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					                        Jeffer Mangels
JMBM                    But ler & Mitchel l LLP _ _ _ _ __               _ _ _ __ ____ __ _ _ _ __




 Jon Wei ner                                                                                Two Embarcadero Center, 5th Floor
 Direct: (415) 984-9656                                                                     San Francisco, California 94111-3813
 Fax: 800-538-2541                                                                          (415) 398-8080 (415) 398-5584 Fax
 jwelner@jmbm.com                                                                                                www.jmbm.com


                                                        February 26, 2013

 VIAFEDEX

 Director Christine Baker
 California Department of Industrial Relations
 1515 Clay Street, 17th Floor
 Oakland, CA 9461 2
 Phon~ (415)703-5050


                     Re:        Request for Public Works Determination
                                Town Centrale, Hercules, California


 Dear Director Baker:

         I am writing on behalf ofUC-BNB, LLC ("UC-BNB"), the developer of the Town
 Centrale project in Hercules, California. Pursuant to California Code of Regulations, title 8,
 section 16001(a), UC-BNB hereby requests a public works coverage determination for the Town
 Centrale project.

 SUMMARY OF ANALYSIS

        Town Centrale is a private, mixed-use development project that has received no public
 funds and is therefore not a public work.

         Prior to acquisition of the Town Centrale property by UC-BNB, the project site was the
 location of Sycamore North, a project ofthe City ofHercules Redevelopment Agency ("Hercules
 RDA''). Sycamore North was public work paid for out of public funds, and was the subject of a
 Project Labor Agreement ("PLA"). However, when the project was halfway finished, the
 Hercules RDA and the City ofHercules ("City") ran out of funds and determined that they could
 not provide the additional $25 million or more needed to complete the project. The City
 declared Sycamore North to be a "failed project" and decided to abandon the project and sell the
 property at fair market value ("FMV'') to the highest bidder.

         Unfortunately, the half-built project was essentially worthless. The City undertook a
 public bidding process, and received multiple bids for $0. The City ultimately sold the property
 to UC-BNB, a private developer, for $425,000 plus additional future payments subject to a
 formula. The City and two independent appraisers determined the purchase price to be FMV.




          A Limited Liability Law Partnership Including Professional Corporations j Los Angeles • San Francisco • Orange County
 SF 1432528v l
Director Christine Baker
February 26, 2013
Page 2


        UC-BNB is now building a new project at the site, called Town Centrale, which contains
roughly 50% more residential units and 80% less retail space than the abandoned project. The
new project has received no public funds of any kind. The new owner of the property (UC-
BNB) and its general contractor have no connection to the abandoned project and are not parties
to the former PLA. The new project is physically very different from the abandoned project.

        In short, Town Centrale is not Sycamore North. Town Centrale is a private development
on a site that was purchased at FMV by a new developer. The project has received no public
funds. It is therefore not a public work subject to prevailing wage.

FACTUAL BACKGROUND
       On November 6, 2006, the City of Hercules Planning Commission approved the design
review permit for Sycamore Downtown Project, "a mixed-use commercial and residential
development [that] includes 30,104 square feet of ground floor retail commercial and 104 multi
family homes within four buildings." The project applicant was the Hercules RDA 1

         On August 6, 2007, the Community Development Director issued a notice that a "minor
modification" to the project had been approved, changing the configuration to 40,000 square feet
of retail space and 96 dwelling units. 2 75 ofthe dwelling units were designated affordable units.
The project came to be known as "Sycamore North." 3

        In 2009, the Hercules RDA, general contractor Oliver and Company, Inc., and the Contra
Costa County Building & Construction Trades Council and its affiliate unions entered into a
PLA. (A copy ofthe PLA is attached as Exhibit 1.) The PLA Preamble provides that "the
provisions of this Agreement shall apply to the construction of the Sycamore Downtown
Northside Mixed-Use Development Project by the City of Hercules Redevelopment Agency
('Owner')." Section 2.1 of the PLA provides:

                 This Agreement shall apply only to that demolition, site
                 preparation and new construction work awarded by the Owner and
                 performed by the signatory Contractor(s) during the term of this
                 Agreement. The Sycamore Downtown Northside Mixed-Use
                 Development Project includes approximately 96 residential units in
                 multiple floors above a one-story podium containing
                 approximately 40,000 square feet of retail space all to be
                 constructed over a below-grade parking garage, along with site
                 improvements including grading, drainage, on-site parking areas,
                 retaining walls, lighting, signage, landscaping, irrigation, and all
                 utilities such as gas, electric, water, telephone, CATV, and sanitary

1
  www. ci.hercules. ca. us!documents/Projects/Sycamore-North/11-06-06111-06-06. pdf
2
  www.ci.hercules. ca. us/documents!Proj ects!Sycamore-North/08-06-07. pdf
3
  www. ci.herculcs. ca. us/index.aspx?page=231


                                                                                                Jeffer Mangels
                                                                                         JMBM   Butler & Mitchell tLP

SF !432528vl
Director Christine Baker
February 26, 2013
Page 3


                   sewer located generally at Sycamore A venue and Tsushima Street,
                   in Hercules, California ("Project").

        Section 4.1 of the PLA provides: "This Agreement shall only be binding on the signatory
parties hereto ... ."

       On August 23, 2011, the City Council adopted a resolution "Determining That The
Sycamore North Project As Currently Conceived Is No Longer Feasible .... " ("Resolution"). (A
copy of the Resolution is attached as Exhibit 2.) The Resolution stated that although the
Hercules RDA had spent approximately $35 million on the project, neither the RDA nor the City
would be able to provide the estimated $25 million needed to complete the project. The
Resolution stated that, "The Project cannot be developed as originally conceived because the
funds required to complete the Project vastly exceed the funds available to the City and the
Agency." The Resolution directs the City Manager "to solicit additional proposals to sell or
ground lease the Project to a developer for development of an alternative project as
described ... above."

        Following adoption of the Resolution, the City hired real estate broker CBRE and
attempted to sell the property through an extensive marketing effort. After nine months, the City
received twelve offers to buy the property, four of which were deemed to be from qualified
buyers. All four of the qualified buyers offered to pay $0 for the property in "as is" condition.
UC-BNB was selected from among these four qualified buyers. (See correspondence from
City's real estate broker, attached as Exhibit 3.)

      The situation was well-summarized by the City Manager in his Monthly Report for
March 20li4 ):

                   Project I Program Description: Sycamore North is a mixed use
                   residential and retail project, planned to include apartments over
                   approximately 40,000 sq. ft. of retail space. The original project is
                   a failed project. The City and Redevelopment Agency tried to
                   develop and fund a project that no developer would touch and
                   could not be financed because the cost to construct greatly exceeds
                   the value when completed. As late as six month ago, the City was
                   considering demolishing the structure, lopping off two stories or
                   and selling it to an affordable housing developer for a 100% low
                   income project. These were all bad options. The project was then
                   declared failed and marketed as a market rate project.

                   Status: Presidio Development Partners was chosen from several
                   qualified buyers due to their responsiveness to the city's financial
                   obligations and proposed quick close of escrow. Presidio has now

4
    www. ci.hercules.ca.us/index.aspx?page=667



                                                                                                I jeffer Mangels
                                                                                           JMBM I   Butler & Mitchell   LLP

SF 143 2528v l
Director Christine Baker
February 26, 2013
Page 4


                   requested to change most of the ground floor to residential uses,
                   which will require Planning Commission approval, at least at the
                   design review level. The requested change was requested because
                   the site is not considered a prime retail site in comparison with the
                   competition, including the Market HalVRed Barn site and
                   Sycamore Crossing, which are the City's two best remaining retail
                   sites. The increase in residential units also makes the project more
                   economically viable and financeable.

          On January 10, 2012, the City became the Successor Agency to the Hercules RDA. 5

        On March 27, 2012, the City and UC-BNB executed a Real Property Purchase and Sale
Agreement ("PSA"), transferring the property "as is" from the City to UC-BNB. (A copy of the
PSA is attached as Exhibit 4.) The final negotiated purchase price was $425,000, plus additional
future payments based on an "earn-out formula."

           Section 1.7 of the PSA makes clear that the sale is an arms-length transaction at FMV:

                   1.7 No Subsidy by the City; Purchase and Sale at Fair Market
                   Value.

                   Buyer and Seller acknowledge and agree that the neither [sic] the
                   Seller nor the City of Hercules have provided any subsidy to the
                   Buyer's Proposed Development nor is there any plan to provide
                   any subsidy to the Buyer's Proposed Development. Furthermore,
                   both Buyer and Seller Acknowledge and agree that the Property is
                   being purchased for its Fair Market Value and this transaction is on
                   an arm's length basis.

       On August 8, 2012, the parties amended the PSA and strengthened the language of
Section 1.7:

                   1.7 No Subsidy; Sale at Fair Market Value. Buyer and Seller
                   acknowledge and agree that the neither the Seller, the
                   redevelopment agency, nor the City of Hercules, in its regulatory
                   capacity, have provided any subsidy to the Buyer's Proposed
                   Development, nor is there any plan to provide any subsidy to the
                   Buyer's Proposed Development. Furthermore, both Buyer and
                   Seller acknowledge and agree that there were multiple bidders for
                   the Property, and as a result of such bidding process, the Property
                   is being purchased for its fair market value and this transaction is
                   on an arm's length basis.

5
    www.ci.hercules.ca us/index.aspx?page= 118



                                                                                                  I
                                                                                                  Jeffer Mangels
                                                                                           JMBM   I Butler & Mitchell LLP

SF 1432528vl
Director Christine Baker
February 26, 2013
Page 5


           (A copy of the PSA amendment is attached as Exhibit 5.)

       On June 29, 2012, UC-BNB obtained an independent appraisal of the property from
CBRE, a certified appraiser. The report estimated the FMV to be $460,000. _(A copy ofthe
appraisal report is attached as Exhibit 6.)

        On November 13,2012, UC-BNB obtained regulatory approval from the City Council to
proceed with the Town Centrale project. 6 Because the Town Centrale project differs
substantially from the abandoned Sycamore North project, the regulatory approval required all of
the following steps: (1) certifying an Addendum to the Environmental Impact Report ("EIR'');
(2) amending the General Plan; (3) amending the Zoning Ordinance; (4) approved a new Vesting
Tentative Map and Final Development Plan; and (5) approving a new Development Agreement_?

       On January 18, 2013, Wells Fargo Bank obtained an independent appraisal of the
property from Joseph J. Blake and Associates, Inc. ("Blake & Associates"), a certified appraiser.
The report estimated the FMV to be $425,000. (A copy of the appraisal report is attached as
Exhibit 7.)

      Town Centrale is a privately-owned project that is very different from the abandoned
Sycamore North project. Some of the key differences are:

•     The physical configuration of the projects is very different. Sycamore North was a project
      with 40,000 square feet of retail space and 96 mostly "for sale" condominium dwelling units,
      none ofwhich were on the ground floor. 75 of the residential units were designated
      affordable housing. By contrast, Town Centrale has only 10,000 square feet of retail space.
      It has 147 "for rent" dwelling units, many ofwhich are on the ground floor. None of the
      residential units are designated affordable housing.

•     The owner and general contractor have both changed. Sycamore North's owner was the
      Hercules RDA, succeeded by the City; its general contractor was Oliver and Company, Inc.
      Both the owner and general contractor were parties to the PLA. Town Centrale's owner is
      UC-BNB, a private company. The general contractor has yet to be selected; it will be one of
      three general contractors, none ofwhich were involved with Sycamore North, to be selected
      based upon a competitive bidding process. Neither UC-BNB nor any of the prospective
      general contractors were parties to the former PLA.

•     Sycamore North was paid for entirely with public funds. Town Centrale is being paid for
      entirely with private funds.




6
    www.ci.hercules.ea.us/documents/Agendas/Council/2012/11-13-12/Agenda. pdf
7
    www.ci.hercules.ca. us/documents/Agendas/Council/20 12/10-23-12/Agenda. pdf



                                                                                                IJeffer Mangels
                                                                                    JMBM        , Butler & Mitchell U.P

SF 1432528vl
Director Christine Baker
February 26, 2013
Page 6


ANALYSIS

I.        Town Centrale is not a public work subject to prevailing wage requirements.

          A.      Town Centrale is not being "paid for in whole or in part out of public funds."

        Labor Code Section 1720 defines a "public work" as "Construction, alteration,
demolition, installation, or repair work done under contract and paid for in whole or in part out
of public funds." The term "paid for in whole or in part out of public funds" includes all of the
following:

                  (I) The payment of money or the equivalent of money by the state
                  or political subdivision directly to or on behalf of the public works
                  contractor, subcontractor, or developer.
                  (2) Performance of construction work by the state or political
                  subdivision in execution of the project.
                  (3) Transfer by the state or political subdivision of an asset of
                  value for less than fair market price.
                  (4) Fees, costs, rents, insurance or bond premiums, loans, interest
                  rates, or other obligations that would normally be required in the
                  execution of the contract, that are paid, reduced, charged at less
                  than fair market value, waived, or forgiven by the state or political
                  subdivision.
                  ( 5) Money loaned by the state or political subdivision that is to be
                  repaid on a contingent basis.
                  (6) Credits that are applied by the state or political subdivision
                  against repayment obligations to the state or political subdivision.

       Town Centrale has not received public funds in any of these ways, and is therefore not a
public work.

       With regard to item (3) on the list-the transfer of an asset of value for less than fair
market price- it is well-documented that the Sycamore North property was transferred to UC-
BNBatFMV.8

       First, as described in detail above, the City conducted a public, competitive bidding
process over a period of nine months. At the end of the process, there were four qualified
bidders. Each of the bidders offered to pay $0 for the property in "as-is" condition. UC-BNB
was selected. This is the very definition of a fair market value transaction. 9


8
 DIR decisions have held that "fair market price" is the same thing as "fair market value." Rialto Municipal
Airport, Redevelopment Agency of the City of Rialto, PW Case No. 2008-017 (August 15, 2008).
9
 DIR has defined fair market value as "a property's value 'on the date of valuation that would be agreed to by a
seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer,


                                                                                                                     1

                                                                                                         ]M BM IJeffer        Mangels
                                                                                                                         Butler & Mitchell   LLP


SF 1432528vl
Director Christine Baker
February 26, 2013
Page 7


        Second, two appraisals by independent and certified appraisers have determined that the
sale price was at FMV. (Exhibits 6 & 7.) DIR has consistently held that "As a general matter,
the Director will accept a bona fide appraisal performed by an independent and certified
appraiser as determinative of fair market value unless credible evidence to the contrary is
presented." Hotel Construction Project, Turtle Bay Exploration Park, City of Redding, PW Case
No. 2011-16 (December 27, 2011).

        As noted above, the final negotiated purchase price for the property was $425,000, plus
additional future payments based on an "earn-out formula." The first appraisal estimated the
FMV to be $460,000; the second estimated the FMV to be $425,000. The appraisals thus affirm
that the purchase price was at FMV. 10

       Third, the City and UC-BNB explicitly state in the PSA that the parties believed and
agreed the purchase price was at FMV:

                  Buyer and Seller acknowledge and agree that the neither the Seller,
                  the redevelopment agency, nor the City of Hercules, in its
                  regulatory capacity, have provided any subsidy to the Buyer's
                  Proposed Development, nor is there any plan to provide any
                  subsidy to the Buyer's Proposed Development. Furthermore, both
                  Buyer and Seller acknowledge and agree that there were multiple
                  bidders for the Property, and as a result of such bidding process,
                  the Property is being purchased for its fair market value and this
                  transaction is on an arm's length basis.

(See Factual Background section above.)




being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with
full knowledge of all the uses and purposes for which the property is reasonably adaptable and available."' It further
noted that, "In order for a transfer to be considered at fair market price within the meaning of Labor Code section
1720(b)(3 ), there must be evidence that the purchase price is determined by competitive forces in the ' market."'
Decision on Administrative Appeal Re: Public Works Case No. 2004-035, Santa Ana Transit Village, City of Santa
Ana (June 25, 2007). In a competitive bidding process, such as occurred in this case, the purchase price is
determined by competitive forces in the market.
10
   The $35,000 difference between CERE's appraised value of $460,000 and Buyer's initial payment of $425,000
does not mean that the property was purchased below FMV. First, the anticipated payments :from the earn-out
formula- which are potentially very significant-are worth at least $35,000. Second, $35,000 is only 0.10% (i.e.,
one tenth of one percent) of the overall cost of the project, which would constitute a de minimis contribution of
public funds. Blue Diamond Agricultural Processing Facility, City of Turlock, PW Case No. 2011-033 (May 9,
2012) (holding that public funds amounting to 1. 75% of the total estimated project cost are de minimis.) Third, the
appraisal by Blake & Associates concluded that the FMV is $425,000.


                                                                                                                 'jeffer Mangels
                                                                                                     JMBM         Butler & Mitchell LLP

SF 1432528v l
Director Christine Baker
February 26, 2013
Page 8


          B.    DIR has consistently held that projects built entirely with private funds on
                property purchased at FMV are not subject to prevailing wage.

         DIR has consistently held that projects built entirely with private funds on property
purchased at FMV are not subject to prevailing wage-even if the prior owner received public
funds for the construction of a public work. See, e.g., Phase II Residential Development,
Victoria Gardens, City ofRancho Cucamonga, PW Case No. 2003-014 (July 20, 2005)
("Victoria Gardens"); Decision on Administrative Appeal, Baldwin Park Marketplace Project,
PW Case No. 2003-028 (June 28, 2005) ("Baldwin II'); Chapman Heights, City of Yucaipa, PW
Case No. 2003-022 (January 30, 2004) ("Chapman Heights"). The rationale for these decisions
is straightforward: since a buyer at FMV is-by definition-not receiving a public subsidy on
the purchase price, the project has not received any "public funds" and is not a public work.

        In Victoria Gardens, the publicly-funded project was the construction of a regional mall
by a developer; the privately-funded project was a residential development, to be constructed by
a third-party on land purchased from the developer at FMV. In Baldwin II, the publicly-funded
project was the construction of a shopping center and related infrastructure; the privately-funded
project was the building of a Wal-Mart store in the shopping center on a lot purchased by Wal-
Mart at FMV. In Chapman Heights, the publicly-funded project was the construction of major
infrastructure improvements that would benefit the region; the privately-funded project was a
residential development constructed by builders who purchased land from the developer at FMV.

        In each of these cases, the property was initially owned by a developer who was building
a project with public funds. The developer sold the property at FMV to a third party, who
proceeded to build a project paid for entirely with private funds. In each case, DIR held that the
new project was not a public work subject to prevailing wages.

          C.    Town Centrale is not a public work subject to prevailing wage requirements.

        For the reasons set forth above-namely, that UC-BNB is building the Town Centrale
project with no public funds on property that was purchased at FMV-we respectfully request
that the Director determine that Town Centrale is not a public work subject to prevailing wage
requirements.

II.       The Sycamore North PLA is not applicable to Town Centrale.

          A.    The developer and general contractor of Town Centrale are not signatories
                to the PLA.

        As noted above, the PLA was signed by the Hercules RDA, the general contractor Oliver
and Company, Inc. ("Oliver"), and the Contra Costa County Building & Construction Trades
Council and its affiliate unions (collectively, "Council"). The PLA designates the Hercules RDA
as the "Owner" and Oliver as a "Contractor." (PLA Preamble.)




                                                                                               Jeffer Mangels
                                                                                    JMBM       Butler & Mitchell liP

SF 1432528vl
Director Christine Baker
February 26, 2013
Page 9


        Neither the current owner (UC-BNB) nor the new general contractor11 ofthe Town
Centrale project are signatories to the PLA. The PLA makes very clear that "This Agreement
shall apply only to that demolition, site preparation and new construction work awarded by the
Owner and performed by the signatory Contractor(s) during the term of this Agreement." (PLA
§ 2.1.) It further provides that "This Agreement shall only be binding on the signatory parties
thereto ... ." (PLA § 4.1.)

       Since UC-BNB and the new general contractor are not signatories to the PLA, it is not
applicable to them.

          B.      The PLA explicitly applies to the Sycamore North project-which no longer
                  exists.

     The PLA narrowly defines the Project covered by the PLAto be the Sycamore
Downtown Northside Mixed-Use Development Project:

                  The Sycamore Downtown Northside Mixed-Use Development
                  Project includes approximately 96 residential units in multiple
                  floors above a one-story podium containing approximately 40,000
                  square feet of retail space all to be constructed over a below-grade
                  parking garage, along with site improvements including grading,
                  drainage, on-site parking areas, retaining walls, lighting, signage,
                  landscaping, irrigation, and all utilities such as gas, electric, water,
                  telephone, CATV, and sanitary sewer located generally at
                  Sycamore A venue and Tsushima Street, in Hercules, California
                  ("Project").

        As noted above, the Town Centrale project differs substantially from the abandoned
Sycamore North project. The abandoned project included 40,000 square feet of retail space and
96 residential units, with no residences on the first floor. Town Centrale dramatically changed
the configuration of the project, with only 10,000 square feet of retail space and 147 units, many
of which are on the ground floor. The new project differs so substantially from the old one that it
required all new approvals from the City, including an Addendum to the EIR, amendments to the
General Plan and Zoning Ordinance, approval of a new Vesting Tentative Map and Final
Development Plan, and a new Development Agreement.

      Town Centrale is thus materially different from the "Sycamore Downtown Northside
Mixed-Use Development Project" covered by the PLA.




11
  As noted above, the new general contractor has not yet been selected; it will be one of three general contractors,
none of which were involved with Sycamore North.


                                                                                                           '
                                                                                                     J MBM 1     1
                                                                                                                  Jeffer Mangels
                                                                                                                     Butler & MitcheiiLLP

SF 1432528vl
Director Christine Baker
February 26, 2013
Page 10


          C.   The PLA is outside the scope of this public works coverage determination.

        Finally, it is important to note that the existence (or non-existence) of a PLA is outside
the statutory scope of a coverage determination. The PLA is a contract. It has no bearing on
whether the Town Centrale project is required by statute to pay prevailing wage.

       California Code ofRegulations, title 8, section 16001(a)-which defines the scope of
public works coverage determinations-provides the following:

               Any interested party enumerated in Section 16000 of these
               regulations may file with the Director oflndustrial Relations or the
               Director's duly authorized representative, as set forth in Section
               16301 of these regulations, a request to determine coverage under
               the prevailing wage laws regarding either a specific project or type
               of work to be performed which that interested party believes may
               be subject to or excluded from coverage as public works under the
               Labor Code.

      The scope of a public works coverage determination is thus limited to determining
"whether a project is subject to or excluded from coverage as public works under the Labor
Code." The existence (or non-existence) of a PLA is not relevant to the determination.

          CONCLUSION

        For the reasons set forth above, UC-BNB respectfully requests that the Director issue a
public works coverage determination finding that Town Centrale is not a public work subject to
prevailing wage requirements.

                                          Sincerely,




                                          JON WELNER of
                                          Jeffer Mangels Butler & Mitchell LLP

Exhibits

cc: Steve Duran, City Manager, City of Hercules




                                                                                                 I Jeffer Mangels
                                                                                      JMBM         Butler & Mitchell   LLP


SF 1432528vl

				
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