Somehow, the comments on my election results post turned into a discussion of City subsidies to Forest City and the Uptown Apartments. There seems to be a lot of confusion about our agreement, so I’m just going to explain the whole deal.
The City of Oakland’s total funding contribution to the Uptown Project was $60,031,057.
The Redevelopment Agency was responsible for purchasing the 38 individual properties that comprised the Uptown project area, contributing to part of the environmental clean-up costs, paying for street and infrastructure improvements, and paying for the public park on the property. We provided Forest City $13 million in financial assistance for their development efforts. In addition to that, between 2007 and 2020, we will be making annual payments to Forest City (funded by the tax increment in the City District redevelopment area and reimbursements of Forest City’s business tax payments to the City) to help cover project costs.
This is how the costs break down:
- Costs for assembling the land: $23.5 million
- Initial Financial assistance: $13.6 million
- Financial assistance from tax increment and business tax reimbursement through 2020: $12.1 million
- Environmental Remediation Assistance: $4.1 million
- Infrastructure/Street Improvements: $5.7 million
- Public Park: $1 million
- Total funding: $60 million
Now, $12.1 million of that is money generated by the project itself given back to Forest City, so the total City subsidy of non-project generated funding for Uptown was $47.9 million.
So once we’ve done all that, Forest City gets to build apartments on the property, 20% of which they must make affordable to households earning less than 50% Area Median Income, and 5% of which they must make affordable to households earning less than 120% Area Median Income. They get to lease the land from us for 66 years, and have an option to extend that lease for an additional 33 years.
If they decide to buy the land from us, which they have an option to do, they have to pay either the Fair Market Value of the land or what the land cost us to purchase and assemble, plus annual CPI increases. Whichever of these amounts is less is the one they have to pay (most likely that would be the CPI-adjusted land cost). If they decide to extend their lease after the initial 66 year term, then they just have to pay Fair Market Value whenever they decide to buy it.
Now the part that seems to be causing most of the confusion – the profit guarantee. We are not on the hook for any more money. Forest City wants a minimum of a 12% return on the project. If they do not achieve a 12% return, they don’t have to pay us rent on the land. If they do get that 12% return (the estimate was that this would happen in 2017), then from that point on, they have to pay us 25% of what they’re making over the 12%. They have to do this until whatever date all our financial assistance has been repaid. If, at some point, Forest City sells the project, they have to use the proceeds of the sale to pay back our financial assistance.
So, the best case scenario is that the project is an enormous success and Forest City ends up paying back the entirety of the subsidy (note – costs for infrastructure improvements, remediation, and the park will not be reimbursed at any point). The worst case scenario is that Forest City makes no money on the project and doesn’t pay us back any of the subsidy. Probably it will be somewhere in between.
The information is assembled from a number of different reports. I wasn’t sure how best to include the links, so if people want to know more than I included in the post, you can find it here, here, here, here, here, here, here, here, here, here, and here. They’re all PDFs.
Hope that cleared things up.