, staff presented to the City Council Asha Companies' offer to purchase the Hayes Mansion, which could result in the following: Eliminate the $36 million of outstanding long-term bond debt against the Hayes Mansion Eliminate ongoing annual subsidy for debt service which ranged from $2 million to $6 million per year since 2003

3 HONORABLE MAYOR AND CITY COUNCIL March 17, 2017 Subject: Parking Operations and Maintenance Agreement Related to Hayes Mansion Page 3 Use the balance of the sale proceeds to reduce other City long-term debt and/or establish capital reserves Retain the current TOT revenues (General Fund and Special Fund) and funding of the Convention Center Facilities District, exceeding $1 million per year Provide for a reputable private owner to continue operations of the Hayes Mansion as a destination hotel/conference center and community asset The City Council adopted Resolution No , approving the sale of the Hayes Mansion to Asha Companies, and authorizing the City Manager to negotiate and execute a Purchase and Sale Agreement based upon the terms outlined in the memorandum. In the memorandum, staff indicated that they would return to City Council to obtain authorization for the City Manager to execute a maintenance agreement between the buyer of the Hayes Mansion and the City to maintain the public parking garage at Edenvale Garden Park and some Park improvements, as is currently provided for in the existing management agreement with Dolce. Edenvale Garden Park Parking Facility While the Edenvale Garden Park lies adjacent to the Hayes Mansion property, it is important to make clear the fact that the two properties are separate parcels. The sale of the Hayes Mansion property does not include any part of the Edenvale Garden Park, including the Parking Facility located on the Park site. Today the Edenvale Garden Park Parking Facility comprises a surface parking lot containing approximately 214 parking spaces and an underground garage containing approximately 142 parking spaces. Prior to 2001, the Parking Facility included a surface parking lot only, with approximately 160 spaces, and no underground parking garage. In conjunction with the Hayes Mansion Phase III expansion of approximately 75,000 square feet (completed in 2002), the City approved Conditional Use Permit File No. CP to add another 196 parking spaces to service the hotel and conference center and the Park. The Conditional Use Permit granted approval for the construction of a surface and underground parking structure where the existing surface lot had been in Edenvale Garden Park. A total of 356 parking spaces surface parking spaces and 142 underground parking spaces - were approved for construction. The parking requirement for Park patrons is 55 of the 356 total spaces, and the remaining 301 spaces were available to support the parking requirements for visitors and employees of the Hayes Mansion. By September 2002, the Parking Facility was completed. However, since its construction, the underground portion of the garage portion has experienced a number of operational issues. In April 2008, Public Works commissioned a condition assessment report for the underground garage portion prepared by The Crosby Group (structural engineers) that proposed repairing structural concrete cracks, spalling concrete and water instruction damage in the walls and floor

4 HONORABLE MAYOR AND CITY COUNCIL March 17, 2017 Subject: Parking Operations and Maintenance Agreement Related to Hayes Mansion Page 4 of the underground garage. Although a Public Works project was subsequently developed, it was neither bid nor awarded, due to funding constraints. To date, no repairs have been made. ANALYSIS The Hayes Mansion is dependent upon 301 of the 356 parking spaces provided by the Edenvale Parking Facility for its operations and to comply with its Conditional Use Permit (CUP). Should any future owner of the Hayes Mansion not have access to these parking spaces, they would be out of compliance with the CUP. As a precondition of the Buyer moving forward with the purchase of the Hayes Mansion, the City will need to enter into a Parking Operations and Maintenance Agreement that provides a non-exclusive license to the Parking Facility for use by guests and employees of the hotel and conference center. In exchange for the non-exclusive license, the Buyer will provide operations and maintenance of the Parking Facility and maintenance of some Park improvements, consistent with the maintenance obligations under the existing Dolce management agreement. (Scope of Services is attached as Exhibit A) Staff recommends that City Council approve the following proposed terms and conditions of a Parking Operations and Maintenance Agreement with Asha Companies ("Contractor"), which will allow the guests and employees of the Hayes Mansion to use the Parking Facility. The Scope of Services to be provided by Asha Companies will be at no cost to the City. Proposed Terms and_ Conditions: 1. Term: 15-year initial term with three 10-year options. 2. Scope of Services: See Exhibit A. 3. License to Use Parking Facilities: Non-exclusive use of Parking Facility for guests and employees of the Hayes Mansion. 4. Restrictions on Activities: No deed or easement granted; No advertising; No interference with Park activities; No improvements to Parking Facilities without consent. 5. Acceptance of Parking Facility: As-is, subject to proposed repairs described in Exhibit B; However, the Contractor will not accept any assumption of risk in the use of the Parking Facility. 6. Rights and Obligations of City: Installation and maintenance of public utilities; Inspections; Repairs and maintenance described in Exhibit B in an amount not to exceed $3.2 million. 7. Limitation of Liability: No limitation of liability. 8. Indemnification: Mutual indemnification by City and Contractor. 9. Assignment: No subcontracting without City consent. 10. Destruction of Facilities: In the event of total or substantial damage to Parking Facilities, City will not have option to rebuild or repair, but instead will repair or restore if insurance proceeds are available.

5 HONORABLE MAYOR AND CITY COUNCIL March 17,2017 Subject: Parking Operations and Maintenance Agreement Related to Hayes Mansion Page Books and Records: All books and records pertaining to the operation of the Parking Facilities shall be made available to City upon request. 12. Appropriation of City Funds: Of the $47 million sale proceeds, the $3.2 to perform the repairs to the garage identified in Exhibit B is subject to City Council appropriation of funds. 13. First Right of Refusal: As the adjacent property owner, the owner of the Hayes Mansion shall have first right of refusal in the event that the Parking Facility is sold. 14. City Wage Requirements: Not required - no cost to City. 15. Termination: The Agreement can only by terminated with cause. A diagram of the Parking Facility is attached in Exhibit C. Asha Companies has indicated that approval and execution of the Parking Maintenance and Operations Agreement is a condition of the purchase of the Hayes Mansion. POLICY ALTERNATIVES Alternative #1: Reject the proposed terms and conditions of the Parking Operations and Maintenance Agreement. Pros: The City can assume control of the Parking Facility, which may serve other unidentified needs of the City, subject to the City's Park Charter. Cons: The approved Buyer of the Hayes Mansion has indicated that approval and execution of the Parking Maintenance and Operations Agreement is a condition of purchase of the Hayes Mansion. Reason for not recommending: The City and General Fund will continue to be burdened with the financial obligations of the Hayes Mansion, including the debt repayment and any operational shortfall. Annual subsidies have ranged from approximately $2 million to $6 million per year since Alternative #2: Conduct a Request for Qualifications to operate and maintain the Parking Facility and invite Asha Companies to bid on a leasehold interest subject to the requirements of the Park Charter. Pros: The City can enter into a lease with the most qualified bidder to operate and maintain the Parking Facility. Cons: A Request for Qualifications process could delay the sale of the Hayes Mansion. Reason for not recommending: It is in the City's interest to dispose of the Hayes Mansion as soon as possible to end the ongoing financial liability to the City's General Fund. The proposed Buyer of the Hayes Mansion has indicated that approval and execution of the Parking Maintenance and Operations Agreement is a condition of the purchase of the Hayes Mansion.

6 HONORABLE MAYOR AND CITY COUNCIL March 17, 2017 Subject: Parking Operations and Maintenance Agreement Related to Hayes Mansion Page 6 PUBLIC OUTREACH Extensive public outreach was performed to develop the City Manager's 2008 General Fund Structural Deficit Elimination Plan. This Plan identified the Hayes Mansion as an underperforming City-owned asset that should be repositioned and returned to private ownership. COST SUMMARY/IMPLICATIONS While the Scope of Services under the Parking Operations and Maintenance Agreement will be performed by the Contractor (Asha Companies) at no cost to the City, the City would be required to allocate a one-time amount of $3.2 million for substantial repairs to the parking facility described in Exhibit B. These funds are recommended to come from the $47 million sale proceeds after retirement of the Hayes Mansion debt. The remaining proceeds, as described in the June 14, 2016 memorandum and in keeping with the City's past practice to use one-time proceeds to yield ongoing savings, will be recommended to retire a significant portion of the outstanding debt related to the Los Lagos and Rancho Del Pueblo golf course, thereby reducing the annual General Fund subsidy to the Municipal Golf Course Fund. EVALUATION AND FOLLOW-UP Staff will return to the City Council at a later date, potentially during the fiscal year end clean-up process in June 2017, to recognize the final sale proceeds, appropriate $3.2 million to perform repairs to the Parking Facility, and retire a portion of the outstanding debt related to the Cityowned golf course. COORDINATION This memorandum was developed in coordination with the Finance Department, the City Manager's Budget Office, and the City Attorney's Office. COMMISSION RECOMMENDATION/INPUT There is no City Commission input regarding these actions.

7 HONORABLE MAYOR AND CITY COUNCIL March 17,2017 Subject: Parking Operations and Maintenance Agreement Related to Hayes Mansion Page 7 FISCAL/POLICY ALIGNMENT The sale of the Hayes Mansion aligns directly with City Council adopted policy to dispose of under-performing City-owned assets. In addition, the retained use of the property as a hotel allows the City to continue to receive TOT revenue, provides for continued Hayes Mansion participation in the Convention Center Facilities District and adds the Hayes Mansion to the property tax roll. CEOA Exempt, Section Existing Facilities, File No. PP /s / KIM WALESH Deputy City Manager Director of Economic Development For questions please contact Nanci Klein, Assistant Director of Economic Development, at (408) Attachments Exhibit A - Scope of Services Exhibit B - Parking Facility Repairs Exhibit C - Diagram of Parking Facility

8 EXHIBIT A Scope of Services 1. Parking Garage Maintenance Obligations. Contractor shall perform the following tasks at least as often as specified below and more frequently as may be needed in order to maintain the Parking Garage in good order and clean working condition. a. Daily i. Pick up trash and litter and empty any trash receptacles. ii. Check for safety hazards and address them immediately (e.g. broken light bulbs, broken metal). iii. Wash any area where needed to remove odors (e.g. urine). iv. Check that all signage is in place and not damaged. Repair or replace as needed. v. Check intercoms for proper functioning and repair as needed. b. Weekly i. Check emergency telephones for proper functioning and repair as needed. ii. Check lights for proper functioning; replace light bulbs as needed and repair as needed. iii. Check any fire extinguishers to ensure they are in place and not damaged. Replace as needed. c. Bi-weekly i. Power sweep garage. d. Quarterly i. Check mechanical systems for proper functioning, including without limitation, the ventilation system and the back-up generators. Repair as needed. ii. Pressure wash surfaces. iii. Inspect Parking Garage for water damage and leaks. Report and repair as needed. 2. Graffiti Removal. Contractor shall be responsible for the removal of graffiti located on the interior and exterior surfaces of the Parking Garage (including, without limitation, stairwells, the handicapped access ramp and the vehicle ramps) that is capable of being removed by any of the following methods: painting over with matching surface color, removal with cleaners and/or solvents, or pressure washing. Contractor shall inspect the Parking Garage daily for graffiti. Within twenty-four (24) hours after Contractor has identified graffiti for which Contractor is responsible for removal, Contractor shall remove such graffiti. Contractor shall make it a priority to remove any graffiti tag containing offensive language as soon as possible, but not later than twenty-four (24) hours after it has been identified. Contractor shall document graffiti through photographs, detaining time, location, removal actions, and

9 3. submit documentation the City's Anti-Graffiti Program. Contractor shall support the Anti-Graffiti Program in any related restitution or prosecution activity. 4. Security. Contractor shall provide security for the Parking Garage in accordance with the security plan approved by Owner's Department of Planning, Building and Code Enforcement as part of Conditional Use Permit No , a copy of which is attached hereto as Exhibit X. 5. Park Improvements Maintenance Obligations. Contractor shall perform the following tasks at least as often as specified below in order to maintain the specified Park Improvements. a. Maintain the lawn adjacent to the parking lot area: i. Upright grasses such as tall fescue, dwarf tall fescue, bluegrass and ryegrass shall be mowed to a minimum height of two inches in warm weather and one and one-half inches during the rainy season. Other grasses, such as Bermuda grass, shall be mowed to a minimum height of three-quarters of an inch. ii. Lawns shall be watered at such frequency as weather conditions require, to replenish soil moisture to the root zone. Preferably, watering shall be done at night in multiple, staged applications. iii. Lawns shall be fertilized with a commercial fertilizer for a total of six (6) to nine (9) pounds of actual nitrogen per 1,000 square feet per year. The number of applications will be dependent on the type of nitrogen used and the type of turf grass. Quantities and frequencies will be adequate to produce a consistent, green turf. iv. Control broadleaf weeds with selective contact herbicides. Preemergence herbicides have been shown to reduce turf vigor and reduce natural disease resistance. Only if a known annual grass problem exists should pre-emergence herbicide be applied. v. Lawns shall be aerated twice annually, times to be selected by the Contractor in consultation with the City contract manager to loosen the soil, allowing air to reach the roots and to allow better penetration of water with less runoff. Ideally, this will take place once in early spring, and again in early fall. b. If Contractor wishes to use chemicals to maintain Park Improvements: i. Contractor shall obtain and comply with all requirements of the City of San Jose's Integrated Pest Management (IPM) policy. The contractor shall apply all pesticides with extreme care to avoid any hazard to persons, pets, property and the environment. ii. Contractor shall obtain and comply with pest specific City BMPs and

10 iii. SOPs (Exhibit C). If contractor wishes to propose the use of other BMPs and SOPs, the contractor must submit a copy of the proposed BMPs and SOPs in writing to the City contract manager for review and approval. City approval of BMPs and SOPs will be based on degree of conformance with the City IPM Policy, BMPs and SOPs. iv. Contractor shall comply with all federal, state and local rules and regulations that govern the use of pesticides, including the City of San Jose's IPM Policy. Pesticides utilized for control of pests on City property shall have current EPA registration and be applied in strict accordance with label directions. All pesticide use on City property shall be subject to advance approval by the Park Staff, and shall be reported to Park Staff in a format approved by Park Staff. v. Contractor or Contractor's approved subcontractor, is to maintain a State Landscape Contractor's license and a valid Pest Control Operator's License. Contractor will comply with all other license and permit requirements of the City, State and Federal Governments, as well as all other requirements of law. c. Keep parking area and tennis courts free of debris. d. Repaint, resurface, restripe and repair tennis court as needed. This includes repairing or replacing tennis court nets, wind screens, and tennis court signage. e. Replant flower beds three times per year in designated areas. This will include amending soil, fertilizing beds, and controlling weeds in the designated areas. f. Brush hog (mow) the natural areas of the park fourteen (14) times annually. g. Maintain the portion of irrigation system existing as of the date of this Agreement. All maintenance of the irrigation system shall be performed by Contractor, and pre-approved, documented and reported to Park Staff. i. Watering shall be scheduled by the Contractor on automatic controllers in quantities and frequencies consistent with seasonal requirements of the plant materials in the landscape. ii. Where possible and practical, preference will be given to Evapotranspiration (ET) Controllers which adjust the amount of irrigation automatically according to environmental conditions. iii. Controller programs will be checked and adjusted semi-monthly. Preferably, watering shall be done at night in multiple, staged applications. iv. Visually inspect controller and sprinklers in operation once monthly during normal working hours. v. Any damages to system caused by Contractor's equipment or carelessness while carrying out maintenance operations shall be repaired

11 vi. without charges. Where practical, repairs shall be made within one watering period. vii. Vandalism or accidental damage caused by others shall be reported promptly to Park Staff. Cost of labor and material to perform repair is an extra and shall be performed by City. > viii. Faulty controllers shall be reported promptly to Park Staff. Contractor shall be responsible for repair or replacement of controllers. ix. Contractor shall have access to controllers and shall be instructed by Park Staff on how to turn off the system in case of emergency. Park Staff is to be advised immediately as described in Exhibit C, Section 5. h. On a quarterly schedule, meet with Park Staff to review past performance, and plan for future work obligations. Contractor is not responsible for: a. Irrigation of natural areas. b. Removal of trash from trash barrels or dumpsters. c. Removal of tree branches greater than two (2) inches in diameter. d. Repair of vandalism, including graffiti. Park staff shall be notified immediately in the event that a Park incident or non-life threatening Park emergency should occur. Communication described in this section shall be in addition to notices described in Section 24.

12 EXHIBIT B Parking Facility Repairs The City anticipates providing corrective repairs to the parking facilities with the following preliminary budget: Project Delivery (estimated) $700,000 Construction Cost (estimated) $2,000,000 15% Construction Contingency $300,000 Total: $3,000,000 In addition to the anticipated repairs to the parking facilities, the City anticipates providing a separate lighting upgrade and repair project with a preliminary budget of $200,000.

13 EXHIBIT C