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City Desk: Feb. 19, 2014

Negotiation Terms Approved for City Place Santa Clara and Centennial Gateway

Two major development proposals to create a new neighborhood in the Northside of Santa Clara took a step forward last Tuesday.

The City Council unanimously approved negotiating term sheets for Related Companies’ City Place Santa Clara – 5.2 million square feet of retail, restaurant, cinema, hotel, office, and residential development on the 215 acres that is currently home to the city’s golf course – and Santa Clara Centennial Gateway LLC’s Centennial Gateway – 622,000 square feet of retail, hotel, restaurant, and office development on 8.4 acres directly across the street from Levi’s Stadium. The next steps are the development of Environmental Impact Report (EIRs), Development Agreements (DAs), and Disposition and Development Agreements (DDAs).

Both term sheets – which set the parameters for negotiation and are non-binding – are almost identical, starting with the understanding that the developments will create a new neighborhood with its center of gravity at City Place Santa Clara, and will create significant numbers of jobs and new lease and tax revenue for the city.

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Santa Clara Centennial Gateway is a partnership between Lowe Enterprises and Montana Property Group (MPG) for the Tasman development. The original exclusive negotiating agreement (ENA) with MPG – Lowe Enterprises entered the picture in the summer of 2013 – was originally approved by the City Council in 2012 (against staff recommendation).

Related Companies brought its request for an ENA on the golf course land to the Santa Clara City Council last Spring. In October, in a joint presentation; Related and Centennial Gateway introduced their project proposals.

Both leases have 99-year terms, and rents will be based on the city getting a fair market return for its property. No Santa Clara general fund money can be used for construction – all financing must be private.

However, the term sheets don’t preclude creating community facilities taxing districts to fund needed infrastructure; nor do they exclude the possibility of creating “public financing vehicles” – joint powers agencies that can issue debt, but for which the city isn’t liable.

In no case is the city’s revenue or property to be subordinated to any other obligation – in other words, what’s owed to the city must be paid before anything else. The term sheets also ask for developers’ and sub-contractors’ “best efforts” to maximize city sales

tax revenue by posting purchase transactions in the city. (Santa Clara receives the largest part of its general fund revenue from business-to-business sales taxes posted in the city).

To protect economic viability of new development, city promises a “best effort” not to allow additional retail or movie theater development within two miles, with an exception for a Mercado movie theater expansion.

The city aims to have Centennial Gateway construction begin in 2015. City Place, phase I, may begin in 2015 if it doesn’t interfere with stadium parking.

Labor Agreements, Community Benefit, EIR Format Get Most Discussion

The only negotiating terms that aroused anything but compliments for the city and adulation for Joe Montana last Tuesday night were labor agreements, open space concerns, the possibility of a joint Environmental Impact Report (EIR), and whether a second Centennial Gateway hotel should be added. Council Member Pat Kolstad pointed out that these were all part of what was to be discussed for the final agreements, and didn’t call for changing the term sheets.

Both developments will be based on a master infrastructure plan to be developed for the area – which will need significant new infrastructure including roadways, utilities, transportation and city services – and the city expects the area’s major tenants to cooperate on these issues. Although both new developments will provide parking for their individual uses, the term sheets also specify reciprocal parking agreements for the 17,900 new parking spaces, as well as accommodations for stadium events.

The city is also asking that the new developments meet the U.S. Green Building Council’s LEED green construction Gold standard – minimizing environmental impact, and maximizing water savings, energy efficiency, sustainable materials, indoor air quality, and use of natural light.

In their proposals, developers must also include “community benefits” – for example, “oversizing” infrastructure, providing open space, recreation, and community facilities. However, these don’t have to be on the site itself; which may set some speculating on possibilities for improving underutilized and neglected areas like the El Camino and the city’s “lost” downtown. Related must also supply a replacement plan for current land uses – golf course, BMX track.

“A lot of people see this [development] as a loss of open space,” observed Council Member Teresa O’Neill. “I look forward to working with developers on recreation and open space and ways they can be active parts of our community supporting schools, recreation, and the arts in many ways.”

What brought out the most speakers at last Tuesday’s meeting, however, was the term sheets’ provision that developers’ make a “best effort” to hire Santa Clara residents for construction and ongoing operation of the developments, and that they negotiate labor peace agreements with local unions.

A request for more specificity than “best efforts” came from former City Council candidate Mohammad Nadeem, who asked that a specific percentage of jobs be set aside for Santa Clarans.

Representatives from several unions asked for stronger language about labor peace agreements, not only for the construction but for operations as well. “After five years we are still engaged in a nasty fight for labor peace with a high end hotel chain [Hyatt],” said UNITE HERE representative Maritza Juan. “Tonight you have the opportunity to protect…hardworking workers like myself [who] should have the right to join a union without fear of retaliation. Here is your opportunity to do something for the workers of the city.”

After public commentary, Council Member Lisa Gillmor asked for labor peace agreements for operations as well as construction in agreements, “so we avoid the unpleasantness that we’ve seen in the past.”

Both term sheets give Santa Clara the option for a combined EIR for both projects, given their close interconnection. However, given the relative sizes of the projects, it makes sense to treat as two EIRs, said City Attorney Ren Nosky. “But as lead agency we are retaining the right to do one EIR.”

Because City Center will be built on landfill, the complexity of the necessary environmental work grows by orders of magnitude. “One project is moving forward on landfill, and the other is not,” said Gillmor “If we go forward on the one EIR route, we hold back the project that’s not on landfill.”

Non-Compete Clauses and Extraordinary Costs

There are some differences, however. Centennial Gateway term sheet bars the developer from constructing department stores and movie theaters. Further if a parking garage isn’t built on 1.5 acres earmarked for that, that land reverts to the city and can be added to City Place.

For City Place, the terms specify that the City Center – the core of the new Santa Clara neighborhood – will be completed in Phase I, and getting two or three major department store tenants is a requirement for building future phases. The city also wants to discuss convention center expansion as part of the development.

The city would also like more residential development. While this makes sense both financially and for the area’s housing shortage, residential building on landfill requires special evaluations and approvals from the state environmental protection agency -something that’s unpredictable at this early stage.

Because of the “extraordinary” costs of building over former landfill – the project will be built on a platform covering the landfill – negotiating the ground rent is going to be a multi-step process. Related’s plans must include managing landfill runoff and the methane-to-electricity energy plant. This will start by agreeing on a framework for calculating the rent, and rents will be assessed as the project moves forward.

Find the term sheets at tinyurl.com/termsheets2014.

Correction

In the Feb. 5 edition we mis-stated the position of David’s Restaurant owner Jean Ebrahim about the Levi’s stadium golf course parking agreement. At the Jan. 28 City Council meeting, Ebrahim asked the Council to reconsider the agreement’s terms because it gives the 49ers “exclusive rights to the sale of sponsorships and advertising and the sale of food, beverage and merchandise …on the Golf Course during, and for a reasonable period before and after, Stadium Events.” (section 4.2). “We have no problem with the golf course parking,” says Ebrahim, noting that the restaurant has had the city’s exclusive license for food and beverage sales on the golf course for the last 27 years.

Requiescat in Pace

The Feb. 11 City Council meeting adjourned in memory of cousin of city employee Jose Armas, Emiliana Brasil.

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