REPORT TO CITY COUNCIL
SUBJECT
Title
Declaration of Property as Exempt Surplus Land and Approval of Exclusive Negotiation Agreement with Valley Oak Partners for a Potential Land Exchange of the City Hall Civic Center Campus (1405 Civic Center Drive, APN 224-25-074) for the Agnews Office Park and Historic Site (4220 Network Circle, APNS 216-33-022 and 097-08-114) and Direction on the Formation of Community Advisory Committee
Report
BACKGROUND
Agnews VOP, LLC (“VOP”) is currently Oracle Corporation’s designated development partner for portions of the Agnews Office Park and Historic Site located on Network Circle in Santa Clara. In 2023, VOP submitted a residential development application for the site pursuant to provisions of State Housing Law commonly referred to as the “Builder’s Remedy.” The City disputes the applicability of the Builder’s Remedy provisions to the proposed project, and the parties subsequently entered into a tolling agreement to allow additional time for discussions regarding potential alternative development and settlement concepts.
As part of those discussions, the City and VOP began exploring the potential for a land exchange involving the City’s existing City Hall property located at 1500 Warburton Avenue and a portion of the Agnews campus. Through these preliminary discussions, the parties identified the potential opportunity to relocate City Hall operations to the Agnews campus while facilitating redevelopment of the existing City Hall site and portions of the remaining Agnews property.
Valley Oak Partners, LLC is a vertically integrated real estate operating company that focuses on investment and development opportunities throughout the San Francisco Bay Area. Founded in 2008, the company utilizes an entrepreneurial and proactive approach to identify and capture market opportunities in the highly dynamic Bay Area. Valley Oak Partners is led by a team with over 125 years of collective experience in creating local development opportunities. Their extensive entitlement expertise is built on decades of experience with local municipalities, land use policies, and regional planning trends. To date, the company has been responsible for delivering more than 4,000 residential units and over 2 million square feet of commercial development to the region. Some notable projects completed by Valley Oak Partners include the entitlement of: 1) 737 residential units on River Oaks Parkway in North San Jose, 2) 242 residential units on Sunnyvale Saratoga Rd in Sunnyvale, CA, 3) 785 residential units, 350,000 square feet of Class A office and a 150-room hotel at Warm Springs in Fremont, and 4) the 1.1 million-square-foot Platform 16 office campus in downtown San Jose. By maintaining a local focus, the firm ensures that its decision-making is project-specific and tailored to the unique needs of the communities in which it operates.
Under the preliminary proposal currently being evaluated, the City would potentially acquire approximately 26.9 acres within the Agnews campus area, including approximately 288,420 square feet of existing building improvements across nine buildings. Portions of the property are subject to historic preservation easements and related restrictions that require preservation of several historic structures and surrounding open space areas. While maintaining historic buildings and open space, the proposal contemplates potential reuse and renovation of portions of the campus for future City Hall and civic operations, while also allowing for residential redevelopment opportunities on the City’s existing Warburton Avenue site and portions of the remaining Agnews property.
To assist the City in evaluating the proposal and negotiating the potential transaction, the City has retained Century Urban, LLC as the City’s real estate and financial advisor to provide strategic real estate analysis, valuation review, transaction advisory services, and related due diligence support. In addition, the City has retained Burke, Williams & Sorensen, LLP as outside legal counsel to assist with real estate, land use, CEQA, and transaction-related legal matters associated with the proposed Exclusive Negotiation Agreement (“ENA”) and potential land exchange discussions. These consultant teams are supporting staff in evaluating the proposal, protecting the City’s interests, and assisting the City Council in assessing the legal, operational, financial, and policy considerations associated with the proposed project. In addition, the City has contracted with ICF and subconsultants as the environmental consultant to assist with analyzing the project in compliance with California Environmental Quality Act (CEQA).
To be clear, the City has not made a decision to proceed with the relocation or the transaction with Valley Oak Partners. The aforementioned work efforts and those planned during the exclusive negotiation period will inform the City’s decision-making process and provide information to be shared with the general public and the Community Advisory Committee (described later in this report). Nothing in this report (including the recommendation to proceed with an Exclusive Negotiation Agreement) should be construed as a recommendation to proceed with the transaction and relocation of Santa Clara’s Civic Center complex to the Agnews campus. Staff has not arrived at a recommendation for or against the VOP proposal.
As noted in the Fiscal Impact section of this report, the proposed ENA and associated Reimbursement Agreement, states that VOP will reimburse the City for all third-party consultant and professional service costs incurred in connection with the evaluation and negotiation of the proposed project, including outside legal counsel, real estate and appraisal consultants, environmental consultants, technical studies, and other due diligence-related expenses, except that the City will share in paying half of the Community Engagement Consultant costs. Existing City staff time associated with project coordination, review, and administration will be absorbed within existing departmental operating budgets.
DISCUSSION
VOP’s proposal presents an opportunity for the City to explore a transformative civic and community development initiative that could reposition City Hall operations, preserve and activate a historically significant campus, facilitate new housing opportunities, and create long-term public benefits for the community. The proposal provides the City with the opportunity to evaluate whether portions of the Agnews/Oracle campus could serve as a viable future civic center location while also allowing for potential redevelopment of the existing City Hall site and surrounding properties in a manner that supports broader City planning, housing, economic development, and community objectives. Given the complexity and long-term implications of the proposed transaction, the ENA process is intended to provide the City and VOP sufficient time and flexibility to conduct comprehensive due diligence and evaluate the operational, financial, environmental, legal, planning, and community considerations associated with the proposal before the City Council considers any final approvals or commitments. The discussion below summarizes the major components of the proposed ENA process, including the proposed agreement terms, project schedule and milestones, environmental review process, Surplus Land Act considerations, and the proposed formation of a Community Advisory Committee (“CAC”) to support transparency, public participation, and ongoing community engagement throughout the evaluation process.
Proposed Agreement
The proposed Exclusive Negotiation Agreement, Attachment 1, between the City and VOP establishes a framework for the City and VOP to evaluate and negotiate the potential terms of a complex land exchange and related development opportunity involving the City Hall site and portions of the Oracle/Agnews property.
Importantly, approval of the ENA does not constitute approval of any development project, land exchange, disposition of City property, General Plan amendment, zoning action, environmental determination, or final agreement. Rather, the ENA establishes the negotiating parameters and due diligence process necessary for the City to fully explore the opportunity and evaluate whether the proposed transaction and related projects are in the best interests of the City and community. The ENA allows the City to conduct technical, environmental, financial, operational, legal, and planning analyses so that the City Council may make informed decisions regarding any future actions associated with the proposed project. At the same time, the ENA expressly provides that the City retains full discretion regarding any future approvals and that no binding commitment to complete the project is created by the ENA itself.
The ENA also ensures that the City’s costs associated with evaluating and negotiating the project are reimbursed by the VOP, including outside legal counsel, consultant support, environmental review costs, and other project-related expenses. The City will be conducting community engagement as well in which VOP will be sharing in the cost of those efforts.
Key terms of the proposed ENA include the following:
• Term: Establishes an exclusive negotiation period through June 1, 2027, unless earlier terminated or extended by mutual agreement.
• Due Diligence: Requires extensive due diligence activities by both parties, including:
o geotechnical investigations;
o hazardous materials review;
o title review;
o infrastructure and utility analysis;
o parking and circulation analysis;
o facility relocation and operational feasibility review; and
o financial feasibility evaluations
• Environmental Review: As further discussed below, the agreement requires preparation and processing of all necessary environmental review documentation pursuant to the California Environmental Quality Act (“CEQA”) prior to consideration of any future project approvals. This obligation continues beyond the termination of the ENA if the Developer so wishes to continue processing its residential development project submitted in 2023.
• City Council Approvals: Specifies that all future discretionary approvals, including land use entitlements, environmental determinations, and approval of any final agreements, remain subject to future City Council consideration and approval.
• Reimbursement of Costs: Requires VOP to reimburse the City for project-related costs and expenses associated with negotiating and evaluating the proposed transaction.
• Schedule and Timeline: Establishes milestone schedules and coordination procedures intended to facilitate orderly project evaluation and negotiations.
• Termination Provision: Allows either party to terminate the ENA if due diligence, financial feasibility, title review, operational considerations, scheduling constraints, or other material issues indicate the project should not proceed.
• Special Default/Remedies Provisions: The Agreement prohibits the parties from negotiating with any other entity with respect to this proposed transaction, and more specifically prohibits the City from engaging in negotiations with Oracle with respect to the City acquiring the VOP Exchange Parcel. Violation of this provision gives the non-defaulting party a right to legal and equitable remedies as further outlined in the ENA.
• Tolls Builder’s Remedy Project: Provides that the ENA does not waive or resolve the parties’ respective positions related to the pending Builder’s Remedy dispute and preserves each party’s legal rights regarding that matter.
Through the ENA process, staff will continue to evaluate the proposed concept and negotiate potential transaction terms, while returning to the City Council at future public hearings for consideration of any required environmental review documents, land use approvals, surplus land findings, and any final transaction agreements.
The proposed ENA includes multiple “off-ramps” and termination provisions that preserve the City’s discretion and ability to discontinue the process if the proposed project is determined to be infeasible, financially impractical, inconsistent with City objectives, or otherwise not in the public interest. The ENA allows the City to terminate negotiations if due diligence findings are unsatisfactory, if mutually acceptable business terms cannot be reached, if required approvals or environmental clearances cannot be obtained, if scheduling milestones are not achieved, or if the City Council determines not to proceed with the proposed transaction or related projects.
Milestones/Schedule
Included in the ENA is a preliminary milestone schedule, Exhibit B, outlining the anticipated timeline, major milestones, public engagement activities, environmental review process, and key decision points associated with the proposed ENA evaluation process and potential City Hall relocation study. As currently proposed, the schedule anticipates the ENA becoming effective on the date of execution, followed by commencement of the CEQA process in August 2026 and completion of the initial due diligence period by November 2026. The schedule further anticipates negotiation and drafting of a Land Exchange Agreement in early 2027, release of draft environmental documents and related project materials for public review in January 2027, Planning Commission consideration in March 2027, and potential City Council consideration of environmental documents, project applications, and the proposed Exchange Agreement in April 2027. If ultimately approved by the City Council, the current schedule anticipates closing of the land exchange transaction in May 2027.
The schedule is intended to provide the City Council and community with a general framework for how the City anticipates conducting the due diligence, technical analysis, community outreach, environmental review, and negotiation activities necessary to evaluate the feasibility and viability of the proposed land exchange and related projects. The schedule is preliminary in nature and may be adjusted as additional analysis, environmental review requirements, community input, agency coordination, and overall project considerations evolve throughout the ENA process.
Environmental Review and Approval
The City anticipates holding public hearings before the Planning Commission and City Council to consider the required land-use entitlements and the associated environmental review for the proposed projects. To support the environmental review process, the City has retained ICF to prepare the necessary California Environmental Quality Act (CEQA) documentation and Hexagon Transportation Consultants, Inc. to prepare the required transportation analysis. The CEQA review process will be integrated into the overall entitlement process and will include multiple opportunities for public participation and agency review prior to the City Council's final action. Public outreach and stakeholder engagement will be conducted throughout the entitlement process by both the applicant team and the City. In accordance with CEQA requirements, the public will have opportunities to participate during the Notice of Preparation (NOP) process, the public review period for the draft environmental document, and all duly noticed public hearings before the Planning Commission and City Council. It is anticipated that the final certification of the EIR, adoption of CEQA findings, and action on other analysis and environmental documents as necessary to comply with CEQA will be part of the overall entitlements and will be brought to the City Council in April of 2027.
Surplus Land Act Compliance
The Surplus Land Act is a state law that requires local agencies to complete certain procedures before transferring agency-owned land. As an initial step, the agency typically must declare property to be “surplus land” or “exempt surplus land” before entering into formal negotiations regarding agency-owned land. If land is surplus land, the Surplus Land Act sets forth a specific process for making the property available and negotiating potential disposition terms. If land is exempt surplus land, the majority of the Surplus Land Act’s procedures do not apply. However, the Surplus Land Act requires local agencies to declare property to be exempt surplus land, make written findings in support of this declaration, and provide a copy of the determination to the State Department of Housing and Community Development (“HCD”) at least 30 days before closing the transaction to dispose of the property in question.
Here, if the transaction proceeds as contemplated in the Exclusive Negotiation Agreement, the current City Hall campus would be exempt surplus land. The Surplus Land Act defines “exempt surplus land” to include “surplus land that a local agency is exchanging for another property necessary for the agency’s use.” (Gov. Code § 54221(f)(1)(C).) If the transaction proceeds, the City would be exchanging a city-owned parcel for another parcel, a portion of the Agnews property that includes the historic resources associated with the former St. Agnews hospital. If the transaction is approved, the City would use the acquired property for its City Hall Improvement Project, which would allow the City to create a modernized and expanded City Hall that meets the City’s current and future facility needs. Therefore, the City would be exchanging its current property for property necessary for the City’s use, and it is accordingly exempt from the Surplus Land Act.
Staff recommends that, in connection with the approval of the Exclusive Negotiation Agreement, the City Council declare the property to be exempt surplus land based on findings presented in the draft Resolution (ATTACHMENT 3). Following the City Council’s determination, City staff would submit the Resolution to HCD for its review and secure HCD’s confirmation of the City’s exemption determination before entering into any transaction document, should the City Council determine to go forward with the property exchange.
Owner Authorization
Staff is requesting authorization for the City Manager to execute property-owner authorization forms and related application materials necessary for the VOP to submit and process development applications associated with the proposed project on City-owned property. Because the City is the current property owner of the City Hall site, owner authorization is required in order for applications, environmental review documents, technical studies, and related entitlement materials to be submitted and processed during the ENA evaluation period. This authorization is administrative in nature and is intended solely to facilitate the City’s ability to evaluate the feasibility and impacts of the proposed project concepts. The authorization would not constitute approval of any project, land use entitlement, environmental determination, land exchange, or other final action by the City Council.
Community Advisory Committee
The potential relocation of City Hall to another location within the City represents a significant public decision for the community. While substantial technical, operational, financial, and environmental analysis will be required to evaluate the technical feasibility of any potential relocation, meaningful engagement with residents, businesses, and community stakeholders will also be critical throughout the process. To promote transparency, public participation, and ongoing community dialogue regarding the potential City Hall relocation, staff proposes establishing a Community Advisory Committee. Staff will prepare a proposed scope of the Community Advisory Committee role for presentation to the Council at the meeting in which the Community Advisory Committee is formed.
Selection Process
The CAC would consist of one representative appointed by each City Councilmember to ensure broad, district-based representation and citywide participation. Appointments are expected to be made at the June 9 City Council meeting.
Next Steps
If Council approves the ENA, in the coming months, staff will continue conducting the necessary technical, financial, legal, operational, and environmental due diligence associated with the proposed project and will return to the City Council in June to formalize the formation of the Community Advisory Committee, as well as return to the City Council in Closed Session, as appropriate, to discuss ongoing negotiations and due diligence findings related to the proposed project prior to any future consideration of formal project approvals or transaction agreements.
ENVIRONMENTAL REVIEW
The Exclusive Negotiation Agreement involves feasibility and planning studies for possible future actions that the City may take, which actions have not yet been approved, adopted, or funded. Therefore, California Environmental Quality Act (“CEQA”) Guidelines Section 15262 classifies approval of the Exclusive Negotiation Agreement as statutorily exempt from CEQA. As summarized above, to ensure that potential environmental impacts are analyzed, the City will analyze the Project’s environmental effects as necessary to comply with CEQA prior to making a final determination to go forward with the potential land exchange, acting on project approvals, or entering into any final, binding agreements with the potential to result in physical environmental effects.
FISCAL IMPACT
Pursuant to the proposed ENA and associated Reimbursement Agreement, Attachment 3, VOP will reimburse the City for all third-party consultant and professional service costs incurred in connection with the evaluation and negotiation of the proposed project, including outside legal counsel, real estate and appraisal consultants, environmental consultants, technical studies, and other due diligence-related expenses, except that the City will share in paying half of the Community Engagement Consultant costs. Accounting for this project will occur in the existing Civic Center Campus Future Needs appropriation in the Public Buildings Capital Fund. Existing City staff time associated with project coordination, review, and administration will be absorbed within existing departmental operating budgets.
COORDINATION
This report was coordinated with the City Attorney’s Office, Community Development Department, and the City Manager’s Office. HCD coordination will be required to obtain HCD’s validation of the City’s Surplus Land Act findings should the City Council determine to proceed with the land exchange.
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 or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
1. Adopt Resolution Declaring Real Property Owned by the City to be Exempt Surplus Land and Approving an Exclusive Negotiation Agreement between the City and Agnews VOP, LLC for a Potential Land Exchange and City Hall Improvement Project which includes:
a. Declaring the current City Hall property to be exempt surplus land;
b. Authorizing the City Manager to sign and execute the Exclusive Negotiation Agreement in substantially the form presented, in a final form approved by the City Attorney; and
c. Authorizing the City Manager to perform all other acts, and enter into other agreements or sign documents necessary to carry out the purposes of the Resolution.
2. Authorize the City Manager to execute property owner authorization forms and related documents necessary to permit the submission, processing, and evaluation of development applications, entitlement applications, environmental review documents, and related materials associated with the proposed project on City-owned property, provided that such authorization shall not constitute approval of any project, land use entitlement, environmental determination, or final transaction by the City; and
3. Direct staff to bring back the formation of a Community Advisory Committee, with each Councilmember appointing one representative from their district, and the Mayor an at-large appointments, with Committee formation and appointments anticipated for the June 9 Council meeting.
Staff
Reviewed by: Elizabeth Klotz, Assistant City Manager
Approved by: Jovan Grogan, City Manager
ATTACHMENTS
1. Exclusive Negotiation Agreement
2. Resolution
3. Reimbursement Agreement