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HomeMy WebLinkAboutagenda.council.worksession.20250609AGENDA CITY COUNCIL WORK SESSION June 9, 2025 4:00 PM, City Council Chambers 427 Rio Grande Place, Aspen I.Work Session I.A Lumberyard Project Update Zoom Meeting Instructions Join from PC, Mac, iPad, or Android: https://us06web.zoom.us/j/83151683166? pwd=zu05AF0AFoOQ9EPcThPenfkNBPXY1e.1 Passcode:81611 Join via audio: +1 346 248 7799 Webinar ID: 831 5168 3166 Passcode: 81611 International numbers available: https://us06web.zoom.us/u/kcBbflD7bM WS Memo 9JUN2025 Lumberyard.pdf WS PPT 9JUN2025 Lumberyard.pdf 1 1 Page 1 of 10 MEMORANDUM TO: Mayor and City Council FROM: Chris Everson, Affordable Housing Development Project Mgr. THROUGH: Rob Schober, Capital Asset Director MEMO DATE: June 2, 2025 MEETING DATE: June 9, 2025 RE: Lumberyard Project Update and Developer Negotiation REQUEST OF COUNCIL: Update only – information provided in preparation for development agreement with Lumberyard developer Gorman & Company to be presented on July 8 for Council review and potential approval. BACKGROUND: Entitlements for the Lumberyard affordable housing d evelopment were approved by Aspen City Council in Ordinance 10 series of 2023. Council directed staff to seek a private developer to implement the project. Staff performed a developer RFQ/P process in 2024 wherein twelve proposals were received from pre-qualified private developers. After analysis of competitive proposals, staff informed Council the field had been narrowed to five finalists . Staff later held interviews with finalists and performed comprehensive due diligence , both internally and with an external consultant specializing in affordable housing finance. Council supported staff negotiation of a potential development agreement with Gorman & Company after staff recommended Gorman as the best choice for the project. In November 2024, Council approved a contract with Gould Construction for the demolition of the existing facilities at the project site. At a work session with Council in December 2024, staff explained that work was in process to negotiate a guaranteed maximum price (GMP) contract for the construction of the phase 0 .2 infrastructure. DISCUSSION: 1. Progress in 2025 Significant progress has been made on the Lumberyard housing project since the last Council work session on December 2, 2024. The most visible advancement is the site preparation, specifically the demolition of the existing facilities and limited environmental cleanup. 2 Page 2 of 10 In November 2024, Council approved a demolition contract with Gould Construction for the demolition phase 0.1. Gould has since been actively engaged in site work, including demolition and limited environmental remediation. This effort has yielded impressive sustainability results, achieving 94% waste diversion tracked through the Pitkin County Solid Waste Center’s Green Halo system, demonstrating the City’s commitment to environmentally responsible development. A key milestone yet to be completed is obtaining an “all-clear” letter from the Colorado Department of Public Health and Environment (CDPHE). Although the state has already approved the soil cleanup plan, final soil remediation work is still underway. Once finished, CDPHE’s confirmation will allow for the formal transfer of the site to the project’s selected developer on favorable terms. Although the soil remediation is still quite limited compared to the overall scale of the site, the City’s environmental consultant, The Vertex Companies (Vertex), recently discovered additional lead contaminated soil which needs to be removed. Vertex has topped out the hours already in their contract and will need additional hours added to their con tract to provide oversight of the remediation of this new pocket, and Council will see this request for additional services in an upcoming regular meeting. Additional information will be provided therein. 2. Shifting the Phase 0.2 Infrastructure Scope to the Developer During the December work session, staff shared that the City was working with Gould Construction under a CM-GC (Construction Manager/General Contractor) model to obtain a Guaranteed Maximum Price (GMP) for the phase 0.2 infrastructure work. However, staff were ultimately unable to procure an acceptable GMP under this process. As a result, the Council work session originally scheduled for April 7 was postponed while staff sought an alternate path forward. Staff have recently worked closely with the selected developer to transition the infrastructure scope into the developer's responsibilities. While this shift will delay the start of infrastructure construction until 2026, the delay does not create an entirely unfavorable schedule for the project since it will be possible for the developer to make up some of the lost time by performing parts of the infrastructure scope concurrently with vertical scope. City funds budgeted for the phase 0.2 infrastructure construction effort, originally planned to begin in 2025, will be moved to 2026. 3. Developer Negotiation and Developer Model Overview Following an RFQ/P process and due diligence, Gorman & Company was selected as the recommended development partner. The selection was based on their demonstrated experience, financial capability, and understanding of public -private housing projects. 3 Page 3 of 10 Council supported staff’s recommendation to negotiate a Master Development Agreement (MDA) with Gorman. Negotiations are wrapping up, and staff anticipate presenting the proposed MDA for Council approval on July 8. Although the developer has begun limited pre-development work on good faith, full efforts can only begin once the MDA is executed. Developer Model – High Level Overview • The Master Development Agreement (MDA) directs the developer to perform due diligence on a schedule and with the goal of assembling the financing and implementation resources based on the agreed approach. • Developer proposals do not provide guarantees at the time of selection and initial agreement. Because of this, it should be expected that there will be changes to the financing figures and implementation plans as due diligence moves forward. • The developer’s team performs additional study and works toward procurement of project financing, the developer’s final project budget for closing, finalizing construction documents and securing building permits. • When verified resources have been documented in financing agreements, City Council will be asked to approve the agreements, along with the ground lease, deed restrictions and related documents which will all be recorded at financial closing through a title company. • Upon closing, the rental income stream becomes pledged to the mortgage, and APCHA Regulations on rent and income requirements are recorded in the deed restriction, making those binding and unchangeable without lender approval. (Note: An APCHA deed restriction typically refers to the APCHA Regulations “as they are amended from time to time”. This means that annual rent increases published in the APCHA Regulations become automatically adopted from year to year.) • It is only upon closing that the developer’s financial, implementation and ongoing management obligations are memorialized. As planned, this would occur around mid - 2026, with vertical construction, lease-up and ongoing management thereafter. • The City maintains ownership of the land and enters a long-term ground lease with Gorman, allowing the developer to build, own and operate the housing facilities on City-owned property. • Gorman will own and manage the facilities, with an initial contact term and possible future extension. The City will not manage leases nor operations but will maintain oversight rights and enforce key policies through the deed restriction. • Throughout the agreement, the City of Aspen maintains rights to cure an y defaults to protect the City’s investment. The City also maintains some rights to replace the developer as property manager or buy back the facilities under certain conditions. • In contrast with cases where the City acts as developer, hiring Gorman as developer via the MDA provides the City with certain protections from claims and liability, albeit with limitations on control over the project as well. 4 Page 4 of 10 4. Worker Priority and Employer Agreements Within the Developer Model A. Employment Location and/or Essential Worker Priority Above and beyond typical APCHA Regulations, Aspen City Council placed the following lottery priority on for-sale affordable units at Burlingame Ranch Phase 3: “A lottery priority will be provided to applicants who are employed within the Aspen urban growth boundary. This priority will be required for all initial sales and all future resales and will therefore be memorialized in the deed restrictions for the units at Burlingame Ranch Phase 3.” Council may consider including similar priorities at the Lumberyard, whether based on employment location or possibly for certain types of employment which Council may consider essential to the community – although past Councils have typically declined to define essential worker policies for various reasons. The MDA with Gorman allows six months from approval for Council to define any desired worker prioritization policies. Once finalized, those would be incorporated into the deed restrictions and recorded at closing. Discussion and final decisions on any such priorities do not need to delay the MDA with Gorman, and staff proposes scheduling a follow-up work session within the next two months for Council to discuss and take a first step toward deciding any such priority policies for the project. B. Employer Partnerships In the Lumberyard project entitlements, Ordinance 10 series of 2023 states the following: The City of Aspen reserves the right to develop partnerships with area employers, to create master lease agreements with area employers, or to facilitate agreements among area employers and potential private developer operators, to include master lease agreements, rights of first use and/or blanket leases. Under the developer model described above, the City is the ground lessor and cannot lease units directly or create blanket agreements with employers for the leasing of units at the Lumberyard. The City also cannot modify or disrupt the Lumberyard operation’s rent revenue stream since the rents are committed as part of the underwriting of the project’s financing. Gorman agrees that the City’s employer partnership arrangements can be structured in an alternate way to achieve the same goals. The City can seek to create employer partnership agreements wherein employees of partner organizations can be allowed a lottery priority similar to the employment location and/or essential worker priority system described above. Once memorialized into the deed restriction, the developer can enforce 5 Page 5 of 10 such employer partnership priorities just the same as they would any other type of priority, and in doing so, the City and its employer-partners can achieve the intended goal of housing the workers of participating employer-partners. Participating employer partner employees would of course still need to qualify under the APCHA Regulations and income requirements within the deed restriction, and they would need to pay their own rent and utilities like any other tenants on minimum one-year leases. Participating employer partners would pay a separate fee to the City’s 150 Housing Fund for the priority rights granted in such agreements. Workable Structure for City of Aspen-Employer Partnerships Under Developer Model: • Employer-partner employees can be provided a lottery priority, essentially “moved to the front of the line” in the lottery for the next available unit • Employees must be APCHA-qualified, fit within an income tier, and pay rent and utilities just like all other tenants on minimum one-year leases. • Participating employers can sign annual agreements with the City granting their employees priority during the initial lease-up and for unit turnover well into the future. • A maximum cap can be placed on the total overall number of employer partner units allowed at the Lumberyard as well as a maximum per employer. This will ensure that at-large applicants will still have access. • Employer partner organizations would pay an annual premium/fee to the City’s 150 Fund on a per-worker-housed basis. The annual fee would be based on the actual number of employees housed using an employer-partner priority. • This model offers a potential recurring revenue stream for the City because it would work for the initial lease-up and also for unit turnover throughout the life of the project. • Employer partner agreements may be created prior to initial lease up and may also be created well into the future. For agreements created after initial lease -up, priority can be provided an a “next available” basis until the maximum per employer has been reached. • Council will need to define whether employer-partner priority is below, above or equal to any employment location and/or essential worker priority. Once decided, this will be recorded in the deed restriction. • Once the employer partner priority is memorialized in the deed restriction, actual participating employer partner agreements may be entered into at any time by the City and are not on the critical path of the development of the project. Staff are in the process of creating an employer partner engagement plan, and the process for engaging with potential employer partners will take a considerable amount of time and effort. Meanwhile, it will be important for potential employer partners to see the City’s commitment and progress toward development of the project. Within the 6 months allowed under the MDA with Gorman, Council need only decide on the positioning of the employer partner priority with respect to any other priorities desired 6 Page 6 of 10 along with a boilerplate employer partner term sheet to define certain terms and conditions for the employer partner priority program, which the developer will need to approve. Individual employer agreements can occur later and can proceed independent of the MDA with Gorman. Discussion and final decisions on any such employer partner priority program do not need to delay the MDA with Gorman, and staff proposes scheduling a follow -up work session within the next two months for Council to discuss this program along with possible employment location and/or essential worker priority program which Council may wish to put in place. 5. City Funding and Other Funding Sources To build the full project at one time, the developer’s total cost to deliver 100% of the vertical development at the Lumberyard was estimated in Gorman’s proposal to be just over $320 million, and the City’s contribution toward that total was estimated to be $210 million. To support the City’s contribution toward building the full project at one time, the City will need to issue “up to $70 million” in debt in the form of a municipal revenue bond backed by revenues from the City’s 150 Housing Fund. This form of debt will require voter approval in the November 2025 election. Under the MDA with Gorman, the City will not be responsible for any other debt related to the Lumberyard project. The balance of the financing will be handled by Gorman. The City’s $210 million contribution was originally planned to be organized as follows: 2026 Cash available from the City 150 Housing Fund: $80 million 2027 City issuance of debt via 150 Fund revenue bond: $70 million 2027 Cash available from the City 150 Housing Fund: $15 million 2028 Cash available from the City 150 Housing Fund: $15 million 2029 Cash available from the City 150 Housing Fund: $15 million 2030 Cash available from the City 150 Housing Fund: $15 million Total Estimated City Contribution $210 million As staff previously explained to Council at a work session on December 2, 2024, at the proposal stage, those figures are not guaranteed, and any such figures only become guaranteed at the time of closing. But Gorman’s initial proposal did not include the phase 0.2 infrastructure work in the developer’s scope as the City was planning to perform that work. With the addition of the infrastructure scope to Gorman’s plate, staff estimates that the City’s contribution will increase to approximately $250 million, although this does not consider the potential for pending market forces such as impacts of tariffs and/or supply chain impacts which are still looming risks for anyone embarking on a project of this scale in today’s environment. 7 Page 7 of 10 With the change in the City’s contribution due to the addition of the infrastructure scope, staff is planning to present budget requests to support the project as follows: 2026 Cash available from the City 150 Housing Fund: $110 million 2027 City issuance of debt via 150 Fund revenue bond: $70 million 2027 Cash available from the City 150 Housing Fund: $25 million 2028 Cash available from the City 150 Housing Fund: $15 million 2029 Cash available from the City 150 Housing Fund: $15 million 2030 Cash available from the City 150 Housing Fund: $15 million Total Estimated City Contribution $250 million The City did not spend the funds which Council had budget ed in 2025 toward the construction of the phase 0.2 infrastructure. Instead, those funds can used in 2026, and there is no need to raise the bond amount over the “up to $70 million” topset. Annual revenues in the City 150 Housing Fund have once again been outperforming projections. A recent updated projection shows the 2025 ending fund balance may be as much at $130 million. If this continues, it could become possible to use fund balance in place of some of the debt, although City Finance Dept staff are recommending the topset for the public vote be held at “up to $70 million” in case the full amount is needed. At the $70 million level, annual debt service to support the bond is at a responsible level and would be in the area of approximately 15% to 18% of annual 150 Housing Fund revenues. This would not be prohibitive to taking on future projects, and staff estimates that the 150 Housing Fund balance will grow to a level that would be able to pay off the entire debt after 10 years, rather than requiring the full 30-year term of the bond. Although certain restrictions may apply, City Finance has done this in the past and will likely be able to do this in the future. Once the MDA is executed, one of the developer’s primary next steps is to prepare for financial closing in mid-2026. The developer must begin applying for and securing funding from a mix of sources including first mortgages, State of Colorado Proposition 123 equity, and subordinate financing such as CHFA Middle Income Access Program (MIAP) loans and mission-aligned foundation debt as well as the City’s contribution. Under the MDA with Gorman, if the electorate rejects approval of the City’s issuance of debt backed by the 150 Fund to complete the Lumberyard project all at one time, the City can instead instruct Gorman to proceed with a phased approach to implementation. Although this would take significantly longer to get 277 units built and occupied and would likely be more costly due to construction cost escalation, as experienced on past projects. Since a failure of the public vote would not altogether stop the project from proceeding in one form or another, staff are of the opinion that there need not be significant concern over whether to proceed with placement of the ballot question. Staff ha ve begun making the initial arrangements with appropriate counsel to begin drafting ballot language for a public referendum on the matter on the November 2025 election ballot, and unless 8 Page 8 of 10 directed otherwise by City Council, staff plan to proceed with drafting proposed ballot language. This will be presented to Council for approval prior to the deadline for placement on the upcoming ballot. 6. Role of APCHA Qualification of tenants at the Lumberyard will be based on the APCHA Regulations at the income levels defined in the project entitlements in Ordinance 10 series of 2023. Up front coordination with APCHA will be essential to ensure transparency, compliance, and accountability. City staff and the Gorman team will need to work together with APCHA on the items listed below: • Tax-exempt status for the Lumberyard operating entity may be facilitated by including APCHA as a special limited partner in the entity. This would require approval from the APCHA Board. The City and APCHA have worked together in this way on past projects such as 488 Castle Creek. • Development of a customized deed restriction for the Lumberyard will start with a standard APCHA deed restriction and will need to be modified to accommodate any applicant priority defined by City Council and will also need to be customized to support the project financing, which typically requires special care and attention from attorneys representing project lenders. The intention will be to maintain APCHA Regulations as governing throughout, and other regulations related to other funding sources often need to be carefully woven in to facilitate this. • Definition of operational responsibilities can be at APCHA’s discretion. Operationally, APCHA may choose to qualify applicants and perform lotteries or APCHA may require Gorman to qualify applicants and perform lotteries based on the APCHA Regulations. If Gorman qualifies applicants and performs lotteries, documentation for all applicants can be made available via electronic file sharing for APCHA to audit, whether APCHA chooses to audit 100% or some lesser percentage at APCHA’s discretion. • Tenant selection will be performed by lottery for initial lease up and for unit turnover and may include certain City Council priorities. APCHA can maintain final say over means and methods for qualifying applicants and performing lotteries, and APCHA may provide oversight as it deems necessary. • Final terms and any potential APCHA fees must be approved by the APCHA Board prior to closing. Work with APCHA staff and its board can begin immediately upon execution of the MDA with Gorman so that agreeable terms can be worked out well in advance of closing. 7. Implementation Timeline In the event of a successful public referendum on the City’s bond, the developer is committed to delivering the project all at one time, although to do this Gorman does plan to utilize two separate closings and a staggered delivery of buildings. The timeline below is anticipated, although this is subject to change up until the time of closing: 9 Page 9 of 10 April 2026 Closing #1, includes Building 1 and related infrastructure May 2026 Start construction of infrastructure September 2026 Start construction of Building 1 May 2027 Closing #2, includes Building 2, Building 3 and related infrastructure June 2027 Start construction of Building 2, Building 3 and related infrastructure June 2028 Building 1 complete and ready for lease-up January 2029 Building 2 complete and ready for lease-up June 2029 Building 3 complete and ready for lease-up 8. Conclusion and Next Steps City staff plan to present the Gorman MDA for Council review and approval at Council’s regular meeting on July 8, and most of what the MDA will contain is described here at a very high level. Staff also plan to schedule a follow up work session related to worker priority and employer agreement discussions, and staff will move forward with drafting ballot language for the bond referendum “up to $70 million”. This will be presented to Council for approval later this summer. Council is encouraged to raise any questions at this time, and if further clarification is needed, staff will ensure responses are available at the July 8 City Council regular meeting. FINANCIAL/BUDGET IMPACTS: Included above. ENVIRONMENTAL IMPACTS: Project sustainability certification through Enterprise Green Communities Plus with 75% net zero offset via on-site solar photovoltaic systems and battery storage facilities is built into the project’s planned development (PD) requirements and will be a fundamental requirement of developer’s scope of work. RECOMMENDATIONS: Staff recommend that Council carefully review the proposed MDA with Gorman, when presented, and consider approval so that this crucial community project can move forward in a timely manner. Staff also recommend that Council support a public referendum on the November 2025 ballot for “up to $70 million” in debt in the form of a municipal revenue bond backed by revenues from the City’s 150 Housing Fund to facilitate development of the full Lumberyard project all at one time. This approach will make much more affordable housing available much sooner, rather than a program of long-term construction phasing, which past projects have shown to be expensive and time consuming. Finally, staff recommend that Council inform staff at this time what sort of applicant prioritization, if any beyond typical APCHA Regulations, Council may see as important 10 Page 10 of 10 when qualifying applicants for this project. Staff will make note of Council’s interests at this time and will return to council at a future work session to review those in more detail. CITY MANAGER COMMENTS: ATTACHMENTS: Exhibit A – Presentation slides 11 Aspen Lumberyard Affordable Housing Project Update and Developer Negotiation June 9, 202512 Agenda 2 of 11 •Progress •Infrastructure •Developer •Worker Priority •Employer Agreements •City Funding •APCHA •Timeline •Next Steps / Q&A 13 Progress Since Last Council Update 3 of 11 •Gould contract Nov 2024 •Demolition complete •94% waste diversion •Site cleanup finishing soon •State approved plan •CDPHE “All Clear” •Site handover 2026 14 Shifting the Infrastructure Scope 4 of 11 •CM-GC negotiation •No acceptable GMP •4/7 work session postponed •Transition scope to developer •Delays start to 2026 •Unspent City funds to 2026 15 Developer Model 5 of 11 •Ground lease •Developer owns/manages •APCHA Regulations •Gorman operates •City oversight •Financial closing mid-2026 •Rents support mortgage 16 Work Location or Essential Worker Priority 6 of 11 •UGB priority Burlingame 3 •Lumberyard possibilities: ✓Employment location? ✓Essential workers? ✓Other? •Six-month deadline •No delay to MDA •Upcoming work session 17 Employer Agreements 7 of 11 •City not unit lessor •Priority system instead •Same goal accomplished •Annual agreements •Employees must qualify •Employees pay rent •Lease-up and future turnover •Annual fee to City 150 •Annual future revenues •Decide priority hierarchy •Decide basic terms •Six-month deadline •Agreements come later •No delay to MDA •Upcoming work session 18 City Funding 8 of 11 •Total cost ~$320 million •Develop “all at one time” •City portion ~$250 million* •Bond “up to $70 million” •Responsible debt service •Public vote Nov 2025 •If vote fails, can be phased •Developer sources •Financial closing mid-2026 19 Role of APCHA 9 of 11 •City, Gorman, APCHA •Tax-exempt status •Deed restriction •APCHA Regulations •APCHA / Gorman ops •Transparency, enforcement •APCHA defines process •Additional terms or fees •APCHA board approval •MDA to get started 20 Implementation Timeline 10 of 11 Develop “all at one time” •Mid 2026 closing #1 •Mid 2027 closing #2 •Mid 2028 B1 complete •Early 2029 B2 complete •Mid 2029 B3 complete 21 •MDA July 8 consent •Work session soon •Draft ballot language •Q&A now and July 8 •Discussion & Questions •Thank you! Next Steps 11 of 11 22