Land developer David Bohannon has reiterated his company's refusal to engage in a profit-sharing plan with the city of Menlo Park, in the event that the Menlo Gateway office/hotel project far exceeds revenue projections.
City Council members at their May 11 meeting had asked the city's negotiators to try to work out a provision for a profit-sharing deal with the Bohannon Development Co., if the project generates "windfall" profits. Several community members have said they think the city is vastly underestimating the value of the zoning concessions it's considering granting, urging the council to press for more money.
The city would have to make major zoning and general plan changes to allow for three eight-story office buildings and a 230-room hotel near Bayfront Expressway and Marsh Road, with the project totaling nearly 1 million square feet of floor area. The council will hold a public hearing on the project Tuesday, May 25, at 7 p.m. in the council chambers, on several issues, including environmental concerns, land use considerations, traffic and greenhouse gas mitigations, and architectural plans.
But it's possible that approval of the project will hinge on monetary terms. Several residents have repeatedly warned council members that they're getting snookered.
"I don't see this project as a contribution to the city," resident Chuck Bernstein told the council at its May 11 meeting. "I do understand, though, how a handful of Europeans managed to obtain Manhattan from the Indians for a few beads, because I think that's potentially what's happening here."
In approving zoning changes, the city would essentially be selling Mr. Bohannon 32 acres of land, he argued. At $2 million an acre, that's $64 million. "Menlo Park ought to get that money up front."
The city has said that the value of the zoning concessions could be worth anywhere from nothing at all (if real estate markets don't recover) to $100 million, under standards used in the real estate development world. Several residents have argued that the concessions are worth far more than even the $100 million figure.
In a May 20 letter to the city, Mr. Bohannon, vice president of the Bohannon company, said that, while his company earnestly investigated the concept, a profit-sharing agreement would likely make it more difficult to get financing for the project, and could delay its construction. He stressed that the company has already agreed to major public benefits, saying that a revenue guarantee the company has agreed to is unprecedented in the state of California, based on his research, for a development project a city is not investing in.
In an interview, Mr. Bohannon said he could not find examples of any case in California in which a developer had agreed to share profits with a city under similar circumstances. He noted that his company will bear "enormous" financial risks in developing the project, a risk the city is not sharing in.
"We believe that we can overcome hesitancy in the lending community about the Menlo Park guarantee at some cost to ourselves and the project," Mr. Bohannon wrote in the letter to the city. "We do not believe that we would be able to do so, if some sort of back end windfall provision is added.
"The long and the short of it is this," he continued. "If the city wants the economic performance that is currently proposed by Menlo Gateway, with the substantial backup of the Bohannon guarantee … this is as far as we can go."
City consultants estimate that the project will provide $1.67 million per year to city coffers, a number that doesn't include mitigation fees, or various other payments the Bohannon company has agreed to provide. After the May 11 meeting, the company agreed to add a one-time payment of $250,000 to the Belle Haven neighborhood, in addition to the $1 million it has already agreed to provide for Belle Haven, and for Bayfront Park.
Since that meeting, the company has also agreed to guarantee the city additional hotel tax, regardless of whether the city raises its hotel tax rates in the future -- netting an additional $150,000 annually, the city estimates.
This was the second time council members have asked for a profit-sharing agreement, a provision the Bohannon company rejected in its first round of negotiations with the city.
"I think we're approaching a very fair deal here, but I'm not ignoring some of the concerns that have been raised, that it may be (worth) quite a bit more" than a city consultant's estimate of $27 million, Councilman Heyward Robinson said at the May 11 meeting.
Councilwoman Kelly Fergusson argued that a profit-sharing agreement could help compensate for some of the potential adverse impacts on the city, such as increased housing demand.
"Despite the great progress that has been made (in negotiations), when we do look back at the caveats and conditions council members talked about, a lot of those have not been achieved," she said at the meeting.
Councilman John Boyle said that his vote didn't hinge on the inclusion of a profit-sharing agreement.
"I agree with the concept, but I'm very suspicious we would be able to come up with a way to make this palatable to the applicant, and viable," he said.
At the May 11 council meeting, Mr. Bohannon said he viewed the project itself, rather than monetary payments, as the main benefit to the city.
"We will have to work long and hard to make (the city's financial) expectations a reality, but if the city demands too much, we may regrettably be forced to fold our tent and go home," he said. "I urge you not to push us to that brink."
"It is good for the city, and it's good for my family, but only we can determine what makes sense for us to proceed," he said. "We will not apologize for seeking to make a profit."