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HomeMy WebLinkAboutMola Development Corporation - Charter Centre - Prepayment Agrmt/ Promissory Note Pursuant to OPA - 1988-07-05Q CITY OF HUNTINGTON BEACH 2000 MAIN STREET OFFICE OF THE CITY CLERK July 12, 1988 Mola Development Corp. 17011 Beach Blvd., Suite 1500 Huntington Beach, CA 92647 Enclosed is an executed copy of Promissory Note between the City ment Agency and Mola Development by the City Council of the City Connie Brockway City Clerk CB:bt Enc. CAUFORNIA 92648 an Prepayment Agreement and of Huntington Beach Redevelop - Corporation which was approved of Huntington Beach on July 5, 1988. (Telephme: 714 536-6227) kv--i PREPAYMENT AGREEMENT & PROMISSORY NOTE BETWEEN THE CITY OF HUNTINGTON BEACH REDEVELOPMENT AGENCY AND MOLA DEVELOPMENT CORPORATION This Prepayment Agreement and Promissory Note dated July 5 , 1988 is entered into by and between the Redevelopment Agency of the City of Huntington Beach (the "Agency") and Mola Development Corporation (the "Participant"). WHEREAS, the Agency and the Participant previously entered into the certain Owner Participation Agreement dated April 15, 1985 concerning the development of the project known as Charter Center (the "OPA"); and A dispute has arisen concerning the interpretation of the parties' relative obligations under Section 306 of the OPA concerning the agency's obligation to pay Participant 65% of tax increment revenues and Participant's obligation to repay the Agency for building permit, plan check and similar fees; and The parties have negotiated this Prepayment Agreement and Promissory mote to resolve the dispute and satisfy in full all monetary obligations of each party pursuant to Section 306 of the OPA. NOW, THEREFORE, the parties hereto agree as follows: Section 1. AGENCY PAYMENT The Agency agrees to and shall pay to the Participant, and the Participant agrees to accept, the sum of One Million Two Hundred Thousand Dollars ($1,200,000) as full satisfaction of any and all monetary obligations by the Agency to the Participant pursuant to Section 306 of the OPA on or before July 7, 1988. Section 2. PARTICIPANT PAYMENT Participant agrees to pay to the Agency, and the Agency agrees to accept, the sum of One Hundred Thousand Dollars ($100,000) as partial payment of the agreed Three Hundred Thousand Dollar ($300,000) obligation the Participant owes the Agency pursuant to Section 306 of the OPA on or before July 7, 1988. Section 3. OFFSET Both Parties agree that the Agency shall offset the One Hundred Thousand Dollars ($100,000) payment by Participant, pursuant to Section 2 above against the One Million Two Hundred Thousand Dollars ($1,200,000) owed by the agency, pursuant to Section 1 above, thereby acknowledging that the Agency shall deliver payment in the full amount of One Million One Hundred Thousand Dollars ($1,100,000) on or before July 7, 1988 as full satisfaction of the Agency debt pursuant to Section 306 of the OPA. �l -1- Section 4. FURTHER PARTICIPANT PAYMENT Participant agrees to pay and Agency agrees to accept the further payment of the sum of Two Hundred Thousand Dollars ($2001000), to earn interest at the rate of eleven percent (11%) per annum, and payable in three equal payments in the amount of Eighty-one Thousand Eight Hundred Forty Three Dollars ($811843) to be paid on June 30, 1989, June 301 1990 and June 30, 1991, respectively, as further satisfaction of the Participant's remaining monetary obligation to the Agency under Section 306 of the OPA. Section $. PREPAYMENT In the event that Participant determines to pay any of the obligations specified in Section 4 above in advance of the dates specified therein, there shall be no prepayment penalty assessed against such early payment. Section 6. LIMITATION The agreement by the Agency and the Participant to accept payment pursuant to this Prepayment Agreement and Promissory Note as satisfaction of each of the Participant's and Agency's monetary obligations pursuant to Section 306 of the OPA shall not effect either of the parties' rights, remedies or obligations as provided in the remainder of the OPA. REDEVELOPMENT AGENCY OF THE CITY O=GTON.BEACE chairman Pro-Tem ATTEST: 44;cijL A WL1FA fw0wAj Clerk Agency S cretary F MOLA A 44OPME*,CORPORATION By Its: APPROVED AS TO FORM: ' STRADLING, YOCCA, CAR N and AIL H , C#Tj ATTORNEY AND RAUTH, SPECIAL COUNSEV AGENCY NSEL cb -2- REC;,, cST FOR C-ZTYY,Cpunck. t_ . IREDEVELOPMENT AGENCY ACTION Date June 27, 1988 Honorable Chairman and Redevelopment Agency Members Submitted to: n Paul E. Cook, Executive Directory-1. . Submitted by: _ Robert J. Franz, Deputy City Administrator/Administrative Preparod by: ; ' PREPAYMENT OF DEBT: REDEVELOPMENT Subject: 19�APPROVED B CITY C c�. � Consistent with Council Policy? jq Yes I ] New Policy or Exception Statement of Issue, Recommendation, Analysis, Funding Source, Alternative Action3; Atria en r j TATEMENT OF I Approval of a written agreement and Appropriation of $1,200,000 of funds to Oakview Project Area Account 813601 is needed to fully satisfy the Agency's obligation under the February 7, 1983 Owner Participation Agreement with Mola Development Corporation. RECOMMENDATION: Approve the attached prepayment agreement and promissory note to finalize the prepayment of debt to Mola Development Corporation in the amount of $1,200,000 and appropriate funds in that amount in account 813390. ANALYSTS: At your June 20, 1988 meeting the Agency approved this prepayment and directed the written agreement be presented to the Agency at your next meeting to finalize this transaction. On February 7, I983, the Agency and Mola Development Corporation (Developer) entered Into a Participation Agreement relating to the Charter Centre project. This set forth certain financial obligations of the Agency and the Develcper.JheAgency purchased public improvements and right-of-way from the Developer and 4&ee1 to defer certain development fees due the city. The payment for the public improvements and right -of --way was to come from tax increment directly caused by the Charter Centre Improvements. The amount was not fixed but was to be computed by a formula that is open to Interpretation. Due to the issuance of Huntington Beach Public Financing Authority 1988 Revenue Bonds, the Agency now has an opportunity to settle all the financial obligations at terms favorable to the Agency. The developer has agreed to accept payment of $1,200,000 from the Agency as payment in full for the right-of-way and public improvements. The Agency paid $I25,000 to the developer on July 1, 1987 as the first installment which covered interest only. The stated value of the right-of-way and public improvements was $1,408,047 and has been confirmed by the City. The Owner Participation Agreement (OPA) states that interest accrues at 11% on any unpaid balance. The current amount of unpaid principal and interest is roughly $1,700,000. PIQ 4/84 V The amount of deferred development fees owed to the Agency by the developer under the Owner Participation Agreement (OPA) was $210,&R5 with interest accruing at 11 %. The current unpaid amount of principal and interest is roughly $300,000. To satisfy this debt to the Agency, the developer has agreed to pay the Agency $100,000 immediately upon approval of this above described prepayment, and sign a 3-year prommisory note for the balance of $200,000 at I I % interest. This Owner Participation Agreement (OPA) has been the subject of much study by staff and the developer. The individuals who originally negotiated the agreement are no longer employed by the City or the developer. The financial aspects of the Owner Participation Agreement (OPA) could be interpreted many different ways as described below. The developer has agreed to accept a substantial discount in cash due them if payment is received by 6/21/88. Calculating the amount owed annually to the developer under the Owner Participation Agreement (OPA) has resulted in different interpretations of the amount to be paid annually. Although the project pays over $400,000 per year in property taxes, the agency does not receive all of this amount. This is due to the original Oakview redevelopment project area documents which limited the amount of tax increment the agency could receive in any year to $350,000. Therefore, the Agency receives substantially less tax increment than the developer pays in property taxes. The developer's interpretation Is that 65% of the $350,000 per year maximum is the amount that should be paid each year under the OPA. City staff has calculated a lesser amount based on the County's method of allocating tax increment funds. A consultant was asked to review these methods and has calculated the future year's payments under both the City and developer's interpretations, along with a third calculation assuming the $350,000 per year maximum is increased by the Agency. Exhibit A summarizes the estimated future payments based on the 3 methods of calculation. The developer and staff have agreed to resolve the differences in method of calculation by a prepayment in the amount of $1,200,000. This represents about $300,000 less than the present value of the developer's method of calculation, (calculated at 8.24 %) and about $400,000 less than the full repayment (calculated on the same basis) which would occur if the $350,000 per year maximum were increased. FUNDING SOURCE: On May 1, 1988, the Agency and The Huntington Beach Public Financing Authority entered into a loan agreement whereby the Agency received a $3,500,000 loan from Bond Proceeds. Part of these proceeds have been earmarked for payment of this debt to the developer. ALTERNATIVE ACTIONS: 1. Do not approve contract and attempt to negotiate further with the developer. ATTACHMENTS: EXHIRIT A - Estimated Future Payments. Agreement PFC/RJF:mg 0596J EXHIBIT A ANNUAL PAYMENT COMPARISON ALTERNATIVE INTERPRETATIONS Mola Agency Calculated Calculated Payments Based on Year Payments Allocation Metl>od 1987 $ 125,000 $ 125,000 1988 213,721 166,396 1989 227,500 164,705 1990 227,500 163,629 1991 227,500 162,592 1992 227,500 161,591 1993 227,500 160,624 1994 227,500 159,691 1995 227,500 158,790 1996 227,500 1_�7 221 TOTAL $ 2,158,721 $ 1,580,939 3276a Payment If $350,000 Max Increased $ 125,000 (paid) 166,396 245,181 246,124 251,109 256,612 247,289 251,203 256,678 262,265 $ 2,307,857 6-,S N REQUES Cs REDEVELOPMENT �aENCY ACTION APPROVED By CITY COU;:CIL 1� Date June?i?r1988 CJTX Submitted to: Honorable Chairman and Redevelopment Agency Members Submitted by: Paul E. Cook, Executive Director Prepared by: Robert J. Franz, Deputy City Administrator/Administrative Ses Sub;ect: PREPAYMENT OF DEBT: REDEVELOPMENT Consistent with Council Policy? K Yes [ ] New Policy or Exception Statement of issue, Recommendation, Analysis, Funding Source, Alternative Actions, Attachments: Ra STATEMENT OF ISM: 1. Appropriation of $1,200,000 of funds to Oakview Project Area Account 813601 to fully satisfy Agency's obligation under the February 7, 1983 Owner Participation Agreement with Mola Development Corporation. 2. Approval of the prepayment of this debt requires Agency approval. RECOMMENDATION: Approve the prepayment of debt to Mola Development Corporation in the amount of $1,200,000 and appropriate funds in that amount in account 913390. ANALYSIS: On February 7, 1983, the Agency and Mola Development Corporation (Developer) entered Into a Participation Agreement relating to the Charter Centre project. This set forth certain financial obligations of the Agency and the Developer. The Agency purchased public improvements and right-of-way from the Developer and agreed to defer certain development fees due the city. The payment for the public improvements and right-of-way was to come from tax increment directly caused by the Charter Centre improvements. The amount was not fixed but was to be computed by a formula that is open to Interpretation. Due to the issuance of Huntington Beach Public Financing Authority 1988 Revenue Bonds, the Agency now has an opportunity to settle all {he financial obligations at terms favorable to the Agency. The developer has agreed to accept payment of $1,200,000 from the Agency as payment in full for the right-of-way and public improvements. The Agency paid $125,000 to the developer on July 1, 1987 as the first installment which covered interest only. The stated value of the right-of-way and public improvements was $1,408,047 and has been confirmed by the City. The Owner Participation Agreement (OPA) states that interest { accrues at 11% on any unpaid balance. The current amount of unpaid principal and Interest is roughly $1,700,000. P1011N5 E'5 V The amount of deferred development fees owed to the Agency by the developer under the Owner Participation Agreement (OPA) was $210,685 with interest accruing at 11%. The current unpaid amount of principal and interest is roughly $300,000. To satisfy this debt to the Agency, the developer has agreed to pay the Agency $100,000 immediately upon approval of this above described prepayment, and sign a 3-year prommisory note for the balance of $200,000 at I I% interest. This Owner Participation Agreement (OPA) has been the subject of much study by staff and the developer. The individuals who originally negotiated the agreement are no longer employed by the City or the developer. The financial aspects of the Owner Participation Agreement (OPA) could be interpreted many different ways as described below. The developer has agreed to accept a substantial discount in cash due them if payment is received by 6/21/88. Calculating the amount owed annually to the developer under the Owner Participation Agreement (OPA) has resulted in different interpretations of the amount to be paid annually. Although the project pays over $400,000 per year in property taxes, the agency does not receive all of this amount. This is due to the original Oakview redevelopment project area documents which limited the amount of tax increment the agency could receive in any year to $350,000. Therefore, the Agency receives substantially less tax increment than the developer pays in property taxes. The developer's interpretation is that 65% of the $350,000 per year maximum is the amount that should be paid each year under the OPA. City staff has calculated a lesser amount based on the County's method of allocating tax increment funds. A consultant was asked to review these methods and has calculated the future year's payments under both the City and developer's Interpretations, along with a third calculation assuming the $350,000 per year maximum is increased by the Agency. Exhibit A summarizes the estimated future payments based on the 3 methods of calculation. The developer and staff have agreed to resolve the differences in method of calculation by a prepayment in the amount of $1,200,000. This represents about $300,000 less than the present value of the developer's method of calculation, (calculated at 8.24%) and about $400,000 less than the full repayment (calculated on the same basis) which would occur if the $350,000 per year maximum were increased. FUNDING SOURCE: On May 1, 1988, the Agency and The Huntington Beach Public Financing Authority entered into a loan agreement whereby the Agency received a $3,500,000 of loan from Bond proceeds. Part of these proceeds have been earmarked for payment of this debt to the developer. ALTERNAIBM ACTIQN,�: 1. Do not approve contract and attempt to negotiate further with the developer. AUACHMENI : EXHIBIT A — Estimated Future Payments. PEC/RJF:mg 0596J i EXHIBIT A ANNUAL PAYMENT COMPARISON ALTERNATIVE INTERPRETATIONS Mola Agency Calculated Payment If Calculated Payments Based on $350,000 Max Year Payments l�kgg-ai n Meth Incrmased 1987 $ 125,000 $ 125,000 $ 125,000 (paid) 1988 213,721 166,396 166,396 1989 227,500 164,705 245,181 1990 227,500 I63,629 246,124 1991 227,500 162,592 251,109 1992 227,500 161,591 256,612 1993 227,500 160,624 247,299 1994 227,500 159,691 251,203 1995 227,500 158,790 256,678 1996 721,500 157,221 262,265 TOTAL $ 2,158,721 $ 1,580,939 $ 2,307,857 3276a