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Navy nixes Point price break

Submitted by on 1, April 6, 2009 – 6:50 am12 Comments

alameda-point-jetWell folks, it sounds like the Navy was a little less than impressed by a joint SunCal-city proposal that would change the terms of the deal to convey the former Naval Air Station to the city – and specifically, with SunCal request for a $50 million break on the $108.5 million asking price for the property.

SunCal was selected as master developer for the Point in part because it would be able to meet the terms of the agreement already in place between the Navy and the city, including the purchase price for the land, per a March 16 letter from Laura Duchnak, director of the Navy’s Base Realignment and Closure office in San Diego, to Assistant City Manager David Brandt.

Duchnak wrote that the Navy was “disappointed” with the conclusions stated in SunCal’s business plan, which asks for more land and more development than envisioned under the previous Point developer. The current plan, which SunCal is trying to put on the November ballot, asks for up to 4,841 homes, many of which will not be Measure A-compliant, plus nearly 3.2 million square feet of commercial space and 350,000 square feet of retail.

“A very conservative approach was applied in many assumptions which significantly reduced revenues, increased costs, and placed downward pressure on the residual value … It is disconcerting that even after the back and forth between ARRA/SunCal, significant data caps (sic) (particularly Adaptive Reuse) still exist,” Duchnak wrote.

“While it would be our desire to quickly resolve the land value question and move on with conveyance, it is clear the process we agreed to follow in 2006 has become distorted and does not follow the fundamental terms of the agreed-upon term sheet,” she wrote. “Based on our initial review of the SunCal submittal, we do not agree that the current offer represents the fair market value for the property.”

The Navy is proposing that SunCal – whose financial stability raised “considerable concerns” – offer some cash up front, and some on the back end of the development in order to pay what it considers to be fair market value for the Point. A similar proposal was placed in a defense bill last year but didn’t make it into the final version of the bill.

“(W)e ask ARRA and SunCal agree to provide the Navy with an up front payment at conveyance and a percentage of all future gross land, residential and commercial building sales,” the letter said.

Alameda’s base reuse manager, Debbie Potter, said the city and SunCal will meet over the next few weeks to chew over the Navy’s letter and move forward from there.

“Our response is, let’s meet,” Potter said. “Let’s sit down and talk about what doesn’t work for us, and what doesn’t work for the Navy.”

A SunCal representative did not respond to an e-mail seeking comment.

I’ve gotten a number of e-mails, by the way, from folks who said they’re miffed about what signature-gatherers for the measure were telling folks this weekend. I’ll get more on that and follow up with you, soon.

12 Comments »

  • David Kirwin says:

    If the SunCal plan were to begin to get traction, SunCal would also request the 'Density Bonus" allowed by state law, and also recently approved by our CC. In effect it could raise the number of residences to 7,000.

    Their plan does not surrender their right to use the density bonus, does it?

    • That's an interesting question. I'll have to try to get a definite answer. Though I think the plan, if approved by voters, would represent the maximum amount of development allowed if I am not mistaken (and that's 4,841 units, including 186 for APC and 309 adaptive reuse. My, how that rolls off the tongue). And I noticed that the plan to be placed on the ballot lists the affordable housing set-aside as 15 percent/amount required by law rather than 25 (25 percent being the amount required in redevelopment areas per the city's inclusionary housing ordinance). I know the council is supposed to take up whether the lower that requirement to 15 percent from 25 as part of their discussion on density bonus, because at the current percentage, every project in a redevelopment area would qualify for density bonus.

  • Jennifer says:

    Could you post Laura Duchnak's mailing address in San Diego. Obviously she's trying to do a good job for the Navy and the U.S. taxpayer. Some of us might like to send her letters with a few pointers on how to make the best deal for the Navy!

  • Jon Spangler says:

    I am not too surprised that the Navy has refused to budge on the $108.5 million conveyance price for AP on the first go-round of the new administration. (One more long-lasting legacy of the Bush administration: a too-high cost for the former ANAS.)

    IMHO, the plan that may come before the voters would be the upper limit and represent the maximum development possible at AP. Any potential use of the density bonus would have to be mentioned up front in the plan before the voters cast their ballots or the matter would get tied up in court for years. And I trust the community to discuss the plan thoroughly before the election.

    In any case, SunCal's plan is the greenest plan proposed for AP to have made it this far. It is far more sustainable than APCP's mostly-single-family-home (Bayport-like, ugly as sin, but "compliant") plan was, and more economically diverse (and therefore likely to be successful) as well. Even if the Navy is insisting on being greedy, SunCal's plan looks like an economic and environmental winner, and is based on sound transportation and land use principles.

  • David Kirwin says:

    The 600 marina slips included in the plan – I assume can also be residences?

    …And State laws (incl density law) superced local ballot initiatives, correct?

    I believ the Denisty bonus caps at adding an additional 35% more units – correct, yes?

  • Richard Bangert says:

    I have read the March 16th letter from the Navy to David Brandt concerning transfer negotiations for Alameda Point. The stumbling block on the road to getting Alameda Point for $1 is the “current base closure laws” that require seeking “fair market value” for the land.

    The only reason this fair market value rule has not been rescinded is that the White House is not aware of the gross inconsistency between this rule and their ongoing economic efforts.

    The obvious conclusion from the Navy’s letter is that we will find help at the White House, not at the Department of the Navy in San Diego. Considering all that the President has accomplished so far, he should be able to change this “fair market value rule” in short order as part of his economic stimulus efforts.

    The City Council should invite our two senators and our congressman to a news conference at Alameda Point where you would lay out Alameda’s case for a no-cost transfer. The combination of news stories, letters to the President from our congressional delegation, and the introduction of legislation to amend the fair market value clause of the BRAC law would provide the political juice to get the transfer price down to $1. Sitting in a room with Navy negotiators is pointless. They are simply following the law.

    Even better than a simple $1 transfer of the base would be a cash back sale. I would propose the following: 1) Given that SunCal has $108 million at its disposal for purchase; 2)Given that an upfront cost of this magnitude in current economic conditions could unnecessarily burden the development with lower margins or higher sale and lease price points; 3)Given the previously mentioned burden, the ARRA could face pressures to take the development in directions not favored by the City of Alameda;. . .

    I propose splitting the $108 million and give SunCal a $54 million discount and direct SunCal to give the remaining $54 million to the Alameda Reuse and Redevelopment Authority to be used at Alameda Point immediately for an infrastructure project of our choosing such as a ferry terminal, or the sports complex, or a roadway along the length of the Northwest Territories so that other opportunities can be pursued.

    This proposal would help SunCal, and it would help Alameda. Alameda would be helped in two ways: 1) Infrastructure work that may take five to ten years to break ground could be started immediately; and 2) If SunCal is unable to carry this development through to completion, at least Alameda will have a major infrastructure asset to show for all our effort. A ferry terminal and marina would be an asset to Alameda even if nothing else were ever built at Alameda Point. The $54 million that I propose having SunCal give to the ARRA would be non-refundable. This would protect Alameda and also serve as an incentive for SunCal to carry through to completion.

    By the way, the jurisdictions around Fort Ord not only got Fort Ord property for no cost; they also received $100 million. I’m not sure how they managed to skirt the fair market value rule or who managed to get them a cash back bonus.

    I would further stipulate that if the Alameda Point ballot measure fails, any subsequent auction moneys received by the Navy should be given to the ARRA to be used for areas that will not be auctioned such as the Northwest Territories, roadway to the Northwest tip, ferry terminal and marina, etc.

    In light of economic and financial events of the past 12 months, I believe the ARRA should reject the concept of “upfront payment at conveyance and a percentage of all future gross land, residential and commercial building sales.” The goal of the BRAC legislation was to facilitate an orderly method for downsizing military expenditures. The goal was not to break even, or to make money on the land appreciation or to fund the clean-up efforts.

  • Anonymous says:

    " The goal of the BRAC legislation was to facilitate an orderly method for downsizing military expenditures. The goal was not to break even, or to make money on the land appreciation or to fund the clean-up efforts."

    The Navy will not come close to breaking even – that's the basic reason to or equire fair market value instead of land give-a-ways for developers. The toxic clean-up is costing the Navy many times more than the below market value price of $108.M

    Way back when it was thought that Alameda may get the land for $1 was when BRAC was trying to turn over the land primarily for reuse and job creation. APCP changed the plan would raze much of what was there to rebuild, not to reuse for industrial job creation. APCP increased the residential plan to 1800 homes. This by itself changes the parameters on the level of cleanup required at those residential sites. This doesn't happen free.

    The SunCal plan could result in 7,000 residences if or when the State-allowed density bonus kicks in. (I'm pretty d***ed sure the State law trumps local ballot measure.) That's a hell of a lot more cleanup being required. As taxpayers, why would we want the public money (Gov't $) to kick in more money for the benefit of the developer?

    Jobs are a better resource for our community than squeezing more residential traffic into our commute pattern.

    Employers = more tax dollars. Residential parcel tax dollars don't seem to beak even for the cost of public services, which is why the city is again going to be trying to raise local taxes again. More residences = more congested traffic & higher taxes, although it is good for the developers.

    Jon – please read the chapter on the Suncal plan on 'Sustainability" – it is clearly not a winner. Compared to what we now know about planning and building sustainable communities the SunCal plan is a monstrous loser.

    I really do not trust your opinion as far as the density bonus either. What is your legal basis? In case you have not noticed, mention of it was avoided in the ballot initiative. SunCal should have addressed it, and if they wanted to be clear that they would not invoke their right to use the density bonus, you can bet they would have stated such. I don't think their lawyers are stupid, do you?

    • You know David, I suspect that a big part of the squishiness around the density bonus stuff is due to the fact that we still in the process of approving an ordinance and that the percentage of affordable housing that will be required at the Point has recently become an open question (right now it's 25 percent, but city leaders are talking about reducing that to 15 percent). I think it would be difficult for anyone to concretely address a city law that hasn't become a city law yet. As far as those numbers, I'm working to get more information, so stay tuned.

      Also, I'd like to remind everyone that while I appreciate that folks are passionate about this and many other issues, I'd like to maintain a respectful tone around these discussions. No matter what happens with this plan, we all have to live here together for the next 30, 40, 50 years. Let's try to make 'em pleasant.

  • David Kirwin says:

    How about a new, up to date, current value assessment of actual value of land at Alameda Point? Would this be more ‘fair’ to all parties?

    SunCal has been given that option by the NAVY – Do you think they want to go in that direction?

    Perhaps if reassessed SunCal can explain why it is so valueless. They can quote many of the real reasons:

    1. It’s been terribly polluted by the industry of protecting the good ‘ol USA, and there aren’t even any maps showing where all the toxic dump sites are located. (Of course neither SunCal nor the Navy want to look too hard for them either – why create more costs, right?)

    2. The real limitations on development which makes profitability questionable. (they can cite their own extra reasons here.)

    3. The fact that the land will essentially be lost as it slips under the waves, or more accurately, as the waves rise over the Point.

    Given these consideration maybe it should just be utilized as is, just increasing the lengths of leases will enable tenants to make upgrades. Leases have already generated over $70 M, according to the Navy. Last year’s lease revenue was about $12M.

    As the waters rise in the next decades the marsh can be left to the egrets and their friends and in the meantime we can start building dikes for the rest of our city’s low-lying areas.

    "That old Navy base has sat unused and neglected for a long, long time."

    That base has earned the city $70 Million in lease revenue, – over $12M last year alone.

  • David Kirwin says:

    It is pretty clear that as with all laws, state law can stregthen or be more severe than federal law, but state law cannot weaken Fed Law (Like auto emmission standards), and likewise local laws can stregthen or be more severe than state law, but weaken it. Alamdeda can not adopt a density bonus law that undermines the State density bonus law, it must use the State law or stregthen it. There is no "squishiness" about that. I don't understand how the city can consider violating the lawsuit settlement by requesting only 15% affordible homes. Can you explain?

    • Yeah, I just learned about the settlement. As I said, I am working on getting answers.

      And as far as this whole state/local law thing, in theory that's true but in reality … well … how many years has it been since we were supposed to adopt that density bonus ordinance, exactly? :)

  • David Kirwin says:

    We don't have to adopt any density bonus – that's what leaves us with the state density bonus. (Which is likely what most cities in CA have done.) On the other hand if we do adopt our own local 'density bonus' it must match or exceed the state density bonus, not detract from it.

    Think of auto emission regs – there are fed regs, and all states can maintain those or exceed the severity of the regs as CA has done, but no state can lessen the severity of the regs.

    Or sales tax – the state charges a sale tax which counties can add to, but no area can less that tax. In essence as you move down the legislative 'food chain' laws can add to what has been passed down from above (fed, state, regional, county, etc), but the 'lower bodies of gov't' cannot countermand what has been approved from up the "chain of command."

    I really am not well versed with either state or city 'density bonus' – you may consider calling David Howard, perhaps the stat law provides some 'wiggle room' in allowing local standard to reflect local conditions, like say, traffic limitations caused by lack of available state funding for ingress/egress of an 'island city'.

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