PURPOSE

The purpose of this report is to present to the Town Council a proposed Memorandum of Understanding between Ram Development Company and the Town for the Downtown Economic Development Initiative. The attached resolution would authorize the Manager to sign the Memorandum of Understanding and to negotiate a Development Agreement for consideration by the Council.

The Memorandum of Understanding outlines 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 are Parking Lot 5 bounded by West Franklin, Church, and West Rosemary Streets, and the Wallace Deck on East Rosemary Street.

After authorization of the Memorandum of Understanding, Ram Development Company and the Town would proceed to negotiate a Development Agreement based on the Memorandum of Understanding, for Council’s consideration by March 31, 2006. The projects would be subject to the Town’s Special Use Permit review process.

BACKGROUND

The 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 “implement and fund policies and programs to maintain and enhance the downtown’s role as the center of the community, with a pedestrian orientation and a human scale.”

The Downtown Small Area Plan adopted in 2000 identifies key “opportunity areas” for development downtown, including Town Parking Lot 2 at East Rosemary and South Columbia Streets, and Town Parking Lot 5, bounded by West Franklin, Church and West Rosemary Streets.

In 2001 and 2002, the Council undertook an extensive citizen participation process to involve citizens in planning for the downtown sites. In May, 2002, the Council received a report on the results of workshops held. Subsequently, the Council formed a Council Committee to plan for next steps, including the hiring of an economic development consultant to advise the Town Council.

In 2003 and 2004, the Council and the Council Committee worked on a process to develop Town-owned parking lot sites, including the Wallace Parking Deck and the adjacent property at Henderson and Rosemary Streets. The Town’s consultant, Stainback Public/Private Real Estate of Houston, Texas, developed a financial feasibility analysis with input from the Council, the Council Committee and the public.

On December 6, 2004, the Council authorized the distribution of a Request for Qualifications document to solicit statements of qualifications from development teams interested in submitting proposals for development of Town Parking Lot 5 and the Wallace Parking Deck and adjacent property. Six developers responded to the Request for Qualifications.

On February 28, 2005, the Council approved issuance of a Request for Proposals to five of the six developers. On March 7, 2005, the Council authorized issuance of the Request for Proposals document. Two developers, Ram Development Company of Palm Beach Gardens, Florida, and the team of Grubb Properties of Charlotte and LeylandAlliance of Tuxedo, New York, responded by the May 2, 2005 deadline.

On June 15, 2005, the Council authorized the Manager to conduct negotiations with Ram Development Company. The Council resolution authorized Council Members Strom, Greene, and Hill to be on the Town Negotiating Team. On June 27, 2005, the Council authorized an Exclusive Right to Negotiate with Ram Development Company until October 24, 2005. On June 20, June 29, August 18, and September 19, the Council also held work sessions with Ram Development Company on key project design issues.

DISCUSSION

The Town Negotiating Team began work in early August 2005 and reported to the Council in a discussion of remaining negotiation points and considerations in a closed session on October 12, 2005. The proposed Memorandum of Understanding (please see Attachment 2) incorporates adjustments from that meeting, has been reviewed by the Ram Development Company, and is acceptable to them.

Key Provisions

Please see Attachment 1 for a summary of the provisions of the Memorandum of Understanding. Please see Attachment 2 for the full text of the proposed Memorandum of Understanding.

The Memorandum of Understanding outlines the basic terms and conditions for developing Parking Lot 5 bounded by West Franklin, Church, and West Rosemary Streets, and for placing development on the existing Wallace Deck and adjoining property on East Rosemary Street.

Ownership: The Town will retain ownership of the land and lease the properties to Ram Development Company for 99 years. The lease may be extended for an additional 25 years upon payment of additional fees between years 70 to 72 of the lease.

Mixed Use Development: On the Lot 5 site, Ram Development Company proposes to build approximately 124 residential “for sale” units and 24,000 square feet of net leasable retail space in three buildings. Ram would provide about 31,000 square feet of public open space, and would provide at least 400 parking spaces, of which not less than 375 would be provided in an underground parking garage.

On the Wallace Deck and adjoining site at the corner of Henderson and East Rosemary Streets, Ram proposes to build approximately 109 residential “for sale” units, and 6,000 square feet of net leasable retail space. Private courtyards for residences would be provided.

Public Space: The Town and the developer would manage the programming of public space on Lot 5 for the first two years after the project is built, with the Town thereafter assuming primary responsibility. The Town would be responsible for hiring an events coordinator. The developer will contribute $200,000 toward the programming of the public space. The Town will manage the open space in the same manner as the existing public space at the Old Post Office in downtown Chapel Hill.

Affordable Housing: The developer proposes that 15 per cent (35) of the 233 residential units will be affordable. In the event more than 233 residential units are provided, the developer will provide 20 per cent of the number of units over 233 as affordable units.

Parking: The Lot 5 parking garage will consist of at least 375 spaces, of which 173 will be replacement spaces for the existing surface lot, 150 will be leased by the developer for owners of residential units and retail tenants, and 35 leased for affordable housing spaces. Additional parking will be provided on-street. The developer will lease up to 55 parking spaces at the Wallace Deck for residents and patrons of the project.

Town’s Investment: The Town will receive prepaid revenues from the Developer for the long-term leases totalling a fixed amount of $7.9 million. The Town’s costs of the project will equal $7.9 million for the construction of the improvements to be owned by the Town, and $500,000 to support parking for the 35 affordable housing units. The developer will provide the Town a fixed price for construction, and will bear responsibility for cost overruns.

The Memorandum of Understanding also provides that the Town shall be responsible for the costs of any environmental remediation. We do not expect significant remediation costs based on information known at this time.

Other Provisions: The Memorandum provides that the projects shall be designed and constructed consistent with the requirements for Leadership in Energy and Environmental Design (LEED) certification, shall be LEED-certified, and if feasible, achieve Silver certification. The developer’s budget includes 1 per cent for public art.

Comparison of May 2, 2005 Ram Proposal with the Memorandum of Understanding

Attachment 3 contains a comparison of the key provisions of the proposal submitted by Ram on May 2, 2005 with the proposed Memorandum of Understanding. Attachment 4 presents key facts through numeric comparison of the original proposal and the proposed Memorandum of Understanding.

NEXT STEPS

Attachment 5 details the steps in the process to date. Upon the Council’s authorization of the Memorandum of Understanding, the Town and Developer would proceed to negotiate a Development Agreement by March 31, 2006. We plan to bring the Council a proposed budget amendment to provide for additional legal services at the Council’s November 9, 2005 meeting.

Ram Development Company would continue to refine its concept plans with the goal of completing and submitting to the Town a concept plan for review by December 15, 2005. Marvin Malecha, Dean of the College of Design at North Carolina State University, will meet with Ram Development Company representatives to conduct a peer review of the project design on October 26, 2005.

The Developer contemplates submitting an application for a Special Use Permit by February 15, 2006.

RECOMMENDATION

The proposed Memorandum of Understanding would document in general, the terms of an agreement of the Town and Ram Development Company with respect to the overall approach to a contemplated future Development Agreement.

We believe the willingness of Ram Development Company to provide a fixed price for the Town’s investment is a favorable arrangement for the Town of Chapel Hill. Ram Development Company would assume all the risks of potential increases in costs both for its private components and for the public components of the project.

The project has the potential to stimulate additional development within the downtown to help meet the Town’s Comprehensive Plan and Downtown Small Area Plan objectives of enhancing downtown as the center of the community. It will also enhance the objective of creating a downtown with a true mix of uses by providing a significant amount of residential units in downtown. New residents, in turn, would support the businesses and services existing in downtown, as well as support those created in the future. We estimate the project will generate new property tax and other revenues of over $500,000 annually when both sites are constructed and occupied, using today’s tax rates.

We recommend the Council adopt the attached resolution authorizing the Manager to execute the Memorandum of Understanding with Ram Development Company, and authorizing the Manager to negotiate a Development Agreement for the Council’s consideration by March 31, 2006.

PURPOSE

ATTACHMENTS