Editorial: The Bohannon offerHow much is it worth for the right to develop three tall office buildings, a hotel and three parking garages — all of which far exceed normal zoning restrictions — on the periphery of Menlo Park?
The answer, at least the first answer, made public with the disclosure of terms agreed to between the city of Menlo Park and the Bohannon Development Co., is far less than the $23.8 million estimated value of the city's zoning concessions over the life of the project. If it is built out, the Menlo Gateway complex on Marsh Road and Bayfront Expressway would total nearly 1 million square feet of office and hotel space, in addition to the three multiple-story parking garages.
Nevertheless, the city comes away in this first-pass deal with some significant money and commitments from the developer. For example, the city would receive:
• An estimated $1.67 million a year from hotel and other taxes.
• A guarantee to pay the city up to $225,000 a year if the annual tax revenue to the city falls below a certain threshold.
• Nearly $14 million in various mitigation fees.
• A total of $1 million to fund projects in nearby Belle Haven, Bedwell Bayfront Park, or other city recreational facilities.
In addition, through an agreement with JobTrain, Belle Haven residents would be chosen first for construction and other jobs at the project.
And Bohannon has made major environmental concessions, including agreeing to:
• Completely offset carbon emissions generated by the operation of the buildings.
• Reduce vehicle trips to and from the buildings by 17 percent.
• Build the offices to meet U.S. Green Building Council LEED Gold standards, and the hotel to meet LEED Silver standards.
In many ways, this first term sheet has revealed the reality of today's economy and the concern of the developer to make the project as environmentally clean as possible. By some estimates, Mr. Bohannon has spent about $7 million so far, including about $1 million on traffic and environmental consultants, to help reduce vehicle trips and carbon emissions.
Certainly of equal concern to the developer and the city is the economic viability of the project due to the anemic 12.7 percent rate of return projected by a city-hired consultant (the industry standard is much higher) on the office buildings. The hotel would just about break even, at best, according to these projections.
In addition, due to the expected slow rollout of construction, much of the expected financial windfall for Menlo Park could be five, 10 or even 15 years off. The hotel room tax (which the Bohannon company would raise by 1 percentage point at the Marriott hotel) would account for most of the city's projected income of $1.6 million a year. Yet the hotel would not be in operation until 2016 at the earliest, according to an estimate by City Councilwoman Kelly Fergusson. And the first office tower would not have to break ground until up to 15 years after the city awards the zoning permits, according to the agreement.
All of this means that at least in today's down economy, even the land-rich Bohannon family cannot afford to give the city carte blanche in return for a building permit on a project that few other developers would tackle. Just the same, it is clear that due to its longtime ownership of the land, the Bohannon company is strongly committed to building Menlo Gateway and to make it a showcase for the best environmental building practices.
But despite the project's green credentials, the company's monetary offers may look anemic to some council members and city residents. They do not come close to matching the value — estimated at $23.8 million by the city — of the zoning concessions the project needs to go forward, and the city's rewards could be many years away.
In the end what may save the project is its location on the Bayfront Expressway, a long way from downtown Menlo Park, which means many residents will not see any impact on their lives or on local traffic. The only matter left to sort out is how the company will resolve the expected traffic bottlenecks from the project at Marsh and Middlefield roads.
The Bohannons' own polling has shown that a majority of local residents are not strongly opposed to Menlo Gateway, despite it being one of the largest projects ever proposed in Menlo Park. Even so it is certain that a vocal cadre of naysayers will make themselves heard any day now.
Nevertheless, this offer appears to give the city a substantial benefit in return for buildings that will not adversely affect the city's core or even areas closer to the project. Residents of nearby Belle Haven are strongly in favor and have high hopes of gaining jobs from the project.
Although there is more work to be done, this first offer sheet is a good start toward writing an agreement that will benefit the city and permit the Bohannons to move forward on what appears to be a much more environmentally sound project than originally proposed.
During the upcoming hearings, we expect the council will tweak some of the agreement's stipulations, but they should not tear it apart. If these offers are accepted, the city will receive $14 million in fees and more in hotel occupancy taxes as the project unfolds in the coming years. And while it may be the largest project ever approved in Menlo Park, it will not do great harm to the city and deserves to be approved by the council.