During its regular meeting on Tuesday, March 7, City Council will hold a work session to discuss the pros and cons of leasing versus selling buildings at Alameda Point in the area designated for repurposing old buildings for reuse.
The designated Reuse Area is a large swath of real estate extending from the aircraft hangars to Main Street near the ferry terminal. The work session was spawned by the Council expressing concern that it had no policy guidance upon which to make decisions on whether to lease a building or sell it.
Infrastructure upgrades needed
The driving force that will determine the long-term success or failure of Alameda Point is whether the City’s economic strategy can fund all new infrastructure, currently estimated to cost about $700 million, from streets and utilities to a levee system and parks. This figure is cited in “Alameda Point Disposition Strategy: City Approach to Leasing and Selling its Buildings,” a staff report prepared as Exhibit 7 for the March 7 presentation at the City Council meeting.
A more immediate incentive to generate funds for infrastructure is the City’s agreement with the East Bay Municipal Utility District (EBMUD) that requires all of the water lines be replaced by 2027.
In 2014, after deciding to no longer seek a master developer for the entire base, the City set itself up to be able to sell any of its Alameda Point property at any time by completing a Master Infrastructure Plan (updated in 2020), creating zoning districts, and producing an updated environmental impact report.
The objective was to sell large buildings or large blocks of property so that developers would directly install new infrastructure, as is currently being done at Site A. Or, as an alternative, the City would install infrastructure using the proceeds from the sale of several individual buildings, as is currently underway on West Tower Avenue and surrounding streets.
Leasing properties was never seen as the road to revitalization and new infrastructure after the year 2000. The City had briefly considered funding infrastructure by issuing bonds backed by lease revenue immediately following the Navy’s departure in 1997, but the idea was soon shelved as not feasible. In recent years, however, the City has returned to advertising reusable buildings for lease rather than for sale, harkening back to the early days.
At its March 7 meeting, the Council will hear a presentation from Keyser Marston Associates, a real estate economics consulting firm that was hired to provide an overview of how various combinations of lease revenue and sales of buildings might fulfill the ultimate goal of getting most of the property in the Reuse Area off the City’s books and onto the tax rolls. How would that work? Except for streets, parks, public tidelands that cannot be sold, and other public amenities, the City can sell all of the property it has received from the Navy. Once that happens, the City no longer has to be landlord, and the private property owner will then be paying annual property tax, which is better for the City than collecting rent from tenants that may come and go, or collecting no rent at all during vacancies.
The consultant’s report does not make a recommendation but includes an avalanche of data and a mix-and-match of options organized into four scenarios: (1) lease for 10 years and sell at the end of the hold period; (2) sell in Year 1 without a renovation by the purchaser; (3) sell in Year 1 with a subsequent renovation by the purchaser, adding assessed value; and (4) lease for 30 years with a renovation by the lessee and a sale the end of the term.
The report includes comparisons of cash flows generated by lease and sale scenarios at the level of an individual building, estimates of sale proceeds and operating revenues under a range of scenarios for disposition, and non-financial considerations including attraction of quality tenants and encouraging private investment into buildings while they are leasing.
While the consultant provides no recommendations on a preferred path forward, City staff does.
City Council to consider changing strategy
In a clear departure from the 2014 strategy, City staff is now proposing a strategy whereby buildings are sold selectively “as needed” to fund backbone infrastructure, “while also maintaining a portfolio of buildings for lease to continue generating ongoing lease revenue to fund maintenance and operational needs arising from the aging existing infrastructure,” Community Development Director Lisa Maxwell wrote in the staff report.
The meaning of “as needed” is anyone’s guess, given that the base has needed new infrastructure since the Navy left. And it is unclear how the City will be able to meet EBMUD’s deadline for new water lines four years from now, without aggressive sales of buildings.
The City staff report recommends that the City sell low-value buildings but retain high-value leasing assets, such as certain hangars. However, the consultant’s report noted an inherent dilemma in a “hands-off-high-value-hangars” policy. While these hangars can bring in a tidy sum of lease revenue for maintenance, they are also the most desirable properties to be sold. Selling would bring in an up-front lump sum that could be immediately invested in new infrastructure, thereby reducing the need for lease revenue for maintenance.
Selling low-value buildings presents a new problem, in that immediately after a small property is sold, it could take many years for the City to accumulate enough funds to upgrade the infrastructure for the new owner. The only way that the City was able to fund the major $31 million street infrastructure project now underway on seven blocks in the Reuse Area is through the prior sale of five high-value buildings.
The tilt in the strategy toward retaining high-value properties for leasing suggests they will not recommend accepting the recent offer of $24.9 million to purchase one hangar at the end of West Tower Avenue, which is of high value for both leasing and selling.
The work session will help determine whether some of the old buildings will get a new lease on life.
How to attend the meeting on the Reuse Area
The meeting takes place on Tuesday, March 7, at 7 p.m. Covid restrictions have been lifted, so the public can now attend City Council meetings in person at City Hall, 2263 Santa Clara Ave., 3rd Floor. The public can also comment remotely via Zoom video by registering ahead of time, or by calling the Zoom phone number: 669-900-9128. The meeting will be livestreamed and broadcast on cable TV government channels. See the agenda item online.
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