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HomeMy WebLinkAbout10 DDA WITH BROOKFIELD HOMES SOUTHERN CALIFORNIAAgenda Item 10 Reviewed: AGENDA REPORT City Manager Finance Director N/A MEETING DATE: DECEMBER 17, 2019 TO: MATTHEW S. WEST, CITY MANAGER FROM: ECONOMIC DEVELOPMENT DEPARTMENT SUBJECT: DISPOSITION AND DEVELOPMENT AGREEMENT (DDA) WITH BROOKFIELD HOMES SOUTHERN CALIFORNIA LLC, FOR DISPOSITION PACKAGE 2C AND 8 AT TUSTIN LEGACY SUMMARY: Request for authorization to approve the Disposition and Development Agreement (DDA) between Brookfield Homes Southern California LLC (Brookfield) and the City of Tustin (City) for the development of a for -sale residential community consisting of 400 homes on approximately 25.4 net acres. The DDA specifies the terms and conditions under which the City owned property, known as Disposition Packages 2C and 8, will be conveyed and developed by Brookfield. The purpose of the DDA is to implement the Reuse Plan for MCAS Tustin and the Specific Plan for Tustin Legacy through the development and maintenance of the property. RECOMMENDATION: Authorize the City Manager to execute the DDA between Brookfield and the City subject to any non -substantive modifications as may be deemed necessary and/or recommended by the City's special real estate counsel or the City Attorney. FISCAL IMPACT: The property will be disposed of in a single phase for an initial disposition price of $69,513,218.40. This price includes the Base Purchase Price for the land of $61,500,000 and the Project Fair Share Contribution of $8,013,218.40 to be allocated towards backbone infrastructure improvements at Tustin Legacy. In addition to the Base Purchase Price, the City will receive Profit Participation at a rate of 50% in the event Brookfield's net revenue exceeds 8.5% of the Gross Sales Price. Tustin Unified School District (TUSD) has a Community Facilities District at Tustin Legacy known as CFD 15-2. The purpose is to fund new facilities including a middle school and high school (Legacy Magnet Academy). The sources of funds for constructing facilities are: 1) development fees collected when building permits are issued, and 2) CFD fees collected on a project -by -project basis either at the time of conveyance to a Developer or Agenda Report — DDA, Brookfield Southern California Homes LLC December 17, 2019 Page 2 assessed to the homeowners in the form of bonds. In 2015, the City and TUSD executed an agreement limiting the City's total obligation to $85M. In order to accelerate facility development, the City in 2019 advanced $15M to TUSD and amended the existing agreement by crediting the fee obligation on future projects until the advance has been exhausted. The balance on the advance is currently $11,849,685: it is estimated that the City's credit is enough to cover TUSD fees on this project. Since 2015, the City has contributed over $60M to TUSD. Negotiation costs, such as legal, third party consultants .and staff costs incurred by the City are reimbursed by Brookfield in accordance with the Exclusive Negotiation Agreement (ENA). Upon execution of the DDA, Brookfield shall submit a City Costs Deposit in the amount of $50,000 to pay for the City's staff costs and third -party out-of- pocket expenses incurred by the City in implementing the DDA through issuance of a Certificate of Compliance or in the event the DDA is terminated prior to conveyance. Brookfield shall replenish the City Costs Deposit as needed to cover all of the City's Transaction Expenses. This project will be annexed into a future Improvement Area of City CFD 18-01 prior to Close of Escrow, established to cover service costs at Tustin Legacy (police and fire; recreation program services; maintenance of parks, streets, sidewalks and drainage facilities) due to the discrepancy in property tax revenue (3% of the basic levy (1.0%) at Tustin Legacy versus 10.5% City-wide). The Rate and Method of Apportionment specific to this project will be presented to the Council for consideration at a later date. The overall tax rate on this project will be limited to 1.40%. CORRELATION TO THE STRATEGIC PLAN: This action correlates to the City's Strategic Plan for Economic and Neighborhood Development (Goal A). BACKGROUND: On February 5, 2019, the City entered into an ENA with Brookfield to negotiate the conveyance and development of a for -sale residential community on approximately 25.4 net acres consisting of 400 homes in three product types. Since then, the City Manager has issued one extension to the ENA making it effective until January 6, 2020. On November 12, 2019, the Planning Commission reviewed the entitlement application for the proposed project and recommended that the City Council approve the project. On December 3, 2019, the City Council reviewed the subject project considering the Planning Commission's recommendation and approved the project. Agenda Report — DDA, Brookfield Southern California Homes LLC December 17, 2019 Page 3 DDA SUMMARY: Project Description The developer will improve the property with 400 for -sale residential dwelling units comprised of three products with an average density of approximately 15 dwelling units per acre. The three products will consist of 117 detached cluster residences, 129 attached row townhomes, and 154 motor court flats offering from one to five bedrooms and ranging from two to three stories in height. Common open space and parkettes, which would be publicly accessible, and a pool amenity are proposed to serve the development. The community utilizes a contemporary architectural design aesthetic, engages the street with walk-up entries and front patios, provides walkable small blocks with an accessible and interconnected pedestrian sidewalk network, extensive landscaping, and street furniture. City Improvements The City will be responsible for construction of the public streets as part of the development project including all mainline infrastructure and utilities to serve the private development. Brookfield will be responsible for the public street grading, streetscape landscaping and sidewalks, water treatment facilities, and common open space. Both the Brookfield development and the City improvements will be constructed in .. phases with the initial City construction priority to provide infrastructure and utilities to Flight Way in order to expedite Brookfiield's construction of the model homes site and the water treatment facility that will serve private and public water quality functions. License Agreements As part of the DDA, Brookfield has requested several license agreements to allow for the rough grading, the installation of the water treatment facility, and the preliminary construction of the horizontal improvements (utility work) to occur prior to the close of escrow which has an outside closing date of February 16, 2021. This would allow the developer to commence construction of the project with approved plans and permits from the City while both parties work to complete items required for the close of escrow over the next year. There are construction improvement performance preconditions for both parties. As security to the City for Close of Escrow, Brookfield will deliver an additional earnest money deposit of $3,000,000 within five business days after approval of the DDA and an additional $5,000,000 deposit at execution by the City of a construction contract for the City improvements. This will increase the purchase price deposit to a total of $8,000,000, and will be credited against the Base Purchase Price at the Close of Escrow. Agenda Report — DDA, Brookfield Southern California Homes LLC December 17, 2019 Page 4 Schedule of Performance The Schedule of Performance establishes outside dates by which all steps required including design, construction and development of the project must commence or have been completed during the term of the DDA. The project schedule anticipates completing these items prior to the outside dates allowing for any unanticipated events and issues. In the event of non-performance, a DDA default is triggered. The project will be built in phases and milestone performance dates following DDA approval and close of escrow are as follows: Brookfield Work Commences March 2020 City Improvements Work Commences June 2020 Close of Escrow February 2021 Model Home Construction Commences August 2021 Model Home Completion August 2022 City Improvements Complete January 2022 Project Completion August 2026 City Rights of Repurchase and Reversion One of the City's goals for Tustin Legacy is to ensure that development occurs in an orderly manner; therefore, the City does not convey property to private parties for land speculation. This has been addressed in the DDA by preserving the Right of Repurchase and the Right of Reversion for the City. These rights can only be exercised by the City if there is a Material Default by the Developer and the Developer fails to cure the default. DISCUSSION: As proposed, the development will provide a walkable, high quality, contemporary residential community addition and needed for -sale housing opportunities within Tustin and the region. The three product types fill a market need in the Tustin Legacy residential mix by providing for -sale residential products with price points that address a large segment of the population from first-time buyers through move- up buyers. The proposed project site will be the first development within Neighborhood D -South and is in an area located within easy access to the FLIGHT office campus and The District shopping center. Development of this infill area and the build out of streets and infrastructure will improve pedestrian and vehicular circulation between these planning areas and allow for the future development of adjacent parcels to occur. Brookfield constructed the Huntley product in the Greenwood residential project which consisted of 77 homes. Brookfield has proven to be capable of executing on development within Tustin Legacy as evidenced by the success of Huntley. In addition, Brookfield has demonstrated to staff its expertise, experience, and financial capability to execute this project by achieving success with the Agenda Report — DDA, Brookfield Southern California Homes LLC December 17, 2019 Page 5 design and construction of multiple residential development projects in Orange County and across the country. tFE h A. Buchanan omic Development Director 6 - 4-7- -/Z -- -- Christopher Koster Deputy Director of Development Services Economic Development Department Attachment: DDA between City of Tustin and Brookfield Homes Southern California LLC