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City Desk: Dec 17, 2014

‘Tis Montana Before Christmas, ENA Extension Request in Hand

Stardate 2044: Joseph Montana III – CEO of Montana Development Group and grandson of the celebrated 20th century U.S. football player, Joe Montana – has asked the Santa Clara Galactic Council for another six-month extension of the Exclusive Negotiating Agreement (ENA) for the proposed Centennial Gateway development project on Tasman Avenue; assuring the Council that the planned entertainment complex would be open for business for the city’s bi-centennial in 2052.

Seriously though, Joe Montana’s Centennial Gateway is beginning to seem like El Dorado – perpetually out of reach.

At its Dec. 9 meeting, the Santa Clara City Council unanimously approved a fourth extension of Joe Montana’s 2011 ENA to March 2016 without much comment, except stipulating that construction won’t start until after the 2016 Super Bowl. The extension also includes the possibility of two additional two six-month extensions under certain conditions.

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But in 2013, the project needed to be fast-tracked, according to Council and Chamber of Commerce supporters, to capitalize on Super Bowl 50 in 2016 – a “once in a lifetime opportunity.”

In 2011, when Levi’s Stadium was just a glint in the city’s collective eye, Montana came peddling his proposal for an Exclusive Negotiating Agreement (ENA) for 8.4 acres of vacant city-owned land Tasman Avenue directly across the street. Today, Levi’s Stadium has been operating almost six months.

And Montana’s Centennial Gateway? Apparently still waiting for Santa Claus. Two development partnerships have failed to work out; first with East Coast developer Kurt Wittek (who was embroiled in disputes about a contentious Connecticut development project), and then with $41 billion LA-based real estate investment company, Lowe Enterprises – which declined to comment on the project.

A major stumbling block for the project emerged only last spring: Levi’s Stadium is guaranteed about 800 parking spaces on the Tasman land, and so far no alternative has been found that’s acceptable to the developer, City and 49ers. Until that is resolved, the development can’t proceed.

Developing Centennial Gateway’s 780,000 square feet of retail shops, hotels, restaurants, and offices was pegged at $400 million in 2013. The original plan called for completing a design-development agreement by the end of 2012, with groundbreaking in 2014. The project was estimated to bring the City $1.5 million in sales and property taxes, $2 million in hotel taxes, and create 300 construction jobs and 600 permanent jobs – in addition to the land lease, which remains under negotiation.

When Montana first requested the ENA in 2011, City staff recommended against it, saying, “there is a risk to the General Fund for third party costs if a DDA and/or a Ground Lease is not executed,” according to the July 12, 2011 agenda report, and staff recommended expediting a competitive request for proposals.

The report noted that most of the City’s existing ground leases in the North Bayshore area were awarded though the competitive bids, including: Great America, the Convention Center Complex hotel, the Convention Center Complex office building, David’s Restaurant, the Hilton Santa Clara, and Irvine’s office park.

“With the surety of a stadium project, developers and development financing would know that a major anchor tenant, drawing over one million attendees a year, would be across the street,” the staff report continued. The strongest means of assuring the highest return for the City’s General Fund from the remaining bare land parcels is to wait for the completion of the stadium Financing Plan and Ground Lease and then put the parcels out to competitive bid for a hospitality themed development.”

However, the history of the land, combined with the celebrity attraction of Montana’s name, led the Council to break with past practice. The City bought the land in 1970, with the idea that it would be part of a future entertainment district envisioned by the City for the last 50 years in various General Plans.

The only proposals, however, to come forward since 1995 were targeted to corporate needs for short-term housing and hotels. When the burst of the dot-com bubble catapulted the economy into a depression, made worse by the 2008 real estate and financial system crash, developer interest in the land dried up.

Montana’s interest was the first concrete development proposal the city had received in years. Hence, the City Council was willing to enter into an ENO, which was approved 5-2, with Will Kennedy and Jamie McLeod opposing.

Now, reportedly, Montana is discussing a partnership with Related Companies, which signed an ENA with the City in 2013 for 5.2 million sf of office, retail and residential development, currently called City Place Santa Clara, on 230 city-owned acres adjacent to the Montana parcel – currently the site of the Santa Clara Golf Course, David’s Restaurant, and PAL’s BMX track.

Since then, Related has moved ahead with negotiations about the ground lease and the environmental study. Building on the land – a former landfill – involves significant engineering challenges, and current estimates of development costs are over $6 billion.

A partnership between Montana and Related makes sense. Having a larger area to work with could resolve the stadium parking impasse. More importantly, because the Centennial Gateway will be the ‘front door’ for City Place Santa Clara, it’s in Related’s interest to have control over access from Tasman, and the ability to ensure cohesive design and architecture.

While the ultimate outcome will likely be much better development on Tasman, one thing is certain. The city will miss out on the “once in a lifetime opportunity” it thought it assured by leaping like a trout to the lure of Joe Montana’s Centennial Gateway.

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