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HomeMy WebLinkAboutED Corporate Center Project Phase II13 Agenda Item No: Meeting Date: July 20, 2009 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: Economic Development Prepared by: "�t14 VK4-�eu City Manager Approval: Nancy Mackie, Deputy City M nager Ken Nordhoff SUBJECT: Resolution Endorsing an Agreement between the San Rafael Redevelopment Agency and Seagate SR Corporate Center LLC for a Postponement of the Construction Schedule to Complete the Phase 11 Buildings for the San Rafael Corporate Center Project RECOMMENDATION: Adopt the attached resolution endorsing the agreement between the San Rafael Redevelopment Agency and Seagate SR Corporate Center, LLC for a postponement of the commencement of construction of the final office building (791 Lincoln Avenue) and the eastern parking garage (788 Lincoln Avenue) in the San Rafael Corporate Center development, pursuant to the Owner Participation, Disposition and Development Agreement. BACKGROUND: In 1998, the City Council and Redevelopment Agency Board approved the development of the 406,000 -square -foot San Rafael Corporate Center on Lindaro and Second Streets in Downtown. The City Council approved a Development Agreement and related land use and planning approvals, and the Agency Board approved an Owner Participation, Disposition and Development Agreement ("OPDDA") for the sale of the City Corporation Yard site to be included in the development. The property is now owned by Seagate SR Corporate Center LLC ("Seagate"). The first phase of the San Rafael Corporate Center has been constructed and is currently close to 90% occupied. The second phase is approved for two parking garages and three office buildings. The office buildings at 770 and 790 Lindaro Street and the western parking garage are under construction. Completion and occupancy of the "shell' (i.e., no interior improvements) for the 770 and 790 Lindaro Street office buildings is expected to occur in late summer (September 2009). To date, no lease agreements have been signed for these buildings. Office surveys indicate that with completion of these buildings, San Rafael will be facing a 30% office vacancy rate. Considering the projections of this survey, it is expected that tenant occupancy of the 770 and 790 Lindaro Street office buildings will occur very slowly. FOR CITY CLERK ONLY File No.: Council Meeting: Disposition: SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 The OPDDA, rather than the Development Agreement, governs the timing of construction on this project. Under the OPDDA, upon completion of the exterior shells of the 770 and 790 Lindaro Street office buildings and the western garage, construction must start immediately on final office building (791 Lincoln Avenue) and the eastern parking garage (788 Lincoln Avenue). Seagate believes that commencement of construction on the final office building and garage structures according to this schedule is economically unfeasible in light of the adverse effects the current deep economic recession has had on the City's office vacancy rate, and the limited availability of commercial real estate construction financing for the project. For these reasons, Seagate is seeking to postpone the commencement of construction of the final two buildings in the project. (See attached Seagate letter dated June 22, 2009) ANALYSIS: Approval of a postponement of construction does not require an amendment to the Development Agreement, because as noted above, the OPDDA governs the specific construction timeline requirements. The OPDDA permits the Redevelopment Agency and the property owner to agree in writing to extensions of the times of performance under the agreement. Seagate has requested that the Redevelopment Agency Board agree to an extension of time to commence construction of the 791 Lincoln Avenue office building and the eastern parking garage. The request is for a 30 -month postponement in the commencement of the final structures, and a second 30 -month extension upon reasonable request by Seagate and agreement by the City. Consideration of Seagate's request is on the Redevelopment Agency Board's agenda for this date. If the Agency Board adopts a resolution approving the request, staff recommends that the City Council adopt the attached Resolution endorsing the agreement between the Agency and Seagate and affirming that it is consistent with the Development Agreement. FISCAL IMPACT: None ACTION REQUIRED: Adopt resolution ATTACHMENTS: A: June 22, 2009 letter request from Seagate B: Resolution RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL ENDORSING AN AGREEMENT BETWEEN THE SAN RAFAEL REDEVELOPMENT AGENCY AND SEAGATE SR CORPORATE CENTER LLC FOR A POSTPONEMENT OF THE CONSTRUCTION SCHEDULE TO COMPLETE THE PHASE II BUILDINGS FOR THE SAN RAFAEL CORPORATE CENTER PROJECT WHEREAS, on February 17, 1998 the San Rafael City Council approved a Development Agreement with Fair, Isaac and Company, Inc. ("Fair, Isaac") for the development of a phased office park on property located at Second and Lindaro Streets now known and hereafter referred to as the San Rafael Corporate Center; and WHEREAS, on May 18, 1998, in connection with the City Council's approval of the Development Agreement, the San Rafael Redevelopment Agency entered into an Owner Participation, Disposition and Development Agreement (the "OPDDA") providing for the sale to and development by Fair, Isaac of certain Agency real property as part of the San Rafael Corporate Center; and WHEREAS, the San Rafael Corporate Center project, including title to the properties subject to the Development Agreement and the OPDDA and all the rights and obligations of Fair, Isaac under the Development Agreement and the OPDDA and all amendments to those agreements, have since been comprehensively assigned and transferred to a new property owner/developer called Seagate SR Corporate Center LLC, a California limited liability company (hereafter "Seagate SRCC"); and WHEREAS, the OPDDA establishes the schedule for construction of the San Rafael Corporate Center, and provides, in part, that once Seagate SRCC commences construction on Phase II of the project it must diligently pursue construction of the remaining structures and parking without interruption until completion; and WHEREAS, Section 9.04 of the OPDDA provides that times of performance under the OPDDA may be extended in writing by the Agency and the developer; and WHEREAS, Seagate SRCC has commenced construction of Phase H in compliance with the Development Agreement and the OPDDA, and expects to complete construction of the office buildings at 770 and 790 Lindaro Street and the parking garage at 775 Lindaro Street in September 2009; and WHEREAS, to continue to comply with the required construction schedule, Seagate SRCC will be required to commence construction on the final Phase II office building, at 791 Lincoln Avenue, and parking garage, at 788 Lincoln Avenue, immediately following completion of the structures now under construction; and WHEREAS, by letter dated June 22, 2009, Seagate SRCC has requested that the Agency Board agree to a postponement of the commencement of construction of the 791 Lincoln Avenue office building and the 788 Lincoln Avenue parking garage for a period of thirty (30) months, with the agreement that a second thirty (30) month extension may be granted by the Agency Board upon reasonable request by Seagate SRCC; and WHEREAS, Seagate SRCC has cited the adverse impacts of the nation's current severe economic recession on local office vacancy rates, and the limited availability of commercial real estate construction financing, as reasons for its request to postpone construction; and WHEREAS, earlier on this date, the Agency Board adopted its Resolution No. agreeing to the postponement of the commencement of construction of the 791 Lincoln Avenue office building and the 788 Lincoln Avenue parking garage requested by Seagate SRCC, as more particularly set forth in that Resolution; and WHEREAS, the City Council finds that the approved postponement is consistent with the terms of the Development Agreement and is in the best interests of the City of San Rafael and its residents. NOW, THEREFORE, IT IS HEREBY RESOLVED that the City Council hereby endorses the agreement between the Agency and Seagate SRCC for a postponement of the commencement of construction of the 791 Lincoln Avenue office building and the 788 Lincoln Avenue parking garage, as more particularly set forth in Agency Board Resolution No. adopted earlier on this date. I, ESTHER C. BEMNE, City Clerk of the City of San Rafael, hereby certify that the foregoing was duly and regularly introduced and adopted at a regular meeting of the City Council of the City of San Rafael held on the 20th day of July 2009 by the following vote: AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: ESTHER C. BEIRNE, City Clerk 2 June 22, 2009 Ms. Lisa A. Goldfien, Esq. Deputy City Attorney II City of San Rafael 1400 Fifth Avenue San Rafael, CA 94901 Re: San Rafael Corporate Center Building Entitlements Dear Lisa: This letter is being written as a follow up to our recent conversations regarding the above referenced project. As we discussed Seagate SR Corporate Center LLC, ("SRCC") as the owner of the SR Corporate Center Phase One LLC and SR Corporate Center Phase Two LLC properties located at 750,775,790 and 770 Lindaro St. and 781,788 and 791 Lincoln Ave, Assessor Parcel Number (APN's) 013-012-34 and 35 and 013-021-50,51,52,53,54, and 55 ("Properly") is currently in compliance with all material terms and conditions of the Development Agreement and Owners Participation Disposition & Development Agreement ("OPDDA") The rights and entitlements governing the Property remain valid, as vested, and provide for the right to construct a total of five office buildings up to a maximum of four hundred and six thousand (406,000) square feet of gross floor and two (2) parking structures. The 750 Lindaro St. and 781 Lincoln St. buildings are complete and occupied. SRCC has been in the process of completing construction the 775 Lindaro garage and the buildings located at 770 and 790 Lindaro for the past eighteen months. Construction of the 775 Lindaro garage has now been completed and we expect to complete construction of the two new Lindaro office buildings by September of 2009. These three new office buildings will be the first for -lease LEED Gold certified office buildings to be constructed in Marin County. As you are no doubt aware, Marin County has not been exempt from the effects of the current deep nationwide economic recession. The office vacancy rate in Marin is at a level not seen in many decades. In addition, the financing market for commercial real estate and in particular commercial real estate construction loans, is non-existent at this time. Many of the traditional lenders have either left the business, been taken over by the Federal government or are in a retrenchment mode and thus not able or willing to make new loans to development projects. Finally, prospective tenants are not looking at expanding or moving as the fear of future economic uncertainty has placed most business plans on hold and left most businesses in a "retrenchment" mode. Attachment A 980 FIFTH AVENUE • SAN RAFAEL, CALIFORNIA 94901 (415) 455-0300 • FAX (415) 453-2892 Ms. Lisa A. Goldfien, Esq. June 8, 2009 Under these uncertain circumstances, we believe it is economically unfeasible to start construction on the final two structures immediately after completion of the current construction in September of this year. Page 2 The OPDDA provides in Section 9.04 and the Development Agreement provides in Section 7.1 and in Section 9.1 that the City may agree to a delay in completion of the project. We believe that a mutual agreement between SRCC and the City to delay the start of construction of the final two structures would be appropriate and beneficial to both parties. An agreed upon delay would also provide an opportunity to further explore an exciting possibility, that is, to expand the parking capacity of the proposed Lincoln Street garage to benefit future users of the proposed Sonoma Marin Area Rail Transit ("SMART") train service. For several months now SRCC has been in active discussions with SMART concerning this possible joint use, however, it is clear that given the recent distress in the bond and commercial mortgage markets, combined with the dismal State and Federal economies, additional time will be needed before SMART and SRCC are able to determine if a joint utilization and expansion of the Lincoln Street garage will be feasible. In short, these factors have convinced us that it would be in the best interests of the City, SRCC as well as the broader community, to delay the start of construction of the 788 Lincoln Street garage and the proposed building at 791 Lincoln. Therefore, SRCC requests that the City and SRCC mutually agree to a delay in the start of construction on both the Lincoln Street garage and the proposed building at 791 Lincoln while SRCC determines the (i) feasibility of constructing the expanded garage for use by SMART and other public agencies, and (ii) the methods of financing the garage as well as the proposed building at 791 Lincoln. Specifically, SRCC requests that the City and SRCC agree to an initial extension of thirty (30) months, with an agreement that a second thirty (30) month extension may be granted upon reasonable request therefore by SRCC, which request shall be made at least 30 days prior to expiration of the initial extension. The effective date of the first extension would be the date of issuance of the last occupancy permit for the shells of the 775 Lindaro garage and the buildings located at 770 and 790 Lindaro Street. SRCC intends to complete the final, approved landscaping up to the building pad for the 791 Lincoln Street building and we will install a perimeter fence with screening around the building pad during this interim period. The final landscaping will be installed per the approved landscape plan, which is on file with the City Department of Community Development. Until the Lincoln Street garage is constructed on the former City Corporation Yard site ("Eastern Parcel'), SRCC will continue to provide parking for tenants of the occupied office buildings, which will include provisions for interim, paved surface parking on the Eastern Parcel. The interim, paved surface parking on the Eastern Parcel will be striped and available prior to occupancy of the first office tenant in either the 770 or 790 Lindaro Street buildings. At no time during this interim period will the ratio of parking to occupied office space be less than 3.3 spaces per 1,000 gross square feet. Ms. Lisa A. Goldfien, Esq. Page 3 June 8, 2009 Please do not hesitate to call with any further questions you may have regarding the San Rafael Corp ate Cente project or this request. Sine ely, Dennis P. Fisco Seagate SR Corporate Center, LLC Cc: Rob Epstein, City Attorney Ken Nordhoff, City Manager IiIancy Mai=kle;;Deputy City 1Vlavageris Wick Polite, Seagate SR Corporate Center, LLC