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APPROVE A MOTION TO TERMINATE THE DOWNTOWN INFRASTRUCTURE INFILL INCENTIVE REIMBURSEMENT AGREEMENTS WITH OPEN WINDOW PROJECT, LLC AND OWP PHASE 2, LP, AND DE-OBLIGATE AND REPROGRAM FUNDS
recommended action
RECOMMENDATION
It is recommended that the City Council approve a motion:
1. Approving the Termination Agreement (Attachment A) of the Downtown Infrastructure Infill Incentive Reimbursement Agreements for Open Window Project, LLC and OWP Phase 2 LP;
2. Approving the de-obligation and reprogramming of $1,400,000 CDBG funds to be made available through the Annual Action Plan approval process;
3. Approving the de-obligation of the Open Window Project and the budget appropriation of $1,940,000 in General Fund to stay in the Downtown Infill Infrastructure Reimbursement Program; and
4. Authorizing the City Manager, or designee, to take all the necessary and appropriate actions to carry out the purpose and intent of this motion, including execution of the Termination Agreement and performing all City actions discussed therein.
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Summary
On July 07, 2015, the City Council approved a Downtown Infrastructure Infill Incentive Reimbursement (“DIIIR”) Program to support infill development in the downtown core (Attachment B - Resolution 2015-07-07-1502). In 2016, the City executed a DIIIR Agreement with Open Window Project, LLC (“OWP1”) for up to $3.8 million to assist with Phase I of its Open Window Project (the “Project”) (Attachment C - Reimbursement Agreement Phase I). In 2019, the City executed a second DIIIR with OWP Phase 2, LP (“OWP2”) for Phase II of the Project (Attachment C - Reimbursement Agreement Phase II). From 2016-2020, the Project experienced multiple changes to the scope resulting in three amendments to the DIIIR Agreement for Phase I, including a drastic reduction in residential units and commercial space. On January 11, 2022, Council approved, at the request of OWP1, the revocation of the Open Window Project Master Development Plan (“MDP”) and termination of the Development Agreement (“DA”) associated with the Project, attached as (Attachment E - Resolution 2022-01-11-1602). Staff now recommends the termination of both DIIIR Agreements with OWP1 and OWP2 through the approval of the recommended motion.
DISCUSSION
Background
To support infill development in the downtown core, the City Council approved a new incentive program titled the Downtown Infrastructure Infill Incentive Reimbursement Program in July 2015. In February 2016, the City approved a MDP and DA for the Project, encompassing approximately 15 square blocks within the downtown Stockton core. In the MDP and DA, Phase I of the Project originally consisted of approximately 200 residential units and 92,000 square feet of commercial space.
On November 29, 2016, OWP1 entered into a DIIIR Agreement with the City for up to $3.8 million to assist with Phase I of the Project. On May 16, 2017, OWP1 and the City executed the first amendment to the DIIIR Phase I Agreement which caused an early release of $760,000 in funding to OWP1 (Attachment F - Reimbursement Agreement Phase I Amendment 1). It secured said funding with a lien on seven properties owned by OWP1: 510, 532, and 544 East Miner Avenue, 221 North American Street, 617 East Channel Street, 621 East Channel Street, and 210 North American Street (the “Liens”). On December 19, 2017, OWP1 and the City executed the second amendment to the DIIIR Phase I Agreement authorizing an additional $2.38 million in DIIIR funding for a new total of $6.18 million (Attachment G - Reimbursement Agreement Phase I Amendment 2). The scope for Phase I of the Project increased to 261 residential units, of which 231 would be market-rate units and 92,000 square feet of commercial space.
A second DIIIR Agreement was executed on August 12, 2019, for up to $1.8 million to assist with Phase II of the Project. In July 16, 2020, a third DIIIR amendment to the Phase I Agreement was executed, decreasing the Phase I OWP Project scope to 129 market-rate residential units and 54,263 square feet of commercial space (Attachment H - Reimbursement Agreement Phase I Amendment 3). The City reduced reimbursable funding from $6.18 to $4.95 million.
At the January 11, 2022, City Council meeting, the Council approved, at the request of OWP1, the revocation of the MDP and termination of the DA.
Present Situation
Over the course of the last seven years, Staff has actively engaged with the Developer to discuss project progress relating to the DIIIR Agreement, changes in the housing market and demands, as well as compliance with the MDP and DA. From discussions held through December 2022 and January 2023, City staff and the Developer agreed on the present proposal to terminate the DIIIR Phase I and Phase II Agreements, both effective immediately upon execution of the Termination Agreement. OWP1 will return funds in the amount of $193,162.90 back to the DIIIR program based on a payment schedule outlined in the Termination Agreement: this amount was calculated from the $760,000 advanced in 2017, less eligible expenses already incurred by OWP1 on development of the project. In addition, the de-obligation of the Open Window Project will reduce the General Fund contract liability by $1,940,000. Staff recommends keeping the $1,940,000 General Fund budget appropriation in the DIIIR program. In support of the DIIIR program, Economic Development Department’s General Fund, Business Development Division will retain the $1,900,00 budget appropriation. As for the $1,400,000 CDBG funds, the City will reprogram back to CDBG. Future annual estimated costs will be included in the annual budget appropriation process. The release of the Liens on Open Window properties will occur upon mutual agreement of an acceptable plan during OWP1’s payment schedule for the return of the $193,162.90. The Termination Agreement stipulates additional terms and conditions.
FINANCIAL SUMMARY
A total of $760,000 was disbursed to OWP in General Fund and $400,000 in Community Development Block Grant (“CDBG”) funding was re-assigned to the Medici project. Termination of the DIIIR Agreements will result in a repayment of funds totaling $193,162.90 back to the DIIIR program. In addition, the de-obligation of the OWP will reduce the General Fund contract liability by $1,940,000. Staff recommends keeping the $1,940,000 General Fund budget appropriation in the DIIIR program. In support of the DIIIR program, Economic Development Department’s General Fund, Business Development Division will retain the $1,940,000 budget appropriation. As for the $1,400,000 CDBG funds, the City will reprogram back to CDBG. Future annual estimated costs will be included in the annual budget appropriation process.
Attachment A - Termination Agreement
Attachment B - Resolution 2015-07-07-1502
Attachment C - Reimbursement Agreement Phase I
Attachment D - Reimbursement Agreement Phase II
Attachment E - Resolution 2022-01-11-1602
Attachment F - Reimbursement Agreement Phase I Amendment 1
Attachment G - Reimbursement Agreement Phase I Amendment 2
Attachment H - Reimbursement Agreement Phase I Amendment 3