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HomeMy WebLinkAbout10011973CITY COUNCIL MINUTES Monday, October 1, 1973 The City Council of the City of Palo Alto met on this date at 7:35 p.m. in a special meeting with Mayor Comstock presiding. Present: Berwald, Clay (arrived 7:40), Comstock, Henderson, Norton (arrived 7:59), Pearson, Rosenbaum, Sher Absent: Beaters Re tar Meet.in of October 9 cancelled Committse of the ir'hQle meetin serhedu ed Mayor Comstock announced that the next regular meeting of the City Council has been cancelled due to Monday's being a holiday for Veterans' Day. On Tuesday,, October 9, the Council will meet as Committee of the :"hole for the purpose of reviewing the Drug Evalua- tion Report with PACDAB and members of the Evaluation Team. October 15 will be the next regular husiness meeting of the Council. _Old Police/Fire Builclir - va tea (,;l o LeasE! PxopuSals (C R:9Cr8;3) y Mayor Comstock noted that tonight's special meeting is being held for the sole purpose of considering the Old Police/Fire Building lease proposals. Mayor Comstock advised that he thought it appropriate to proceed with the meeting in the following order: 1. presentations by the proponents) 2. hear from members of the audience who wish to speak to individual proposals) 3. staff to summarize information; and 4, discussion from Council members, Mayor Comstock referred to the report from the City Manager which summarized the proposals from the following proponents: Law, Woodson, Hammond, et al) Ass Bron - Thomas touma, et alt and Richard M, Nieto, et al. He noted that Council has received a number of reports and letters and submittals from individuals. Also, at the Council places tonight were copies of a letter from Robert Nikkei., written in support of Asa Bron's proposal. Mayor Comstock then called on a representative for Law, Woodson, Hind, et al to speak. No person responded at that time. He then called on Asa Eton to speak to his proposal. Asa Bran, 4191 El Camino o Real, stated he would like to hear about the other proposals first. Mayor Comstock asked the ropresentetivee of Richard M. Nieto to make their presentation. 2 2 5 10/1/73 Richard M. Niet.o et al Prcposalt Timothy J. Ward, Attorney, 48 Park Road, Burlingame, stated that the Nieto proposal is the result of approximately four years' effort on the part of his client. He said that Mr. Nieto's motivation is his desire to have an authentic Mexican restaurant. Also, he comes from a restaurant family and his father owns and operates a Mexican restaurant in Monterey. He explained that Lew Litzie, the architect, will slake presentations and would discuss the overall concept of the proposal. Then, Mr. Carner, the other architect, will show slide exhibits and architectural renderings with emphasis on the floor plan. Mr. Pete Liiverez, director, Western Economic Development Corporation (WEDCO) and Mr. Avel G. Sustamente, consultant with WEDCO, will discuss the economics. He said they have vast experi- ence in finances. Finally, Mr. Nieto will express in his personal terms hie own comments. After hearing these t entlemen, he concluded, the Council cannot help but feel that the staff report is correct when it states "It is recommended that the City Council 1) select Mr, Nieto's proposal and direct the staff to negotiate a complete lease document by and between the City and Mr. Nieto, and 2) refer the matte, to the Finance and Public Works Committee for full re- view at the earliest possible opportunity." Lew Litzie, Architect, Fresno, California, stated that not often does one find a historical building that lends itself to such a use without affecting the original design. He said his company decided to take the project on after seeing the Old Police/Fire building and meeting with Mr, Nieto. Because of the flavor of this building and of the —community and the State of California, it is their feeling that a Mexican restuarant and complementary uses represents the best use for the building. The theme is the Mexican restaarant with a patio and cantina, and wine tasting room along with supporting shops on the grc+anti floor and rental epaces and community space on the second floor. He referred to the site plan noting that there may be some controversy regarding Cogswell Plaza. Rather than a parking area between the building and the park, Mr. Nieto's proposal suggests bringing the park right up to the building and these two entities, building and park, sees to make more sense. Dennis Corner, Architect, presented slide exhibits and architec- tural renderings. He noted that basically all the exterior will require will be painting and restoration. The first floor will have the restaurant, patio and shops. The second floor will be for office space and the largest portion, 1200 square feet, is set aside for community space as required by the city. He explained that in order to bring the building up to code, another exit is needed from the second floor and they are proposing to construct an exterior stairway in keeping with the original character of the building. fie continued that the basement portion will be the wine tasting area. This will work extremely well in conjunction with the restaurant on the first floor and the two tunctione are com- patible from the standpoint of tradition of the wine tasting indus- try in California and its heritage in the Spanish/Mexican/American influence. The interest of the people visiting the building will be satisfied by both t=hese facilities. Pete oliverez, executive director of Western Economic Development Corporation. (3EDC0) , 4000 $roadway, Oakland, explained that he met Mr. Nieto about five months ago and became acquainted with his plans. WEDCO staff aid he personally became quite interested in the project and were pleased with the support and enthusiasm that 2 2 6 10/1/73 Mr. Nieto has for this proposal. He said as management consultants WEDCO looked at the project from a practicable standpoint and con- sidered its feasibility. Based on the estimate from the architect and preliminary estimates from builders, WEDCO feels that this project is feasible. Also, they have talked to various funding in- stitutuions and Small Business Administration and have been assured that if it is feasible, funds are available and it can be funded. Mr. Nieto has done a good job of raising his share of the funds and as soon as they have a more definite figure on the cost of construc- tion, and a definite commitment re the lease of the building, then they can proceed to package the project in final form and take it to various financial institutions. He said that one of the best things in this particular case is the fact that Mr. Nieto, a small business man and a minority group member, can get a guaranteed loan from SBA. Mr. Oliveree noted that WEDCO looks not only at facts and figures, but also considers whether the client has management ability and knowledge of the business. They have found .;hat Mr, Nieto has approached this project like a good businessman would and he has put together a good team. He already has various financial managers available, and WEDCO would commit themselves to assist him for as much as a year. This is another plus in his behalf, Avel Bustacente, consultant with WEDCO, 4000 Broadway, Oakland, said in relation to a restaurant being a profit -making entity, the type of food that it is proposed to serve in Ma. Nieto's establish- ment would be highly profitable. He said that his own experience in this type of restaurant concerns The Pruneyards in San Jose, a restaurant which made a profit of $70,000 last year. WEDCO esti- mates food sales of $300,000 for first year of operation, plus bar sales of $150,000, These figures are very meaningful. He said he feels Hz. Nieto's proposal is a vary highly feasible project and can be euccessful. Richard M. Nieto, 951 Dennis Drive, thanked the Council "for the last four and one-half years," stating that preparing this proposal and working with the City has been a tremendous education for him. He said he also wished to publicly make a statement of thanks for the unbounded help given hint and his family during this time. Mr. Nieto continued that tonight his group has brought to the Coun- cil the best possible presentation that can be made on a "before the fact' action. He noted that the plan includes space for com- munity use and also plans for the social conscience of the people of Palo Alto. It pans for sound financial returns to the City, and he and his partners hope to bring people back to downtown to shop, and to tell the nation that here in Palo Alto there can be progress together with respect for the town. He referred to El Palacio de Luz de Oro as the American Dream, conceived in pride of Palo Alto` s history, born of devotion of that dream, raised with the faith of the people of this town, and brought to Council to- night, as our chosen leaders, for graduation in the realm of com- munity vision to civic reality. He concluded by saying "Let the word go forward over all the media that this night, this Council, with the support of all the people of Palo Alto, lit the lanterns of El Palacio de Luz de Oro to shine as a beacon for all to believe. in the American Dream. The dream that every man can, with substan- tial support, belief in himself, strop:s amoral character, and family and friends, succeed." He then thanked the Council for their time. 2 2 7 10/1/73 Lee p. 276 Mayor Comstock asked if ther 'embers. Councilman Henderson asked and S.B.A. guarantee. He report, bottom of page fo obtained from S.B.A. a t balance of the investinen viding the remainder of the amount of the load e were any questions from the Council for clarification regarding the loan said further he was confused by the staff ur, which states "WEDCO ... has reportedly entative 90 per cent loan guarantee for the t totaling over $500,000 with Mr. Nieto pro - the equity capital." He asked if this means will be $500,000. Mr. Litzie responded that in all financing, banks will not give full commitment until they receive a full proposal. The banks have expressed interest so far but the S.B.A. will not guarantee a loan until the bank requests that guarantee. He advised further that the guaranteed loan will be in the area of $350,000 with private sources contributing approximately $150,000. The total estimate is one-half million dollars. This figure may be a little high as they have not yet produced the completed plans for a final bid. Councilman Mend pancy of the r Mr, Litzie e aspect and t tive cooitm Vice Mayor iitments Me. Sipel property Counci by WE DC erson asked how firm were the commitments for occu- ental. space. xplained that. they have had a realtor investigate this alk to various clients and there have been same ter;ta- ents made. asked City Manager Sipel if there are any cocn- on the part of the City to hTDCO or S.B.A. responded that the only commitment is the delivery of the as part of the agreement. loran Rosenbaum asked for clarification as to the role played ir:DCO, their connection with S.B.A., and is it necessary that project require a S.B.A. guarantee. 4r. Litzie explained that WEDCO is a management consulting first. They have a contract with the U. S. Department of Commerce to pro- vide technical assistance to minority and other t ocially disadvan- taged small businessmen. They are paid by the U. S. Department of Commerce, Office of Minority Business Enterprises. The client does not pay thee for WEDC4's services. Mr. Nieto qualifies as a client, fiend therefore, WEDCO is assisting him As to the S.B.A., Mr. Litzie said that the Small Business Administration is a special Agency set up by the government. It is separate from the Department of Com- merce. It guarantees; loans through banks up to $350,000, at the existing interest rates. He continued that most of S.B.R. trans- actions are guaranteed leans made through banks as theze is very little direct money available. Councilman Rosenbaum asked further if WEDCO has spoken with any lending institutions and if they were local institutions. Mx. Litzie replied that they spoke with one local agency but loans of this size are igualiy approved at the regional office so most times WEDCO contacts the bank's regional office and then it is processed, perhaps, through a local. bank. He said WEDCO's role with S.B.A. is that it is a guaranteeing lending agency available to their client. 2 2 10/1/73 Councilman Rosenbaum reiterated that, as he sees it, essentially there is no financing available at the moment, and even if the pro- posal were approved tonight, it could fall through. Mr. Litaie replied there is always that possibility; however, there is some private financing available which is part of the total money needed for the project, and based on WEDCO's opinion of the project, they feel the project is feasible. Councilman Clay inquired regarding Mr. Nieto'o business experience. !4r. Ward explained that Mr. Nieto's family has run, and he, himself, has assisted in running, his father's restaurant in Monterey. Mr. Nieto added that his personal specialty in the whole project was a concept of an authentic restaurant. His business expertise has been studied by staff. His mother will be available to advise and assist with the program. They plan to hive the most authentic Mexican staff. As fax as experience in management, he was a con- sultant to and has been running his father's restaurant in Monterey in his absence during the last four years. In answer to Councilman Clay as to when the financial projections for the proposal were made, Mr. Nieto advised that the $300,000 faro sales figure was projected in early June, 1973, and that the estimates are well within the range of considered profit margins. Councilman Clay asked if the increased interest rates or costs of building has affected the proposal. Mx. Nieto answered that increased assts will affect the proposal if the delay is continued. Since Jure the interest rate has increased one and three-quarter percent, Bassi on a $500,000 loan, this amounts to $3$,0000 additional interest payments over an extended lease period. He said in spite of this he is not ready to reduce his commitment to the City and is prepared to go for the greater demand of funds. Councilman Clay asked how much beyond the present estimate might cost of the project go. Hr. Oliverer advised that they have been vary cautious, that ac- tually the project may cost less than $500,000, and they have antici- pated the inflation and have come up with an overall estimated figure of $450,000. If costs go over $500,000 they would have to raise more private ca►.ital and they are very confident as to the availability of private investment. Councilman Sher caked Mr. Sipe]. if the City has a standard for the lessee to meet regarding what must be done to the building to bring it up to Code. If so, what is the dollar amount involved. Mr. Sipel replied that an extensive study was done by the archi- tectural firm of Hawley & Peterson and a group of structural engi- neers and as a result of their findings it is staff's general feel- ing that it would colt roughly $250,000. These figures were developed in late 1972 and were made available to all persons submitting pro- posals. He said that figure covers only the cost to bring the building to code and does not include decor, etc. Also, it does not reflect accurate construction costs at this time. 2 2 9 10/1/73 Councilman Sher asked Mr. Oliverez what happens if the payments cannot be met. What happens to the building? Does the S.B.A. try to put someone else to protect its investment or do they just pay off the debt and return the property to the City? Mr. Oliverez responded that if anything happens to the initial in- vestment the property is, of course, the City's; and is not being encumbered in any way. As far as the lease goes, they have other programs that they can go to. Alec', they have talked to S.B.A. about a lease guarantee to the City which may be available. There would be two separate guarantees, one :or the loan and one for the lease. Councilman Sher asked what happens if S.B.A. has to make good its guarantee to the bank and the proponent would not be able to carry one. How does S.B.A. protect its guarantee. Mr. Oliverez said that all envable equipment of any value would be taken by the bank. The leaseholder's improvements would remain with the building which is owned by the City. It is important to note, he said, that Palo Alto cannot lose. The City would get $500,000 improvements in the building, in any case. Councilman Sher then asked if S.B.A. would be able to put someone else in to operate the lease. M.r. Oliverel said the hank night, but things such as that would be part of the negotiations of the lease. Mr. Sipel said that would be a natter of contract negotiation and the City would protect itself against such eventuality and would have the final word as to a successor to Mr. Nieto. In answer to questions from Councilman Sher regarding Mx. Nieto's commitment, Mr. Ward advised that when the City signs the lase, klr. Nieto is obligated for the duration of the term, and the terms of the lease are not contingent on obtaining financing. Councilman Sher then asked if obtaining a liter license is a neces- sary condition of the lease. Mac. Wards replied that the staff report, page two, item 5, states "The City to not oppose a liquor license, but not to guarantee the availability of a license." The availability would be up to the Alcoholic Beverage Control Board and also proper zoning from the city. He said it is his understanding that the city would not oppose issuance of such a licence, therefore there would be no problem with the zoning. In terms of applying to ABC, nothing can be done until the lease is signed. Councilman Sher asked if the profitibility and feasibility of the project is dependent upon obtaining the liquor license. Mr. Nieto replied that the success of the project is based on the restaurant, but the bar will add sales revenue. Councilman Henderson commented regarding the difference in figures es to estimated income per square foot. The Nieto proposal states the approximate 9, 000 squaze feet of building remaining, not in- cluding patios, would yield 300 per sq. ft. per month; the staff report states 650. Hs asked which is the correct figure. 2 3 0 10/1/73 Mr. Nieto said the staff report of 650 per sq. foot was compiled after discussion with the city's consultants, who made a comparison study of downtown and equivalent available spaces. The figure in the original proposal is an exceedingly conservative figure. Mayor Comstock then called upon Asa Bron to rake his presentation. Ass Bron - Thomas Douma, et al Pro aaI Mr. Bron stated that he was impressed with the Nieto presentation. He said that he, too, is in the restaurant business and feels he can do the job. He then called upon supporters present in the audience to speak on his behalf. Marion Alexander Frutschi, 543 Center Drive, stated that she has been intexested in seeing a good restaurant and, more than that, a community development in the downtown area, where all age groups could feel at horse and be comfortable. In her opinion, any proposal for the Old Police/Fire building represents an enormous job and she would suggest that the City of Palo alto should pay the $250,COO for bringing the building up to code. Further, anycne who under- takes such a development will need a great deal of .>xperience and the help and close cooperation of the Planning Cormi3sion and Archi- tectural Review Board. She continued that she gathered the S.B.A. assistance available to Mr. Nieto would also be available to Mr. Bron and that type of help is extremely important for such a pro- ject. In making a final decisicn she suggested that the e:cperience of both applicants be taken into account and noted that Mr. Bron is running a restaurant now. Lee Spivack, realtor, 435 Hamilton, stated that he has no material involvement or consideration of his organization in this project. He said Mr. Bron is a restaurant client of his who now operates two successful restaurants --one in Los Altos and one in Palo Alto. He said that Palo Alto does not, in fact, have a Mexican heritage. It has a consumer preference for eo-called native American dishes and continental cuisine rather than Mexican food. Mexican food has not been successful in Palo Alto. He said Mr. Bron has a good reputation in his business, has full command of all major organiza- tional functions, has trained his very cc etent staff --he is suc- cessful. Mandy stay, 640 Forest, speaking on behalf of fir. Bron, stated that he is vice president of a corporation headquartered in Seattle and (that he has given Hz. Bron a letter of intent to lease property from him to install a husineas that he has in mind. He said that Mr. Bron lends a groat feeling of confidence in any business ven- ture and he has confidence in his ability to perform. He concluded by saying that he personally knows that the City would be doing itself a great favor to enter into negotiations with Asa Bron. Tom Corbin, Los Altos, Mr. Bron's developer, stated he has been in the development business for about twenty yell's, and he concurs with the previous speaker regarding Mr. Bron's business acumen and ability in operating and managing restaurants. He said the pre- sentation by the experts from out-of-town was most ingressive in the line of what can be done with this property, but success in the long term hinges on what ii left after the consultants have returned to other pursuits. He saih it is important to deal with people who have committed themselves to the area and intend to be here for a 3 3 1 10/1/73 long period of time. He continued that they have been looking in downtown Palo Alto for office space and in his opinion there is going to be a continuing need for first class office space here. The problem of dealing with an older building is that it is going to be difficult to pin down numbers as to what needs to be done; however, they are prepared to do that and put their experience to the test. He said the income potential for the Old Police/Fire building exceeds the estimates given earlier and the office space figure of 300 per sq, ft. is below what is being currently charged in that area. The restaurant should develop two to three times the rate expressed if it is a successful restaurant. Asa Bron stated that he has some really fine people to help him with his project, he has a lot of tenants of intent, the money is available and they do have a commitment from the Wells Farco Bank. He noted a question arose regarding the $250,000 figure mentioned in his proposal. He clarified that this is strictly to cover the cost of bringing the building up to code and had nothing to do with rentals, etc. He said that he is a good businessman and has fine business associates to aid him, he knows he can do it, Dunn and Bradstreet confirms he can do it. Vice Mayor Pearson asked Mr. Corbin, because of his exprience in construction, if the stated $250,000 for renovation to bring the building up to code is a realistic figure. Mr. Corbin replied that a lot will depend upon the City's buildings requirements regarding what needs to be done. The building is in a bad state of repair and present codes call for more stringent building techniques. He added that one thing he forgot to mention earlier is that Asa Bron et al does not need the S,E.A. in order to proceeds they can proceed at any time. Councilman Henderson addressed his question to Mr. Bron. He noted that the material Council has before them states that the number one occupant of the building would be Mx. Bron, who would operate a natural foods restaurant. He asked. Mr. Bron if he was anticipat- ing transferring his present operation or would it be a similar type of restaurant. Mr. Bron replied it mould not be the same type of restaurant, nor would he move the present restaurant. What is proposed is a res- taurant that would have an elegant dining room in the wine cellar, a place where everyone would want to cue and dine, not because of the limitation on the menu but rather because of the many things possible for many different tastes. He said he was a universal restaurantsur and feels that the enjoyment is the adventure and that is the kind of restaurant he would like to see. Mayor Comstock then invited members of the audience to speak. Mrs. Frieda Hernandez Ysaton, 23600 Big Basin Way, Saratoga, said she worked with the Palo Alto Unified School District in the Human Relations Department and through her work she met Mr. Nieto. She said he has talked with PAUSD ambers of his plans and they are very supportive of his effort. Marvin Pognlie, 1979 Edgewood Drive, spoke in support of Mx. Nieto' a proposal. He said he has known Richard for two years and that he has ambition, drive and all the essentials to be a success. 2 3 2 10/1/73 Dr. Roberto Yeaton, 23600 Big Basin Way, Saratoga, spoke in support of Mr. Nieto and stated he is one of his financial backers and that there is no doubt that a high quality restaurant can be a success. Gary C. Yount, 4105 Park Boulevard, stated that his family name goes back to 1909 in Palo Alto, and he wished to speak in behalf of Mr. Nieto. He said that Mr. Nieto has a lot of good financial backing, and he personally is putting some rrcney into the project. Jim Gimian, 630A Homer Avenue, stated that he is assistant manager for the Plowshare Community Book Sellers, 162 University Avenue. He spoke on behalf of Asa Bron and said he supported Asa because of his ability to inspire people and to make people from all ages and backgrounds comfortable while visiting his restaurant. John Roberts, 2140 Bryant, spoke on behalf of Mr. Nieto, stating that he has known Mr. Nieto fox a very long tine and is very in - pressed with his accomplishments and his enthuaiasm in putting together this proposal. He read a poem to illustrate the strength of Mx. Nieto's proposal. Lois Hogle, 2000 Old Page Mill Road, Los Altos Hills, said she has just recently become acquainted with Asa Bron and that she is very much impressed with him as a person. He has all the qualificatio;•:s to make his proposal a successful one. Dave Miller, 4000 Broadway, Oakland, spoke on behalf of Mx. Nieto, stating that Mx. Nieto's ambition is to build something Palo A'.to can be proud of, and he has the financing and the ability to do so. Simon Hassitt, 1301 Bryant Street, a member of Creations Workshop, the current users of the Old Police/Fire building, said that down- town Palo Alto is rather dead in the evenings. There is a need to use the building as a community resource center with a restaurant, and provide places where people could meet, music can be played, and artists can other. He spoke in favor of Asa Bron's proposal. Mrs. Walter Ga age, 1568 Channing Avenue, said that the purpose of making this facility available was not necessarily to have another community resource or community center downtown. It was to be a use that was compatible with the Downtown District. She endorsed Mr. Nieto's proposal as the one most likely to reach Council's goals for the building. Mayor Comstock again asked if there was anyone in the audience to represent the Law, Woodson, Hammond proposal. x Woodson, Ham1oond et al. Pro sal William Cox; commercial real eetate broker from Los Gatos. stated that in this instance he repre:rents the firm of Law, Woodson, and Hammond as broker. He said that Mr. Law came to him about eight Months ago to ask him what ideas he might have for the mat satis- factory use of this building, from the city's point of view and the developer's point of view, and mostly from the community's point of view. They have explored a good many possible uses of the property including financial, professional offices, and res- taurant. They realized the building has a great community value and the city has a stake in seeing to its proper use over a long period of time. 2 3 3 10/1/73 Mr. Cox continued that at this point they are unable to bring in their proposal to the standards of completion in time. He said he carne down tonight to see if there might be a possibility of Council examining the proposal they are prepared to present at a later date. He explained that their plans are for the restaurant to be on the ground floor. They have a successful restaurant operator ready to manage it, one who has been very successful in Old Town, Los Gatos. They have a letter of intent from Western Title Co. to occupy the apace they refer to as the annox. The commitment from Western Title Co. is more than they would need to satisfy them in order to make a firm commitment to the city. He continued that the second story of the building would be professional offices, including the firm of Law, Woodson, Hand. He said that if Council should de- cide to give the matter further consideration and continue the con- sideration of these alternate proposals until the next meeting► Law, Woodson, & Hammond would be able to come in with a firm proposal. Mayor Comstock thanked Mr. Cox for his presentation, and asked if any more members of the audience would like to speak. NW. Toni Sandis, 160 Stone Pine Lane, Menlo Park, stated she works with Asa axon as a bookkeeper. She would like to see something of value in the downtown area. She said she knows Mr. Bron is a finan- cial success and has the ability to stimulate people's interest and that he will do a great job in this development. . (The Council recessed from 10:10 to 10:25 p.m.) Mayor Comstock advised that the Council members will now discuss the matter. Councilman Norton said he had a question for staff. He asked if the 1200 feet of community space wi11 be blanketed under the master lease, so the contractor will have the prirary xespor.sibility for supervision of the public tenants, or excepted from the master lease and directly leased by the City to these community tenants, or by some other public agency of the City or with the City's blessings. He said he can see advantages both ways. Mr. Sipel responded that it should be clear that the City would wish to retain the option to select who the public tenant would be. Beyond that, it was staff's thought, at least at this time, that the normal maintenance and supervision of that area would be re- tained by the master lessee. John Zellhoefer, the City's consultant, added that while the City may want to reserve the right of determining who the tenant would be, it would be expected that the lessee would have some say as to right of approval with respect to compatible use within the build- ing. This would be very i.rportant as to financing of the project. In answer to Councilman Norton as to whether this aspect should be studied further in committee, Mr. Sipel stated that he would not want to slow down the lease negotiations, and if that process were to jeopardize the overall negotiations, he would become concerned. He said perhaps proposals should be solicited from people in the community who wish to use the epace, and them based an some of the proposed uses it could be determined if there were some problems and how it could be handled in the lease. He said this process would take place within the next two months or so. 2 3 4 10/1/73 Councilman Berwald asked if the lease would be made between the city and Mr. Nieto or the corporation listed in the proposal. Mr. Sipel replied the corporation would be involved. Councilman Berwald requested further assurance of the proponents' financial ability and protection of some kind of bond. He suggested staff could give additional evaluation; information regarding the lessee's financial ability to the Finance Committee when the lease is under discussion. Mr. Zellhoefer concurred that a completion bond would be desirable to incorporate in the lease but the negotiation details on that would have to be worked out. He added that Dr. Stauss of Coldwell Backer, consultant to the City, has examined what each of the pro- posals should return to the City financialiy, and negotiations with Mr. Nieto and Mr. Bron both show that the rental rates suggested are equal to or exceeding that which would be expected in the open market. Councilman Berwald stated than: the other questions he has he would like to state for the record. He said he is assuming Council is not going to negotiate the lease at Council level and that the staff would include in the preparation of the documents and the reporting to the Finance Committee all of these things and these are the things that he would be most interested in. He would like an veers to the following questions at the Finance Committee; 1. Assurance of financing and some provision for performance bond, etc. 2. The matter of assignment --can the prime lease he assigned or not. 3. A further examination of the site development plan and preparation for the Finance Committee of some analysis of the de- sign and estimates of the detailed work to be done by the lessee and by the City. :n the latter regard, work to be done by the City, he said he was thinking of a couple of things he noticed in the slides, i.e. unsightly telephone poles —any possibility of under- grounding. The matter of the appearance of the alley between the Police/Fire station and the buildings that face onto University avenue. 4. The extension of the park and how that is handled. It may require dedication of additional park land. 5. Financial analysis in terms of the adequacy of the return to the City versus income potential of the property.. 6. The right to cure in case of a default --indemnifying the City and what happens if the lessee defaults. 7. Regarding the lease itself, he said he :meld like to see the recommendation changed a bit and not say "select Mr. Nieto's proposal' but to say "indicate its pee erence of the cor- poration La Casa de Nieto's Amigos" to be the lessee rather than go so far as to say "select the proposal." And then, rather than, "negotiate a complete lease document:" just say "negotiate a written lease." The last thing of interest to him, he ssaid, was covered by Councilman Norton which was the question of the lease base and, in his opinion, it is a very important item. Councilman Henderson referred to the economics of the proposals and noted the difference between staff's figures and Mr. Nieto's, with staff's figure much more favorable in projected income. City Manager Sipel responded that the reports were made at -different times by different people. Mr. Nieto's came earlier and staff's were dome after Dr. Stems,' study in the downtown area and are rela- tively conservative. In effect, the staff's retort has updated Mr. Nieto's earlier submittal. 2 3 5 10/1/73 Councilman Henderson referred to the $450,000 projected sales figure in the staff report as compared to $12,500 in Mr. Nieto's proposal. He asked if staff feels the exjerience downtown supports that much higher figures, Mr. Zellhoefer explained that the $12,500 in Mr. Nieto's proposal is percentage rent, over and above the base rent and not related in any way to the gross inccee projected for the bar and restaurant. The projected monthly income for the restaurant and bar sales of $49,500 es also Mr. Nieto's projection. The proposal showed the percentage rent that would be paid in addition to the base rent that applied to just the restaurane and bar sales, with the assump- tions in there of $300,000 on food sales,,150,O00 in bar sales, less the $200,000 exemption from the percentage rent, leaving the 5k percentage rent to be paid on an effective gross income of $250,000. After further discussion, Mr. Zellhoefer advised that the $49,500 is Mr. Nieto's interpretation as to what he will receive as monthly :income from the bar and restaurant sales. The $68,500 is Mr. Ni.eto's projection of what he will receive from the rental from the remain- der of the building. The income as projected is $118,000 with the expenses of $49,500, leaving a net of $68,500. Councilman Henderson then referred to the difference in the esti- mated income per square fort. Mr. Zellhoefer explained that the difference between the 304 and 65 per sq. ft. reflects the degree of finish to a building. If a building ie completed at a cost of $250,000, it may generate less income per sq. ft. than if it were finished as a prime, first-class building. Dr. Stauss' based his figures on the assumption of its being finished as a first-class building. Councilman Henderson noeed that space in the California Avenue area costing from 30C to 350 per sq. foot is rentin,,,' whereas space in the Palo Alto Square development, costing 650, is not. He said he feels the 65e per sq. ft. projected for downtown is unrealistic. Vice Mayor Pearson referred to the 1200 sq. feet being set aside for public tenancy. She asked if it is to be determined in the Policy and Procedures Committee as to who the tenant will he. Mr. Sipel answered that it makes no difference whether this is de- cided in committee or by full Council, but it should be resolved soon so as to determine if there will be any impact on the master lease. It would be well if staff had specific directions at this meeting to pursue development of clients for that floor space. As to whether the public floor space will be on the first or second floor, Mr. Sipel explained that most of the developers, including the two under prise consideration, have indicated the best and prime space is on the first door and the community space would, therefore, go to the second floor. He said staff would expect direction at this time in order that they may specify to the people in the community w o are interested in that area as to where it will be located and the conditions under which it will be available. Vice Mayor Pearson referred to the lease with the City for the Holiday inn noting that it was quite complicated and that there 2 3 6 10/1/73 was an escalation clause for inflation so that the City would not lose money and, if the Inn were successful, the City would reap profits also. She asked if the lease for the Police/Fire Build- ing would be similar. Mr. Zellhoefer replied that in thn Holiday Inn lease the escalation percentage is applied to rotor, rental rate, and the staff at that time was attempting to negotiate 6%, but the developer insisted he could only afford the :AA assuming a specific average c:aily room rental rate, so the lease was subsequently negotiated on the assump- tion it would be 5% as long as the average daily room rate was what the developer projected, and would go to 6% when the average daily rocrs rent went to what the City projected. As of now, the average daily rcoan rent has already hit the projection of 6%. The percent- age rate from now on for the next 50 years of that lease will re- main at 5%, but it does cover escalation to the extent that as gross rent goes up, the City's percentages amount to more dollars. Vice Mayor Pearson stated she also has concern regarding control of any outside architecture, particularly any mosaics, drawings or pictures placed on the walls of the building, and also any de- sign of any additional part. In her orinion, approval should not be given by either of the standing committees, s, but by the Archi- tectural Feview Board. She said she would make a definite recom- mendation that final plans of any proposals for art work of any kind go before the APB, also the desiun of the park if extended. Mr. Sipel advised that what Vice Mayor Pearson is asking for will occur as a matter of coerse before a building permit is issued, but staff can rake sure by including it in the lease document. Vise Mayor Pearson asked if such plans would be returned to Council from the ARB for final. approval. Mr. Sipel answered that they would not be returned unless that is put in the lease. It is a scatter of procedure that such reviews come to Council only if denied by the ARB. Vice Mayor Pearson said that because of the character of this build- ing, in this instance she would prefer that the plans be returned to Council for final approval. Mr. Sipe/ said that he would like Council direction regarding such final approval because that could present sore problems in the negotiations for the staff. Vice Mayor Pearson indicated another concern regarding Cogswell P:',axa and the driveway and loss of parking spaces. If the park is axterded, who maintains it and will it becosse a dedicated park. Regarding the lost parking spaces, will they be replaced somewhere else and if so, who pays for then:. Mr. Z.eilhoefer advised that it is his understanding that the park- ing area alongside the plaza was not rezoned to commercial so it still remains P (Public Facilities). He and Dr. Stauss, as con- sultants, have recommended to '►l1 prospective developers that that area not be changed to park, but be left as parking spaces, on the premise that these spaces are needed for the property itself. The developers have indicated their willingness to go either way. He continued that if tM parking area is eliminated and the park ex- tended, negotiations will have to take place relative to whether 2 3 7 10/1/73 the land will be included in the lease or retained by the City and developed as a park. Vice Mayor Pearson stated that it is her wish that the park be ex- tended, as an extension would enhance the building. Mr. Sipel advised that if it is decided that the area is to be a park and function as a park and not to be part of the facility operation, then it ought to be under the maintenance of the City and should be dedicated along with the refit of Cogswell Park, and the City should bear the cost of the improvement. If the City were to make it part of the lease and allow the lessee the use of that area, then the lessee should bear the cost of whatever construction is necessary, and it should not be dedicated for park purposes. Vice Pearson inquired if it will be written into the lease that the City will not be the responsible party regarding loans to the developer, S.B.A. etc.; and Mr. Zellhoeffer confirmed that was correct: Councilman Clay asked regarding a lease guarantee and if there is any wey in which the City can protect itself. Ms. Zellhoefer replied that the bst guarantee is the fact that the land and building cannot be e ncu_-±er d by any deed of trust and therefore, in the worst situation, the City would fall heir to a half million dollar building, Councilman Clay asked if the $250,000 figures has been arrived at by each of the proponents as the basic cost to bring the building to code. Mr, Zellhoefer Laid that Mr. Bean's proposal is based on his assump- tion that he can spend $250,000 total to bring the building to com- pletion to a condition acceptable to his tenants. Mx. Nieto is proposing to spend approximately $500,000 to bring it to the level that he wants to generate the quality of tenants that he has in mind. !ir. Brion said that he has said very clearly that the $250,003 would bring the building up to coda, that he intends to spend money beyond that which will probably approach the $500,000 figure. Councilman Clay asked staff if they have an independent cost report. Mr. Sipel said that that particular study was made by Hawley & Peterson, architects, and Tomas Siebert, structural engineer. All proponents were made aware of the report. Councilman Sher said he had some general questions regarding how to proceed. He noted that staff indicates they want Council to select a proposal at this tine so they can begin negotiations tor a prime lease. Staff also expresses concerns about things they want tied down in the lease Staff further wants guidance regarding ap- proval of the design by the ABB and about the use of the community space. Attention must be given to the principle which has to be built into the lease as to who will determine from time to time during the term of the lease the occupancy of the community space. All the questions asked by Councilman 8erwa?.d are also of concern to him. He is also concerned about the financing arranuemertss such as when the tenants sign the lease, will the lease become 2 3 8 10/1/73 inoperative if the loan cannot be obtained, and what happens to the equity money. All of these things have to be decided as a matter of policy by the Council befo_e a firm lease can be negotiated. He asked if these questions will go tc committee and then be re- turned to Council. Mr. Sipel responded that there has been nothing brought out at this meeting that staff has not already thought of, and all of these items would be included in a lease agreement. He said there are abut two or three items where there is a fair amount of discretion and he is not quite sure where the Council stands. One item relates to the use of the parking spaces. If there are specific directicne that Council would like to give staff on certain lease provisions, it is his hope they could give them tonight rather than wait until staff comes back with the lease completed. He added that he would also like Council to specify a time limit on the negotiations pro- cess, In reference to items suggested by Ccuncilmarr Berwald, Mr. Sipel advised that they will be included in the lease. Discussion followed on whether or not the design piens will go through the normal review process to the ARB or back to Council for final approval. Mayor Comstock noted that if Council wished to follow other than the normal design review process, Council should take action to indicate this at this ti: -e. Mayor Comstock continued that in response to the questions of all the Couneii members, a motion might he made that follows the sug- gestions in the staff report, with perhaps an added state-ent that the direction to prepare the lease reflects the assurptions and criteria outlined in the manager's report. All of the other items raised will be dealt with in the construction of the lease. He said the only remaining issues Council has to give staff specific direction on will be a time limitation for negotiations, resolu- tion as to the approach to the design review, tying down the park- ing issue, and tying down the process for making a decision on the matter of how to control the tenancy in the community space. MOTION: Mayor Comstock moved, seconded by Henderson, that Council eelect Mx. Nieto's proposal, direct staff to negotiate a ce -tplete lease by and between the City and Mr. Nieto's corporation, reflect- ing the assumptions and criteria of C 8:908:3, dated September 21, 1973, and reflecting questions raised during the Co rci.l meeting of October 1, 1973, regarding the economics of the proposal. Such negotiations to be completed within 60 to 90 days, with the lease being referred to the Finance and Public Works Committee to be re- viewed at the earliest possible opportunity. Councilman Berwald suggested that perhaps a draft lease and report could be given to the Finance and Public Works Committee at the earliest possible time. Mr. Sipel said that before any submittal to the committee, staff would first want to pass the lease by the applicant to see if it is acceptable in general. It was agreed this procedure would be in order. AMENDMENT; Vice Mayor Pearson mowed, seconded by Norton, that the motion be amended to include that the Architectural Review Board will review the final plans and transmit their recommendation to th.s Council for final action before the building permit is issued. 2 3 9 10/1/73 Discussion followed regarding the c'.nseezuence if the plans and per- mit were denied. Mr. Sipel advised that for the developer's pro- tection, he would want to have some assurance from Council and would want to firm up a floor plan in a general concept in the lease agree- ment. Council members agreed. Mayor Comstock spoke against the amendment noting that it is a re- quirement that goes beyond that which is required for other devel- opers in the cozrmurity. The APB process was constructed with the thought in mind that it was a preliminary design review process, to occur early on before a lot of detaileu design work was done. Further, the building is already there so they are only talking about modifications and Council has already laid down the require- ments as to what can be done with the building. He concluded that in his opinion the amendment is not required and will just slow up the process and add to its cost. Councilman Berwa:ld also spoke in opposition to the amendment. He said he was of the opinion that all the suggestions made at the meeting would be discussed by the Finance and Public Works Commit- tee, making all these motions unnecessary. Mayor Comstock said that staff wanted specific directions on sore items because they were unique to this project. Councilman an Norton stated the reason he will support the amendment is that this developer is hind of a partner to the City and is de- veloping a City building. The City has the responsibility to make sure those improvements which, in rany cases, will be permanently affixed, are going to be acceptable. Councilman Sher agreed with Councilman Norton and noted there are historical and cultural aspects involved and it is the City's re- sponsibility to rake sure that the building is something everyone is going to be happy with. Councilman Clay said he would support the amendment. He pointed out that last week Council approved a condominium project that was sent to the ARB. The amendment passed on the following vote: AYES: Clay, Henderson, Norton, Pearson, Rosenbaum, Sher NOES: Berwa 1d , Comstock AMENDMENT: Vice Mayor Pearson moved, seconded, by Henderson, that the motion be aasended to exclude from the lease the small parking lot immediately adjacent to the building and staff be directed to extend Cogswell Plaza into that land and dedicate it to the ('ity as park land. Responding to questions, Mr. Nieto stated that this amendment will cause no architectural problem, as long as the City is required to pay for the dews1opz ent it and not the developer. Councilman Norton stated he was not in favor of the amendment nt be- cause the City will be losing 16 parking spaces, something they cannot afford to do, He would favor this if the City could provide 16 parking -spaces elsewhere. 2 4 0 10/1/73 MOTION: Councilman Berwald moved that the matter under discussion be referred to the Finance and Public Works Committee. The motion died for lack of a second. The amendment passed on the following vote: AYES: Comstock, Henderson, Pearson, Rosenbaum, Sher NOES: Berwaldi Clay, Norton AMENDMENT: Councilman Sher moved, seconded a� Pearson, that the motion be amended to reflect in the lease that the 1200 square feet of public apace will be maintained by the major lessee, but the occupants of this public apace will be selected by the City. MOTION: Councilman Berwald mooed that this matter be referred to the Finance and Public Works Committee. Councilman Berwald stated that the amendment hinds the Council and leaves no room for further discussion. He would prefer that it go to the committee. The motion died for lack of a second. Councilman Norton stated that the amendment could present financing problems for the major lessee; i.e. the use planned by the occupant of the public space could be completely inco:lpatible with the major use of the building. He said he does not see how the City can give the assurance for forty years that a lender right want now about who is going to be in that community space. The amendment passed on the following vote: AYES: Clay, Comstock, Henderson, Norton, Pearson, Rosenbaum, Sher N ESs Berweld Mr. Sipel asked regarding the procedure involved in order to avoid bringirg the final lease back to Council trice. It was noted that staff would work out with the lessee the suggestions made by the committee, but the Council reserves the right for the full Council to go over the lease. If the Council does not like certain parts of it, then it will have to go back to the lessee and back to the Council again. The main motion as amended passed on a unanimous vote. ijournnent The meeting was adjourned at 11:50 p.m. APPROVED: : ATTEST: kit,11-41i Mayor_ 2 4 1 10/1/73