P July 21, 2017 Millbrae Mayor and City Council C/O Ms. Marcia L. Raines City Manager City of Millbrae 621 Magnolia Avenue Millbrae, CA 94030 Re: Request to be scheduled for a public hearing and Development Agreement Open Items. Honorable Mayor and City Council: By way of background, Republic is proposing a $355 million project which will include 320 market rate units, 80 units (20%) of Veteran s Affordable Housing, 150,000 square feet of office, 44,000 SF of mixed-use retail and a 164 Marriot Residence Inn hotel. Republic has currently invested over $7.5 million in pursuit costs with over $1.5 million paid to the City of Millbrae. We have been processing the Site Development Plan and Development Agreement for over two (2) years. Republic and City of Millbrae Staff have been engaged in negotiations of a Development Agreement ( Development Agreement ) which will govern the proposed development of Gateway at Millbrae Station ( the Project ). The negotiations, which started in August 2015 are now approaching two years. We are currently on version 27. The purpose of a Development Agreement is for Republic and Millbrae to enter a mutually beneficial agreement to deliver community benefits as part of the overall development. As this letter outlines, Republic is both consistent with the Millbrae Station Area Specific Plan (the Specific Plan ) and is providing a VOLUNTARY community benefit in the form of 80 units of affordable housing. The purpose of this letter is to bring to the City Council s attention, ahead of public hearings, the fact that Republic and the City Staff and Attorney appear to have reached an impasse as to the negotiations of the DA in those sections related to the impact fee waiver, financing, and delivery of the proposed affordable Vet Housing Project ( Vet Housing ). As currently written by the Millbrae City Attorney, the section pertaining to the Vet Housing project renders the entire project infeasible as it relates to entering a BART lease, a construction loan, or any third-party equity investment. We are requesting the City Manager place our Site Development Plan and the Development Agreement for a public hearing at the Planning Commission and eventually the City Council at the soonest available hearing to begin deliberations. Republic is comfortable with any and all open items that City Staff is not recommending as part of the Development Agreement, including the following: 84 West Santa Clara Street #600 San Jose, CA 95113 408 292-1601
Mayor and City Council July 21, 2017 Page 2 1) The timing and delivery of the Veteran s Housing Project 2) City investment in Vet Housing project via impact fee credit The City certified the EIR on January 12, 2016, and deemed the Project application complete on May 27, 2016. Under the Permit Streamlining Act, the City should have acted on the application within 180 days, subject to a one-time 90 day extension. Thus, the City should have acted by February 21, 2017. We are now five months past this date and the City still has not scheduled the first hearing on this Project. It is my understanding that the City is proposing to contract with Strategic Economics to undertake an additional review of the Project s community benefits. Such a review is premised on the false assumption that Republic is proposing to develop a project that exceeds the baseline development standards contained in the Specific Plan. The reality is that the proposed development does not exceed these baseline development standards. As you know, the Project is proposed to be developed on an approximately 9.6 acre site (currently functioning as BART s surface parking lots). Based on our current site planning, with some minimal lot line adjustments, none of the individual development lots will contain a Floor Area Ratio (FAR) of more than 2.5 (the maximum baseline development under the Specific Plan). In the aggregate, the overall FAR of the development parcels is approximately 2.38 approximately the midpoint of the baseline development under the Specific Plan. Please see the following matrix for the Project FAR calculations: FAR CALCULATION Site Site Area (SF) Net Floor Area (SF) FAR 5A 74,000 179,356 2.42 5B 131,728 329,532 2.50 6A 24,383 60,379 2.48 6B 60,318 122,397 2.03 TOTAL 290,429 691,664 2.38 Further, with regard to residential density, the overall Project site includes 400 residential units, with a corresponding average density of 41.7 units per acre, far less than the maximum of 80 units per acre. Because the Project is consistent with the Baseline FAR and Residential Density under Table 5-2 of the Specific Plan, the Project does not trigger the requirement for a community benefit agreement under Chapter 10 of the Specific Plan. Staff, and specifically the City Attorney, has commented to the effect that the Project has increased in size and density since the Specific Plan was approved. In addition, Staff has asserted that Republic is receiving a benefit from a staff assumed density increase; however the fact of the matter is that the only material change Republic has made as part of the
Mayor and City Council July 21, 2017 Page 3 Site Development Plan has been to increase the proposed number of keys in the hotel (a city planning comment which was complied with) and a VOLUNARY increase to the number of affordable residential units - a key policy guideline of the Specific Plan which defines community benefits and a key political benefit and business term with BART-the land owner. Specifically, our original proposal included 376 market rate units, of which 55 unit would be income restricted to low and very low income families. The complete application is for 400 units, of which 80 (20% which exceeds the MSASP guideline by 5%) are to be stand-alone income restricted to low and very low income families. Thus, the number of income restricted units has increased by 25, without any increase in the number of other units. Both of these changes have been strongly encouraged by City staff, and must be considered a community benefit in accordance with the Specific Plan. The City s adopted Housing Element contemplates that 35 very low income units and 45 low income units of new construction will be constructed in the City within its 20-year Regional Housing Goals; and 15 very low income and 30 low income units will be developed within the Millbrae Station Area Plan. The Vet Housing project is planned to include 40 units each of very low and low income units. Thus, the number of low and very low income units to be developed in this Project alone will exceed the City s citywide regional housing goals for very low income units by 111%; and provide 85% of the City s citywide objectives for low income units. Within the Specific Plan area, the Project will provide 267% of the very low income and 133% of the low income units contemplated for the entire Specific Plan area under the Housing Element. Because the Project complies with the baseline development standards of the Specific Plan, no public benefit agreement, including a Development Agreement, is required for this Project. Nonetheless, Republic, in good faith, believes a mutually beneficial development agreement is within the best interest of both parties. There are several provisions within the Development Agreement that are mutually beneficial including the expedited development timelines related to the proposed 164-key Marriot Residence Inn. Republic still desires to enter a Development Agreement; provided the agreement is mutually beneficial. For several months we have presented City Staff with terms and conditions on the issue of timing and delivery of the Vet Housing project that are consistent with how other cities are delivering affordable units within mixed-use projects. However, to date the City Attorney continues to pressure Republic to enter terms and conditions that will look to guarantee the financing and delivery of the Vet Housing project. The City Attorney within the Development Agreement is looking to cross-collateralize the market rate components of the project to ensure timing and delivery of the affordable units. This approach will not allow Republic/BART to achieve project financing for the market rate components of the Project, which will prevent the public-private partnership from entering a long term ground lease. In short, the Project would be infeasible.
Mayor and City Council July 21, 2017 Page 4 Republic urges the City Council to approve the following conditions within the Development Agreement which shall adequately address the issue of voluntary affordable housing as community benefit: 1) The property owner, Bay Area Rapid Transit will deed restrict parcel 6A for 55- years for affordable housing. 2) BART will provide a ground lease at $1 per year to assist the development and financing of the Vet Housing Project. 3) Secure 18 Veterans Affairs Supportive Housing (VASH) vouchers (see attached) which will assist with the equity gap financing. 4) Reporting requirements to the Millbrae City Council on the progress of financing and delivery of the Vet Housing project. In addition to the above terms related to timing and delivery of the Vet Housing Project, Senior Staff has also not committed any investment by the City of Millbrae into the Vet Housing. It is standard practice for CA cities to assist in the financing of affordable units by waiving development impact fees- a POLICY THAT IS IN MILLBRAE S ADOPTED HOUSING ELEMENT (Policies: H3.5, 6,7,9,10,11,1314,15 & 26). By way of example, and since the collapse of the redevelopment agency, San Mateo County cities like Belmont, San Carlos, Burlingame, South San Francisco and Redwood City have used impact fee credit effectively to leverage other public and private funds to build affordable housing. In other counties, large cities like San Jose collect impact fees from market rate development and combine impact fee credit to secure additional public financing. Without a commitment from the City of Millbrae and its City Council to invest impact fee credit into the Vet Housing, the project will NOT QUALIFY for San Mateo County Measure K funding. According to Janet Stone, Investment Manager from the San Mateo County Housing Department, the Vet Housing project would qualify for as much as $4-5 million of the Measure K funding. However, to qualify for this critical equity funding, the City would have to contribute most or all of Vet Housing impact fees estimated at around $4 million. Second, the impact fee credit by Millbrae, along with the BART subsidized ground rent of $1 per year ($5-6 million of net present land value) would assist Republic and Core Companies (co-affordable project builder), in finding additional equity assisting in the financing for the project. By way of reference, Republic has invested over $1 million in soft costs and will invest another $1-2 million in land improvements within its commitment to development the Vet Housing. In total, Republic will have contributed over $3 million the Vet Housing project.
Mayor and City Council July 21, 2017 Page 5 Republic believes these are reasonable terms that the Development Agreement can reflect which would then would allow the Vet Housing project to proceed as fast as possible; provided the City of Millbrae first, approves the Project, and second, commits some sort of impact fee credit to assist in the gap equity requirements. In closing, undertaking yet another study that is irrelevant to the question before the City, namely whether the Project is consistent with the Specific Plan, serves no purpose. Republic is happy to proceed with an amended version of the Development Agreement that removes those conditions in Exhibit B related to the timing and delivery of the Vet Housing Project, as well as commits some sort of city fee impact fee waiver. Understanding that if Staff and Republic cannot agree on acceptable terms related to this item, we are comfortable allowing the City Council to review and approve accordingly. To the extent that, at the end of the day, we cannot reach a voluntary agreement, then perhaps we will need to proceed without a Development Agreement. However, the only way that we can understand where we are on this point is to proceed with the Project public hearings. Accordingly, Republic hereby requests that the City not undertake the additional Strategic Economic study and, instead, that the City place the Project on the next legally available Planning Commission and City Council hearings. Thank you for your time and consideration. We look forward to having this matter scheduled for hearings as soon as possible. Sincerely, Michael VanEvery President and CEO CC: Millbrae City Attorney Millbrae Planning Department Bay Area Rapid Transit Attachments: 1) Site Plan 2) Conforming FAR Lots 3) San Mateo County Veterans Affairs Supportive Housing (VASH) Letter 4) Example of City Affordable Housing Incentives San Mateo County
S:\PROJECTS\386200\PL\SITE DEVELOPMENT PERMIT\386200A100.DWG REPUBLIC MILLBRAE LLC 84 W SANTA CLARA STREET SUITE 600 SAN JOSE, CA 95113 USA (408) 292-1601 1570 Oakland Road (408) 487-2200 San Jose, CA 95131 HMHca.com REVISIONS No. Description Date 1 PER CITY COMMENTS 08/26/16 GATEWAY AT MILLBRAE MILLBRAE BART STATION MILLBRAE, CA USA SITE DEVELOPMENT PERMIT ILLUSTRATIVE SITE PLAN PRELIMINARY AND TENTATIVE. NOT FOR CONSTRUCTION. ALL DIMENSIONS SUBJECT TO CHANGE. PROJECT NO. ISSUE DATE 3862.00 06.24.2016 SHEET NO. PARCEL NO. A1.02