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MEMORANDUM

March 17, 2011

To: Bayfront/ITC Task Force

From: Charles Long

Subject: Preliminary Deal Terms Bayfront

Our next meeting is March 21, 2011 at 6pm in the City Council Chamber to review the Preliminary Deal Terms for the public private partnership with Bayfront to implement the Bayfront ITC project.

The attached material describes these Deal Terms, so please review it prior to our meeting.

The Task Force is scheduled to make a presentation concerning its recommendation on whether the Council/Agency should endorse these deal terms on March 22 and begin the process of drafting the detailed legal documents and having and outside 3d party review and report on the fairness of the deal.

While these Preliminary Deal Points are extensive, they are by no means complete. There are many Deal Points that are still under discussion. For instance, the total amount paid for land and the amount to be reimbursed for pre-development expenses are still being negotiated. We expect that these issues will remain uncertain for some time as the parties work to make a deal that meets the interests of all parties. In addition, Hercules Bayfront must still finish its post agreement work plan, including a private development schedule. As these details emerge from the negotiations, the Task Force and the City/Agency will be notified and asked to weigh in.

In addition to the extensive material that is attached, I would like to reiterate some background information that we have discussed at our two previous meetings.

City/Agency financial capacity to fund local share of ITC: As we discussed, all of the Agency bond funds have been spent, except for approximately $13 million remaining in the “reimbursement account” that is legally segregated solely for settling the obligation with Catellus/ProLogis.

I have attached the handout from our March 10 meeting summarizing the “Local Funding Sources” . Here is a brief description of each:

Catellus money: The Catellus obligation is for the Agency to pay 75% of the tax increment from the Victoria-by-the-Bay housing development as reimbursement to Catellus of cleanup costs at the Pacific Refinery. This annual payment obligation extends through 2044. ProLogis purchased Catellus in 2005 along with the “asset” of the annual payments by the Hercules Redevelopment Agency. Recently, Catellus was sold to an investment group called TPG and

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ProLogis kept the receivable from Hercules. Consequently, we are now working with the ProLogis company on the possibility of using some of the remaining bond funds for the ITC project.

Development Impact Fees: The Bayfront project will pay approximately $28 million of Development Impact Fees over the build-out period. This funding will be available, then, as development occurs and will be needed for local infrastructure that is not part of the scope of ITC.

Community Facilities District Tax levied on Bayfront: This source would levy a tax on the Bayfront property to pay for certain public improvements. The Preliminary Deal Points use this financing tool to pay for transit and commercial parking.

Community Facilities District Tax levied Citywide: At the March 10 meeting, we discussed what the Task Force thought of the possibility of proposing a city-wide parcel tax to pay for some components of the ITC and I asked for comments from Task Force members by e-mail on that issue. Attached is a compilation of the response; where responders asked that their names not be disclosed I have abided by that request.

In general, it appears that the judgment of the task force is that proposing a city-wide parcel tax is probably not a viable idea given the lack of trust in the community of the City and circumstances in the economy. , There may be some interest in discussing such a parcel tax proposal in the conjunction with other such proposals for public safety. My suggestion, is that we recognize that the likelihood of a parcel tax proposal for ITC going anywhere is very low.

Sale proceeds of former Redevelopment Agency properties: The three formerly Agency properties listed have a total acquisition value of about $32 million. Pending legislation associated with the elimination of redevelopment may make use of the proceeds of these sales difficult to apply to projects. However, the Agency and City have transferred these properties to the City and the Preliminary Deal Points envision their further transfer to an economic development corporation that would be formed for the purpose of managing these assets and attracting outside funding for economic development.

Tax increment revenues: The Agency currently has an estimated $12.5 million of annual debt obligations ($10 million in bonds and $2.5 million in owner participation agreement payments) and only about $9.5 million of annual tax increment. Approximately $1.7 million of the owner participation agreement obligation is associated with the Catellus (now ProLogis) obligation. Until assessed value increases and produces increased tax increment revenues, the Agency does not have sufficient tax increment revenues to meet its annual debt obligations.

The Agency will need to manage this situation by contacting bond holders and owner participation agreement holders and negotiating a deferral of payment obligations.

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In addition, the State is considering legislation to eliminate redevelopment agencies and to prevent further encumbering of tax increment revenues.

The Preliminary Deal Points are written to allocate “available” tax increment. For any tax increment revenues to be “available” there will need to be a growth in property values in the redevelopment project area and no elimination of redevelopment by the State.

Minimum local funding needs: In the face of these challenges, The City/Agency will need to secure funds to continue to meet its local funding obligations for the ITC project. We estimate that the City/Agency will need to secure a minimum of an additional $5 million to fund the local share of the remaining $80 million costs of the ITC project. Approximately $21 million of outside funding has been committed to the project, leaving approximately $59 million unfunded based on the existing project scope. The City/Agency has already spent $11.4 million on the project of which $8.6 million is from Agency bond funds. This local expenditure to date will meet the local match requirement for early phases of the project but the additional $5 million will be needed to fund local costs and match requirements for future components.

As we discussed on March 10, some project components could be re-designed later to reduce costs, so the amount of costs-remaining could be reduced as much as $10 to $15 million depending on scope changes. However, without at least $5 million of local funds allocated to the project, it will be impossible to proceed beyond the first phase of ITC.

Given the bleak financial circumstances in the rest of the City/Agency, there are only two options for securing this $5 million of additional local funding:

1. Make an agreement with ProLogis to allow some of the remaining $13 million in the reimbursement account to be used for ITC.

2. Sell some of the $33 million of land that the Agency bought with bond funds.

We are actively pursuing both options. Meetings have been held with ProLogis. We are also in active discussions with possible purchasers of the Sycamore Crossings, the 11 acres parcel which the Agency acquired in 2008 for $14,488,510.20.

If the City/Agency is unable to secure this local funding the project may have to be abandoned. The proposed Preliminary Deal Points reflect this reality by requiring the City/Agency to secure this funding by January 1, 2012.

City/Agency land purchase: As we discussed at the March 10 meeting, the City/Agency and Hercules Bayfront have each produced land appraisals. However the scope of these appraisals differs significantly.

I have attached updated handouts from the March 10 Task Force Meeting summarizing the differences between the City/Agency and the Hercules Bayfront Appraisal. As we discussed at the March 10 meeting, the two appraisals evaluate two different amounts and purposes of land.

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The City appraisal evaluates on the approximately 12 acres of plaza area and right of way for streets and the creek. The Hercules Bayfront appraisal evaluates the broader scope of the land needed to implement the entire Hercules/ITC project, including Hercules Point and all the temporary construction easements necessary to actually build the project.

The Preliminary Deal Points do not arrive at a price for the land, but they envision, as shown in Exhibit A to the Deal Points, acquisition of all the land and temporary construction easements needed to implement the entire project, a total of almost 65 acres of land and easemens. In other words, the Preliminary Deal Points address the land and easement comprehensively in a way that the project can proceed to later phases and can construct without delay for additional negotiations for acquisition.

The Preliminary Deal Points do not provide for a cash payment for the land. Instead, they propose that payment for the land would be in the form of a lien on Parcel C, one of the former redevelopment parcels. The amount of this lien has not been agreed upon yet. In addition, the Preliminary Deal Points envision that when Parcel C is sold that payment would be made based on the amount of the original lien plus participation at some percentage of the net sale price (total sale price less the amount of the lien). For instance, if the lien were $4 million the percentage of participation were 25%, then if the land sold for $10 million, the payment would be $4 million plus 25% of $6 million for a total payment of $5.5 million.

Parking: The tentative parking plan is for structured or underground parking of 500 spaces for the commercial development and 450 spaces serving transit. In addition, there are approximately 200 on-street spaces and there may be a need for 100 to 200 temporary spaces to serve transit until the permanent 450 spaces can be financed and built.

The cost of parking is a major concern for this project. The estimated costs of the structured or underground commercial and permanent transit parking is about $38 million. The Preliminary Deal Points envision that the parking would be financed by a Community Facilities District, with available tax increment revenues offsetting the debt service.

Because of the high costs and because the commercial and transit parking have been planned independently of each other, the Preliminary Deal Points require the City/Agency to form the parking district relatively early and to initiate a parking management study. This study would examine the possibility of shared parking, a revenue program for all the parking (including the on-street parking) and recommend measures to reduce parking costs, including the reduction in the total number of parking spaces needed.

Coordinated Project Management (CPM): A major dissatisfaction between Hercules Bayfront and the City/Agency has been the separation of planning activities for the public ITC and the private Bayfront. While there have been excellent examples of cooperation, such as the dewatering program and configuration of the retaining walls, there has also been frustration with

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the scope of elements of the ITC the lack of coordination on construction scheduling to allow private development to proceed quickly.

The Preliminary Deal Points take a giant step forward in addressing the problems here by calling for the creation of a Coordinated Project Management (CPM). The goals are:

i. Capture cost savings for all components by constructing public and private components together;

ii. Allow private value creation to occur at the earliest possible time.

iii. Maximize use of outside funding sources in early phases for the ITC components to allow the City/Agency the time to acquire capital for project management and local match necessary to attract more outside funding;

iv. Timely and continuous communication to all parties about project status and funding needs.

v. Monitor funding availability to trigger re-design of ITC components if necessary to reduce costs within available funding.

The management of this program will be through teams set up for project funding, entitlement, permitting, design and scheduling. The City/Agency will be obligated to staff the interface to these teams by designating a councilmember, executive manager, project manager and planning manager with responsibility for the project. We expect this CPM program to produce lower costs and better coordination between the public and private project components.

Local funding sources

1. Bond funds remaining (approximately $13.4 million) that have been segregated in the account to make a one-time settlement agreement with Catellus of 35 year obligation to pay a share of tax increment. ALL OTHER REDEVELOPMENT BOND FUNDS HAVE BEEN EXPENDED.

2. Development Impact Fees collected from the project. (See estimate)

3. Community facilities district tax levies on the project. (requires vote of landowner)

4. Community facilities district tax levies on the community at large (requires vote of effected tax payers)

5. Sale proceeds of former redevelopment land that has been transferred to the City

a. Parcel C (formerly called the Walmart property) of 17 acres which the Agency acquired in 2008 for $13,916,084.44.

b. Sycamore Crossings property of 11 acres which the Agency acquired in 2007 for $14,488,510.20.

c. The Victoria Crescent property of 6.5 acres which the Agency acquired in 2008 for $3,418,192.66.

6. MAYBE tax increment revenues (looking increasingly unlikely)

Bayfront/ITC Task Force feedback on citywide parcel tax for components of ITC

From Anonymous commenter With the budget problems, the possible police and fire depts trying to add a tax to support their departments, I would not be in support of a ITC tax at this time. My thinking is that if there was to be a special tax proposed I would be in support of a tax of maybe two to three years to help the City of Hercules support city employees. I feel that there will have to be a shared responsibility of all departments when it comes to cuts in services for Hercules. I don't think that I could support a tax specialized for one agency. I also would need more information about this special tax for the ITC/Bayfront. I am not saying that I would be opposed but I need more information on what this tax would do for the project. I can't understand how $800,000 a year would help this project. From Chris Kelley First, I would say that at this very moment, I do not believe people in Hercules would support any such parcel tax. Citizens are jaded by the City of Hercules’ past corruption and current financial mess. And the effects of the 2008 great recession are still with us. Voters would be wary of any pleas for money from their pockets, and I don't think they would want to spend a dime unless, and perhaps, a truly compelling case could be made that such a parcel tax would be a wise move, one for the economic benefit of the entire city. Secondly, as Phil Simmons and I were talking about a couple days ago, we--the Bayfront Task Force--have not even put forth a truly convincing argument as to why the Waterfront project should now go forward at all. We need to do so soon. We need to be able to say something like the following: "We know the waterfront will get developed at some point. If, for example, just 250 homes alone were built there, the city would collect XX number of dollars in tax revenue. But if the Hercules Bayfront LLC new urbanism project goes forward--with its mixture of residential, office and commercial development--the city would collect X-XX times that amount of tax revenue. Moreover, Hercules Point would be preserved as open space for all citizens to use. The Bay Trail would extend through Hercules and be used by locals and visitors. And with the addition of the ITC, train service would be available for Hercules commuters and weekend travelers. If done right as a public-private partnership and with eventual ferry service, the Hercules waterfront could become a destination place, a Sausalito of the East Bay." Some argument along these lines needs to be made to convince voters that the Waterfront project itself is still worthwhile. As for the ITC components, I think that all we need at this point is a basic train stop, a simple bus turn-around for a few WESTCAT bus lines/taxis, no more than 100 spaces for paid ITC parking, and enough ITC land purchased/leased for the city to one day build a ferry dock. We do not need an ITC Station showplace or a station at all. As a comparison, you know the SF Ferry Terminal is only used these days for office and retail space, not for ferry service. Perhaps in the future, a developer would find it economically rewarding to build an ITC station housing retail

space and that structure might also be able to promote the city. But that’s all in the future, not now. From Lynne Lee Personally, I can't see myself paying into something "new" while the city is filled with half finished projects. Maybe down the road when we can get our finances in order and complete the projects that have already started, I can be more assured that my "investment" will come to fruition. Right now, I would feel like more good money would be thrown into another "bad deal" even though I know that we want to turn our city around with this ginormous project. Other Herculeans NOT on our task force might not be ready to pour out more "blood" especially with all that has come to light. From Gloria Rodriguez Have given your thought about announcing the idea of a $100 tax addition for getting our project going. At this time not a good idea from two stand points: 1. People are too stressed with the current economy and are having a hard enough time making ends meet without any more increases. 2. That the increase is for the mess we are in would strike too much of an irritating nerve and no one I know already has any care about spending any more money that they feel might be misused. That is after talking to several people within my BRAVO community. From Susan Keeffe I need more information re your proposed bill. Exactly what would the money be for? The City needs money but I haven't seen or heard of any offers from organizations such as the fire and police to cut back on pension benefits or pay to help out. I would not support paying more taxes if the funds could be used for purposes other than the ITC. Hercules pays very generous salaries and with all the previously wasted consultant contracts I can't support monies going to salaries. Times are really tough right now. There are at least 4 empty houses in Promenade and 2 foreclosures/short sales going on and probably more that are out there. Property values just went down according to Zillow, 1.6 percent. I think the concept needs discussion. From Bill Kelly I like the idea of a city wide parcel tax but am concerned that there is at least one proposal for another city-wide parcel tax be put forward by the Hercules POA. I suggest that an effort be made to talk with the POA about either consolidating this effort or limiting an such proposal to one at a time. Two separate proposals I fear will doom both.

From William Wilkins As we know, the police are asking for a bond for the November election, and I hear that fire is going to do the same. In light of Patrick Tang's discussion about establishing a CFD city wide for Bayfront/ ITC, it seems to me that if we include all three issues in one CFD, it would be more likely to pass. Can we combine all three into one Community Facility District? From Gerard Boulanger 1 - I believe we need to find an agreement with Catellus and we all know why. Catellus name has been tainted with a very high level of controversy lately and I won't comment on that. Nonetheless Catellus can be proud of the Victoria by the Bay development, and as a developer, I think they should be. The interest of Catellus is to see Hercules not going "belly up", but on the contrary to see our city starting new momentums based on viable projects. My point is: I suggest to find a way to integrate Catellus in existing or future developments. Doing so, we may be able to renegotiate our current obligations, freed money we need for the ITC, and hopefully develop new relationship which should lead to mutual financial interest on long term. 2 - Something we didn't explore yet, which could be a good financial help is Sponsorship. I am thinking of the ITC, but not only. The Hercules Point might be another potential project to be partially financed by a local (or not) corporation or a water sports Co. (water sports center, restaurant, park, outdoor stage, etc.). 3 - We have to setup an "Economic Development Agency" to replace our RDA and use it also to lobby for funds from entities we did not approach yet. From Phil Simmons I agree and feel that most of the "waterfront initiative" supporters would not object to a downscaled train station and parking. I do think though that a scaled down product would best be done by figuring a way to upscale it at a later (affordable) date. On the other hand I don't think changing the design is needed up front. The current need to move forward as planned should be done to prevent taking any steps backwards. Time is of the essence. A redesign of the station or even the bridges and bus routing could easily be done to save money and designed for future change. Once the city owns the ITC property adjustments could be made. One that comes to mind is to only build one of the two bridges in the bus loop and for the short term have the bus loop made on the east side of Refugio Creek. One bridge would suffice for single car passenger drop off. Many, if not all, of the "waterfronters" would rather see a simple brick box designed train station (like Bakersfield or Martinez) rather than the current design that is glass and steel. For that matter a simple platform until there is $ would work. Southern CA has many examples (San Juan Capistrano, Mission Viejo, San Clemente).

As to the tax, I have mixed feeling. I would gladly pay an extra $100/year but macro politics have the day. The idea of any additional tax will meet stiff resistance. I also do not think combining a tax initiative with the POD issues would resolve either issue. The public would not be fooled by this and combining the two would put either one at risk. Also, I would like to see some rough $ of tax increments. Charlie, can you draw some simple examples. Let just do something like assume 250 $300k-$600k homes with the rest remaining as parks verses the tax increment from the current plan (residential, retail, commercial, transportation) property tax and sales tax includes. I think this "questimate" would make great points for promoting the project and promoting a possible temporary parcel tax. From Ken Morrison Here are my thoughts on a parcel tax for the ITC. It is very hard to give the city more money when they have thrown away millions on land purchases and consultants on projects that they should not have been doing or were not ready for. In working on the recall I do not think many people are going to look favorably on new taxes at this time. The city is going to have to earn back some trust from the citizens. From Mike Bowermaster My opinion is that a city-wide parcel tax is a great way to make the waterfront project very unpopular. Citizens have learned that there have been years of wasteful spending on very bad (and unwanted) investments, and that all those millions could have been spent instead on the only project that has tremendous public support (as verified by the Initiative). I don't know how now taxing the citizens to fill this void in the Bayfront project would make the people of Hercules anything but angry.

Land conveyance issues

1. The land needed by the City/Agency from Bayfront is for public improvements, which include roads, plazas, trails and creekway.

2. Some of the public improvements included in the ITC budget would normally have been the responsibility of the developer.

3. Some of the needed land reduces the land area for development for Bayfront. The City and HB estimate different amounts of land reduction for development.

4. The two appraisals estimate the value of land for development at different amounts—the City/Agency values it at $20/square foot, the HB appraisal values it at $33/sf.

5. Some of land (roads, trails, creekway) would have to be dedicated to the City for free as a condition of approval of the tentative map.

6. Legal precedents provide parameters for valuing land needed by a public agency that is obtained prior to a tentative map being entitled. Both appraisals value the “dedicated” land at $45,000 per acre.

7. The City appraisal focuses only on the ITC project and leaves out a significant amount of land that is needed for implementing the complete project.

8. The land acquisition terms will be determined as part of the overall business terms of the final agreement which need to reflect the financial circumstances of the parties and create a whole project where both parties obtain fair value.

HERCULES BAYFRONT APPRAISAL COMPARISON TABLE 3/11/11

Parcel  Type Parcel # Name    Acres   Sq.Ft.   City Appraisal HB Appraisal Comments1 RAILROAD DEDICATION   1.40 60,767 DEDICATED 61% estimated as reducing 

developable land area and appraised at development value

13 CREEKSIDE TRAIL 2 OF 2   0.24 10,361 DEDICATED DEDICATED16 POWDERWORKS PLAZA 0.37 16,195 EASEMENT DEDICATED17 BLOCK E 0.83 36,336 Not addressed Pro‐ration of 20% of land area to 

public parking18 BLOCK G 1.00 43,723 Not addressed Pro‐ration of 20% of land area to 

public parking20 EMERGENCY VEHICLE ACCESS   0.13 5,784 EASEMENT DEDICATED22 BAYTRAIL 1 OF 2   0.98 42,682 DEDICATED DEDICATED23 BLOCK K 1.50 65,479 Not addressed Pro‐ration of 45% of land area to 

public parking24 BAYTRAIL 2 OF 2   0.25 10,930 DEDICATED DEDICATED26 JOHN MUIR PARKWAY Right of way  1.27 55,388 DEDICATED DEDICATED

31 REFUGIO CREEK   3.96 172,662 DEDICATED DEDICATED32 BFT ROADWAY DEDICATION   0.15 6,349 DEDICATED DEDICATED33 BLOCK I   0.48 21,080 Appraised at 

development valueAppraised at development value

34 BAYFRONT BLVD   0.75 32,614 DEDICATED DEDICATED35 NORTH CHANNEL   1.04 45,276 DEDICATED DEDICATED37 TRANSIT LOOP DRIVE 1 OF 2   1.21 52,914 DEDICATED DEDICATED38 CREEK PARK PLAZA   0.43 18,884 DEDICATED DEDICATED41 TRANSIT LOOP DRIVE 2 OF 2   0.33 14,413 DEDICATED DEDICATED

Subtotal 16.32 711,837

A WATER‐SIDE SOUTH 13.07 569,434 Not addressed Valued at $7,500/acreB HERCULES POINT   10.96 477,505 Not addressed DEDICATEDC WATER‐SIDE NORTH   26.52 1,155,423 Not addressed Valued at $7,500/acre

Subtotal 50.55 2,202,362

66.87 2,914,199

No # Plat area B/C 0.21 9,148 EASEMENT Not addressed

TEMPORARY CONSTRUCTION EASEMENTSParcel  Type Parcel # Name    Acres   Sq.Ft.   City Appraisal HB Appraisal Comments2 Hillside 0.19 8,227 Not addressed Temp. Construction Easements9 Block B 2.46 106,951 Not addressed Temp. Construction Easements10 Tamalpais Trail 0.84 36,658 Not addressed Temp. Construction Easements11 Bowl Park 0.28 12,196 Not addressed Temp. Construction Easements14 Block D1 0.15 6,632 Not addressed Temp. Construction Easements15 Block D2 1.28 55,969 Not addressed Temp. Construction Easements17 Block E  0.83 36,336 Not addressed Temp. Construction Easements18 Block G 1.00 43,723 Not addressed Temp. Construction Easements19 Block L 1.06 46,373 Not addressed Temp. Construction Easements21 Block M 1.69 73,711 Not addressed Temp. Construction Easements23 Block K 1.50 65,479 Not addressed Temp. Construction Easements25 BLOCK N 2.20 96,044 Not addressed Temp. Ground Lease ‐ Parking27 Block O 1.28 55,659 Not addressed Temp. Construction Easements29 Block Q 1.02 44,432 Not addressed Temp. Construction Easements30 Block R 1.21 52,742 Not addressed Temp. Construction Easements

17.01 741,132

SUMMARY City Appraisal HB AppraisalDevelopment value (acres) 0.48 2.375Dedicated value 12.01 22.62Other value 0.71 26.52

Total 13.20 51.52

 TOTAL LAND ASSOCIATED WITH PUBLIC IMPROVEMENTS

 TOTAL LAND ASSOCIATED WITH TEMP CONSTR. EASEMENTS

DRAFT

MEMORANDUM

To: Fred Deltorchio

From: Charles Long

Subject: Resolution to endorse Preliminary Deal Terms Bayfront

The attached joint City/Agency resolution would endorse preliminary deal terms with Hercules Bayfront and request that legal counsel draft documents for the City and Agency to consider acting upon in May to be effective by July 1. The resolution would also authorize the City Manager/Executive Director to engage the services of an outside third party to review the deal terms and to issue an opinion on their fairness to the community.

The Bayfront/ITC Task Force will review these Preliminary Deal Terms on Monday evening, March 21, at 6pm and will have a recommendation to the Council/Board for the meeting on March 22.

The Preliminary Deal Terms have been crafted based on the principle that no one deal term can be looked at in isolation. The public private partnership has been structured to address he financial circumstances of the parties and to advance the project through creating a relationship of trust and cooperation.

Highlights of the Preliminary Deal Terms which will be incorporated into the legal documents are as follows:

• The public private partnership will be created through a joint development agreement/owner participation agreement with the City and Agency both as parties to the joint agreement (called the Agreement).

• The entitlement will vest for a period of 20 years, with two 5 year renewals based on performance.

• Hercules Bayfront will have a performance schedule for a work plan to market and develop the property. Performance accountability measures will be built into the agreement.

• The City/Agency will reimburse some portion (to be determined through further negotiation) of the approximately $4,750,000 that Hercules Bayfront has spent on studies and planning to accommodate the ITC project.

• The City/Agency will acquire approximately 64.6 acres of land, dedications and easements necessary to fully implement the public improvements and in addition all construction easement rights necessary to construct the public improvements.

• Payment for the land and for the reimbursement of the pre-development expenses will be through a lien on Parcel C (the Walmart parcel) which was recently transferred to the City from the Redevelopment Agency.

• The City will form an economic development corporation to manage the disposition of Parcel C and other land which may need to be sold to generate the resources necessary for the City/Agency to pay the local share of costs of the ITC components.

• Reimbursement for land and for pre-development expenses will occur upon sale of Parcel C with payment of the lien amount and of a percentage of net sale proceeds.

• The City/Agency will need to raise $5 million in the next 120 days to be able to carry out its obligations under the Agreement to pay the local share of costs of the ITC project.

• A Consolidated Project Management Strategy will be implemented that coordinates design and construction scheduling to maximize private value creation and application of outside funding to the ITC components.

• Available tax increment revenues will be applied to project parking costs, ITC project components, gap funding for components of the private development and credits on City fees, in that order of priority. If there is no available tax increment, then the parties will need to develop other funding options to address project viability.

The Deal Terms do not have all the details worked out yet. Issues that still remain to be resolved include:

• Amount of payment for pre-development expenses; • Lien amount on Parcel C associated with land purchase; • Percentage participation in the sale of Parcel C as additional compensation for land. • Final work plan and performance schedule for Bayfront and accountability consequences

for failure to perform.

Resolution of these Deal Terms will require consultation with Hercules Bayfront investors and lenders.

In addition, we expect that the outside third party and the drafting attorneys will have suggestions for shaping the deal as the drafting and third party review commences.

We will bring modifications to the Deal Terms forward as soon as they are resolved in our negotiation with Bayfront.

RESOLUTION 2011-___

A JOINT RESOLUTION OF THE CITY OF HERCULES AND THE HERCULES REDEVELOPMENT AGENCY

ENDORSING PRELIMINARY DEAL TERMS FOR DEVELOPMENT AGREEMENT/OWNER PARTICIPATION AGREEMENT WITH HERCULES BAYFRONT,

ASKING FOR LEGAL COUNSEL TO BEGIN DRAFTING AGREEMENTS AND AUTHORIZING CITY MANAGER TO ENGAGE SERVICES OF OUTSIDE THIRD PARTY

TO VALIDATE THE BUSINESS TERMS OF THE PROPOSED AGREEMENT.

WHEREAS, The Bayfront Project is a privately sponsored $450 million development project on the Hercules Waterfront which was envisioned first by the 2000 Central Hercules Plan and then refined by a community initiative approved by the City Council in July 2008 to create a transit oriented, traditional neighborhood, walkable, mixed-use community of 1,392 residential units, 74,500 square feet of retail, 81,000 square feet of office, 134,000 square feet of flex space and 11 acres of public open space at Hercules Point. The envisioned development of the Bayfront Project is consistent with and implements the Hercules Waterfront District Master Plan, and the Regulating Code for the Central Hercules Plan. The Bayfront’s plan has been guided by the principles of ‘New Urbanism’, ‘Smart Growth’, and pedestrian oriented development and can be divided into three distinct neighborhoods – Crescent Heights (previously referred to as the Bowl), Bayfront Boulevard Mixed-Use (which includes the Intermodal Transit Center), and The Village. To accommodate expanded access and use of the waterfront, an additional 63 acres have been designated as Waterfront Commercial. WHEREAS, The Intermodal Transit Center (ITC) is a $90 million publicly sponsored project located within and serving the Bayfront Project that will provide significantly enhanced transit options for the community as a whole, including a train station, bus service and ferry service and will provide benefits to the Bayfront project in public improvements and place-making. The ITC project has these components:

1. Road improvements to access both the ITC and Bayfront projects, including extension of John Muir Parkway and a bus transit loop that includes a bridge across Refugio Creek;

2. Improvement of Refugio Creek to enhance riparian habitat; 3. A retaining wall south of the railroad tracks, which levels the land for private Bayfront

development and accommodates the pathway for the Bay Trail; 4. Relocation of utilities and removal of a wastewater lift station; 5. A train station, track platform, railroad bridges, track realignment, and signal

modifications; 6. Utility relocations to accommodate the ITC and Bayfront projects; 7. A civic plaza; 8. Pedestrian bridges and emergency vehicle access to allow access north of the railroad and

to the Hercules Point open space area; and,

WHEREAS, The Bayfront and ITC projects are synergistically interrelated and have the potential for creating a great place along the Hercules Waterfront and for contributing significantly to the quality of life for the entire Hercules community; and, WHEREAS, Successful implementation of the Bayfront and ITC projects will require a public–private partnership that clearly assigns responsibility for each component of the two projects, conveys the land from the private owners to the City for development of the ITC, specifies schedules, and creates accountability for performance of both public and private actors, and provides for both public sector and private financing sources, including private debt and equity, public grants and allocations, and Redevelopment Agency tax increment and land secured financing; and, WHEREAS, the Bayfront land-owner, Hercules Bayfront LLC has been negotiating with the City/Agency for over four years and a public–private partnership have now been presented with preliminary deal terms which will be refined over the next month as they are incorporated into legal agreements which can be considered for action; and, WHEREAS, The Bayfront/ITC Task Force, a citizens group of 35 people, have considered and endorsed the preliminary deal points; and WHEREAS, The City Council/Redevelopment Agency Board have previously set a deadline of July 1 for approval of the legal documents associated with the public private partnership; and WHEREAS, The City Council/Redevelopment Agency Board wish to insure that the final deal points incorporated into the legal documents are reviewed and validated by an independent third party; NOW, THEREFORE THE HERCULES CITY COUNCIL AND REDEVELOPMENT AGENCY BOARD DO RESOLVE AS FOLLOWS:

1. To endorse the Preliminary Deal Points, as set forth in Attachment A to this resolution and to encourage further negotiations to refine these deal points so they can be considered for action by the Council and Board prior to the July 1 deadline.

2. To request legal council to prepare the development agreement and owner participation agreement and any related legal documents necessary to effectuate the final version of the deal points.

3. To authorize the City Manager/Executive Director to engage the services of an outside independent third party to review the final deal points and issue an opinion to the Council and Board on whether they represent a fair deal for the community.

PASSED AND ADOPTED THIS 22ND DAY OF MARCH 2011 BY THE FOLLOWING VOTE: AYES_____________________________ NOES_____________________________

ATTACHMENT A

Preliminary Deal Points Bayfront/ITC

March 16, 2011

Business terms among the Hercules Bayfront, the Agency and the City will be stipulated in a joint owner participation agreement/developer agreement (the Agreement) acted upon simultaneously by the Agency and City.

Agreement provisions:

1. Entitlement: Vesting of the entitlement for the Bayfront Project over 20 with 2 five year renewals, subject, to performance, in return for benefits created by the project.

2. Consent by current lien holder: Agreement to be recorded as a condition of title and current lien holder to consent to the agreement and to forebear from foreclosure.

3. Prevailing Wage: City and Agency to approve as an additional party the Project Stabilization Agreement between Hercules Bayfront and Contra Costa Labor Council and to limit application of the City Redevelopment Agency’s Prevailing Wage Policy solely to project components defined as public works projects.

4. HBL performance schedule: HBL will meet performance schedule that includes:

a. Open escrow to convey all land and easements for public improvements/access as listed in EXHIBIT A within 30 days.

b. Implementation of a work plan that addresses:

i. Development phasing plan to be included in the Agreement. Accountability for meeting this development phasing plan will be built into the Agreement and will set performance schedules based on the dates at which permitting for construction permits

has been obtained from regulatory agencies. Performance scheduling shall address:

1. Schedule for initiating private development.

2. Capital financing commitments for private development.

3. Budgets and tasks for a work plan that finishes the pre-development phase and moves the project to the development phase shall be included in the Agreement. The availability of the capital needed to implement this work plan shall be verified by Hercules Bayfront within 30 days of the date of the Agreement.

ii. Accountability for meeting milestones in the performance schedule shall be built into the work plan and shall be in the form of financial penalties.

5. Agency/City performance schedule: Agency/City will meet a performance schedule from the date of the Agreement as follows:

a. Complete due diligence on all land within 90 days. If issues uncovered during due diligence, Hercules Bayfront and Agency/City will work in good faith to resolve. All land, use rights and easements shall be conveyed free and clear of liens associated with loans or of other conditions that would make the properties unusable for the use intended. City/Agency shall review the condition of the sites, including condition of title and soils prior to close of escrow and may identify conditions that require resolution by the parties prior to close of escrow.

b. Close of escrow on all land to occur 30 days after completion of due diligence.

c. Formation of an economic development corporation within 30 days to serve as a vehicle for developing and disbursing capital to the Bayfront/ITC project.

d. Confirmation of the “Agency Interface” commitments as part of the Joint Project Management program.

e. Conveyance of real property formerly held by the Redevelopment Agency to economic development corporation within 45 days.

f. Formation of a Parking District CFD to fund parking for commercial and for transit needs within 90 days and complete comprehensive parking management strategy within another 90 days.

g. Processing of all environmental permits for construction of the ITC components.

h. Securing $5 million of capital to fund local share of costs of ITC within 180 days and funding, through local and outside sources the following components of the ITC:

ITC Component Estimated Cost (000) 

1  Lift station removal*  $1,5002  Bayfront Bridge  $2,1253  John Muir Parkway/Refugio Creek  $2,9004  Bay Trail/Retaining Walls  $14,0005  Utility Relocation  $5,1006  Railroad Bridge (north section)  $1,0007  Track/Platform/RR Bridge  $19,0008  UP Signal  $1,0009  Station Structure  $19,400

10  Transit Loop  $6,90011  Café/Civic Plaza  $2,70012  Soft costs    a  Design*  $1,900b  Environmental/Permitting*  $400c  Project management*  $285d  Construction management  $2,500e  Legal*  $200f  Other    

Total Estimated Costs  $80,910 

If the Agency is unable to secure funding for the local share of the ITC project components, the parties will need to negotiate a resolution of this failure to perform.

i. Completion of development program for Hercule Point recreation area within 1 year of date of Agreement.

6. Reimbursement of pre-development expenses: In recognition of the costs incurred by Hercules Bayfront to accommodate the ITC project, Agency/City agrees to record a lien for an amount (to be determined prior to City/Agency action on the Agreement) to be incorporated into the Agreement against Parcel C to the benefit of Hercules Bayfront or assignee. This amount paid upon sale of Parcel C.

7. Land purchase: As payment for all land, temporary construction easements and use rights listed in Attachement A, Agency/City to record a lien for an amount (to be determined prior to City/Agency action on the Agreement) against Parcel C to the benefit of Hercules Bayfront or assignee. \

a. Upon sale of Parcel C, beneficiary of the lien that is the sum of payment for land and the payment of predevelopment expenses shall receive from sale the amount of the lien plus a percentage of net sale proceeds. (lien and percentage to be determined prior to City/Agency action on the Agreement)

b. Sale of Parcel C to occur within 3 years of effective date of the Agreement. Hercules Bayfront or assignee shall have a right of first offer to insure a market sale price.

c. If the Agency/City needs temporary parking for the transit center, terms of a temporary lease will negotiated.

d. There will be no additional payments for use of private property for joint parking structures or temporary construction easements.

8. Tax Increment application: Available tax increment means non-housing tax increment revenues received by the Redevelopment Agency in excess of Agency obligations for bond service and for prior owner participation

agreements from anywhere in the merged project areas. Agency available tax increment shall be applied in accordance with the following priorities:

i. Debt service issued by the Parking District for parking for transit.

ii. Contribution to offset debt service burden of commercial to Parking District debt service until commercial is 90% occupied and has average rents of $30 per square foot per year. For each $1/sf increase in average rents over $30/sf commercial will assume additional 10% of debt service burden. Hercules Bayfront shall provide rent roles for commercial properties to determine the level of Agency contribution to debt service.

iii. Funding for the local share of other ITC components.

iv. Targeted application of tax increment to fund financial gaps in specific project components of Bayfront to be negotiated based on validated cost and market data.

v. Credits to development impact fees up to the full amount of such fees.

vi. Payment of the public art fee of 1% of construction value

vii. Payment of the general plan fee of 1% of construction value

viii. If there is no tax increment available to apply to the purposes listed above, the parties will negotiate how to address the financial viability of the ITC and Bayfront project.

9. Affordable housing requirement: Project to develop or cause development resulting in production of 15% of the residential units as affordable by people of low and moderate income with 40% of these units of this set aside for “very low income”. This requirement must be met within the Hercules Bayfront project and cannot be met by payment of in-lieu fees or production of units at other locations.

a. Hercules Bayfront may apply for the use of the 30% for tax increment allocated to affordable housing to assist with meeting its affordable housing set aside requirement, but may, as a consequence of use of

these funds be required to produce a higher percentage of affordable units within its project.

b. The parties will review the financial impact of the affordable housing requirement and will work in good faith to attempt to address impacts that undermine the overall financial viability of the Bayfront project.

10. Consolidated Project Management: Agency/City and Hercules Bayfront will establish a Consolidated Project Management responsible for scheduling for all project components, including ITC. The overall goal of the CMP is to work together to get things done sooner. The CMP has athe following operating principles and structure:

a. Operating principles

i. Capture cost savings for all components by constructing public and private components together;

ii. Allow private value creation to occur at the earliest possible time.

iii. Maximize use of outside funding sources in early phases for the ITC components to allow the City/Agency the time to acquire capital for project management and local match necessary to attract more outside funding;

iv. Timely and continuous communication to all parties about project status and funding needs.

v. Monitor funding availability to trigger re-design of ITC components if necessary to reduce costs within available funding.

b. Structure:

i. Agency/City Interface – Agency/City will assign

1. A City Councilmember to assist with interface with funding agencies on behalf of the project.

2. Executive manager as spokesperson and manager of the Agency/City activities.

3. Project manager for day-to-day activities

4. Planning Manager

ii. Hercules Bayfront will fully participate in the CMP teams.

iii. Teams:

1. Fund raising: Chaired by City/Agency

2. Conditions of approval and permitting management: Chaired by City/Agency

3. Design Management: Chaired by Hercules Bayfront;

4. Schedule Management: Chaired by Hercules Bayfront.

HERCULES BAYFRONT, LLC ITC LAND SALES--EXHIBIT A TO THE AGREEMENT

Parcel Areas in Vesting Tentative MapTemp

Easements Parcel Description City HBL Sq.Ft. Acre Prorata % Sq.Ft. Acres Sq.Ft. Acres % Sq.Ft. Acres Est. Duration

1 Railroad X X 60,767 1.40 3.5% 23,980 0.55 36,788 0.17X 2 Hillside 8,227 0.19 0.5% 100% 8,227 0.19 1 year

3 Block A 68,582 1.57 4.0%4 Block C1 10,107 0.23 0.6%5 Spanish Steps 5,154 0.12 0.3%6 Block C2 19,480 0.45 1.1%7 Shorehaven Drive and Park Street 81,170 1.86 4.7%8 Historic Square 4,806 0.11 0.3%

X 9 Block B 106,951 2.46 6.2% 30% 32,085 0.74 1 yearX 10 Tamalpais Trail 36,658 0.84 2.1% 100% 36,658 0.84 1 yearX 11 Bowl Park 12,196 0.28 0.7% 100% 12,196 0.28 1 year

12 Block C3 49,376 1.13 2.9%13 Creekside Trail 2 of 2 X X 10,361 0.24 0.6% 10,361 0.24

X 14 Block D1 6,632 0.15 0.4% 100% 6,632 0.15 2 yearsX 15 Block D2 55,969 1.28 3.2% 100% 55,969 1.28 2 years

16 Powder Works Plaza X X 16,195 0.37 0.9% 16,195 0.37X 17 Block E 36,336 0.83 2.1% 7,267 0.17 80% 29,069 0.67 3 yearsX 18 Block G 43,723 1.00 2.5% 8,745 0.20 80% 34,978 0.80 3 yearsX 19 Block L 46,373 1.06 2.7% 65% 30,142 0.69 1 year

20 Emergency Vehicle Access X X 5,784 0.13 0.3% 5,784 0.13X 21 Block M 73,711 1.69 4.3% 45% 33,170 0.76 1 year

22 Baytrail 1 of 2 X X 42,682 0.98 2.5% 42,682 0.98X 23 Block K 65,479 1.50 3.8% 29,466 0.68 55% 36,013 0.83 3 years

24 Baytrail 2 of 2 X X 10,930 0.25 0.6% 10,930 0.25X 25 Block N 96,044 2.20 5.5% 100% 96,044 2.20 5-7 years

26 John Muir Parkway X X 55,388 1.27 3.2% 55,388 1.27X 27 Block O 55,659 1.28 3.2% 25% 13,915 0.32 1 year

28 Block P 70,369 1.62 4.1%X 29 Block Q 44,432 1.02 2.6% 25% 11,108 0.26 1 yearX 30 Block R 52,742 1.21 3.0% 25% 13,186 0.30 1 year

31 Refugio Creek X X 172,662 3.96 10.0% 172,662 3.9632 Public Roadway X X 6,349 0.15 0.4% 6,349 0.1533 Hercules Plaza (Block I) X X 21,080 0.48 1.2% 21,080 0.4834 Bayfront Blvd. X X 32,614 0.75 1.9% 32,614 0.7535 North Channel X X 45,276 1.04 2.6% 45,276 1.0436 Block J 37,200 0.85 2.1%37 Shoreline Loop 1 of 2 X X 52,914 1.21 3.1% 52,914 1.2138 Edgewater Park X X 18,884 0.43 1.1% 18,884 0.4339 Yosemite Drive and Street 75,139 1.72 4.3%40 Historic Grounds 2,060 0.05 0.1%41 Shoreline Loop 2 of 2 X X 14,413 0.33 0.8% 14,413 0.33

Subtotal 1,730,874 39.74 100.0% 508,432 11.67 103,345 2.37 449,393 10.32

A Water Parcel - South X 569,434 13.07 569,434 13.07B Hercules Point X 477,505 10.96 477,505 10.96C Water Parcel - North X 1,155,423 26.52 1,155,423 26.52

Subtotal 2,202,362 50.56 2,202,362 50.56

Total Land Area 3,933,236 90.29 2,710,794 62.23 103,345 2.37 449,393 10.32

64.60

APPRAISAL

HBL APPRAISAL - Land Required for ITCDevelopable Temp Constr. EasementsDedicated

DRAFT