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HomeMy WebLinkAboutCIM/Huntington, LLC - aka CIM Group, LLC - 2004-07-19 (6)Council/Agency Meeting Held: - — Deferred/Continued to: Approved ❑ Conditionally Approved ❑ Denied ocf7 City r s Ignatur Council Meeting Date: July 19, 2004 Department Number: ED 04-15 CITY OF HUNTINGTON BEACH REQUEST FOR REDEVELOPMENT AGENCY ACTION SUBMITTED TO: HONORABLE CHAIRMAN AND REDEVELOPMENT AGENkY -,- MEMBERS SUBMITTED BY: PENNY CULBRE HH-GRAT, Executive Director PREPARED BY: DAVID C. BIGGS, Deputy Executive Director/Director of Economic Development SUBJECT: Approve Fifth Implementation Agreement with CIM/Huntington, LLC for the Redevelopment of Blocks 1041105 Statement of Issue, Funding Source, Recommended Action, Alternative Action(s), Analysis, Environmental Status, Attachment(s) Statement of Issue: The Redevelopment Agency is a party to a Disposition and Development Agreement (DDA) with CIM/Huntington, LLC for the redevelopment of Blocks 104/105 in Downtown Huntington Beach. The Fifth Implementation Agreement, attached herewith, clarifies certain provisions in the DDA relating to the Agency Participation Payment relative to the hotel and acquisiton costs. Funding Source: N/A Recommended Action: Motion to: 1. Approve the Fifth Implementation Agreement with CIM/Huntington, LLC and authorize the Chairperson and Agency Clerk to execute the Fifth Implementation Agreement. Alternative Action(s): Approve a modified version of the Fifth Implementation Agreement; or 2) Disapprove the Fifth Implementation Agreement and direct staff to renegotiate the terms of said agreement. Analysis: Recently, the CIM Group has informed the Redevelopment Agency that instead of selling the hotel to a third party it has determined that it now desires to retain ownership of the proposed hotel. The original DDA anticipated the Agency would participate in the profits of the sale of the hotel at completion. As such, the existing participation lanaguage needs to be modified. F� REQUEST FOR REDEVELOPMENT AGENCY ACTION MEETING DATE: July 19, 2004 DEPARTMENT ID NUMBER: ED 04-15 The proposed participation language has been reviewed by the Sedway Group and has been deemed to be the functional equilvalant of the existing language modified to reflect on -going ownership of the hotel by the developer (Attachment 2). The Fifth Implementation Agreement also clarifies and restates CIM's obligation to indemnify the Agency with respect to any issues arising out of acquisition costs as they relate to the conveyance of the property and the issuance of title insurance by First American Title. The Redevelopment Agency conveyed the site to CIM/Huntington, LLC on June 25, 2004, under the terms of the DDA and the prior Implementation Agreements as part of the original DDA and this Fifth Implementation Agreement also confirms CIM's prior indemnification of the Agency. Finally, the Fifth Implementation Agreement clarifies that the Redevelopment Agency's obligations to begin repayment of the Developer Advance is based on two additional preconditions. The first being that the developer has conveyed fee title or other rights in the public parking facility, with the second being that Agency approved covenenats, conditions, and restrictions for the project which cover maintenance, repair, restoration and assessments have been executed and recorded. Environmental Status: The CIM Environmental Assessment 99-9. Attachment(s): Huntington DDA was deemed exempt under 1. Fifth Implementation Agreement to Disposition and Development Agreement by and between the Redevelopment Agency and CIM/Huntington, LLC, Developer. 2 Sedway Group Letter dated May 10, 2004. RCA Author: Gus Duran X1529 D:\Documents and Settings\dapkusp\Local Settings\Temporary Internet Files\0LK80\RCAFifthlmpAgree.doc -2- July 1, 2004 1:38 PM fi ,f ..:. A FIFTH IMPLEMENTATION AGREEMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT by and between REDEVELOPMENT AGENCY OF THE CITY OF HUNTINGTON BEACH, Agency and CIM/HUNTINGTON, LLC Developer Stb.I MP(final)(6-16-04).DOC FIFTH IMPLEMENTATION AGREEMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT This Fifth Implementation Agreement to Disposition and Development Agreement, dated as of V / 9 , 2004 ("Fifth Implementation Agreement") is entered into by and between the REDEVELOPMENT AGENCY OF THE CITY OF HUNTINGTON BEACH, a public body, corporate and politic ("Agency"), and CIMMUNTINGTON, LLC, a California limited liability company ("Developer"). RECITALS A. The Agency and CIM Group, LLC, predecessor in interest to Developer, entered into that certain Disposition and Development Agreement dated June 17, 1999, which Disposition and Development Agreement was supplemented by that certain [First] Implementation Agreement entered into between the Agency and CIM Group, LLC dated April 6, 2000; that certain Second Implementation Agreement entered into between the Agency and CIM Group, LLC dated March 5, 2001, that certain Third Implementation Agreement entered into between the Agency and CIM/HUNTINGTON, LLC dated October 30, 2002, and that certain Fourth Implementation Agreement entered into between the Agency and CIM/HUNTINGTON, LLC dated as of September 15, 2003 (collectively, the "DDA"). The DDA is hereby incorporated by reference. Reference herein to the DDA shall include any and all Attachments thereto. Any capitalized term not defined herein shall have the meaning ascribed to it in the DDA. B. Agency and Developer intend through this Fifth Implementation Agreement to clarify certain provisions in the DDA relating to the Agency Participation Payment, Acquisition Costs and indemnification obligations. C. The parties are entering into this Fifth Implementation Agreement for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. AGREEMENT 1. Agency Participation Payment. a. Section 215.4 of the DDA added by the Third Implementation Agreement is hereby amended in its entirety to read as follows: If Developer intends to sell the hotel improvements within six months after completion of such improvements (an "Initial Completion Sale"), documentation reasonably satisfactory to Agency's Executive Director regarding the post -completion sale of the hotel improvements to be developed on the Site pursuant hereto, including all information, data and documents necessary to demonstrate the amount of the sales price and terms of the sale and the C:ADocuments and Settings\nmorosoffiLocal Settings\Temporary Intern et Fj I es\O LK8 7\5 th. I W final)(6-16-04)1.DOC Page 1 fact that such sales price is a bona fide fair market value anus -length sales price of the hotel improvements. Developer may include as a part of such documentation a full appraisal prepared, at Developer's sole cost and expense, by an M.A.I. appraiser with at least ten (10) years experience appraising hotel properties in Orange County, to the agency Executive Director, who shall confirm such sales price is satisfactory or give written notice of such Executive Director's belief that such price is not satisfactory. Provided that an appraisal as described in the preceding sentence is submitted to the Agency Executive Director at the same time as the proposed sales price, failure of the Agency's Executive Director to respond within thirty (30) days shall be deemed approval of such submitted sales price, provided that the proposed sales price is submitted together with a letter or other transmittal stating in bold capital letters that failure of the Agency Executive Director to respond within thirty (30) days after such submittal shall be deemed an approval under the DDA. b. Section 701 of the DDA, entitled "Agency Participation Payment," is hereby amended as follows: (1) The definition of Adjusted Gross Revenues is hereby amended in its entirety to read as follows: "Adjusted Gross Revenues" means the excess of 80% of the Gross Revenues for each Operating Year over Developer's Annual Return. Notwithstanding the preceding sentence, if Developer operates the Hotel (whether through a wholly -owned subsidiary or an entity in which Developer or its affiliate(s) owns at least 50% of the ownership interests), and no ground lease is in place between such Hotel owner and Developer, then with respect to Gross Revenue received from the Hotel operations, Adjusted Gross Revenue shall mean an amount equal to the excess of (1) 72% of the net operating income of the Hotel (as reasonably calculated by the Hotel owner's accountants) for each Operating Year over (ii) Developer's Annual Return. Adjusted Gross Revenues shall be included within the certified statement submitted by Developer pursuant to the DDA and the Agreement Containing Covenants Affecting Real Property. (2) The definition of "Adjusted Project Costs" amended by the Third Implementation Agreement is hereby amended in its entirety as follows: "Adjusted Project Costs" means Project Costs as approved by the Agency based upon the Certified Project Cost Statement approved by the Agency pursuant to Section 2.16(d), less the Agency Obligation and accrued interest as of the Completion Date, as those terms are defined in the Revised Attachment No. 8, plus Approved Post -Construction Capital Expenditures, if any, plus the total of all Annual Return Shortfalls, if any, less Hotel Sale Proceeds from an Initial Completion Sale in the minimum amount of $12,400,000. Such minimum amount of Hotel Sales Proceeds shall apply even if the actual amount of hotel sale proceeds is less than $12,400,000, but only with respect to an Initial Completion Sale. As part of the Certified Project Cost Statement, Developer shall submit for Agency's approval an allocation of Project Costs among the hotel, the retail component and the parking component, and upon Agency's approval such allocation shall be binding upon the parties absent further agreement. C:ADocumentsand Settings\mnorosofflLocal Settings\Temporary InternetFi1es\OLK87\5th.IMP(final)(6-16-04).DOC Page 2 (3) The sentence added by the Third Implementation Agreement to the definition of "Gross Revenues" in Section 701 is hereby amended in its entirety as follows: " "Gross Revenues" shall include, without limitation, any and all payments made to Developer or any of the principals of Developer from the lease or other grant of rights of possession and/or use of the hotel land and space within the Site and/or from or on account of any interest of Developer or any of the principals of Developer retained in the hotel, including, without limitation, principal and interest payments on a note or other instrument of indebtedness and/or net proceeds of any sale or other disposition of any such retained interest, provided, however, to the extent necessary to avoid double counting of revenue received as Gross Revenues, amounts received by Developer or any principals of Developer shall not include any distributions made to partners or members of any partnership or limited liability company that is the owner of the hotel." 2. Acquisition Costs. a. The following new sentence is hereby added at the beginning of Section 201.2 of the DDA "In connection with the close of escrow under this Agreement, the Agency has negotiated that certain agreement entitled "Indemnity Agreement III (Off -Record Matters)" by and between the Agency and First American Title Company (the "Indemnification Agreement"). Concurrently with or following its execution of the Fifth Implementation Agreement to this Agreement, the Agency will execute the Indemnification Agreement." b. The following phrase is hereby added after the phrase "Parcel B" in the first line of Section 201.2 of the DDA: "or any interest in real property (including, without limitation, any public or private easement) necessary to convey title to the Site to the Developer in accordance with this Agreement" C. The following new sentence is hereby added at the end of Section 201.2 of the "`Acquisition Costs" shall also mean any and all costs, fees, expenses, payments or judgments incurred or paid by the Agency pursuant to, in accordance with or under the Indemnification Agreement." 3. Approval of Hotel Development Entity. Provided Developer has submitted to Agency and Agency has reasonably approved a limited partnership agreement for CIM/Huntington Hotel, LP, a California limited partnership (the "Hotel Developer") having Developer and its wholly owned subsidiary (CIM California Urban RE Fund IV LLC) as its partners, then, in accordance with Section 316 (1) of the DDA, Agency C:ADocuments and Settings\nmorosofflLocal Scttings\Temporary InternetFiles\OLK87\5th.I W final)(6-16-04).DOC Page 3 approves the transfer of a portion of the Property to the Hotel Developer (but only if at the time of such transfer more than 50% of the ownership of Hotel Developer is owned by Developer and Developer is in control of the Hotel Developer) after such portion constitutes a legal parcel (the "Hotel Parcel"). Subject to receipt of Agency approval in accordance with Section 316, subsequent transfers of such Hotel Parcel separate from the balance of the Property shall be permitted, and in such case the parties shall reasonably approve an amendment of the Agreement Containing Covenants Affecting Real Property attached as Attachment No. 6 to the DDA to reflect separate ownership of the Hotel Parcel and the balance of the Property, with all corresponding changes made to reflect such separation. As a precondition to any approval of the transfer of the Hotel Parcel, the CC&Rs described in Paragraph 4 below shall have been recorded. 4. Additional Preconditions of Agency Obligation. The following subparagraphs (D) and (E) shall be added to Paragraph (d) (i) of the Revised Attachment No. 8 (Schedule of Feasibility Gap Payments): "(D) Fee title to the public parking facilities constructed by Developer (which may be a condominium unit containing the public parking facilities) shall have been conveyed to the City of Huntington Beach prior to the first payment of the Agency Obligation, such fee title to be in marketable condition subject only to the documents to be recorded pursuant to the DDA, matters required by the City and easements necessary for the improvements and other matters reasonably approved in writing by the Agency and the City. (E) Developer and the Agency shall have agreed upon, executed and recorded a set of covenants, conditions and restrictions ("CC&Rs") to be recorded against the Property covering maintenance, repair, restoration and assessments, which shall be senior to any financing instruments or other liens." 5. Indemnification. The phrase "the Indemnification Agreement and/or" is hereby added in the first sentence of Section 309(a) of the DDA after the phrase "arising from or as a result of." 6. Corresponding Changes in Exhibits. Numerous provisions of the body of the DDA modified by this Fifth Implementation Agreement are contained in substantially the same form in the attachments to the DDA, including without limitation the Agreement Containing Covenants Affecting Real Property attached as Attachment No. 6 to the DDA. To the extent such a provision in the DDA is modified by this Fifth Implementation Agreement and/or prior implementation agreements (and such prior agreements are still in effect) the corresponding attachment shall be deemed modified. 7. DDA in Full Force and Effect. Except as expressly provided otherwise in this Fifth Implementation Agreement and as described in Section 6 above, the DDA remains in full force and effect, enforceable in accordance with its terms. C:ADocumentsand Settings\nmorosof focal Settingffemporary InternetHles\OLK87\5th.IMP(final)(6-16-04).DOC Page 4 8. Further Assurances. The parties agree to execute such other documents and to take such other action as may be reasonably necessary to further the purposes of this Fifth Implementation Agreement. 9. Authority of Executive Director. The Executive Director and Deputy Executive Director of the Agency are each authorized under this Fifth Implementation Agreement to make any approvals on the part of the Agency described in this Fifth Implementation Agreement and to negotiate and execute on behalf of the Agency documents relating to the implementation of this Fifth Implementation Agreement. 10. Date of this Fifth Implementation Agreement. The "Effective Date" of this Fifth Implementation Agreement shall be the date the Fifth Implementation Agreement is executed by both the Developer and the Agency. [remainder of page left intentionally blank] [signatures on following pages] C:\Documentsand Settings\nmorosoft\Local Settings\TemporarylntemetFilcs\OLK87\5th.IMP(final)(6-16-04).DOC Page 5 Agency REDEVELOPMENT AGENCY OF THE CITY OF HUNTENGTON BEACH Date: July 19, 2004 Z24� Chairman ATTEST: nn'A — ) "'=/- - Agency e retary REVIEWED AND APPROVED AS TO FORM: Agency General Counsel ��� u2�0� AP ROVED AS TO FORM: Kane, ka11mer & Berkman AgencyApecial [signatures continue on following page] C:ADocuments and Settings\nmorosoff\Local Settings\Temporary InternetF'i1es\0LK87\5t1l.I W(final)(6-16-04).DOC Page 6 Developer CIMMUNTINGTON, LLC, a California limited liability company Date: By: CIM URBAN REAL ESTATE FUND, L.P. (the "Fund"), a Delaware limited partnership, its manager By: CIM URBAN FUND GP, LLC, a California limited liability company, its general partner By: CIM GROUP, LLC, a California limited liability company, its manager By: ORCHARD CAPITAL CORPORATION, a California corporation, its manager B . Richard S. Ressler, its President C:ADocuments and Settings\nmorosofflLocal Settings\Temporary InternetFiles\OLK87\5th.I W(final)(6-16-04).DOC Page 7 i — _ ,. _ _ ,�. - g - i ,=., �.. — -- � e = � i i� ,�� I �. I �. '� � ���1 � � � l > t i, ____ _ _. � __._. .� ____..—.. .r 11 t i i i�, ,' � i ., a� i_ e ._ '�.. i. �. _.. _._ __ .-_ o .._. — __ .____ May 10, 2004 Mr. David C. Biggs Director of Economic Development City of Huntington Beach 2000 Main Street Huntington Beach, CA 92648 Re: CIM/Huntington, LLC 51h Implementation Agreement Dear David: SEDWAY GROUP Real Estate and Urban Economics Wells Fargo Center 355 South Grand Avenue Suite 1200 Los Angeles, CA 90071 T 213 613 3750 F 213 613 3780 sedway@sedway.com Per your request Sedway Group has reviewed the draft 5"' Implementation Agreement to the Disposition and Development Agreement ("DDA") between the Redevelopment Agency of the City of Huntington Beach and CIM/Huntington,LLC. This agreement is necessary to clarify certain provisions related to the Agency Participation Payment, Acquisition Costs and indemnification obligations. The original DDA envisioned that CIM/Huntington, LLC would develop and own the entire retail, office and hotel project. Retail and office space would be leased to individual tenants, while, the hotel was leased to a 3rd party operator under a long-term lease that paid CIM/Huntington, LLC 90 percent of the net operating income of the hotel. The Agency Participation Payment was designed to provide the Agency with a 30 percent participation in the net income from the development of the Project, above a threshold 12 percent annual return on development costs. With respect to the Agency Participation Payment, the DDA calls for the Agency to receive 30 percent of the "Adjusted Gross Revenues" as defined in the Agreement. Adjusted Gross Revenues was originally defined as the amount of revenue in excess of 80 percent of the "Gross Revenues" (i.e. all revenue of any kind paid to Developer from the rental, licensing, operation use or ownership of the hotel, retail and office space on the site) over the "Developer's Annual Return". The use of the phrase "80 percent of Gross. Revenue" w S to provi e . a 20 percent allowance for the expected operating expensesassociated with the proposed retail and office leases and the proposed hotel lease. This was confirmed in the pro forma analysis in the B1ock104/105 Reuse Appraisal prepared by Sedway Group in May, 1999. CIM/Huntington, LLC now anticipates that it may not lease the hotel, thus directly receiving all hotel revenues and incurring all operating costs. Since hotel operating expenses average 60 to 70 percent of gross revenues, the provision calling for the Agency to receive participation payments based on an expense allowance of only 20 percent of Gross Revenue presents a severe and undue financial hardship never intended in the original Agreement. The 5"' Implementation Agreement modifies the language in Section 70.1 of the DDA to adjust the definition of "Adjusted Gross Revenues" to stay at 80 percent of the retail and office Gross Revenue. However, in the event that an entity of CIM/Huntington, LLC retains ownership of the a CB Richard Ellis Company David Biggs May 10, 2004 Page 2 of 2 SE®WAV GROUP Real Estate and Urban Economics hotel with no ground lease in effect, then the Adjusted Gross Revenue related only to the hotel operation would be defined as 72 percent of the net operating income (as determined under industry standard hotel accounting, before any profit participation) . In essence, the modification converts the net income derived from direct ownership of the hotel into an amount mathematically equivalent to the amount of annual revenue CIM/Huntington, LLC would have received under a 3ra party hotel lease (i.e. 90% of NOI x 80% = 72% of NOI). In our professional opinion, the 5a' Implementation Agreement makes no material changes to the Agency's Participation Payment or any other financial provisions described in the Section 33433 report prepared in connection with the original DDA dated June 1999 and the subsequent 15L , 2na , 3ra and 4rb Implementation Agreements. Sincerely, Thomas R. Jiro Sr. Manaaine Director OUTINPSHE.E I CA R INITIATING DEPARTMENT: Economic Development, SUBJECT: Approve Fifth Implementation Agreement w/CIM Group COUNCIL MEETING DATE: July 19, 2004 RCA ATTACHMENTS STATES Ordinance (w/exhibits & legislative draft if applicable) Not Applicable Resolution (w/exhibits & legislative draft if applicable) Not Applicable Tract Map, Location Map and/or other Exhibits Not Applicable Contract/Agreement (w/exhibits if applicable) (Si ned in full by the City Attorney) Attached Subleases, Third Party Agreements, etc. (Approved as to form by City Attorney) Not Applicable Certificates of Insurance (Approved by the City Attorney) Not Applicable Financial Impact Statement (Unbudget, ove('$5,000) Not Applicable Bonds (If applicable) Not Applicable Staff Report (If applicable) Not Applicable Commission, Board or Committee Report (If applicable) Not Applicable Findings/Conditions for Approval and/or Denial Not Applicable EXPLANATION FOR MISSING ATTACHMENTS: ■��V��I®\'►:1�\��a'�J',!®®�®J:i���ll®!',:®,.®Jim ®®,��1'1! RCA Author: G. Duran, ext. 1529 M,