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REPORT ON A MEMORANDUM OF UNDERSTANDING BETWEEN THE CITY MANAGER OF THE CITY OF CHULA VISTA AND THE CHIEF EXECUTIVE OFFICER OF THE HOMEFED CORPORATION REGARDING THE UNIVERSITY PARK AND INNOVATION DISTRICT
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RECOMMENDED ACTION
Recommended Action
No action required.
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SUMMARY
The report and attached memorandum of understanding between the City Manager and the Chief Executive Officer of the HomeFed Corporation is provided as an informational item to the City Council. The MOU outlines the progress of the negotiations and proposed business terms between the parties toward development of a Master Development Agreement for the University Campus and Innovation District.
ENVIRONMENTAL REVIEW
The Development Services Director has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that there is no possibility that the activity may have a significant effect on the environment because it involves only an information item with no action to be taken at this time; therefore, pursuant to Section 15061(b)(3) of the State CEQA Guidelines the activity is not subject to CEQA. The City Manager's execution of the MOU is also not an action subject to CEQA because the MOU reflects the status of negotiations on a project and is non-binding. Thus, no environmental review is necessary.
BOARD/COMMISSION RECOMMENDATION
Not applicable
DISCUSSION
In 2012, the City entered into an exclusive negotiating agreement (ENA) with the HomeFed Corporation to pursue negotiations for HomeFed to become the master developer of the University Campus and Innovation District properties. When considering development partners who are highly qualified to serve in the master developer capacity, City staff concluded that HomeFed is uniquely qualified to fill this role due to the following facts:
· HomeFed has been a significant landowner in Chula Vista for many years. The company owns approximately 2,800 acres in the Otay Ranch Planning Area, including 700 acres of developable land and 2,100 acres of open space for environmental mitigation. The company's core business in master-planned development gives it an understanding of demographic trends, sustainability, leveraging economic capacity and incubating small business.
· HomeFed has an approved Sectional Planning Area (SPA) Plan for Village 9, which is adjacent to the proposed university acreage and commonly known as University Village. That SPA Plan provides for up to 4,000 residential units and 1.5 million square feet of commercial development. The infrastructure of the university and University Village are planned to be fully integrated.
· HomeFed's interests are substantially aligned with the City's interests. HomeFed representatives and counsel have been working closely with city staff for almost three years and has utilized the professional consulting services of Baltimore-headquartered Ayers Saint Gross (ASG), one of the most respected architectural and planning firms for higher education institutions in the country. ASG has completed projects for dozens of leading universities, including Duke, John Hopkins, Notre Dame, Rutgers, Emory, and the Universities of Delaware, Maryland, Virginia and North Carolina. HomeFed has also contracted with U3 Ventures, a Philadelphia-based multi-disciplinary firm that specializes in integrating universities with their surrounding neighborhoods to achieve economic vitality and cultural vibrancy.
· The HomeFed team - along with staff from the City - have visited the campus and the president of Arizona State University in Tempe to study ASU's innovative educational model. In addition, the team has participated in campus tours and conferences with leaders from the University of Southern California, Claremont McKenna College, the University of California Los Angeles and Auraria Higher Education Center, Denver, University of British Columbia, Pennsylvania State University, Cornell Tech University, New York, Johns Hopkins University, Point Loma Nazarene College, University of California San Diego and San Diego State University. They have also attended the national conference of the Urban Land Institute (ULI) to study public-private partnerships and university structures and are part of the ULI University Development and Innovation Council. HomeFed Corporation has a proven track record of successful development.
· In contrast to many private companies, HomeFed Corporation's financial condition, executive compensation, and sources of income are all highly transparent. The company files quarterly and annual audited financial statements with the Securities and Exchange Commission (SEC) that include enhanced financial disclosure and forward-looking statements about the company. These reports facilitate the City Council and Chula Vista community monitoring the company's financial situation and ability to perform.
The purpose of the ENA was to provide adequate time to explore and negotiate the terms and conditions of a Master Development Agreement (MDA). The MDA is anticipated to be the instrument that will define how the University property will be planned, conveyed, controlled, financed and potentially disposed of in order to secure an institution(s) of Higher Education and an Innovation District. However, the development of the MDA has proven to be complex because of its need to define the roles, responsibilities and compensation of the master developer and the City without a university end user already identified or specific development plans for the University Campus or the Innovation District. In order to document the status of negotiations between the City Manager and the Chief Executive Officer (CEO) of Homefed, the parties have drafted a memorandum of understanding (MOU). The MOU is a non-binding outline of business terms for the MDA.
Memorandum of Understanding
The MOU is a written expression of terms between the City Manager and the Homefed CEO that serves to guide the parties in the development of a formal contractual relationship between the City of Chula Vista and the HomeFed Corporation regarding the exclusive right to develop 85 acres of Innovation District and a preferred right to develop the University Campus. While negotiating a contractual relationship, the city will continue to process a SPA Plan and Program Environmental Impact Report ("PEIR") for the approximately 375 acres that make up the University Park and Innovation District (UPID). The city anticipates completing SPA Plan and PEIR for this total acreage by mid-summer/fall 2015.
Organizational Structure
The MOU identifies an organizational structure for the recruitment and development of the University Campus and Innovation District that involves the creation of three new entities. The three entities include: (1) a nonprofit corporation to hold title to the City's land (Land Trust), (2) a development corporation formed by HomeFed (UDA), and (3) a non-profit university recruitment entity ("Chula Vista University Partners or CVUP). The proposed three entities will be formed in a manner to ensure each entity is focused on its core mission and responsibility, and subject to applicable legal requirements. The Land Trust will hold fee title to the City's property and will be responsible for the conveyance of City land to UDA or third parties for the development of University Campus and/or Innovation District eligible projects, in accordance with the master development agreement and certain goals to be approved by the City as part of the SPA and PEIR. CVUP will be responsible for (a) facilitating development of the University Campus, (b) preparing a comprehensive plan for founding or attracting an institution of higher education, (c) seeking and attracting potential projects for the University Campus, and (d) seeking philanthropic capital to help fund university development, all in accordance with certain goals to be approved by the City as part of the SPA and PEIR. UDA will be charged with the development and recruitment of partners for the Innovation District with an exclusive right to develop the Innovation District and a preferred right to develop the University Campus should the university need a development partner. All three entities are discussed in greater detail below:
A development corporation, University Development Associates (UDA)
HomeFed will form a separate legal development entity that will be given (1) an exclusive right to develop the Innovation District, and (2) a preferred right to develop the University Campus. In exchange for this opportunity UDA will commit not less than $5 million for funding all activities associated with the recruitment of a university or universities and development of the Innovation District, including certain City expenses up to $200,000 per year. In addition to this $5 million contribution, UDA will also share in the profit generated from approved development projects on a 90/10 split with the City receiving the ten percent (10%) share.
Innovation District Exclusive Right to Develop:
HomeFed's exclusive right to develop the Innovation District will be for an initial term of ten (10) years. During the initial 10- year term, UDA will be required to continue to fund the certain efforts of UDA, CVUP, the Land Trust, city staff and consultant's work on the project. The MDA will provide express guidelines and categories of expenses to be funded by UDA, which will be reflected in budgets to be approved by both parties. In addition, during this 10 year period, UDA will have the exclusive option to process projects for the Innovation District that meet specific goals for economic and public benefits to be described in the SPA. Upon approval of an eligible project and satisfaction of the conditions precedent, the Land Trust will convey that portion of the property required for development of the project to UDA, at no cost. The 10 year term can be extended for up to two (2) consecutive five (5) year periods provided UDA has met all of its performance obligations per the MDA.
University Campus Preferred Right to Develop:
In addition to having an exclusive right to develop the Innovation District, UDA will also have the preferred right to negotiate with CVUP for the development of the University Campus project. For example, should CVUP decide to select a master developer to develop the University Campus, or a portion of the campus, UDA will have a six-month exclusive negotiating period to attempt to reach an agreement for UDA to be the developer of the University Campus project. If the parties are unable to reach an agreement, then CVUP or the identified university can select an alternate development partner. Should UDA incur expenses for planning, development or other items that add value to the University Campus property, and these expenses were approved by the City Manager prior to the expense(s) occurring, than these costs would be treated as Recoverable Costs. Recoverable costs would be reimbursed to UDA upon conveyance of the University Campus property to third parties.
A non-profit University Recruitment Corporation, Chula Vista University Partnership (CVUP)
CVUP's main focus will be to recruit, solicit and attract institutions of higher learning to the Chula Vista University Campus. In addition to the University Development Goals to be included in the SPA, U3 Advisors and CVUP will develop University Recruitment Guiding Principles for consideration and approval by the City Council. Development of the University Campus must satisfy nine (9) University Development Goals to achieve a university campus for 20,000 students. These goals are set forth in section 1 of the MOU and will be included in the SPA.
CVUP will (i) facilitate development of the University Campus and ensure implementation of the University Development Goals, (ii) prepare a comprehensive plan for founding or attracting one or more institution(s) of higher education, (iii) seek and attract potential projects for the University Campus, (iv) adopt the University Guiding Principles, subject to approval by the City Council, (v) evaluate proposed projects to determine in its discretion whether such projects meet the University Development Goals in the SPA, and (vi) seek philanthropic capital to help fund university development. The City and UDA will participate with CVUP in evaluating the feasibility and development proposals for the University Campus. The conveyance of University Campus property will be subject to the approval of CVUP based upon the approved University Development Goals in the approved SPA.
The initial board of directors of CVUP will be appointed by the City Council from a pool of qualified applicants that will be compiled by the City Manager and CEO of HomeFed. Current elected or appointed officials or employees of the City or HomeFed will not be eligible to serve on the CVUP board of directors. After the initial appointment, the CVUP Board of Directors will be responsible for appointing future directors who meet the required qualifications of being recognized civic and/or business leaders or have significant experience in the higher education field.
CVUP's initial staffing will be U3 Advisors. U3 Advisors is nationally-recognized consulting firm that provides real estate and economic development solutions to universities and colleges, medical centers, non-profit organizations, foundations, local governments, developers and businesses pursuing public-private partnerships. U3 Advisors was formed through the merger of U3 Ventures and K. Backus & Associates (KBA).
KBA was established in New York City in 1997 with a core focus on providing project management services and expert real estate advice to academic and non-profit clients - including Columbia, Princeton, Cornell and the YMCA of Greater New York. KBA provides consulting services for Cornell on the development of New York Cities, Roosevelt Island, Cornell Tech University and Research center. Recently KBA was hired by the City of Carlsbad who is looking to recruit a graduate school that would offer upper level programs in engineering, software development, business management and life sciences.
U3 Ventures was founded in Philadelphia in 2006 by Omar Blaik, a former Senior Vice President at the University of Pennsylvania. U3 Ventures established its anchor strategy practice in the University City neighborhood of Philadelphia and quickly expanded across the country, working with philanthropic and anchor institutions to develop and implement place-based economic development strategies. Strategies implemented by U3 Ventures have contributed to the resurgence of Midtown Detroit, College Park, Maryland, and University City in Philadelphia.
The MOU contemplates that the City will enter into a contract with U3 Advisors for the preparation of the University Recruitment Guiding Principles that will eventually be approved by CVUP and the City Council. Upon formation of CVUP, it will enter into a three-year contract with U3 Advisors to provide principal staff support to CVUP and for preparation of a comprehensive plan for attracting institutions of higher learning. All costs incurred by CVUP will be paid for by the for-profit UDA, pursuant to approved annual budgets. The CVUP board of directors can terminate the agreement with U3 for failure to perform; however, during the initial 10- year term of the MDA the City together with UDA will recommend replacement staffing/management agent or the hiring of staff for the board's consideration. The CVUP board will make the final decision to pursue the recommendations made by the City and UDA or pursue their own staffing model based on available resources.
Land Trust
The Land Trust will be a non-profit corporation, formed by and under the control of the City, which will accept the conveyance of city land for University Campus and Innovation District developments. The Land Trust will hold title to the land and convey property, in phases, to the UDA for development of Innovation District property, based on the City's confirmation that the proposed project(s) satisfy the goals described in the SPA and PEIR. The Land Trust will also convey University Campus property, at the discretion of CVUP, either in phases or in total, to a university, to UDA for development of the university or to other third party developers for development of a university. The conveyance of land by the Land Trust is anticipated to be ministerial. The Land Trust will act in a capacity similar to that of an "escrow" company in that its function will be to review and certify that all required approvals have been received and conditions precedent to conveyance of Innovation District or University Campus property, as applicable, have been fully satisfied. Upon all conditions precedent being met the Land Trust will then convey the applicable property to the third party in accordance with the terms of the MDA.
The Land Trust initial board of directors will be appointed by the City Council from a pool of qualified applicants that were compiled by the City Manager and CEO of Homefed. The board will consist of no more than five directors and members cannot be current or former, elected or appointed officials or employees of the City or Homefed. Subsequent directors will be selected by the City Council from a pool of nominees submitted by the San Diego Foundation.
Next Steps:
There is still significant work to be completed in negotiating and drafting a final Master Development Agreement for City Council and HomeFed Board of Directors' consideration. The subject MOU represents a considerable effort of analysis, negotiation and cooperation toward the formation of an unprecedented public-private partnership that will be tasked with the successful visioning and development of the 375-acre Chula Vista University Campus and Innovation District. City staff and HomeFed will continue to diligently pursue the completion of the Master Development Agreement and city staff will continue the preparation of the SPA and PEIR for the University Campus and Innovation District property and proposed developments. Staff anticipates bringing the Master Development Agreement and entitlement documents to the City Council for consideration in mid-summer/early fall 2015.
DECISION-MAKER CONFLICT
Staff has determined that the action contemplated by this item is ministerial, secretarial, manual, or clerical in nature and, as such, does not require members the City Council to make or participate or other discretionary in making a governmental decision, pursuant to California Code of Regulations Title 2, section 18702.4(a). Consequently, this item does not present a conflict under the Political Reform Act (Cal. Gov't Code 87100, et seq. and FPPC administrative regulations thereto). Staff is not independently aware, and has not been informed by any Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City's Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. The MOU presented in this item contemplates a project that strongly supports the City's economic vitality goals facilitating the General Plan's vision for a university and innovation district (Strategy 2.1, Initiative 2.1.4) that provides educational and job opportunities for its residents. The project contemplated by the MOU also supports the promotion of quality master planned communities by creating a planning structure that integrates the university and innovation district with adjacent village SPA plans.
CURRENT YEAR FISCAL IMPACT
There is no current year fiscal year impact as a result of this report.
ONGOING FISCAL IMPACT
There is no on-going fiscal impact as a result of this report.
ATTACHMENTS
Memorandum of Understanding
Staff Contact: Eric Crockett, Assistant Director of Development Services