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AUTHORIZE THE THIRD AMENDMENT TO THE DOWNTOWN INFRASTRUCTURE INFILL INCENTIVE REIMBURSEMENT AGREEMENT WITH OPEN WINDOW PROJECT, LLC, PHASE I
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution:
1. Authorizing the Third Amendment to the Downtown Infrastructure Infill Incentive Reimbursement Agreement with Open Window Project, LLC, Phase I, to reduce the total reimbursement amount to $4.95 million; and
2. Authorizing the City Manager, or designee, to take necessary and appropriate actions to carry out the purpose and intent of the resolution.
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Summary
In October 2016, the City Council authorized a Downtown Infrastructure Infill Incentive Reimbursement Agreement (Reimbursement Agreement) with Open Window Project, LLC (OWP), of up to $3.8 million to assist with public infrastructure improvements that were part of Phase I of the Open Window Project Master Development Plan (Project). In October 2017, the City Council approved an additional $2.38 million in Downtown Infrastructure Infill funding for a total of $6.18 million to include the proposed infrastructure improvements for the larger updated scope for Phase I.
OWP has submitted a revised scope for Phase I of the Project to include fewer market-rate residential units and a reduction in commercial/retail space. The City is seeking to reduce the total amount of funding from $6.18 million to a total of $4.95 million. To date, the City has allocated $3.6 million toward the OWP Phase I Reimbursement Agreement and the project is obligated to receive additional funding through annual Community Development Block Grant (CDBG) allocations. A Third Amendment to the Reimbursement Agreement is necessary to approve the adjustment in additional funding allocation for the remainder of Phase I of the Project. The remaining balance of $1.36 million will be funded with future dollars received by the City through loan repayments of the Successor Agency to the Community Development Block Grant (CDBG) fund and/or the City’s annual allocation of CDBG funds.
DISCUSSION
Background
In July 2015, the City Council approved the Downtown Infrastructure Infill Incentive Program (Program) to encourage mixed-use infill development in Downtown Stockton and to defray the cost of public infrastructure improvements. The Program provides up to $900,000 annually, on a reimbursement basis, for off-site public infrastructure improvements associated with eligible downtown infill projects. Eligible projects must consist of a minimum of 35 market-rate housing units and/or a minimum of 30,000 s.f. of new, or newly renovated, retail or commercial space. Public infrastructure eligible for reimbursement includes sewer and water, storm drain, street improvements, traffic signals, streetlights, and landscaping. The applicant must also make a capital investment of at least $500,000 and eligible public infrastructure improvements must equal $100,000 or more. The Program was approved for ten years with a sunset date of July 2025, unless extended by the City Council.
In February 2016, the City Council approved a Master Development Plan and Development Agreement with Open Window Project, LLC, for its Open Window Project, which encompasses roughly 15 square blocks within the Downtown Stockton core. The Project is a mixed-use development consisting of approximately 1,000 residential units, with 90,000 s.f. of commercial space, and 110,000 s.f. of industrial/art studio space.
In October 2016, the Council approved a Downtown Infrastructure Infill Reimbursement Agreement with OWP (Attachment A - Resolution 2016-10-18-1204) for Phase I of the Project, which provides for up to $3.8 million in reimbursements for eligible off-site public infrastructure improvements.
In March 2017, the Council authorized the use of $400,000 for eligible public infrastructure improvements in the development of the Medici Artist Lofts, a mixed-use project consisting of mixed-income residential units and ground-floor commercial space, an anchor project for Phase I of the Open Window Project.
In May 2017, the Council approved an Amendment to the Reimbursement Agreement with OWP (Attachment B - Resolution 2017-05-09-1103) authorizing the release of $760,000 while placing a lien on seven (7) properties owned by OWP as security until such time that the developer secures its financing or building permits are issued for both the public infrastructure improvements and Phase I of the Project, whichever occurs first.
In October 2017, the scope of the Project changed with an increase in market-rate residential units (231) and an additional city block. Therefore, Council approved a Second Amendment to the Reimbursement Agreement with OWP (Attachment C - Resolution 2017-10-03-1402), authorizing an additional $2.38 million in Downtown Infrastructure Infill Incentive funding for a total of $6.18 million. The Second Amendment also identified that future funding would come from loan repayments of the Successor Agency to the CDBG fund or the City’s annual CDBG allocation. This funding allocation will ensure that support would not be contingent upon the City’s annual general fund budget approval process, thereby utilizing an alternative source of funding.
In July 2019, the Council approved a Downtown Infrastructure Infill Reimbursement Agreement with OWP Phase 2, LP (Attachment D - Resolution 2019-07-30-1406) for Phase 2 of the Project, which provides for reimbursement of up to $1.8 million for eligible off-site public infrastructure improvements; of that amount, $900,000 in CDBG funds was allocated in fiscal year 2019-20 with the balance being allocated in fiscal year 2021-22 with CDBG funding. Phase 2 of the Project consists of the Kendell building on Weber Avenue, as well as the Commercial, Main and St. Leo Hotels located on Weber Avenue and on Main Street.
Present Situation
The scope for Phase I of the Project has changed from the last amended plans. The revised project scope will include fewer market-rate residential units (129 versus 231 units) and a reduction of commercial/retail space from 90,000 s.f. to 54,263 s.f. (see Attachment E - Revised Project Description). This change in scope reduces the amount of funding the Project is eligible to receive under the Program guidelines. As such, the City is seeking to reduce the amount of Downtown Infrastructure Infill Incentive funding from the amended $6.18 million to a Third Amendment total of $4.95 million in funding.
Although the Council approved the commitment of $6.18 million, the Program only allows for $900,000 to be allocated each fiscal year. As a result, $2.7 million has been allocated from the general fund toward the OWP Phase I Reimbursement Agreement. Pursuant to the Second Amendment, an additional $900,000 was allocated by the City through its annual allocation of CDBG funds. To date, the City has allocated a total of $3.6 million from both the general fund and CDBG funds. With this Third Amendment, the revised total amount committed will be reduced from $6.18 million to $4.95 million; future CDBG funds will be used to fund the remaining balance of $1.35 million.
The developer continues to pursue the Project and has expended $1.16 million from the Reimbursement Agreement. The first payment of $760,000 was made upon the execution of the amended Reimbursement Agreement and recordation of deeds on various properties approved by Council as security for the advanced payment. The developer then allocated $400,000 in Downtown Infrastructure Infill funding for eligible infrastructure improvements for the Medici Artist Lofts project.
The Developer anticipates finalizing its financing and breaking ground on Phase I of the OWP project later this summer. As such, staff is requesting the City Council approve a Third Amendment to the OWP Phase I Reimbursement Agreement decreasing the amount from $6.18 million to a total of $4.95 million in reimbursable funding.
The funds being deobligated from the OWP Phase I Reimbursement Agreement will become available under the Downtown Infrastructure Infill Incentive Program for other developers to utilize in future years. In 2015, Council approved the Program for ten years and it will sunset in July 2025 unless extended by the City Council. With defunding a portion of the OWP Phase I project, a balance of $2.25 million remains in the program to support additional projects in downtown.
FINANCIAL SUMMARY
To date, $3.6 million has been allocated toward the OWP Phase I Reimbursement Agreement with $2.7 million encumbered within the Economic Development account number 010-1760-510 and $900,000 from Community Development Block Grant funds. Future dollars received by the City through loan repayments of the Successor Agency to the CDBG fund and/or the City’s annual allocation of CDBG funds will be used to fund the remaining $1.35 million The balance of $1.35 million will be reimbursed at $900,000 in fiscal year 2022-23 and $450,000 in fiscal year 2023-24.
A balance of $2.25 million remain available under the Downtown Infrastructure Infill Incentive Program.
Attachment A - Resolution No. 2016-10-18-1204
Attachment B - Resolution No. 2017-05-09-1103
Attachment C - Resolution No. 2017-10-03-1402
Attachment D - Resolution No. 2019-07-30-1406
Attachment E - Revised Project Description