TO:
Honorable Mayor and Members of the City Council
THROUGH:
Mark Danaj, City Manager
FROM:
Bruce Moe, Finance Director
Andy Sywak, Economic Vitality Manager
SUBJECT:Title
Review Alternative Uses for Site and Draft for Request for Proposal for Hotel Developer at Parkview Site (Finance Director Moe).
PROVIDE DIRECTION
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council consider a report on alternative uses for the Parkview site, and provide direction on a preferred use. Should Council determine that the preferred use is a hotel, staff recommends City Council review the list of hotel developer finalists from the Request for Qualifications process and approve the hotel development Request for Proposal (RFP) that would be used to select a hotel developer for that site from the three recommended finalists.
Body
EXECUTIVE SUMMARY:
The City has been exploring alternative uses for a city-owned parking lot located at the southeast corner of Parkview Avenue and Village Drive (Parkview Site Aerial View - Attachment #1). At its Dec. 1, 2015 meeting, City Council directed staff to research additional alternative uses to the Parkview site, while also soliciting Request for Qualifications (RFQ) from hotel developers interested in developing a high-end life style hotel for the site. Please note that the area under exploration is limited exclusively to the parking lot; neither Manhattan Village Soccer Field nor any other open space or athletic facilities is under consideration. In the event the City Council authorizes staff to issue a RFP seeking proposals for a hotel or other private development (e.g., senior housing), the RFP will require that any potential developers increase the capacity of the parking lot so that there is adequate parking for, not only the existing uses, including visitors to and users of the soccer field, that currently use the lot, but for any future uses.
The alternative uses include those identified in the Keyser Marston study of economic options: Office Building and Apartments Homes. City Council requested information on other uses including older adults housing, athletic (soccer) field and open space/park. These options are discussed in further detail in this report, and have varying degrees of fiscal impacts.
Staff received and evaluated five responses from the RFQ. Three hotel developer finalists were identified. These candidates most closely met the criteria stated in the RFQ. The three development teams are: (1) Creative Housing Associates and the Zislis Group; (2) Hyatt Hotels and NRES; (3) RREEF and JLL. Releasing a Request for Proposal (RFP) would be the next step should the Council determine that a hotel is the best use for the site. Only the three developer candidates will be invited to participate in an in-depth RFP process.
FISCAL IMPLICATIONS:
There are no fiscal implications associated with the recommended action.
The parking lot that currently occupies the site is subject to long-term leases with the Manhattan Village Mall (approximately 184 spaces, maximum term to 2037, no early termination by City) and the Manhattan Beach Country Club (50 parking spaces, maximum term to 2035, early termination by City with 60-day notice). The existing ground leases generate approximately $162,500 net per year.
The original analysis completed by Keyser Marston Associates (KMA) regarding the Parkview Site concluded that a high-end lifestyle hotel was the strongest potential use for the site (See Attachment 2 - Parkview Avenue Site: Evaluation of Development Scenarios). Such a use would generate an estimated $1.44 million from ground lease, property tax and transient occupancy tax (TOT) payments.
If an alternative use other than a hotel is selected, the return to the City would range from an annual positive return of $200,800 to a negative return of $693,800.
BACKGROUND:
On Dec. 1, 2015, in an effort to emulate the successful model employed at the nearby Marriott site, City Council directed staff to proceed with drafting and releasing Requests for Qualifications (RFQ) to developers interested in building/operating a high-end life style hotel on the 3.4-acre city-owned site located at the southeast corner of Parkview Avenue and Village Drive (See Attachment 3 - Request for Qualifications for Parkview Site).
The Parkview site is a parking lot that provides parking for a number of nearby uses, including the Manhattan Beach Country Club, overflow parking for the Mall, and Village Field (the soccer field). There are long-term leases with the Manhattan Village Mall (approximately 184 spaces, maximum term to 2037, no early termination by City) and the Manhattan Beach Country Club (50 parking spaces, maximum term to 2035, early termination by City with 60-day notice). Neither Village Soccer Field nor any other open space or athletic facilities is part of the site. In the event the City Council authorizes staff to issue a RFP seeking proposals for a hotel or other private development, the RFP will require that any potential developers increase the capacity of the parking lot so that there is adequate parking for, not only the existing uses, including visitors to and users of the soccer field, that currently use the lot, but for any future uses.
The Marriott hotel and golf course ground lease generates significant revenues for the City of over $1.5 million annually (not including Transient and Occupancy Tax which is considered confidential). This has been a very successful model for the City to generate revenue from city-owned property. The RFQ serves to pre-qualify hotel developers to participate in an in-depth Request for Proposal (RFP) process.
In addition to the potential hotel, staff was directed to examine the following alternative uses for the Parkview site: (a) older adults housing; (b) athletic/soccer field; and (c) open space/public park. These requests were made in addition to apartment and office uses included in the original Keyser Marston report. The Parkview site is currently utilized as parking for the Manhattan Village field, Manhattan Village Mall and the Manhattan Beach Country Club.
An RFQ was drafted by Keyser Marston Associates, a consulting firm specializing in land economics and hotel development. The City received qualifications and materials from five developers. Staff was directed to return to Council with information on the alternative uses, as well as the results of the RFQ process and a draft of an RFP to be used in the event Council selects the hotel option.
DISCUSSION:
Alternative Uses
The original report on feasible uses for the Parkview site evaluated hotel, office and apartment uses. In addition to these, Council requested a feasibility analysis for the older adults housing, park, and soccer field uses.
A hotel was deemed the most economically feasible option with a supportable land value of $1.31 million and estimated annual total revenue of $1.44 million. Converting the space to apartment use is less economically feasible but would generate combined annual property tax and ground lease revenue of $200,800. An office use was deemed not economically feasible with an annual City net cost of $94,900.
In addition, Council directed staff to look into the viability of older adults housing, a soccer field and a one-acre park. An older adults housing facility was not deemed economically feasible with a negative land value of $5.82 million and an annual City net cost of $693,800 (See Attachment 4 - Parkview Avenue Site: Older Adults Apartment Analysis).
Creating a soccer field at the site would result in an approximate one-time improvement cost of $2.73 million. With expected income from private users minus annual maintenance costs and loss of parking revenue, the soccer field would generate an annual City net cost of approximately $52,500.
Converting the space into a one-acre park would result in a one-time cost of approximately $2.3 million and an annual City net cost of approximately $220,500.
All of these options will result in significant reduction or complete loss of parking lot lease revenue currently paid by the mall and country club ($162,500) since the parking spaces will have been repurposed.
Hotel Development
As a result of the RFQ, qualifications were received from five hotel developers:
|
Owner/Investor |
Development Manager |
Operator/Hotel Brand |
Architect |
|
RREEF |
Jones Lange LaSalle (JLL) |
Hilton Worldwide (Canopy by Hilton) |
CallisonRTKL |
|
Hyatt |
Newport Real Estate Services |
Hyatt (Hyatt Centric) |
Did not specify |
|
Bolour Associates |
Woodbine (co-developer) |
AC Hotel by Marriott |
HKS Hospitality Group |
|
Zislis Group |
Creative Housing Associates |
Shade |
Gensler |
|
Urban Commons |
Urban Commons |
Brighton Management - no hotel flag identified |
Did not specify |
Staff, and the consultant from KMA retained by staff, evaluated the proposals based on the following criteria: (1) respondent’s agreement to the minimum business terms; (2) development team’s proven experience in financing, design, construction and operation of hotels; (3) financial capacity to undertake a project of the proposed magnitude; (4) Overall quality of the development team; (5) experience with long-term ground leases and other similar public/private development agreements with public sector entities; and (6) Quality and completeness of RFQ response.
Based on the evaluation of the five responses to the RFQ, the City staff and consultants recommend that the following three teams be invited to respond to an RFP:
1. CHA and the Zislis Group. This development team is being recommended for the following reasons:
a. The team is proposing to develop a hotel that meets the City’s stated goal
to attract a high-quality lifestyle hotel;
b. The team has an established track record developing and operating this
type of hotel within the Manhattan Beach community; and
c. The team has experience developing a hotel on ground-leased land.
2. Hyatt Hotels and NRES. This development team is being recommended because:
a. The proposed Hyatt Centric product has the potential to fulfill the City’s
stated desire to have a high-quality lifestyle hotel; and
c. Hyatt Hotels is proposing to internally finance the project, which reduces
the complications associated with executing a long-term ground lease for the Site.
3. RREEF and JLL:
This development team is being recommended because it has the necessary capabilities to develop the project, and they own a large-scale retail center adjacent to the Site. This presents a number of synergistic opportunities for the two properties, particularly in relation to the requirement to provide replacement parking to serve the retail center.
Request for Proposal
A draft of the Request for Proposal was prepared by Keyser Marston Associates and is attached to this report (Attachment 5 - Request for Proposal for Parkview Site). The RFP invites each shortlist finalist to submit a comprehensive proposal with all of the following components:
• Development program including a community outreach plan;
• Rendering of the final building and identification of the hotel operator
• Financial information
• Ground-lease terms and conditions
• Business and Finance Plan
• Construction Schedule and Estimated construction costs
If City Council determines that a hotel is the preferred use for the Parkview Site, a tentative due date to receive proposals from the selected shortlist of developers would be late September, 2016. Staff anticipates that a public process to review the proposals will be established to ensure community engagement in the project.
Alternative Uses
As noted in the discussion section of this report, below is a comprehensive list of all seven land use options for the site that have been considered.
ALTERNATIVE #: 1
Hotel Development
PROS:
Maximizes potential revenue for the site for an estimated $1.44 million in annual income. Adds high-end hospitality option to market. Increases the number of parking spaces to be utilized for both existing uses and the new use. Existing open space and athletic field maintained.
CONS:
City property could be used for other uses.
ALTERNATIVE #: 2
Office
PROS:
Adds office capacity. Includes full replacement of existing parking spaces as well as appropriate parking for the new facility. Existing open space and athletic field maintained.
CONS:
Not economically feasible with annual City net cost of $94,900.
ALTERNATIVE #: 3
Apartments
PROS:
Adds units to tight housing market. Supportable land value of $1 million. Combined
ground lease payment of $100,000 per year plus property tax revenue of $100,800
provide $200,800 of annual revenue to the City. An apartment use is the second
highest revenue-generating use of the site. Increases the number of parking spaces to be utilized for both existing uses and the new use. Existing open space and athletic field maintained.
CONS:
City would forego higher revenue generated from hotel use.
ALTERNATIVE #: 4
Older adults Housing
PROS:
Would add older adults housing units to the City. Increases the number of parking spaces to be utilized for both existing uses and the new use. Existing open space and athletic field maintained.
CONS:
The older adults project would generate a negative land value of approximately $5.82 million with an estimated net annual cost to the city of $693,800.
ALTERNATIVE #: 5
Soccer Field
PROS:
New soccer field that can be used by the community. Open space.
CONS:
The one-time conversion costs into a soccer field are estimated to be $2,725,000. The annual return to the City from community-based user groups minus maintenance costs (and foregone revenue from lost parking leases) is estimated to result in a net annual cost of $52,500. Loss of parking.
ALTERNATIVE #: 6
One-acre park
PROS:
New public park/open space.
CONS:
The one-time conversion costs into a one-acre park are estimated to be
$2,310,000. The net annual cost to the City is estimated to be $220,500 after accounting for lost parking lot revenue of $162,500. Loss of parking.
ALTERNATIVE #: 7
No change to use of Parkview site
PROS:
City continues to collect $162,500 net per year in parking leases.
CONS:
Use foregoes other options that yield higher revenue or provide additional community facilities.
PUBLIC OUTREACH/INTEREST:
Staff has been in contact with interested parties and responded to questions. This item has been included on the publically available City Council agenda forecast for several weeks. The Requests for Qualifications were posted to the City’s website for interested parties to view and respond.
Should the Council wish to proceed with a hotel development as the preferred use of the site, all respondents to the RFP are required to submit a community engagement plan as part of their proposal. This plan will ensure that local stakeholders and community members will be able to provide input into the development process.
ENVIRONMENTAL REVIEW
Staff has hired a consultant to conduct a Phase I Environment Site Assessment (ESA) to identify potential or existing environmental contamination that may exist at the site due to previous historical use and operations. The scope of work for the Phase I ESA includes site observations and review of historical records to identify the presence or likely presence of any hazardous substances or petroleum products that may exist within the property. The consultant, Group Delta Corporation (GDC), began its work conducting the record search in May and will soon submit a report to the City.
Based on the Phase I ESA findings, a Phase II ESA may have to be initiated to further investigate the site conditions. The Phase II ESA involves soil sampling collected at the surface and several feet below grade at several locations. The soil samples may be analyzed for volatile organic compounds, metals, total petroleum hydrocarbon and other substances. Depending on the findings, no further actions may be necessary or soil remediation may be needed.
LEGAL REVIEW
In that staff merely seeks direction on whether to proceed with a number of options, there are no legal issues associated with this item at this stage. In the event the Council provides direction to staff to seek proposals for any of the identified uses, each of the uses is legally permissible. Pursuant to a restrictive covenant, the property could only be used for parking until 1999, the year the covenant expired. The state law regulating the abandonment of public parks only applies to the abandonment of parks, not to adding uses to a parking lot.
CONCLUSION:
Staff recommends that the City Council consider a report on alternative uses for the Parkview site, and provide direction on a preferred use. Should Council determine that the preferred use is a hotel, staff recommends City Council review the list of hotel developer finalists from the Request for Qualifications process and approve the hotel development Request for Proposal (RFP) that would be used to select a hotel developer for that site from the three recommended finalists.
ATTACHMENTS
1. Parkview Site Aerial View
2. Parkview Avenue Site: Evaluation of Development Scenarios
3. Request For Qualifications for Parkview Site
4. Parkview Avenue Site: Older Adults Apartment Analysis
5. Request for Proposal for Parkview Site
6. Parkview Site Powerpoint