14. Vallco Dev. Agrmnt.CITY OF
CUPERTINO
City of Cupertino
10300 Torre Avenue
Cupertino, CA 95014
(408) 777251
FAX (408) 777333
Community Development Depazhnent
INFORMATION ITEM
Agenda Item No. 14 Agenda Date: March 17, 2009
Title: Evaluation of the Vallco (Cupertino Squarc;) Development Agreement expiration
BACKGROUND:
In response to Council questions related to the August 2009 expiration of the City's
Development Agreement with Vallco (now Cupertino Square) malt, the following analysis is
provided.
The purpose of a Development Agreement (D.A.) is to give developers/owners of complex
projects greater certainty so that the project can succeed. Financing larger project usually
requires multiple lenders who require such certainty. In return, the City can lock in certain
guarantees whether in the form of money or public; amenities.
There are currently no indications from either of the two property owners of intent to apply for
an extension when the agreement expires in five ncon#hs. The City cannot unilaterally extend the
agreement, it must be mutual. If an application is received, staff will bring the proposal to the
City Council for consideration. Absent such an application, the development agreement will
expire on its own terms.
The Vallco Development Agreement was originally approved in May, 1992 when the mall was
owned by "Westland Properties, Inc." This agreement supplanted even older project approvals
dating back to 1974. The agreement was created i:n the climate of moving forward an ambitious
plan to expand the mall. Much of this plan has been executed, while other parts have been
completely modified, or dropped. A_ copy of the development agreement is available online on
the City's website by typing this shortcut into a we;b browser:
httn J/64.165.3 4.13/weblink7/Browse. aspx?startid==45 65
The current agreement was intended to vest development rights of the mall property, including the
Rose Bowl, and in exchange provide or preserve public amenities such as the Ice Rink, Park and
Ride area, and Child Care facilities. The agreement had a 15-year term, expiring in 2007.
Over the years there have been six amendments. 7"he most recent of which, approved on 1/I9/06,
extended the term to 8/15/09. Previous amendments added vested elements, including the Rose
Bowl, and noted changes of ownership.
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Garv Chao
From: Edward Chan [echan@kcrdevelopment.com]
Sent: Monday, March 16, 2009 3:49 PM
To: Steve Piasecki
Cc: Gary Chao
Subject: Development agreement
Dear Steve,
As you are aware, since acquiring the vallco properties, Cupertino Property Development has
been diligently working on the logistics of the Rose Bowl to make the plans
work_ Unfortunately it has taken longer than expected and as we approach the expiration of
the development agreement, we are finding that regardless of how fast our design team works
we will most likely be unable to meet the vesting requirements by the agreement expiration.
So we would like to request an extension of the development agreement_
Please let me know the required steps so we can start the process. Thanks for your help.
Best regards,
Edward Chan
KCR Development
1
Vallco D.A. Expiration Evaluation
DISCUSSION:
Page 2
From a City gerspective, the goals of the agreement have been largely advanced. The mall boasts
a successful new movie theater, two new parking gazages, and a future retail wrap around the 3.C.
Penney's garage_ This new retail space, approximately 40,000 square feet, is partially
constructed, and is deemed by staff as being vested. Thus, the retail space may be completed
independent of the development agreement status.
From a community benefit standpoint, the ice rink remains a vital part of the center, and is in no
imminent danger of closing. The Valley Transportation Authority has successfully transferred
their park and ride operation from the Rose Bowl site to the new J.C. Peimey's garage with the
full cooperation and support of the mall. The operation is viewed as mutually beneficial. The
child care facility has recently been relocated to a more convenient location and has been
significantly upgraded.
The two major outstanding elements are the development of the Rose Bowl site and a hotel on the
north-east parcel. These two sites (along with a third "out-parcel" at the north-west corner) are
now owned by a third party, KCR Development/Evershine Group.
Without a new or extended development agreement, the Rose Bowl entitlements and hotel room
allocation will expire. It is unlikely that this same project at the Rose Bowl site could be
approved today due to community concerns about housing density. The developer is working
diligently to vest the entitlements by having the project underway by the August deadline.
KCR/Evershine has not submitted a proposal for a hotel project. The current allocation of almost
700 rooms is now viewed by the City as being more than what is likely or necessary at this
location. Furthermore,- the remaining hotel allocation for the City has been depleted causing
recent hotel approvals to borrow allocation from the commercial category. A release of the hotel
rooms from the Vallco Project Area would allow for a more equitable distribution throughout the
City, without precluding a substantial hotel project at the malI_ If a hotel proposal were to be
submitted after D.A. expiration, the developer would need to obtain entitlements through the
regular process, allowing for community review which would probably be desired and wazTanted.
Orbit Resources is currently in bankruptcy proceedings as a result of along-standing dispute-with
their primary lender, Grammercy Capital Corporation. (See attached article.) If the City were to
negotiate a new agreement, it would make sense to wait until the bankruptcy issues are resolved,
especially if a new owner emerges.
One of the main provisions of the existing Development Agreement is full City cooperation in
development facilitation and timelines_ The City is committed this responsive approach
regardless of the agreement, and will do everything possible to contribute to the center's success.
As the City's only Redevelopment Area, this approach is within the City's best interest in order to
increase sales tax increment coming to the azea.
If the agreement expires, the following consequences have been identified. They include:
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Vallco D.A. Expiration Evaluation
Page 3
1. Potential future loss of an "annual payment" of approximately $100,000 that is triggered
after new retail space is constructed ov~sr a stated threshold just beyond what is currently
contemplated
2. Potential loss of market-rate and affordable horsing provided in the Rose Bowl
development
3_ Loss of strict guidelines that the Deve]'.opment Agreement outlines for "non-retail" uses
(which can be addressed through the zoning).
In summary, the current agreement is convolutc;d and out-dated, and there are no longer any staff
members who were part of the original negotiations. The agreement has evolved over time to the
point where it has Iost its relevance. While the City cannot extend the agreement without mutual
consent, it can always consider new agreements as they come forward.
Prepared by: Kelly Kline, Redevelopment/Economic Development Manager
Appro d
~~
Ste Piasecki
Co*rrrit~11ity Development Director
c`~%~± ~~
David W. Knapp
City Manager
Attachments
Exhibit A:
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- ~ VolLime 6t, Nuir'ber 12 • Maijcli q.; 2oog • Cu~xtii-io, C_ A • Fs_ t. tgq.7 • wwwcupertii~ocouriecoom
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-EMERGE FROM ~~` ~ -
- . - B UP'TCY - -
- .~~I~lK1~, . _-. , -
NEEDS REVIShO~T - _-. _~
. Judge wants rn~re - ' ~ _ _ -
issues addressed "_- - - - - -
. By CORY K32~ATZ - -
Cupertino Square's plan toreorgauize _-~
- its debt and erperge-£rom li8[*~1cr.,ptcy.is : -'._
- _ far from certain; a TJ.S. B ar,lzr„ptcy. COU~t =_
The tuall submitted in lath Tanuary a' - !
,_ pI'an and a disclosure statement; yyhich _ `- -
lays out all the facts of-thi case and the ' _
deal struck with credito=s; i3n%Eed ~opq--. --- - - ~ '
mercial.Bank and Gramerey-L`-`ap;tal .`
.Corp- It has' since amended. the 'cloou- - -
menu significantly_ - ~ ~ - - t;
Tudge Marilyn Morgan said at a Feb- ~ -
' hearing'that the mall's attorneys aced to --
revise and-cleats up the disclosure and"- -
plan before a 1~Tarch 16 heazirip_~SIie will - _ - - ,
consider approving the plan itself on -•
Apri123_ - -- _ -- ~ -
Theplan involves selling the malj to a -
shell compariy .called "Newco". that -
would be contrQlIsd by Orbit.~2esources
' and the mall's other- investors and -
- financed Iazgeiy'by Gramercy.: -
- "you should not assume t23at p~ddirig>
' - it with: words means that you're going to
have your compromise approved," said =
•Morgan. -
Among her concerns-were that the
attorneys glossed over a nearly yea= lo;ig
- batty in Santa Clara County Superior
Court between Cupertino Square and
Gramercy that has•been incorporated
into the bankruptcy case. She wants the
attorneys to include the parties' dainis,
objectigns, the cost of litigation and thq
strengths and weaknesses of the case. -
She also ciriticized the plan to sell the _
~c~uaxe -
Coil`Yinued from page 3
mall, calling it an "illusory oppbrtu-
~nity to bid at an audtion_" Newco
wouIdhave a$130millionc:reditbid,
giving it an edge over anyoth~r bid-
ders once it opeuedbiddingat $108-6
million_ She called for specialnotice
to any potentially interested buyers
An aftorney for a group of unse-
.cutedcreditors,whoar@subordinate '
Yo C3ramercy's claim,saidthe group '
- had~not det:ided Vv_hetheF it would.
¢TjPPorfthepIaa_TSiatgrotzpwz-IIt"'}P
'onwhetherto agproveit_ -
' 7x SnF+ardLappuig,ths mall's a~-
ziey;saidthatt7zemall's owners Have
miliionsofdollaisoathelin_ eandare
cages to have the case resolved
because until it is their plans to revi=
talizetheceate=azeinlimbo. -
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