North Mare Island FAQs

North Mare Island FAQs

Q: What changes have occurred since 2019 that has prompted City and Nimitz to propose changes in the 2019 term sheet?

First, after Nimitz brought SLC on board, SLC identified that importing soils necessary for the development of North Mare Island would cost approximately $20 Million based on the unit costs provided in a 2018 geotechnical report ENGEO prepared for the City. These soil costs are in addition to the $30 Million site development costs and $3.3 Million of demolition costs that City had identified and factored into its conclusion in 2018 that the “As Is” market value of North Mare Island was equal to negative <$20.9 Million>. The uncertainty regarding the length of time it will take to import an estimated two million cubic yards of fill and raise the elevation of North Mare Island and complete surcharging and the uncertainty as to when market conditions will support vertical development, partly due to the COVID pandemic, as well as the developer reporting that the investment was not feasible on leased land, have prompted City and Nimitz to revisit some of the key assumptions embodied in the 2019 term sheet.

Q: Does the decision to bring on SLC as the manager of The Nimitz Company, LLC mean that Dave Phinney and the other original

principals are out of the picture?

No. Dave Phinney and the other original principals are still member/owners of the limited liability company that is Nimitz.

Q: Wasn’t the prior 2019 term sheet as approved by Council binding on the parties?

If so, why would the City let Nimitz off the hook from commitments it made in the 2019 term sheet?

The 2019 term sheet was not binding on either the City or Nimitz and therefore is not enforceable; the 2020 term sheet is also non-binding. Rather, the 2019 term sheet represented an interim expression of the negotiating progress that the parties had made prior to Nimitz bringing on an experienced development manager, Southern Land Company (SLC) in the spring of 2020. The 2020 term sheet is an update of the parties’ progress towards reaching a comprehensive agreement that will lead to the sale and disposition of the property (Purchase Sale Agreement/Disposition and Development Agreement). Until a PSA/DDA has been approved by the Parties and City Council, neither the City nor Nimitz have any obligation regarding transfer and development of North Mare Island.

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Q: The prior term sheet contemplated a land lease to Nimitz with a term of up to 19 years with option(s) to purchase. Why does the new term sheet take a different approach by contemplating the City selling the land to Nimitz within 120 days after DDA/PSA signing?

As noted in the answer to Question 1 above, Nimitz must make a very significant investment in site preparation work (i.e. importing of clean fill estimated to cost upwards of $20 Million followed by expensive and time consuming surcharging and compaction at added expense) before Nimitz can commence the vertical development.

Nimitz has concluded that it will be unable to attract investors to pay for this substantial upfront investment under a lease with purchase option, particularly when the lease is terminable by City if vertical development milestones are not met. The City negotiating team concurs with that assessment and supports a structure under which Nimitz can close escrow on the purchase of the land before making these very substantial upfront investments. Accordingly, rather than wait until the Exclusive Negotiation Agreement expired in January 2022, parties agreed to renegotiate the term sheet to keep the project progressing.

Other reasons for the renegotiation of the term sheet include: • COVID-19 and new staffing between the Parties including bringing on SLC. • Nimitz in 2019 acquired Lennar’s interest in Southern Mare Island. Rather than just focus on North Mare Island, Parties had an increased desire to create a new Mare Island Specific Plan that focuses on development of the entire island.

• Real estate transactions during due diligence often find items that need further information gathering. Based on these investigations, it was clear there was a need to renegotiate the terms for the DDA in order to get commitment on development for North Mare Island as well as South Mare Island.

Q: What are the differences and similarities between the 2019 term sheet and the

2020 term sheet?

Click HERE to view a comparison table between the 2019 and 2020 term sheets.

Q: Which of the two term sheets – the 2019 term sheet or the 2020 term sheet contemplates the higher land sale price?

The 2019 term sheet and 4th amended and restated exclusive negotiating agreement included a purchase price formula which based on a 2018 land value of negative -$20 Million yielded a purchase price of approximately $2.5 Million (i.e. the outstanding balance of the City’s HUD loan). The 2020 term sheet calls for a $3 Million purchase price, or $500,000 more than the 2019 term sheet purchase price.

Q: The 2019 term sheet included specific vertical development milestones that Nimitz would have to meet to keep the lease with purchase option in place. What were those milestones? And why are those vertical development milestones eliminated in the 2020 terms?

The 2019 term sheet required Nimitz to develop and/or rehabilitate 100,000 square feet of building space on Mare Island by year 5 of the land lease, with an additional 100,000 square feet of development or rehabilitation work by each of years 8 and 11. Nimitz has already achieved the 2019 term sheet’s year 5 development milestone goal by rehabilitating the building recently occupied by Factory OS in year 1. While the goals of increasing the property tax base, promoting employment opportunities, and activating the site through successful development are still relevant and desired, the City and Nimitz negotiating teams had concern that requiring development to be undertaken on a speculative basis will be unsuccessful if there is inadequate market demand and new building space remains vacant for extended periods of time. City and Nimitz negotiating teams have concluded that the focus should be on place making, with an emphasis on the historic core and Mare Island Causeway and Highway 37 entry points, and attracting businesses to existing 2

facilities on Mare Island rather than mandating development of new buildings regardless of market demand. The City team believes the requirements for Nimitz to prepare and submit a new proposed Specific Plan by year 2 and guarantee that City of Vallejo and Vallejo Unified School District receive by year 5 a minimum amount of revenue from increased property taxes (see answer to Question 9 below) will more effectively incentivize timely, quality development of, and investment in, Mare Island.

Q: Does the 2020 term sheet include any terms similar to development milestones that will incentivize Nimitz to develop right away and therefore discourage land banking?

Answer: Yes, the 2020 term sheet obligates Nimitz to pay to the City of Vallejo and the Vallejo Unified School District beginning in year 5 and continuing each year thereafter a “payment in lieu of property taxes” (PILOT) equal to what City and the School District would have received if Nimitz had developed with at least $26 Million (in 2020/21 dollars) of private development on Mare Island. The minimum amounts of property taxes that City and the School District would receive from $26 Million of new private development is approximately $50,000 and $62,000 (in 2020/21 dollars) per year, respectively. The payments in lieu of taxes would drop as Nimitz undertakes activities which increase the assessed valuation of its Mare Island property and would cease entirely at such time as Nimitz completes development with an assessed value of at least $26 Million (in 2020/21 dollars). The 2020 term sheet imposes additional milestones on Nimitz to complete demolition of unused buildings (24 months following closing), prepare and submit a new comprehensive Specific Plan (24 months following closing), and commence and complete importation of clean fill, estimated at 2 million cubic yards, as soon as such fill is available at reasonable prices.

focus on place making in the historic waterfront core of Mare Island and then build out from there once the successful historic core area has been established. Concurrent with its efforts to create a unique experience in the historic waterfront core area, Nimitz intends to beautify the Mare Island Causeway and Highway 37 entry points to Mare Island as identified in the Beautification Landscape Plan being developed and detailed in the future PSA/DDA with Phase 1 installed

by March 31,2021. Nimitz and the City will continue to negotiate specific details of Phase 1 development in the PSA/DDA over the next 4-6 months. Tight, concentrated historic core zone planning and studying the market to determine the most successful development proposal includes thoughtful land use development growing from the core outward. Contemplating current market needs as well as the future needs while taking into account the distinctive site, community input and code requirements is important to the success of Mare Island.

Q: The 2020 term sheet requires Nimitz to prepare and submit to City for consideration a new proposed Specific Plan to replace the existing specific plan, the original version of which was prepared more than 21 years ago.

Will the City have to commit to approve a new Specific Plan for Mare Island?

No. While Nimitz would have to prepare and submit a comprehensive Specific Plan to City for consideration, the City Council will have full and complete discretion as to whether to approve or disapprove or recommend changes to any proposed specific plan. Further, an appropriate California Environmental Quality Act (CEQA) document will be prepared in connection with City’s consideration of the new proposed specific plan to identify environmental impacts of the specific plan and City Council will reserve full and complete discretion as to any CEQA findings.

Q: What are Nimitz’s priorities in terms of first phase of development and how does that compare to Nimitz vision in 2019?

Q: What about the Golf Course? Will soils be moved to NMI from the Golf Course? Will it be included in the future Specific Plan process?

In Phase 1 of development, Nimitz intends to

At this point, there isn’t a new plan yet for the 3

golf course area. It is unknown if the golf course area will be able to export dirt or if it will need dirt imported in the future. The golf course dirt was used as a point to identify cost ranges in the ENGEO study, as one alternative.

Any dirt movement consideration to change the golf course use would require City approval and appropriate technical studies. Both the City and Nimitz desire the golf course to be an important part of the Mare Island Specific Plan development.

Q: Where can I find the 2019 Term Sheet?

Click HERE to view the 2019 Terms of Agreement.

Q: If City /Council approves the 2020 term sheet what happens next?

As noted in the answer to question 3 above, the 2020 term sheet is non-binding. That said, if the 2020 term sheet is approved by City Council, City and Nimitz/SLC negotiating teams will work to further negotiate and draft a comprehensive agreement incorporating, among other terms, the key points included in the 2020 term sheet.

City and Nimitz negotiating teams anticipate that a comprehensive agreement consistent with the 2020 term sheet can be completed by early summer of 2021. Once the proposed comprehensive agreement has been completed, the agreement will be presented to the City Council for consideration at a notice public meeting and, if found acceptable, approval.

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