Very long evening. We finished about 12:30. And after all was said and done, we did indeed vote to endorse Prop. 15.
Some other stuff happened as well…
Seriously, it was a good evening, with frank discussion and a lot of stuff finally put out on the table after months of closed session meetings and a legal prohibition on public comment. It’s a big relief to be able to talk about a lot of it, starting with the Nokia news yesterday. So this entry is probably going to be pretty long.
We started with a special order of the day to recognize National Public Works Week. And we passed the consent calendar with no items pulled (although I had to abstain on the previous RDA minutes, which were for a meeting that took place before I was sworn in). Then it was on to discussion of the Downtown agreement.
We had a presentation from the City Attorney about the history of the project, the legal standing, the way we arrived at the proposed agreement, and the details of the agreement. We then had some pointed and not-so-pointed questions. Some of them (including mine) were not so much to inform ourselves, as to inform the public about subtle points that may not have been clear. Remember that we’ve been discussing this in closed session for weeks, leading up to this, so in most cases, the seven of us understand the high-level details inside and out. But it’s a complicated enough topic that most of the questions were genuine.
Let me start by providing an Cliff’s Notes overview and a description of the players in this. The previous development team was a joint venture between Sand Hill (the “developer” – the bulldozer people) and RREEF (the “financer” – the guys providing the money). The venture was named DSMU – Downtown Sunnyvale Mixed Use. They started the project, with hard deadlines and penalties, and they were actually a year ahead of schedule, before the economic disaster hit. At that point, RREEF didn’t have the money to keep paying Sand Hill to do work, so they said “OK, we’re done” and walked away, leaving a $108 million loan from Wachovia unpaid. As a minority member of DSMU, Sand Hill had little say. So Wachovia started a “friendly (uncontested) foreclosure”, and the court appointed Jerry Hunt and another gentleman whose name escapes me to be the Receiver – in charge of protecting the value of the asset. A company called Wilson Meany was chosen to provide industry advice to the Receiver. Since going into foreclosure, the Receiver has authorized some $30 million of additional improvements to the project, paid for by Wachovia, mostly to finish facades and seal up the project. They didn’t have to do this – they could have slapped a giant plastic bag over the thing and left it at that. But they chose to keep working on the project.
The Receiver wants to take the project out of foreclosure, so that Wachovia can sell the project and recoup some of its lost investment in the loan that is in default. But no development team will buy the project until an updated agreement with the City is in place – they would be blindly accepting unknown terms that the City may try to impose, and that’s just not going to happen. So the Receiver wanted a signed agreement before taking the project out of foreclosure. The City, on the other hand, wants to know who will be doing the work and when they will finish it. Competing interests. That’s what got us to the tentative agreement last night.
First. we had a presentation from Jerry Hunt, the court-appointed Receiver of the project. He talked about the status of the project (much of what I just said), what they wanted, and what pressures they were operating under. The elephant in the room is Nokia. They want to make the new Downtown their consolidated home, moving people from multiple cities in Northern California (Mountain View, Redwood City, and others) all into the Sunnyvale Downtown. The challenge is that they want to do this by December of this year, and while they have signed a lease, they won’t start the moving process, and the Receiver won’t authorize the final work on Nokia’s office building, until there’s a signed development agreement in place. And without something in place very quickly, they’re prepared to walk away – possibly to Moffett Towers, possibly to a different city altogether.
So Council was left with three choices:
- Accept the deal immediately, clearing the way for the Receiver to sell the project to a developer, work to potentially start at any time, and for Nokia to come in.
- Accept the deal later, doing the above but probably torpedoing the Nokia relocation to Sunnyvale.
- Reject the deal, definitely killing the Nokia relocation, and returning the agreement to closed-session negotiations for rework and possible additional concessions.
That was the framework of last night’s discussion. While we could have accepted a modified agreement (and there was an attempt to do exactly that), the Receiver was under no obligation to agree to it, and the end result would probably have been the same as rejecting the deal and returning to negotiations.
There were two additional points worth noting. First off, we were not selecting a developer. While we have a veto in the ultimate choice, the bank will get to select who makes the most attractive offer, and it will put that developer forward for our approval. It’s their loan and their property. Second, the modified agreement included virtually no changes to the actual layout and physical appearance of the proposed Downtown. There are some minor changes. “Block 6″, which was going to be a multi-story parking lot, will initially be a ground-level parking lot, and its final disposition is still TBD. And the movie theater, which was initially going to be a second-story facility, is now a first-story facility. Those were the only really noteworthy physical changes to the project.
It’s also worth noting the process for this. Litigation and contractual negotiations are legally required to be done in closed session, simply because the City cannot hurt its own interests by discussing negotiating strategy in public – where the other side can listen in. So we’ve spent months going back and forth with the Receiver over deal points and contractual issues. It only came to the public hearing once we resolved all sticking points. So to an extent, this was nothing more than a public ratification of what we’d already agreed to – although we weren’t bound by anything yet. But the seven of us could have freely backed out of the deal, if that’s what we decided was best for the City.
Personally, I came into this listening for three things. 1) Have circumstances changed since we started this process, in such a way that the deal needs to be changed? 2) Did our negotiators strike a tentative deal that fell within the parameters we defined? And 3) did any member of the public point out any aspect, any detail, or any consideration that I hadn’t considered well enough and that warranted further consideration? Most of the aspects of the deal points had been discussed to death, and regardless of what concerns I may have expressed in the closed session, this is the direction that Council had chosen in closed session.
Anyway, more discussion. There was really only two types of feedback we received. One was from a number of Murphy merchants who felt blindsided by the lack of warning and opportunity for discussion. Some said they’d only had two days notice. I really regretted this, but it was somewhat the nature of the process. We couldn’t make them a part of the closed sessions. And Nokia’s schedule gave us a choice between seizing the Nokia opportunity or losing it and giving the Downtown merchants more involvement in the process. Given that Nokia will be providing the merchants with some 800 captive customers daily, I thought we were accommodating the Downtown merchants best by moving swiftly in this case. Additionally, since the amended agreement includes no real physical changes to the project, this is really just approving a project that they should already be familiar with. And we’re going to be working hard to walk the merchants through the amended agreement and make sure they understand all of it, going forward now. Under the circumstances, that’s the best we could hope for.
The second group was labor, who showed up to inform us that the construction industry is suffering 30-40% unemployment right now, and to tell us that it was important to them that we move forward on this quickly, to get people back to work. I knew things were particularly bad for that industry, but even so, the 30-40% number was a shock. My reaction to this was still somewhat mixed. I agreed with their sentiment that we need to move forward. Not only are they out of work, but existing merchants are in jeopardy of going under, the City isn’t receiving expected sales tax revenue, and City services are being cut. So there are many reasons to get the Downtown up and running as quickly as possible.
But the goal isn’t “finish the Downtown quickly” – it’s “get the Downtown up and successful as quickly as possible”. A completed but empty Downtown certainly helps the construction industry, but it doesn’t help the existing merchants, and it doesn’t help the City. So there’s a balance that we’re aiming for.
There was a third speaker element present – Peter Pau and representatives from Sand Hill, the former developer. They still want to finish the job they started, and it’s clear they feel strongly about this. They were worried that the City or the Receiver would craft an agreement that puts them at a disadvantage in some way. They believe their greatest asset is their ability to start and finish the job quickly. That’s probably appealing to the City, but it may be a non-factor for the Receiver, whose goal is to get the best possible offer for the project. I and others asked some pointed questions of the Receiver about this – what happens when the best offer is from a developer who is going to sit on the project for quite a while, as compared to the second-best offer? And I still don’t think we got good answers to this. It’s one area where the City’s interest and the Receiver’s interest are not aligned.
The public comment period closed after about two hours, and we then had more questions. Here were the real issues that we faced:
- Could we live with a somewhat restricted veto over any proposed developer?
- Could we live with uncertainty about not having dates certain for the start or completion?
- Were there sufficient incentives and penalties in place to motivate any developer to work quickly?
- Did we miss something?
There was an attempt to change the agreement to increase the importance of selecting a developer who can finish quickly – to make “timeliness” an even more important criteria than it already was. But that vote failed 2-5, largely because most of us felt that this was a breach of negotiating faith, plus a likely non-starter for the Receiver.
Then we had the final vote. And on a 6-1 vote, we agreed to the modified agreement.
As a result, the Receiver will start work on Nokia’s office space (which is already about 80% completed) quite literally today. I believe they said they expect to do about $6 million in additional work beyond the “interim improvements”, starting immediately. So downtown construction has already started. To be fair, since the bank has already done $30 million in work since beginning foreclosure, work really has been ongoing since this mess all started.
Let me try to describe how all of the pieces come together on this. We want the buildings finished and occupied by retail tenants ASAP. But retailers won’t sign leases in this market, certainly not “pre-leases” (leases for buildings that haven’t been finished). So we have incentivized this by placing a $5 million penalty for failing to meet a completion date, plus requiring quarterly progress reports. Any developer who comes in gets TIF (tax incentive money) for meeting certain milestones. We’ve required the new movie theater to be top priority, being finished by next year. And we’ve now brought in Nokia and its 800 workers, all of whom will need places nearby to eat, and all of whom would certainly shop right next to their offices more often than not. I believe we’ve created the strongest possible incentives for a developer to finish quickly, and the strongest possible incentives for a retailer to want to do business in the Downtown, given the economic conditions we’re in. And along the way, we’ve still got the exact same physical layout that we’ve already approved.
I feel very positive about this agreement. And I’m ecstatic that Nokia has chosen to move into the Downtown. I came out of this more optimistic about the Downtown than I’ve been in the past ten years.
Let me take a moment to say here that we have a really great team with our City Manager and City Attorney, and they did a very impressive job of bringing together three parties with different and sometimes competing goals. They put in very long hours over the past several months to make this happen, and I suspect more than anything, they’re responsible for Nokia being a player at all (which is a huge win and which I believe is a key element for the project being successful). It’s too early to start celebrating – we’re early in the process still. But we owe them a lot for the job they did on this.
We did have some other business…
At this point, Councilmember Swegles had to leave, because he wasn’t feeling well. Get better soon, Ron.
For item 2, we voted 4-2 to create a 5-person Sustainability Commission, meeting every other month, to advise council on best sustainability policy. Eligibility will be open to registered Sunnyvale voters, to holders of Sunnyvale business licenses, or to designated representatives from Sunnyvale companies with more than 200 employees, with at least one of the five seats occupied by a business representative. And Council will review the commission in two years to determine if the number of commissioners, the frequency of meetings, or other factors should be modified. There was some debate about whether we need a commission (policy advice) or a committee (operational advice). I’ve always believed that we need policy advice, because 1) the City’s operations only affect about 5% of the City’s resources and carbon footprint, 2) Staff does a pretty good job at finding best practices – once they’ve been given the direction, and 3) what is really missing is policy advocacy. Policy has to come from Council or commissions, and lacking a commission, policy has so far occurred only when someone’s managed to put a bug in a councilmember’s ear. By creating a commission, we institutionalize sustainability policy advocacy, which I think is the most important goal.
Item 3 was to conduct a required protest hearing to reauthorize the Sunnyvale Downtown Business Improvement District (BID). It sailed through with few comments or questions on a 6-0 vote.
Item 4 was to study changing the general plan to rezone property on De Guigne from industrial to industrial-to-residential with some unknown density. There was a fair bit of discussion about Sunnyvale’s housing needs, the appropriateness of the density (and housing) in this location, and other planning concerns. In the end, we approved the study, on a 5-1 vote (I think).
Item 5 was related, to rezone property on Duane from high-density to medium density. Not as much discussion, because 4 and 5 were linked, and most of the discussion happened earlier. This one was approved on a 6-0 vote.
At this point, it was after 11:00, and we rearranged the agenda, postponing 6 until the next meeting, and taking 9 next (because we had speaker cards for it).
Item 9 was to consider the City’s position on June ballot measures, with staff recommending the city support Prop 13 (seismic retrofit issues) and oppose Prop 16 (PG&E’s attempt to create a power monopoly by forcing jurisdictions to get 2/3 approval before doing their own power). The rest were deemed to not be city business. We did vote to support 13 and oppose 16, with virtually no discussion. They’re slam-dunks, and in particular, 16 is just evil. Worse for me personally, PG&E is trying to sell 16 by telling voters “you can’t trust elected officials to do their jobs right!”, which is just personally offensive – as if instead, we should trust a company that can’t even bill their customers properly.
But the real discussion was whether or not to endorse Prop. 15, which is a two-election trial of public financing of the Secretary of State race. Council was divided, in part whether it was a good idea and in part whether it’s City business. The vote ended up being 3-2 with 1 abstention, which created a 15-minute discussion about whether or not the vote had passed. The “3″ said “an abstention means ‘not even a body present for voting’, therefore there was majority approval”, and the “2″ said “an abstention still counts towards the voting body, therefore there wasn’t a majority approval”. After some research, the City Attorney confirmed that abstaining members do not count towards the voting body – it’s as if they left the dais and weren’t present. Therefore, the vote passed.
That was a tough one for me. I’ve personally endorsed 15. I think it’s a good experiment, it’s only for one statewide race for two elections, and it’s designed to be revenue-neutral. The question for me was whether 15 is city business. In the end, I decided that as a city, we’re increasingly hurt by the Sacramento gridlock that creates really bad budget decisions. And that gridlock is largely because special interest tends to foster safe, partisan seats (on both side) and discourage moderates who are willing to compromise. And Sunnyvale is better served (and, more important, harmed less) by a more effective Sacramento. So I supported it, and I suspect I was the swing vote, since the other two were firmly committed to it.
Item 7 involved approving a consolidated plan and action plan for CDBG and related expenditures, which passed 6-0 with little or no discussion.
Item 8 was to appoint someone to a Santa Clara County Cities’ Association spot, and we voted 6-0 to authorize Mayor Mel to make the appointment, which she promptly did (Otto).
That’s mostly it. Very long meeting with some interesting points. Really good news on the Downtown, I believe.