REPORT TO COUNCIL
SUBJECT
Title
Update on Agrihood project located at 1834 Worthington Circle / 90 North Winchester: Disposition and Development Agreement and Project Approvals
Report
EXECUTIVE SUMMARY
In 2015, a Request for Proposals was issued by the City for the development of a 5.8-acre City-owned site formerly known as the BAREC property, located at 1834 Worthington Circle / 90 North Winchester. In September 2015, CORE (Developer) was selected as the developer of the project. The Developer has been working with the City to process its entitlements and to negotiate the terms of a Disposition and Development Agreement. The purpose of this report and the study session is to provide background on the project together with a summary of current activity and next steps.
BACKGROUND
In 2005, the former Redevelopment Agency executed a Purchase and Sale Agreement (2005 PSA) with the State of California / Department of General Services (State) to acquire a 5.8-acre vacant site located at 90 N. Winchester Boulevard (Property). The Property was a portion of the 17-acre Bay Area Research and Extension Center (BAREC) owned by the State of California. The balance of the property was sold by the State to SummerHill homes for the Midtown Village project. The terms of the Redevelopment Agency’s Purchase and Sale Agreement with the State required that the site be developed with approximately 165 senior affordable housing units.
In 2007, the Council granted multi-family zoning approval for a senior affordable housing project on the property. The 2007 affordable project, as planned at the time, required a subsidy from the Redevelopment Agency. The State transferred the property to the City’s Housing Authority on January 5, 2012. As required under the 2005 Purchase and Sale Agreement, the Grant Deed contained a provision that required the Housing Authority to start construction of the project by January 5, 2015 or ownership of the property would return to the State.
With the demise of the Redevelopment Agency, the tax increment funds reserved to assist any future development on the site were lost and the project stalled. By October 2013, the City sent a request to the State seeking an extension on the commencement of construction. In November 2013, the State determined that justifiable cause existed to grant a 36-month extension, moving the deadline for commencement of development to January 5, 2017 but with the same reversionary requirement if the deadline was not met.
By early 2015, the City issued a Request for Proposals (RFP) seeking new development proposals for the Property. Developers were asked to build 165 senior affordable housing units and to propose a project that would limit (or eliminate) the need for City subsidies. On September 29, 2015, the Council selected Core Affordable Housing, LLC (Core) as the developer of the Property and authorized the negotiation of an Exclusive Negotiating Rights Agreement (ENA) with Core (Developer). Core’s proposal was to develop the site with the required senior affordable housing together with mixed income multi-family housing, market rate townhouses, and an area for urban agriculture.
The ENA was executed on April 21, 2016 and established tasks to be undertaken by the Developer and City. The ENA provided a term of 12 months and allowed up to two six-month extensions if needed. On April 3, 2018, the City Council approved the First Amendment of the ENA, which among other items, extended the term of the ENA to October 20, 2018 with the possibility of one further six-month extension to April 20, 2019.
During the ENA period several concurrent efforts impacted the project schedule and the structure of the transaction including: 1) seeking modifications to the State requirements; 2) Project for Public Spaces work effort and report; 3) project entitlements; and 4) project financing and the Disposition and Development Agreement (DDA).
State Agreement
In order to allow for the development of market rate housing and to extend the State deadlines contained in both the 2005 PSA and the 2012 Grant Deed, approval by the Legislature and the Governor was required. Signed by Governor Brown in September 2016, SB680 authorized several modifications to the Grant Deed including: a minimum requirement of 165 senior affordable housing units; allowing for a matching number of market rate units; requiring no less than 1 acre of open space; requiring immediate City payment to the State of $4,050,000; and modifying the outside completion of construction date to January 5, 2023 (or the Property would revert to State ownership). Agreements with the State were finalized and the City made its payment and recorded the amendments in January 2017.
Project for Public Spaces
Following the work with the State, on February 7, 2017, Council approved an agreement with Project for Public Spaces (PPS) to conduct planning and place making activities citywide and to conduct a visioning workshop specifically for the open space on the project site. The results of the PPS workshop were presented to the City Council on June 13, 2017. Recommendations made by PPS included changes to the Developer’s site plan in order to create better public gathering spaces and more place making opportunity. The Developer subsequently modified their project site plan to respond to the PPS report and submitted a revised site plan to the City in January 2018.
The Project
The property located at 1834 Worthington Circle, is a vacant site proposed for development with a mixed use, multi-family project (“Agrihood”) that is located along the west side of North Winchester Boulevard. The property has also been referred to as 90 North Winchester. The subject site consists of a single parcel of Planned Development (PD) zoned land with an area of 5.80 acres (252,806 SF - APN # 303-17-053).
The site is bordered by Winchester Boulevard to the east and by Worthington Circle to the north and west. Surrounding land uses include single-family, detached residences to the north and south and single-family detached townhouses to the west. A small commercial center and an office building in use by the County for veterans services are located adjacent to the southeast corner of the site. The Valley Fair shopping center is located to the east of the site, across Winchester Boulevard. The site is currently in temporary use as employee parking to support Valley Fair during construction at the shopping center. Currently, site improvements are limited to the temporary parking lot, but the perimeter improvements are complete with sidewalks, curbs, and gutters finished on all street frontages.
The Agrihood project as proposed includes 361 residential units, of which 165 will be below-market-rate (BMR) units reserved for seniors and veterans at an average of approximately 45% AMI, 160 mixed-income/market-rate rental apartments (including 144 market rate and 16 BMR units) and 36 for-sale townhomes. The project features 1.5 acres of open space, programmed for a variety of uses including urban agriculture, the basis of the project name. The Final Plan also included the following changes based on the Project for Public Spaces Process:
• Relocated open space to a location along Winchester Blvd.
• Activated building edges
• Reprogrammed areas to support a variety of “placemaking” activities:
o Addition of a community kitchen
o Addition of a café/restaurant
o Addition of a performance area within open space
Project Entitlements
Following the submission of an application to the City in January 2018 for site rezoning and project approvals, the Developer completed a project EIR on July 5, 2018. The proposed rezoning and project EIR were reviewed by the Planning Commission on August 8, 2018. The Planning Commission voted unanimously to recommend approval of the Project (4-0-2). Approximately 22 members of the public spoke at the Planning Commission hearing. A majority of the speakers represented regional stakeholders and spoke in favor of the project’s affordable housing and agricultural components. Four residents of the adjacent neighborhood expressed concern with potential impacts from the project to privacy for the neighbors along the south side of the project site (Dorcich Street), parking, and general public safety. The Planning Commission discussion acknowledged benefits the project would provide and included consideration of the potential need for a permit parking program to minimize parking impacts on the adjacent residents.
Project Financing and DDA
With the loss of redevelopment funds needed to subsidize the affordable housing project, the City’s RFP allowed development teams to propose a structure that would allow the City to re-invest the land proceeds from the market rate components of the project into the affordable component. At the time of Council selection of CORE, CORE’s proposal required reinvestment of all land proceeds and approximately $5 million in additional City funds. Although cost of construction has increased significantly and outpaced land values since 2015, City staff has worked with the County of Santa Clara through its Measure A program to develop a financing structure that eliminates the investment of further City subsidies in the project (See Discussion below).
In November 2016, Santa Clara County residents approved the 2016 Measure A Affordable Housing Bond (Housing Bond), a $950 million general obligation bond that will create new affordable rental and homeowner housing opportunities. The Housing Bond is part of an ongoing effort to: 1) increase affordable housing opportunities for our community’s most vulnerable and poorest residents; and, 2) to prevent and reduce homelessness throughout Santa Clara County. The Housing Bond builds on key policy shifts and communitywide partnerships that occurred over the last five years. City staff and the Developer are currently working together and collaboratively with the County to document the transaction and financing structure in the DDA.
Community Engagement
Community engagement efforts for the project have included the City’s standard outreach activities for land use entitlements (e.g., mailed notices, on-site posting, community meetings and public hearings), supplemented with additional outreach through the PPS process, numerous stakeholder outreach efforts on the part of the project applicant, and several Council meetings related to the City’s role as a property owner (see attachments). Between August 2017 and September 2018 there were more than seven organized stakeholder meetings. These efforts have provided considerable opportunity for community input and have resulted in the redesign of the project to orient the open space toward Winchester Boulevard and programming of the open space to support additional “placemaking” activities.
DISCUSSION
The project, known as “Agrihood” and/or “90 North Winchester Boulevard”, is envisioned as an innovative, multigenerational community for Santa Clarans of all ages, backgrounds, and socioeconomic status, and would feature a 1.5 acre open space programmed to support place-making activities, as well as a unique urban farm, that would provide an urban living environment with a connection to Santa Clara’s rich agricultural history. The urban agriculture concept originated through meetings with the local community and other interested stakeholders. The Developer conducted a series of small group meetings including seniors, veterans’ groups, farmers, non-profits, educators, and nearby residents, held five general community meetings and participated in the six-month process with PPS. The current proposal was thus shaped by stakeholders through these engagement efforts.
With 181 units to be designated as affordable to lower income residents, the project is also the largest affordable project currently in Santa Clara’s affordable development pipeline. City and County staff and the project developer have worked to create a viable financing program for the project and staff anticipates bringing a Disposition and Development Agreement (DDA) to City Council for consideration in conjunction with Council consideration of the project land use entitlement actions.
Some of the key terms that the DDA will address include: 1) the project site plan; 2) affordability levels; and 3) transaction of the property.
Site Plan
The developer has proposed to develop the property with four components (Attachment #1):
1) Affordable Senior Housing, which includes 165 affordable senior and affordable senior veteran rentals;
2) Mixed- Income Apartments, which includes 144 market rate and 16 moderate income rental housing;
3) Townhouse Units, consisting of 36 market rate for-sale townhouses; and
4) Urban Agricultural Open Space, comprised of a plaza, community building, gardens, and educational and recreational programming. As a result of the PPS process and subsequent recommendations, the project open space was relocated to front onto Winchester Boulevard and reprogrammed to support a variety of “placemaking” activities.
The project will require that prior to conveyance to the Developer the property be subdivided into additional parcels in order to facilitate the respective project components. Through the project design process, the applicant has worked to address both the interests of the immediate neighbors and of community stakeholders in general who view this as a key project within Santa Clara. While Midtown Village residents raised serious concerns about the project’s density and the impact on parking, traffic, safety, and neighborhood compatibility, other community stakeholders felt the site warranted increased density and more progressive non-residential programming. While many of these goals are opposing, Staff felt that overall, the project achieved an adequate balance of addressing the varying goals, concerns, and interests.
The architectural style, building massing, and use of materials were designed to be compatible with the existing community around the development site and to reflect an agricultural theme. The tallest, densest portions of the development are focused toward the center of the site. The for-sale townhouses are designed to create a transition between the existing single-family residences, while the higher-density buildings will be against Winchester Boulevard. The massing of the larger buildings will be sited toward the building’s center so that the periphery is lower in height. The multi-family buildings are also designed to have large courtyards that serve as extensions of the Agricultural Component, maximizing the gross area of outdoor space and promoting strong connections.
Affordability
The Developer intends to develop the senior housing parcel with 165 units of housing to be leased as follows:
(a) 50 units to be leased to 30% Average Median Income (AMI) Households
(b) 54 units to be leased to 40% AMI Households
(c) 18 units to be leased to 60% AMI Households
(d) 41 units to be leased to 60% AMI Households
(e) 2 units to be leased to 120% AMI Households, provided that units to be leased to 120% AMI Households may be used as two resident apartment manager’s units (the “Management Unit(s)”) to the extent required under applicable law.
Although the unit counts have remained relatively unchanged since the RFP, there have been significant changes to project’s level of affordability, and to the proposed financial transaction and deal terms since the developer’s proposal was originally selected in 2015. Delays that were caused by the requisite work the State on the 2005 PSA and Grant Deed and the analysis by PPS, were further complicated by escalating construction costs which at one point prevented the project from being financially feasible. Escalating construction costs and challenges to develop a financially feasible project increased the delays associated with the City entering into negotiation of a Disposition and Development Agreement (DDA).
To address the financing issue, City Staff worked with the Developer to reprogram the Senior Project leveraging other local subsides, namely County Measure A Funds. The City of Santa Clara is partnering with the County on multiple development projects in order to access Measure A resources and to reach some of our community’s most vulnerable and poorest residents. As a result, the developer increased the proposed percentage of Extremely Low Income (ELI) and Very Low Income (VLI) units in order to qualify for the County’s Measure A Funding Program.
These changes provided access to $18 million in Measure A funds that offset an equally large financing gap, leaving the City’s remaining capital contribution at zero. (The City previously provided contribution for the original purchase agreement with the State and the land subsidy). Additionally, the current proposal is based on a ground lease for the senior housing site so that the City will retain long term ownership of the affordable parcel. A Summary of these changes is provided in the following table:
The 120% AMI units would include two manager units in the senior housing project and the affordable portion of the mixed-income building.
Transaction of the Property
The City is currently the owner in fee of the property. Consistent with the original project concept, at closing, the Developer will acquire the market-rate and mixed-income parcels at a value of $15,262,000 which was determined through an appraisal process. Upon payment of the property purchase price and satisfaction of the City’s Conditions Precedent to Closing, the City will convey the property to the developer excluding the portion to be developed as affordable senior housing.
Concurrently, the City will convey a ground lease for the Affordable component of the project to the Developer and re-invest $15,262,000 in to the affordable project though a Loan Agreement. As a requirement of the loan the developer must maintain the affordable units for rent to qualified tenants for 55 years. The ground lease is recommended to run coterminous with the affordability restrictions on the Senior Project of 55 years.
The challenge with financing affordable projects, especially with AMIs around 50%, is that the cash flows are very tight and it is extremely difficult to leverage any private financing using a minimum debt service coverage ratio of 1.15, which is a lending standard. Also, cash flows tend to be negative around Year 20, which is one of the reasons why low income affordable projects require significant capital subsidy at closing. An additional challenge for lenders on the Agrihood project is that the State Grant Deed includes a right of reverter, which stipulates that if the Affordable Project and Open Space Element are not completed by January 5, 2023, the entire site reverts to the State. The right of reverter makes the project even more difficult to finance. Securing financing for an affordable housing project may take up to a year. There is currently enough time for the Developer to secure building permits (1 year) and then complete construction (2+ years). However, any delays to the project will only further complicate the ability to finance development.
The anticipated funding sources for the affordable project include the following sources (estimates):
Next Steps
City staff and the Developer are working closely to document the transaction in a Disposition and Development Agreement (DDA); form of Ground Lease; Loan Agreement; Affordability Agreement and several other documents. The basic framework of these documents is outlined in this staff report.
The DDA records the required terms and conditions in order for the City to convey the property to the Developer. The draft form of Ground Lease and Loan Agreement will be attached to the DDA. These documents will control how the Senior Affordable Project will be developed and the terms and conditions of the relationship between the City and Developer over a 55 year term. An Affordability Agreement will restrict AMI levels for the affordable residential units.
The project entitlements have been approved by the Planning Commission and will be brought forward for the Council’s consideration together with a request to approve the DDA and other documents related to the property transaction.
It is currently anticipated that the Agrihood project will be brought forward for Council consideration in November.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
Staff
Reviewed by: Andrew Crabtree, Director of Community Development
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Agrihood Site Plan
2. Project for Public Spaces Presentation to City Council Study Session
3. Project for Public Spaces Workshop Summary
4. Summary of Prior City Council Direction
5. Agrihood Community Outreach Timeline