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AMENDMENT TO THE $2.5 MILLION FEDERAL AND STATE FUNDED LOAN FOR THE CAL WEBER 40 PROJECT, AMENDMENT TO THE AIR RIGHTS LEASE, APPROVAL OF A LICENSE AGREEMENT FOR THE USE OF THE LOT K PARKING LOT LOCATED AT 25 NORTH AMERICAN STREET, AND CONSIDERATION FOR APPROVAL OF ADDITIONAL OR ALTERNATIVE FUNDING SOURCES AND/OR LEASE AND LICENSE TERMS
recommended action
RECOMMENDATION
City Council Action
It is recommended that the City Council adopt a Resolution approving an amendment to the $2,500,000 federal and state funded loan for the Cal Weber 40 project changing the borrower from DFA Development LLC to Cal Weber Associates LP.
Parking Authority Action
It is recommended that the Parking Authority adopt a Resolution:
1. Approving an amendment to the Air Rights Lease that changes the parties to the lease from the Council and DFA Development LLC to the Parking Authority and Cal Weber Associates LP, allows a longer lease period, and provides consistency with changes related to the License Agreement;
2. Approving a License Agreement between the Parking Authority and Cal Weber Associates LP for the use of the Lot K parking lot for a period of one year beginning March 15, 2015, for use as a construction staging area and for the construction of a parking deck above Lot K; and,
3. Authorizing the City Manager, or his designee, to take whatever actions are necessary and appropriate to carry out the purpose and intent of this resolution.
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Summary
On June 24, 2014, the City Council took several actions in support of the Cal Weber 40 project, a proposed mixed use project with ground floor commercial and 40 units of affordable housing on the upper floors, located at 506 and 520 East Weber Avenue (Attachment A - Vicinity Map). The Council actions included the approval of a $2.5 million construction loan, an air rights lease over the Lot K Parking lot located at 25 North American Street, and the sale of a vacant parcel at 30 North California Street to DFA Development LLC ("DFA") (Attachment B - Resolution 2014-06-24-1506). The purpose of the air rights lease was to allow DFA to construct a parking deck over Lot K for use by the project's tenants.
Following the initial approvals, ownership of Lot K transferred to the Parking Authority and a new limited partnership, Cal Weber Associates LP, ("Cal Weber") was created to develop the project. DFA is one of two general partners for Cal Weber and will oversee the development and operation of the project. In light of these changes, as well as concerns over prevailing wages, Cal Weber has requested that the parties to the lease change from the Council and DFA to the Parking Authority and Cal Weber and that the term of the Air Rights Lease, which was approved as a 55-year lease with no payments, be amended to a 65-year lease, no interest, deferred payment loan, with one payment of $370,000 due at the end of the lease. (Exhibit 1 to the Parking Authority Resolution)
Cal Weber is also requesting the use of Lot K as a construction staging area for a one year period beginning March 15, 2015. A License Agreement will allow Cal Weber to use the parking lot as a staging area and construct the parking deck, which will require the installation of footings and support columns in Lot K. Cal Weber has agreed to pay $1,000 per month for the use of Lot K, and prior to the expiration of the License Agreement, will repair, resurface, seal, and restripe Lot K (Exhibit 2 to the Parking Authority Resolution). The improvements to the lot were not envisioned at the time that the original air rights lease was approved by Council; therefore, it is recommended that the air rights lease be amended to include these additional requirements.
This item first came before City Council on February 24, 2015 at which time it was tabled to March 3, 2015 to allow additional information to be presented to Council. This information will be provided at the March 3, 2015 meeting.
DISCUSSION
Background
Cal Weber is proposing to renovate two buildings, located at 506 and 520 East Weber Avenue in downtown Stockton, into a mixed-use project known as the Cal Weber 40. The ground floors of the buildings are currently occupied by a variety of commercial uses. The first floor will remain primarily commercial while the second and third floors of the buildings, which are currently vacant, will be renovated into 40 housing units.
Rent restrictions will be imposed on thirty-nine of the units which will require that these units be rented to low-income tenants earning between 30 and 60 percent of the area's median income as designated by the U.S. Department of Housing and Urban Development (HUD) for 55 years. The remaining unit will be for an on-site manager. It will be a family project and will include 27 two-bedroom units and 12 three-bedroom units.
In June 2014, the Council took three actions in support of the project:
· Council approved a $2,500,000 loan funded with a combination of federal HOME Investment Partnerships Program funds and program income from a HELP loan that the City received from the California Department of Housing and Community Development. Both of these funding sources are restricted and can only be used to provide affordable housing.
· Council approved the sale of a vacant City-owned lot to DFA for $190,000, which was the appraised value of the property as of June 1 2014. The vacant lot will be used for parking and a deck constructed above the parking lot will provide open space and a play area for the residents of the project (Attachment C - Rendering).
· Council approved the leasing of air rights over the Lot K parking lot to allow DFA to construct a parking deck for the use of the project's tenants above the City's parking lot.
In July 2014, DFA applied for and was awarded Low Income Housing Tax Credits. One of the requirements of the tax credits is that project construction must start by March 2015.
Since the time of the initial approvals by the City, ownership of Lot K transferred to the Parking Authority and a new limited partnership, Cal Weber Associates LP, was created to develop the project. DFA is one of two general partners in the Cal Weber partnership and will oversee the development and operation of the project. The creation of the limited partnership is necessary for the tax credit investor and is done for all projects that receive tax credits.
This item first came before City Council on February 24, 2015 at which time it was tabled to March 3, 2015 to allow additional information regarding the prevailing wage issues brought up at the meeting to be presented to Council.
Present Situation
In light of the changes regarding ownership of Lot K and the creation of Cal Weber for the reasons described above, as well as Cal Weber's concern over prevailing wages, Cal Weber has requested an amendment to the Air Rights Lease. The air rights were appraised at $370,000, but to assist the project, the lease was approved as a 55-year lease with no payments required. Cal Weber is now concerned that having the lease provided at no cost will trigger a requirement to pay prevailing wages on the entire project, which would significantly increase its cost.
The requested amendment will: 1) change the parties to the lease from the Council and DFA to the Parking Authority and Cal Weber; and 2) change the terms of the lease from a 55-year lease with no payments to a 65-year lease, no interest, deferred payment loan, with one payment of $370,000 due at the end of the lease.
Although the City Charter limits leases of Real Property by the City to 55 years, the Parking Authority is a Public Purpose Entity and is not bound by the Charter or the 55-year limitation. Therefore, the Parking Authority has the ability to enter into a lease on any terms it deems appropriate. The parking provided on the deck was included as a requirement of the tax credits, and the 65-year lease will ensure that the tenants have access to the parking during the entire length of time that the housing project is under tax credit restrictions.
The air rights lease will also include easements allowing Cal Weber to access the support structures that will be in the parking lot during the period of the air rights lease. These easements will allow Cal Weber the access it requires to maintain the columns and the deck.
Cal Weber has also requested that the Parking Authority approve a License Agreement for the use of Lot K, a 44-space parking lot, for a one-year period beginning March 15, 2015. The License Agreement will allow Cal Weber to use the parking lot as a construction staging area as there is no open area on the project site large enough to allow for the storage of construction material, tools and equipment. It will also allow Cal Weber to construct the parking deck above Lot K, which will require excavating small sections of the parking lot for the installation of the footings and support columns.
To compensate the Parking Authority for the use of the lot, Cal Weber has agreed to pay $1,000 per month and to repair, resurface, seal and restripe the lot prior to the end of the License Agreement. Cal Weber estimates the value of the improvements, including repairing the lot after installation of the footings and support columns, to be approximately $85,000.
During the time Cal Weber is utilizing Lot K, current Lot K users will be able to park across the street in Lot L, which is a 90 space lot and provides ample space for the current patrons of Lot K.
FINANCIAL SUMMARY
The proposed agreement will provide a positive financial impact for the Parking Authority. During the 2013/2014 fiscal year, the net profit from Lot K was approximately $8,000. There are approximately $4,500 of expenses that the City will continue to pay while the lot is closed (Downtown Stockton Alliance assessments, storm drain, water, etc.). Under the proposed agreement, Cal Weber will pay $12,000 for the use of the property, netting the Parking Authority a profit of $7,500.
Also, in addition to repairing any damage to the parking lot that occurs as a result of installing the footings and support columns and utilizing the lot as a construction staging area, Cal Weber has also agreed to resurface the entire parking lot and repair, resurface, seal, and restripe the lot. Cal Weber estimates the value of these repairs and improvements at approximately $85,000. The monthly License Agreement payments, together with the improvements DFA will make to the lot, will result in a net financial gain for the Parking Authority.
Lot L, a 90 space parking lot, located immediately across the street from Lot K, has sufficient space to accommodate those currently parking in Lot K, so there should not be a reduction in parking revenue from the closure of the parking lot.
Attachment A - Vicinity Map
Attachment B - Resolution 2014-06-24-1506
Attachment C - Rendering