Title
Report regarding a resolution authorizing the City Manager to execute a Third Amendment to the Purchase and Sale Agreement with Ensemble Investments, LLC for the disposition of the City-owned property located at 367 Marina Boulevard (APN 015-011-350) for a hotel development. (Nell Selander, Economic and Community Development Director).
Recommendation
Staff recommends City Council approve a resolution authorizing the City Manager to execute a Third Amendment to the Purchase and Sale Agreement with Ensemble Investments, LLC for the disposition of the City-owned property located at 367 Marina Boulevard (APN 015-011-350) for a hotel development.
Body
BACKGROUND
The eastern peninsula of Oyster Point was formerly operated as a municipal landfill (“landfill”) from 1956 until it stopped accepting waste in 1970. It was closed in the 1970s and 1980s in accordance with the State of California Water Quality Control Board (“Water Board”) regulatory guidelines that governed at that time. The majority of the Oyster Point development area is located over the former landfill and includes multiple office and research & development buildings. The development of Oyster Point covers 41 acres in four phases, as agreed upon in the Disposition and Development Agreement (“DDA”) that was executed between Oyster Point Ventures and the City/Redevelopment Agency on March 23, 2011.
The DDA and subsequently approved Oyster Point Specific Plan (“Specific Plan”) identified a 4.7-acre, City-owned parcel as an opportunity site for the development of a full-service hotel development. The Specific Plan provided California Environmental Quality Act (“CEQA”) clearance for up to 350 rooms on the site. The DDA was assigned to Kilroy Realty (“Kilroy”) in 2017. In accordance with the DDA, Phase I included a clay cap repair of the landfill, relocation of refuse, and grading of the site in preparation for development. This work is completed.
In February 2017, staff began an extensive hotel developer solicitation and selection process, with the Housing Standing Committee making a recommendation on December 11, 2017, to select Ensemble Investments, LLC (“Ensemble”) for the proposed development. On April 11, 2018, City Council approved Resolution 50-2018 authorizing the City Manager to enter into an Exclusive Negotiating Rights Agreement (“ENRA”) with Ensemble to negotiate the disposition of the hotel site for the development of a new hotel.
Ensemble, a Long Beach, California-based hotel developer has a strong presence in the Bay Area and brings over thirty years of experience building full and select service hotels. Some comparable projects developed by Ensemble include Hotel Nia in Menlo Park, Hyatt Place in Emeryville, Hyatt Place in Pasadena at The Paseo, and the Dream Inn and La Bahia Hotel & Spa in Santa Cruz. Its most recent and comparable project in the Bay Area is Hotel Nia, which opened in 2018 as an upper-upscale, 11-story, 250-room boutique hotel branded under Marriott Autograph Collection, with 24,000 square feet of amenities, meeting space, and food and beverage services.
On October 27, 2021, City Council approved Resolution 188-2021, authorizing the City Manager to execute a Purchase and Sale Agreement (“PSA”) for the hotel site at Oyster Point with Ensemble for a sale price of $1,000,000. The PSA required closing escrow on or before December 31, 2022, with conditions to closing including entitling the hotel project and executing a Development Agreement with the City. On November 17, 2022, the Planning Commission approved the design, Use Permit, draft Development Agreement, and Transportation Demand Management Plan for the project, consisting of the new construction of a 12-story, 165 foot tall, 350 room, 261,000 square foot building, with 232 surface parking spaces and site improvements, as well as the determination that the project is within the scope of the previously adopted Programmatic EIR under CEQA Guidelines.
The City and Ensemble had not reached agreement on the terms of a Development Agreement prior to the original closing date of December 31, 2022, so the parties negotiated a First Amendment to the PSA. The next step in the entitlement process was for City Council to consider the Development Agreement. The First Amendment to the PSA was executed on December 20, 2022, pausing negotiations between the parties, allowing the City to complete the statutory State Surplus Lands Act process, and then resuming negotiations if no disposition related to that statutory process occurred. The City declared the property surplus and received no bids from interested buyers. The City was then free to resume negotiations with Ensemble.
Given economic conditions in 2023 and the lingering impact of COVID-19 on hotel performance, Ensemble requested and the City agreed to a Second Amendment to the PSA, which was entered into on December 20, 2023, to further extend the close of escrow to July 15, 2025, with a three-month extension at the discretion of the City.
On March 12, 2025, Ensemble requested the City consider an additional two-year extension to the PSA and close of escrow, from July 15, 2025, to July 15, 2027 (see Attachment 1). Specifically, Ensemble requested a two-year extension to the close of escrow due to economic conditions, including the hotel industry not yet returning to pre-pandemic revenues levels, inflation in construction costs, increasing hotel labor costs, and increasing financing costs.
DISCUSSION
To evaluate Ensemble’s request, staff engaged one of the City’s on-call economic development consultants, Economic & Planning Systems (EPS), to review Ensemble’s claims regarding economic conditions preventing them from advancing the hotel concept at this time. EPS determined that Ensemble’s claims about hotel industry revenues, construction costs, labor costs, and financing costs were reasonable and accurate. Additionally, EPS pointed out that should the City decide not to approve a Third Amendment to the PSA extending the amount of time Ensemble has to reach agreement with the City on Development Agreement terms and close on the property, it would be unlikely that the City could solicit a new developer, reach mutually agreeable terms, and proceed to development in a similar time frame. EPS’s analysis is described in a memorandum included as Attachment 2.
For consideration of a two-year extension to the PSA, the City negotiated two terms included in the proposed Third Amendment attached to the associated resolution. First, Ensemble will release its claim that the City did not negotiate in good faith as to the inclusion of a term in the Development Agreement requiring a Labor Peace Agreement. Second, Ensemble will relieve the City of its responsibility to reimburse Ensemble for $150,000 in conceptual design work for possible redevelopment of the spit at Oyster Point. The Third Amendment also provides for the renegotiation of certain terms to be included in the final Development Agreement that reflect the current state of the hotel market. These include financial deal terms, including the Labor Peace Agreement provision, transient occupancy tax rebate, and size, scale, amenities, and class of the future hotel.
A third term proposed to be altered in the Third Amendment is an obligation related to the construction of a temporary north-south trail connecting Marina Boulevard at the north to the Bay Trail at the south. This requirement is related to the City’s permit with the Bay Conservation and Development Commission (BCDC) for the improvements on Oyster Point and was initially imposed on Ensemble. By way of the Third Amendment, the City and Ensemble will agree to negotiate with BCDC to remove the obligation to provide a temporary trail. There is currently a north-south connector trail that is paved, well-maintained, and signed directing visitors from the parking lot at Oyster Point to the Bay Trail. Any temporary trail would be within 300 feet of this existing trail - the length of a city block or less than the length of the 400 block of Grand Avenue. If BCDC will not agree to remove this requirement, the City would build the temporary trail, which is estimated to cost $200,000 and then be reimbursed by Ensemble at close of escrow. The requirement to provide a permanent trail will remain an obligation of Ensemble, but the City will agree to assist with negotiating a less impactful location for the permanent trail than previously contemplated in the BCDC Permit.
To provide sufficient time to evaluate Ensemble’s request, negotiate the terms of a Third Amendment, and draft the document for Council consideration, the City granted a three-month extension as contemplated in the Second Amendment.
FISCAL IMPACT
There is no expected immediate fiscal impact associated with the proposed Third Amendment to the PSA. There is a risk that BCDC could require a temporary north-south connector trail be built, in which case the City would build it and later be reimbursed by Ensemble at close of escrow. The expected cost is $200,000. Additionally, the Third Amendment provides relief from a $150,000 obligation to reimburse Ensemble for design work should the sale not be completed.
CONCLUSION
Staff recommends that the City Council approve a resolution authorizing the City Manager to execute the Third Amendment to the Purchase and Sale Agreement with Ensemble Investments, LLC for the disposition of a City-owned property located at 367 Marina Boulevard (APN 015-011-350) for a hotel development, extending the PSA and close of escrow from July 15, 2025, to July 15, 2027, with one three-month extension at the City’s discretion.
Attachments:
1) March 12, 2025 Ensemble Extension Request
2) May 13, 2025 EPS Memorandum