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HomeMy WebLinkAbout01 TUSTIN LEGACY DISPOSITION STRATEGY AGENDA REPORTMEETING DATE TO: FROM: SUBJECT: SUMMARY Agenda Item 1 Reviewed: AGENDA REPORT City Manager Finance Director i April 25, 2011 WILLIAM A. HUSTON, INTERIM CITY MANAGER CHRISTINE SHINGLETON, ASSISTANT CITY MANAGER TUSTIN LEGACY DISPOSITION STRATEGY FOR THE FORMER MASTER DEVELOPER FOOTPRINT City Council's confirmation is requested of a recommended Disposition Strategy for the former Master Developer Footprint for the Tustin Legacy Project. RECOMMENDATION It is recommended that the City Council confirm the Disposition Strategy recommendations of the Tustin Legacy team as contained in the Disposition Strategy report. FISCAL IMPACT The City and Agency will incur expenses for implementation activities associated with the recommended Disposition Strategy including, but not limited to, staff and consultant support. Besides staff personnel already assigned to the Tustin Legacy Project, the Disposition Strategy anticipates the need for a number of services supporting the City in its limited role as Executive Master Developer as recommended in the Disposition Strategy such as: developer advisor services; market analysis updates; community facilities district, public financing and other financial consulting services; planning and design services; Specific Plan and EIR/EIS updates, and; a variety of real estate related services including, but not limited to, appraisals, title work and escrow costs. Regardless of which Disposition Strategy Alternative is the most desirable to the City Council, there will be costs such as property management and environmental insurance that will be unavoidable at least in years 1 and 2. The Disposition Strategy identifies preliminary projected expenditures for a five (5) year period. For the first year of the program ending in June 2012, it is expected that costs will be approximately $3.4 million dollars. Proposed expenditures will be submitted to the City Council on an annual basis in conjunction with review and approval of the City's annual budget. As long as the MCAS Tustin Redevelopment Project is in place, it is Agenda Report Tustin Legacy Disposition Strategy April 25, 2011 Page 2 expected that administrative expenses would largely Redevelopment Tax Increment funds and future land available MCAS Tustin Redevelopment Project Area be funded by MCAS Tustin sale proceeds. In the event, tax increment revenues are negatively affected by future State legislative actions, short term land secured debt financing will be pursued to fund expenses and will be reimbursed by land sale revenues. At this time, the proposed expenditures do not include infrastructure design, program management, and construction management services which will be addressed separately based on future policy decisions, available land sale proceeds and Redevelopment Agency revenues, and in conjunction with any Capital Improvement Program budgeting. BACKGROUND With termination of the Disposition and Development Agreement (DDA) and Development Agreement for the Master Developer site in the summer of 2010, the City Council in the fall of 2010 subsequently authorized the provision of a number of consultant service contracts to support staff's preparation of a revised Disposition Strategy for the former Master Developer Footprint at Tustin Legacy. The purpose of the effort was to reframe the City's approach for marketing and development of the property and to specifically identify potential early implementation opportunities. This recommended Disposition Strategy has now been completed and is intended to provide a framework for moving forward with the Tustin Legacy project while continuing to remain focused on the Project's original vision—a dynamic, urban master planned community—a place to Live, Work and Play! In preparation of the Disposition Strategy, the vision statement was kept in mind and the team working on the Disposition Strategy sought to meet the following objectives: • To provide a background and status update on the former Master Developer footprint. • To review and determine market considerations that would affect future development. • To review the existing land use program and make any recommendations. • To identify and evaluate various alternative disposition strategies. • To identify early development opportunities and supporting infrastructure priorities necessary to support development opportunities. Agenda Report Tustin Legacy Disposition Strategy April 25, 2011 Page 3 • To recommend a revised Disposition Strategy for the former Master Developer Footprint. • To outline and recommend an outreach and marketing approach for future developer selections and any land sales of the property. While the timing and rate of development will largely be influenced by market conditions, the report recommends a preferred Disposition Strategy. It is recommended that the City assume a more limited Master Developer role by marketing smaller segments or Disposition Packages or parcel groupings of the property. Disposition Packages were selected based on infrastructure needs and phasing of the backbone infrastructure and local infrastructure obligations for each smaller Disposition Package, which would largely be a developer obligation. Disposition Packages, depending on market conditions, may also be segmented into more than one marketing offering to developers. For instance, Disposition Package 1A and Disposition Package 2, might involve separate marketing of the proposed residential land uses from non-residential uses. The recommended Disposition Strategy is intended to take advantage of the success of other completed development and major infrastructure investment at Tustin Legacy by encouraging development in areas that could largely be served by existing infrastructure, which are adjacent to development that has already occurred within the project, or which will be supported by the City's construction of the Tustin Ranch Road Project. The basic guiding principles for the recommended Disposition Strategy include: • Maintaining the Master Plan Vision, with refinements as market conditions warrant. • Maximizing the value of the property as a City asset, managing risks to the extent possible, and balancing by the desire to see momentum on the project occurring. • Marketing smaller segments of the property, or Disposition Packages, by inviting a limited number of qualified builders to operate and partner with the City. Disposition Packages should be large enough in size and scale to achieve economies of scale and cost efficient infrastructure development. • Creating Disposition Packages that largely include similar or compatible land use designations (recognizing that both vertical and horizontal mixed use developments encouraged in the master plan in several of the Disposition Packages). Agenda Report Tustin Legacy Disposition Strategy April 25, 2011 Page 4 • Ensuring that in marketing and phasing development of the property, any marketing and development phases achieve the following: o A logical, orderly and planned sequencing of development. o Creation of a sense of place and recognition that a master planned community is being developed. o Inclusion of master planned amenities within a Disposition Package to not only reinforce the intended master development's sense of place, but to ensure continuity and efficiency in infrastructure installations. o Compliance with any infrastructure phasing thresholds required by the Project's EIS/EIR. One example is the requirement that Peters Canyon Channel construction be commenced before certificates of occupancy are issued for more than one thousand (1,000) dwelling units or more that two hundred and seventy (270) acres of non-residential development. o Funding of a large portion of the Tustin Legacy Backbone Infrastructure Program continues to largely be funded by developer installed Backbone Infrastructure improvements or fair share contributions towards the program. • Establishing a process that is diligent in selecting the limited number of qualified builders to be chosen for Disposition Packages and which is not cost restrictive or time consuming to support. • Determining an appropriate timeframe for sale of Disposition Packages based on market conditions, infrastructure constraints, and Navy environmental remediation progress. At least initially, Agency staff proposes to issue developer solicitations of interest on four Disposition Packages, or smaller parcel groupings within each Package (Disposition Package 1A and 2 as noted above could have separate parcel solicitations for residential and non-residential uses). The four Early Opportunity Disposition Packages are shown in Chapter 6 of the Disposition Strategy. Further marketing of other Disposition Packages would occur consistent with market conditions, the ability to complete required infrastructure phasing balanced by the desire to see momentum on the project. The developer selection process as identified in the Disposition Strategy will follow a two-step process for each Disposition Package. The first step will involve developer presentations and personal interviews over sighted by a panel of City selected development experts ("Panel of Experts") which are concurred to by the Tustin City Council based on a staff recommendation. The selected Panel of Experts for each Agenda Report Tustin Legacy Disposition Strategy April 25, 2011 Page 5 Disposition Package will screen and recommend to the City Council a proposed list of the three firms that they believe are most qualified to proceed with a particular Disposition Package. Based on the concurrence by the City Council of the short listed top three firms, the three most qualified firms for each individual Disposition Package will submit a more detailed proposal and pro forma and business offer to the City in response to specific terms and conditions identified by the City. After submittal, a technical evaluation team of City and Agency staff, including City selected outside consultants with specific expertise in areas of development and financing, etc., will review the proposals and provide a recommendation to the City Council of the preferred developer, including a ranking of each of the pre -qualified firms based on responses. Based on the recommendations of the technical evaluation team, the City Council will then be asked to select the developer for each Disposition Package and instruct staff to prepare any required Development Agreement and sale documents required for City Council approval. The City, particularly on the residential Disposition Packages, will also reserve the flexibility to offer subsequent rolling take -downs or Disposition Packages to builders based on performance. Agency staff will bring back to the City Council information on the recommended Panel of Experts to interview and screen developers who have interest in each of the Disposition Packages, and for the provisions of additional developer advisor services and financial consultants to support the City's role as the Executive Master Developer. The budget and anticipated expenditures for services will be considered in conjunction with the Council's review and approval of the 2011-12 Fiscal Year Budget. Staff and supporting consultants who have assisted the City in preparation of the Disposition Strategy will be present at the City Council special meeting on April 25th to respond to any questions. Christine Shingletoff Assistant City Manager Attachment: Disposition Strategy 'rr . s x b kv $�^ a YI lV �n Y /TUSTIN LEGACY imcnna-tinn'stratair . s x b kv $�^ a YI lV �n Y /TUSTIN LEGACY imcnna-tinn'stratair Blank Page Disposition Strategy For Former Master Developer Footprint Tustin Legacy Project APRIL 2011 Blank Page Credit and Acknowledgement to the following Team Members Who Contributed to this Work Effort Tustin Community Redevelopment Agency Christine Shingleton, Assistant City Manager John Buchanan, RDA Program Manager Matt West, RDA Project Manager Sesar Morfin, Management Analyst Public Works Department Doug Stack, Public Works Director Ken Nishikawa, Tustin Legacy Development Manager Doug Anderson, Transportation and Development Services Manager Benny Tenkean, Public Works Manager Community Development Department Elizabeth Binsack, Community Development Director Dana Ogdon, Assistant Community Development Director Justina Willkom, Principal Planner John Burns Consulting Mollie Carmichael, Principal The Concord Group Richard Gollis, Principal Michael D. Reynolds, Engagement Director Developer's Research Barry Gross, President RBF Consulting Margit Allen, Vice President Mark Anderson Hunsaker & Associates Kamal Karam, Principal SMS Architects Joseph Smart, Principal Blank Page Table of Contents TABLE OF CONTENTS ExecutiveSummary............................................................................................................................. E-1 Chapter 1.0: Description of the Former Master Developer Footprint........................................1 1.1 Background and Land Planning Framework.................................................1 1.2 Review of the Specific Plan and Master Plan for the Former Master Developer Footprint...............................................................1 1.3 Previous Master Developer History................................................................ 8 Chapter2.0: Market Analysis...................................................................................................... 2.1 John Burns Consulting Study..................................................................... 2.1.1 Socio -Demographic Trends............................................................ 2.1.2 Competitive Master Planned Projects ........................................... 2.1.3 Residential For -Sale and Apartment Demand ............................. 2.1.4 Project Recommendations.............................................................. 2.2 The Concord Group Study.......................................................................... 2.2.1 Market Area...................................................................................... 2.2.2 Socio -Demographic Trends............................................................ 2.2.3 Market Area Competition............................................................... 2.2.4 Office Market.................................................................................... 2.2.5 Flex -Space (R&D) Market............................................................... 2.2.6 Retail Market.................................................................................... 2.2.7 Hotel and Other Uses...................................................................... 12 13 13 13 13 15 16 16 16 16 17 19 19 19 Chapter 3.0: Review of SWOT Analysis........................................................................................ 21 Chapter 4.0: Alternative Disposition Strategies........................................................................... 26 4.1 Major Assumptions/Givens in Exploring Alternative Disposition Strategies...................................................................................... 26 4.2 Active Alternatives.......................................................................................... 27 4.2.1 Alternative: Remarket the Property to a New Master Developer.............................................................................................. 27 4.2.2 Alternative: City to Act as Horizontal Land Developer ............... 30 4.2.3 Alternative: City to act as Executive Master Developer in a More Limited Role ................................................... 36 4.3 Passive/In-Active Alternative......................................................................... 43 4.3.1 Alternative: "Delay„ Plan..................................................................43 Chapter 5.0: Master Development Plan Recommendations...................................................... 50 APRIL 2011 i Tustin Legacy Project Disposition Strategy Table of Contents Chapter 6.0: Recommended Modified Disposition Strategy ..................................................... 52 6.1 Managing Tustin Legacy as an Asset............................................................ 52 6.2 Addressing Issues Identified in the SWOT (Strengths, Weaknesses, Opportunities, and Threats) and the Market Demand Studies.................................................................................. 52 6.3 Discussion of Alternatives and Recommended Preferred DispositionStrategy......................................................................................... 55 6.4 Operational Approach and Recommended Property DispositionStrategy......................................................................................... 58 6.4.1 The Overall Phasing Approach.......................................................... 58 6.4.2 Early Development Opportunities - Disposition Packages 1A, 1B, 1C, and 2.................................................................63 6.4.3 Other Potential Disposition Packages, Including Mid -Term and Longer Term Disposition Packages ........................................... 64 6.5 Linear Community Park Development Strategy ......................................... 65 6.6 Phasing Plan for Infrastructure and Development ..................................... 66 6.7 Financial Feasibility/Sensitivity Analysis of Early Development Opportunities........................................................................... 67 Chapter7.0: Implementation........................................................................................................... 68 7.1 Organizational Framework/Roles and Responsibilities .......................... 7.2 Timetable for Land Sales of Disposition Packages ................................... 7.3 Necessary Resources and Projected Operating Expenditures ................ 7.4 Marketing and Developer Selection Process ............................................. ATTACHMENTS Attachment 1: Summary of City Objectives and Requirements for Tustin Legacy Master Development Site Attachment 2: Local and Backbone Infrastructure Cost Estimate by Disposition Package 68 70 72 74 APRIL 2011 ii Tustin Legacy Project Disposition Strategy After termination of the Disposition and Development Agreement (DDA) and Development Agreement for the Master Developer Footprint in the summer of 2010, the City Council subsequently authorized a number of consultant service contracts to support preparation of a revised Disposition Strategy for the former Master Developer Footprint at Tustin Legacy. The purpose of the effort was to reframe the City's approach for marketing and development of the property and to specifically identify potential early implementation opportunities. This Disposition Strategy for the former Master Developer Footprint at Tustin Legacy is intended to provide a recommended framework for moving forward with the Tustin Legacy Project and continuing to remain focused on the Project's original vision—a dynamic, urban, master -planned community—a place to Live, Work and Play! "Tustin Legacy is a tapestry of neighborhoods that blend seamlessly within the fabric of the City of Tustin. Life comes with choices. They represent the different paths you take. Tustin Legacy's mix of uses will give us a richly -layered experience, and the chance for each individual to choose their own path. The project will also provide the Tustin community with a signature public space, the Linear Park, which will offer a place for all people to gather and enjoy life. Tustin Legacy continues Tustin's tradition of providing a rich and varied mix of opportunities for living, working, shopping, learning and playing—and a place to call home." In preparing the Disposition Strategy, the vision statement was always kept in mind — the team working on the Disposition Strategy sought to also meet the following objectives: • To provide a background and status update on the former Master Developer Footprint. • To review and determine market considerations that would affect future development. • To review the existing land use program and make any recommendations. • To identify and evaluate various alternative disposition strategies. • To identify early development opportunities and supporting infrastructure priorities necessary to support development opportunities. • To recommend a revised Disposition Strategy for the former Master Developer Footprint. • To outline and recommend an outreach and marketing approach for future developer selections and any land sales of the property. APRIL 2011 E-1 Tustin Legacy Project Disposition Strategy Executive Summary While the timing and rate of development will largely be influenced by market conditions, the report recommends a preferred Disposition Strategy. It is recommended that the City assume a more limited Master Developer role by marketing smaller segment "Disposition Packages" or parcel groupings of the property, based on infrastructure needs, and primarily passing on the backbone infrastructure and local infrastructure obligations for each smaller package to developers. Disposition Packages, depending on market conditions, may also be segmented into more than one marketing offering to developers. For instance, Disposition Packages 1A and 2 might involve separate marketing of proposed residential land uses from non- residential uses. The recommended Disposition Strategy is intended to take advantage of the success of other completed development and major infrastructure investment at Tustin Legacy by encouraging development in areas that could largely be served by existing infrastructure, which are adjacent to development that has already occurred within the Project, or which will be supported by the City s construction of the Tustin Ranch Road Project. The basic premises of the recommended Disposition Strategy include: Maintaining the Master Plan Vision, with refinements as market conditions warrant. • Maximizing the value of the property as a City asset, managing risks to the extent possible, and balancing the desire to see momentum on the project occurring. APRIL 2011 Marketing smaller Disposition Packages by inviting a limited number of qualified builders to operate and partner with the City. Packages to be marketed will be large enough in size and scale to achieve economies of scale and cost- efficient infrastructure development. Creating Disposition Packages which will largely include similar or compatible land use designations. Ensuring that in marketing and development of Disposition Packages, there is still a sense of place created, and that all master planned amenities are completed within a Disposition Package to not only reinforce this sense of place but to ensure continuity and efficiency in infrastructure installations. • Establishing a process that is diligent in selecting the limited number of qualified builders to be chosen for Disposition Packages and which is not cost restrictive or time consuming to support. Determining the appropriate time frame for sale of Disposition Packages based on market conditions, infrastructure constraints, and Navy remediation progress. The developer selection process as identified in the Disposition Strategy will follow a two-step process for each Disposition Package. The first step will involve developer presentations and personal interviews overseen by a panel of City -selected development experts ("Panel of Experts") which are concurred to by the Tustin City Council based on a staff E-2 Tustin Legacy Project Disposition Strategy recommendation. The selected Panel of Experts for each Disposition Package will screen and recommend to the City Council a proposed list of the three firms that they believe are most qualified to proceed with a particular Disposition Package. Based on the concurrence by the City Council of the short-listed top three firms, the three most qualified firms for each individual Disposition Package will submit a more detailed proposal and pro forma and business offer to the City in response to specific terms and conditions identified by the City. After submittal, a technical evaluation team of City and Agency staff, including City -selected outside consultants with specific expertise in areas of APRIL 2011 Executive Summary development and financing, etc., will review the proposals and provide a recommendation to the City Council of the preferred developer, including a ranking of each of the pre -qualified firms based on responses. Based on the recommendations of the technical evaluation team, the City Council will then be asked to select the developer for each Disposition Package and instruct staff to prepare any required Development Agreement and sale documents required for City Council approval. The City, particularly on the residential Disposition Packages, will also reserve the flexibility to offer subsequent rolling take -downs or Disposition Packages to builders based on performance. E-3 Tustin Legacy Project Disposition Strategy 1.1 BACKGROUND AND LAND PLANNING FRAMEWORK The former Master Developer Footprint covers approximately 805 gross acres, with approximately 419 developable acres. The balance of the subject property is required for dedications of street right-of-way and public park and open space areas. The initial land planning for the former Master Developer Footprint was largely framed by a number of work products or documents: The Tustin General Plan, which designates the site as General Plan land use designation MCAS Tustin Specific Plan; • MCAS Tustin Reuse Plan/Specific Plan ("Specific Plan"), as amended; The MCAS Tustin Final Environmental Impact Statement/Environmental Impact Report ("Final EIS/EIR"), as amended by: • A Supplement to the FEIS/EIR adopted on December 6, 2004, for the extension of Tustin Ranch Road between Walnut and the future alignment of the Valencia Loop Road; An Addendum to the FEIS/EIR adopted on April 3, 2006, which included a new project description and baseline environmental analysis based on the Disposition and Development Agreement between the City of Tustin and Tustin Legacy Community Partners, LLC ("TLCP"), its Master Plan and Zone Change (Specific Plan Amendments) 05-002; • Final Design Guidelines Legacy Park Master Development Site, March 2007, concurred to by the Tustin City Council; • Legacy Park Master Block Implementation Strategy, adopted by the Tustin City Council March 29, 2007; • Neighborhood E Concept Plan and Tentative Tract Map 17144 approvals; and • Numerous Tustin Legacy backbone and local infrastructure studies. 1.2 REVIEW OF THE SPECIFIC PLAN AND MASTER PLAN FOR THE FORMER MASTER DEVELOPER FOOTPRINT As identified in the Specific Plan, the subject property is currently divided into four neighborhoods, which are shown as follows: APRIL 2011 1 Tustin Legacy Project Disposition Strategy 1. Description of the Former Master Developer Footprint Figure 1 Neighborhoml Plan These neighborhoods consist of: Neighborhood G at the northeast portion of the property; Neighborhood B at the northwest portion of the property; Neighborhood D, which is in the center of the property; and Neighborhood E, which is in the southwesterly portion of the Project. The property will be transected by the proposed north -south right-of-way alignment for Tustin Ranch Road, dividing the property with Neighborhood G properties to the east of the Tustin Ranch Road right-of-way and Neighborhood B, D, and E properties to the west of this future road. The Tustin Legacy Project is intended to be a well-defined master planned community with a dynamic urban activity center. The Specific Plan for the remaining unimproved APRIL 2011 portion of Tustin Legacy authorized up to 2,105 new residential dwelling units, a maximum of 6.7 million square feet of non- residential space, new roadways and infrastructure, and significant parkland and open spaces, including a 2 -mile long linear park. The Disposition and Development Agreement ("DDA 06-01") between the City and the previous master developer for the unimproved portions of the Tustin Legacy Project (Tustin Legacy Community Partners, LLC) also proposed a Master Development Plan for the site, which included a refinement of the location and phasing of development, and also included certain Specific Plan amendments (Zone Change 06-01) which were approved and which were environmentally evaluated with an Addendum to the Final EIS/EIR for the Disposal and Reuse of MCAS Tustin. 2 Tustin Legacy Project Disposition Strategy While the DDA has been terminated (as more fully discussed later in this report), the Master Development Plan was developed after a significant amount of time, effort, and resources. This work was primarily done in collaboration with City Staff and followed direction provided by the Tustin City Council. Land planning, Specific Plan amendments, design guidelines, subdivision maps, and infrastructure plans were well developed and are at or near the point of being ready for implementation. Any modifications to the Master Development Plan may require further environmental review. Residential development is currently proposed to occur in Neighborhood G and D with the total number of units and density ranges as identified in the Specific Plan. 1. Description of the Former Master Developer Footprint construction and availability of for -sale and/or rental dwelling units for occupancy by Very Low Income Households, Low Income Households, and Moderate Income Households (the "Affordable Units"). The current Specific Plan also provides the authority for a transfer of up to 10% of the residential dwelling units between any one of the residential neighborhoods above. Please note that the Final EIS/EIR, as amended, does not confine the City to a specific location by phase, although the City needs to meet certain environmental mitigation requirements and thresholds to move onto subsequent development phasing as identified in the Final EIS/EIR, as amended, and in the MCAS Tustin Specific Plan. Neighborhood D at the south central A colored and black and white map of the portion of the Project is intended to be an current Master Development Plan follows urban, denser environment with along with a description of each accommodation of some vertical mixed-use Neighborhood within the former Master development. There are also restrictions in Developer Footprint. the Specific Plan related to units in each of the residential neighborhoods that require APRIL 2011 Tustin Legacy Project Disposition Strategy 1. Description of the Former Master Developer Footprint Figure 2 APRIL 2011 4 Tustin Legacy Project Disposition Strategy 1. Description of the Former Master Developer Footprint Figure 3 ACREAGE EXHIBIT - LEGACY PARK — _ PRELIMINARY .x �-yC[ As�ac,�res __. Neighborhood G The proposed land uses of Neighborhood G largely reflect its role as the Residential Core of the Tustin Legacy Project. A total of 1,214 dwelling units are authorized under the Specific Plan in Neighborhood G, of which 640 units are identified at the Low Density range of 0-7 dwelling units per acre, 382 units at the Medium Density range of 8- 15 dwelling units per acre, and 192 units at the Medium -High Density range of 16-25 dwelling units per acre. Of the 1,214 authorized dwelling units in Neighborhood G, a total of 257 units (representing 21.2% of the units) must be Affordable Units (a APRIL 2011 minimum of 73 Very Low Income Units, 42 Low Income Units, and 142 Moderate Income Units). Residential rental development in Neighborhood G is currently limited to 192 apartments. This is an area where minor amendments to the Specific Plan may be possible, especially if there is stronger market support for minor increases in the number of apartments permitted based on current and near-term market conditions. For example, in Tustin Ranch up to 25% of the total authorized dwelling units may be developed for apartments in rental tenure. With a total of 4,210 residential units authorized in the City of Tustin within the Tustin Legacy Project, it might be possible that up to 1,053 units 5 Tustin Legacy Project Disposition Strategy u — _ PRELIMINARY .x �-yC[ As�ac,�res __. Neighborhood G The proposed land uses of Neighborhood G largely reflect its role as the Residential Core of the Tustin Legacy Project. A total of 1,214 dwelling units are authorized under the Specific Plan in Neighborhood G, of which 640 units are identified at the Low Density range of 0-7 dwelling units per acre, 382 units at the Medium Density range of 8- 15 dwelling units per acre, and 192 units at the Medium -High Density range of 16-25 dwelling units per acre. Of the 1,214 authorized dwelling units in Neighborhood G, a total of 257 units (representing 21.2% of the units) must be Affordable Units (a APRIL 2011 minimum of 73 Very Low Income Units, 42 Low Income Units, and 142 Moderate Income Units). Residential rental development in Neighborhood G is currently limited to 192 apartments. This is an area where minor amendments to the Specific Plan may be possible, especially if there is stronger market support for minor increases in the number of apartments permitted based on current and near-term market conditions. For example, in Tustin Ranch up to 25% of the total authorized dwelling units may be developed for apartments in rental tenure. With a total of 4,210 residential units authorized in the City of Tustin within the Tustin Legacy Project, it might be possible that up to 1,053 units 5 Tustin Legacy Project Disposition Strategy 1. Description of the Former Master Developer Footprint could be considered for rental tenure throughout the Project if the same ownership/rental occupancy tenure ratios were used as previously authorized in Tustin Ranch by the City. The Specific Plan and existing entitlements at Tustin Legacy would only currently permit 555 rental units (240 units at Coventry Court at Columbus Square, 192 units in Neighborhood G, and 123 units in Neighborhood D). Authorizing more apartments would not create any new environmental threshold issues as long as the residential density proposed for a rental project was similar to an original ownership project, since the traffic generation associated with ownership versus rental tenure occupancy is similar. Further, developing apartments particularly for the accommodation of the Affordable Units is a more cost-efficient burden than requiring Affordable Units to be ownership tenure. The City has also previously discussed the potential for exercising the density bonus provisions under State Law AB 2280. Depending on the percentage of Affordable Units accommodated within a development project, a density bonus of up to 35% may be authorized. While not a requirement of the Specific Plan, DDA 06-01 did require that 15%0 of single-family product be constructed as single story. The City Council has already previously recognized the negative impact that this requirement had on land values and has discussed potential revisions to the Plan to modify this requirement to something more reasonable and not driven by a percentage figure. Up to 466,637 square feet of non-residential uses could occur in Phase 2 within Neighborhood G, which includes retail & APRIL 2011 commercial business uses (26,681 square feet of neighborhood commercial, 130,680 square feet of community commercial, and 150,282 square feet of general office uses), a congregate care/senior care facility (158,994 square feet), and a Tustin Unified School District 10 -acre school site. Based on the 2006 Addendum to the Final EIS/EIR, the residential development by phase identified in this Neighborhood is as follows: Phase 1 development of 382 dwelling units in the Low Density range, 220 dwelling units in the Medium Density range, and 192 dwelling units in the Medium -High Density range; Phase 2 development of 258 dwelling units in the Low Density range and 162 dwelling units in the Medium Density range. Commercial business uses envisioned in the Master Plan were not expected to occur until Phase 2. Neighborhood D A mix of land uses are permitted in Neighborhood D, with opportunities for both commercial business and residential uses either in separate or integrated projects. A total of 891 dwelling units are authorized by the Specific Plan, of which all may be in the Medium -High Density range. However, density calculations in Neighborhood D permit utilizing the total gross acres throughout the Neighborhood to determine density; the methodology for calculating permitted density is not limited to an individual residential development parcel or site. This has the effect of permitting densities that could be significantly greater in this Neighborhood on any one individual development parcel or site as long as the total number of units permitted in the Tustin Legacy Project Disposition Strategy Neighborhood is not exceeded. Of the 891 dwelling units authorized in Neighborhood D, 196 units (representing 22% of the units) must be Affordable Units (53 Very Low Income Units, 53 Low Income Units, and 90 Moderate Income Units). While 891 dwelling units are permitted in this Neighborhood, the occupancy tenure for rental products is currently limited to 123 apartments. However, as was discussed above under Neighborhood G, this is an area where minor amendments to the Specific Plan should be explored. This has also previously been discussed with elected officials, since there may be stronger market support for minor increases in the number of apartments permitted based on current and near-term market conditions. Depending on the percentage of Affordable Units accommodated within a development project, a density bonus of up to 35% may be authorized. The current Master Plan also envisions the following non-residential uses/products: Neighborhood Commercial, General Office, Office Park, Light Industrial/Research & Development (flex -space), Industrial Park, Special Uses (including 3-4 hotels), a theater of 1,000 seats, and a health club. One of the most exciting components of the proposed development within Neighborhood D is a vibrant "Urban Community Core," a pedestrian -oriented, mixed-use district that integrates a variety of uses and activities including retail, restaurant, and entertainment uses, hotels, for -sale and apartment homes and offices. This mixed-use district is intended to be eclectic, diverse, and urban in nature. APRIL 2011 1. Description of the Former Master Developer Footprint Based on the 2006 Addendum to the Final EIS/EIR, the residential development by phase identified in this Neighborhood is as follows: Phase 1 development of 862 dwelling units and Phase 2 development of 29 dwelling units. The non-residential uses envisioned in the Master Plan in Phase 1 were 527,000 square feet of general office space, 450,131 square feet of office park space, 144,000 square feet of community commercial space, and a 180 -room hotel. Phase 2 non-residential uses included 576,110 square feet of general office space, 403,000 square feet of office park uses, 77,757 square feet of community commercial uses, a 28,000 square foot theater, two additional hotels (totaling 550 rooms), and a 20,000 square foot health club. Phase 3 non-residential uses envisioned included 65,693 square feet of neighborhood commercial uses and 1,606,923 square feet of office park uses. Development of the remaining 15 -acre hangar parcel was envisioned to be 299,074 square feet of office park uses. Neighborhood E Neighborhood E is the portion of the Project that is the farthest along in its land planning and entitlement process. With a Concept Plan and Tentative Tract Map previously approved by the City Council, a total of 1,267,324 square feet of general office, professional office, and industrial land uses would be permitted within this Neighborhood. Based on the Concept Plan approval and the uses authorized by the Specific Plan, development by phase was identified in this Neighborhood as follows: Phase 1 development of 336,979 square feet of office space and 276,781 square feet of R&D/Flex-space/Light Industrial space; Phase 2 development of 292,179 square feet Tustin Legacy Project Disposition Strategy 1. Description of the Former Master Developer Footprint of general office space, 113,256 square feet of R&D/Flex-space/Industrial space, 229,997 square feet of office park, and 18,132 square feet of neighborhood commercial uses. In addition, there was a total of 37.8 acres of public open space proposed within this Neighborhood, which included the Linear Park and Detention Basin as well as a proposed 8.5 -acre Sports Park. Neighborhood B Neighborhood B is intended to provide localized commercial retail and service uses to adjacent residential neighborhoods. The Master Plan proposes 103,445 square feet of community commercial and 144,837 square feet of general office space within the Neighborhood. 1.3 PREVIOUS MASTER DEVELOPER HISTORY The City originally solicited developer interests in the former Master Developer Footprint at Tustin Legacy in 2004. After an extensive review of submitted proposals, the City selected Tustin Legacy Community Partners, a Delaware limited liability company (TLCP), and entered into an Exclusive Agreement to Negotiate ("ENA") with TLCP on November 1, 2003. Members of TLCP at that time included Centex Homes (as to a 50% interest), Shea Homes Limited Partnership (as to a 25% interest), and Shea Properties, LLC (as to a 25% interest). On May 3, 2006, the City of Tustin and the Tustin Public Financing Authority entered into the Tustin Legacy Disposition and Development Agreement ("DDA") with TLCP as it affected approximately 820 acres (the "Property") at the former MCAS Tustin ("Tustin Legacy"). APRIL 2011 The Agency and TLCP subsequently entered into the First and Second Amendments to the DDA dated March 29, 2007, and June 5, 2007, respectively. The First Amendment to the DDA provided for clarification of certain provisions of the DDA and included modifications to the Developer's Scope of Development and Performance Schedule. The Second Amendment to the DDA authorized the withdrawal of Centex Homes from the TLCP partnership and from any future contractual obligations under the DDA and the reconfiguration of the ownership of the TLCP entity. As part of the TLCP ownership reconfiguration, Shea Homes retained a 25% interest and Shea Properties II, LLC (a new entity) was admitted to TLCP as a member and assumed Centex's original 50% interest, as well as replacing Shea Properties, LLC and assuming its 25% interest (for a total 75% interest for Shea Properties II, LLC). TLCP was selected as the Master Developer based largely on the representations, warranties, and evidence it provided to the City that the entity had sufficient equity capital, internal financial resources, and access to external credit sources to fund all costs related to developing the 820 -acre Master Development site ("Project"), along with the development acumen to address and ride out the market cycles that would inevitably occur, particularly recognizing that the Project was anticipated to take more than twenty (20) years to build -out. In drafting the DDA, extra care was taken by the City to ensure that this last undeveloped large scale site in the City of Tustin would be a significant enhancement to Tustin and Orange County. To ensure that the community's vision and the public Tustin Legacy Project Disposition Strategy objectives for the Project were realized, an integral part of the DDA and its preparation process incorporated the results of a collaborative planning process between the City and TLCP. This included the preparation of a Master Development Plan. In April of 2006, significant modifications to the MCAS Tustin Specific Plan and an Addendum update to the Final Program Environmental Impact Statement/ Environmental Impact Report for the Reuse and Disposal of MCAS Tustin (the "FEIS/EIR") were made by the City to facilitate TLCP's development of the Project. Provisions of the DDA were also a product of meeting and fulfilling the City "vision" for the Project ("City Objectives"), which assisted the City in framing its relationship with the Developer related to the Project. City Objectives are summarized in Attachment 1. The primary purpose of the DDA was to implement the MCAS Tustin Specific Plan in accordance with the terms and conditions of the Navy Conveyance Agreement and federal Quitclaim Deeds. The DDA provided for the Developer's phased purchase of a large portion of the Master Development site (the "Property"), with certain public property to be retained and other property to be dedicated to the City, leaving approximately 420 acres ultimately for private development. Under the DDA, TLCP was to act in the role of the Master Developer, the land development entity that would entitle the Property, build out certain defined Tustin Legacy Backbone Infrastructure, and then sell finished development parcels to third - party residential builders for construction of vertical improvements (homes) in Neighborhood G and rough graded parcels APRIL 2011 1. Description of the Former Master Developer Footprint to builders for construction of vertical residential and non-residential (commercial) development in Neighborhoods B, D, and E. TLCP indicated its associated entities (Shea Properties, Shea Homes, and Centex at the time, and now Shea Properties II and Shea Homes) would also act as vertical builders for a large portion of the Project. The DDA established certain key terms, including but not limited to the phasing and conditions precedent to the City's obligation to sell and convey each phase of the property to TLCP. The key terms included the Scope of Development, the purchase price for the property, obligations of the Developer for deconstruction of remaining military facilities and antiquated infrastructure, and development of the property under the established Schedule of Performance, including obligations for construction of Tustin Legacy Backbone Infrastructure and Local Infrastructure. The City's initial conveyance of approximately 160 developable acres (approximately 335 gross acres) to TLCP at no cost (the "Transferred Property"), as part of a proposed Phase 1 project in July 2007, was contingent upon TLCP's constructing all of the Developer's Phase 1 Tustin Legacy Backbone Infrastructure and Local Infrastructure by September 15, 2009 in lieu of TLCP providing a land payment to the City. Subsequent required land payments were to be deferred to later years after phased infrastructure and certain development activity was completed on Phase 1 property, at which point in time there would be land transfers and land payments by the developer. Tustin Legacy Project Disposition Strategy 1. Description of the Former Master Developer Footprint Unfortunately, with the deterioration of the economic real estate market which began in early 2008, TLCP defaulted on its obligations under the DDA and TLCP failed to cure the defaults under its agreement with the City. Recently, the City terminated its agreement with TLCP. The termination followed the developer's significant and continuing defaults under its contract with the City, including its requirement to construct required infrastructure as a condition to the City's initial conveyance of certain property to TLCP. With the lagging economy, which made real estate development difficult across the County, the City worked diligently with the developer to facilitate the developer meeting its contractual obligations. The City offered extensions to the developer's performance schedule, modifications to the location and timing of development, and timing and phasing of infrastructure and extensions to the land conveyance schedule. In the end, the developer was unable to perform or agree to a plan that would prevent risk to the City and taxpayers. Based on the termination agreement, the City recovered the Transferred Property when TLCP quitclaimed to the City its interest in the original 335 acres conveyed in July 2007. Termination of the DDA, effective July 6, 2010, permits the City to move forward and remain focused on the Project's original vision - a dynamic, urban master -planned community - a place to Live, Work, and Play! As recognized by the City Council with its action to terminate the TLCP transaction, it was anticipated that the City would incur certain expenses for any future activities resulting from the termination. This included any revisions necessary to the City's disposition strategy for the Project site, including but not limited to necessary APRIL 2011 financial analysis, legal consultation, real estate surveys, subdivision mapping, land use planning and design services, environmental approvals, hazardous materials issues, title reports, and appraisals. It was also recognized that the City would step into the role of project manager and property manager for the property during the pre -disposition phase, during any preparation of a subsequent disposition strategy for the Project, and until subsequent agreements for the sale of all or portions of the property. While not all inclusive, the following is a broad outline of a number of other items that were impacted by the termination: 1. Environmental Clean -Up. TLCP, in initiating mass grading and rough grading within the Project, discovered environmental contamination created by former military activities on the Project site. Remediation activities on these contamination sites have begun under supervision of the California Department of Substance Control (DTSC), with the costs and expenses associated with such remediation being provided by proceeds from claims filed under existing Indian Harbor Pollution and Remediation Legal Liability Policy Environmental Insurance Policy No. PECO010756 ("Environmental Policy") obtained by the City of Tustin, also naming TLCP as additional insured. After re -conveyance of the Property, DTSC has not yet determined if the City is a responsible party for subsequent required remediation activities. However, as requested by the City under provisions of the Termination Agreement, TLCP did agree and notified the insurance carrier that all claims after re -conveyance shall be paid to the City 10 Tustin Legacy Project Disposition Strategy directly. It remains the City's position that its actions to re -convey the Property from TLCP to Tustin was accomplished in lieu of foreclosure and should result in the City not being a responsible party under the federal Comprehensive Environmental Responses Compensation and Liability Act ("CERCLA"). However, the City may still indirectly or directly incur liability or cost for environmental remediation activities it is required to complete if such activities are not covered by Environmental Policy proceeds or if the City is determined to be responsible for subsequent remediation activities under CERCLA. These costs would be eligible for MCAS Tustin Redevelopment Project Area expenditures. Pursuant to the Termination Agreement, the City also agreed that the Developer's obligation to indemnify, protect, defend, and hold harmless the City of Tustin from hazardous materials and other environmental contamination issues would be limited to the issues caused, created, or exacerbated by the Developer. TLCP only remains responsible for hazardous materials that it created, caused, or exacerbated within the Project. In addition, TLCP was required to provide full disclosure of all environmental information collected by the Developer, or its agents, consultants, employees, etc., including but not limited to remediation contracts, documents, reports, samplings, and other information regarding the environmental condition of the Developer Parcels, Phase I Property, and/or the Project. 2. Property Taxes owed on the Phase I roe . TLCP was obligated to pay certain taxes on the Phase I Property that the City originally conveyed to them. Property taxes are potential future liens on the Property that, if not timely paid when due when the 1. Description of the Former Master Developer Footprint Property reverted to the City, could become a City liability. As of the July 2010 termination of the TLCP DDA, taxes due on the Phase I Property totaled $2,360,072. According to the County Tax Collector, the City may be responsible to cure any past due property taxes if the Property was re -conveyed to the City. This issue remains unresolved and is being reviewed by the City Attorney's Office. APRIL 2011 11 Tustin Legacy Project Disposition Strategy In conjunction with the revision and refinement of the City's Disposition Strategy and Business Plan for the Tustin Legacy Project, the City in November of 2010 hired two consultant firms with extensive experience in residential and non-residential market analysis both in Orange County and nationally: John Burns Consulting and The Concord Group. John Burns Consulting was tasked with a scope of work for the residential market, which included the following: • Identification of Demand in Life Stage and Price Range; • Current and Future Supply; • Consumer Preferences by Life Stage; • Community, Product, and Pricing Recommendations; • Market Projections and Forecasts; and • A Premium Analysis. The Concord Group was tasked with a scope of work for non-residential uses, which included the following: • Identification of Current and Future Competition for the Project; • Demand for Proposed Land Uses; and • Identification of Land Pricing and Positioning, including potential Project absorption for non-residential uses by use and product. The studies conducted by each firm provide detailed information on the demographics, socio- economic, and the future market potential associated with both residential and non-residential land uses for the Tustin Legacy Project. The full reports and analysis at this time will be retained under City Attorney client privilege as part of real property negotiations since they contain potential payment and term information. However, the following paragraphs provide a brief overview of general market demand trends and projections as provided in each market demand study as they impact the Project. APRIL 2011 12 Tustin Legacy Project Disposition Strategy 2.1 JOHN BURNS CONSULTING STUDY 2.1.1 Socio -Demographic Trends Jobs are projected to stabilize in late 2010 after nearly a 160,000 loss in this last down cycle. Orange County job growth is currently positive, but will likely show a loss of 25,000 jobs (4.8%) for 2010. Job growth in 2011 is expected to be positive, but at a very low rate of 1%. The County will have lost 11% of its peak employment in 2006 by the time job losses subside. The labor force data is showing slightly positive job growth in the last year. The labor force measures the change in employment level based on where people live rather than where they work. The unemployment rate remains high, which is up from 2009 and is higher than the previous unemployment peak of 6.9% in 1993. While slightly positive job growth is projected in 2011, it will take some time for the unemployment rate to return to normal levels. Trade, Transportation and Utilities, Professional and Business Services, and Leisure and Hospitality are Orange County's largest sectors, and all are experiencing growth. The greatest job losses in the last year were in Construction and Government. Population growth troughed in 2005 and 2006, when peak home prices drove residents from the area. Population growth in 2008 and 2009 reflected the decline in home prices, improvement in affordability, and the resulting in -migration. Employment losses are now limiting population growth. A population growth of .8% is projected in 2011, with the addition of 25,900 people; growth is expected to decline from there over the next couple of years. APRIL 2011 2. Market Analysis The dominant demographic by geography will be the 55+ age group. Affordability and lifestyle choice will be critical draws for this potential buyer. The percentage of Asian population will be at least double the population of other groups due to their preference to buy new, buy in areas with excellent schools, and buy in groups. Families with children will account for 37% of households in 2011, but 44% of demand. Couples under 45 with no children will account for 9% of households, but 19% of demand. Retirees, singles, and empty nesters will have a smaller share of demand than households in 2011. 2.1.2 Competitive Master Planned Projects The consultant identified a number of projects and their characteristics that would compete with Tustin Legacy over the next 10-20 years, including Platinum Triangle in Anaheim, the Irvine Ranch Project, Heritage Fields, IBC, and Ranch Mission Viejo. With the large amount of potential supply associated with each of these projects, the consultant believes the key to the success of the Tustin Legacy Project will be product differentiation. 2.1.3 Residential For -Sale and Apartment Demand Residential permit activity is at lower levels that it has been in the last two decades. This will cause greater pressure on demand with little new home inventory as the market recovers. While quarterly year - over -year change has fluctuated between positive and negative over the last year, suggesting that construction activity has not yet stabilized, construction activity in the County should be expected to rise to 8,800 13 Tustin Legacy Project Disposition Strategy 2. Market Analysis units by 2015. It is also expected that housing demand and supply will return to balance in 2011, as job growth returns to the market. New home sales activity will likely increase 13% in 2010 from just 1,587 new homes sold in 2009, which was likely the bottom of the market. Foreclosed and distressed sales in the resale market will provide significant competition to new homes. It is expected that new home sales will increase each year through 2015, when it is anticipated that there will be 4,200 transactions. Rents have been increasing in the County, where the cost of owning a median -priced home remains significantly higher than the monthly cost to rent. In Tustin, sales activity by price range has been the greatest from $400,000 to $600,000. Sale prices were on a decline in Tustin. However, prices are projected to stabilize in 2012 with an increase in home values in 2013 when employment stabilizes in the region and distressed home sales subside. First-time buying activity and first move -up remain strongest in the area. Land values are projected to shift at a more dramatic percentage as the market stabilizes, supply is low, and new home builders look to secure their market position. Projections show a slight decline in land values in 2011, with a rebound in price in 2012 as the market stabilizes. Couples under 45 will represent the greatest demand for housing in 2011 with more than 6,200 purchases, and will dominate the under $400,000 price point. Despite equity erosion, empty nesters, and elementary and mature families will still represent large demand segments. Family households with children are expected to account for nearly APRIL 2011 46 of sales by 2015, with demand growth occurring among the older family groups. Housing demand in Orange County is expected to rise through 2013, falling slightly in the following years. While demand by move -up buyers is expected to be lower than normal in the near term due to equity erosion, their share should increase over the next 5 years. A forecast of Tustin residential demand has been completed with recommendations about the entry of certain product types based on the market cycle and projected absorptions and market demand. The consultant recommends an early 2014 entry with 6 years of overall absorption. The higher density products within the mixed use portions of the Project are slated towards the end of the absorption period when sale prices are higher, and they can absorb the cost and attract the lifestyle with the amenities and retail buyers want already built into the community. The exception to this is apartments, where the consultant is recommending that given occupancy rates of apartments being on the rise (near 95% for the County), the Tustin Legacy Project has additional demand and growth opportunity for apartments within their master plan. The Consultant also believes that the opportunity is immediate to sell apartments land as it appears that investors are significantly engaged in purchase of apartment sites and paying premiums. They also recommend that all affordable units be allocated to apartments, with additional support for an increase in density to support more apartments near and around the new District. Table 1 which follows is a general summary of the projected absorption for residential uses by density through 2019: 14 Tustin Legacy Project Disposition Strategy 2. Market Analysis Table 1 Future Residential Projected Market Absorption at Tustin Legacy 2.1.4 Project Recommendations Burns Consulting recommends that certain project characteristics will be the leader in any new development. These include the following: • Creation of a strong amenity (or series of amenities) that draw people to this location as the "center' of opportunity, entertainment, and life. • Smart green features are rising dramatically in desirability. Consumers want the most sophisticated technology in all parts of their lives in order to be more efficient financially and socially. Future developments should be designed with interior and exterior features in the community which APRIL 2011 enhance technology use and applications. • The growth for empty nesters will be significant. This buyer will want lifestyle and location first. • Based on consumer research, locations with water bodies in the vicinity achieved the highest sale premiums. There are many parks throughout the County, and most parks can achieve up to a 10% premium. The consultant recommends placement in park and open space areas of water features and/or lakes, particularly in the large community park site in order to increase desirability and in turn increase premiums; lakes can bring up to a 25% sale price premium. 15 Tustin Legacy Project Disposition Strategy 5.0 24 30 30 30 11 0 125 6.0 20 30 30 30 22 132 7.0 32 40 40 40 30 182 7.5 28 40 40 40 40 188 9.0 36 36 36 36 7 151 10.0 50 10 60 11.0 40 40 8 88 15.0 48 25 73 16.0 60 20 80 18.0 48 48 62 42 200 21.0 55 50 105 30.0 50 40 30 120 50.0 TBD Apts. TBD Apts. TBD Apts. TBD Apts. TBD Apts. TBD Apts. 380 Apts. 55.0 100 120 220 Totals 228 322 406 398 278 98 2,104 2.1.4 Project Recommendations Burns Consulting recommends that certain project characteristics will be the leader in any new development. These include the following: • Creation of a strong amenity (or series of amenities) that draw people to this location as the "center' of opportunity, entertainment, and life. • Smart green features are rising dramatically in desirability. Consumers want the most sophisticated technology in all parts of their lives in order to be more efficient financially and socially. Future developments should be designed with interior and exterior features in the community which APRIL 2011 enhance technology use and applications. • The growth for empty nesters will be significant. This buyer will want lifestyle and location first. • Based on consumer research, locations with water bodies in the vicinity achieved the highest sale premiums. There are many parks throughout the County, and most parks can achieve up to a 10% premium. The consultant recommends placement in park and open space areas of water features and/or lakes, particularly in the large community park site in order to increase desirability and in turn increase premiums; lakes can bring up to a 25% sale price premium. 15 Tustin Legacy Project Disposition Strategy 2. Market Analysis • Street character and landscape ranked among the top motivators for buyers. • Densities and uses should be blended and integrated more across the community. • Consumers crave natural spaces, green spaces, quick and easy walking spaces, entertainment spaces, reflection spaces. • Avoid looking like the competition in terms of architectural style of the community. The community should reflect both the smart and modern community, embracing indoor and outdoor relationships which make smaller spaces seem larger. 2.2 THE CONCORD GROUP STUDY 2.2.1 Market Area The primary market area includes central Orange County, which includes Tustin, Santa Ana, portions of Anaheim and Orange, Garden Grove, Irvine, and portions of Costa Mesa. The market area is driven by location in and around the I-5 Freeway, Orange County's "spine connector." Competitive office and industrial locations are located within a ten-minute drive north and south of Tustin Legacy, primarily along the I-5 corridor extending to Irvine to the south and Anaheim to the north. The market area for retail and hospitality will be more locally driven primarily by on-site uses (new residential and employment) and neighboring attractions. 2.2.2 Socio -Demographic Trends Over the last 30 -year period, Orange County has gained an average of 18,000 jobs per year. An average of 10,000 jobs has APRIL 2011 been gained per year since 1990 - a level hampered by two recessions during the period. Current employment numbers are on par with 1999 levels, translating to zero growth over a ten-year period. At least 160,000 new jobs are required to reach 2006 peak levels, or an increase of 12%. Job growth will lead any recovery. It is expected that while job growth will increase over the next few years, the recovery peak levels will be in 2015. While net employment growth was down between 2000 and 2009, two industries benefited from pronounced growth - Education/Health Services and Leisure/Hospitality. During the past year (October 2009 through October 2010), the County has gained 14,000 jobs (1%), with growth focused in the Professional and Business Services and Leisure/Hospitality industries. Consensus employment forecasts call for solid job growth in 2011, followed by outsized growth in 2012-2014, with normalized growth for the period of 2015+. 2.2.3 Market Area Competition Lower density Flex/R&D space planned for Tustin Legacy will compete primarily with the Irvine Spectrum (Spectrum 3, 5 and 7 nearing build -out, with 8 to follow in the future) and Heritage Fields. Higher intensity office development is more competitive, with projects planned in the Platinum Triangle and IBC, as well as locations outside the market area in South Coast Metro and Aliso Viejo. The key competitive nodes within the market area include the following locations: • Platinum Triangle - A City of Anaheim led redevelopment effort focused 16 Tustin Legacy Project Disposition Strategy around the stadium area and new ARTIC station with a potential for 14 million square feet of high density office development over a 20 year build -out. • IBC - within the City of Irvine, opportunities for redevelopment and office intensification with 1.1 million square feet of office in planning process already. Spectrum 8 - Irvine Company project located adjacent to planned Cypress residential village will follow build -out of Spectrum 3, 5 and 7. Approximately 4.3 million square feet of flex/R&D space planned. Heritage Fields - former Marine Corps Air Station El Toro. Development to kick-start as market returns. Approximately 3.7 million square feet of office/flex/institutional space planned over a 10-15 year development horizon. 2.2.4 Office Market The market area has added an average of 1.4 million square feet of office space per year since 2000, capturing 67% of County deliveries. Of the total office space, the market area added an average of 700,000 square feet of Class A Office space per year since 2000, also capturing 67% of County deliveries. With the downturn in the economy, lease rates for office uses in general have significantly been impacted, falling significantly and back to fourth quarter of 2009 and fourth quarter of 2002 levels. The current supply of office space and lower lease rates in the County will moderate anticipated office demand. The APRIL 2011 2. Market Analysis consultant expects that office market stabilization will occur by the third quarter of 2013. Over a ten-year period beginning in third quarter 2010 through 2020, the consultant anticipates that the annual average office demand will be 1.6 million square feet, approximately 70% of Orange County demand. The Class A office market is expected to also stabilize in the third quarter of 2013. Demand for Class A office space is projected to be 700,000 square feet per year through 2020, also a 70% capture. The consultant projects that the Tustin Legacy Project will capture approximately 10-20% (depending on the year) of market area share of office space through 2029, beginning in 2014. The Project will capture approximately 20-30% of the demand within the market area for Class B/C through 2031, also beginning in 2014 (the total build -out for all office is projected over an 18 year period). Table 2 provides a summary of office demand by year expected for the Tustin Legacy Project. The Irvine Spectrum project is likely the benchmark for values. 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The consultant expects that flex space market stabilization will occur by the fourth quarter of 2012. It is anticipated that over a ten-year period beginning in third quarter of 2010 through 2020, flex space demand in the market area will average 300,000 square feet per year. The consultant projects that the Tustin Legacy Project will capture approximately 20-30% of the demand within the market area for Flex space (with build -out over an 18 -year period). Table 2 also provides a summary of flex -space and R&D demand by year expected for the Tustin Legacy Project. Flex -space finished pad prices are expected to stabilize in 2013, which may inflate over time as the market adjusts. 2.2.6 Retail Market The market area has added an average of 600,000 square feet of retail space per year since 2000, capturing 52% of County deliveries. The consultant expects that the retail space market stabilization will occur in the fourth quarter of 2012. A little over 900,000 of this square footage occurred in Tustin with development of the District. It is anticipated that over a ten-year period beginning in third quarter of 2010 through 2020, retail space demand in the market will average 700,000 per year. Future retail demand at the Tustin Legacy Project will largely be internally project driven and for local serving goods and services, particularly since the site is already served by a large scale regional shopping center (the District). The consultant projects APRIL 2011 2. Market Analysis that the Tustin Legacy Project's capture of retail space in the market area will vary dramatically depending on the amount of commercial development (office space & flex/R&R space) and residential uses developed on the property. Residential driven retail demand will primarily be realized through 2020 (over a 6 -year period beginning in 2014) with demand driven by commercial uses, providing opportunities for additional retail development through 2032 (build -out of other portion of demand over 17 years). Table 2 also provides a summary of office demand by year expected for the Tustin Legacy Project. The finished pad prices for retail parcels are expected to stabilize in 2013, which may inflate over time as the market adjusts. 2.2.7 Hotel and Other Uses The market demand for visitor accommodations indicates a promising future for these land uses within the Tustin Legacy Project. The consultant projects that hotel market stabilization will occur by the fourth quarter of 2011. It is anticipated that over a ten-year period beginning in the third quarter of 2010 through 2020, hotel demand in the market area will average 200 hotel rooms per year. It is anticipated that approximately 554,800 square feet of hotel demand would be present through 2028, with the demand for four hotels within the Tustin Legacy Project. The consultant believes that this demand will be largely a function of the progression of development of other commercial uses at Tustin Legacy. Based on the demand projections for these other uses, they believe that the first hotel would likely be possible 19 Tustin Legacy Project Disposition Strategy 2. Market Analysis by 2015 (when 18% of commercial build -out has occurred), the second hotel by 2019 (with 30% of the commercial build -out), the third hotel in 2023 (with 50% commercial build -out), and in 2027 (with 75% commercial build -out). Other uses such as health clubs, theaters, and potential congregate care uses would also be largely internally driven by development of other uses on the property. APRIL 2011 The finished pad prices for hotel parcels are expected to stabilize in 2015, which may inflate over time as the market adjusts. Other uses permitted in the Tustin Legacy Project, such as congregate uses, will stabilize in approximately 2016. 20 Tustin Legacy Project Disposition Strategy It is clear that the former Master Developer Footprint of the Tustin Legacy Project represents a tremendous opportunity for both the City and any developers who will be involved in the Project. With completion of the Market Analysis, a reexamination of the key strengths, weaknesses, opportunities and threats ("SWOTS") of the property have been identified and are noted in the attached Table 3. These SWOT issues should be reviewed and may influence the decision-making process for any alternative disposition strategy examined and/or decided on for the Project. Table 3 Tustin Legacy — Disposition Strategy SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats) ITEMS STRENGTHS • Located in central OC near the County's largest employment center (IBC). EXTERNAL • Transportation access is superior: 1) Regional Airport, less than 10 minutes; 2) 3 major Location, Image, Freeway(s) and Toll Roads — SR -55, Interstate 5, SR -405, SR -241; 3) Major Streets — and Market Edinger Avenue, Barranca and Jamboree Blvd, Red Hill Avenue; 4) Commuter and Conditions Commercial Rail System; 5) access to overseas markets available through major port system located in Long Beach/Los Angeles. • Income levels of residents within the sub -market area are relatively high. • Orange County has international reputation for its livable master planned communities, educated work force, and cutting edge industries which makes Tustin Legacy attractive to investors. • Tustin Legacy is the last contiguous large scale open space available for development in Central Orange County. As the market turns positive it will become sought after for development. • Tustin Legacy has successfully developed four residential neighborhoods. • Tustin Legacy has successfully developed a Regional Shopping Center, The District at Tustin Legacy. • Tustin has a positive image as a place to do business and live (Forbes Magazine 2010). • Tustin has some of the lowest development fees in the County. • The City of Tustin has a strong credit rating based on recent bond issuances. • The City, like The Irvine Company, has a low land cost basis in the property. The INTERNAL majority of the site available for private development is not financially encumbered. Developing Site and • The Redevelopment Agency, through the issuance of tax allocation bonds, has Optimizing procured $40M for the construction of infrastructure improvements including Tustin Opportunities Ranch Road. • Partial elevation of the site has been completed (approximately 55%), thereby minimizing more costly drainage alternatives. APRIL 2011 21 Tustin Legacy Project Disposition Strategy 3. Review of SWOT Analysis ITEMS STRENGTHS • Favorable bid environment for constructing infrastructure which is anticipated to result in EXTERNAL savings over previous cost estimates; some of the savings may be impacted by commodity prices associated with building materials. Location, Image and • The majority of demolition on-site has been completed. Market Conditions • Tustin Ranch Road from Barranca to Warner Avenue has been completed. • The City, as the landowner, controls all local permitting activity and entitlements; therefore, entitlement costs and schedules can be optimized. • Tustin Legacy has addressed the majority of regulatory requirements associated with the development of the site. • The City, as the landowner, has the control to release parcels for development with uses that reflect market demand, thereby continually maximizing land values. • The current Neighborhood structure allows for conveyance of logical parcels to either a developer (i.e., an entire neighborhood) or to a builder (specific parcels). • Existing development in Tustin Legacy, such as The District at Tustin Legacy, is a catalyst for adjacent development. ITEMS WEAKNESSES • Access to the site is limited to the periphery of the site. Interior of site is not accessible. EXTERNAL • Image of property is temporarily tainted by recent pullout of former Master Developer. Location, Image and • Property is not visible from major freeways, including SR -55, 1-5, or SR -405. Market Conditions Confusion by public over MCAS EI Toro (Heritage Fields/Great Park) and MCAS Tustin (Tustin Legacy). • Construction activity has slowed on a site that is highly visible from major streets that are heavily traveled. Currently, the only construction activity (residential) is on the periphery of the site which is not often identified with Tustin Legacy. • Residential neighborhoods east of Jamboree (Tustin Fields I and 11 and Columbus Grove) are not recognized by the public as being part of Tustin Legacy. • Leverage financing, within the private sector, is limited and requires significant equity by investors/developers, especially for land development where Return On Investment lags alternative investments in real estate. • Over supply of existing non-residential products (especially office), within OC, is projected to take years to absorb. • Residential properties within the boundaries of the Irvine Unified School District (IUSD) get higher prices for comparable residential properties than residential properties located within the boundaries of the Tustin Unified School District (TUSD). APRIL 2011 22 Tustin Legacy Project Disposition Strategy 3. Review of SWOT Analysis ITEMS WEAKNESSES • The Project area has a soil deficit of 1.3 million cubic yards of fill which will be needed to INTERNAL elevate the site, thus providing adequate drainage. Developing Site and • The cost of developing infrastructure for undeveloped property is significant. A Optimizing significant portion of the financial burden is placed on properties to be developed. Opportunities • Inability to increase amount of leveraged financing during the next 6 years, based on bond covenants and proposed changes to laws impacting redevelopment, which will constrain additional funding for infrastructure primarily funded by the redevelopment agency. • Environmentally sensitive, Navy -owned parcels, located within the footprint, slow or constrain the process of developing selected properties. • Significant cost of developing, operating, and maintaining large areas of public and open space, specifically parks, may impact the pace and type of development. • High ground water level throughout Tustin Legacy may inhibit some types of development. • South hangar is highly visible and may affect decisions of those interested in purchasing land or developing it within the immediate area. • Regulatory constraints by Orange County Flood Control District (OCFD), which requires at a threshold construction of Peters Canyon Channel and Barranca Channel, which can constrain the pace of development. • Land uses will need to be limited to the realm of the existing EIS/EIR and Specific Plan thresholds which could preclude flexibility in the future as the market trends evolve. • Existing development within the Project is currently separated into three distinct identities/areas: two residential, and one commercial bifurcated by either major roadways or large areas of undeveloped land. The near-term ability to create a significant identity to Tustin Legacy will be a challenge. • Operating costs of maintaining site during caretaker period prior to conveyance to outside entity(ies) is costly. • Backbone infrastructure costs could increase as much as an additional 10% to 20% if payment of prevailing wages is required. ITEMS OPPORTUNITIES • Improve access and visibility for the site through the construction of Tustin Ranch Road, EXTERNAL a major roadway, linking the site to Interstate 5, Tustin Ranch, and the IBC. Location, Image, Construction of TRR will open the interior of the site. and Market • Creation of new image for Tustin Legacy not tied to the former master developer which Conditions was confined to the footprint known as Legacy Park. • Superior location of site makes the property desirable for quality development uses and products; no need to accept marginal uses/products or accept spot development. • Bring back momentum and reignite interest in Tustin Legacy with new construction activity in the center of Tustin Legacy. APRIL 2011 23 Tustin Legacy Project Disposition Strategy 3. Review of SWOT Analysis ITEMS OPPORTUNITIES EXTERNAL • Provide better circulation within Tustin Legacy to the residential neighborhoods and The District, thereby creating a sense of community. Location, Image, • An opportunity to create unique architectural and design statements such as iconic and Market pedestrian bridges and a linear park that, when developed, will create a unique identity Conditions not found elsewhere in Southern California. • Proximity to Metrolink Transit Station will present linkage opportunities with Tustin Legacy. • New markets and development products emerge as the economy recovers that were not previously envisioned. • Take advantage of existing infrastructure near The District at Tustin Legacy. INTERNAL retail, and hotel uses. (Over Supply of Office Supply — 5 years.) • Cost savings on infrastructure by using recycled building materials from former runways Developing Site and currently stored on-site. Optimizing • Take advantage of competitive construction bid environment. Opportunities • The Redevelopment Agency in 2010 took advantage of the favorable costs of financing infrastructure through the issuance of Tax Allocation Bonds for needed infrastructure. • Potential for early short-term development on vacant land which could be revenue generating and/or provide initial critical mass of development, engage the community, and generate publicity for Tustin Legacy. • Create temporary or permanent site identity elements along the perimeter and key entries to increase Project visibility. • Hangar demolition could be creatively offered for a fee to motion picture entities. • Revenue from land sales could be used for required backbone infrastructure and environmental transportation/circulation mitigation. ITEMS THREATS EXTERNAL • Competition from potential competitors such as: o The Irvine Ranch, appropriate to all uses and product types; established image and Location, Image, proven performance. and Market o IBC, recycling of existing tilt -up type products into higher density uses. Infrastructure Conditions costs are cheaper since most infrastructure is adjacent to the "recycled" sites. o Adaptive reuse of sites in Santa Ana visible from SR -55. o EI Toro/Heritage Field, under single entity developer, may impact development at Tustin Legacy. o Rancho Mission Viejo developments. • Continued over supply of existing non-residential space among office, industrial, R&D, retail, and hotel uses. (Over Supply of Office Supply — 5 years.) • Over supply of residential uses, particularly "shadow" supply resulting from foreclosures. • City and Redevelopment Agency's limited capacity to fund additional infrastructure in a timely manner. Threats from Governor and Legislature to abolish redevelopment would APRIL 2011 24 Tustin Legacy Project Disposition Strategy 3. Review of SWOT Analysis ITEMS THREATS have a significant impact upon affordable housing and installation of backbone infrastructure. • If unemployment and underemployment rate continues to grow in Orange County and California with the Great Recession. • Inability to stay with long-term vision of Tustin Legacy as a master planned community. Impatience could lead to spot development and the resulting devaluation of property which will negatively impact property taxes and land sales. • Environmental cleanup impediments associated with Navy properties and unknown INTERNAL contaminates that may be found during the construction process. Developing Site and • Inability to complete adequate soil import in a timely and cost-effective manner will add Optimizing to cost of construction and impede schedule of development. Opportunities • Regulatory environment at the regional, State, and Federal levels continuing to place additional challenges on the cost and schedule for development. • Challenges to regulatory requirements by outside parties including other land owners in Tustin Legacy. • General economy weaknesses and slow recovery from Great Recession. • Potential legal threats from outside entities, either public or private. • If City's role as "Executive Developer" extends to become "Master Horizontal Land Developer," it would put City's financial resources at risk in the financing and construction of local infrastructure. Managing operations of a project of this size will likely requiring a separate management/operational team. Operation costs would be significant. • City development of infrastructure will require payment of prevailing wages, thereby adding to the cost of infrastructure. APRIL 2011 25 Tustin Legacy Project Disposition Strategy 4.1 MAJOR ASSUMPTIONS/ GIVENS IN EXPLORING ALTERNATIVE DISPOSITION STRATEGIES In formulating potential Alternative Disposition Strategies for the Project, there are a number of major assumptions to be considered regardless of the Alternative Disposition Strategy identified. • City Goals and Objectives for the Project should be respected, as may be revisited from time to time (see Attachment 1). • The Project has an approved Specific Plan and accompanying EIS/EIR certification, including certification of an April 2006 Addendum. • Market conditions will determine the pace of vertical development of both non-residential land uses and residential land uses and drive the pace at which local infrastructure can be funded and installed. • The Project is a master planned community that requires significant up -front investment in Tustin Legacy Backbone Infrastructure. • Development of a large scale master planned community has a long development horizon, requires long-term "patient" money, and the return on investment will not be immediate. • Tustin Ranch Road (from Warner Avenue to Walnut Avenue), the extension of Valencia Avenue (from Kensington Drive to Tustin Ranch Road), the extension of Park Avenue north from Warner Avenue to the future Legacy Road, and the construction of Legacy Road from Tustin Ranch Road to Park Avenue will be constructed and completed in 2013. • Implementation of the Tustin Legacy Backbone Infrastructure Program would remain an important requirement and framework for any development. The following is an outline of Alternative Disposition Strategies for the former Master Developer Footprint discussed by the City's Tustin Legacy core team of staff and consultants. The Alternatives are separated into Active and Passive Strategies with the potential implications of each alternative identified. Please note that there may be other approaches to the disposition of the property that would involve a combination of any one of the Alternatives, with many additional alternative hybrid options possible as adaptations of those Alternatives outlined which follow. APRIL 2011 26 Tustin Legacy Project Disposition Strategy 4.2 ACTIVE ALTERNATIVES There are three Active Alternatives: Remarket the Property to a New Master Developer City to act as Horizontal Land Developer City to act as Executive Master Developer in a More Limited Role and Support Staged/Phased Backbone Infrastructure, Marketing and Sale of the Property A discussion of each of these alternatives follows. 4.2.1 Alternative: Remarket the Property to a New Master Developer This Alternative would propose soliciting and remarketing the entire property to potential Master Developers and to select a single Master Developer similar to the Tustin Legacy Community Partners, LLC transaction. Under this alternative, the Master Developer might be only a horizontal developer or both a horizontal/vertical developer or builder. This alternative would involve a bulk disposition of the property and again turn over master development of the property entirely to the private sector. The new developer would need to maintain the existing Final Program Environmental Impact Statement/Environmental Impact Report ("EIS/EIR" or "environmental document") thresholds tied to existing entitlements on the property. Refinements or modifications to the Master Development Plan could be possible if the EIS/EIR thresholds were respected and not breached. APRIL 2011 4. Alternative Disposition Strategies Potential Positive Consequences 1. Potential Investor Interest. Provided the market recovers, there still are large master developers capable of marshalling the necessary financial resources, including access to capital markets and lines of credits for funding and phasing construction of infrastructure, and selling vertical parcels and building vertical development projects in a manner that is responsive to the real estate market. 2. Reduce City's Financial Risk. Selection of another Master Developer would minimize the City's risks and reduce on-going operating costs associated with Project management and property maintenance responsibilities, could reduce backbone infrastructure cash commitments required of the Agency, and would bring development expertise to the Project. 3. New Ideas and Approach to Developing the Project. A new Master Developer may bring fresh ideas for developing the property. The Master Developer would be responsible for product development based upon their analysis, including any new market realities. They will also have the flexibility to explore potential modifications of the existing Master Plan within the approved Specific Plan and Final EIS/EIR thresholds to potentially yield a higher land residual valuation. 4. Land Revenue in Near Term. Sale of property to a Master Developer could result in immediate significant cash flow available to meet City-wide needs. 27 Tustin Legacy Project Disposition Strategy 4. Alternative Disposition Strategies However, in today's environment, a sale of Tustin Legacy to one Master Developer would likely be structured on a terms basis, similar to the recently terminated sale to Tustin Legacy Community Partners, LLC. Such a transaction would be in all likelihood heavily discounted. 5. City Experience in Dealing with a Master Developer. The City understands the requirements for a Master Developer of a project of this magnitude resulting from its comprehensive experience in dealing with large master -planned communities such as the Tustin Ranch projects. Furthermore, the City would benefit from its unsatisfactory relations with the prior Master Developer to establish a new course of action. The knowledge acquired from dealing with a large private developer may help avoid repetition of the same problems. Under this Alternative, the City could focus on what it does best - planning and selection of a development team - while avoiding the areas where it has less experience (e.g., private sector financing, development, and construction) and avoiding the risks presented by undue political influence and the potential lack of a "for profit" mindset, skills, and experience. 6. Flexibility and Ability to Reduce Cost of Infrastructure. The private sector has more of a financial incentive (and a "for profit" mindset) and flexibility to respond and create cost efficiencies than the public sector in constructing infrastructure and keeping costs down. APRIL 2011 A portion of any backbone infrastructure which does not require Agency and/or City participation in financing or construction and which will be constructed by a new Master Developer may be exempt from prevailing wage requirements. This could reduce infrastructure costs as well as minimize issues arising from compliance with Davis -Bacon statutory requirements (in the event Federal funding is used). Potential Drawbacks Loss of Control Over the Project. The City would likely be required to cede control over certain aspects of the redevelopment process and infrastructure priorities. A Master Developer is typically looking at a much narrower window of opportunity, resulting in their willingness to change and/or downgrade the approved Master Plan to accomplish short-term returns, sometimes to the detriment of the community's vision. 2. Bulk Sale Discount on Land. A project of this size would most likely be heavily financed by expensive equity money from multiple sources. This financial structure is expensive and can lead to conflict between various partners whose financial goals and targets can change over the life of a project. With the change over the last few years in the manner in which land sale transactions are financed, the City should anticipate under Alternative 1 significant discounting of the property; the City's share of upside revenues 28 Tustin Legacy Project Disposition Strategy would also be impacted negatively since large bulk sale discounts will be required because of the extended development schedule of the Project over a 20+ year build -out. The discounting of land value could be substantial given the up -front infrastructure investment required of a Master Developer. Further, bulk sale discounts will likely be larger than in the past. All lenders are requiring significant equity contributions by developers. Master Developers will be driven by Internal Rate of Return (IRR) and restrictions placed on them by their lenders. 3. Solicitation, Selection, and Negotiation Process for a Master Developer. A Master Developer solicitation, selection, and negotiation process, given today's market realities, is expensive and would involve a considerable cost and time investment by the City and those responding to the solicitation. Introduction of a new Master Developer would also involve significant future negotiations and could involve modifications to the Master Plan as may be requested by a new Master Developer. In the event that there is no support for specific negotiation parameters and land use plan modifications, any conflict could cause the Project to languish as details are resolved with the new Master Developer. The Tustin Legacy Project could also be slowed down once a new Master Developer is selected, and then needs to "get up to speed" or if they wish to introduce new land planning concepts. APRIL 2011 4. Alternative Disposition Strategies 4. Smaller Pool of Master Developer Candidates with the Financial Capacity and Commitment Level. It is extremely important to select the right developer partner and the right fit for such role. A company's management and vision should be a significant factor in selecting a Master Developer. However, since the time frame for the Project is so long, it is highly likely that there will be significant management turnover in whichever firm is selected under this Alternative (as was the case with the TLCP transaction). Company objectives and cultures change with the management in place. It is almost impossible to predict the future philosophy of any company. Therefore, it exposes the City to the unknown risk of a partner whose future strategy may clash with those of the City. The list of potential Master Developers with adequate capabilities is much smaller than it was in 2006, and many builders will no longer be allowed to become Master Developers. Therefore, there is a more limited number of developer candidates qualified to purchase the property in its entirety, finance the necessary horizontal infrastructure improvements, and manage a project of this magnitude. This is particularly true because the Project includes a number of very different land use products (residential and non-residential products). Non- residential planning, product development, and marketing is dramatically different than residential product planning, development, and marketing. Any Master Developer would also be likely affected by current 29 Tustin Legacy Project Disposition Strategy 4. Alternative Disposition Strategies market realities in being able to successfully move forward on certain products. In addition, real estate companies experience large swings in financial health over time. Given the long-term nature of the Project, it is almost impossible to count on the long- term financial capabilities of one entity. Even "survivors" that might be able to finance an entire project will be return driven and less likely to invest funds beyond a 3 to 5 year window. Cash flow will be critical to their finance plans; they will be likely to bring the minimum ideas required to get the City's approval and will also be less likely to innovate once the contract is approved. Offers from Master Developers will most likely be heavily weighted to the back end for cash flow to the City, with limited current cash to the City. There may be a significant parallel and precedent in Northern California, in which the 770 -acre Alameda Point (Alameda Air Station) initially hired a Master Developer, Alameda Point Community Partners (a joint -venture of Centex and Shea Properties), which eventually defaulted with their agreement with the City of Alameda. The City of Alameda then attempted to broker a deal between Catellus and Lennar to take over the project, which was unsuccessful. The City of Alameda then entered into an agreement for a new Master Developer, Sun Cal, which was recently terminated. Through the years and all of the work done, the Master Developer of Alameda Point accomplished little. The portions of Alameda Point that have been APRIL 2011 successfully completed are the smaller residential and commercial parcels outside of the Master Developer Footprint. 4.2.2 Alternative: City to Act as Horizontal Land Developer In this Alternative scenario, the City and/or its Redevelopment Agency would provide the oversight and management of development of the property. Responsibilities of the Horizontal Land Developer would include design, construction of horizontal backbone infrastructure and major local infrastructure, mass grading and rough grading, land use planning and marketing, and sale of super pads or "blue top" parcels for vertical development within the Project. The City/Agency would work to maintain the existing Final EIS/EIR thresholds tied to existing entitlements on the property. Refinements or modifications to the Master Development Plan could be possible if the Final EIS/EIR thresholds were respected and not breached. As Horizontal Land Developer, the City/Agency would have the responsibility and need to acquire the resources necessary to administer and direct the implementation of any business and operational plan for the Project. The City would be required to provide financing for its horizontal improvements (grading and infrastructure) and enter into transactions or agreements that would ensure construction of horizontal improvements necessary to support development. The City would offset any of these costs incurred by the developer(s) from the market value or the sales price for the land to be paid to the City. Sale of super pads will provide a 30 Tustin Legacy Project Disposition Strategy portion of the revenue to construct required backbone infrastructure. Other revenue for major infrastructure improvements would be generated by a combination of developer fair share contributions towards the Tustin Legacy Backbone Infrastructure Program, formation of special financing districts, or the direct construction of improvements by developers or the Redevelopment Agency (if redevelopment tax increment resources continue to be available to the Agency based on recent budget discussions at the State level). Furthermore, the City would be responsible for all marketing and sales activity in selling vertical properties to private builders. Development of a project of this size, variety of uses, intensity, and dollar value will require a significant level of experience and management. Each of the disciplines necessary to complete the level of horizontal development necessary to support the scale of development proposed in the Project will require significant levels of expertise, and the coordination and management of those with expertise in the development arena. In all likelihood, under this alternative scenario the City would be required to identify and contract for a development team by employing or outsourcing the required additional development expertise. The development team of contract professionals should ensure that the implementation process is timely, orderly, and cost effective, and that the myriad of issues that need to be addressed in implementing a business and operational plan are dealt with effectively and efficiently. Outsourcing technical advice and development and Project management support could involve the City hiring a development advisor (firm) to provide APRIL 2011 4. Alternative Disposition Strategies advice and temporary support staff. Compensation of the development advisory firm could be either commission -based or fee-based. One possible option would be a developer fee program where an out- sourced consultant receives a share of land sale proceeds based on their participation in the Project. Another approach would be a "sweat equity" role where a developer would be rewarded with proceeds if certain developer successes were achieved. The scope of the City's involvement would be equivalent to that of any other horizontal master developer, except the City would not engage in construction of vertical product. With this alternative, the City will market super pads or blue top lots to private sector developers. Under this Alternative, for residential development, it is assumed any contractual agreement between the homebuilders and the City would include provisions that would permit the City to participate with the homebuilder in profits earned above agreed-upon threshold amounts over a minimum profit level allowed for the homebuilder. Typically, under such land sale and profit sharing agreements, the Horizontal Land Developer participates in profit on the vertical product. Profit participation under these types of agreements are determined by home sales revenue above a pro -forma established sales price reduced by limited pre -determined cost increases. It would be assumed that commercial parcels would be sold in a graded condition either as blue top pads or super pads. Vertical builders could be selected through a pre -determined qualification and negotiation process, a proposal process, or by auctioning off portions of the property, 31 Tustin Legacy Project Disposition Strategy 4. Alternative Disposition Strategies provided terms and conditions of the sale of parcels are clearly defined. Development agreements will ensure redevelopment of the super pads or sale packages in accordance with the business and operational plan and Specific Plan. Potential Positive Consequences: Maintains Control of Project. The City would continue to control the Project and development. This control would permit the City to manage Project timing and phasing of infrastructure and development and may facilitate development absorption. The City could also maintain ownership of the property through a large portion of the homebuilding activity, which would provide the City with significant input on product type, construction timing, and marketing. Over the last four years, a significant amount of time, effort, and money has been spent on creating a Master Plan framework for the development of the Tustin Legacy Project. This work has been primarily accomplished with input from the City and has followed the direction of the City Council. Land Planning, Specific Plan Amendments, design guidelines, parcel maps, and infrastructure plans are well developed and at or near the point of being ready for implementation. Much of the framework role of the Executive Master Developer is done, with a well conceived development program in place. One key element of having a City - controlled horizontal development entity is to be nimble and responsive to APRIL 2011 the market. The marketplace will dictate what areas are most marketable. One key to the success of land ownership for Horizontal Land Developers and Master Developers such as the Irvine Company, Mission Viejo, and Bixby Ranch Companies is their unwillingness or need to compromise on the "vision" for a short- term return. Such owners have been willing to patiently manage their land assets, waiting for the market to return and allowing them to maintain the quality of their projects. 2. Residual Profits of Residential Units. By identifying profit thresholds, the City would potentially participate in profits from sales of homes. If home prices or rents significantly increase, by establishing the homebuilder profit thresholds of a homebuilder, the ultimate residual value inures to the City. 3. Control of Project Team. The City would have the opportunity to out- source and hire the same consultants as a private Horizontal Land Developer. By acting as both the lead agency and the Project proponent, the City would have extensive influence over development of the Project. When the economy improves, the value of the property will likely increase and the Project could yield additional land sale proceeds and/or cash flow to the City. 4. OrderlyApproach to Planning and Development. The City would have significant control over the sequencing of construction. The City would be able to ensure orderly development of the 32 Tustin Legacy Project Disposition Strategy Project rather than expose itself to the risks of "hopscotch" development. For example, once a parcel is sold to a homebuilder, through a phased take down, the homebuilder would not have discretionary control over the timing of construction and sale of homes. If a builder chooses to delay the "takedown" of later parcels, the City would have the opportunity to terminate the contract and resell the property. Orderly development will also minimize inefficiencies in prematurely constructing infrastructure before it is needed. 5. Prominent Homebuilders and Publicly Traded Homebuilders and Rolling Takedown Options. Prominent homebuilders and publicly traded homebuilding companies with significant revenue sources will be attracted to the site because of its location. Although homebuilders desire to structure deals with rolling options, the opportunity to work in a strong marketplace such as Tustin provides an incentive to become a preferred home builder and purchase lots in larger increments. Alternatively, if the City adopts a program of small takedowns, using rolling options, it will clearly enhance the residual value of the property. By following The Irvine Company business model of inviting a small number of builders on The Ranch, the City may choose a similar strategy of inviting a limited number of qualified homebuilders to operate and partner with the City at Tustin Legacy. By establishing "partnership" arrangements with these homebuilders, APRIL 2011 4. Alternative Disposition Strategies the City could establish a synergistic relationship where both the homebuilders and the City benefit. The City has proven that it can work with both local and national homebuilders, as demonstrated by its participation in successful projects such as Tustin Field I and II, Columbus Square, Columbus Grove, and Tustin Ranch. The City can leverage its success with homebuilders on the Tustin Legacy Project. Control Location and Pacing of Land Sales. With the City managing the development of major horizontal infrastructure and sale of vertical parcels, the benefit of selling parcels at retail prices rather than at a wholesale price would inure to the benefit of the City. Furthermore, the City can adapt to hold parcels off the market to enhance future land values or the feasibility of a specific development project desired. If the City were the Horizontal Land Developer, it would have more control over the location of specific vertical parcel sales, which could avoid the potential for "leap frogging" and less logical sequencing of sale parcels which would result in and require additional and perhaps inefficient early infrastructure investment. 7. Low Cost of Financing. The City, as the Project proponent, currently has access to low-cost public financing sources and has been able to use tax increment financing (this may change in the future with any State legislation affecting redevelopment), CFD financing, and other financing sources to support development of horizontal 33 Tustin Legacy Project Disposition Strategy 4. Alternative Disposition Strategies infrastructure. It may also qualify for Federal or State grants to assist in financing of horizontal infrastructure for the Project. However, current State budget discussions could impact the availability of future Redevelopment Agency tax increment revenues. In addition to tax increment financing and other public financing sources, the City has the flexibility to seek out non- recourse bond or other lender financing secured by real estate contracts and future land sale proceeds. This was the mechanism used by the City with the Tustin Field I and Il projects where land sale proceeds secured the notes. S. Flexibili . The City would retain the flexibility at any point in time to choose for reasons of public policy or economics to sell the property prior to completion. For example, if the economy recovers and initial successful portions of the Project set the stage for reinvigorated interest, the City can monetize its interest in the Project by selling any parcels not previously sold to qualified developers/investors. Potential Drawbacks 1. Operating and Capital Costs. Even though certain services and responsibilities could be outsourced or contracted for to third parties, the City would be responsible for all property management and horizontal costs (infrastructure and grading to create super pads or individual blue top parcels) associated with the Project, as well as the cost of preparing and updating a refined land use plan and marketing and selling vertical parcels. APRIL 2011 This includes necessary personnel support for processing of what could be hundreds of invoices a month. This increases financial risk to the City, and may require additional capital to be generated through various methods such as public financing or other financing sources. The City would be accepting a higher level of development risk and potential liability. 2. Grading for Building Sites. The City routinely performs grading activities associated with construction of public streets and utilities. However, grading of building pads and sites has a perceived and often real liability exposure greater than a traditional public works project. Individual homeowners are quick to litigate for issues such as foundation settlement, cracked slabs, poor drainage, and damaged property line walls. In the event that the City assumes the Horizontal Land Developer role, the City will need to ensure increased oversight of grading operations and that quality assurance procedures are in place to minimize the potential for errors or defects in grading activities. In addition, the City should insist that each vertical or merchant builder purchasing property from the City accept the sites in an "as -is -where -is" condition and fully indemnify the City against any and all claims related to site grading. 3. Limits on Ability to Establish a Special Entity to Limit Liability. In general, private developers establish special purpose entities or limited liability companies to limit their liability on a project. With the City's substantial 34 Tustin Legacy Project Disposition Strategy assets, dissatisfied parties may wish to pursue what they perceive as the City's "deep pockets" for resolution of any conflicts or issues. The City may not have the same legal ability to establish a special entity to limit its liability. 4. Less Flexibility and Ability to Reduce Infrastructure Costs. The private sector has more of a financial incentive (the "for profit" mindset) and flexibility to respond and create cost efficiencies than the public sector in constructing infrastructure and keeping costs down. In contracting for services and improvements, the City may be subject to prevailing wage requirements and if State and/or Federal funding sources are used (Davis -Bacon provisions). Each of these requirements would necessitate that the City hire the "lowest responsible bidders." Oftentimes, the lowest responsible bidder does not possess the technical skills required for projects of the size and scope of the Tustin Legacy Project, nor do they create the most "cost efficient" projects. 5. Development Priorities under Public Political Process. The City as the Horizontal Land Developer is not insulated from the political process and could be subject to local citizen pressure to complete backbone infrastructure (i.e., parks) in a less than optimal sequence, or out of sequence with what infrastructure is necessary to support a segment of the Project. This may require the City to invest money in advance of project -related needs. 6. Potential Conflict with Character/Mindset of Organization. The City Council and City employees APRIL 2011 4. Alternative Disposition Strategies would have to adopt a mindset that they are in the "for profit" business and act accordingly. It may be difficult to redirect public agency personnel to placing profit as a significant objective vs. the existing mindset of serving the public, with generating a profit often a secondary objective. Making decisions quickly, responding to the market, and maintaining momentum will be vital pieces of the success of development of this site. This will ensure that the development maintains its vision, does not lose ground to the market, and is efficient in cost control. Detractors would argue that sometimes public agencies have difficulty making decisions rapidly due to political influences and the limited authority of staff. This could potentially delay progress or worse, make the Horizontal Land Developer role ineffective unless all staff and City Council are on the same track. 7. Complexities of Establishment of Master Associations. An issue that will take a lot of thought that is normally handled by a Horizontal Land Developer, prior to selling of any property, is the establishment of any master associations and the controlling documents that go along with them. The master association process is essential to ensure the continuing maintenance responsibilities to create the sense of place for a large master planned community. Working through the details necessary to create such associations and their structures is time consuming, complex, and will involve considerable legal support services. 35 Tustin Legacy Project Disposition Strategy 4. Alternative Disposition Strategies 4.2.3 Alternative: City to Act as Executive Master Developer in a More Limited Role This Alternative would have the City/Agency assume the role as the Executive Master Developer in a more limited role to permit marketing and development of certain segments of the Project (smaller portions of the Project) which would be incremental and smaller than the entire Master Developer Footprint. It may further enable development to proceed earlier, with perhaps portions of the Project needing to be delayed for a period of time until a more robust economic recovery and construction of required backbone infrastructure can be financed. Early opportunities for sale and development of smaller segments or individual vertical parcels could provide additional revenues for funding future portions of backbone infrastructure planning and construction. Acting as the Executive Master Developer, the City would solicit and encourage either master developers or vertical builders to continue development in areas that could be largely served by existing infrastructure or where there could be cost efficient installation of new priority backbone infrastructure by the developers in conjunction with any proposed development While certain infrastructure required to serve early development opportunities and project segments could be jumpstarted with Redevelopment Agency/City funds, subsequent improvements would be included as a developer obligation under any land sale transaction or as a condition of development. The objective would be to propose Project segments that could be APRIL 2011 marketed for sale and development if the City ensures that certain important City goals and objectives are met. The following additional objectives should be achieved where Project segments are sold for development: • Creating a logical, orderly, and a planned sequencing of any proposed sale of property and development; • Creating a sense of place in any planned phasing - and a sense that a master planned development is progressing; • Completion of planned roadway/infrastructure loops and routes and creating continuity and cost efficiency in any backbone infrastructure phasing approach; Ensure completion of all master planned amenities proposed in any phasing approach; • Provide for focus on issues of public health, safety, and welfare; and • Demonstrate that the City is acting in the best interests of its residents by maximizing the return on this unique asset. As cash flow is generated from the property and invested in backbone infrastructure supporting the Project, or to support parks and community facilities, the benefits of the property would inure to the residents of Tustin rather than to a private development company. For example, the City could continue development adjacent to Tustin Ranch Road near the successful retail commercial development - "The District." Any financial resources generated from land sales for this 36 Tustin Legacy Project Disposition Strategy development could assist in funding completion of other infrastructure in the general vicinity and focus development to take advantage of the large market draw of "The District" and the potential catalyst the new development would have on the Tustin Legacy Project. In an analysis completed by Developers Research, one of the City's consultants, during the City's default discussions with TLCP, substantial information was developed at the time indicating that sale of land and development of certain parcels adjacent to Tustin Ranch Road could generate significant net revenue or cash flow, even with the costs associated with installation of any needed backbone infrastructure. This seems to be a concept that a number of developers who have had discussions with the City believe would be feasible and that staff and the City's consultant team believe would be a developer -embraced approach to proceeding with the Project. It is envisioned that this Alternative would involve a more limited Executive Master Developer role for the City/Agency where the City/Agency would break the development down into smaller sized portions of the larger Project and while this has some risk, ensure that development momentum is achieved. Some degree of control and level of land optimization would be achieved with a focus on the completion of limited major backbone facilities for certain segments, or phases of the Project and marketing of superpads and perhaps some blue tope parcels within certain smaller segments of the Project. Other than early development opportunity sites, the City/Agency would not generally anticipate being responsible for backbone APRIL 2011 4. Alternative Disposition Strategies infrastructure or for local in -tract infrastructure although available Redevelopment Agency tax increment funds may be available to support additional planning, design or construction as resources are available and as the project progresses. This would also allow the City to phase the development and time sale of phases or segments of the Project to meet market demand and the development intensity supported by the current EIS/EIR Phase 1 thresholds. The later phases of the Project would be more intense, when the market will reward that intensity. Although the City would still have the responsibility for overall master planning, it would shift, wherever possible, a significant responsibility for financing, development, and construction of horizontal improvements to third parties. The overall intent of this Alternative would be to sell a group of parcels to single land developers large enough to achieve economies of scale and infrastructure development. The Project segments or phases to be chosen would likely include similar land use designations so that property is sold to developers with expertise in development of specific land uses and not for speculation purposes. The time frame for any sale of segments or phases of the Project would be a function of projected market absorption, infrastructure constraints, environmental document development, phasing thresholds, and completion of environmental remediation by the Department of the Navy. Opportunities for individual developers who demonstrate success on initial development opportunities within the Project to be provided with rolling take down options on future phases or segments 37 Tustin Legacy Project Disposition Strategy 4. Alternative Disposition Strategies should also be considered under this Alternative. If this Alternative approach is adopted, the City would generally work within the currently approved development framework in the Specific Plan and Final EIS/EIR. The approach of breaking the Project up into small phases or segments and then marketing those segments, versus individual vertical parcels, was an approach originally recommended by Tustin staff and consultants to the Tustin City Council in 2003 and in the City's original operational plan for the Tustin Legacy Project and in the City's request for conveyance of the subject property to the Department of the Navy. The City proceeded with this approach with its sale of property and developer's construction of Tustin Field I and II (67 acres of land). In these transactions, the agreement between the City and the homebuilder required the homebuilder to construct local infrastructure and limited backbone infrastructure, provide an additional contribution towards the City's construction of other Tustin Legacy backbone infrastructure, purchase the property from the City at a fixed price, and allowed the City to achieve profit participation as a percentage of gross unit sales. The City received both the base sale price and participation payments on both of these projects for total payments or revenues to the City of $70,810,680, with no City obligations for infrastructure construction in the transactions. The City also undertook a similar approach with the sale of "The District" to Vestar/Kimco, transferring responsibility APRIL 2011 for major construction of backbone infrastructure onto the developer with repayment for any infrastructure over - sizing by the developer to be made as future land sale proceeds are generated. Although not all property has yet been conveyed to Vestar/Kimco, the total value of their transaction with the City includes a contract price of $33,414,161 for 87 acres of land plus a minimum $36,330,000 backbone infrastructure contribution by Vestar/Kimco to the transaction, for a total value to the Tustin Legacy Project of $69,744,161. Infrastructure cost escalations, however, have resulted in estimated costs to Vestar/Kimco under their current agreement with the City of $82,510,692 ($46,188,692 more in backbone infrastructure value than originally anticipated). The Master Developer process was determined by City Council direction in 2004. The direction at that time was to not undertake the Tustin Field I & II and Vestar/Kimco approach which is similar to the alternative discussed herein for the balance of the Tustin Legacy Project and to instead solicit proposals to select just one Master Developer for the remaining 820 - acre former Master Developer Footprint. Potential Positive Consequences Encourages Development Adjacent to Existing Infrastructure and Completed Vertical Improvements. The City would be able to piggyback on the success of completed development and completed backbone infrastructure. Projects which have been completed at Tustin Legacy which offer such an opportunity include the "The District" adjacent to Tustin Ranch Road, the 38 Tustin Legacy Project Disposition Strategy Rancho Santiago Community College District development adjacent to Armstrong Avenue, and/or the Columbus Square Project adjacent to Kensington Drive. By marketing and selling development segments or phases immediately adjacent to these developments, the revenues from sale of such parcels could provide additional working capital to complete certain future major infrastructure improvements, including those necessary to provide additional property protection within the Project and to reduce safety hazards (i.e., storm drain improvements, etc.). 2. Enforce Project Momentum. Development of property adjacent to existing completed infrastructure like Tustin Ranch Road, Armstrong, or Kensington Drive would alter the public perception that the re-initiation of the Project is successful. Construction activity would send a message to the broader Tustin community and development community that the Project is moving forward, which would create a desire by other potential parcel purchasers to be included in the Project. 3. Maintain Control of Project. The City would continue to control the Project and development. This control would permit the City to effectively manage Project timing and phasing and may facilitate development absorption. Over the last four years, a significant amount of time, effort, and money has been spent on creating a Master Plan framework for the development of the Tustin Legacy Project. This work has APRIL 2011 4. Alternative Disposition Strategies been primarily done with input from the City and has followed the wishes of the City Council. Land Planning, Specific Plan Amendments, design guidelines, parcel maps, and infrastructure plans are well developed and at or near the point of implementation. Much of the framework role of the Executive Master Developer is done, with a master development framework in place, and only refinements likely needed. The City would have the opportunity to determine and size development opportunities provided to developers based on a developer's commitment to achieve specific City Goals and Objectives. Exposure of the Project to developers interested in purchasing property within the Project through outreach, networking, private consultations, and/or focus groups will assist the City in fine tuning the Project and its financial feasibility. One key to the success of large land owners and Executive Master Developers such as the Irvine Company, Mission Viejo, and Bixby Ranch Companies is that they generally do not need to compromise on the "vision" for a short-term return. Such owners have been willing to sit tight on their land assets, waiting for the market to come to them, at the price and Project quality they desire. 4. Orderl3� Al2�roach to Planning and Development. If the City were the Executive Master Developer, it would have more control over the location of specific segments or parcels to be sold which could avoid the potential for 39 Tustin Legacy Project Disposition Strategy 4. Alternative Disposition Strategies "leap frogging" and less logical sequencing of infrastructure and ultimate development which would result in and require additional and perhaps inefficient early horizontal infrastructure investment. 5. Control of Project Team. The City would have the opportunity to out- source and hire the same consultants as any private Master Developer. The City would have the opportunity to hire the most capable consultants without creating a conflict of interest with consultants hired by a private Master Developer. By acting as both the lead agency and the Project proponent, the City would have extensive influence over development of the Project. If the economy improves as most analysts believe, the value of the property will likely increase and the Project could yield additional land sale proceeds or cash flow to the City. 8 6. Land Sale in Segments to Optimize Value. With the City managing the development or major horizontal infrastructure and sale of phases of segments of the Project (or vertical parcels), the benefit of selling parcels at higher prices rather than at a wholesale price for a large bulk sale (in the case of sale to one single Master Developer) would inure to the City. Further, the City can develop a strategy where it could delay a sale of certain parcels to enhance land values or the feasibility of a specific development project that is desired. 7. Low Cost of Financing. The City, as the Project proponent, has access to low- cost public financing sources and can use Redevelopment tax increment financing, as long as it is available, CFD financing, and other financing sources to support development of certain horizontal backbone infrastructure, and may also be able to obtain Federal or State grants to assist in financing of backbone infrastructure for the Project. However, current State budget discussions could impact the availability of future tax increment revenues. In addition to tax increment financing and other public financing sources, the City has the flexibility to seek out non- recourse bond financing secured by real estate contracts and future land sale proceeds. This was the mechanism the City used with the Tustin Field I and II projects where land sale proceeds secured the notes. Flexibili . The City would retain the flexibility at any point, for reasons of public policy or economics, to choose to sell other larger portions of the property or more than one segment at a time. For example, if the economy recovers and initial successful portions of the Project set the stage for reinvigorated interest, the City can monetize its interest in the Project by selling anything that has already not been sold to other developers. 9. Early Development to Accelerate Financing of Infrastructure. The City would have the opportunity to collect additional Redevelopment Agency tax increment, property tax revenue, sales tax (if applicable based on the type of development), and other revenues from successful early development. The APRIL 2011 40 Tustin Legacy Project Disposition Strategy potential positive growth in Redevelopment tax increment revenues from new development within the Project in the future may permit the Redevelopment Agency, as long as it is authorized authority under State Law to obtain additional bond financing for the Agency's continued investment in backbone infrastructure to support the Project and to enhance land residual land values and the potential for future land sale proceeds. 10. Resetting of Comparables Earlier. Sales of certain portions of the Project or vertical parcels, earlier rather than later, will provide real comparables that may be used for future planning. Potential Drawbacks 1. Operating and Capital Costs. Depending on segments identified for marketing and sale and the size and scale of early implementation activities, the City may be required to have adequate personnel to support these activities, or can outsource and obtain consultant or developer advisors in accordance with Project needs. The City would be required to provide financing for the horizontal backbone infrastructure it decides to construct for the Project or impose such requirements on any early development transaction. The City would continue to be responsible for property management and would be required to support marketing and sales activity in selling properties to private Master Developers or vertical builders. 2. Gradin for or Superpads. The City routinely performs grading activities APRIL 2011 4. Alternative Disposition Strategies associated with construction of public streets and utilities. However, grading for superpads or vertical parcels or development sites has a perceived and often real liability exposure greater than a typical public works project. Individual and future homeowners may be quick to litigate for issues such as foundation settlement, cracked slabs, poor drainage and damaged property line walls. Any party associated with grading of a superpad, vertical parcel or development site is a target. Unlike the Horizontal Land Developer Alternative, this Alternative would have the City in a more limited role and it would not be anticipated or recommended that a majority of the grading for actual development or vertical parcels be undertaken by the City. In any event, for those grading activities that are undertaken by the City, the City will need to ensure increased oversight of grading operations and have in place quality control assurance procedures to minimize potential errors or defects in grading. In addition, the City should insist that each purchaser of land accept a segment or parcel in an "as -is -where - is" condition and fully indemnify the City against any claims related to site grading by the City. 3. Marketing Properties under Recessionary Conditions. The City may attempt to market Project segments, phases, or individual parcels adjacent to existing development and completed infrastructure within the Tustin Legacy Project without success given continuing economic distress in the market and economic recovery in the 41 Tustin Legacy Project Disposition Strategy 4. Alternative Disposition Strategies market place, which could cause a negative public perception of the Project's success. Efforts to take advantage of early or mid-term opportunities may also result in the sale of parcels in a "buyers market"; therefore, the approach may not yield initially the highest achievable land sale prices for certain parcels. 4. Limitations on Funding to Complete Necessary Infrastructure. The cash flow generated by the early sales of certain segments of the Project or vertical parcels may not provide an adequate level of funding necessary to complete backbone infrastructure improvements necessary to support development of a subsequent segment or phase, or to adequately fund the provision of City services necessary to serve a proposed development. For example, sale of certain parcels and development may trigger the need for construction of Barranca Channel improvements earlier than available funding resources or cash flow available for such improvements. If a buyer is conditioned to provide backbone infrastructure or local infrastructure improvements as a condition to an early or mid-term land sale and/or as a condition of development, the City will need to ensure the completion of improvements in a timely basis and continue to protect itself against risk if the property is conveyed to the buyer before infrastructure improvements are completed. 5. Flexibility and Ability to Reduce Cost of Infrastructure. The private sector has more of a financial incentive (the "for APRIL 2011 profit" mindset) and flexibility to respond and create cost efficiencies then the public sector in constructing infrastructure and keeping costs down. In contracting for services and improvements, the City may be subject to prevailing wage requirements and if State and/or Federal funding sources are used (Davis -Bacon provisions). Each of these requirements would necessitate that the City hire the "lowest responsible bidders." Oftentimes, the lowest responsible bidder does not possess the technical skills required for projects of the size and scope of the Tustin Legacy Project. Further, if the City provides infrastructure subsidies for a Project segment, phasing, or a vertical development as part of a developer transaction, a transaction may subsequently subject the developer to required payment of prevailing wages, which could add an additional 20-25% to infrastructure and vertical construction costs. 6. Development Priorities under Public Process. The City as the Executive Master Developer is not insulated from the political process and could be subject to local citizen pressure to: (i) complete backbone infrastructure (i.e., parks) in a less than optimal sequence, or out of sequence with what infrastructure is necessary to support a segment of the Project; (ii) to invest money in advance of Project -related needs or where adequate City General Funds are not available to operate and maintain certain public infrastructure and facilities, or (iii) or limit the City's 42 Tustin Legacy Project Disposition Strategy flexibility in modifying the Specific Plan and land uses to respond to market realities. 7. Potential Conflict with Character/Mindset of Organization. The City Council and City employees would have to adopt a mindset that they are in the "for profit" business and act accordingly. It may be difficult to redirect public agency personnel to placing profit as a significant objective vs. the existing mindset of serving the public, with generating a profit often a secondary objective. Further, sometimes public agencies have difficulty making decisions rapidly due to the limited authority of staff. This could potentially delay progress, or worse, make the Executive Master Developer role ineffective unless staff and the City Council are on the same track. S. Limits on Ability to Establish a Special Entity to Limit Liability. In general, private developers establish special purpose entities or limited liability companies to limit their liability on a project. With the City's substantial assets, dissatisfied parties may wish to pursue what they perceive as the City's "deep pockets" for resolution of any conflicts or issues. The City may not have the same legal ability to establish a special entity to limit its liability. 9. Establishment of Master Associations. An issue that will take a lot of thought that is normally handled by a Master Developer prior to selling of any property, is the establishment of any master associations and the controlling documents that go along with them. APRIL 2011 4. Alternative Disposition Strategies The master association process is essential to ensure the continuing maintenance responsibilities to create a sense of place for a large master planned community. Working through the details necessary to create such associations and their structures can be complex, and will involve considerable legal support services. However, that being said, professional firms do multi- level associations all over the United States. 4.3 PASSIVEAN-ACTIVE ALTERNATIVE 4.3.1 Alternative: "Delay" Plan In this Alternative, the City of Tustin would consciously "delay" the revamping and re- initiation of the former Master Developer portion of the Tustin Legacy Project for a period of 3 to 5+ years. The City would spend the minimum funds necessary to meet the needs of public health, safety, and welfare associated with the property. The City would incur operating costs to maintain the property and would contract directly with third -party vendors to provide specialized property management services and environmental support services, including but not limited to those services necessary to ensure compliance with the National Pollution Elimination Discharge Standards ("NPDES"), vector control, and other environmental standards. Potential Positive Consequences 1. Return on Land Sales in Rising Market. Rather than prematurely selling the property in a deeply depressed market, the City could potentially yield a greater return on land sales if the real 43 Tustin Legacy Project Disposition Strategy 4. Alternative Disposition Strategies estate market recovered during the next 3 to 5 years. This approach may increase the pool of potential investors and developers interested in financing, developing, and completing the Project. This could lead to greater competitive response to any developer solicitation process and higher land sales for the City. 2. Positioning Project after Market has Stabilized. The City would avoid the uncertainty of re -planning the Project and obtaining entitlements that now may not be appropriate to the future market place. The City will not be criticized for unnecessarily investing staff time, or incurring other expenses during the current recession when developer responses to any disposition solicitation may not result in acceptable uses and products, or land value returns. Making a conscious decision to temporarily delay development of the Project will give the City the opportunity to re -plan the Project for new market realities when the recession ends and real estate development returns to a more normal real estate environment. 3. Potential Development 01portunities. Waiting 3 to 5 years may provide additional opportunities such as, but not limited to: • Green/Sustainability. Allowing the Project to be designed with a more "green" strategy and other "sustainability" features. This may be an important goal for some Tustin residents. APRIL 2011 Transit -Oriented Development. The federal and state government may adopt policies encouraging construction of more transit -oriented development ("TOD") and provide additional supporting subsidies to implement such programs. As a result, there may be future financial incentives for the City to re -plan portions of the property adjacent to the Tustin Metrolink station and Amtrak station to be more transit - oriented, and to also examine the opportunity for establishing bus links directly from the Orange County Airport to the Tustin Metrolink station. Technological Advances. Significant advances in information technology would be expected over the next 3-5 year period which could be integrated into any reframed land plan, and if implemented would provide a substantial marketing edge for the Tustin Legacy Project over existing properties or other projects in the region. However, it needs to be recognized that the nature of the energy/environmental industry opportunities are dynamic and are time sensitive. Potential Drawbacks Potential Development Opportunities. Whatever shrinkage will happen in the real estate market has already most likely occurred. Choosing this Alternative may be counterproductive. There is some indication of some growth beginning to return to the market already (i.e., success of Irvine 44 Tustin Legacy Project Disposition Strategy Company's Woodbury residential project). In reality, it may take 2 to 3 years for the market to actually stabilize. In either case, the pre- planning required to meet this market may take 1 to 2 years from inception. A delay of 2 to 3 years may find the Project coming into a mature, growth market and subject to a future inevitable downturn. In any case, the Project will be subject to multiple downturns over its life. Delaying now may result in some development opportunities being missed. If the City waits until the next cycle to be evident before we restart the Project, we would run the risk of having the majority of the Project development at the end of the cycle. By choosing another one of the alternatives, the City has the potential to stay within the natural flow of the economic cycle. Other opportunities like technology, transit -oriented development, and sustainability themes will be constantly evolving over the next 10 years. Regardless of when the Project is restarted, the City will have to face this change and evolve as we move forward with the Project. 2. Operating Costs. The City would not realize any positive cash flow from the Project until the Project is reinitiated (3 to 5 years), while still incurring costs associated with property management, security and caretaker functions, and for response to environmental regulators (i.e., regional water quality standards, etc), liability and risk insurance, and other incidental costs of holding the Project (current costs for property management alone could APRIL 2011 4. Alternative Disposition Strategies approach approximately $500,000+ annually and total costs could escalate over 3-5 years). 3. Escalating Costs of Infrastructure and Increasing Regulatory Requirements. Infrastructure costs are at a historic low. Waiting for a mature growth market will increase these costs well beyond the inflation costs of the Tustin Legacy's earlier construction experience. If construction demand increases during the next 3 to 5 year period, there could be a resulting increase in infrastructure costs. Besides inflationary increases that could be possible for backbone and local infrastructure costs, other actions or decisions outside of the City's control, such as adoption by the State or Federal government of more restrictive rules or regulations governing development, can also increase costs. Examples might include requirements for accommodation of more inclusionary affordable housing, the installation of fire sprinklers in all residential units, increasing structural design standards related to earthquakes, potential changes in water availability or permitting requirements, and stricter water quality standards and energy efficiency requirements. 4. Economy Recovery is Dela. The economy of California may contract during the next 3-5 years. This could further delay the Project. Related to this issue are the current on- going discussions in Washington about cutting the federal deficit and curbing spending. Items under discussion 45 Tustin Legacy Project Disposition Strategy 4. Alternative Disposition Strategies include eliminating the mortgage interest deduction (MID), removing the deductibility of State and local property taxes, and eliminating the capital gains exclusion. While many in the homebuilding industry do not believe that the MID will be completely eliminated, there are alternatives proposed such as a 12% nonrefundable tax credit on mortgages less than $500,000 in lieu of the MID. Whatever the outcome, these discussions seem to be a hot topic and could become a big potential drawback the longer the property is undeveloped. 5. Infrastructure Improvement Delays. Delaying construction of certain backbone storm drain improvements that provide additional property protection could increase the City's liability in the event of unusual future weather patterns (i.e., heavy seasonal rainfall). 6. Revenue Sources Associated with Development. By delaying the Project for 3 to 5 years, any positive cash flow may not happen for years beyond that start date. Delays would also result in the City and Redevelopment Agency not realizing tax increment property tax revenue, nor would the City realize additional revenues including property taxes, sales tax, business license fees, transient occupancy taxes, and other revenues from development Projects. Growth in the Redevelopment Agency's tax increment over the next five years is critical if additional bond financing to support the Tustin Legacy Project is sought. The 2010 Tax Allocation Bonds APRIL 2011 (MCAS Redevelopment Project Area) issued in November 2010 established a higher parity test and a higher debt coverage requirement over the succeeding 5 years that restrict additional future financings unless positive growth in tax increment continues for five consecutive years. 7. Competitors Could Fill the Market Void. Delay of the Project may result in adjacent jurisdictions more aggressively moving forward with their own development objectives (i.e., City of Irvine's Heritage Field at the former MCAS -El Toro, Irvine's IBC plans, Santa Ana's proposed MetroEast Project, and Anaheim's future developments, including build -out of the Platinum Triangle) satisfying any potential commercial and retail absorption in the central Orange County market area that otherwise would be satisfied at Tustin Legacy. Competition, market changes, costs, and demand are all constant variables that will rarely come together to give us the perfect time to start a development. Starting the development when it is felt that the market has found a floor after a period of unrest should be the perfect time to build on and not further delay. If the economy moves faster than expected, the Tustin Legacy Project would only be able to react to re-initiate the Project while other jurisdictions or developers that have not delayed their projects would move forward to aggressively implement their projects. Reacting rather than being prepared for a market upswing could put the Tustin 46 Tustin Legacy Project Disposition Strategy Legacy Project at a significant disadvantage. 8. Limit on Future Development or of Non -Revenue Producing Uses. Project opponents may marshal forces to limit the development potential of the APRIL 2011 4. Alternative Disposition Strategies property, or there could be a local groundswell of support for modifications to the plan to include less economically viable uses, such as but not limited to requirements for additional parkland, public facilities or lower densities. 47 Tustin Legacy Project Disposition Strategy Ml a V v v L (4 V) U bm.0 O N '++ C O Q Ln Ln 7 C) X X X • X X X X X X X X X X X X • X X X X X X X • 0 . . . . . ... . .. LU LU Z CL • • LU LU LU Lu LU X X X X X C C m m fA N N 7 N 3 i U � N N i N +N E N � O C � Q m - i _ O N > tl) N C N C N N 6 A O U N 6 E X N -6 C N Q ".' 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The City will play a critical role in this regard (in whatever alternative is selected), but it will need to hand off that vision to each of the parties that develop (whether a Master Developer or a vertical builder/developer). The MCAS Tustin Specific Plan and TLCP Master Development Plan were developed and refined in the 2004-2008 time frame based on political as well as market forces. While the plan or "vision' is a good one, with features that the City should strive to achieve, a review of the market data does seem to indicate that at least some modifications and refinements to the Master Development Plan and MCAS Tustin Specific Plan may be necessary to support future development activities anticipated over at least the next economic cycle. Special attention will have to be given to ensure that any refinements or modifications to the Master Development Plan do not have the potential to breach current EIS/EIR thresholds. In addition, certain modifications require more study, and need to be phased over time, and further studies undertaken once specific developers are selected to actually engage in the Project. At that point, the selected developers would have an opportunity to review the original Master Development Plan and work with City staff on any necessary refinements that are consistent with City Council policy direction. Based on their initial assessment, technical team members assisting the City in updating the proposed Disposition Strategy for the property recommend that certain refinements and/or modifications to the Master Development Plan and Specific Plan be explored regardless of any Disposition Alternative selected. The timing of these potential changes should be undertaken in conjunction with specific phased development proposals: 1. Increase the number of apartments permitted within the MCAS Tustin Specific Plan to at least 30% of the total permitted dwelling units based on market realities, the need for more product diversity within the Project, and to accommodate as much of the Affordable Housing requirements as possible with this type of product. APRIL 2011 50 Tustin Legacy Project Disposition Strategy 2. The increase in apartments will also permit the repositioning of as much of the affordable housing product required in the Project into rental tenured products as possible instead of for -sale ownership tenure products. This will reduce the land write-down necessary to accommodate the affordable units and improve the financial feasibility of the total Project. 3. Broaden provisions of Section 3.2.3 of the MCAS Tustin Specific Plan to permit transfer of non-residential square footages and dwelling units within the Project between Neighborhoods, particularly between Neighborhoods D and G, including any additional plan amendments necessary to accommodate a mix of land uses within each of these Neighborhoods. Any approach should be cognizant of maintaining the WAS Tustin Final EIS/EIR's total Average Daily Trip (ADT) thresholds and other related EIS/EIR thresholds, as amended. Current provisions of the Specific Plan permit up to a 10% transfer of dwelling units between units and some non- residential uses, consistent with trip budgets for each Neighborhood and consistent with permitted land uses within each Neighborhood. 4. Eliminate an approximate 9 -acre Neighborhood Park in Neighborhood E, which is not necessary to meet recreational needs for the Project or the community given the extent of other public and private parkland and open space resources designed for the Project. The City over the long run does not have adequate potential operating funds available to maintain this park 5. Eliminate mandates for 15% of single family homes to be single story, which APRIL 2011 5. Master Development Plan Review significantly reduces expected residential residual land values. 6. Ensure adequate differentiation between residential product types. A key to the success of future residential products, given the large amount of competitive supply in the region, will be differentiation in the products provided. Further, the key to creating a great urban residential experience is variation in product types for a variety of lifestyles and life stages. Features that should remain and also be introduced into the community include: • Smart technology in both interior and exterior design. • Features which encourage walkability within the community. • In addition to street character, landscaping and provision of green space and parks being important, introduction of water body features wherever possible. The Community Linear Park should also remain as a key feature connecting the neighborhoods. • Currently, the community has a defined urban core and suburban core in almost two distinct communities. Change the placement of some of the homes and densities and also non-residential uses so that there is more blending of the urban core and greater integration of products and less segregation, as well as taking advantage of greater densities near the Tustin Metrolink station adjacent to the northerly portion of the Project. • Create distinct architecture to reflect both smart and modern community, embracing indoor and outdoor relationships through the home, entertainment, walking, and working opportunities. 51 Tustin Legacy Project Disposition Strategy In recommending modifications to the Disposition Strategy for the remaining portions of the Tustin Legacy Project owned and/or controlled by the City including portions of the property under a Lease in Furtherance of Conveyance between the Department of the Navy and the City, there are a number of issues that have been explored and which are reframed in this section, including an overview of the recommended Disposition Strategy and how the Project will recommence, function, achieve success, and manage risk. 6.1 MANAGING TUSTIN LEGACY AS AN ASSET Tustin Legacy is a City asset and should be managed as such, including taking advantage of opportunities and minimizing unnecessary risks. Developing a site in unimproved condition at the scale of Tustin Legacy is long term, regardless of the existing economic conditions and future economic cycles. Progress should be measured in incremental steps or building blocks that will serve to advance the Project with an eye toward the future. Success will be partially dependent upon the ability of the City to take advantage of the strengths associated with the site and addressing "fixable" weaknesses. The implementation plan needs to be responsive to the market and anticipate meaningful trends, including the impact advance technologies have on the way people live, work, and play. 6.2 ADDRESSING ISSUES IDENTIFIED IN THE SWOT (STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS) AND THE MARKET DEMAND STUDIES The SWOT analysis provided in Section 3 identified and classified by certain issue categories both internal and external issues impacting the site. However, the SWOT did not rank or weigh each of the issues or factors examined. The SWOT identified ten (10) external factors listed as "External Strengths," which included location, image, and market conditions; it also identified eleven (11) factors as "Internal Strengths," or those items directly related to the development of the site. In examining both the external and internal strengths, the items that weigh most heavily in favor of the site are as follows: Tustin Legacy's location in Orange County is central to the county's largest employment centers. Its proximity to transportation is superior, with close proximity to major freeways and streets, a regional airport, and commuter and commercial rail systems. • Tustin Legacy is the last contiguous large scale development site in Orange County with no insurmountable impediments to development. APRIL 2011 52 Tustin Legacy Project Disposition Strategy All of the projects developed on the periphery of the site have been successful, including The District at Tustin Legacy, a regional retail and entertainment center, and four residential neighborhoods included within the Villages of Columbus and Tustin Fields developments. All of these projects bring people to the site and will continue to be a catalyst in creating momentum going into future phases if future development parcels are within close proximity and/or relate to existing development. The City has a low cost basis in the property, having received the property in a no cost transfer from the U.S. Navy in 2002; therefore, the City should not be under any pressure. The site is within a redevelopment project area, thus having the ability to finance backbone infrastructure through the use of tax increment monies. This statement is made with the caveat that legislation is proposed by the Governor and under consideration by the Legislature which may curtail or reduce tax increment monies as a funding source, which would severely slow the pace of construction. In addition to identifying strengths, the SWOT analysis and the market studies identified those weaknesses without a solution or which are "givens"; for example, the lack of visibility from I-5 and SR -55 is a given weakness. On the other hand, the site has many "fixable" weaknesses that will make the site more competitive and, once resolved, could be strengths as opposed to weaknesses. Some of these weaknesses can be solved in the short term and others may APRIL 2011 6. Recommended Modified Disposition Strategy be addressed longer term depending on available resources and priorities. Listed below are weaknesses identified in the SWOT that, if solved, will have the most positive impact on the site. The completion of Tustin Ranch Road will have the most significant positive impact on moving the Project forward. The construction of Tustin Ranch Road by the City and Redevelopment Agency will solve several major weaknesses identified, including: 1) providing access to the interior of the site, 2) providing direct access to the site from the Santa Ana (I-5) Freeway, and 3) using redevelopment tax increment proceeds from the recent issuance of MCAS Tustin Tax Allocation Bond to construct one of the Tustin Legacy Project's most costly backbone infrastructure facilities. The construction of Tustin Ranch Road will be visible from major roadways adjacent to the site, which is important in creating and maintaining momentum by showing construction activity in the central portion of the site. • Soil importation is necessary to elevate portions of the site in order to adequately drain and prepare the site for future development without more costly water and sewer pumping alternatives. Regulatory constraints by the Orange County Flood Control District which are tied to the construction of improvements to Peters Canyon, which limits the amount of both residential construction and non-residential construction. This will have no impact on a short-term basis, but will be 53 Tustin Legacy Project Disposition Strategy 6. Recommended Modified Disposition Strategy addressed in the later stages of site development when the Project has reached a threshold of 1,000 additional residential units or 250 acres of commercial development. The site will face constant challenges in moving a Disposition Strategy and implementation plan for development forward in a timely manner. Many of these challenges will be minimized if the following can be accomplished. • Obtaining additional financing for backbone and local infrastructure will allow the development to grow beyond the periphery of the site and Tustin Ranch Road. Financing must come from either private or public sources or a combination of both (public sources could include use of CFD financing). Expansion of infrastructure to meet the demands of development in a timely manner will be one of the bigger challenges. All parcels being considered for development should be included in logical, orderly, planned phases, with all utility systems and circulation systems fully servicing the development sites, and which establish routes that provide a continuity and efficiency in any infrastructure phasing. Not fully servicing a development phase or segment would not only create inefficiencies but would leave development phases and their parcels in an unfinished state. This includes ensuring completion of all master planned amenities planned in any phase in conjunction with phased development. APRIL 2011 The site should play to its strengths by taking advantage of the synergy generated from existing projects, such as "The District"; development should occur adjacent to or in proximity to projects in which a vertical mass and scale have already been achieved. This is a building block concept in which one project will feed off the next project. Establishing a unique project identity is important in distinguishing this Project from the competition and capturing specific market segments where the demand is high or growing and not being met by competitors. Building an identity sets a tone for the project. The Project will need to continue distinguishing itself from competing master planned communities by establishing an easily recognizable identity. All successful master planned communities have developed an image that is easily understood and recognized. Tustin Legacy will need to be more than a name for an area within the City of Tustin. Tustin Legacy's character will need to be achieved through a combination of design themes and landmark features that will set it apart from the competition, including provision of planned amenities to be constructed with each phase of development. Timely execution of the implementation plan is critical in building and maintaining momentum, including in each phase and in each product group. On the other hand, missing windows of opportunity can be fatal. In order to be ready for opportunities, the planning 54 Tustin Legacy Project Disposition Strategy process must be continually updated and fine tuned with an eye toward the future. Issues to be avoided in the implementation of any Disposition Strategy include as follows: • The City should not mortgage the future of the site through a series of quick fixes that cannot be reversed or will be much more difficult and costly to fix long term. For example, all phases or major segments of the Project will need to be developed with full utility and circulation systems within the public right-of-way serving a full phase or segment of the project. • Disposition packages or phases to be sold should have well-defined boundaries, within which all property is to be fully developed with both horizontal and vertical improvements. Detailed comprehensive development plans for uses and products being proposed in a phase or segment of the Project should be refined and developed as a condition of any phased development; such plans shall also relate to the Project as a whole. The right sizing and timing of the offering of a disposition package or phase is important and should be done in such a manner that development of the disposition package or phase can be done, in its entirety, and accomplished within a relatively short -time frame. The City should avoid allowing any developer selected for a development package phase to merely land bank or land speculate. APRIL 2011 6. Recommended Modified Disposition Strategy 6.3 DISCUSSION OF ALTERNATIVES AND RECOMMENDED PREFERRED DISPOSITION STRATEGY The most successful business model used in the development of master planned communities is based on a "Controlled Disposition Strategy," which is similar to the models used by The Irvine Company and Rancho Mission Viejo Company. This strategy is characterized by the following: The landowner retains complete control over the property throughout the planning and development process. • The landowner maximizes land value by controlling the location of uses and placement of products, maintains quality control, and determines the supply of uses and products to the benefit of the landowner as well as the vertical builder. • Land development is incremental and follows a logical, orderly, and planned phasing or sequencing. Efficiencies in planning and infrastructure systems are maximized and tied to near-term development by phase; the infrastructure is not overextended but constructed to serve the immediate neighborhood or development area. • The landowner establishes a short list of vertical builders with which they have a successful business relationship over an extended period of time. The short listed builders are then interviewed and a developer is selected based on a negotiated price for the parcel being developed. The quality of the product 55 Tustin Legacy Project Disposition Strategy 6. Recommended Modified Disposition Strategy by the vertical builder is in concert with the vision of the landowner. This maximizes efficiencies for both the landowner and the vertical builder. • The landowner is often the land developer, who takes the property from an unimproved state to a super pad or buildable status (often referred to as "Blue Top" Lots). A super pad status may only be a potential conveyance package where mass and rough grading are still required and construction of backbone or local infrastructure would be a condition of sale or development. The Blue Top status normally means the landowner has completed the mass grading and rough grading of the property and created through final subdivision maps the ultimate vertical parcels to be made available for sale, including the undercutting of the street section, has installed interim and backbone drainage and erosion control facilities, and constructed all other infrastructure improvements established in tentative and final subdivision tract map(s) approved to create vertical parcels for the property. This leaves the subsequent builder to complete in -tract infrastructure and any vertical development. • The landowner is resolute in maintaining a vision for the project and in controlling the environment through the use of design and planning mechanisms through all phases. The determination to maintain the visions for the Project is critical to establishing and perpetuating the public's image of the Project. APRIL 2011 The above characteristics used in implementing successful master planned communities were used in reviewing each of the Alternatives and in determining a recommended disposition approach. The following are summaries discussing each of the alternative strategies. Alternative 1- Remarket the Property to a New Master Developer This Alternative is not recommended. The most noteworthy downsides of this alternative are as follows: • Under this Alternative, control of the site by the City would be minimal in comparison to other Alternatives evaluated. The selected developer would control the entire site, and would require that the City "put all of its eggs in one basket" by going with just one single development entity. This approach would not maximize the potential land price that could be achieved by the City under the other Alternatives. This Alternative would allow the disposition process to be controlled by a single development entity. This is an "all in" approach and ties the property to a single development entity for the entire site, across all land uses and product lines. Any organizational changes, changes in management objectives, or changes in financial status of the entity would impact the entire Project. • The solicitation and negotiation process is very lengthy and costly not only for the City but also for those development entities making proposals to the City. 56 Tustin Legacy Project Disposition Strategy The process is not always productive in necessarily identifying the team most aligned with the City's goals and objectives and most able to create a "win-win" for both the developer and the City. It is also possible that, after a lengthy selection process, under this approach a satisfactory disposition and development agreement still might not be able to be reached with the selected developer and the process would need to start all over again. Alternative 2 - City to Act as Horizontal Land Developer This Alternative is not recommended. Under this approach, the City's control of the site is maximized. However, as the horizontal land developer the City would have oversight and management over all operations of developing improvements on the property, including the design and construction of horizontal backbone infrastructure, local infrastructure, importation of soil, mass and rough grading, and in bringing all vertical parcels to a developable condition. The City would also be responsible for acquiring the financial resources necessary to bring the site into a developable condition. In addition, as the horizontal land developer, the City would be responsible for marketing and selling all parcels to vertical builders. Profits under this approach have the potential to be maximized, as the profit normally retained by a third party land developer would go to the City as the land developer. Although control is complete under this approach, significant financial resources are necessary; financial risks associated with this approach would likely be substantial. APRIL 2011 6. Recommended Modified Disposition Strategy Additionally, it needs to be reinforced that this is not a core competency of the City or a core mission of the City. Alternative 3 or Preferred Alternative - City/Agency to Act as Executive Master Developer This is the recommended approach; like Alternative 2, it maximizes the City's control of the Project while minimizing the risks and costs to the City that are present in Alternatives I and 2. Under this approach the City will be the Executive Master Developer, retaining all its rights as a landowner and minimizing its responsibilities as a horizontal land developer as outlined in Alternative 2. This approach shares many, if not most, of the characteristics found in the Controlled Disposition Strategy discussed above. Under this Alternative approach: • The City will retain complete control of the property throughout the planning and development process. The City will maximize land value by controlling the location of uses and placement of products, strict quality control, and determining supply of uses and products to avoid cannibalization and maximize success for landowner/land developer as well as the vertical builder. The approach would follow an incremental development process that is logical, orderly, with defined and planned phases or sequencing. 57 Tustin Legacy Project Disposition Strategy 6. Recommended Modified Disposition Strategy Under the approach taken by many private landowners of master planned communities, the City would minimize its role as the horizontal land developer. As resources are available, at least initially only improvements to be constructed in conjunction with the Tustin Ranch Road Project (including completion of Valencia Road between Kensington Drive and Tustin Ranch Road, Legacy Road between Tustin Ranch Road and Park Avenue, and Park Avenue north of the District to Legacy Road) would be completed by the City. In other words, initially the City would only fund construction of infrastructure improvements felt necessary to jump- start the Project, with the majority of backbone and local infrastructure improvements to be a developer obligation. The City and Redevelopment Agency may have future resources for backbone infrastructure construction as subsequent phases proceed and after initial project successes which generate additional property tax revenues. This approach allows for the Disposition Strategy to be implemented in a more timely manner by avoiding a lengthy solicitation and negotiation process associated with a single developer. Horizontal and vertical development will be spread to selected development entities by phase and segment to avoid allowing the property to be controlled by a single development entity. APRIL 2011 Alternative 4 or the Delay Plan Alternative 4 is not recommended and is the least desirable approach. While out -of pocket financial risks to the City are probably the least in the short term under this Alternative, in the long term risks could prove to be costly as delay could impede the Project's ultimate success. 6.4 OPERATIONAL APPROACH AND RECOMMENDED PROPERTY DISPOSITION STRATEGY 6.4.1 The Overall Phasing Approach Under the preferred Alternative 3, the City and/or Tustin Community Redevelopment Agency will serve as the Executive Master Developer and direct management, marketing of phased land sales, and oversee the overall development strategy and developer and any City infrastructure improvement program. The primary role will be to stimulate private sector investment by providing coordination on the planning, marketing, negotiations, and disposition process for the redevelopment of the remaining undeveloped portions of City -owned property within the Tustin Legacy Project. Under the recommended Alternative Disposition Strategy, the City would market for sale certain phased segments in smaller pieces than the original Master Developer Footprint based on market factors by land uses, specific development products, and the priority and costs associated with required backbone and local infrastructure improvements. The City would negotiate with selected developers on the phased segments. 58 Tustin Legacy Project Disposition Strategy To capture the projected demand at Tustin Legacy for the uses proposed, the logical installation of new backbone roadway and infrastructure and other local infrastructure will be required. The operational approach under the proposed Disposition Strategy focuses on these infrastructure needs and market factors by identifying a group of potential parcels to be sold to single developers in an amount of acreage large enough to achieve economies of scale. These areas will be referred to as Disposition Packages. The Disposition Packages have been chosen to include similar land use designations and are in one general geographical location. This will allow the City to sell property to developers with an expertise in the development of a specific land use. The overall Disposition Strategy assumes the sale of a minimum of 10 packages to developers. Figure 4 shows the location of the 10 packages, and Table 5 provides a summary of the development Disposition Packages with their projected land uses. In addition, Attachment 2 provides a summary of anticipated backbone and local infrastructure improvement costs associated with each Disposition Package. As part of the recommended Disposition Strategy, the City team has also identified several potential Disposition Packages where early development opportunities may be present. Identification at this time of these early development opportunity Disposition Packages is not meant to limit Disposition Packages that might be offered at certain points in time but to attempt to identify sites that are initially important to the City. Other Disposition Packages could also proceed when market opportunities APRIL 2011 6. Recommended Modified Disposition Strategy and land value considerations present themselves and when infrastructure costs can be reasonably accommodated. The early Disposition Packages shown in Figure 5 as Early Development Opportunities are being recommended based on the following: • Disposition Packages and the parcels within them are concentrated in areas adjacent to Tustin Ranch Road and nearest The District, thereby optimizing existing infrastructure and infrastructure planned to be installed by the City and by locating adjacent to successful development. • The identified Disposition Packages are well defined in which the parcel sizing, circulation patterns, and local infrastructure serving the site logically feed off of the backbone infrastructure and are effectively sized for development. The identified parcels have minimum physical constraints to development. The early Disposition Packages avoid a leapfrog pattern and will support the need to seed and nurture a well-planned community. The identified Disposition Packages provide for a diversity in residential product 59 Tustin Legacy Project Disposition Strategy 6. 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M Q Ca CC a C) cc 0 4Ca cc V W � Q C � � 0tl I I � J 2 � A'3HL9V 1A1! fYJC u rr r rd1 v m LL APRIL 2011 60 Tustin Legacy Project Disposition Strategy to V v v O +� L (4 U Ln m c 0p O J C O Q Ln Ln 7 � H r -I IZ Ln I, M 00 Ln m N O 0 �* O O M r- 00 n N m r -I O E00 O O M Ln O Ln 00 R* 1.0 O O a O O r -I N M <D a zi, O 00 00 O O 0 N N O R O <D Ln O rr-I N N M n 00 n Ln M n r -I O O O p r r-I O IZ N = N r -I r -I M O r I 00 N O M R* R* M N O r, m I� M 00 Ln M r�I r -I Ln r-I000 r I lD Lr OM m 0 O O lD O � 00 M N N Ln I, O M Ql N r -I lD m m � rr-I N m M N O a) rM-I Ln 00o rr-I N M *io M O rMI m O m 0 o O oN O Ln N � M lz 00 m R* O R* O rm ri 00 N 00 M Ql <D n <D Ln N 0 u a 0 -a = o 2 2 2 f6 •LLo E 0 E 0 f0 E 0 o L 0A7 z L U O (D CO u 0= v c Ln mtao C U v co = 'a c 7 a c V v v O +� L (4 U Ln m c 0p O J C O Q Ln Ln 7 � H r -I IZ 6. Recommended Modified Disposition Strategy d .-. cn a w w L' o W E 2 ¢ m U M - LU N rts m G y r E L a a Y L 4 0 a c w p vn ch Z Q O V cn RF 'a C7 M w w 47 d < 4 O O 0 0 0 O 0 Q C C L L L L L L L L L Occ a 61 O1 61 O1 2) p5 21 91 21 C. � Z Z Z Z Z Z Z Z Z U1 Q 4 C2 V fV M@ N %0 A M s Q m y. ex W m O -6 M 4 Rz C EF. ? © Q 3 � C ©c c o v a c D b Q � -O :_- 1O J/1N v lAW dab Ln m �r u_ APRIL 2011 62 Tustin Legacy Project Disposition Strategy The ten Disposition Packages are described in the paragraphs that follow: 6.4.2 Early Development Opportunities — Disposition Packages 1A, 1B, 1C, and 2 Each of the Early Development Opportunity sites take advantage of the synergy derived from locations near The District, of existing improvements along Tustin Ranch Road, and the anticipated construction of the extension of Tustin Ranch Road from Warner Avenue north to Walnut Avenue. While there are Early Development Opportunity Packages identified, this would not preclude the City from retaining the flexibility to respond to property interest and market conditions that might affect other Disposition Packages. Regardless, in timing the marketing of a particular Disposition Strategy, a reasonable return on the asset to the City should be expected; the City should be patient and not be interested in a "fire sale" or in developer "land speculation." Disposition Package 1A - New Multi - Family Apartment Homes and Minor Commercial Uses This Disposition Package is located in Neighborhood G immediately east of the proposed Tustin Ranch Road extension, south of a proposed segment of Legacy Road, and east of a proposed segment of Park Avenue to be constructed. Immediately north of The District, this package includes approximately 8.1 net acres of developable land for multi -family apartment home development and 3.5 net acres for community commercial and general office space development, and is expected to yield 192 dwelling units, which APRIL 2011 6. Recommended Modified Disposition Strategy could increase to 211 units if density bonuses are granted as authorized by State law. The site is proposed to be mass graded by the City in conjunction with proposed improvements for the Tustin Ranch Road project. Disposition Package 1B - New Single Family and Multi -Family Ownership Uses Disposition Package 1B is located in Neighborhood G, immediately north of The District off -ramp from Jamboree Road at Warner Avenue (the transition area of the Eastern Transportation Corridor), east of the future extension of Park Avenue and southwest of the future extension of Legacy Road. This package includes approximately 25.8 net acres for development of 139 low density for -sale residential units (1-7 Dwelling Units per Acre) and 9.1 net acres for development of 108 medium density residential for sale units (8-15 Dwelling Units per Acre). Disposition Package 1C - Retail and Office Development Disposition Package 1C is located in Neighborhood B in close proximity to the Columbus Square development, contains approximately 22.7 net acres of private developable land, and is located east of Kensington Drive, between Edinger Avenue and the future extension of Valencia Avenue adjacent to the future Tustin Ranch Road extension. The type of retail development anticipated to be developed would be local -serving retail services and supporting general office uses. This site is proposed to be mass graded by the City in conjunction with the proposed improvements to Tustin Ranch Road 63 Tustin Legacy Project Disposition Strategy 6. Recommended Modified Disposition Strategy Disposition Package 2 — Community Core Residential & Office Disposition Package 2, located in a portion of Neighborhood D, includes approximately 45.5 net acres of private developable land immediately west of completed portions of Tustin Ranch Road, south of the future Warner Avenue and South Loop Road, and north of Barranca Parkway. Proposed development in this Disposition Package includes approximately 18.5 net acres of land for development of up to 376 apartment homes, which could increase to 533 apartment homes if density bonuses are granted as authorized by State law. Office, ancillary retail, and hotel development would also be proposed on approximately 27 net acres within this Disposition Package. The proposed development of the apartment homes are in excess of the number of apartment homes permitted in this Neighborhood by the Specific Plan and would require a Specific Plan amendment. 6.4.3 Other Potential Disposition Packages, including Mid -Term and Longer Term Opportunities Disposition Package 3 — O icelLight Industrial/Commercial Uses Disposition Package 3, located in Neighborhood D, includes approximately 28.8 net acres of private developable land, and is a portion of the northwesterly portion of Neighborhood D, east of Armstrong Avenue, north of the future Warner Avenue, and south of the proposed County Regional Park site. Development within this Disposition Package would largely be office park development with some minor retail ancillary uses. APRIL 2011 Disposition Package 4 — O icelLight Industrial/Commercial Uses Disposition Package 4, located in Neighborhood E, includes approximately 43.3 gross acres, of which 34 net acres are available for revenue producing private development, west of Armstrong bounded by Barranca Parkway on the south and the future Warner Avenue on the north. The site already has Specific Plan Concept Plan entitlement approvals, has already undergone mass grading, and its rough - graded condition is nearly complete. Disposition Package 5 — O icelLight Industrial/Commercial Uses Disposition Package 5, located in Neighborhood E, includes approximately 40.6 gross acres, of which 29.4 net acres are available for revenue producing private development, immediately east of Red Hill Avenue, bounded by Barranca Parkway on the south and the future Warner Avenue on the north. The site already has Specific Plan Concept Plan entitlement approvals, has already undergone mass grading, and its rough graded condition is nearly complete. Disposition Package 6 — Single Family Ownership Disposition Package 6 is located in Neighborhood G south of the future Warner Avenue, north of future Legacy Road, east of the future Tustin Ranch Road, and west of Jamboree Road. The package consists of approximately 39.1 net private developable acres and is expected to trigger the required completion of Peters Canyon Channel widening from the City boundary with Irvine on the south and extending north past Edinger Avenue to the Southern 64 Tustin Legacy Project Disposition Strategy California Regional Rail Authority right-of- way area, adjacent to Tustin Field I. Disposition Package 7 — Single Family and Multi -Family Uses/Offices and Commercial Uses Disposition Package 7 is located in the northerly portion of Neighborhood G and is the largest disposition package with approximately 133.9 gross acres, of which 89.3 net acres are available for revenue producing private development. Transected by Tustin Ranch Road, Disposition Package 7 is generally located south of Edinger and north of Moffett Avenue on the easterly portion and bounded by the future Valencia Avenue on the north and Warner Avenue on the south on its westerly portion. Disposition Package 8 —Mixed Use Community Core Disposition Package 8 is located in Neighborhood D south of Warner Avenue, north of the South Loop Road, and east of the future Armstrong Avenue. The package consists of approximately 58.1 net private developable acres, which would permit development of a variety of uses including mixed vertical and horizontal development, which would include, but not be limited to: • Multi -family development; • Office development; • Commercial development, and • Hotel development. 6.5 LINEAR COMMUNITY PARK DEVELOPMENT STRATEGY The Linear Community Park is a central amenity proposed to run in a southwest to northeast diagonal manner through the APRIL 2011 6. Recommended Modified Disposition Strategy Tustin Legacy Project. The Linear Community Park is intended to contain a series of active and passive areas, recreational space, contiguous trail systems, and bikeways. It will become the thread connecting surrounding neighborhoods and will significantly contribute to the overall identity of the Project. As reinforced in the residential market demand study undertaken by John Burns Real Estate Consulting, it is anticipated that development land values will also be enhanced by proximity to the park. The original Master Developer was required to build significant sections of the park in conjunction with the initial phase of their development. Construction of significant portions of the park would be difficult to accomplish as a part of the proposed Disposition Strategy and too large of an obligation for any one developer of a Disposition Package. However, it is imperative that the park is developed in a logical, contiguous manner to serve the surrounding development. As part of the Disposition Packages, required park improvements in any package as required by the Specific Plan and Master Development Plan should be implemented to develop a logical sequencing of park development. This recognizes that the park development strategy needs to have built-in flexibility since the park's development needs to be tied to market driven development to both enhance value and to ensure the park is developed at least in segments so as to become a community amenity. 65 Tustin Legacy Project Disposition Strategy 6. Recommended Modified Disposition Strategy 6.6 PHASING PLAN FOR OTHER INFRASTRUCTURE AND DEVELOPMENT In order to capture market demand, development of all individual Disposition Packages will require a considerable amount of up -front investment in Tustin Legacy Backbone Infrastructure and local infrastructure, greatly increasing the risk to the City of Tustin and potentially delaying absorption if not undertaken. However, as noted previously, Early Development Opportunity Disposition Packages described in Section 6.3.2 are: 1) primarily focused in areas to take advantage of the large market draw of The District; 2) sized appropriately to achieve economies of scale and infrastructure development while ensuring development momentum; 3) phased to meet market demand and development intensity within the limits of the current EIS/EIR thresholds; and (4) designed to take advantage of the City's willingness and commitment to begin construction of the Tustin Ranch Road Project and related improvements and to provide a significant up -front investment in the related construction costs associated with this Project. The Tustin Ranch Road Project will not only complete a vital link connecting the rest of Tustin with Tustin Legacy, it also completes major Tustin Legacy Backbone Infrastructure and grading to support a myriad of near-term uses as mentioned above. As part of the Tustin Ranch Road project, graded pads will be established near The District at Warner Avenue (Disposition Package 1A), and near the Columbus Square residential project at Kensington and Edinger (Disposition Package 1C). Major storm drain and IRWD APRIL 2011 capital water and sewer facilities will also be constructed in conjunction with the Tustin Ranch Road project not only within the length of Tustin Ranch Road but also within portions of Park Avenue and Legacy Road near The District and within a portion of Valencia Avenue near Columbus Square, minimizing to selected developers the upfront infrastructure costs related to development of adjacent parcels. Each selected developer of any Disposition Package would then be responsible for the costs and construction of any remaining backbone or local infrastructure or in -tract improvements. On other Disposition Packages, the City Council has authorized some design effort for certain other major Tustin Legacy Backbone Infrastructure, which will reduce some of the burden of costs on developers on certain other Disposition Packages. Design work to be underway will concentrate on Warner Avenue from Red Hill to Tustin Ranch Road, the Barranca Channel from Aston to just west of Tustin Ranch Road, Barranca Parkway between Tustin Ranch Road and Aston, the South Loop, and Armstrong Avenue. These design activities will position Tustin Legacy for mid-term development opportunities following the early disposition parcels and will also likely mirror the timing for anticipated market recovery in different segments of the economy. As noted in Section 6.2 and as identified in Attachment 2, the City and its team in preparing the Disposition Strategy have specifically identified and defined the Tustin Legacy Backbone Infrastructure and local infrastructure facilities necessary for each Disposition Strategy to be developed. However, certain traffic -related and 66 Tustin Legacy Project Disposition Strategy infrastructure improvements may also be required as well as additional phasing requirements and mitigation programs as part of the Final EIS/EIR mitigation once certain development (square footage) thresholds have been reached. The phasing plan may need to be modified in response to these requirements based on actual development activity. 6.7 FINANCIAL FEASIBILITY/ SENSITIVITY ANALYSIS OF EARLY DEVELOPMENT OPPORTUNITIES In an effort to confirm the feasibility of each of the Early Development Opportunity Disposition Packages, the staff and consultant team conducted a preliminary land residual analysis using prototypical development projects anticipated within each Disposition Package. The testing was conducted to also determine anticipated expenditures and revenues associated with each Early Development Opportunity Disposition Package (1A,, 1B, and 1C). Revenue assumptions used the anticipated sales prices for residential for -sale products and the capitalization value of the stabilized net operating income for the income properties such as apartments, office, retail, hotel and flex -space & R&D uses. Any developer Tustin Legacy Backbone Infrastructure contributions or a credit for such contribution against any Tustin Legacy Backbone Infrastructure improvements proposed to be installed by a developer, and future CFD bond funds were also taken into consideration. Since the WAS Tustin Specific Plan requires a certain inclusionary amount of affordable housing, the potential value of any value reflected the land write- down or subsidy necessary to finance the APRIL 2011 6. Recommended Modified Disposition Strategy accommodation of the affordable housing product. Cost or Expenditure assumptions in this analysis included the cost of land development (horizontal costs including construction of Tustin Legacy Backbone Infrastructure and Local Infrastructure costs required, as may be required, and grading), both direct and indirect, necessary to support the land uses and products in the applicable Disposition Package. In addition, direct and indirect vertical costs for constructing buildings for each use and product such as single family and multiple family for -sale residential, apartments, office, retail and hotel uses was conducted. Costs for accommodating affordable housing requirements was also integrated into the analysis. All capital costs included contingencies, contractor mobilization costs, and design (A&E) fees. Other costs included development costs including grading, marketing and disposition costs, asset management, debt financing, general administrative overhead and profit, and contingencies. The preliminary testing indicated a positive residual land value for each of the Early Development Opportunity Disposition Packages. However, at this time detailed information supporting this conclusion is related to real property negotiations. As such, the price and terms of conditions will be subject to attorney client privilege until completion of each Disposition Package real estate transaction. In addition, the estimated market value of any sale of a Disposition Package will be based on confirming the market value appraisal prior to conclusion of a developer transaction. 67 Tustin Legacy Project Disposition Strategy The purpose of this section is to identify the responsibilities and preliminary operational costs and resources necessary to support the recommended Disposition Strategy discussed in Chapter 6.0. The section also identifies a recommended Marketing Approach for the Disposition Packages. 7.1 ORGANIZATIONAL FRAMEWORK/ROLES AND RESPONSIBILITIES The City of Tustin and its Redevelopment Agency (City will be the sole entity if the redevelopment entity is eliminated in the future by the State) will provide oversight and management for the marketing, sale, and development of the subject property. As the Executive Master Developer, in a more limited role, Tustin will have the responsibility and will need the resources to administer and direct the implementation of the Revised Disposition Strategy. Tustin will call on the expertise of contract professionals, as needed, to ensure that the implementation process is timely, orderly, and cost-effective, and that the myriad of issues that need to be addressed in implementing the Disposition Strategy are dealt with efficiently. The City Manager's Office under the direction of the Assistant City Manager, or a Tustin Legacy Management Director as may be delegated, will be the prime point of contact for managing the redevelopment team and directing the implementation of the Disposition Strategy. The City Manager's Office will manage the primary staff functions assigned to the Project along with contract property management support, real estate and development advisor professionals, and financial consulting services, as needed. Tustin operating departments will also provide technical support which may need to be supplemented by outside engineering consultant support (where Tustin assumes construction of any backbone infrastructure improvements). The organizational framework of the team and organizational relationships are diagrammed in Figure 6. APRIL 2011 68 Tustin Legacy Project Disposition Strategy _ ■ � �-- i aj ) / in % e 2 � § \ �- /k } f $ 7 2 { © $ | CLaj - Q \ aj � \ � / \ / � / �-- i aj ) / in % e 2 � § \ 7. Implementation Operational Approach/Disposition Strategy Tustin will market the Disposition Packages as identified in Chapter 6 or in smaller parcels, where appropriate, to private sector developers and will oversee ensuring the provisions of backbone and local infrastructure to support each Disposition Area such as roads, water, sewer, storm water management, and security, as well as operational costs such as administration, marketing, and property management (for the period of time that the City continues to own certain property). Depending on the specific transaction, Tustin may elect to allow a selected builder to participate in the improvement of backbone and local infrastructure, offsetting the costs against the price to be paid by the developer for a Disposition Package. The selected developers will also assume primary responsibility for preparing and obtaining approvals for subdivision map(s) and development agreements, as well as providing the specific local improvements or in -tract improvements for a Disposition Package necessary to market improved land parcels to other builders and/or end business users. Some Disposition Packages, however, or portions of the Disposition Packages may be conducive to direct marketing to potential end business users, in which case Tustin may directly market to the end user. The approach will permit Tustin to more specifically direct and accelerate development absorption. The selection process for Disposition Packages, or parcels within a Disposition Package, is discussed in Section 7.4 which follows. APRIL 2011 Sale of Disposition Packages will provide part of the revenue necessary for administration of the disposition strategy and for construction of required backbone infrastructure. Other revenue sources for backbone infrastructure will be generated through the combination of a developer infrastructure payment (the Tustin Legacy Backbone Infrastructure Contribution), the formation of special community facility districts, or the direct construction of the improvements by a developer. In the event of developer -funded backbone infrastructure improvements, the cash flow will reflect a reduced Tustin Legacy Backbone Infrastructure Contribution and/or a reduced land sale price. The City should also set up a land -sale - funded special purpose Enterprise Fund within the City's financial structure so that until the project is completed, Enterprise Fund resources are used for operating expenses and as needed for infrastructure and improvements that the City chooses to construct. 7.2 TIMETABLE FOR LAND SALES OF DISPOSITION PACKAGES The Operational Plan proposes disposition of land to private sector builders in large Disposition Packages as described in Chapter 6. While a number of Early Development Opportunity Disposition Packages are identified in Chapter 6, early opportunities may also be possible for other Disposition Packages; Tustin will retain the flexibility to respond to property interest and market conditions, recognizing that the timing of marketing of a particular Disposition 70 Tustin Legacy Project Disposition Strategy Strategy should offer a reasonable return on the asset to the City and should not result in a "fire sale" or in developer "land speculation." 7. Implementation ability to meet backbone infrastructure requirements. Before actual decisions are made to market a Disposition Package, the City needs to gauge the marketplace and decide whether it wishes to balance a land The following is an initial overview of sale much earlier than a build -out potential preliminary time frames for development phasing and package may marketing and sale of Disposition Packages, itself warrant, which could reduce contingent upon market conditions and the anticipated land sale revenues. Table 6 Overview of Preliminary Marketing Time Schedule for Disposition Packages APRIL 2011 71 Tustin Legacy Project Disposition Strategy of Final DispositionSubmittal Developer Screening ProposalsPackage .. 3 Selection Developers) 1A July -August September- December December Spring 2013- 2011 December 2011 2011 2011- 2014+ June 2012 113 July -August September- December December Spring 2013- 2011 December 2011 2011 2011- 2014+ June 2012 1c July -August September- December December Summer 2013- 2011 December 2011 2011 2011- 2015+ June 2012 2 July -August September- December December Summer 2013- 2011 December 2011 2011 2011- 2017+ June 2012 3 January- March -June 2012 June 2012 June 2012- Early 2014 - February 2012 December 2019+ 2012 4 January- March -June 2013 June 2013 June 2013- 2014-2020+ February 2013 December 2013 5 January- March -June 2014 June 2014 June 2014- 2015-2020+ February 2014 December 2014 6 July—August September— December December Early 2015-2016 2012 November 2012 2012 2012 -June for residential 2013 and additional years 7 January- March -June December January 2015-2018+ for February 2013 2013 2013 2014 -June residential 2014 8 July -August September- December January 2015-2018+ for 2014 December 2014 2014 2015 -June residential 2015 APRIL 2011 71 Tustin Legacy Project Disposition Strategy 7. Implementation 7.3 NECESSARY RESOURCES AND PROJECTED OPERATING EXPENDITURES The principle source or revenue for financing redevelopment of the site will be anticipated land revenues and Redevelopment Agency revenues. The City, acting as the Executive Master Developer, will manage the disposition of the land to private developers, using Redevelopment Agency resources and any resulting land sale proceeds to fund on- going operations and asset management. Supplemental funding sources such as Redevelopment Agency revenues may be used to fund certain City identified priority infrastructure and various other financing mechanisms such as Tustin Legacy Backbone Infrastructure Program Fair Share Contributions. Mello -Ross Community Facilities Districts and revenue anticipation notes may also be used to implement the financing of public infrastructure. As noted in the discussion of the concept of the City's more limited role as Master Developer, the City will incur certain operational administrative expenses. A summary of these expenses are shown in Table 7. These administrative expenses will consist of on-going management costs related to the marketing of Disposition Packages and of overall management of implementation activities. A necessary budget will need to include expenditures for anticipated personnel, professional/consulting services, contract development advisor/real estate consultant services, and marketing disposition costs related to the packages. It would be expected that marketing of the master planned community itself would be funded by developer contributions and land sale proceeds and are not identified in the APRIL 2011 initial operating budget. Costs also include those necessary costs for screening and selecting the most qualified developers, pulling together the terms and conditions associated with all Requests for Proposal, the distribution, review and analysis of all developer responses, and any agreement negotiations. Environmental insurance of the property is also included in expected costs, although there will be expected revenue off -sets from those developers who wish to be named on the policy as additional insured. The issue of prior contamination at a closed military base, fear of unknown contamination being discovered during property development (as has occurred at Tustin Legacy), and the environmental risk to Tustin necessitate such coverage. In marketing the property, Tustin wants to protect against possible environmental incidents which would slow down the pace of development. Property Management costs are also incurred by the City to maintain the property prior to its sale to third -party investors. These costs largely include the maintenance of the sites, security, and ensured compliance with NPDES and SWPPP requirements. Once a Disposition Package is sold, the asset maintenance costs will be eliminated. Costs are estimated based on the City's current property management contract for the property. To the extent early Disposition sales result in City administrative expenses which exceed land sale proceeds, short-term debt issuance can be used to cover any deficits with repayments of the full amount from land sale proceeds. In such a case, interest carry for any short-term financing could have a cost. 72 Tustin Legacy Project Disposition Strategy 7. Implementation Table 7 Executive Master Developer Role Disposition Strategy Projected Expenditures for FY 2011-12 through FY 2015-16 Only (1) In House Personnel Ass't City Mgr. or Legacy Director (Z) Program Manager (3) Project Manager (4) 2 Development Managers (s) Executive Secretary (6) Subtotal Property Management Services Environmental Insurance (7) Professional Consulting Management/Developer Advisor (8) Market Analysis Updates CFD Global Analysis/Structuring Financial Consulting Planning / Design Guidelines (9) CC&Rs Preparation / Review Developer Selection Panels Legal - Real Estate Legal - City Attorney EIS/EIR Amendments/Specific Plan (City) Survey Updates/Parcel Subdivision Maps Title Work Environmental Due Diligence Marketing Materials (10) Appraisals Subtotal N (10) Contingency Finance / Indirect Overhead (15% of costs with no contingency costs included) 164,698 117,642 117,642 117,642 117,642 124,669 124,669 124,669 124,669 124,669 126,983 126,983 126,983 126,983 126,983 101,280 101,280 101,280 101,280 101, 2 80 16,203 16,203 16,203 16,203 16, 203 533,833 486,777 486,777 486,777 486,777 435,000 355,000 285,000 205,000 165,000 400,000 (145,000) (75,000) (65,000) (40,000) 120,000 80,000 80,000 80,000 80,000 25,000 25,000 25,000 25,000 25,000 45,000 80,000 80,000 40,000 40,000 60,000 100,000 20,000 40,000 20,000 20,000 200,000 50,000 50,000 50,000 50,000 75,000 30,000 30,000 30,000 30,000 350,000 150,000 100,000 100,000 150,000 150,000 60,000 40,000 40,000 60,000 50,000 - 130,000 - - 25,000 20,000 20,000 20,000 20,000 40,000 20,000 10,000 10,000 20,000 35,000 25,000 15,000 15,000 15,000 75,000 50,000 30,000 20,000 10,000 120,000 80,000 40,000 80,000 40,000 1,490,000 690,000 100,000 75,000 650,000 530,000 60,000 60,000 580,000 60,000 428,825 208,017 202,017 173,517 178,767 TOTAL 3,387,658 1,669,794 1,608,794 1,390,294 1,430,544 Additional years will be necessary; expenditures are static numbers that are not escalated. Does not include infrastructure construction costs, oversight/design services which will be addressed based on future policy decisions & available land sale or RDA revenues and in conjunction with any CIP budgeting. 70% year 1; 40% years 2-5; includes time and benefits 80% years 1-5; includes time and benefits 80% years 1-5; includes time and benefits 30% years 1-5; includes time and benefits 20% years 1-5; includes time and benefits Minus projected insurance revenue from developer being named as additional insured on City's policy Assumes $10,000 per month year 1 Includes updates to design guidelines, design services to review developer design submittals; includes evaluation of water body features within parks Includes packaging of RFPs, brochures, presentation folders, advertising, on-site signage only. Overall marketing will be funded by developer contributions toward overall project marketing. APRIL 2011 73 Tustin Legacy Project Disposition Strategy 7. Implementation 7.4 MARKETING AND DEVELOPER SELECTION PROCESS As indicated in the review of the Alternatives, getting to the market and establishing momentum in a timely manner is important. Because of this, the most efficient and cost- effective solution is to establish a process for selecting the best qualified developers for each of the disposition parcels. The recommendation of the preferred Disposition Strategy, Alternative 3, is also predicated upon selection of developers with qualifications and capabilities in land development and vertical development for each of the designated Disposition Packages, or certain vertical parcels within a Disposition Package based on market factors and timed appropriately based on these factors. The previous experience of the City in soliciting developer interests was very costly for development teams and has involved a significant investment of time by the City. A key objective in the revised Disposition Strategy is to reduce the time involved and expense for development interests to participate in the process and to also ensure that the City is able to maximize the value of the asset. Select a Panel of Experts within the Real Estate Industry to Recommend Qualified Developers for each of the Disposition Packages. The most efficient and cost-effective way to implement the strategy, in a timely manner, is to retain a panel of experts from diverse disciplines within the real estate industry for conducting interviews tied to specific product types within Disposition Packages, or for certain vertical parcels within a Disposition Strategy, in order to pre -qualify and recommend a smaller select group of developers to be offered the opportunity to prepare more detailed proposals on individual Disposition Packages or vertical parcels. Each panel should be comprised of four to five members from the following real estate disciplines. All of the disciplines recommended will be experts in issues directly impacting the development of the site and each of the Disposition Packages or vertical parcels to be offered for sale. Civil Engineering/Land Planning — This member of the panel should have a background and expertise in issues associated with master planned communities, including infrastructure design and construction grading design and construction, and/or land development and planning. Market Anal — Depending on the products within a Disposition Package, this member of the panel should have a background in analyzing market conditions relevant to the use and product type associated with a Disposition Package. For Sale Residential - would be used only on panels in which for - sale residential products were a designated use. ♦ Commercial - would be used only on panels in which non-residential products were a designated use, such as office, retail, Flex/R&D, or hotel. APRIL 2011 74 Tustin Legacy Project Disposition Strategy Apartment Communities - would be used on panels in which apartment communities were the designated use. Marketing of Master Planned Communities - This member of the panel should have a background in real estate marketing, image making, and community outreach related to master planned communities. • Architecture and Design - Depending on the products within a Disposition Package, this member of the panel should be a recognized expert in architecture and design, including urban design and product design. This panel member will vary depending on the panel member's expertise in the appropriate product. Development Experience - Depending on the products within a Disposition Package, this member(s) of the panel should be a recognized expert in having developed in new community environments in which comprehensive knowledge of the full development process was required. Where Affordable Housing products are required, there would likely be representation provided with experience in development of Affordable Housing City staff and our Consultant Team would anticipate bringing back to the City Council shortly a list of two or three panels of experts to support each of the screening panels. APRIL 2011 7. Implementation Interview Process for Developers Developers who have expressed an interest in the Tustin Legacy Project will be invited to an interview by the panel of experts. The interview process would be open to any recognized development entity, including individuals, firms, and joint ventures with experience in developing the use and product proposed for each disposition parcel. The purpose of the interview is not to require a developer to make a significant investment in preparation of a development proposal, but to provide an opportunity for a developer to make a short presentation to a panel of experts in the industry who have knowledge and experience and who will focus on their experience and capabilities of each development team. Each developer would be given approximately 10-15 minutes to make a presentation demonstrating the developer's abilities; the panel will reserve 10 minutes or so for questions of each development entity being interviewed. Qualifying Developers for each of the Disposition Parcels The panel for each disposition parcel will recommend a list of the three most highly qualified developers for each disposition parcel. The recommendations will be based on the following criteria. • Demonstrated successful development experience in the Orange County market, including a successful track record over an extended period, without a litigious record. Demonstrated successful experience in bringing products to the market that 75 Tustin Legacy Project Disposition Strategy 7. Implementation were considered to be of high quality and were well accepted by consumers within the market, with a good customer service reputation. • Demonstrated successful experience in "making an environment" through the use of off-site amenities such as landscaping and hardscape and on-site products. • Demonstrated successful experience in developing both horizontal off-site and on-site improvements in support of the vertical improvements. • Demonstrated successful experience in bringing projects in within the estimated budget. • Demonstrated successful experience in managing a development entity over an extended period of time. • Access to capital. The recommendations of each panel will be brought back to the City Council for final concurrence, at which point staff will be directed to request a proposal from each development team based on the characteristics of each specific Disposition Package. To ensure that each responding development team is clear about the expected terms and conditions of any City transaction, they will each be asked to sign a contractual agreement to certain minimum terms and conditions of the transaction, predicated on their being selected as the final recommended development team. While additional terms will still be likely incorporated into any APRIL 2011 final Disposition and Development Team, all teams responding will be conditionally committed to the basic and most important terms of any transaction as a framework and precondition to their involvement in the final process. The three submitted proposals on a Disposition Package will be evaluated by a Technical Evaluation Team based on selection criteria to be defined. The Technical Evaluation Team responsible for reviewing the submittals will be an ad-hoc committee consisting of representatives from the City Manager's Office and Redevelopment Agency, Public Works Department, Community Development Department, and technical consultants retained by the City. It would be anticipated that this consultant support would include a developer advisor to the City, special financial consultant support, and special real estate legal support. The Technical Evaluation Team will submit their rankings and recommendations on the preferred developer for each offered sale package to the City Council. The City Council will make the final decision and authorize execution of the terms of the transaction and direct staff to prepare any final Disposition and Development Agreement required. 76 Tustin Legacy Project Disposition Strategy ATTACHMENTS ATTACHMENT 1 SUMMARY OF CITY OBJECTIVES AND REQUIREMENTS FOR TUSTIN LEGACY MASTER DEVELOPMENT SITE Attachment 1 PLANNING AND COMMUNITY OBJECTIVES Development plans will be required to conform to the program of uses and development envelopes entitled in the Specific Plan and EIS/EIR and the following 1. Establish a New Center of Activity in the City and Region; 2. Create a Unique Sense of Place; 3. Establish a Complementary Relationship to the Surrounding Community; 4. Create Livable Communities. URBAN DESIGN OBJECTIVES In addition to the urban design guidelines in the Specific Plan, seven principles shall guide the urban design of the new district: 1. Sociable Neighborhoods 2. Integration with Public Uses 3. A Mixed Use Core 4. Interconnected Open Spaces 5. Lively Multi -Modal Streets 6. Human Scale 7. Sustainable Design BUSINESS AND FINANCIAL OBJECTIVES 1. Maximize Land Value Land value can be enhanced through effective positioning and marketing of the property, quality development and value creation strategies, market driven infrastructure investment, and other development strategies. Additionally, the City can enhance value by holding the land for successive take-down by the developer, facilitating entitlement and approvals, providing public financing where appropriate, and expediting other public agency functions. 2. Reinvest Project Proceeds for Long Term Value Creation 3. Minimize City Risk While the City can help create value in the project, the City is not in a position to take on development risks. Risks associated with market timing, cost increases, financing terms, construction performance, litigation, environmental issues, and other aspects of development must be born entirely by the Developer. In this vein, the City will not guarantee the Developer a minimum financial return or make other commitments that will render it vulnerable in the event of negative cash flow by Developer. APRIL 2011 Al -1 Tustin Legacy Project Disposition Strategy Attachment 1 4. City Participation Because the City has invested substantial time and resources in the project, and will help to create value in the development as it goes forward, it expects to participate in upside profits. In no event shall the City be required to share or reimburse developer for negative cash flow. RISK MANAGEMENT OBJECTIVES 1. Performance Based Transaction The City will reduce its risk and prevent "cherry picking" by developer of easiest parcels to develop by requiring land take down based on performance with specific requirements laid out before Developer is authorized to proceed to next phase including, but not limited to: a. requiring progress and completion of infrastructure in each phase. b. requiring sufficient land sales in each phase. c. requiring sufficient construction of vertical improvements. 2. Completion Guaranty The City expects the Developer to guarantee project completion with corporate guarantees, performance bonds or other security, as appropriate, as well as a deposit insuring against any breach of contract that is not otherwise secured. The City also wishes to ensure against partial project completion, and will require that development of the most profitable land uses are phased in with development of less profitable land uses. Conveyance of the Development Site will take place in phases based on performance measures, such as the timely construction of public and private improvements, and other measures to be further defined in the DDA. In addition, the City may retain a right of reverter for portions of the property until completion of defined improvements by phase. 3. Completion of Public Facilities The City wishes to ensure that all backbone infrastructure and public facilities planned to support the Master Development Site are completed in a timely manner, and are integrated with improvements necessary outside of the Master Development Site. To accomplish this, the City will require that necessary infrastructure improvements be provided as necessary to fully serve new development within a defined schedule of performance. The Developer may also be required to oversize improvements as needed to maintain acceptable levels of service. The City will also require completion of park improvements in addition to any on-site recreational improvements constructed by merchant builders. Finally, the City expects the Developer to facilitate and participate in other community -wide objectives, such as construction of a new APRIL 2011 A1-2 Tustin Legacy Project Disposition Strategy Attachment 1 Tustin Branch Library, potential development of an aquatics center, and other projects providing public benefit. 4. Environmental Indemnification The Developer shall covenant responsibility for compliance with all environmental laws and regulations and that they will not use property directly or indirectly for use, generation, treatment, release or disposal of hazardous materials. The Developer will be responsible for all liability related to asbestos remediation and lead based paint with no liability to City. Although the Navy has responsibility for the remediation of certain substances as described later in this document, the Developer shall provide environmental insurance naming the City as an additional insured, and shall indemnify, defend and hold harmless the City from liability against all claims, judgments, suits, costs or expenses including attorney costs arising out of the release, existence, presence, or disposal of hazardous substances in, on, under, about or adjacent to the property after conveyance of property to the Developer. FISCAL OBJECTIVES 1. Protection and Enhancement of General Fund The City is prepared to work with the Developer to explore the potential for various financing mechanisms and the reinvestment of land sale proceeds. However, the City expects development of the Development Site to result in a positive fiscal impact for the General Fund, and the terms of the disposition transaction will need to protect the City's General Fund from any financial obligations that cannot be met from the proceeds of the project itself. 2. City Cost RecoverX The City's predevelopment costs, after selection of the Developer, will be paid by the Developer. The City's predevelopment costs will include staff time, consultants, outside counsel and any other legitimate expenditures required to complete the Master Development Plan and negotiate the DDA. 3. Property Maintenance and Security Responsibility The Developer will be required to cover all costs for maintenance and security of property for the Master Development Site during the negotiation period. 4. Judicious Use of Public Funding City sponsored tax exempt instruments (e.g. COP's, revenue bonds), and tax exempt land - secured funding (e.g., Mello -Roos or other special assessments) may be used as appropriate for APRIL 2011 A1-3 Tustin Legacy Project Disposition Strategy Attachment 1 backbone infrastructure and public facilities subject to meeting the requirements of these public finance mechanisms at the discretion of the City. However, these financing mechanisms may not be used for in -tract improvements. In instances where tax exempt vehicles are appropriate, they will be used in combination with private financing to lower borrowing costs and enhance the value of the land, ensuring that costs are allocated among land uses in proportion to benefit received. The City expects to participate in the value creation resulting from investment of public funds. APRIL 2011 A1-4 Tustin Legacy Project Disposition Strategy ATTACHMENT 2 LOCAL AND BACKBONE INFRASTRUCTURE COST ESTIMATE BY DISPOSITION PACKAGE Attachment 2 The EIS/EIR for the Tustin Legacy Project requires developer Fair Share Contributions to certain Tustin Legacy Backbone Infrastructure Program improvements. The Fair Share Contributions assigned to the Tustin Legacy Project are currently being updated and are anticipated to include those Backbone Infrastructure Fair Share Contribution values shown on the tables that follow for each Disposition Area. Developers will be responsible for Local Infrastructure improvements and Tustin Legacy Backbone Infrastructure Program improvements as an off -set against any identified Tustin Legacy Backbone Infrastructure Fair Share Contribution also shown under each Disposition Strategy. Item No. Description Reach ID No. Cost Estimate DISPOSITION AREA 1A (Neighborhood G - Area bounded by Warner on the south, Tustin Ranch Road on the west, Legacy Road on the north, and Park Ave. on the east. (Lots 37 - 39)) Tustin Legacy Backbone Fair Share Contribution $6,865,388 Local Infrastructure Improvements Focal Park - Lot 39 $2,682,010 Local Infrastructure - Pkwy Landscaping along Legacy $143,934 Road and Park Ave. $287,868 Total Local Infrastructure Improvements $2,969,878 Total* $9,835,266 * The total cost shown includes the Backbone Fair Share Contribution plus the local infrastructure. As a developer installs the backbone shown for each disposition area, the actual backbone costs will be credited against the Fair Share Contribution amount. Item No. Description Reach ID No. Cost Estimate DISPOSITION AREA 1B (Neighborhood G — Area bounded by Warner on the south, Park Avenue on the west, Legacy Road on the north, and Jamboree on the east. (Lots 31— 36)) Tustin Legacy Backbone Fair Share Contribution $8,844,515 Local Infrastructure Improvements Local Infrastructure — Pkwy Landscaping along Park Ave. $143,934 Legacy Road — Park Ave. to "C" St. $1,161,671 "C" St. — Legacy Road to "F" St. $951,279 "E" St., "F" St., & "G" St. $3,033,251 Park Ave./Legacy Road TS $265,100 Focal Park — Lot 34 $2,225,498 LCP — Lots XX, YY, & ZZ $2,590,019 Import (Lots 31 to 36-42.7 ac) Portion of 520 $3,600,000 Grading (Lots 31 to 36-42.7 ac) Portion of 1000 $3,100,000 Total Local Infrastructure Improvements $17,070,751 Total* $25,915,266 * The total cost shown includes the Backbone Fair Share Contribution plus the local infrastructure. As a developer installs the backbone shown for each disposition area, the actual backbone costs will be credited against the Fair Share Contribution amount. APRIL 2011 A2-1 Tustin Legacy Project Disposition Strategy Attachment 2 Item No. Description Reach ID No. Cost Estimate DISPOSITION AREA 1C (Neighborhood B and Ramp Parcel) Tustin Legacy Backbone Fair Share Contribution Local Infrastructure Improvements $10,904,792 Local Infrastructure — Pkwy Landscaping along Valencia, Kensington, & Edinger $834,560 6 Total Local Infrastructure Improvements Portion of 100 $834,560 23 Total* Portion of 148 $11,739,352 * The total cost shown includes the Backbone Fair Share Contribution plus the local infrastructure. As a developer installs the backbone shown for each disposition area, the actual backbone costs will be credited against the Fair Share Contribution amount. Item No. Description Reach ID No. Cost Estimate DISPOSITION AREA 2 (Neighborhood D South - Area bounded by Barranca on the south; Armstrong on the west; South Loop, Park, and Warner on the north, and Tustin Ranch Road on the east. (Lots 19 - 28)) Backbone Infrastructure Improvements Armstrong Ave. - Barranca to South Loop (Carnegie 6 Ave.) Portion of 100 $1,030,163 23 Warner Ave. - Legacy Road to Tustin Ranch Road Portion of 148 $2,274,992 South Loop (Carnegie Ave.) - Tustin Ranch Road to 29 Armstrong (4 lanes plus southern edge) Portion of 150 $1,778,090 31 Barranca Ave. - Tustin Ranch Road to Aston Portion of 154 $1,894,864 42 Barranca Ave./Armstrong Ave. TS (Upgrade) 100A $166,250 49 Armstrong Ave./South Loop (Carnegie Ave.) TS 150A $332,500 82 Backbone Storm Drain Overall Portion of 700 $2,115,917 Barranca Channel - Aston to west of Tustin Ranch Portion of 152, 87 Road 154 $5,430,853 Backbone Dry Utilities Overall Portion of 750 $2,371,391 Total Backbone Infrastructure Improvements $17,395,020 Tustin Legacy Backbone Fair Share Contribution $31,593,580 Local Infrastructure Improvements Local Infrastructure $824,739 Warner Ave./Legacy Ave. TS $267,500 Main St./Park Ave. TS $267,500 Grading (Lots 19 to 21; 26 to 28 - 23.4 ac) Portion of 1000 $1,500,000 Grading (Lots 22 to 25 - 24.1 ac) Portion of 1000 $1,600,000 Total Local Infrastructure Improvements $4,459,739 Total* $36,053,319 * The total cost shown includes the Backbone Fair Share Contribution plus the local infrastructure. As a developer installs the backbone shown for each disposition area, the actual backbone costs will be credited against the Fair Share Contribution amount. APRIL 2011 A2-2 Tustin Legacy Project Disposition Strategy Attachment 2 Item No. Description Reach ID No. Cost Estimate DISPOSITION AREA 3 (Neighborhood D North - Area bounded by Warner on the south, Armstrong on the west, N. Hangar on the north, and Community Park on the east) Backbone Infrastructure Improvements 22 Warner Ave. - Red Hill to Armstrong 146 $4,584,954 23 Warner Ave. - Armstrong to Legacy Road Portion of 148 $3,412,488 45 Red Hill/Warner TS 162A $166,250 48 Warner/Armstrong TS 146A $332,500 82 Backbone Storm Drain Overall Portion of 700 $1,446,957 50 Backbone Dry Utilities Overall Portion of 750 $1,262,909 Total Backbone Infrastructure Improvements $11,206,058 82 Tustin Legacy Backbone Fair Share Contribution Portion of 700 $10,593,129 Local Infrastructure Improvements (see previous D South & ND North Locals 1206 $3,171,694 ND North Locals 1300 $2,202,030 Focal Park ND North 1316 $619,922 Grading (N - D North 30.7 ac) Portion of 1000 $2,000,000 Total Local Infrastructure Improvements $7,993,646 Total* $18,586,775 * The total cost shown includes the Backbone Fair Share Contribution plus the local infrastructure. As a developer installs the backbone shown for each disposition area, the actual backbone costs will be credited against the Fair Share Contribution amount. Item No. Description Reach ID No. Cost Estimate DISPOSITION AREA 4 (Neighborhood E (Old Phase II) - Area bounded by Barranca on the south, Old Phase I on the west, Warner on the north, and Armstrong on the east. (Lots 4 - 8, 10, & 11)) Backbone Infrastructure Improvements 6 Armstrong Ave. - South Loop to Warner Ave. 100 $2,403,715 22 Warner Ave. - Red Hill to Armstrong 146 (see previous D North) 45 Red Hill/Warner TS 162A (see previous D North) 48 Warner/Armstrong TS 146A (see previous D North) 49 Armstrong Ave./South Loop (Carnegie Ave.) TS 150A (see previous D South) 50 Warner/"E" St. TS 148A $332,500 (see previous D South & 82 Backbone Storm Drain Overall Portion of 700 North) (see previous D South & Backbone Dry Utilities Overall Portion of 750 North) Total Backbone Infrastructure Improvements $2,736,215 Tustin Legacy Backbone Fair Share Contribution $14,475,032 APRIL 2011 A2-3 Tustin Legacy Project Disposition Strategy Attachment 2 Item No. Description Jw- acfi 1b 467MM'Cost Estimate Backbone Infrastructure Improvements Local Infrastructure Improvements 22 Warner Ave. - Red Hill to Armstrong "G" St. - Warner to "F" St. (see previous D North) $290,559 East side Red Hill - Barranca to Warner "F" St. - "G" St. to "B" St. $2,070,525 $369,802 East side Red Hill - Warner to Valencia Loop "B" St. - Carnegie to Armstrong $491,684 $1,479,208 Red Hill/Warner TS Carnegie - "B" St. to Armstrong (see previous D North) $2,430,128 Warner/Armstrong TS "C" St. - Carnegie to Armstrong (see previous D North) $1,056,578 Backbone Storm Drain Overall Aston - Barranca to Carnegie $731,009 $1,109,407 Barranca Channel Detention Basin/Sports Field "D" St. - "C" St. to Carnegie $1,059,432 $422,631 Backbone Dry Utilities Overall Warner/"G" St. TS $1,125,078 $265,100 Import Carnegie/Aston ("C" St.) TS $233,000 $265,100 Total Backbone Infrastructure Improvements Barranca/Aston TS $5,710,728 $265,100 Tustin Legacy Backbone Fair Share Contribution Linear Park - Environmental Zone 1124 $6,497,622 Local Infrastructure Improvements Open Space - Lots JJ & KK $604,139 "E" St. - Carnegie to "G" St. Total Local Infrastructure Improvements $713,190 $15,055,374 Carnegie - Red Hill to "B" St. Total* $1,162,236 $29,530,406 * The total cost shown includes the Backbone Fair Share Contribution plus the local infrastructure. As a developer installs the backbone shown for each disposition area, the actual backbone costs will be credited against the Fair Share Contribution amount. Item No. Description Reach ID No. Cost Estimate DISPOSITION AREA 5 (Neighborhood E (Old Phase 1) - Area bounded by Barranca on the south, Red Hill on the west, Warner on the north, and Old Phase II on the east. (Lots 1, 2, & 3)) Backbone Infrastructure Improvements 22 Warner Ave. - Red Hill to Armstrong 146 (see previous D North) 34 East side Red Hill - Barranca to Warner 160 $2,070,525 35 East side Red Hill - Warner to Valencia Loop 162 $491,684 45 Red Hill/Warner TS 162A (see previous D North) 48 Warner/Armstrong TS 146A (see previous D North) 82 Backbone Storm Drain Overall Portion of 700 $731,009 86 Barranca Channel Detention Basin/Sports Field 500,501 $1,059,432 Backbone Dry Utilities Overall Portion of 750 $1,125,078 Import Portion of 520 $233,000 Total Backbone Infrastructure Improvements $5,710,728 Tustin Legacy Backbone Fair Share Contribution $15,653,371 Local Infrastructure Improvements "E" St. - Carnegie to "G" St. $713,190 Carnegie - Red Hill to "B" St. $1,162,236 Red Hill/Carnegie TS $265,100 Carnegie/"E" St. TS $265,100 APRIL 2011 A2-4 Tustin Legacy Project Disposition Strategy Attachment 2 Item No. Description Reach III) No Cost Estimate Backbone Infrastructure Improvements Linear Park - Ecological Zone w/ Detention Basin Open Space - Lots A, B, C, D, FF, GG, LL, & MM Grading (remainder from clean-up operation) 1124 Portion of 1000 $7,727,418 $3,649,787 $300,000 Park Ave. - Moffett Ave. to Legacy Road Total Local Infrastructure Improvements $721,865 $14,082,831 Peter's Canyon Channel from RR track to City Limit Total* $21,310,215 $29,736,202 * The total cost shown includes the Backbone Fair Share Contribution plus the local infrastructure. As a developer installs the backbone shown for each disposition area, the actual backbone costs will be credited against the Fair Share Contribution amount. Item No. Description Reach ID No. Cost Estimate DISPOSTION AREA 6 (Neighborhood G - Area bounded by Legacy Road on the south, Tustin Ranch Road on the west, Moffett Ave. on the north, and Jamboree on the east. (Lots 25 - 30)) Backbone Infrastructure Improvements 19 Park Ave. - Moffett Ave. to Legacy Road Portion of 126 $721,865 79 Peter's Canyon Channel from RR track to City Limit 504,506 $21,310,215 81A Peter's Canyon/Trail Improvements $248,856 82 Backbone Storm Drain Overall Portion of 700 $283,430 14 Backbone Dry Utilities Overall Portion of 750 $259,110 Import (Lots 25 to 30 - 34.9 ac) Portion of 520 $2,800,000 Total Backbone Infrastructure Improvements $25,623,476 Tustin Legacy Backbone Fair Share Contribution $21,562,031 Local Infrastructure Improvements "C" St. - Moffett Ave. to Legacy Road $468,541 "D" St. - Moffett Ave. to Legacy Road $774,447 LCP - Lot WW $863,340 Grading (Lots 25 to 30 - 34.9 ac) Portion of 1000 $2,400,000 Total Local Infrastructure Improvements $4,506,327 Total* $26,068,358 * The total cost shown includes the Backbone Fair Share Contribution plus the local infrastructure. As a developer installs the backbone shown for each disposition area, the actual backbone costs will be credited against the Fair Share Contribution amount. Item No. Description Reach ID No. Cost Estimate DISPOSITION AREA 7 (Neighborhood G - Area bounded by Moffett Ave. on the south, Tustin Ranch Road on the west, Edinger Ave. on the north, and Jamboree on the east. (Lots 1- 24, Comm. Park, and HS)) Backbone Infrastructure Improvements East Connector- Valencia (N. Valencia Loop) to West 12 end of Bridge 116, 118, 120 $2,810,154 Bridge East Connector over Santa Ana/Santa Fe 13 Channel to Edinger 204 $2,132,292 14 Moffett- North Loop to West end of Bridge 136 $2,323,341 APRIL 2011 A2-5 Tustin Legacy Project Disposition Strategy Attachment 2 Item No. Description Reach ID NoN=Cost Estimate 15 Bridge - Moffett over Peter's Canyon Channel 138 $3,693,373 Valencia (N. Valencia Loop) - Tustin Ranch Road to 18 Moffett 114 & 122 $3,608,159 37 Edinger/East Connector TS 204A $166,250 60 Moffett/North Loop TS 136A $299,250 65 East Connector/North Loop TS 122A $299,250 82 Backbone Storm Drain Overall Portion of 700 $11,046,173 116 Neighborhood Park; Master Developer Area G Park 602 $4,408,203 117 Community Park; Master Developer Area (46 ac) 604 $18,211,264 118 Aquatic Center in Master Developer Community Park 640 $6,237,607 119 Tennis Center in Master Developer Community Park 642 $3,585,603 129 Pedestrian Bridge - Tustin Ranch Road 624 $6,210,000 Backbone Dry Utilities Overall Portion of 750 $2,323,195 Import (Lots 1 to 24 & Comm. Park - 200 ac) [794 du] Portion of 520 $6,500,000 Import (HS - 41.0 ac) Portion of 520 $1,150,000 Total Backbone Infrastructure Improvements $75,004,114 Tustin Legacy Backbone Fair Share Contribution $53,058,013 Local Infrastructure Improvements "B" St. - East Connector to "C" St. $452,784 "C" St. - "B" St. to Moffett $1,901,691 "D" St. - "B" St. to Moffett $1,992,247 "J" St. - "D" St. to "C" St. $905,567 Locals - Subphase B 1130 $6,624,999 Park/Moffett TS $265,100 Neighborhood Park 01 $539,898 Neighborhood Park Lot 20 $4,424,976 Recreation Area Lot 22 $3,790,737 Focal Park Lot 1 $1,582,080 CLP Lots 23, 24, M & P $6,128,814 LCP Lots A, B, C, D, E, F, G, L, K, Q, S, & T $7,014,051 EOS Lots J, H, R, & RRR $2,231,085 Grading (Lots 1 to 24 & Comm. Park - 200 ac) Portion of 1000 $13,000,000 Grading (HS - 41.0 ac) Portion of 1000 $3,000,000 Total Local Infrastructure Improvements $53,854,029 Total* $106,912,042 * The total cost shown includes the Backbone Fair Share Contribution plus the local infrastructure. As a developer installs the backbone shown for each disposition area, the actual backbone costs will be credited against the Fair Share Contribution amount. APRIL 2011 A2-6 Tustin Legacy Project Disposition Strategy Attachment 2 Item No. Description Reach ID No. Cost Estimate DISPOSITION AREA 8 (Neighborhood D South - Area bounded by South Loop on the south; Armstrong on the west; Warner on the north, and Legacy Road on the east. (Lots 1- 18)) Backbone Infrastructure Improvements South Loop (Carnegie Ave.) - Tustin Ranch Road to 29 Armstrong (completion) Portion of 150 $162,693 122 Linear Park; Master Developer Area D 610 $6,989,666 Other Public -Owned Open Space; Master Developer 126 Area E 617 $3,742,009 127 Pedestrian Bridge - Warner 620 $11,818,152 128 Pedestrian Bridge - Armstrong 622 $4,830,000 133 Community Entry Signage 690 $1,325,287 Total Backbone Infrastructure Improvements $28,867,807 Tustin Legacy Backbone Fair Share Contribution $43,673,676 Local Infrastructure Improvements Local Infrastructure $1,237,109 Local Park, South Linear - Park Area D (Lot A) OS -5 1113 $8,670,402 Local Park, Focal Park Area D 1116 $604,140 Grading (Lots 1 to 18 - 61 ac) Portion of 1000 $4,000,000 Total Local Infrastructure Improvements $14,511,651 Total* $58,185,327 * The total cost shown includes the Backbone Fair Share Contribution plus the local infrastructure. As a developer installs the backbone shown for each disposition area, the actual backbone costs will be credited against the Fair Share Contribution amount. APRIL 2011 A2-7 Tustin Legacy Project Disposition Strategy