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HomeMy WebLinkAbout1999-12-13 City Council (23)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:DECEMBER 13, 1999 CMR: 446:99 SUBJECT:INFORMATION REGARDING FORMER TERMAN (655 ARASTRADERO ROAD) AND CUBBERLEY (4000 MIDDLEFIELD ROAD) SCHOOL SITES WITH REGARDS TO PALO ALTO UNTIED SCHOOL DISTRICT INQUIRY This is an informational report and no Council action is required. BACKGROUND In a letter to the Council, dated October 4, 1999, the Palo Alto Unified School District (District) Board of Education President Don Way requested that the City assist it in looking for a school site to accommodate a middle school (Attachment A). More specifically, the District requested that the Council permit it early access to and active participation in deliberations affecting the former District sites (Terman and Cubberley) now controlled by the City. There are three lease documents that govern the use of these two sites: The nineteen-year lease between the City and the District for the purchase of the 21.54 acre former Terman middle school site. 2)The twenty-five year lease with option to renew between the City andthe Albert L. Schultz Jewish Community Center (JCC) for 5.93 acres of the former Terman middle school site. 3)¯The fifteen-year Lease and Covenant Not to Develop which covers the lease of the Cubberley site, a Covenant Not to Develop on five existing school sites and the extended day-care programs at twelve elementary school sites. CMR:446:99 Page 1 of 7 This report provides a brief history regarding each of these leases as well as status information related to the District’s Lequest. DISCUSION Terman Site City/District Lease On November 1, 1981, the City andthe District entered into a nineteen-year lease for the Terman site. The lease states that "the City hereby agrees and covenants that during the term of this lease it will use the Site for public purposes, which may include park, recreational and housing purposes, a sublease to the Jewish Community Center, and other public purposes in the discretion of the City, and it will notabandon or vacate the Site. The District hereby agrees and covenants that at the end of the term of the lease it will convey full title to the Site to the City." The 21.54 acre site leased from the District has been divided as follows: 1) In 1982, the City exercised its option to purchase 4.35 acres for below market housing; 2) 1.56 acres is utilized for a public street into the housing site; 3) the City sub-leaged 5.93 acres and most of the buildings on the site to the JCC; 4) 7.66 acres is .utilized for public playing fields; and 5) the remaining 2.04 acres is for parking, for the Terman Public Library and for the Community Center space commonly known as Wing 30. In 1985 the Council dedicated 7.28 acres of the playing fields as parkland. The lease contains an option to purchase, in which, the City has the option, with the written approval of the District (which may not be unreasonably withheld) to purchase the Terman site including all improvements for the cost of the remaining rent as of the date of exercising the option. Under the terms and conditions of the lease, the purchase price is equal to an initial payment of $1,023,038 and nineteen annual lease payments of $421,000 plus interest. (The annual payment was revised to $395,015 when the City purchased 4.35 acres of the site for the below market rate housing project.) The annual interest rate is based on the average rate of return earned on the District’s investment portfolio for the prior fiscal year. The last payment to the District will be made on November 9, 2000. The total amount paid to the District over the term of the lease will be approximately $15.2 million. Initially, the City also invested about $2.6 million in repairs and improvements to the facility. The City intends to exercise the purchase option after the last payment is made to the District in November ¯ 2000. A summary of the key provisions in this lease is provided in Attachment B. Terman Site City/JCC Lease On July 1, 1982, the City sub-leased a 5.93 acre portion of the Terman site and most of the buildings to the JCC. The term of the lease was based on the amount of the investment the JCC would make to improve its leased portion of the premises. The JCC made over $1.5 CMR:446:99 Page 2 of 7 million of improvements to the premises within the first five years of the lease and was granted the maximum term of twen.ty-five years in 1986. (To date, the JCC has made approximately $2.4 million of improvements to the site.) The JCC currently pays $251,988 per year to rent the facility. Since it had always been the City’s intent to exercise the option to purchase the Terman site from the District, the JCC lease term extends beyond the-term of the lease with the District. The lease also contains an option to renew, wherein the JCC can extend the term of the lease for a term equal to the initial term of the lease (25 years). In order to exercise the option, the JCC must 1) request, in writing, the extension; and, 2) be in "substantial compliance" with the terms and conditions of the lease and use permit. ¯ In a letter dated September 25, 1997, seven years prior to the termination of its existing lease, the City received a formal request from the JCC to extend the term an additional 25 years. The reason for the early request was to ensure the term of the lease was adequate for the JCC to recover the significant investment it planned for the facility. The JCC proposes to invest $1.5-2.0 million to refurbish and improve the facility. On October 14, 1997 (CMR:372:97), Council approved proceeding with negotiations with the JCC to extend its lease. In addition, the Council amended the public review process required by the lease and the Terman specific plan so that the public would have a six-month public notice period to provide any written complaints as to JCC’s compliance with the lease, prior to public hearings. The following is a summary of the actions that have been taken place since Council approved proceeding with the negotiations: January 15, 1998: a notice was sent to 1,531 addresses within a 1/2 mile radius of the Terman site informing the residents of the proposed extension of the JCC lease and giving them the opportunity to submit written comments or complaints regarding the JCC compliance with the lease or use permit terms. July 8, 1998: the JCC applied for City approvals for remodel of the facility. June 14, 1999: the JCC application was deemed complete and the official review process began. June 27, 1999: the JCC presented its improvement plan at a public meeting. September 16, 1999: first use permit hearing was held. CMR:446:99 Page 3 of 7 November 5, 1999: second use permit hearing was held to extend the lease and to determine if the JCC was in "significant compliance" with the terms and conditions of its lease and the Terman specific plan. Neighbors have submitted numerous complaints regarding potential compliance issues related to noise and parking. Public hearings before the Planning Commission and final review and approval by the Council are tentatively scheduled for January and February 2000. Should the District choose to enter into negotiations with the City for the purchase of the Terman site, staff is of the opinion that the contractual agreement with the JCC will require the City to exercise its option to purchase the Terman site. Staff concludes, therefore, that in order for the District to re-open Terman as a Middle School, it would not only have to negotiate with the City for the purchase of the property, but will need to take into account compensating the JCC for the remainder of its lease. A summary of the key provisions of the lease between the City and the JCC is provided in Attachment C. City/District Lease for Cubberley Site, Covenant Not to Develop and Extended Day-Care On September 1, 1989, the City and the District entered into a fifteen-year Lease and Covenant Not to Develop (LCND). The LCND includes the City’s lease of the former Cubberley high school site (35.42 acres), a Covenant Not to Develop five existing school sites and extended day-care at 12 elementary school sites. It also contains an option clause wherein the City has the option in 2004 to extend the LCND for ten years, and the City and the District can extend the LCND for two additional five-year periods beginning in 2014 and 2019. In order to exercise the first ten-year option, the City is required to give written notice to the District no later than December 31, 2003. The LCND will expire on December 31, 2004 if the City does not exercise its option. " There are currently 33 sub-tenants at Cubberley including Foothill College, 2 preschools, 2 private schools, 22 artists and 3 dance organizations. There are five leases that extend into the year 2002, one which extends to December 31, 2002. The City receives about $1,727,000 in rental income per year from the tenants and pays approximately $3,536,000 per year to the Districtfor the Cubberley site~ Since January 1, 1989, the City has paid the District approximately $31.3 million for the Cubberley portion of the lease. (This figure does not include the rent paid to the District for the Covenant Not to Develop and the extended day-care portions of the agreement.) Should the City and the District choose to terminate the lease prior to December 31, 2004 and prior to the expiration of the term of any sub-tenant leasehold interest, the City and!or the District would have certain legal obligations to those sub-tenants. A summary of the key provisions in the Lease and Covenant Not to Develop between the City and the District for the Cubberley site is included in Attachment D. CMR:446:99 Page 4 of 7 ATTACHMENTS Attachment A: Letter from PAUSD Board Chairman, Don Way Attachment B: Summary of Lease with the District for the Terman Site Attachment C: Summary of Lease with the JCC for a portion of the Terman Site Attachment D: Summary of Lease with the District for the Cubberley Site PREPARED BY: William W. Fellman, Manager, Real Property DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: CARL Director. LEMIN City Manager Services co:Don Way, President, PAUSD Board of Education Sandy Blovad William Bondy Jim Allen & Virginia Toney Renee & Mark Alloy Elizabeth Allyn Clinton & Verdie Alsop Grace Bates B. Bentrowsky William Bloom Ellen Brown. Yvonne Burtness Pat Carlson Carter, Tighe, Leeming & Kajiwara Caroline & Maurice Chase Norman & Carrie Chu CMR:446:99 Page 5 of 7 Greg & Sung Hee Clemenson Trudi Cobb Mrs. Coppin Beth Cowell Russell Currier Amy G. Davis Tina & Rick Dinitz Helen Easterbrook John Elman Sadie-Julian Espar Robert Feiner, MD Ginger Franey Payne Freret Miriam Fretthold Eva & George Gal Alexander Gotsch Jay & Muriel Gould Angelo & Sara Granzotti Bert Growald French & Marge Harris Milan & Vera Henzl Bob & Karen Hessen Marion Hill Joe Hirsch Jo Jaros Tim & Anthea Josling Christopher Keck Sheryl & Richard Keller Floyd Kessler Stewart Klein Ingrid Kohne Deborah Laden Barbara Lawson Diane Lee & Jim Jurkovitch Betsy Levy Tom & Hsu Lo Edith Martin Carl Ann McAusland Winnie & Jack McGannon Marianne McKisock CMR:446:99 Page 6 of 7 Emmy Lou Miller Barbara Milligan Peter Millward Kent Mitchell, Mitchell & Herzog Bev & Hank Mohr Craig & Seran Mohr Bob Moss Michael R. Nabti, Marcu & Millichap Richard Neeley Roger & Robyn Noll Marty Paddock Loma Paisley Nelly & Peter Pottman Lynne & Dana Prescott Robert Rogers Calvin & Misao Sakamoto Ruth Satterthwaite Kenneth Schotz Sid Sideris L. A. Smart Joel Spolen Carol & Tom Sutherland Dotty & Jim Tallmadge Glenna Violette Owen Wolkowitz & Janet Negley Annie Young David Zaidman CMR:446:99 Page 7 of 7 PAUSD SUPT ATTACHMENT A PALe ALTO UNIFIED SCHOOL DISTRICT 25 CHURCHILLAVENUE ¯ PALe ALTO, CALIFORNIA f)4306 Telephone: (B50) 329-3787 ¯ FAX: (650) 826-7463 ¯ ¯BOARD OF EDUCATION O~tobsr 4, 1999 Honorable Gsry Fzzzino, Mayor, Members of the City Council C~ty of Pale Aim 250 Hamilton Avenue Pa]o.A]to, CA 94301 Re:~rollmemt D~m~uds on PAUSD Fscilkics Our school district, which numbered 15,575 students ~n 1967-.1968 but only 7,452 in 1989-1990; now numbers 10,023. Our projections indicate we face continued increasing enrollment for many years. $om of our school fadlifi¢~ arc aedo~ly overcrowded ah’cady~ and the size of~ome schools - including especially both Middle Schools - exceeds th~ maximum e.stabLi~h~1 by our Board of Education for effective educational proEmmming, AS directed by our Board of Education in its public mc~tiug last week, ~ is our formal request for you to join us in looking for any and all potentially available school sites, e~ecial]y - although not cxdusivrJy- thosr Im-g~ enough to accommodate a middI~ school of up to 900 stud~ts (as large as 25 acres.) Specifically, we ask that~ould you consider any land use options affecting the twol~g~ former PAUSD sit~s now controlled by you {Tcrmaa and Cubberley), you pm-mit us early access-to and active partidpation ~ year deliberations, Thank youfor your continuing collaboration. Dis~ot and City- tndy.a~¢ interdependent. Wc greatly value the cooperative sucoeSses we have ¢ajoycd togeth~. S’..m..ccrcly, Dbn Way,~dcat Board of Edacation ATTACHMENT B TERMAN LEASE/CITY TO PURCHASE SITE/SUMMARY OVERVIEW In 1981 the City entered into a 19 year lease with the School District for a 21.54 acre site to be used for public purposes. LEASE DATE November 1, 1981 EXPIRATION November 9, 2000 DATE PARK ~.On October 28, 1985 Council (Ordinance 3644) dedicated 7.28 acres as DEDICATION,parkland. OPTIONS The City has the option of owning the site at the expiration of the lease on November 9, 2000. At the end of the lease the District agrees to convey full title to the site,, upon written request from the City. REVERSION There is no provision in the lease for the District to terminate the lease. LEASE PURCHASE PAYMENTS APPROXIMATE COST OF IMPROVEMENTS TERMINATION OF THE LEASE SUB-TENANTS Annual $395,014.71 plus interest based on the average rate of return earned on the District’s portfolio in investments for the prior lease year. (1999 $395,014.71 + $43,886.13 = $438,900.84) For full term of lease: Approximately $15,168.474. $2,595,000 by the City $2,400,000 by the tenant, Jewish Community Center Breach of the conditions of the Lease by the City. An example of a breach would be default in rental payments. City can also terminate the lease if, in any one year, the budget for the annual lease payment is not approved by Council. Albert L. Schultz Jewish Community Center has 7 years remaining on its existing sublease and an option to renew for another 25 years. ATTACHMENT C Albert L. Schultz Jewish Community Center Sub-Lease EFFECTIVE DATE EXPIRATION DATE OPTIONS LEASE PAYMENTS IMPROVEMENTS TERMINATION 7/1/82 6/31/07 plus 25 yr option (6/31/2032) JCC has option to extend the lease for a term of years equal to the initial term (25 years) subject to the following conditions: 1) Tenant has been in substantial compliance with the terms and conditions of the lease and the use permit. ¯ 2) Tenant has submitted a written notice of desire to extend the lease on or before nine (9) months prior to end of the lease. Currently pay $251,988 per year. For the full term $3,540,630.44 The initial term of the lease was based on the cost of improvements to the leased facility made by the Tenant. If the improvements totaled $1,500,000 or more the term of the initial lease would be 25 years. Tenant to date has spent $2,400,000 on improvements to the leased facility. Breach of the terms and conditions of the lease. An example of a breach would be default in rental payments. The option to the lease can be denied if the if the tenant is not in substantial compliance with the lease and "Terman Specific Plan". ACRES 5.93 acres 67,886 square feet of building ATTACHMENT D CUBBERLEY LEASE SUMMARY OVERVIEW EFFECTIVE DATE EXPIRATION DATE OPTIONS LEASE PAYMENTS LEASE REVENUE IMPROVEMENTS TERMINATION The Cubberley lease is part of the Lease and Covenant Not to Develop. This document includes the lease of the Cubberley site, a Covenant Not to Develop five existing schools and Extended Daycare at 12 elementary Schools. September 1, 1989 December 31, 2004 1)City has option to extend lease to December 31, 2014 (10 yrs) 2)City and District have option to extend the lease to December 31, 2019 (5 yrs) 3)City and District have option to extend the lease to December 31, 2024 (5yrs) Annually (1999):$5,200,068 Lease $3,536,046 Covenant not to Develop $1,248,016 Extended Day Care $ 416,006 For,term of lease to date: $42,626,461 (9 years & 11 months) Annually (1999):$1,727,606 ( Includes hourly rental of aproximately $500,000) $950,000 for roof repair, initial field maintenance and improvements to the theater, the auditorium and installation of the LANWAN system. A)Breach by City B)Non-appropriation of funds by City Council C)Gann Limitations D)Restriction on Taxing Power E)Partial termination to allow for the sale of a school site F)Partial termination to allow for the reopening of covenanted site TENANTS 33 long term tenants. The longest lease expires on December 31, 2002. Acres 35.423