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SA - ACTION ITEM: Approval of an Amendment to the Disposition and Development Agreement by and between the Successor Agency to the Culver City Redevelopment Agency and Culver Public Market, LLC, Related to a Commercial Project at Washington Boulevard and Centinela Avenue (Culver Public Market) located at 12337 - 12423 Washington Boulevard, 4061 - 4063 Centinela Avenue, and 4064 Colonial Avenue.
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Meeting Date: October 28, 2024
Contact Person/Dept: Elaine Warner/Office of Economic and Cultural Development
Phone Number: (310) 253-5777
Fiscal Impact: Yes [] No [X] General Fund: Yes [] No [X]
Attachments: Yes [X] No []
Public Notification: (E-Mail) Meetings and Agendas - City Council (10/23/2024)
Department Approval: Jesse Mays, Assistant City Manager (08/27/2024)
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RECOMMENDATION
Staff recommends the Governing Board of the Successor Agency approve an amendment to the Disposition and Development Agreement by and between the Successor Agency to the Culver City Redevelopment Agency and Culver Public Market, LLC, related to a commercial project at Washington Boulevard and Centinela Avenue (Culver Public Market).
BACKGROUND
In October 2018, the Successor Agency to the Culver City Redevelopment Agency (Successor Agency) entered into a Disposition and Development Agreement (DDA) with Culver Public Market, LLC (Developer) for the development an artisanal market hall with food vendors and restaurants located on two sites at the northerly corners of Washington Boulevard and Centinela Avenue (Project). The Project was to be curated by UrbanSpace, an approved master lessor with market hall expertise. Subsequently, a separate City Development and Construction Contract (DCC) was executed to require the Developer to construct a three and a half-level public parking structure that would accommodate approximately 180 public parking spaces to serve the Project and the local business district. Preliminary construction of the Project commenced in Fall 2019 relative to utility undergrounding and surface grading.
Both the DDA and the DCC contain Force Majeure provisions which temporarily excuse (up to 24 months total) a party from performing under certain circumstances, whereafter the other party may terminate the agreement. In March 2020, the Developer invoked the Force Majeure provisions of the DDA (and the DCC) due to the COVID-19 pandemic and ceased constructing the Project. Shortly thereafter, UrbanSpace terminated its master lease with the Developer due to the unprecedented global social and economic impacts of the pandemic. The Developer requested additional time (beyond the maximum 24 months) to explore alternative market hall curators as well as boutique grocery market formats such as Erewhon or Mother’s Market. Since then, the Successor Agency and the City have repeatedly extended the Force Majeure period in order to allow the Developer to explore alternative tenanting and financing given the mutual financial investment in the Project. Despite the extended period, the Developer has been unable to secure a viable market hall operator/element and has requested that the Successor Agency amend the DDA to modify the Project to remove the market hall component, maintain the artisanal food/restaurants component, and expand the public plaza amenities.
DISCUSSION
The Developer is requesting approval of an amendment to the DDA relative to the Scope of Development, the Site Map, the Schedule of Performance and the Developer’s Financial Proforma (Attachment 1).
Scope of Development and Site Map
The current DDA requires the Developer to provide for a high-quality pedestrian-oriented community development of approximately 26,835 square feet across two sites (Site A and Site B).
Site A
Site A is located on the northwest corner of Washington Boulevard and Centinela Avenue and is approximately 53,022 square feet (1.22 acres). The existing DDA requires the construction on a portion of Site A of an 11,483 square foot market hall with an additional 10,122 square feet of ground floor food retail and public plazas. The Developer would like to modify the requirement to remove the entire market hall component, to reduce the restaurant/food retail space by 122 square feet, and to increase the public plazas fronting the Project.
As described above, a separate agreement with the City, the DCC, requires the Developer to construct a three and a half-level public parking structure, on a different portion of Site A, that would accommodate approximately 180 public parking spaces. As part of this public-private partnership under the DCC, the City previously approved a contribution of $6.6 Million (currently in escrow) to be utilized towards the construction of the parking structure for the Project and surrounding commercial district. The estimated cost was approximately $8 Million, and the Developer is required to pay the rest of the cost of construction of the parking structure (approximately $2 Million at the time of entry into the DCC). The Developer has proposed reducing the public parking structure from three and a half levels to two levels with a decrease in the available public parking from approximately 180 to 125 spaces.
The Developer estimates that the City’s contribution would fund the entirety of the parking structure at the reduced size and would no longer require a Developer contribution. However, if the construction cost of the parking structure were to exceed the City’s contribution, the City may wish to consider a revenue sharing program to assist the Developer in funding the difference. In order to implement the Developer-desired reduction in the size of the proposed public parking garage, the DCC (as well as a related Parking License Agreement) would need to be amended by the City in the future. Such amendments to the proposed public parking garage are not a part of the proposed DDA amendment being considered at this time.
Site B
Site B is located on the northeast corner and is approximately 19,736 square feet (0.45 acres). The existing DDA requires the construction of 5,230 square feet of floor area for restaurant and food retail uses, outdoor dining space with landscape, and a 20-stall surface parking lot. The Developer would like to modify the required Site B improvements to reduce the restaurant/food retail space by 1,730 square feet and to increase the outdoor dining footprint. On-site parking of 20 spaces would be maintained.
On August 15, 2024, the Developer submitted an application with the modifications to the previously approved Comprehensive Plan to Current Planning. Staff has reviewed the proposed project modifications and issued an administrative decision on the minor modification on September 23, 2024. In accordance with CCMC Chapter 17.640, the appeal period ended at close of business on October 8, 2024; no appeals were filed.
Schedule of Performance
As part of the proposed amendment to the DDA, the Developer desires to revise the Schedule of Performance, which would include, among other things, timeframes for the completion of revised schematic, design development, and construction drawings. Construction of the Project is estimated to take no longer than 24 months and would commence within 30 days after the building permit is issued. The Developer is hoping to begin construction in the Summer of 2025 with completion in late 2026/early 2027. If the Developer had not invoked the Force Majeure provisions of the DDA and the DCC, then the Project and the public parking structure were required to be completed by July 24, 2021.
In addition to the Successor Agency’s approval, the Oversight Board would need to consider the proposed amendment to the DDA, and the State of California Department of Finance (DOF) would need to review the Oversight Board’s approval, if granted, for consistency with the approved Successor Agency Long Range Property Management Plan (LRPMP). It is estimated that these additional reviews would take approximately two months. Further, the Developer’s Finance and Investment Committee is required to review the approved project (slated for January 30, 2025) relative to project financing. The current Force Majeure extension is in effect until February 15, 2025; however, if the Developer, the Successor Agency, the Oversight Board, and the DOF approve the proposed DDA amendment, then its updated Schedule of Performance would supersede, and thereafter only the City and the Developer would remain parties to the Force Majeure Extension Agreement.
Project Feasibility
The Developer has submitted an updated proforma that highlights current Project expenditures, anticipated costs, revenues and overall financial return on the Project. As of August 2024, the Developer estimates the total Project development costs at approximately $23.81 million. This includes approximately $8.44 in previously incurred land acquisition, plan development, permitting, and construction costs plus additional pre-construction costs for revised construction drawings and permit applications related to the currently proposed scope of development. However, it is important to consider that approximately $7.16 million of these costs are not attributable to the currently proposed scope of development. As such, the Project development costs associated with the currently proposed scope of development that are being considered by the Successor Agency total approximately $16.65 million.
The stabilized annual net operating income (NOI) for the currently proposed scope of development is estimated at approximately $1.09 million. Based on that NOI and the $16.65 million development costs associated with the currently proposed scope of development generate a stabilized return on investment (ROI) of approximately 6.54%. Comparatively, this type of investment would typically command a stabilized ROI in the range of 7% to 8%. If the costs that are not attributable to the currently proposed scope of development are included, the ROI is decreased to approximately 4.58%.
The Successor Agency has confirmed with the Developer that the Developer would like to proceed with the Project, despite the lower return, given its current investment in the Project.
Programming and Operation
The Developer is proposing the expansion of public plaza and outdoor dining space both on Site A and Site B. The Developer is proposing to activate Site A with culinary pop-ups, art programming, and other events to bring the local community together as well as to attract visitors to the area. Use of plaza space could also be available for programming by the City and potentially with other community organizations as approved/coordinated with the Developer.
Regarding operation, the Developer has requested to revise the approved maintenance plan relative to the reduced intensity of the Project and the anticipated tenant contributions. These reductions would pertain to reducing security and on-site janitorial staffing levels, however, would be comparable to other similarly sized projects in the Developer’s parent company’s portfolio. The Developer would provide an alternative plan for the City’s review.
Community Meeting
The Successor Agency and the Developer hosted a community meeting on July 18th to share the modified plans with the community. Approximately 40 people attended the meeting and provided comment. During the meeting, the Developer provided an overview of the approved plan, unforeseen challenges relative to the COVID-19 pandemic and ensuing market conditions, challenges in re-engaging a market hall curator and tenant and the transition to the modified/reduced Project. The Developer highlighted opportunities for increased activation as well as potential specialty food tenant mix (El Moro, Slice House, Smog City, etc.). Generally, community comments were focused on the following:
• Traffic mitigations, vehicular access, concerns about ingress/egress off Colonial Avenue
• Staging, parking, truck access and potential negative impacts to neighborhood during construction
• Consideration of housing as part of the Project
• Concerns about redevelopment and potential neighborhood displacement
• Request to protect existing small businesses and incorporate complimentary businesses to the area
• New business employee parking
• Traffic and traffic/pedestrian safety near intersection and at Boise Avenue
• Outdoor activation component (e.g., programming for performers)
• Appreciation of smaller scale of the Project.
It is anticipated that all traffic mitigations previously approved for the Project would remain in effect for the modified Project.
Considerations
If the Successor Agency’s Governing Board approves the terms and conditions outlined above for the proposed DDA amendment, then Successor Agency staff would finalize the DDA amendment for execution by the Developer and the Successor Agency and submit it to the Oversight Board for consideration in November 2024.
If the Successor Agency’s Governing Board chooses not to accept the Developer’s proposal, then the Governing Board will need to provide direction to staff regarding any alternative Project terms and/or termination of the DDA. The Force Majeure for the previously approved Project expires on February 15, 2025. It is important to note that the termination process would require recapture of the property, new developer proposal/selection, new disposition and development agreements, and would delay the development for several years.
FISCAL ANAYSIS:
To date, the Successor Agency and the City have invested/committed nearly $17 Million into the Project, including land acquisition, parking structure set-aside funds, relocation, and legal/financial services. If the proposed amendment to the DDA is approved, then it is anticipated that the Project would generate approximately $159,800 in revenues to the City on an annual basis in the form of property tax, sales tax and business tax revenue (Attachment 2). Additionally, it is anticipated that the revised Project would generate approximately 120 temporary jobs and 101 permanent new jobs in the community.
California Government Code Section 53083
When the City approved the DCC in connection with the Project, it prepared a report as required by California Government Code Section 53083 (“Section 53083”) as the City agreed to give the Developer an economic development subsidy of $100,000 or more (i.e., the $6.6 Million described above). Among other things, that report estimated how much tax will be generated and how many jobs will be created. Section 53083 also requires that at the 5-year mark, the City prepare a report and hold a hearing describing among other things how much tax was generated and how many jobs were actually created. The 5-year mark was reached on May 28, 2024, however due to COVID-19 delays, little, if any, tax has been generated, and no jobs have been created. It is suggested that the City prepare the report and holds the hearing at a later date, accounting for the period of the Force Majeure delay due to COVID-19.
ATTACHMENTS:
1. Proposed Amendment to Disposition and Development Agreement (includes as Attachments: Site Map, Scope of Development, Schedule of Performance and Developer’s Pro Forma)
2. Anticipated Project Tax Projections
MOTION:
That the Successor Agency:
Approve an amendment to the Disposition and Development Agreement by and between the Successor Agency to the Culver City Redevelopment Agency and Culver Public Market, LLC, related to a commercial project at Washington Boulevard and Centinela Avenue (Culver Public Market). located at 12337 - 12423 Washington Boulevard, 4061 - 4063 Centinela Avenue, and 4064 Colonial Avenue.