Introduction of Ordinance Approving a Lease and an Option to Purchase and Authorizing the City Manager to Execute Documents Necessary to Implement the Terms of a 10-Year Lease and Option to Purchase with Natel Energy, Inc., a Delaware Corporation, for Building 23 located at 2401 Monarch Street at Alameda Point.  (Base Reuse 819099)
Introduction of ordinance approving a lease and an option to purchase and authorizing the city manager to execute documents necessary to implement the terms of a ten year lease and option to purchase with Nortel Energy or Building 23, located at 24 one Monarch Street in Alameda Point. Good evening, mayor councilmembers. My name's Jennifer Court Chief Operating Officer from me 2.8 I'm here and I I'm going to give a short presentation, try to answer some questions that have come up and then G.S. Snyder's here with Mattel Energy would like to give a short presentation. She's there working on some really exciting things. And so she's going to talk a little bit about what Nortel Energy's all about. So first I just want to give lease and option summary. We're talking about a 65,000 square foot building, building 23. There's a picture of it right here on kind of that hangar row on the western edge of the property that the city controls and owns. What you have before you tonight is a ten year lease with one five year renewal option at $0.54 per square foot of monthly rent with an annual escalator, which results in about $440,000 annually, or for 4.8 million over the ten years. There's a $8 million option price, which results in about a $91 per square foot building value and 25 per square foot excess land value. The reason we do that in this case on this building is because the land is much larger. The land premises is much larger than you would typically have for a typical kind of building. So in order to value it, you have to kind of separate out some of the excess land. And I have John McManus here with Cushman Wakefield that can talk a little bit about that as well. It is, we believe, supported by market values. And I recorder, I'm going to show you a table in a second to corroborate that. And then they're planning a $10 million investment in the actual building asset. So the reason real quick, you're just not part of the this is not part of the presentation on here. Right? This is a the presentation. A new hesitation. Right. I mean, there was a presentation attached to the agenda item. No. For this. One. Yeah. So I actually want to speak to that. I want to thank you for putting this together. We did have an earlier discussion and she's come up with this. I really appreciate this. Will this be added to the the agenda item announcement? Thank you. So the reason I think there are some questions and, you know, very valid questions about, well, why would we recommend sale of property? And so I want to just give a little bit more detail on why staff would recommend selling the city's property at alarming point. The first is given the amount the city doesn't, you know, we invest enough in these buildings to kind of keep them from standing up and not, you know, leaking. But we do not invest significant dollars in both the asset. We don't provide tenant improvement allowances, which are very typical in the market, commercial market. And so in order to attract really high quality tenants to these buildings, you really have to have someone that can attract significant investment capital and potential. And to really do that not you know, it's not exclusively, but really typically that kind of investment capital requires an ownership stake in the property to be able to finance that, to really be able to capture that investment capital. And and I think this is true of especially in the Bay Area, we have the market is so strong right now, businesses that are really high quality businesses like you have Nortel that's growing and expanding to be able to lock in a building and know that you're going to have it is really key to them being able to keep their position in the market as well as try to attract workforce, which for a lot of these companies is one of the hardest things to do, is attract and retain a workforce. And so being able to own your land is really what these high quality tenants are wanting and then definitely helps with financing this level of investment. The other is that we believe this compensates really for the city's inability to invest in the significant capital. We don't have this money, so if we don't sell the land to attract this capital, we aren't going to then invest in the buildings, $10 million in the building. So they're going to sit there without that investment. So we believe this is an important way to kind of save these buildings and continue to invest in them. Also, I think this is key to their plan and allow me to point is that generates significant upfront capital that's basically leveraging the value of the building to pay for infrastructure for manufacturing and uses an adaptive reuse area. If we were to try to build a manufacturing area from scratch right now, from new development, it would not support $1,000,000 an acre in infrastructure. So what we're trying to do with these buildings is essentially leverage the value of those buildings to help offset the impact, the cost of infrastructure in that adaptive reuse area so that we can have manufacturing jobs and we can have those types of jobs there in those types of uses. And remember, there's, you know, $600 million worth of infrastructure. And if we don't, we need a strategy that's a little more creative in this adaptive reuse area, because we're not going to just tear these buildings down and start from scratch. And then it helps correct infrastructure deficiencies that really creates, we believe, major annual long term liabilities to the city, that if we don't start correcting the infrastructure and generate funds to pay for that, to upgrade the infrastructure, we're going to continue to see our annual cost increase and then potentially have issues long term in some sort of major issue. So these are I just wanted and we're happy, you know, we wanted to make sure everyone understood that there is a lot of analysis and thought that goes into our recommendation and wanted to present that to you tonight. Market support for the option price a typical and we're we have a chart here and the you know our our expert here to to help us with this but is the typical average values in the I-80 corridor range from 55 to $65 a square foot for this type of Class C manufacturing space. The Nortel option price is about $91 a square foot, which exceeds that market value, primarily due to the views and the uniqueness of these types of assets. So we are we do believe we're getting a market value for this for this building. Here are some recent sales comps. There's four comps that we've had here for industrial manufacturing uses in the I-80 corridor. All of which you can kind of see in this area are in the 53 at the lowest $60 a square foot per square foot. We're far exceeding those comps in terms of what we're able to obtain with with this particular project. The fiscal impacts of the project. You know, I think this is again, I think, you know, as city manager one madam said, we've done a lot of analysis over the years and we need to continue to remember them to present that information to the new council members and to the community. And we will definitely do a better job at doing that. But we have prepared a fiscal impact analysis that was very extensive as part of our zoning amendment at the time. So we understood that we had a picture of what this would mean from a fiscal standpoint when we approve those plans. And then again, we updated that as part of the site development and not just for site but for the whole base, too. And so we've made, you know, as things change, we've tried to update that and all just want as a kind of reminder, all new development and property owners will pay a fair share of their municipal services special tax to offset any long term fiscal impacts to the city. The natal property will do that as well. They will, we believe, be generating about $67,000 per year in property tax. And I just want to kind of you know, this is something we talked about or, you know, some questions that came up about this today. We have to be a little careful about comparing that to lease revenues where you because what you really with the lease revenues those are revenues that you get but if you don't invest in infrastructure you kind of have to take into consideration if you're going to be a long term holder of property, then you're going to have to essentially kind of amortize, you know, create a capital reserve for infrastructure. And if you were to take a debt service on the infrastructure for this property, it's about $430,000 a year in debt service for a $5.2 million infrastructure burden. So we just have to be I just want to provide all that information. We are we do believe that that you have to kind of quantify that liability essentially if you're going to hold property long term and not sell it. So I just want to wanted to present that information, the pro rata share of infrastructure and, you know, the development impact fee, it was recently inflated as part of the last master fee schedule is merely essentially $1,000,000 per acre for commercial uses. Building 23 is 5.3 acres. That equals about a $5.3 million infrastructure burden with an $8 million purchase price. It exceeds the infrastructure burden by $2.7 million so far exceeding we're making, you know, as a minimum. We know that we're making more than the infrastructure burden that would have to be paid for for this project. And then I know there's some questions about what, you know, losing control. And it's something honestly, like, I wake up in the middle of night to thinking about this, how we've remembered everything. I mean, these are, you know, what? What are what do we have in place? So when we let go of this land, we know that, you know, like these parcels kind of go off and become part of the rest of the city like they are other places. And have we put in place all the restrictions and other things that we want. So once we lose control, we know that this is going to be developed. And because we do lose control, they could sell the property, things could happen, they could get developed in certain ways and do have we put into place all the regulations and things. And I believe the answer is yes. And, you know, I talked with the city planner about this. And I mean, his opinion is this is would you look at this long list of things, it's probably much more onerous than any other property in the rest of the city in terms of what they're going to have to deal with. And just quickly, you know, the city, there's a zoning ordinance which regulates use and form. What can occur there? There are mitigations for every project. If there is a development proposal or anything that comes before the city has to be reviewed under the California Environmental Quality Act. And if they want to rely on the city's environmental impact report, then they're going to have to comply with all kinds of biological traffic. Historic mitigations. The Navy, before it transferred the property to us, placed a declaration or restrictions on the entire property, which created very extensive biological restrictions to protect for the the endangered species that nest on the property. We have a resolution that the City Council passed for the master infrastructure plan. There's a development impact fee ordinance which sets into place that million dollars an acre. We have design, review, ordinance, zoning and changes to buildings and things that trigger design review will have to come to the planning board just like any other project. Historic Preservation Ordinance. The buildings, including this building 23 are contributors, historic district and are considered historic resources under the local law and would have to comply with the historic preservation ordinance and have an extra burden of review potential approval if there are certain things that had to be done. Sewer lateral ordinances will be coming to you, as was mentioned earlier, with a parcel map to create legal parcels for these adaptive reuse areas. And we will be placing conditions on that parcel map that essentially reiterate all of these things. But we're trying we're kind of taking this redundancy approach, which is there's no reason why not. We shouldn't have all of these things in our zoning. We shouldn't have them all there. But to make sure we all kind of don't forget about them as we go forward, we're going to additionally place them on the parcel map for these properties so that they're an extra reminder to anyone who owns these properties that you're going to have to comply with these different things. That includes a transportation demand management plan as well as city council approved. So even though you're letting go, there's we've worked very hard to create a really robust policy framework for moving forward so that once these become private properties, that the city's vision is will continue to be complied with. So I'm going to pass it over to Jim to go ahead and give her presentation. Thank you. Thank you, Mr. Spencer, and council members. I just have a brief presentation to run through a little bit about what we're doing. We love, show and tell. And can this also be added to the agenda item? Thank you. But in the interest of show and tell. One of the things that we do quite regularly actually is do a little tours of of our facilities we have. It's always kind of interesting to bring in some of the things that we've done and kind of regularly with books from Berkeley, from UC Berkeley and also I think recently from a from an elementary school, we had, you know, it's always fun to help bring young folks in so they can kind of see what we're doing in the clean tech space is a little different is this combination of both high tech and not necessarily low tech, but certainly advanced manufacturing. So more of like building things and in this case, somewhat big things. It was always fun to give tours to help people understand what it is we're actually doing. So should anyone want one? We're happy to do that. So again, just wanted to to walk through what we're doing. A little bit of background on nutshell, why we're here in Alameda and what we're doing and our vision as we go forward and enter a new period of growth for us, why we want to continue to be here and why we're pretty excited if we are able to move forward and in the space what we'd like to do. So just to start very quickly and I'll get into a little bit more of this later on, but this is just a rendering to show some of what we envision as we go forward with doing the improvements of the space over time. So a little bit about us. So we are a water and energy innovation company based here in Alameda at Alameda Point. And what we do is distributed utility scale hydropower. And hydropower is a renewable energy source, just like wind and solar. But the way that we do it is different. If you think about hydro, you probably think Hoover Dam or Grand Coulee or Three Gorges, they're massive projects and they often carry with them pretty significant impacts. And what we said or what inspired us was could we do hydro better? We do it in a way that was distributed at a much smaller impact footprint, but still kept all the good things about hydro, which is that it is a reliable and just what's called a dispatchable energy source. And if we could do that, it would enable us to actually put more wind and solar on the grid and over time, help us really address things like climate change by having cheap, reliable domestic renewable energy. That was the big picture vision for us, and that required an innovation, the blue box that you see up there. And that was in the video earlier, you saw one of our cassettes being inserted into a blue housing in the video that was just shown earlier. That's the hydrogen and that's what we make. So we assemble it here in Alameda in our vision as we go forward is that we'd have our initial production facility here. Our entire supply chain is actually based in the U.S. and many of the companies that we work with to do our initial prototyping and even some of our initial supply are based here in the Bay Area. So, for example, our control system is made by a local supplier in the Bay Area. In terms of our history here, we we actually started here in 2009, so we moved in to the current location where we are at right now, which is at the tower and in 2009. And we've grown here locally. Majority of our employees live here in the East Bay, and the rest of us all commute. We're excited, actually, about things like how we expand transit and have better transit options because many of us, like I myself do and I regularly bike through the tunnel, for example. And so finding ways in which we have better transit options so we can have our employees, you know, live and have good commutes is a really important thing for us going forward. So long history here. We're really excited to contribute and to continue to grow here. In terms of just a quick couple of things on achievements. So we got started in 2009 and we're very fortunate to receive a lot of support from the Department of Energy, also from the U.S. Trade Development Agency, which is part of the Department of Commerce and the Small Business Business Innovation Research Program. So they were really critical in helping us do some of our early product development. Following that on, we were able to raise private capital, which is really funding a lot of our growth as we go forward now. And that's coming off of the fact that we were able to get a product to market and probably the, you know, big name up there in terms of our, you know, highlights from our sales pipeline is we just we closed the sale with Apple for sale with Apple last year and actually just delivered that project to Apple this summer. So lots of exciting things for us as we go forward and look to scale in terms of our vision here. Where we're headed is that we envision this space becoming our corporate headquarters, our engineering, R&D, primary location and our location for initial production. And that's what we'd like to build here. To do that, we think we forecast over the next five years that will be probably between 150 to 200 plus jobs here as well. And that in addition, given the again, because we have we work with a lot of local machine shops, some local suppliers, obviously, then additional support for us as we grow that that supports a number of indirect jobs in the area. In terms of the lease, this was already covered, but just wanted to recap quickly what the basic economics are and in terms of upgrades, to give you a little bit more. In terms of what we're planning to do. Picture on the left is what it is right now. And, you know, it's it is as it is. And just to give you a feel, again, some of our what we want to do is we take it forward, basically make it green. We want to add some landscaping and really make it a much more pleasant place to be. And things like easy chargers, again, that's pretty important to our employees. Exterior improvements, interior improvements and a big investment, of course, in our R&D and initial production facility. Again, the purchase option, this was already recapped, but just to put it up here so that it's clear and again what we plan to invest and I think really just to highlight so this is you know, it is it is this amazing view, right? That's very, very true. And that's we love being here again. You know, for us, when we we got here, when we first moved here, the fact that it is a little rough around the edges was was actually a really inspiring yeah, it was a really inspiring thing for us. And so it kind of challenged us and went along with our ethos, which is we want to create simple, sustainable and beautiful solutions for to solve our water energy challenges here in the state of California. But then also those solutions translate around the world. This is I've been up there a couple times. This is kind of where we where we want to take it. This is a quick aerial view just to give you a feel of what we're looking at. We want to build some have some nice outside collaborative spaces as well, you know, take to have it be pleasant and click click shot of our team. Yeah. And, and I'll just leave it there. Gigi. I just want to say one thing because I want to make sure this is disclosed. And I had it in my notes and I forgot to say it is that they will have some containers. This came up before and I wanted to make sure this was clearly disclosed. They will have they're allowed under the lease to have up to 20 containers. They have to be single stacked. They have to be in good condition, esthetically similar. There there's a exhibit. I don't know if you guys can pull that up. They would take about 4000 at 4800 square feet of land, which about 3%. So out of out of 175,000 square feet of outdoor land space, there would be 1400 square feet at the maximum if they used all of it for the 20 containers. That's about 3% of the outdoor land area. And then there's also in the exhibit really in line with the direction that the council had. And there's an exhibit in the lease which we're just going to pull up to make sure that we discloses and show this is where they have to be pushed back so that they're really trying to minimize the views from, you know, monarch and so that and maintain the views. So you'll see the container storage has to be kind of but between those lines are really off of the streets, not here on the southern area, but really contained there. And then you saw the exhibit that they had there or the renderings that they had. But I just wanted to make sure that that was clearly disclosed and the council understood that going forward. Okay. So I appreciate all these presentations and I, I really appreciate the additional information in regards to the, the ordinance itself. It doesn't have the language of approving a lease and an option to buy. So I'd like the ordinance modified to include the option to purchase in the heading and authorizing the city manager to execute documents necessary to implement the terms of ten year lease. So so the heading then is that the same we had in the you had on your the item itself it's missing the whereas that of. Whereas this building, however you're describing at 23, has an option to purchase pending the completion of. And I think it's the same language. The language is missing here. So that. Whereas can be added. Yes. All right. And then in regards to section one there also of the ordinance, city manager's designee is hereby authorized to negotiate, executed a lease with that. And wherever you want to add that, it says for ten years and an option to purchase. Yes with the option to purchase and then the additional. Whereas I want to make sure that's all in the before. Thank you, Vice Mayor. This agreement to the additions that the mayor mentioned with the filling out the language to include the option to buy. I'm. I'd like to see this go forward. I'm ready to make a motion because this is green energy supporting company. It's manufacturing. Its growth. And it's taken another difficult building and it's required to stay in repurposing. And it does fulfill the original of Base Reuse and Base Realignment and Closure Act. That said, our main purpose is not to hold this land. Our main purpose is to replace the jobs that went when the Navy closed. So I make the motion to introduce the ordinance with the additions as outlined by the Mayor. And I would like to hasten to second the Vice Mayor's motion and just listening to the presentation at Mr. Schneider's Schneider's presentation and also getting a little sneak preview in the economic development video that we saw. First, I mean, we as Alameda INS are so fortunate that, again, another pioneer pioneering firm was willing to take a chance on what has to be the wild, wild west out here and say, no, this is this is cool, it's edgy. We can work with this. And by the way, I think the mayor and I both attended the East Bay Economic Development Awards ceremonies last year, 2014, and Natal Energy was one of the finalists. And this is competing with cities all around the very innovative Bay Area. So I think that this is the kind of business and we've already seen it happening at Alameda Point that will attract other similar businesses. You network, you have your suppliers, you talked to your colleagues in related fields and you know, bring those smart, innovative folks to Alameda Point because we want to be that sort as the vice mayor said that sort of a job center. And I know Ms.. Ott, you know, talks about waking up in the middle of the night. I'm sure that a number of things, you know, losing control, property owners could sell property. But stop and think about it, everybody. We're talking about a company that's willing to sink millions of dollars into this property that wants to that has started here, is growing here, is bringing us jobs. Let's not do anything to drive them out. We pay a lot of lip service up here on the dais about being a business friendly community and wanting to attract economic development. Now is the time to put our money where our mouth is and really show that we have what it takes to support these kinds of green, clean, innovative businesses that are. Not only are we lucky to have them here, they're doing good work that's going to make an impact for our world. So I'm proud to have you here in Alameda and I look forward to welcome you. And I'd love to come out for a tour. I'll be in touch. Thank you. I'm sorry. Oh, well, thank you very much. Just I think the most important thing is, you know, as council members, we're making a business decision on behalf of the residents in looking at the project before us, I believe on all scores that this is a business decision that the residents should be proud of. Let me just go over some of the things Mhsaa, for example, had referenced, the fact that when you look at the when you take a look at the $3 million that are being the sales price of $4.9 million over 55,000 square feet, that results in a per square foot sales value of 90, $90, $0.51. And the comparables that that Mozart and her team came up with, she demonstrated that some typical things are somewhere around 50 to $60 ourselves. So so, you know, when you look at those those that information that was put together, you can say, certainly we're doing right by the residents. But one of the things I also did was, you know, I want to do my own due diligence, so to speak. And I took a look at how anyone can do this. Just go on the Internet, go on to something called Loop Netcom. And I just wanted to look at what our industrial prices going for. These aren't necessarily comparables. I'm not doing, you know, the level of detail that, say, our our partner, Cushman Wakefield does. But even then, you know, when I take a look at the $4.9 million, but but I add the $10 million because while that $10 million doesn't come to us, that is nonetheless an economic incentive. I mean, economic expenditure that that occurs because of the $4.9 million. And when I add the $10 million on top of the $4.9 million, you know, you get around $272 per square foot of what I will call economic value. So when I compare that to your $72 of economic value against, you know, what I'm seeing from LoopNet, I think we're we're in the ballpark. So this is a deal that that people can be proud of. Now, I think it's important to say $10 million to reference that part because like I said in the other item, if we were out at Harbor Bay, I'll if if Alameda point was like Harbor Bay Isle or if it was like Bishop Ranch, instead of Mattel investing that $10 million into the project in addition to then paying us $4 million instead of natal investing that $10 million, they would pay that to us because it would because it would be a plan. So that's that's why I take a look at that and include that as part of why I call it the economic value. And from that vantage point, when I look at how we're comparing against places in Emeryville or place or what's on in parts of Oakland, I think we're on track here. So in terms of the business deal, because I think that's really important in in these kind of transactions that we're doing, I think this is a deal that the residents can be proud of in terms of just, you know, the overall goal of where we're going. I mean, Natal is a definite fit in terms of the industry cluster that we're trying to grow there, along with Makani, along with I mean, I will argue that right speed is also part of the industry cluster in the sense that they are alternative power, but for specific uses, you know, large trucks and something called sail drone . So it's good to see kind of this cluster not only occur, you know, existing in Alameda Point, but making incredible substantial investments that says that we're here to stay in the fact that Natal, as you know, delivered services to outstanding corporations like Apple, I think demonstrates that we're getting very good companies. So you combined the energy cluster that we're growing out there, alternative energy cluster that we're going out there along with the food and beverage cluster. The alley. Spirit's alley. You know, you look at kind of a good combination mix of uses. So this is something I think to be I'm excited about and I can't wait for groundbreaking. On a final note, in terms of containers and whatever issues I have about them. As many you probably recall. My issues were focused solely on the enterprise district. We are far outside of the Enterprise District. And Brody, thank you. But I'm just real brief because I think my three colleagues have kind of captured most of my thoughts, but not to put too fine a point on it. This year we've. Well, if we approve this one, it'll be four leases with options to purchase and write speed. $4 million in investment in in the buildings building nine. Correct. I was incorrect at first. 29 million built in 91 9 million. And this 110 million. So $52 million in infrastructure improvements out at the base for these four buildings. And our community has decided, rightly so, that we want this to be adaptive reuse. We want to keep these historic buildings and and reuse them and regenerate jobs. And I'm just you know, I I'm going to every time we do this, I'm going to keep giving that number. So right now, it's 52 million. I hope we continue to grow that number and I'm prepared to support this. Okay. Well, I. Oh. You could be 30, 30. And I'd like, just speak in regards to I also want to commend you for your presentation. I think that that is very helpful, the type of upgrade your pictures. Now that's full disclosure to our community. But but you're putting into it what it's going to look like. And in regards to the containers and I. Now remember exactly what word to use this on in regards to maintaining or the esthetics. Obviously, we don't we really I don't think we really want to see containers out there. If they can be painted in a manner that has them blend into the background, that confident, that would be appreciated. And hopefully that's what you meant by that. And and given the addition. Additional information by staff and yourself. I do plan to support it. And the changes of the ordinance. Yeah. So that being said, all those in favor. I. Motion carries unanimously. Thank you very much. Madam Chair, this is coming back. Yes. Yes. And if if we could make sure, because the previous building, 1991, also had the same same criteria that we measured it against. And it was also mentioned in the first reading of both of those ordinances that they met an X. And this one exceeds the impact fee that was put into place by the previous council, which is the public's insurance policy, that the value the true value of those of those properties is translated into the infrastructure we need. And that I think that has to be repeated because it. You know, it was one of the things that was highlighted here is what is the rationale? And I don't believe in comparables down I-80 because anybody who knows about commercial property in Alameda, it look at Marina Village Business Park. It's fine, it's wonderful, it's safe, it's clean, it's empty and it's empty because people had lots of reasons for not coming to Alameda and a closed Navy base. If we go back and I think Councilmember Desai probably knows this, our real comparables are Hunters Point in Mare Island. And when I saw that video and see the highlights and these as Councilmember Odie pointed out, the the for leases with option to buy. Finally after 17 years I think we're going to exceed what Hunter's Point and Mare Island are doing because we've, unlike this regular commercial tilt up, we have someone who's the business who's buying, and I think we've got them. And we need to keep. You know, we've already had a motion and but. I just want for the second hearing to capture that information so that we don't have anybody coming up at the second time and wondering what we did the first time. So when it comes back, then I'm thinking we will have more information provided. And then I just want to be. Able to ensure it. Yeah, yeah. And it's on the record now and I just wanted to say that I certainly appreciate that the mayor is entitled to her opinion, the comments about painting the containers to blend into the background, that wasn't part of the motion. I don't think we have to be ashamed that we're this is. You know. Adaptive reuse. They're going to be pushed back to the back of the property. That can be. Right. But I hear what the motion did and didn't. But normally, once we have a vote on an item, we move on to the next item. So I'm going to call go go to six G at this point and we're like 660. Yeah, yeah. Because week one. All right. So now that's right. So we'll go to 60 and if the council has any other comments on that, they can share them with staff before it comes back to us. That'd be greatly appreciated.