OFFICE OF THE CITY ADMINISTRATIVE OFFICER

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1 REPORT FROM OFFICE OF THE CITY ADMINISTRATIVE OFFICER Date: May 19, Council File No Council District: 13 To: The Council From: Miguel A. Santana, City Administrative Office~( Reference: Community Redevelopment Agency (Agency) transmittal dated April 1, 201 0; Received by the City Administrative Officer on April 2, 2010; Additional Information Received through May 18, 2010 Subject: DISPOSITION AND DEVELOPMENT AGREEMENT WITH 1601 NORTH VINE LLC FOR THE SALE OF AGENCY-OWNED PROPERTY AND THE DEVELOPMENT AT 1601 NORTH VINE STREET SUMMARY The Community Redevelopment Agency (Agency) requests authorization to execute a Disposition and Development Agreement (DDA) and other necessary, related documents between the Agency and 1601 North Vine LLC (Developer) for the sale of Agency-owned property located at 1601 North Vine Street in Hollywood (Site) to the Developer. The Agency requires Council action on the following issues to effect the sale of the Site: Hold a Public Hearing and adopt a Joint Resolution by the Council and the Agency making findings pursuant to California Health and Safety Code Section for the sale of the Site to the Developer at the reuse value (RV) of $825,000 (Attachment E to the Agency's April 1, 2010 report); Authorize the Agency to execute a DDA between the Agency and the Developer for the sale of the Site and the development of the Project; and, Amend the Agency Budget and Work Program for the fiscal year in which the proceeds of the sale are received and authorize the Agency to receive $825,000 of the Project Developer's funds as payment for the parcels, and create a new Work Program Objective, Developer Contribution, Account Code to be established. We recommend approval of these requests. To date, the Agency has taken several actions relative to the Project and presents the following supporting information in their April 1, 2010 report. The actions are summarized in the Findings below in the "Agency Actions Relative to the. Project" Section. In October 2006, Council authorized tpe,. ;l\gei]cy.,,;;:md Developer to enter into an Exclusive Negotiation Agreement (ENA) (expired September 30, 2009) for the purchase of the Site and the development of the Project (C.F ). Negotiations with the Developer during the ENA period included a number of factors that led to the development of the DDA (see "Disposition and

2 Development Agreement" Section in Findings below). The Agency is bound by the City Debt Management Policies and the action will not impact the City General Fund. The City Financial Policies are not applicable to the Agency. Total Project cost is estimated at $56.7 million. Pursuant to the DDA, the Agency will sell the Agency-owned parcels to the Developer for the following terms and conditions: Developer will pay $825,000 fair reuse value (FRV) for the Site in "as is" condition. No Agency funds will be used for the Project beyond those anticipated for relocation expenses and title and documentary transfer tax costs. The total amount currently estimated by the Agency for these costs is $120,000. Developer will implement the art requirement consistent with the Agency Art Policy. Accordingly, the Project's art budget is approximately $570,000, based on one percent of the total development costs (TDC). Per the Agency Art Policy, $570,000 may be spent either on the on-site artwork or contributed to an Agency trust fund targeting art in the HRPA, or a combination of both. Developer has agreed to comply with Agency policies related to non-discrimination and to voluntarily comply with Equal Opportunity, payment of prevailing wages during construction, Living Wage and Equal Benefits Policies. Developer will submit a Community Outreach Plan, including provisions for construction employment opportunities to low and moderate-income persons living in the greater Hollywood community, to the Agency for approval prior to the commencement of construction. Agency will have the right to review and approve site plans and the schematic and construction plan consistent with the scope of development and schedule of performance contained in the DDA. RECOMMENDATIONS That the Council: 1. Hold a Public Hearing and adopt a Joint Resolution (Attachment E to the Agency's April 1, 2010 report) by the Council and the Community Redevelopment Agency (Agency) making findings pursuant to California Health and Safety Code Section for the sale of Agency-owned property located at 1601 North Vine Street in Hollywood (Site) to 1601 North Vine LLC (Developer) at the reuse value of $825,000 and under the terms and conditions in the Disposition and Development Agreement (DDA) with the Developer for the development of a commercial office building (Project) in the Hollywood Redevelopment Project Area; 2. Authorize the Chief Executive Officer of the Agency, or designee, to execute a DDA between the Agency and Developer for the sale of Agency-owned parcels and the development of the proposed Project, subject to the review and approval of the City Attorney as to form and the Department of Public Works, Bureau of Contract Administration for compliance with Agency contracting requirements;

3 Amend the Agency Budget and Work Program for the fiscal year in which the proceeds of sale are received to include $825,000 of the Project Developer's funds as payment for the Agency-owned parcels; and create a new Work Program Objective, Developer Contribution, Account Code to be established; and, 4. Authorize the Chief Executive Officer of the Agency, or designee, to execute the documents attached to the DDA and take other actions as contemplated by the DDA, subject to the review and approval of the City Attorney as to form. FISCAL IMPACT STATEMENT There is no impact on the City General Fund. The Community Redevelopment Agency (Agency) is bound only by the City Debt Management Policies; the City Financial Policies are not applicable to the Agency. Approval of the recommendations will allow the Agency to execute a Development and Disposition Agreement with the 1601 North Vine LLC toward the development of the Vine Street Tower Project (Project) in the Hollywood Redevelopment Area. The $825,000 in proceeds from the sale of the Project Site will be returned to the Agency Budget. Additional funds of approximately $120,000 from the Hollywood Project Area, Commercial and Industrial Projects are required to complete relocation of an existing business on the Project Site.

4 FINDINGS 1. Basis for Report The Community Redevelopment Agency (Agency) requests authority to execute a Disposition and Development Agreement (DDA) with 1601 North Vine LLC (Developer) for the purchase of Agency-owned parcels at 1601 North Vine Street in Hollywood (Site) and the development of an eight-story office building. Accordingly, the Agency requests that Council hold a public hearing regarding the proposed disposition of property pursuant to Health and Safety Code Section and provide authority to amend the Agency budget to receive $825,000 in proceeds from the sale of the Site. 2. Agency Actions Relative to the Project To date, the Agency has taken several actions relative to the Project and presents the following supporting information in their April1, 2010 report: Adopted a resolution certifying that the Agency Board has reviewed and considered the environmental effects set forth in the Final Environmental Impact Report (EIR) for the proposed development of a commercial office building (Project) at the Site. The EIR contains Mitigation Measures, Findings, Mitigation Monitoring Program and Statement of Overriding Considerations for the Project (Attachment A to the April 1, 2010 Agency Report); Provided a map showing the location of the Project and a model of the finished project (Attachments B and C to the April1, 2010 Agency report); Included a summary report highlighting the negotiated points between the Developer and the Agency that appear in the DDA (Attachment D to the April1, 2010 Agency report); and, Adopted a resolution making density findings for the Project that will accommodate a density of up to 6:1 Floor Area Ratio (FAR, Attachment F to the April 1, 2010 Agency Report) 3. The Proposed Project Council previously approved the Agency to acquire the Project Site in September 2006 and further authorized the Agency and Developer to enter into an Exclusive Negotiation Agreement (ENA) for the purchase of the Site and the development of the Project (C.F ). Negotiations with the Developer during the ENA period included a number of factors that led to the development of the DDA. While the ENA expired on September 30, 2009, the Agency indicates that both the Agency and the Developer have continued to negotiate in good faith toward the DDA in the interim. The Agency indicates that the DDA was delayed because of additional time required to negotiate relocation of a business on the Site, Molly's Burgers as discussed below. The proposed Project is the new construction of a Class-A eight-story office building with approximately 112,000 square feet of office space and approximately 2,000 square feet of ground floor retail. This is a downward revision of the original plan proposed in 2006 that

5 included 15,000 in ground floor retail. The change is the result of revising the Project to include a five-level subterranean parking garage. The previous plan did not contemplate onsite parking; therefore, to accommodate onsite parking, the ground floor retail component was reduced. The Project is proposed to achieve a Gold rating under the Leadership in Energy and Environmental Design Green Building Rating System. These revisions to the Project's scope and design required changes to be reflected in the final Environmental Impact Report (EIR). According to the Agency, the Project will accommodate the needs of the entertainment industry by creating quality office space in the Hollywood area. The Agency indicates that the City is at a disadvantage when entertainment firms relocate to Santa Monica or Burbank because of a shortage of appropriate office space in the Hollywood area. The Agency states that this Project will create opportunities to retain and attract entertainment-related companies in this area and create new jobs. The terms of the DDA would bind the Developer and its successors to the marketing plan for five years from the completion of the Project in order to meet the goals of the Hollywood Redevelopment Project Area (HRPA). Accordingly, the Project must strive to comply with use for Class A office space targeting tenants in the entertainment industry for at least 60 percent of the net rentable area. The percentage was negotiated between the Agency and Developer and reflects a desire to maintain flexibility in achieving an appropriate mix of vendors within the building. The Agency and Developer have negotiated that if the Project is sold within five years of completion, the Agency is entitled to receive eight percent of the amount of sale proceeds in excess of the development costs. 4. The Developer Pacifica Ventures, the managing partner of 1601 North Vine LLC, is a studio management and development firm with experience in motion picture and television production facilities. Pacific Ventures' proposed equity partner for the Project is Workers Reality Trust, a Chicago-based union pension fund. The proposed senior lender for the Project is Amalgamated Bank. The Developer and any future development partners or lessee will be required to comply with all applicable Agency requirements, including Equal Opportunity and Affirmative Action, Prevailing Wage, Local Hiring, Living Wage, Responsible Contractor, Service Worker Retention, Equal Benefits, design standards and insurance. 5. Disposition and Development Agreement The DDA is detailed in Attachment D of the Agency's April 1, 2010 report. The summary discusses the following: Developer responsibilities, including the $825,000 Site purchase price, description of the Project, submission of a financing plan, final construction drawings, finished grading plan and landscaping plan prior to the start of construction; Agency responsibilities, including paying relocation costs for Molly's Burgers (details in the

6 GAO File No "Relocation" Section below), approving or disproving the Developer's financing plan, final construction drawings, finished grading plan and landscaping plan prior to the start of construction; Overall cost of the Agency relative to the Project (additional costs not to exceed those estimated for relocating Molly's Burgers and title and escrow fees); Use of the FRV as the sales price of the Site; and, Project conformance to the objectives defined in the HRPA. 6. Environmental Impacts The Final EIR relative to the Project was prepared and subsequently brought to the Agency Board of Commissioners for certification and approval, pursuant to the California Environmental Quality Act. The Site acquisition occurred pursuant to State CEQA Guidelines which allow agencies to enter into land acquisition agreements where the Agency has conditioned the future use of the site on further CEQA compliance. Some of the impacts of Project construction cannot be feasibly mitigated, including noise from construction, increased levels of traffic and increased solid waste due to construction activity. Environmental impacts found to be significant and unavoidable include the following: Construction noise. Construction noise levels are likely to exceed existing ambient noise levels by a significant amount for more than 10 days in a three-month period; Traffic. The Project is expected to significantly impact the following four intersections: 1) Argyle Avenue and Franklin Avenue, 2) Vine Street and Hollywood Boulevard; 3) Argyle Avenue and Hollywood Boulevard; and, 4) Vine Street and Selma Avenue; and, Solid waste. The Project will contribute significantly to cumulative solid waste generation and impact local landfills. In response to these environmental concerns, the Agency adopted a Statement of Overriding Considerations that states that the benefits of the Project outweigh and override the significant unavoidable impacts for reasons including improvement of social and economic conditions, development of mixed uses and the provision of landscaping in the HRPA. Additional detail appears in the Exhibit 2 to Attachment A in the Agency's April 1, 2010 report. The Agency indicates that there are no significant differences in findings between the original draft and final EIR. 7. Relocation The Agency is required to support all acquisition and relocation costs. Up to $120,000 in Agency funds are proposed to assist with the relocation of a business formerly occupying the Site, Molly's Burgers. The Agency is responsible for providing rental assistance in lieu of paying relocation costs if Molly's Burgers exercises its option to lease space at the Project. In this case, the Agency would be responsible for paying the escrow fees associated with the rental assistance payments to Molly's Burgers.

7 Floor Area Ratio The existing redevelopment plan allows for an average floor area ratio (FAR) in the Regional Center Commercial (RCC) land use designation of 4.5: 1. However, the redevelopment plan allows projects within the RCC designation to exceed this FAR if they meet certain objectives and upon making specific findings. The Agency adjusted the FAR to 6:1 to maximize space available within the Project and provide a more robust return to the Developer. A ratio less than the 6:1 proposed may result in Project not being feasible. Attachment F details necessary findings that will allow a change in the FAR. The Transfer of Floor Area Rights (TFAR) Ordinance No does not apply to projects outside of the Central Business District and City Center Redevelopment Project Areas. Pursuant to Section of the Hollywood Redevelopment Plan, these findings must be forwarded to the City Planning Commission (Commission) for a determination as to the conformity of the proposed development with the Hollywood Community Plan. The Commission will make a determination of conformity within 30 days of the date of the Agency's request to do so. The Project will be deemed in conformance with the Community Plan if the Planning Commission does not make a determination within that 30 day period. The Planning Commission's decision can be appealed. 9. Project Financing and Estimated Reuse Value The economics of the Project are analyzed in the Health and Safety Code Section Summary Report (Attachment D of the Agency transmittal dated April 1, 2010). This report, dated March 24, 2010, was prepared by an Agency consultant. The total development costs to the Developer including land costs are now estimated at $56.7 million, or a $15.7 million increase over the development costs estimated in October 2006 of $44 million. Keyser Marston Associates, Inc., the Agency's financial consultant, prepared a financial analysis of the Project in September 2009 based on the financial terms and conditions imposed by the DDA. The analysis concluded that the supportable land value (fair reuse value, FRV) of the Agency parcels is $825,000. The FRV is based on the difference between the Project's estimated development costs and the Project's anticipated revenues. The Agency states that the DDA imposes public benefit obligations on the Project. Specifically, the Developer must pay prevailing wages to all contractors and subcontractors employed to construct the Project and accept a lower minimum return on investment. These public benefit provisions reduce the value of the Project site from the highest use allowed by the Site's zoning and the requirements imposed by the Redevelopment Plan to the established FRV of $825,000. The supportable investment is derived by dividing the stabilized year Net Operating Income by a market rate return on investment. Assuming recent market conditions, a developer would typically require a minimum return on investment of nine percent. During negotiations of the DDA, the Developer indicated that a 8.33 (rounded) percent return on investment is acceptable. Therefore, the FRV was calculated accordingly:

8 FRV Calculation Stablized Net Operating Income $4,795,000 Return on Investment % Supportable Investment Value $57,553,000 Total Development Costs ($56, 728,000) Reuse Value (FRV) $825,000 The Agency indicates that using the FRV is reasonable in this type of development project where use restrictions must be considered in order to achieve reasonable market return. A construction loan has been secured with Amalgamated Bank; however, a permanent loan for Project development has not yet been secured. The Agency indicates that this is typical of a Project that requires pre-leasing to secure permanent funding. 10. Project Timeline and Schedule The Developer estimates the Project to be fully constructed and operable by approximately June Project construction is anticipated to begin approximately June Critical milestones that must be completed prior to start of construction include: 1) relocation of Molly's Burgers; 2) site work and environmental remediation activities; 3) Agency staff approval of final drawings; 4) building permit and other government approvals; 5) commencement of grading; and, 6) completion of construction (approximately Spring 2014). The Agency indicates that milestone completion is subject to the Developer's ability to prelease the Project, which in turn is dictated in part by market conditions during the proposed timeframes. By: Trina Unzicker Senior Administrative Analyst II APPROVED: Assistant City Administrative Officer MAS:KDU: c