The RFP proposed redevelopment of the Byron Carlyle Theater and abutting surface lot P85 (together, a combined 31,500 sf), with an option to include surface lot P80 (12,625 sf), which is located across Byron Avenue adjacent to the theater.
Top-ranked Pacific Star proposed an 11-story mixed-use hotel building, whereas Menin’s original RFP submission proposed a 7-story mixed-use residential building with 114 workforce housing units, 9,460 sf retail, a 10,410 sf cultural component, and a 5-story office/retail building on surface lot P80. The proposal requested outright conveyance of title from the City to the Developer of both the Byron Theater site and P80. As consideration in return, the Developer’s RFP proposal offered public benefits in the form of workforce housing and deeding back the cultural component space to the City (the latter of which was a mandatory requirement stated in the RFP). The proposal offered no lump sum or annual rent payments.
Earlier this year, the pandemic temporarily delayed development negotiations and cast uncertainty upon the City Commission’s articulated request that the cultural component include, at a minimum, a black box theater. Over the past three months since Pacific Star Capital withdrew its proposal, Menin has modified its Project scope considerably and submitted multiple revisions to its proposal documents, which no longer contemplate redevelopment of P80 as part of the Project. Negotiation meetings have been conducted weekly or biweekly since that time and Menin provided revisions to its financial pro forma on August 19, September 21, October 28, and November 9.
As a guide, the City provided the Developer with a detailed term sheet outline on September 15, 2020 and Menin submitted its written term sheet on November 4, 2020. Several meetings and term sheet revisions have transpired since that time and attached to this Memorandum is Menin’s Financial Pro Forma and latest Term Sheet dated November 11, 2020.
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RFP Submittal
dated 6-28-2019
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Term Sheet
dated 11-11-2020
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Term
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Offered to lease the land at no cost
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99-year lease
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Residential Density
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114 workforce housing units
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151 workforce housing units
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Total Floor Area
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105,411 sf
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124,625 sf
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Retail
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9,460 sf
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9,000 sf
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Cultural Component
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10,410 sf
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10,500 sf
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Proposed Height
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85 feet
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No more than 125 feet
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Proposed Parking
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38 spaces, as required for theater use
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None proposed
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Rent/Payment to City
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No rental payment to the City
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$1 per year lease payment throughout the term of the lease
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Outstanding Term Sheet Issues
There exists several open issues for which the Developer remains steadfast and the Administration is unable to recommend in favor of, as described below.
1. Financial Valuation of the Developer’s Proposed Terms. Developer submits that in exchange for the long term lease rights for a proposed period of 99 years, the proposed benefits to the City of: (1) 30 years of workforce housing, (2) a completed “Gray Shell” for Cultural Center, with a claimed value of $5.1 million plus an additional $1,000,000 for the buildout of the space, collectively represent fair market value for the transaction.
The Administration is not supportive of this proposal. If the City Commission wishes to entertain this proposal, Staff would recommend that once the broad outline of a term sheet that includes the FERC’s comments is developed, the proposed financial terms of the overall transaction be evaluated by a third-party financial consultant/appraiser pursuant to Resolution 2019-30985. The Administration recommends that this financial analysis be obtained and reviewed by the City Commission prior to proceeding with first reading of the Development Agreement and Ground Lease, to minimize costs for both parties, until such time as there is a basic mutual agreement as to financial terms.
2. Parking. City Code provides there is no mandatory parking requirement. City has asked developer how it plans to accommodate the parking needs of residents of this 151-unit project, as well as patrons of the ground floor retail tenants.
Developer’s response: Developer submits that there will be ample parking in the buildings surrounding the Project.
The Administration is unable to formulate a recommendation as to this aspect of the Project, based on the lack of any information as to how parking needs for residents and retail tenants would be served. In the absence of a concrete proposal, staff is not supportive of this aspect of the deal.
3. Term of the Lease / Restrictive Covenant Period for Workforce Housing. Developer initially proposed a 198-year Lease, with an initial term of 99 years, and a 99-year renewal term. However, with respect to the restrictive covenants to provide for Workforce Housing, Developer proposed a “Restrictive Covenant Period” of 25 years for workforce housing, with the ability to thereafter charge tenants market rate rent for the remaining balance of the 173-year term.
The Administration initially responded that it is amenable to a 50-year initial term, and two renewal terms of 20 years each. The Administration also responded that, subject to negotiation of terms, it would be more supportive of a lease term of 70 years, with a 20 year renewal option, but only if the Restrictive Covenant Period for the Workforce Housing period was at least 40 years.
Developer’s Response: Developer now proposes a Restrictive Covenant Period of 30 years for workforce housing, in exchange for a proposed overall term of the lease of 99 years (an initial term of 75 years and one renewal term of 24 years).
The Administration submits that the Restrictive Covenant Period for the workforce housing should be in place for at least a majority of the term of the lease. The Developer is clearly pricing this as a workforce housing deal, but seeking to get a deal that is in fact a market rate deal for 2/3 of the term. The Administration is not supportive of that approach.
4. Mix of Workforce Housing Tenants between 80% Area Median Income (AMI) and 140% AMI. The Administration has recommended that the agreements provide parameters for targeting a diverse mix of workforce housing income ranges.
Developer’s Response: Developer has agreed to reflect a tenant mix with at least 20% of tenants at 100% AMI or less.
Subject to City Commission direction as to the policy objectives it would like to achieve, the Administration would recommend that the Lease include specific comments to ensure the project is available to workforce housing tenants across a mix of income ranges.
5. Process for Placement of Eligible Workforce Housing Residents. City has proposed that the process for placement of income-eligible residents – whether the process is via a lottery system or other fair and equitable process, be subject to City approval.
Developer’s Response: “The project shall adhere to all applicable regulatory and municipal requirements.”
Although it is unclear what Developer means by “municipal requirements,” the Administration proposes that the City approval be set forth in the Lease, as a proprietary approval by the City, as the Lessor, and not merely rely on the requirements of the City Code, which do not address the process for placement of residents (i.e., in private projects).[i]
6. “Gray Shell” for Cultural Center and the Claimed $5.1 Million Value. Developer’s response confirms that Developer will deliver to the City a ground floor “gray shell” for the Cultural Center, consisting of a space that is “completely unfinished. Includes bare stud walls, unfinished floors, and no plumbing or electrical, but with a point of connection for sewer within the space and a space for a new electrical service within the electrical room. Please note that the Developer is offering an additional $1,000,000.00 for buildout of the space as well.”
Administration recommends that the cultural space be delivered to the City finished and ready to be utilized, including base mechanical systems.
7. Proposal for City to Provide “Soft Dollar Credit” for Costs of Environmental Remediation Developer will be responsible for remediation and demolition (and costs), but Developer is proposing that City provide Developer with a credit against fees Developer will pay to the City for the Project, to reduce the fees the Developer would otherwise owe to the City, i.e. for building permits.
The Administration does not agree that the Developer should receive any credit for the remediation and demolition. The RFP stated several times that the developer would be responsible for all costs associated with construction.
8. Policy Issue Regarding A Proposed Purchase of Additional F.A.R. from Adjacent Private Property. Although not referenced in the RFP, the Developer proposes that the City Commission, as part of the development agreement for the Project, authorize the Developer to purchase 14, 375 sq. ft. of excess F.A.R. from an adjacent property, to incorporate such additional F.A.R. as part of the Project.
Pursuant to Section 118-5 of the Code, and as permitted by Section 1.03(c) of the City Charter, property owners with fee simple title to abutting parcels may execute a covenant in lieu of unity of title, to aggregate development rights on those unified abutting parcels (without the need for a voter referendum to increase the F.A.R. for the project). Although the above approach may be permitted under the City Code, the City Commission, as the owner of the property, has no obligation to approve the arrangement if it does not approve proceeding with a unified development site to add 14, 375 sq. ft. to the Project. Accordingly, the Developer would have no entitlement to proceed with a unified development site, unless the City Commission, as owner of the property, granted such rights in the Development Agreement.
The decision to depart from the RFP requirements and develop a larger project as a “unified development site,” with the additional F.A.R. conferred by virtue of the excess F.A.R. available for purchase from the adjacent property, is a policy decision for the City Commission to determine, at its discretion.
To this end, the Administration recommends that the City Commission authorize the proposed arrangement of a unified development site to add 10,500 square feet to the project to match the square footage lost by the development of the cultural component. As the Developer seeks to purchase an additional 3,875 square feet of excess F.A.R. for a total of 14,375, allowance for the additional amount would constitute a concession from the City to the Developer.
[i] Proprietary vs. Regulatory Approvals. Throughout the Developer’s response, Developer focuses repeatedly on limiting City’s approval rights to whatever is provided in the City Code, in City’s regulatory capacity. However, this is a Ground Lease, whereby the City is not only acting in a regulatory capacity, but as the Lessor and owner of the Property. For this reason, all of the Leases the City has negotiated provide the City with various rights of approval – in the City’s proprietary capacity as owner, and not just in furtherance of a limited, regulatory function. The Administration sees no reason to approach its right of approvals any differently here than it has under any other City lease.