City Council Meeting: September 9, 2014

Agenda Item: 8-A  

To:                   Mayor and City Council 

From:              Andy Agle, Director of Housing and Economic Development

Subject:          Bergamot Station Arts Center Policy and Process

 

 

Recommended Action

Staff requests that the City Council:

1.    Affirm or identify modifications to the current vision and plan for the Bergamot Station Arts Center; and

2.    If Council affirms the current vision, authorize the City Manager to negotiate and execute an Exclusive Negotiating Agreement (ENA) with 26Street TOD Partners LLC to implement the vision for the City-owned property located at 2525 Michigan Avenue, home to the Bergamot Station Arts Center.

 

 

Executive Summary

On February 25, 2014, Council directed staff to gather feedback from the Arts Commission and arts community on the three proposals submitted to a Request for Proposals (RFP) for the City-owned portion of Bergamot Station Arts Center (“Arts Center”), an approximately five-acre, City‑owned site located at 2525 Michigan Avenue (the Site”). During the course of gathering additional stakeholder feedback, including a hearing with the Santa Monica Arts Commission, significant policy questions have been raised. Some of the questions require affirmation or new direction from Council, including the long-term vision for the Arts Center, Big Blue Bus (BBB) revenue requirements, and a potential commitment to allow private parking on City Yards property. In addition, there are interim operational issues to be addressed, including parking management, way-finding and arts center management/marketing support to the Bergamot tenants.  Staff seeks Council confirmation of the current plan or direction regarding modifications to the plan for the Arts Center.  If Council affirms the current approach, staff recommends that Council authorize staff to enter into exclusive negotiations with 26Street TOD Partners LLC to implement the vision for the Arts Center.  The ENA process would include extensive community outreach and would refine the proposed project’s plan to address tenant retention, construction phasing, and parking.

 

 

Background

The Site, which is the City-owned portion of the “Bergamot Station Arts Center,” is located at 2525 Michigan Avenue and consists of approximately five acres with five buildings totaling approximately 62,000 square feet. There is an additional two‑acre portion of Bergamot Station Arts Center that is privately owned.  In 1989, the City purchased the Site with transit funds with the goal of serving future transit needs in Santa Monica and providing a source of revenue for the Big Blue Bus. The Exposition (“Expo”) light rail line is scheduled to open in early 2016, with a stop immediately adjacent to the Site, at the corner of Olympic and 26th Street. The City Council committed $6.7 million towards betterments to enhance the pedestrian experience at the Expo light rail station. The light rail, which is projected to serve over 3,000 riders per day, will bring significant new activity to the Site and the area. These changes, coupled with the desire to protect and enhance the area’s arts and creative uses, informed the development of the RFP criteria for the City-owned property, and the development of the broader Bergamot Area Plan.

 

The City-owned portion of the Arts Center is currently occupied by approximately 27 small, creative business tenants, including art galleries, designers, a non-profit theatre company, and a café.   These tenants sublease from Bergamot Station Ltd., which leases the Site from the City for $528,000 per year.  The current lease, with options, expires on December 31, 2017.  The principal of Bergamot Station Ltd. also owns 1.3 acres of land adjacent to the City-owned portion of the Arts Center, which contains additional art galleries and the Santa Monica Museum of Art.   Another proposing development team member (The Lionstone Group on the 26Street TOD Partners LLC team) owns property to the west in immediate proximity to the Site as well. The RFP sought proposals for only the City-owned portion of the Arts Center. 

 

Community Visioning and Planning

In anticipation of the operation of the Expo light rail’s Bergamot station, City staff began conducting extensive public outreach regarding the Site and the surrounding area in 2011. Staff solicited community input on both the future of the City-owned Site and on a community vision for the area within the larger context of the Bergamot Area Plan.  The planning effort was guided by community participation, which has included over 1,000 individuals who participated in stakeholder interviews, focus groups, online surveys, community workshops, neighborhood meetings, and public hearings before the City Council, Planning Commission, and other City boards and commissions. 

 

The Bergamot Area Plan identified the City-owned Site as the Conservation Art Center District (CAC). The Plan limits the intensity of development to a floor-to-area ratio (FAR) of 1.0 on the City-owned Site, and a maximum 2.5 FAR on the two adjacent, privately owned parcels.  Heights of up to 86 feet are permitted. On the City-owned Site, the maximum allowed height was paired with a low FAR to encourage preservation of the Site’s open feeling by encouraging new buildings to have a small footprint.

 

The vision for Bergamot Station’s future emerged from this extensive community outreach process and was informed by preliminary economic feasibility analysis of development alternatives conducted through the Bergamot Area Plan process.  Members of the Arts Commission, Landmarks Commission, Planning Commission, and Architectural Review Board, as well as neighborhood groups, individual gallery owners, artists and arts professionals, and individual residents and members of the broader community expressed strong support for preserving Bergamot Station Arts Center. Participants acknowledged its importance as a cultural destination and its unusually long-lived concentration of small arts businesses.  There was also general consensus on the importance of building upon Bergamot Station’s success as the heart of the emerging creative district by fostering a greater variety of arts options and cultural offerings that could function during the day and evening, including non-profit arts organizations and performing arts activities.  Residents of adjacent neighborhoods expressed support for expanding arts activities beyond fine-art sales in order to better engage neighbors of all ages and incomes.

 

 

The Bergamot Station Arts Center Preferred Concept

The community input culminated in the development of the Bergamot Station Arts Center Preferred Concept (“Preferred Concept”). The Preferred Concept, which was endorsed by Council on March 20, 2012, establishes an overarching vision for the Site in accordance with the principles, policies and recommendations set forth in the adopted Land Use and Circulation Element (LUCE), in the City’s Creative Capital strategy, and in the adopted Bergamot Area Plan.  

 

In addition to expanding cultural opportunities in the Arts Center, the Preferred Concept includes other complementary components of the vision for the Arts Center’s future.  These components include expanding dining opportunities for tenants and visitors and balancing the “funky” nature of existing warehouse buildings with a new, state-of-the art museum placed adjacent to the Expo station to welcome visitors to the cultural amenities of the Arts Center.  The Preferred Concept includes the retention of the art galleries and envisions a boutique-sized, mid-price hotel and the addition of creative workspace to complement area uses and to further enhance the visibility of the Arts Center.  The hotel and potential creative office uses are also critical to the overall economic feasibility of the Preferred Concept, particularly in light of the need to continue to support Big Blue Bus operations while ensuring below-market rents for cultural uses, ample open space, and a low-level of overall development intensity.  

 

Public Solicitation Process for a Development Team

On March 20, 2012, Council endorsed the Preferred Concept and authorized staff to prepare and release a Request for Qualifications (RFQ) to solicit qualifications from potential partners to design and implement the Preferred Concept. Five development teams responded to the RFQ in July 2012.  On November 27, 2012, Council directed staff to issue an RFP to the top three teams that were selected through the RFQ process.

 

In February 2013, staff issued the RFP to solicit proposals from teams led by 26Street TOD Partners LLC (formerly referenced as The Lionstone Group/Industry Ltd.), Bergamot Station Ltd./Worthe Real Estate Group, and REthink Development/Kor Group.  The RFP also included the opportunity for the teams to propose developing a shared-use parking structure on the adjacent City Yards site, and required them to outline the pricing and management of the parking operation, if proposed.  Proposals were received on May 1, 2013. The proposals, staff reports, supporting documents and additional information related to the planning initiatives are available for review or can be downloaded at www.smgov.net/Bergamot. 

 

The RFP’s stated option for the teams to propose developing a shared-use parking structure on the City Yards site extended the due diligence process involved in recommending a development team. Two of the teams proposed developing a shared parking structure on the City Yards to accommodate their project’s parking requirements, while the third team proposed on-site parking. Both of the off-site, shared parking proposals would necessitate that the City identify the requisite financial resources for the City Yards’ share of the parking structure.

 

As part of the due diligence process, staff evaluated the City’s financial capacity and timing potential to partner in the creation of a shared parking structure at the City Yards as a part of proposed Site development.  Staff determined that the City’s ability to commit to a coordinated construction timeline was not feasible, particularly if the proposals depended on the City’s ability to financially facilitate at least a portion of the parking structure. Additionally, Public Works staff responsible for the management and operation of the City Yards and the City Yards Master Plan has expressed concern in encumbering the City Yards with long-term, contractual commitments that would limit operational opportunities. In light of concern regarding the timing of and financing for a shared parking structure, as well as the operational constraints of long-term contractual commitments on City Yards land, staff requested that the two teams that proposed shared parking on the City Yards property modify their proposals to accommodate project parking on Site and indicate how that would impact their proposed ground-lease payment, open space, and building retention. 

 

In late 2013, staff issued follow-up questions to the three teams and sought clarifications and statements of commitment regarding their proposals. All three teams were asked questions about their proposals related to building preservation, parking, financial estimates, open space and art center management and marketing budgets.   Staff received the teams’ responses on January 10, 2014. The evaluation panel reconvened to review the responses, and the City’s real estate development financial consultant, Keyser Marston Associates (KMA), reviewed the additional information from the teams with an emphasis on the proposals’ economic feasibility and financial impacts to the City.

 

On February 25, 2014, staff recommended that Council authorize the City Manager to negotiate and execute an Exclusive Negotiating Agreement with 26Street TOD Partners LLC. Council directed staff to gather feedback from the Arts Commission and arts community on the three proposals submitted in response to the RFP.

 

Discussion

The discussion section below provides an overview of the community feedback received during the latest outreach process, and the direction that staff is seeking from Council in light of feedback received and due diligence conducted to date.

 

Santa Monica Arts Commission Input

On August 23, 2014, the Santa Monica Arts Commission held a special meeting to review and discuss the Bergamot Station Arts Center proposals.  Over seventy people attended the meeting with public comment provided by representatives of the Bergamot galleries (both from those located on the privately held portion of Bergamot, as well as the City-owned site), City Garage Theatre, UCLA Boethius Institute, Santa Monica Museum of Art, Santa Monica Neighborhood Council/ North of Montana Association /Wilmont/Pico Neighborhood Association/Ocean Park Association, Jacaranda Music Inc., Santa Monica Architects for a Responsible Tomorrow (SMART), and Santa Monica Coalition for a Livable City, as well as representatives of the three development teams and individual residents and artists. 

 

In total, 43 people spoke during the public comment period, speaking passionately about their particular gallery, arts organization or last visitor experience and why Bergamot is important to them.  Some expressed concern about the lengthy City entitlement process and how uncertainty over the future of the Site may impact business. Others expressed unease about the amount of proposed commercial development on the Site, particularly the creative office use and to a lesser extent, the hotel use. Conversely, others anticipated that the Arts Center could provide more community arts and cultural activities to more people if it had additional space created on the Site that could support a broader spectrum of arts.  Parking was also identified as a serious concern, both in terms of how constructing the proposed on-site, below-grade parking  may negatively impact existing businesses, and in terms of the quantity of proposed parking, which was perceived as insufficient to address transit riders and potential public demand.  Neighborhood representatives expressed strong neighborhood support for building preservation and sensitive design, with an expectation that future arts development would keep the scale of the current Arts Center. 

 

Following public testimony, the Commission had a substantive discussion, and made clear that they view Bergamot Station Arts Center as essential to the future of arts and culture in Santa Monica.  There were some commission members that stated a preference for the Worthe team’s proposal while there were others that spoke in favor of the 26Street team’s proposal and its incorporation of Cal Arts, UCLA and other community arts uses. The Commission discussed parking at length and determined that it was a concern, but not an insurmountable problem, and an issue that could be solved through collaboration among staff, tenants, the selected development team, and the Commission’s proposed Bergamot Arts Center Advisory Committee.

 

The Commission took the following actions:

·         They voted to affirm the staff recommendation of the selection of the 26Street TOD development team.  The Commission’s motion included a recommendation to Council that if and when Council proceeds with developer selection, that an advisory group be assembled with representatives of the Bergamot Station Gallery and Cultural Association (BSGCA), the Santa Monica Arts Commission, and residents.  The motion passed on a vote of 4 to 3 with one Commissioner abstaining.

 

·         The Commission also discussed priority issues for Bergamot that should be addressed as part of both the interim operations and the long-term revitalization and renewal process, including tenant retention, construction phasing, and parking.  The Commission unanimously voted to recommend that Council consider advancing several Commission priorities, including:

 

 

 

 

 

 

 

 

 

Additional Community Input

Since February 2014, in response to Council’s direction, staff has also met with Bergamot Station tenants, held a community/stakeholder meeting, provided opportunities for input and feedback, and worked broadly to disseminate information about the process and proposals. 

 

Bergamot Station Tenants

In 2014, the tenants at Bergamot Station Arts Center formed the Bergamot Station Gallery and Cultural Association (BSGCA), a coalition of representatives of the 42 businesses located within the publicly and privately owned portions of Bergamot Station Arts Center, including 34 art galleries, SMMoA, City Garage Theater, and the Bergamot Café.  Staff met with the BSGCA on March 28, April 11, and August 19, 2014, to discuss the status of the proposal process, present the February 25, 2014 City Council staff report and presentation, answer questions, and gather feedback.

 

In those meetings, the businesses expressed interest in working with the three development teams to understand each proposal and to seek clarification on the proposed mix of uses, parking solutions, and business retention efforts.  They asked detailed questions about the proposals and queried why the shared parking structure at the City Yards was not being incorporated in the proposed projects.  They also expressed serious concern about the viability of continued business operations during construction, parking quantity and location, as well as uncertainty as to the long-term future of the entire Site (publicly and privately owned) and the implications for their individual businesses/organizations.  The BSGCA has also subsequently met with each development team independently over the past five months.   

 

Community Meeting and Written Community Feedback         

City staff held a community meeting on May 6, 2014 at the Writers Bootcamp at Bergamot Station. In order to facilitate outreach to the Bergamot tenants and the arts community per Council direction, staff held the meeting at Bergamot Station, invited Arts Commissioners, and promoted the public meeting in The Palette and through social media. Over 170 people attended, including Santa Monica residents, artists, representatives of Bergamot Station galleries and businesses, representatives of the Arts and Recreation and Parks commissions, and other interested parties.  Staff provided an overview of the proposal process illustrated below (Figure 1),  reviewed the community planning and visioning process which led to the Bergamot Station Arts Center Preferred Concept, and outlined the opportunities for community input throughout the overall process, including the community dialogue that would occur during the process of developing and refining project plans once an ENA has been executed. In addition, each of the three development teams gave a short presentation of their team’s vision and proposal for the Site.  The meeting provided an opportunity for the attendees to provide input and feedback on the proposals and ask questions of the teams and City staff.  The questions generally involved parking, the types of uses that were proposed and how the proposals would engage various types of visitors and the community. The meeting was recorded by City TV with the link posted on the project website, www.smgov.net/bergamot. 

Figure 1.  Bergamot Station RFP Process + Next Steps

A survey was handed out at the meeting and was made available on the project website during the month of May for the public to complete and submit. The survey posed nine questions regarding:

·         individuals interest/affiliation with the Arts Center,

 

·         frequency of visits and reasons for visiting the Arts Center,

 

·         types of activities/services they would like to see at the Arts Center in the future, and

 

·         feedback on modes of transport currently used and likely to be used in the future to visit the Arts Center. 

The survey allowed respondents the flexibility of indicating a preference or answering more than one choice for the questions, thus indicating a range of preference instead of having to choose only one option. A total of 44 people responded to the survey. The relatively small sample size makes it difficult to draw strong conclusions from the survey instrument.  Of the 44 survey responses that were completed (Attachment A), the majority of survey responders (66%) indicated that they were Santa Monica residents and roughly one-quarter were also Santa Monica business owners,  employees, artists, or art professionals (note: the categories were not mutually exclusive).  Fifteen percent of the respondents indicated that they were Bergamot tenants. 

Survey respondents tended to visit the Arts Center several times a year for purposes of enjoying the arts and social events.  When broken into subgroups of Santa Monica business owners/non-tenants and artist/non-tenants, many also cited the Bergamot Café as a frequent destination.  The majority access Bergamot by car, planned to visit Bergamot Station either the same amount or more frequently once the Light Rail opens and supported the concept for a variety of art activities at Bergamot, including gallery openings, public art, outdoor events, and dining options. 

 

In addition to the survey, at the May 6th meeting and during the month of May 2014, participants and the broader community were asked to provide overall comments on the three proposals with respect to: 

 

The link to the Bergamot Arts Center Development Feedback Form was also posted on the City’s project website alongside the video of the May community meeting and each team’s proposal.  For a full list of comments submitted by 24 individuals, please see Attachment B.  The feedback received can be summarized as follows:

 

 

 

 

 

Additional Community Activity and Discussion

 

Given the overall importance of the future of the Arts Center to the arts community, opinion has been divided about its future.  A portion of the arts community feels very strongly that the existing galleries should be the primary priority for the future of Bergamot Station.  The Santa Monica Arts Commission and other members of the arts community have argued that the Site is a public resource that should be reinvigorated and serve a broader cross-section of the community with an array of arts uses rather than the focus being on galleries only, which are predominately for-profit businesses.  While there is extensive support for retention of the existing galleries, there is also interest in seeing the Site serve as a potential safe harbor for key Santa Monica arts non-profit organizations, as well as an opportunity for youth to become engaged in the arts. Many in the arts community do not see these goals and uses as mutually exclusive and would like to see the Bergamot Station Arts Center accommodate the existing galleries and the SMMoA, while including other non-profit arts and educational activities.  

 

Amidst the ongoing community dialogue regarding proposals for the City-owned Site, there have been press releases, letter-writing campaigns, and online petitions regarding participation in development teams, appropriate development on the Site, short-term and long-term parking solutions, and gallery rents.  During this period, SMMoA has received notice of a dramatic increase in its rent, which puts the long-term viability of the museum at immediate risk. 

 

Updated Proposal Information

 

Concurrently with the community outreach efforts, staff sought additional clarification from the teams regarding on-site parking, open space, museum core and shell construction costs, proposed building retention, and Arts Center Management Plan budgets. Staff also requested information regarding the project proposal pro-formas to address any inconsistencies in the development teams’ self-reported public revenue projections.  In addition, Bergamot Station Ltd., the company that currently leases the Site and operates Bergamot Station Arts Center, and that had partnered with and submitted a joint proposal with Worthe Real Estate Group has recently withdrawn from the team. The Worthe Real Estate Group will be referenced as the Worthe team in the remainder of the staff report. The City’s real estate development financial advisors, Keyser Marston Associates, Inc. (KMA), also conducted a final review of the estimated annual public revenue generated by each proposal. Upon staff direction, KMA reviewed each team’s final pro-forma and financial statements and standardized the annual economic impact data.  The previous economic impact/public revenue information submitted to Council was self‑reported information submitted by the development teams and varied in baseline assumptions. A matrix outlining the three proposals’ project specifics, the standardized economic impacts, and the projected public revenues of each proposal are attached (Attachment C).  The proposal updates are summarized below.

 

As originally stated in their proposals, the three development teams’ total amount of open space and on-site parking was not clearly or uniformly defined. Through follow-up questions from staff and the community input received, the teams updated their parking and open space information. The table below delineates the updated amounts of proposed dedicated open space and flexible open space as well as the amount of below-grade and surface parking.

 

 

WORTHE

26STREET TOD PARTNERS LLC

RETHINK / KOR

Open Space

131,000 sq.ft.

125,679 sq.ft.

110,847 sq.ft.

Dedicated Open Space

 

116,000 sq.ft.

110,148 sq.ft.

105,912 sq.ft.

Additional “Flexible” Open Space (e.g. surface parking/ delivery area/special events)

15,000 sq.ft.

15,531 sq.ft.

4,935 sq.ft.

Total On-Site Parking

 

383

442

380

Surface Parking

 

27

55

0

Subterranean Parking

356

387

380

 

All three teams report similar numbers for total amount of open space and were able to respond to community feedback about the need to increase the amount of dedicated open space on the Site by further quantifying space allocated to outdoor performance areas, public plazas and landscaped walkways.  In each case, the amount of dedicated open space covers roughly 50 percent of the total site, consistent with the Conservation Area zoning that caps the overall allowable development on this Site. Across the three teams, the total amount of parking did not change; however, each team clarified the breakdown of surface versus subterranean parking. 

 

The three teams were also asked to clarify their estimated Arts Center Management budget.  The table below lists the updated figures.  The biggest change was made to the Worthe team’s annual arts center management and marketing budget.  It has been updated to reflect administrative costs for a dedicated marketing team, which increased it from an initial $70,000 per year to $207,000 annually with the potential to increase up to $600,000 per year under a revenue-sharing model.  The 26Street TOD team confirmed an annual arts center management and marketing budget of $180,000 per year plus revenue sharing from future sponsorships projected to net a total of $800,000 per year.   They were also the only team to propose Cultural Arts Trust seed funding, equating to an initial funding commitment of $200,000 in Year One to help support the existing tenants with marketing, events and promotion in the interim prior to the overall development stabilization.  The REthink/KOR team also reported a slight increase in the annual budget, from $295,000 per year to $302,000 annually with the potential to increase up to $700,000 per year with revenue share and sponsorships.  All three proposals anticipate the need for private event revenue, sponsorships, or naming rights to cover programming costs, and the appropriate scope of those activities would be defined as the entitlement process progresses through community input and Council approval. All three teams propose to invest additional profit back into the Arts Center Management to ensure the on-going future success of the Arts Center.

 

WORTHE

26STREET TOD PARTNERS LLC

RETHINK/KOR

Arts Center Management (at stabilization)

$207,000

 up to $600,000

$180,000

up to $800,000

$302,000

up to $700,000

Museum Costs

$2,870,000 (core and shell)

$7,000,000 (turnkey)

$12,740,190 (core and shell)

 

In addition, the REthink/KOR team revised their proposal to address the RFP requirement to provide a core and shell building to the SMMoA. The team committed to fund $12.7 million of construction costs for the museum at $637 per square foot towards the 20,000 square feet of museum core and shell space, and to lease the facility to the museum rent‑free for the base ground-lease term of 55 years. The team expects the museum to contribute $500,000 or $25 per square foot to finance tenant improvements and fixtures, furniture and equipment in the facility. REthink/KOR’s estimated budget for the museum is based on a sophisticated, technically complex design, which explains the construction cost. The Bergamot Station Ltd/Worthe team budgeted approximately $2.9 million for museum core and shell costs.  The 26Street TOD team budgeted $7 million for museum core and shell, tenant improvements, and FFE costs, thus delivering the museum a turnkey project.  The Bergamot Station Ltd/Worthe and 26Street TOD teams plan to charge SMMoA non-profit rents ($1.25 - $1.60 per square foot per month). 

 

The teams were also asked to confirm the total gross building area and number of buildings to be preserved.  The REthink/KOR team made the greatest amount of changes to their original proposal, revising the size of each proposed use except the museum square footage.  The gross building area for galleries decreased by 26 percent from the initial proposal from 54,000 sq. ft. to 40,000 sq. ft., space for other cultural non‑profits jumped from 3,500 sq. ft. to 17,000 sq. ft., and space for restaurant use was increased from 13,000 sq. ft. to 16,656 sq. ft. 

 

As referenced in Attachment C, all three proposals are proposing nearly the same amount of total development, which falls within the allowable 1.0 FAR.  The Worthe team reports the highest amount of space dedicated to art galleries but also proposes the greatest amount of hotel and creative office development of the three teams.  26Street TOD proposes the lowest amount of commercial development with the smallest hotel (93 rooms versus 120-125 rooms) and the least amount of creative office.  The 26Street team has the largest amount of retail among the three teams, though they clarified that the retail will be dedicated to art, design, gallery and showroom, thus providing an extension of the gallery space but at non-subsidized rates. 26Street TOD confirmed that they plan to retain four of the five buildings. As a result, all three teams propose similar amounts of building preservation, with at least four of the five buildings projected to be preserved in each proposal. When standardized by KMA, projected public revenues from the three proposals are similar (Attachment C, Table 2). 

 

Policy Issues

Staff requests that Council either affirm or identify modifications to the current vision and plan for the Bergamot Station Arts Center in addressing key policy questions related to development of the Site.  The discussion below provides an overview of the policy issues impacting the Site and leads into the evaluation panel’s recommendation.

 

During the course of gathering stakeholder feedback in the past few months, three significant policy questions were raised that require the Council’s direction regarding:

 

 

 

Council may also wish to address private property that is adjacent to the Site and owned by two of the development teams that submitted proposals and whether that property should be considered as part of the overall development of the Site, and whether any of the new parking developed should address transit-serving parking for the Expo light rail.

 

Affirming Bergamot Station Preferred Concept

 

A variety of questions and concerns were raised through the recent stakeholder feedback process that question previously approved elements of the Bergamot Station Art Center Preferred Concept. Namely, there were questions regarding the mix of cultural uses proposed, other uses proposed for the Site, the amount of new building area proposed, and the rationale for making any changes to Bergamot Station Art Center as it currently exists. As outlined earlier in the report, a significant community visioning and public outreach process commenced in 2011 that led to the City Council adopting the Preferred Concept which balances the City’s three primary goals for the Site:  1) support the arts; 2) deliver a transit-oriented project that encourages ridership and engages the Expo station and 3) generate revenue for the Big Blue Bus operations. 

 

The Preferred Concept emphasizes retaining the concentration of art galleries and other cultural uses, providing space for a museum in a location that welcomes visitors to the Arts Center, creating revenue‑producing and visitor-serving uses that activate the community space during the day and evening, including a hotel and restaurants, and delivering infrastructure improvements to complement the Arts Center and the taxpayer’s investment in the new Expo station.  Staff seeks Council affirmation or modification of key elements of the plan discussed below.

 

Mix of cultural uses: The Preferred Concept seeks to maintain and build upon the existing concentration of arts uses, primarily for-profit art galleries, by expanding the variety of cultural uses on the Site.  Additional cultural amenities include an expanded home for SMMoA and the incorporation of community-based, non-profit cultural institutions.  If no changes are made to the existing Arts Center, there would not be room, physically or financially, to accommodate community-based arts uses on the Site, including SMMoA, which currently rents space on adjacent private property.

 

Other uses proposed for Site: The Preferred Concept allows for value-creating elements, including a hotel and creative office, in order to create revenue sources to support the Big Blue Bus operations, as well as to underwrite other public objectives for the Site such as the museum building, open space, transit amenities, community arts and cultural programming, and the ability to continue to provide below-market rents for galleries and cultural uses while investing necessary improvements in the Site.  In the current market, creating value to underwrite other public objectives for the Site could be created by residential, hospitality or office uses. 

 

The planning process for the Site determined that a boutique-sized, mid-priced hotel would not only create necessary financial value to support other public objectives for the Site, it would also create synergies with the cultural uses and serve a need for the overall Bergamot Area, as well as potentially providing additional customer base for the Arts Center.  Hotels also generate relatively low traffic levels in an area that can be very congested, particularly at peak commute times.  In addition, hotels produce significant transient-tax revenues that could be used to offset the relatively lower lease revenues that the Big Blue Bus is expected to receive under the Preferred Concept.  (See below for more discussion of Big Blue Bus Revenues from the Site.) 

 

The creation of new housing on the Site also could be expected to generate traffic patterns that are largely different from commute patterns in the area.  However, housing was not expected to provide the same synergy with the cultural uses, could create conflicts with the adjacent City Yards, and would not provide other City revenues that could support Big Blue Bus operations.  Creative office uses could create potential synergies with the cultural uses, although given the overall traffic patterns in the area and the other project revenues, the creative office use is limited in the Preferred Concept.

 

Big Blue Bus Revenues: Understanding the relationship between current and future lease revenues and their support for Big Blue Bus operations is critical to understanding the Preferred Concept. The Site was purchased in 1989 with transit funds with the goal of serving future transit needs in Santa Monica and providing a source of revenue for the Big Blue Bus (BBB).  The Arts Center currently generates approximately $528,000 annually in ground rent payments to BBB to help support the on-going operations of public transit in Santa Monica.  Prior to Expo’s purchase of a portion of the Site, the Arts Center was generating over $620,000 annually in lease payments to the BBB. 

 

On May 25, 2010, Council approved an increase in BBB base fares from $0.75 to $1.00, voting not to increase base fares to $1.25 out of concern for the impacts on bus riders, particularly low-income, transit-dependent riders.  At the hearing, Council committed to identify funds to fill the deficit, including utilizing real property assets to produce ongoing revenue to support BBB operations.  Ground-lease payments from real properties such as the Arts Center have proven to be a reliable, steady source of funding for BBB operations.  Until there was certainty about light rail and its needs relative to the Site, leasing the Site was necessarily considered an interim activity that could provide revenue to BBB while ensuring active use of the Site. 

 

The interim activity has proven to be popular and successful, forming the basis of the Preferred Concept.  However, were the City to place top priority on enhancing lease revenues to the BBB, the proposed development concept could be very different in its form and financial outcomes.  For example, if the Site were valued comparably to other properties in the area, and if the City expected a market-rate return on its property, the property could generate several million dollars per year to the BBB.  From this perspective, the Preferred Concept represents a compromise whereby the BBB receives a lower return in order to promote other public objectives (such as cultural uses, open space, building preservation, and low-intensity development).  Absent intervention and an expected continued increase in BBB operating costs, a failure to capitalize on the value of Bergamot Station could result in increased pressure on bus fares or reduced public transit services to the community.  However, the inclusion of a hotel at the Arts Center provides an opportunity to help address bus revenues.  For example, the Council could contribute City revenues, supported by the increased TOT revenues from the Arts Center hotel, into a special fund that could help stabilize bus fares.  

 

Amount of New Building Area: The floor-area-ratio (FAR) of 1.0 that was adopted in the Bergamot Area Plan for the City-owned portion of the Arts Center is one of the lowest of any commercial area in Santa Monica and was designed to encourage preservation of the historic scale of the Site, as well as many existing buildings.  Heights up to 86 feet were intended to complement the FAR as a means to reduce building footprints, thereby preserving a great deal of the Site for public open space.  If the FAR were to be further reduced, the ability of the Preferred Concept to achieve the public objectives for the Arts Center would be severely compromised.

 

Staff seeks Council direction regarding affirming the Preferred Concept’s balancing of public objectives for the Site.   If the Council determines that the Preferred Concept no longer represents the appropriate balance of public objectives, staff seeks general direction regarding how best to strike the appropriate balance. However, delaying the selection of a development team extends the uncertainty of tenancy for the art galleries, City Garage theatre, and other tenants.  Additionally, further delay in the selection process also hampers SMMoA’s ability to raise funds for their new museum and puts the future of the museum in jeopardy.  Necessary infrastructure improvements and investments to the Site will be delayed until long-term certainty on the operations is confirmed.  There are no guarantees to the tenants that their rent levels will remain at the current, lower-than-market rent levels.  These delays also present a higher likelihood of losing the interest of the existing proposal teams and may discourage future interest from other development teams in responding to a prolonged and uncertain selection process.

 

Parking
Parking has proven to be a critical point of discussion with respect to the Arts Center. The Bergamot Station Gallery and Cultural Association (BSGCA) has expressed strong disagreement with any proposal to develop on-site, below-grade parking due to fear of extensive construction disruption to their ongoing business operations.  Temporary relocation plans have also met resistance in that many galleries fear that if businesses are relocated, they may not survive in the interim and/or may permanently relocate outside of Santa Monica.  As such, the BSGCA has formally advocated for the City to incorporate the Arts Center parking requirements within the City Yards parking structure that is to be built in the future. This approach would effectively delay the redevelopment of the Site for many years. There was also stakeholder concern that the parking requirements for the Arts Center development may be insufficient in meeting future parking demand.  Some stakeholders also expressed interest in building parking on or near the Site to serve users of the Expo light rail.  The Santa Monica Arts Commission also weighed in on the parking issue and requested that further analysis be done of various parking options during the ENA process, including evaluation of an above-grade parking structure on the Site as well as the potential utilization of other off-site shared parking options.  The following provides more detail regarding the parking issues.

 

Off-Site Parking at the City Yards: In accordance with the City Yards Master Plan, the development of a City employee parking structure at the City Yards is part of a phased implementation plan that will proceed as funding is available.  Early phases of the Master Plan are just beginning feasibility and concept design analysis. The City Yards parking structure is in Phase 3a of the Master Plan, which has not received CIP funding for design or construction.  Funding for implementation of the Master Plan is anticipated to come from the City’s General Fund and various enterprise funds housed at the Yards, as funding becomes available over the years.  The developed phasing plan involves construction of new facilities in order to accommodate relocation of uses that exist currently within the footprint of the proposed City Yards parking structure. The phasing must also allow for continuous operation of City services during the City Yards Master Plan build-out. As a result, the earliest a shared parking facility could begin construction is FY 21-22, at least five years after the Expo light rail line is in operation, presuming funding can be identified. Construction would not be complete for approximately two years thereafter.

 

In addition, the Public Works Department, which is charged with managing the City Yards as a multipurpose municipal maintenance campus, has expressed concern about encumbering the property or a City Yards parking structure with a long-term, private use. Encumbrance to a private entity would limit the City’s ability to reposition the uses, activity, and ongoing operations conducted within the structure. Flexibility may be needed to provide critical services such as water treatment facilities in the near future.  For these reasons, staff requested that the proposing teams evaluate building parking on-site at the Arts Center. It is anticipated that when the City Yard parking structure is built, it could accommodate shared parking during off-peak City Yards operating hours (e.g. evenings, weekends) which could supplement Bergamot Station’s on-site parking, rather than serving as the primary source of parking supply.

 

The City Yards Parking structure, per the Master Plan, is proposed to be four stories and to include 350 parking spaces. The total projected parking as required by code is approximately 400 spaces for the proposed 221,000 square feet of uses in the Bergamot Arts Center proposals. Incorporating 400 private spaces into the City Yards Parking Structure would involve doubling the height of the currently projected four-story parking structure, or building some levels below grade at a substantially higher cost.  In accordance with the LUCE, the height limit at the City Yards is 45 feet (4 stories) and the FAR is 2.25.  Anything larger may require an amendment to the LUCE and also a Development Agreement.

 

The estimated budget for the 350 spaces needed for the City Yards parking structures is $16 million. Currently there are no funding sources identified for the structure. To help address and better evaluate the economics and financing of a City Yards parking structure, staff has issued a request for proposals for professional consultant services to review the financing options, economics, and demand.  A final report is not expected until mid-2015.  In response to proposals submitted by the development teams, staff is also directing the parking consultant to review robotic parking and other parking efficiency operation models that may help add to the parking supply at the City Yards if it is deemed a viable option. 

 

Staff will keep Council apprised of results of the financial feasibility of a shared parking structure. However, regardless of the financial feasibility, the primary concern with the shared parking structure option relates to timing. As described above, it may be up to ten years before a shared parking structure could be financed and built on City Yards property. This prolonged wait would significantly delay the enhancement of the transit arrival experience at Bergamot Station, would create concern regarding the long-term viability of SMMoA, may risk losing the opportunity to advance the development proposal as currently envisioned, and would delay opportunities to reduce fare pressures on the Big Blue Bus.

 

Other Parking Options:  In order to minimize impacts from constructing underground parking on the existing galleries, other parking options have been considered.  One option is to increase the private value that is created on the Site so that the hotel, for example, could support additional underground parking.  Achieving such an outcome while maintaining limited footprints would likely require increased building heights, which would not align with the Bergamot Area Plan.  Another option would be to encourage above-grade parking on site, which many tenants felt may be less impactful than subterranean.  The issue with this is that it would count towards the overall FAR for the Site and may result in loss of open space and/or limit the amount of new, infill uses that would help make the overall operations and development financially feasible.

 

Another approach is to allow adjacent property owners who have responded to the RFP to include their properties as part of the overall solution to address parking and interim space needs.  Such an approach could create an integrated development plan for a larger area, though it would likely also translate into a larger overall development envelope associated with one development project.

 

Parking for On-Site Uses:  Some stakeholders have expressed concern that the minimum zoning parking requirements may not be sufficient to serve the needs of the proposed development. The existing surface parking at the Site accommodates approximately 275 parking spaces and is encumbered with parking uses not associated with Bergamot Station Arts Center with the primary sublessee being Agensys Inc., a biotech company located at 1800 Stewart Street, who leases 75 parking spaces on the Site.

These parking leases utilize the limited supply and constrain the parking supply from turning over during the day to service visitors and customers of the Site. This condition may create the perception that a large supply of parking is needed at the Site. However, proactive parking management may be a better approach than building an over-supply of parking.  The parking sublease arrangement between Agensys and Bergamot Station Ltd. will terminate once Bergamot Station Ltd.’s existing lease with the City expires in 2017.  Agensys is aware that they will be responsible for finding alternative parking and transportation solutions for their employees.  From 2016 onwards, it is anticipated that some of Agensys’ and other area employees will utilize the light rail to commute to and from work.

 

Transit-Serving Parking:  Some stakeholders have expressed a desire to create parking resources to serve light-rail users.  Given that there are thousands of commercially available parking spaces within a few blocks of the transit station, parking that is specifically targeted toward light-rail users would likely need to be subsidized to a price level that is well below that of adjacent commercial uses.  The City has traditionally not favored subsidized parking adjacent to the light rail stations because the stations are located in areas that already experience heavy traffic and subsidized parking would likely exacerbate traffic challenges.  There is also no clear path to finance subsidized, transit-serving parking.

 

Evaluation Panel Review

In light of the community input received over the past six months, the evaluation panel reviewed the updated proposal information submitted by the three teams according to the selection criteria listed in the RFP and outlined below:

 

 

 

 

 

The evaluation panel also reviewed the proposals, updated information and how well they addressed the development objectives approved by Council and listed in the RFP. The development objectives were based on community input received prior to issuing the RFP and are aimed at implementing the Council-endorsed Preferred Concept for Bergamot. They are summarized as follows:

 

1.    Inclusion of at least 75,000 square feet of arts-related space that is affordable to non-profit cultural organizations and for-profit art galleries, and provision of space for the Santa Monica Museum of Art (SMMoA);

 

2.    Provision of open space, infrastructure and other amenities to support public access to the light rail station and improvement of the environment and functionality of the Site;

 

3.    Preservation of existing buildings, where feasible;

 

4.    Inclusion of a mix of uses such as hotel, restaurant and bar, and other creative office and cultural uses to create a vibrant development;

 

5.    Provision of parking in accordance with LUCE guidelines with an emphasis on shared parking opportunities;

 

6.    Payment of ground lease based upon fair market values (at a minimum, provide $610,000 per year in ground rent to the City);

 

7.    Exceptional architecture and sustainable design with a focused transit-oriented development approach; and

 

8.    Coordination with the Bergamot Area Plan.

 

The panel also discussed the various policy issues highlighted earlier in this report. Given updated community input, updated proposal information, and the consideration of policy issues outlined, the panel recommends that investment in the Site should proceed in accordance with the Bergamot Area Plan and the light rail investment.  The panel concluded that the 26Street TOD Partners LLC best responded to the Council’s adopted development objectives and the RFP selection criteria through their original proposal and their responses to staff’s follow-up questions. KMA reconfirmed that the 26Street TOD Partners has the financial resources and development approach to complete the project. The proposal offered a project strategy that demonstrates the team’s capability to successfully deliver the project. KMA has expressed concern that the REthink/KOR proposal exhibits a lower-than-typical rate of return for this type of investment.  The lower-than-typical return rate, coupled with the unique nature of the proposed project, and that fact that neither SMMoA nor City Garage Theater will be required to pay rent, may limit the financing opportunities for the project.

 

The evaluation panel believes the proposal’s site plan, mix of uses, project design and architecture best engaged the Expo light rail station and Bergamot Area. The evaluation panel appreciated the attention given to integrating the arts throughout the Site, providing affordable space for emerging and existing artists, and creating a thoughtful program to use the public open space for community and neighborhood cultural events. Community feedback solicited from the recent public meeting and surveys also achieved favorable comments on this team’s overall vision for the future of Bergamot, which is to help support a vibrant, community-focused cultural arts center that meets the needs of residents, area employees, and future transit users.  As reflected in Attachment B, there were many favorable comments in regards to the team’s arts center activities, proposed mix of uses and community approach.  The panel also valued the inclusion of experienced cultural programming partners and a robust, sustainable budget for cultural programming. 

 

Although the 26Street TOD team would not offer the highest economic return to the City, the evaluation panel expressed confidence that the proposed project was economically sustainable, and would balance economic return to the City with achieving public objectives.  In addressing community concerns regarding overdevelopment, this team’s approach with the smallest hotel and least amount of new, creative office has been most sensitive to ensuring the future success of the Site as an Arts Center.  The overall proposal provides a diverse mix of uses that responds to Council’s adopted development objectives. The design approach offers iconic architecture, sustainable design and construction, and blends building preservation objectives with sensitive new, but modest, infill development and innovative cultural programming.

 

Staff Recommendation

 

Staff recommends that the Council affirm or identify modifications to the current vision and plan for the Bergamot Station Arts Center.  If affirming the current vision, staff recommends that Council authorize the selection of the 26Street TOD team and authorize staff to enter into an ENA.  Acknowledging the City Yards financing and time limitations, staff recommends moving forward without a City Yards shared parking structure as a component of the proposals to avoid delaying the Bergamot Station Arts Center project.  During the ENA period, many of the issues raised will be studied and addressed by the 26Street TOD team and can be incorporated into the project development process as further community input will be solicited with the public and Bergamot Station tenants. 

 

As referenced in the illustration below in Figure 2, staff would require the selected developer to provide a construction mitigation and phasing plan, an executed labor peace agreement, a tenant retention plan, and an interim Arts Center Management Plan as deliverables of the ENA.  In accordance with the Arts Commission recommendation, the Council may also choose to require the creation of a Bergamot Station Advisory Committee to participate in the ENA and longer-term development plan negotiations.  The Council and community, in partnership with the development team, could consider measures to provide parking that minimizes impacts on existing tenants.  All of these items would be vetted with the Bergamot Station tenants association to help ensure on-going viability of the Arts Center, and would be presented to Council along with the project’s conceptual design for approval as a condition of proceeding toward the formal entitlement and business term negotiation process. 

Figure 2.  Exclusive Negotiated Agreement Process

 

Alternatives

There are four primary alternative approaches that Council could pursue:

 

  1. Affirm the primary elements of the Preferred Concept but direct staff to enter into exclusive negotiations with one of the other development teams.

 

  1. Affirm the primary elements of the Preferred Concept but postpone developer selection until the City Yards parking structure financial analysis and City Yards Master Plan timing and funding approach are completed. 

 

  1. Affirm the primary elements of the Preferred Concept but direct staff to solicit additional information and community feedback regarding the development teams’ proposals.

 

  1. Direct staff to undertake a process of modifying the Preferred Concept.  Terminate the RFP process with plans to initiate a new RFP process once a new Preferred Concept has been approved. 

 

Alternative 1 is not expected to create significant time delay.  Alternatives 2, 3 and 4 prolong the status quo of Bergamot Station, continue the reduced revenue-generating potential for the Big Blue Bus, and extend the uncertainty of tenancy for the existing art galleries, City Garage theatre, and other tenants.  Delays to the process also hamper SMMoA’s ability to raise funds for their new museum and put the future of the museum in jeopardy.  Necessary infrastructure improvements and investments to the Site will be delayed until long-term certainty on the operations is confirmed.

 

Addressing Interim Operational Issues

 

Recognizing that the Expo light rail is estimated to begin operations in early 2016 and that the lease term with Bergamot Station Ltd. is set to expire at the end of 2017, there is concern as to the current condition of the property, and its near-term role as a gateway to Santa Monica once the Expo light rail station is open and forms an integral part of an important regional public transit system.  In 2016, up to 3,000 people each day will be coming and going from the Bergamot Station Expo light rail station.  The City invested $6.7 million in “betterments” to the Bergamot station, however, if there are minimal amenities and infrastructure improvements at the Site when the public exits the station and enters the Arts Center, transit users will encounter a surface parking lot with no clear public pedestrian right-of-way or Site way-finding or other amenities and public infrastructure.

 

To date, there have been no adjacent Site-area improvements to address the future pedestrian activity that will be generated by the Expo light rail, and the five City-owned buildings are all in need of upgrades and investment.  For pedestrians accessing the Expo station from the neighborhood and workplaces to the east, they will be able to walk through the newly created 1800 Stewart Street public art walkway with signage, a café and outdoor seating, and into the surface parking lot in the center of the Arts Center.   The visibility of the Arts Center from the Olympic Boulevard/ 26th Street junction (e.g. the future gateway to the light rail) does not reflect the Site’s potential as an signature gateway and anchor for the emerging Bergamot Transit Village and Mixed-Use Creative Districts. 

 

Further, there are a number of existing issues associated with the current availability of parking at Bergamot Station Arts Center and how parking will be controlled and managed once Expo light rail is in operation.  Staff will be in discussions with the leaseholder, Bergamot Station Ltd., as to these property management issues, including: 

 

 

 

 

There is also on-going discussion regarding interim property improvements that will improve pedestrian accessibility, security, public way-finding and existing building conditions. In 2013, staff secured a $75,000 grant from the National Endowment for the Arts (NEA) to help support way-finding, public art, and interim marketing efforts and is working with the BSBCA to reach consensus on the use of these funds.

 

 

Environmental Analysis

Authorization to negotiate and execute an ENA is exempt from CEQA.  Consideration of the project eventually will require additional environmental review and may include a project EIR.

 

 

Next Steps

If Council authorizes exclusive negotiations, the Development Team would begin community outreach efforts on the project design and open space programming, and incorporate feedback from the community and from Council, boards, and commissions gleaned during initial float-up presentations. A disposition and development agreement and environmental analysis would follow, in accordance with the Bergamot Area Plan.   A development agreement application would not likely be submitted until sometime in 2015 and construction would not be expected to commence until 2017 at the earliest.

 

 

 

 

 

 

Financial Impacts & Budget Actions  

 

There is no immediate financial impact or budget action necessary as a result of the recommended action.

 

 

Prepared by: Jason Harris, Economic Development Manager

                         Jennifer Taylor, Economic Development Administrator

 

 

Approved:

 

Forwarded to Council:

 

 

 

 

 

 

Andy Agle, Director

Housing and Economic Development

 

Rod Gould

City Manager

 

 

Attachments:

A.               Bergamot Station Community Survey Results

B.               Bergamot Station Community Feedback Comments Sept. 9, 2014

C.               Development Proposal and Public Revenue Matrix