Mayor and Town Council
Roger L. Stancil, Town Manager
Ralph D. Karpinos, Town Attorney
General Development Agreement between the Town of Chapel Hill and the Ram Development Company
February 12, 2007
The purpose of this report is to review a draft proposed General Development Agreement between the Town of Chapel Hill and Ram Development Company. We provided this draft Agreement and most of the Exhibits to the Agreement to the Council and the public on January 29, 2007 (please see Attachment 1), along with an accompanying summary memorandum (please see Attachment 2). The agreement was posted on the Town’s web site. Drafts of the Exhibits A and D were made available to the Council and public on February 6, 2007. A draft of Exhibit E was made available February 7.
The attached resolution would authorize the Town Manager to sign the General Development Agreement and would appoint the Manager as the Town’s representative in connection with the implementation of the project.
The Town Council has undertaken a planning process for the downtown sites based on the Town’s Comprehensive Plan and Downtown Small Area Plan. The 2000 Comprehensive Plan’s goal for downtown is to “enhance the downtown’s role as the center of the community, with a pedestrian orientation and a human scale.”
The Council has made implementation of the Downtown Economic Development Initiative the number one priority in its annual goals. In developing the Initiative, the Council has involved the public in an ongoing process as the project has evolved, including the concept plan review in the spring of 2006, and a public forum on a revised Ram proposal on November 20, 2006 (see Summary of Project History in Attachment 3).
On October 24, 2005, the Town Council authorized a Memorandum of Understanding with Ram Development Company, which outlined the basic terms and conditions of the relationship between the parties for the future development of two downtown sites owned by the Town of Chapel Hill. The sites were Parking Lot 5 bounded by West Franklin, Church, and West Rosemary Streets, and the Wallace Deck site on East Rosemary Street, and the adjacent corner lot at Rosemary and Henderson Streets. The Council authorized the Town Manager, with the participation of a Council Committee, to negotiate a Development Agreement, based on the concepts described in the Memorandum of Understanding, for the Council’s consideration by March 31, 2006.
Subsequently, the Town Council extended the negotiating period until December 5, 2006 to allow the developer to revise its proposal based on changing economic conditions caused by increases in construction prices and rising interest rates.
The Town Negotiating Team brought forward a revised proposal for a Council public forum on November 20, 2006. The revised proposal focused on the development of the Lot 5 site only.
On December 4, 2006, the Council received a staff report addressing the comments made at the public forum and adopted a resolution authorizing the Manager and Attorney to work with the Council members on the Town Negotiating Team to complete a final draft Development Agreement based on the revised proposal for the Council’s consideration on February 12, 2007. Attachment 4 is a copy of the Council’s December 4, 2006 resolution. The Council asked that the draft Agreement be made public two weeks in advance of the meeting in order to give the Council and public ample time to review the Agreement.
On January 29, 2007, the Manager and Attorney provided the Council with the draft Development Agreement along with a memorandum summarizing the provisions of the Agreement addressing the Council’s comments on December 4, 2006. Below is a summary of the draft Agreement and Exhibits, and additional discussion and detail on these issues.
The Lot 5 project will consist of the following:
Key provisions of the agreement include:
The draft Agreement contains the following Exhibits:
Exhibit A, Land Condominium Declaration: This exhibit contains the form of the declaration for the three land condominium units that will be created on Lot 5 (the building, the public space, and the parking garage).
Exhibit A-1, Legal Description of Lot 5: This exhibit contains the legal description for Lot 5.
Exhibit B, Preliminary Site Plan, Schematic Drawings, Outline Specifications, etc. for the Project: This exhibit contains the preliminary site plan showing the locations of the public space, and preliminary elevations and floor plans.
Exhibit C. Deleted
Exhibit D, The Lease: The lease document is the ground lease agreement to be entered into between the Developer and the Town, in which the Town will lease to the developer the land condominium units. If the purchase option is exercised for $2 million, the lease would be terminated.
Exhibit E, The Guaranty: This document is a completion guaranty to be signed by Casey Cummings, President of Ram Development Company. Mr. Cummings is providing a personal financial guarantee of completion, in addition to the bonding that the Town is requiring.
Exhibit F, Ownership Interests in the Developer: This exhibit states the ownership interests.
Exhibit G, Designation of Project Coordinators: This section designates the respective project coordinators. The Town Manager would be the Project Coordinator for the Town.
Exhibit H, Residential Unit Use Restrictions: This exhibit provides the restrictions limiting the use of the condominium units to single-family residential use, and limits the occupancy of a unit to no more than four persons. See Article VII of the Development Agreement.
Exhibit I, Architect’s Certification Form: This form is the standard form of the American Institute of Architects used to certify completion of a project.
Exhibit J, Description of “Shell Finish”: This exhibit describes the meaning of the level of degree of finishing the retail spaces in the development.
Exhibit K, Expedited Dispute Resolution: This exhibit provides a method for resolving any disputes between the Town and the Developer.
This section provides additional information and reviews key issues discussed by the Council and Manager on December 4, 2006. Where appropriate, the Article and Section number of the draft Agreement are cited.
On December 4, the Council asked that the Agreement be specific about start and end dates, to reduce the risks to the Town of non-completion and any extended loss of revenue from having Parking Lot 5 be unavailable for use. The draft Agreement provides for specific start and end dates (see Article II, Sec. 2.3 and 2.4). The Scheduled Completion Date is defined in Article I, Defined Terms, as 24 months after the Developer has commenced construction of the project.
The Council also asked for detail on the performance bond requirements (see Article II, Sec. 2.4 (c), Sec. 2.19, and Article III, Sec. 3.4). The performance and payment bonds shall be on the full amount of the price for the Work. In addition, Article III, Section 3.4(b) requires that the construction contract provide for a separate payment and performance bond assuring completion of the parking garage and the public space.
The draft Agreement also includes a provision for liquidated damages if the Developer does not achieve substantial completion of the parking garage by the scheduled completion date (see Article II, Sec. 2.15).
The Council also discussed on December 4 the idea that there should be termination rights which provide for a deadline for starting, after which the deal would end. Please see the sections referenced above regarding starting dates and the Developer’s obligations.
The Town will pay an amount not to exceed $7.245 million for 161 public parking spaces on the first level of the underground parking deck upon completion of the project (see Article III). We propose a borrowing to pay for the spaces that will require the approval of the North Carolina Local Government Commission (Commission). We have sought advice from the Commission, and have received confirmation that our funding approach is reasonable.
We have learned from the Commission that it would be appropriate to hold the required public hearing and adopt the required resolution near the end of the project, rather than now. In the draft Agreement, the Developer will notify the Town 90 days in advance of the estimated completion date, so that the Town may undertake the required steps to receive Commission approval in a timely manner and be able meet our obligation under the Agreement to purchase the parking facility when it is complete.
On December 4, the Council asked for additional consideration of two issues related to the provision of 15 percent affordable housing in the project in accordance with the Council’s adopted policies. The Developer proposes that 21 one-bedroom units be provided in the project, with a square footage averaging 643 square feet.
After consultation with Orange Community Housing and Land Trust, the Developer and attorneys, the draft Agreement now contains language that the annual affordable housing condominium fees not exceed one and one half percent (1.5 percent) of the sales price of the affordable units plus utilities (see Article VIII). We arrived at this percentage based on an estimated calculation of what a household making less than 80 percent of the area median income for a one-person household could afford for housing (not more than 30 percent of gross income for direct housing expenses, including condominium fees).
Annual increases in the condominium fees for affordable housing would be indexed either to the Consumer Price Index or to increases in the median household income as published periodically by the U.S. Department of Housing and Urban Development, whichever is greater.
The developer proposes a contribution of $25,000 to the Town to develop a Town-wide policy on affordable housing condominium fees. If such a policy is then adopted by the Council, the developer would adhere to that policy in lieu of the 1.5 percent provision.
The Lot 5 development will include 21 affordable housing units. On December 4, the Council asked for options for providing parking for the affordable housing units. The draft Agreement specifies that the parking for the affordable units is the responsibility of the Town (see Article VIII).
We believe there are several alternate locations and options the Town could provide to accommodate parking for the affordable housing unit owners within close proximity of the Lot 5 development. Please see the location map in Attachment 5.
Parking Lot 4: Parking Lot 4 is located on West Rosemary Street adjoining to the west of the current IFC shelter. The parking lot currently can accommodate 17 parking spaces sited at right angles (90 degrees) to the street. Spaces are currently leased monthly at $85 providing a total of $1,445 per month or $17,340 per year.
The Town could make the existing spaces available for lease to the affordable housing unit owners. In addition, we believe that potentially additional spaces could be provided at Lot 4 with a modification of the lot layout to 45 or 60 degree angled parking, with provision of a turnaround.
Future Parking Lot 5: Future Parking Lot 5 will contain 161 public parking spaces. The primary purpose of these spaces will be to meet the transient parking needs for Franklin Street businesses. The Council may wish to provide parking to owners of the affordable housing units for a fee between the off-peak parking hours.
Parking Lot 6: Parking Lot 6 is located on West Rosemary Street east of the rear access to the Walker Funeral Home. The parking lot currently can accommodate 13 parking spaces sited at right angles (90 degrees) to the street. Spaces are leased monthly at $85 to Brown and Bunch providing a total of $1,105 per month or $13,260 per year.
The Town could make the existing spaces available for lease to the affordable housing unit owners. We believe that potentially additional spaces could be provided at Lot 4 with modification of the lot layout to 45 or 60 degree angled parking, with provision of a turnaround.
Pritchard Avenue On-Street Parking: There are currently five on-street parking spaces at the intersection of Pritchard Avenue and West Rosemary Street outside “La Residence” restaurant. Spaces are leased monthly at $85 providing a total of $425 per month or $5,100 per year. The Town could make the existing spaces available for lease to the affordable housing unit owners.
Recommendation: There are several options available to accommodate parking for the 21 affordable housing unit owners within a short distance of Lot 5. We recommend the Council make spaces available from these locations to the affordable housing unit owners.
We would lease one space in these potential locations to the purchaser of an affordable housing unit. We anticipate that the Council will need to make the spaces available at a subsidized rate. We suggest that the Council could offer the counter-cyclical use of Lot 5 spaces at a very low monthly rate or at no charge. Use of Lot 4, 6, or the Pritchard parking spaces would involve some degree of subsidy annually from the Parking Fund or General Fund. For example, using the current monthly charge of $85 per space, if the Town were to instead charge $25 per month, the subsidy to the Town would be $15,120 per year (assuming all 21 units had a car and chose a space in these locations).
We recommend continuing to develop a parking plan for the affordable housing, including potential rate charges, for the Council’s consideration.
The draft Agreement states that there will be an Agreement among the artist, the Town, the Developer’s lender (if required) and the body administering the Town’s Percent for Public Art program (see Article IX). The Developer shall expend 1 percent of the total development budget for public art.
On December 4, the Council added wording to its resolution authorizing negotiations to encourage LEED silver certification, with a minimum of 20 percent improvement to energy efficiency. The draft Agreement includes language that if feasible within the project budget, the project will achieve LEED silver certification, including a 20 percent improvement in energy efficiency as measured against the standard for energy efficiency established by the American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) (see Article XI).
The development of Lot 5 was originally considered as a joint partnership between the Town and a developer with shared equity and shared risk. Under that scenario the Town would have continued to engage the consultant services of Stainback Public Private Real Estate (SPPRE) to monitor and act for the Town to minimize the Town’s financial exposure and maximize its revenues from the development. With the rising cost of construction the development deal as now structured has changed and been simplified for Ram Development Company to build replacement parking and a public plaza for the Town. The public improvements will be provided to the Town at a fixed cost and Ram Development Company will bear the speculative development risk. With this change, the Town’s exposure has been minimized and the Town’s interest is limited to deck and plaza construction management. We believe we can manage and monitor the construction aspects of the parking deck development to protect the Town’s investment without services from SPREE. Instead, we recommend the Town contract for construction management services directly.
To protect the Town’s financial investment in the development, the Town Engineer in the Town’s role as a development partner will provide constructability reviews of plans to identify potential problems and offer solutions. To monitor those parts of the building that the Town is paying for so they are built adequately, we recommend that the Town contract for professional services to provide special inspections of the parking structure and public plaza. Town staff would assist with these inspections. The contracted inspector would work with Ram Development Company’s project engineer to protect the Town’s investments during design review and construction.
The most common method of determining the required budget amount for special inspections is by percent of construction. The range of 0.5 percent and 1.5 percent of the construction budget is commonly used throughout the state of North Carolina and in neighboring states as a predictor for fees associated with special inspection. The range of fees for special inspections is based on several factors that include type of construction, seismic design category, wind design velocity and exposure, use of registered fabricators, size of the project and project schedule.
The total construction cost for the Town’s level of the parking deck will be $7.245 million. The deck will provide 330 parking spaces on two levels. The first level will be the Town’s public parking, and the second level will be the Developer’s parking. We estimate the cost to the Town for special inspections would range between $75,000 and $225,000.
Recommendation: To safeguard the Town’s investment in the development, comprehensive construction inspection will be necessary. We recommend that the Town contract with a consulting firm to provide Special Inspection services for those parts of the Lot #5 project that are at and below ground level.
On December 4, 2006, the Council asked for additional information regarding the impact of the Lot 5 development on the cost of Town services. Based on our preliminary review, we believe that additional personnel and equipment will not be required for the provision of general Town services to the site after the completion of the development.
As noted above, there will be additional costs for special construction inspections related to the construction of the parking deck. In addition, we estimate that there will be increased costs of operating the new deck. For operating costs such as deck cleaning, lighting, and security, our preliminary estimate is that there will be about $80,000 in additional operating costs per year.
The Development Agreement also specifies the Town is responsible for maintenance of the public space (the upper and lower malls of the site). Our preliminary estimate is that maintenance costs will be about $15,000 per year for personnel and equipment.
After Council authorization, the Manager and Attorney would execute the legal agreement with Ram Development Company. The Town as Owner would then initiate steps to begin implementing the Town’s responsibilities under the Agreement.
At the same time, we understand that Ram Development Company proposes to submit an application for a Special Use Permit immediately (please see related agenda item regarding expedited processing on tonight’s agenda). In the Town’s capacity as regulator, the application would be reviewed in the normal process applicable to all development applications under the provisions of the Town’s Land Use Management Ordinance.
We recommend the Council adopt the attached resolution approving the terms and conditions of the General Development Agreement between the Town of Chapel Hill and the Ram Development Company, and authorize the Manager to sign the agreement and act as the Town’s representative in connection with implementation of the Agreement.
The resolution allows the Manager and Attorney to approve non-substantive adjustments to the language if they determine any are needed prior to execution of the document.
A. Land Condominium Declaration (electronic copy available on the Town’s web site)
D. The Lease
E. The Guaranty