Almanac

News - March 31, 2010

Bohannon agrees to revenue guarantee, emission reductions

by Sean Howell

Menlo Park and the Bohannon Development Co. have concluded preliminary negotiations over a proposal for a nearly 1 million-square-foot office/hotel project near Marsh Road and Bayfront Expressway, giving residents their first look at what the city might receive in exchange for major zoning concessions.

Now, the question to City Council members is: Is it enough?

The terms of the agreement, released March 25, fall into two broad categories: monetary benefits to the city, and pledges to reduce car trips and greenhouse gas emissions.

The negotiated items come in exchange for major zoning concessions to allow for a 230-room hotel, and three office towers of up to 140 feet. A city-hired consultant valued these land-use entitlements at up to $23.8 million.

A financial analysis commissioned by the city concluded that the project would involve considerable risk to the developer, and might not be financially feasible. It estimated the annual rate of return on the office buildings at 12.7 percent, and concluded that the developer would just about break even, at best, in building the hotel.

Taxes from the project are expected to generate an estimated $1.67 million per year for the city of Menlo Park, a figure that represents over 4 percent of the city's annual operating budget. It would also raise nearly $14 million for the city in various set fees, including money for traffic mitigation and below-market-rate housing.

Under the terms of the development agreement, however, construction might not begin for up to eight years. The hotel, the main income generator for the city, would have to be built first. But it would not be fully operational until three years after construction is finished — 2016 at the earliest, Councilwoman Kelly Fergusson estimates.

Construction on the first office tower would not have to begin until 15 years after the city awards the zoning concessions, according to the terms of the agreement.

The Bohannon company has offered to guarantee annual revenue to the city if the taxes generated fall below a certain threshold, at a rate of up to $225,000 per year, beginning three years after the hotel opens. The company has also agreed to impose a 1 percent tax on guests at the new hotel, raising an additional $100,000 to $150,000 annually for city coffers.

A total of $1 million would go to fund city projects in the nearby Belle Haven neighborhood, in Bedwell Bayfront Park, or in other city recreation facilities. Through an agreement with JobTrain, Belle Haven residents would get the first crack at construction and other jobs at the site.

Several terms relate to traffic, conservation, and greenhouse gas emissions. The Bohannon company has agreed to completely offset the carbon emissions generated by the operation of the buildings, and to reduce vehicle trips to and from the site by 17 percent.

The Bohannon company spent about $1 million in working with traffic and environmental consultants to cut projected trips and emissions, after council members said they were particularly concerned about those impacts. The city delayed releasing a final environmental review of the project as it worked with the Bohannon company to come up with a more precise estimate of how many tons of greenhouse gases would be emitted.

The company has agreed to build the offices to meet U.S. Green Building Council LEED Gold standards, and the hotel to meet LEED Silver standards.

Is it enough?

At the City Council meeting Tuesday, April 6, council members will be asked to decide whether to proceed with the approval process, or to go back to the drawing board and renegotiate the terms of the agreement. The latter option bears some risk, Mayor Rich Cline acknowledged.

"You have to be sensitive to the fact that the applicant has invested a lot of time and money in bringing this through" the public process, Mr. Cline said, adding that a delay might mean "lost dollars, in terms of his having to continue to work on it. ... At some point, (developer David Bohannon) has to respond to his board of directors."

Councilwoman Kelly Fergusson said she was sensitive to the time constraints as well, but that "no matter what, the council has to make sure it's getting good terms for the residents, and protecting the residents' interest. ... It looks like a reasonable schedule to me, but the council has to be ready to walk away from this if it's not right."

At a meeting several months ago, Ms. Fergusson had pressed for more extensive emission reductions, but said in an interview that her decision will be guided in large part by feedback from residents. She added that the development agreement is a "fairly narrow" part of the whole picture, and that the basic question of whether this is what the city wants to do with its waterfront land is still up for debate.

The Bohannon company has already solicited and received endorsements related to two crucial areas: greenhouse gas emissions, and benefits to the nearby Belle Haven neighborhood. In a guest opinion in this week's Almanac, Mitch Slomiak, the city's most prominent climate-change advocate, said that the project will "(raise) the bar for other communities in addressing such gas impacts for commercial developments."

And while Belle Haven residents may have expected more in the way of public benefits, community leader H.L. Bostic, claiming to represent the entire neighborhood, urges the council in a letter to the editor to "be cautious of those who would burden this project with unrealistic requirements that are meant solely to stop the project."

Still, a cadre of skeptics and outright opponents remains. Vince Bressler, a former council candidate from the "residentialist" camp and a current member of the Planning Commission, said he thinks the city made a mistake in failing to negotiate to share revenue with the Bohannon company.

"I think this is a joke, frankly," he said. "This is a horrible deal for the city, unless I'm not understanding something. ... There's an ongoing, large benefit to the zoning change that accrues to the developer. All I'm trying to do is to make sure that a fraction of that accrues to the city. This contract doesn't do that, except with the hotel."

The Menlo Park Fire Protection District isn't likely to be pleased by the outcome of the negotiations either, given that the agreement does not include money for offsetting the cost of a new ladder truck and the staff to operate it. Through the formal environmental review process, the city replied that the district has no legal justification for claiming that it needs a new truck.

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