Title
***ADD-ON (SEE ATTACHED MEMO)*** Ordinance Amendment to Include Updated Specific Agreement Terms for the Resource Innovation Campus Development (Ordinance S-53313) - District 7
Description
Request to authorize the City Manager, or the City Manager's designee, to amend Ordinance S-51535 to incorporate finalized agreement terms for the Development Agreement, Ground Lease, and Feedstock Agreement related to the development of the Resource Innovation Campus (RIC) resulting from participation in the C40 Reinventing Cities Program.
Report
Summary
The City participated in the C40 Reinventing Cities Competition, a unique global call for projects to develop a resource innovation headquarters and campus that will utilize the municipal waste stream to develop circular economy uses and help meet the City Council-adopted 50% waste reduction by 2030 and zero waste by 2050. Krause Interior Architecture, Inc. submitted the winning proposal to act as the master developer and construct the campus along with the headquarters building and supporting subtenant uses for a portion of the overall 27th Avenue Site. Their proposal promised to deliver a RIC Campus that was dedicated to the creation and growth of a circular economy that will fulfill the City's waste diversion goals set forth in the 2021 Climate Action Plan for waste reduction as described above.
On December 18, 2024, City Council authorized the City Manager, or the City Manager's designee, to enter into a development agreement and execute any related agreements, instruments, or documents necessary with Krause Interior Architecture, Inc., and its affiliates or subsidiaries, for development of the RIC resulting from participation in the Reinventing Cities Competition. Council further authorized the City Treasurer to accept and the City Controller to disburse funds associated with the ordinance.
Ordinance S-51535 established a two-phase approach with an initial five-year contract term, beginning on or about December 18, 2024, with no options to extend. Phase II contemplated amending the term for up to a maximum of 99 years.
Since Council approval, environmental assessments, land appraisals, fair market lease rate assessments, and some preliminary work have been completed. The Developer has provided documentation demonstrating financial capacity to complete construction. As a result, the previously contemplated pilot demonstrations and two-phase structure are no longer necessary.
This request seeks amendment of Ordinance S-51535 to incorporate finalized agreement terms for the Ground Lease, Development Agreement and Feedstock Agreement to build the RIC Campus and substantially help implement the City's zero waste by 2050 goal. This requested amendment also eliminates the two-phase structure as originally contemplated and is based upon the below major points.
Ground Lease
- Approximately 33.9 gross acres located on the eastern portion of the southeast corner of 35th Avenue and Elwood Street will be leased for a term of 99 years.
- “Net Rent” shall equal one-fourth (1/4) of the Appraised Rental Value, determined annually for the applicable phase(s), less any quarterly Diversion Deduction offset credit.
- “Diversion Deduction” shall mean, on a quarterly basis, amounts owed by the City to the Tenant pursuant to the Feedstock Agreement, as reflected on the Tenant’s invoice, up to the Appraised Rental Value for that quarter. Offset credits will only be earned based on the applicable quarterly Diversion Deduction. The credit is an offset of funds that otherwise would have been directed toward landfill operational costs by the Public Works Department and is not an additional payment.
The Tenant shall have the right to use the premises for circular economy solution development, including but not limited to waste stream materials such as:
- Municipal solid waste and organic waste;
- Difficult-to-recycle plastics (#3, #4, #6, #7);
- Lithium-ion batteries and electronic waste;
- Textile waste;
- Construction and demolition waste; and
- Industrial, research, educational, office, and retail uses associated with circular economy activities.
The City may consider additional uses aligned with the 2050 Sustainability Goals, Phoenix Climate Action Plan, Rio Reimagined Initiative, and other environmental sustainability initiatives upon written request by the Tenant.
The Campus Headquarters Building shall obtain a minimum of one Petal Certification under the Living Building Challenge. All other permanent buildings shall, as applicable, obtain LEED v4.1 Building Design and Construction Certification and demonstrate compliance with energy efficiency, low-carbon energy, life cycle assessment, and sustainable materials management principles consistent with the C40 Reinventing Cities Competition requirements.
If the Tenant does not Commence Construction, as defined in the Development Agreement, on the Campus Headquarters Building within eight years of December 12, 2024 (the original signed Letter of Intent date) or does not obtain a certificate of occupancy for the Campus Headquarters Building within two years of Commencement of Construction, the City, as Landlord's sole remedy in connection with either such Tenant default, may elect to terminate the Ground Lease, Feedstock Agreement, and Development Agreement, subject to the terms therein.
Development Agreement
The Development Agreement confirms RIC PHX, LLC as the Developer and that the Developer does not intend to seek reimbursement from the City for Public Infrastructure Improvements. The Development Agreement also provides that approximately 22 net acres of the 33.9 gross acres will be used for development.
Feedstock Agreement
- The Feedstock Agreement will have a term of 50 years following the Commercial Operation Date, with four 10-year renewal options and one additional nine-year renewal option, unless earlier terminated or extended as provided in the agreement so long as the full agreement terms are being met by RIC PHX, LLC.
- RIC PHX, LLC will serve as the Operator.
“Feedstock” means waste collected from residential customers and delivered by the City to the 27th Avenue Transfer Station, or received by the Operator from residential customers and delivered by the City to the North Gateway Transfer Station, if elected by the Operator and coordinated with the City, that is not otherwise obligated under existing agreements, including the WeCare Denali Agreement or Circular Services Agreement.
Key provisions include:
- There is no obligation for the Operator to accept, or for the City to supply, Feedstock between the Effective Date and Commercial Operation Date.
- After the Commercial Operation Date, the City shall maintain availability of Feedstock not otherwise under contract, and the Operator shall accept such Feedstock and prioritize City-provided material.
- If the Operator elects to receive additional Feedstock from other City locations, the parties shall negotiate in good faith to determine actual transfer costs and coordination for delivery of the feedstock. Such costs will reflect the City’s current contracted hauling rate and will be deducted from Post Collection Operational Costs.
- “Post Collection Operational Costs” means post-collection operational costs associated with transporting refuse from the 27th Avenue Transfer Station to the SR85 Landfill, as defined in the Feedstock Agreement. These costs are associated with the Diversion Deduction rent credit and are not an additional payment.
Contract Term
This amendment establishes a 99-year Ground Lease term and a 50-year Feedstock Agreement term, with renewal options as described above.
Financial Impact
The primary financial impact to the City consists of providing Feedstock, including municipal solid waste, difficult-to-recycle plastics, and other materials otherwise destined for landfill disposal. Diverting these materials will reduce the amount of solid waste transported to and disposed of at the landfill, which will help reduce operational costs and prolong the life of the landfill.
Concurrence/Previous Council Action
- The Economic Development and Housing Subcommittee recommended approval on November 25, 2024, by a vote of 4-0.
- City Council approved authorization to enter into the Development Agreement and related agreements on December 18, 2024 (Ordinance S-51535).
Location
East of 35th Avenue and Elwood Street.
Council District: 7
Department
Responsible Department
This item is submitted by Assistant City Manager Ginger Spencer, Deputy City Manager Alan Stephenson, and the Community and Economic Development and Public Works departments.