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07/18/2006, BUS 1 - APPROVAL OF MEMORANDUM OF UNDERSTANDING INVOLVING THE CITY'S PARKING LOT NUMBER TWO
— — / council Ig O(J j ac,Enaa nEpont mmNmb« CITY O F SAN LUIS OBISPO FROM: Jonathan Lowell, City Attorney Shelly Stanwyck, Assistant City Administrative Officer SUBJECT: APPROVAL OF MEMORANDUM OF UNDERSTANDING INVOLVING THE CITY'S PARKING LOT NUMBER TWO CAO RECOMMENDATION Approve a Memorandum of Understanding (MOU) with WestPac Investments, Inc. (WestPac) which outlines the principles for a series of transactions affecting the City's Parking Lot Two (Lot 2), should a project similar to the proposed Garden Street Terraces be approved after going through the usual development and environmental review processes. REPORT-IN-BRIEF For several months, the City and WestPac have been engaged in negotiations to define the principles which could guide a series of transactions that would facilitate a mixed use development incorporating the City's Lot 2. Now that the parties have a better understanding of the feasibility and type of transactions necessary to facilitate the Garden Street Terraces proposal they have been articulated in the principles set forth in the MOU. Exclusive negotiations with WestPac were authorized at the end of August 2005, because the Garden Street Terraces proposal met significant polices goals and objectives and presented a unique opportunity for redevelopment in light of the properties owned and controlled by WestPac. A series of negotiations between the City and WestPac have taken place. At this juncture, given the complexities and commitments represented by the Garden Street Terraces proposal, to both the City and WestPac, adoption of an MOU is appropriate. The MOU is a nonbinding document and the Garden Street Terraces proposal, upon submission to the City's Community Development Department, will undergo the normal development review process. During the development review process the MOU will serve as a roadmap outlining future transactions to be undertaken as well as identifying standard terms and conditions for each party. There will be significant fiscal and policy benefits to the City if the Garden Street Terraces proposal comes to fruition. DISCUSSION Background Last summer, WestPac, became the controlling property owner/developer of property on Broad, Marsh, and Garden Street surrounding Lot 2 (Attachment 1 - Vicinity Map) On August 23, 2005, the Council entered into an Exclusive Negotiating Agreement with WestPac for the purposes of exploring its Garden Street Terraces proposal. The conceptual proposal f — Lot 2—MOU Page 2 contemplated a mixed-use development of residential, hotel, retail and onsite parking incorporating Lot 2. The purposes of the exclusive negotiations were to: assess the impacts of the proposal, assess the feasibility and type of real property transactions that could be involved should Lot 2 become a part of the conceptual proposal, gain a better understanding of the scope of the development review process, and provide WestPac with an opportunity to involve the community in the process. Conceptual Proposal In its letter of March 15, 2006 (Attachment 2) WestPac outlines both its proposal for Garden Street Terraces as well as the steps necessary to accomplish the conceptual project. As stated in its letter, Westpac's premise for its proposal is "At the foundation of our proposal is our desire to provide no net exposure to the City while preserving long-term revenue flow'. As presently conceived, Garden Street Terraces would include: 1. 70-room hotel with approximately 2,500 square feet of meeting and conference space as well as a restaurant, bar, and gym/spa facility.. 2. 50 residential units of an average size of 1,100 square feet and a range of 650 square feet to 1,500 square feet. 3. Approximately 18,000 square feet of ground floor retail/commercial space. 4. 40 metered public parking spaces, 56 City owned hotel use parking spaces, and dedicated residential parking spaces for each unit. Exclusive Negotiations Are Appropriate in this Instance Pursuant to the California Constitution Article XI, section 5 and Government Code section 37350, a city may sell property essentially in any way it chooses, if the sale is for the common benefit of the city's citizens. Under state law there is no requirement that the City formally declare the property as surplus. The City's Property Management Manual indicates that the City should generally declare property surplus before it is sold through a request for proposals (RFP) process, competitive bid, or auction serves as a guide for Council's decision-making and can be waived when circumstances warrant. In the past, the Council has waived the guidelines set forth in the Property Management Manual and entered into exclusive negotiations when significant policy goals and objectives are met and unique circumstances warrant this type property disposition. For instance, Council authorized exclusive negotiations with the Copelands for various real property transactions to accomplish the Court Street Project. The reasoning for the waiver of the Property Management Manual guidelines was that because each party owned property the other was interested in acquiring, other parties were not in the same position to make this same offer. Upon entering into the Exclusive Negotiating Agreement with WestPac, the Council acknowledged the unique opportunity that Garden Street Terraces could present for the City and identified the following reasons why exclusive negotiations are appropriate: 1. WestPac's control of a majority of the privately held property adjacent to Lot 2 creates a unique opportunity for redevelopment which would not occur without WestPac's property. l - a Lot 2—MOU Page 3 2. The conceptual Garden Street Terraces would help to accomplish several major City Goals for 2005-07 including increasing sales tax and transient occupancy tax (TOT), furthering the downtown .support Goal, as well as implementing other important City policies. 3. WestPac has completed successful projects in San Luis Obispo. Furthermore, at present WestPac has two hotel/housing oriented projects underway in Santa Barbara and is the owner of several hotels in Australia. Negotiations Council first authorized exclusive negotiations with WestPac in August 2005. The initial 120- day Exclusive Negotiating Agreement with WestPac was used to further explore WestPac's conceptual proposal as well as to provide time for WestPac to gather some public input to refine the concept, with the intent of filing a formal application for development. The negotiations have taken longer than originally anticipated due to the complexities of the discussions and the need to complete various economic analyses. Council has therefore extended the term of these exclusive negotiations twice, and did so most recently on May 16, 2006, extending the term through September 9, 2006. The discussions with WestPac have included the CAO, the City Attorney, the ACAO and the City's economic advisor, Allan Kotin. Other staff members have provided valuable input to these discussions, including the Community Development Director, Public Works Director, Finance & IT Director as well as the Deputy Director of Public Works, Parking Manager, and Economic Development Manager. Policy Guidance The General Plan and A Conceptual Physical Plan for the City's Center A series of City policies provide guidance for mixed-use development in Downtown. The General Plan (our community's blueprint for its future) contains many relevant policies. In particular, Land Use Element (LUE) Section 4.1 states that Downtown is the cultural, social and political center of the city for its residents as well as home for those who live in its historic neighborhoods. . . .Civic, cultural and commercial portions of downtown should be a major tourist destination. Downtown's visitor appeal should be based on natural, historical, and cultural features, retail services, and numerous and varied visitor accommodations. LUE Section 4.2 also states that all new; large commercial projects should include dwellings. Lastly, the Housing Element strongly encourages the creation of residential units in downtown and provides a series of polices to incentivize new residential projects. Garden Street Terraces would assist in satisfying this community need for housing. Additional policy guidance can be found in A Conceptual Physical Plan for the City's Center (the Downtown Concept Plan). Particularly relevant policies to this conceptual project contained in the Downtown Concept Plan include: Lot 2—MOU Page 4 1. The success of the Downtown is a fragile thing; if not nurtured it will likely be lost. Constant vigilance, ongoing experimentation and visionary leadership are necessary to keep the Downtown vital. 2. Downtown should be enhanced as . . . a major destination point for tourists. 3. The reduction of surface parking within the core area to allow infill of commercial and mixed use functions should be encouraged. 4. Downtown should provide and maintain a quality environment which will keep office and retail establishments in the core area and attract smaller independent businesses. 5. Residential uses should be encouraged on upper stories of commercial buildings in the core area. Relationship to Major City Goals 2005-07 and Current Policies The conceptual proposal for Garden Street Terraces is also highly relevant to two major City Goals for 2005-07 and would play a significant role in implementing various tasks associated with these goals, as well as in the implementation of other City policies. 1. Sales Tax/Transient Occupancy Tax(TOT) Goal A major Council goal for 2005-07 is to encourage and promote programs and projects that will increase sales tax and TOT revenues. Garden Street Terraces presents an opportunity to develop new retail space as well as a significant number of downtown hotel rooms. Garden Street Terraces, as presently conceived, would satisfy multiple tasks in the goal's action plan including:. continuing to facilitate and coordinate City involvement in significant retail development projects as directed by Council, facilitating seismic retrofit objectives, and creating an opportunity to work with a property owner for the reuse of a large downtown property for a hotel. 2. Downtown Support Goal Another major Council goal for 2005-07 is to continue the City's strong support for the downtown in areas such as economic development and tourism promotion. The proposal would assist in accomplishing various tasks outlined in the downtown support goal such as: the implementation of the Downtown Strategic Plan (which supports this type of mixed-use development), the continued.support of the Seismic Retrofit Program, and the support for the completion of important downtown construction projects. 3. Continued Compliance with City's Seismic Retrofit Ordinance An unexpected outgrowth of Council's acceleration of compliance deadlines for the City's unreinforced masonry (URM) ordinance has been the transfer of ownership of multiple downtown properties. These transfers have allowed property owners, who for various reasons did not want to retrofit their buildings, to sell them to other interested parties. In many instances properties have been assembled into larger parcels which potentially present more efficient opportunities for retrofit and redevelopment. Most of the Garden Street and Marsh Street properties that would be involved in this conceptual project are URMs. The project offers the opportunity to preserve and retrofit some, and redevelop others, thereby bringing seismic safety in the Garden Street area to residents, visitors and property owners. 1 - 4 1 Lot 2—MOU Page 5 Why an MOU is appropriate the appropriate "vehicle" at this stage in the process At this time, prior to the commencement of the development review process for Garden Street Terraces, it is premature to negotiate specific legal transactions. However, pursuing the proposal will be expensive for both parties in terms of money (the developer) and time (both the City and the developer). Given the complexities and commitments associated with the undertaking, each party should have "upfront" a reasonably developed understanding of the series of transactions necessary to accomplish the project, if one is later approved. The purpose of the proposed MOU is to provide the City and WestPac with an outline guiding the creation of the legal documents necessary to complete the transactions and facilitate the incorporation of Lot 2 into such a project. While the MOU identifies necessary future documents ranging from lease agreements to offsite parking agreements to a surety bond to guarantee completion of the project, it is non-binding, thereby allowing both parties flexibility until a project has been approved and final agreements entered into. The MOU does not mean project approval. Entering into the MOU does not mean that the conceptual proposal for Garden Street Terraces is approved. The Garden Street Terraces project is subject to the normal development process followed by the City. This process will begin upon WestPac's submission of plans to the City's Community Development Department. Through the MOU the City, in participating in exclusive negotiations, has been acting in its proprietary, or ownership role, not its more normal regulatory role as will occur during the development review process. Major development issues, such as design and building height, will be resolved through the development review process. The Significant Contents of the MOU WestPac's Letter of March 15, 2006 also includes a Proposal to Exchange (Attachment 2), which provides an overview of the various points which are included, and expanded upon, in the MOU. Significantly, the proposed MOU does not contemplate the outright sale of City property.. Rather, it suggests an "exchange" and creation of three dimensional ownership rights where the City would be the owner of 40 metered ground level parking spaces(40 ground level spaces) and 56 parking spaces below grade affiliated with the hotel (56 hotel spaces). The City would own the air space rights to these parking spaces, as if they were condominiums. The City would also receive additional consideration in exchange for its current fee ownership of Lot 2. Below the draft MOU's provisions are explained in greater detail. 1. Property Exchange The City presently holds fee title to Lot 2. When all conditions precedent have been met, such as the development review process has been completed and a building permit is in hand, the City would convey title to Lot 2 to WestPac. Westpac would immediately (through escrow) convey back to the City title to air space condominium units containing 96 parking spaces. 2. One Time In-Lieu Parking Fee Lot 2 presently has 62 metered surface parking spaces. The current conceptual proposal results in 40 ground level spaces. To compensate for the reduction of 22 spaces, WestPac will pay a one time in-lieu fee for those spaces in the amount of $30,000 per space. This total fee of $660,000 is intended to cover the cost of constructing the actual replacement spaces, rather than l Lot 2—MOU Page 6 covering just a portion of the costs as under the City's current rate of approximately $11,000 per space. 3. Parking Operations WestPac intends to have dedicated parking spaces for the residences at the subterranean level. Also at this level will be hotel parking. Guests will be required to valet park their cars. WestPac anticipates that there will be times during peak hotel usage (for special events or during busy weekends like Graduation) there will be a need for off-site overflow parking. The City agrees to explore with WestPac potential additional off-site parking spaces which would be subject to a separate agreement between the parties. 4. City Financing Garden Street Terraces has been referred to as a "slim" project by the City's Economic Advisor, Allan Kotin. Mr. Kotin has characterized it as one that does not appeal to the merchant developer (build and sell), but instead only to a long term owner. Because of this, the project is financially challenging on the front end, or during the "early years". Additionally, commercial lending institutions provide loans for much shorter terms than financing opportunities available to municipalities. To manage its cash flow, WestPac has proposed that the City advance to it (when the project is completed and the public parking is operational) the sum of$2,400,000 for the 40 ground level spaces and the 56 hotel spaces. WestPac would then lease back the 56 hotel spaces from the City at a cost that reflects repayment of this advance amortized over a 30 year period plus the cost of lost parking revenue from the 22 metered spaces that will not be put back, as more particularly described below. The developer remains responsible for the actual cost to construct the parking facility, even if that cost should increase. 5. Lease Payments A lease will govern the developer's use of the City's 56 hotel spaces and provide for a payment that includes repayment of the City's $2.4 million advance amortized over 30 years. a. Initial Term The Initial Term of the Lease will be for 30 years and the annual rent payment would be in an amount equal to: Amortization Payment plus Supplemental Parking Revenue Replacement Payment Less the Net Realized Increase in Property Tax The formula above contains specifically defined terms set forth in the MOU. Amortized Payment is intended to represent the actual annual cost associated with a bond used to finance $2.4 million dollars. If the City does not use bond financing, and we are under no obligation to do so, the costs will be the cost of funds associated with this advance. Supplemental Parking Revenue Replacement Payment shall be in the amount of$28,000 per year. This represents approximately one half of the City's average revenue per space from the 22 metered parking spaces that are being removed. This is in addition to WestPac's one time payment of the in-lieu fee of $660,000 to construct the removed spaces. Net Realized Increase in Property Tax is the amount that the new property tax for the project exceeds the old amount from 2004. b. Renewal Term Lot 2—MOU Page 7 During the renewal term, which is expected to be for approximately 69 years, the annual rent for the hotel spaces shall be $40,000 plus one and one-half percent (1.5%) of gross hotel room revenues in excess of$5,000,000, thereby allowing the City to benefit if the project is a success. 6. Public Improvements to Garden Street WestPac will participate in the design, construction, and/or funding of physical improvements to the Garden Street streetscape consistent with the currently approved Garden Street Makeover Plan in the amount of fifty percent or more of the aggregate costs.. Other Key Features of the MOU and Summary of its More Standard Terms 1. Definitions in the Recitals The Recitals provide an opportunity for basic definitions and a summary of the general concepts contained in the MOU. The Recitals describe current conditions, how the developer controls the properties adjacent to Lot 2 and what the City's ownership interest is in Lot 2. The future ownership interests are also described generally including the intent to create air space "condominiums". Additionally, the goals and objectives that the project is intended to accomplish are described. (MOU Recitals) 2. The Project The Project details are described in the MOU. Although the MOU is not an approval of the Project, the specifics of the conceptual project are contained therein because they are integral to the particulars of the proposed MOU. The Project as described in the MOU is as follows:. 40 Public Parking Spaces 70 Room Hotel with 2,500 square feet of meeting space a restaurant,bar and gym 50 Residential units of 650 to 1,500 square feet, with average size of 1,100 square feet 18,000 square feet of retail, 9,000 of which is owned by persons other than the developer (MOU Section 1) 3. "As Is"Conveyance The Developer will be obtaining rights to Lot 2 "as is" and will therefore be responsible for all necessary studies, such as environmental, archeological etc., and costs associated with those studies to prepare Lot 2 for construction of the Project. (MOU Section 2) 4. Conditions Precedent to Closing Escrow There are a series of obligations that each party must satisfy prior to the conveyance of Lot 2 and the reconveyance of air space rights.. The City will not convey title to Lot 2 until: 1. The Project has completed the development review process and all fulfilled requirements under the California Environmental Quality Act (CEQA). 2. WestPac has obtained all discretionary entitlements and 3. Building permits have been issued. 1 � - I Lot 2-MOU Page 8 WestPac must also obtain final commitments for funding the Project, provide an acceptable plan for trash and delivery service to the alley between Lot 2 and existing Higuera Street businesses, and provide an acceptable plan for interim public parking of 40 spaces. (MOU Section 2.2) S. Construction of Parking Facility The construction of the "new" parking facility, associated with the Project, will be undertaken in as expeditious manner as possible. The construction contract will include a provision to pay prevailing wages. (MOU Section 2.4) 6. The Financial Terms The terms have been generally described above. The MOU articulates the specifics necessary to accomplish the incorporation of Lot 2 into the Garden Street Terraces project. (MOU Sections 2.5-3.2) 7. Garden Street Planning WestPac will participate not only in the design of improvements to Garden Street but also the financial costs associated with implementing the elements of the Garden Street Makeover Plan. (MOU Section 4) 8. Documentation The series of documents that are anticipated to be necessary to facilitate the terms are listed in MOU Section 5. 9. Non-Binding Nature The MOU is a non-binding agreement, and as articulated in the MOU no pre-approvals of the project have occurred. (MOU Sections 7 & 8) Next Steps Should Council approve the MOU it is anticipated that WestPac will shortly thereafter submit its Project Plans for Garden Street Terraces and begin the development review process. This process will allow for significant public input as the Project works its way through development review process. FISCAL IMPACT During the course of negotiations a variety of economic analyses were undertaken. Each had a narrow focus intending to analyze the various impacts and benefits of particular aspects of the Project. Valuation of Lot 2 For purposes of negotiation of the MOU, staff assumed an approximate value of$2 million for Lot 2. A real estate appraisal was conducted during the negotiations and revealed the value of the parcel at $5 million. However, that valuation did not take into account the City's requirements that public parking be retained at ground level and that the developer pay for the difference between the number of spaces removed and the smaller number of replacement spaces provided. With these burdening factors taken into account, utilizing a reuse appraisal (a tool (� 1 - 9 Lot 2—MOU Page 9 normally used by redevelopment agencies), Lot 2 is valued at $1.5 million. Thus, staff and the City's economic consultant are satisfied that the assumption of the value of the land on which the MOU terms are based is solid, and thus they can recommend entering into the MOU. Potential.Impacts to the General Fund There are significant fiscal benefits to the City from the Project, many of which have been described in the earlier discussion and the terms of the MOU. For example, if approved, the project is anticipated to produce approximately $250,000 per year in TOT and represent a new market factor in that industry. ALTERNATIVES 1. Reject the proposed MOU. This alternative should only be selected if the Council no longer supports the conceptual proposal. If the Garden Street Terraces concept remains supported by the Council, then the MOU that has been carefully negotiated over the course of several months is recommended since it is consistent with several City policies and goals and contains terms that are fair to both parties. 2. Provide direction to negotiate further and/or provide additional information. During the discussion of this item, Council may identify additional information needed prior to entering into the proposed MOU or may provide direction to negotiate further with Westpac on specific terms. The proposed MOU however is intended to serve as a framework to assist in developing future agreements. Many issues will be addressed more appropriately during the development review process. Staff should be provided direction about concerns or preferences about less significant aspects of the proposed MOU so that these matters can be addressed in the future agreements or, if appropriate, during development review. If Council has major concerns about the proposed MOU, and would like staff to negotiate further, it will be helpful for Council to clearly state what the concerns are, and how Council would like them addressed. ATTACHMENTS 1. Vicinity Map 2. March 15, 2006 WestPac Letter 3. Proposed MOU G:Admin\Projects\Lot2\CAR—MOU—Draft I 1 - 9 I ATTACHMENT 1 Vicinity Map HIGUEFRA 705 715 717 719 723 725 733 737 741 745 749 751 I o I 0 GARDEN ALLEY W p D Fcc LOT 2 m 736 MARSH Westpac controlled property City controlled property ATTA C 1i[,I E-N T 11,V March 15, 2006 Mr. Ken Hampian, CAO CITY OF SAN LUIS OBISPO 990 Palm Street San Luis Obispo, CA 93401 RE: Proposal to Exchange Parking Lot No. 2 for Alternative Parking Facilities at the Planned Garden Street Terrace Mixed Use Project, City of San Luis Obispo,CA Dear Ken, We are pleased to submit the attached proposal to exchange parking Lot No. 2 for parking facilities associated with the proposed Garden Street Terrace Mixed Use project. Based upon the refined site plan, completion of a hotel market analysis, a better understanding of the project's economics and our on-going negotiations with your staff and consultant team, we believe that we now have a reasonable proposal to present to the City Council. At the foundation of our proposal is our desire to provide no net exposure to the City while preserving its long-term revenue flow. We hope that the City Council will look favorably upon this concept and reward our efforts to date by approving the Memorandum of Understanding. The proposed project includes development of a 70-room hotel with approximately 2,500 square feet (SF) of meeting/conference space, a restaurant, bar, gym and spa facility. It would also include 50 residential units ranging from 650 SF to 1,500 SF, with the average unit size at approximately 1,100 SF. There is currently 29,000—+ SF of retail surrounding parking Lot No. 2 that will be reallocated to commercial retail, restaurant and bar facilities, and hotel related components. Our intent is to provide on-site parking that would include 40 spaces on the ground floor for public use, with the balance of the spaces designated for the exclusive use of the hotel guests and residences located on the subterranean level. We believe that the proposed development offers the following distinct advantages to the City. 1. At the end of the 30 year amortization period,the City will own "free and clear", 96 parking spaces with an ongoing revenue stream. 2. The City will receive an estimated$300,000 per year in net Transient Occupancy Tax (TOT) (reported in today's dollars). 3. Sales taxes will increase significantly due to both the project's ability to enhance the vitality of the existing downtown and the project's enhanced retail space. 4. The City will receive a payment of$660,000 toward the construction of the proposed Nipomo Street garage. 5. The City will receive monthly revenue for underutilized parking in the Palm Street parking garage. March 15,2006 ATTACHMENT 2 Mr. Ken Hampian,CAO CITY OF SAN LUIS OBISPO GARDEN STREET SLO PARTNERS, LP Page 2 of 2 6. The County will receive an increase of approximately$633,000 of property taxes of which the City will be the recipient of approximately 14%,equal to $88,000. 7. The revitalization of the center of town pursuant to the expressed goals and objectives of the General Plan, Housing Element and the Community Design Guidelines. 8. The design and implementation of the concepts found in the original Garden Street Plan. The revised design would continue to incorporate a one-way vehicular circulation pattern, include appropriately placed on-street parking and would accommodate enhanced pavement, heavy landscaping and sidewalk widths up to fourteen (14) feet±along the project frontage to create an enhanced pedestrian experience. 9. A downtown hotel and conference center that will attract a new clientele that will positively contribute to the social and economic fabric of the downtown. 10. An opportunity to provide housing in close proximity to the downtown employment center, shopping opportunities, restaurants and a variety of leisure activities. We want to thank you and your staff for the concerted effort over the past eight months to quantify and qualify our respective goals and objectives. We are extremely excited about the prospects of pursuing this project and look forward to Council's positive response to our proposal. As you know, we have been conducting our stakeholder outreach program and have been met with a tremendous amount of enthusiasm and constructive criticism. We anticipate continuing with our outreach efforts as we refine the project and ultimately make our application to the Community Development Department. We appreciate the opportunity to participate in this public-private partnership. Yours sincerely, GARDEN STREET SLO PARTNERS, LP Hamish Marshall Managing Principal Attachment—Proposal to Fxchange Parking Lot No. 2 for Alternative Parking Facilities at the Planned Garden Street Terrace Mixed Use Project c: S.Stanwyck, ACAO V/ J.Lowell,CA A. Kotin,ADK O:\Garden Street Terrace\CorrespondenceVtrKHampianwProposat.doc ATTAC 14 md1T sit li i i, p a r V; 4' C' ;I� ' I I I eI Ar , NMI Proposal to Exchange Parking Lot No. 2 for Alternative Parking Facilities at the Proposed Garden Street Terrace Mixed Use Project City of San Luis Obispo, CA March 15,2006 Summary of Proposal Garden Street SLO Partners, L.P. ("Developer"), has acquired or otherwise gained control of all the privately owned property in the half block of property bordered by Broad Street, Garden Street,Marsh Street, and the Garden Alley. Developer plans to develop a major mixed use project that will include residential condominiums, a hotel, retail stores and restaurants, and associated parking on this site. In order to complete the Project, Developer needs to integrate into its project the property that now contains City Parking Lot No. 2, the 62-space, City-owned parking lot that occupies much of the interior of the half- block site See Ownership Map in EXHMrr 1 to this Summary. Developer intends to construct a project which will include a City-owned parking facility containing 96 spaces, 40 of which will be metered space on the ground level for general public use and 56 of which will be reserved for hotel use on a subterranean level. Developer proposes that the City exchange its fee ownership of Parking Lot No. 2 for alternative parking facilities and the additional consideration as outlined below. Developer acknowledges that this memorandum merely summarizes certain business terms of the proposed exchange, that such exchange cannot occur prior to full processing and approval of the Project for construction, and that this memorandum in no way constitutes any prejudgment or commitment to approve the Project. 1. PROPERTY ExCHANGE Upon completion of all required CEQA processing and issuance to Developer of the building permits required for the Project, City will convey title to the Parking Lot No. 2 to Developer. In exchange for such conveyance, Developer will (i) convey to the City title to airspace condominium units that will contain ninety-six (96) parking spaces, and (ii) complete construction of the improvements that will contain such 96 parking spaces. Such 96 parking spaces are depicted generally in EXHIBIT 2A and EXHIBrr 2B to this document. � - l3 March 15. 2006 ATTR C H N1 E N 1 2 PROPOSAL FOR EXCHANGE OF PARKING LOT NO. 2 GARDEN STREET SLO PARTNERS, LP Page 2 of 3 2. CONIPENSATION TO THE CITY FOR REPLACEMENT OF ON-SITE PUBLIC PARKING REMOVED Since Parking Lot No. 2 has 62 spaces and the current development plans call for only 40 metered spaces generally available to the public,.developer will pay the City a one time in-lieu fee of $30,000 per parking space for the 22 public spaces that are to be replaced with off-site parking. This offer of a total fee of$660,000 is intended to cover the costs of constructing such spaces and is deliberately larger than the current or proposed in-lieu parking fees of the City. Such fee shall be due and payable when Developer is issued building permits for the Project. 3. CITY TO PROVIDE OFF-PEAK OVERFLOW PARKING In consideration of Developer's payment of the $660,000 in-lieu fee described in Paragraph 2, above, and in order to accommodate peak hotel and event parking without depleting the supply of on-site public parking, and for a fee commensurate with current charges for unrestricted use, the City agrees to make available to the Developer twenty (20) subterranean spaces in the public structure at 919 Palm Street for the following hours each week: 7 PM Thursday night through 7 AM Friday morning; 7 PM Friday night through 8 AM Saturday morning; 4 PM Saturday through 8 AM Sunday; and 4 PM Sunday through 7 AM Monday. The Developer will pay the City a monthly fee of$1,200, representing$60 per space for each of the 20 subterranean spaces. 4. CITY FINANCING OF ON-SITE PARKING The City will advance to the developer, upon completion and opening of the parking, the sum of $2,400,000 for the 40 spaces of public parking and the 56 spaces of hotel parking, said cost to be amortized over a 30-year period through the lease payments described in Paragraph 5, below. This is a fixed price and is independent of the actual cost of the parking 5. DEVELOPER LEASE OF CITY-OWNED ON-SITE PARKING — PAYMENTS DURING INITIAL TERM Upon completion of the Project, Developer will lease from the City its on-site parking spaces for a term of 99 years,the first 30 years of which shall be the "Initial Term." During the Initial Term, the annual rent shall be a constant amount that represents the sum of: (1) the real or imputed "Amortization Payment" (as defined below); plus (2) a "Supplemental Parking Revenue Replacement Payment," reduced by the "Net Realized Increase in Property Tax" (as such terms are defined below). For purposes of the foregoing: a. The "Amortization Payment" shall be equal to the "all-in" annual payment cost associated with a bond used to finance the $2.4 million or; in the absence of a bond, the annual payment required to amortize the $2.4 million at an imputed "all-in" cost of funds reasonably estimated by the City. For this purpose, the term "all-in" cost of funds shall refer to the incorporation within the total bond of customary additional items beyond the$2.4 million. March 15. 2006 AT TG!t,6°I M ERI T 1 PROPOSAL_FOR EXCHANGE OF PARKING LOT NO. 2 GARDEN STREET SLO PARTNERS, LP Page 3 of 3 b. The "Supplemental Parking Revenue Replacement Payment" shall be $14,000 per year, representing approximately one-half (1/2) of the City's average revenue per space from metered parking spaces applied to the 22 onsite public metered spaces removed. Developer has offered this payment as a supplementary inducement, notwithstanding Developer's agreement to fund$660,000 in construction costs for replacement parking. c. The "Net Realized Increase in Property Tax" shall be the amount by which (x) the City's actual revenue realization from property tax in the first year of full assessment for the new Project, exceeds (y) the net realization from property tax on the same property in the fiscal year ended June 30,2004. 6. DEVELOPER LEASE OF CITY-OWNED ON-SITE PARKING — PAYMENTS DURING REMAINING TERM Beginning with the 31St year and extending through the remaining term of the lease, the annual lease payment to the City will be the sum of(i)$40,000, plus (ii)one and one-half percent(1.5%) of the amount by which (x) gross room revenues for the hotel that is included in the Project,. exceed(y)the sum of$5,000,000. 7. DEVELOPER LEASE OF CITY-OWNED ON-SITE PARKING—OTHER TERMS The City, at its cost and expense, will install and maintain the parking meters to be installed on the 40 ground level public spaces and, in consideration therefore,will be entitled to retain all proceeds from the meters and fines imposed on persons parking in such spaces. Except for such parking meters, Developer will maintain all the leased spaces, including provision of any required capital investment, repair, and replacement work. Developer may contract with third parties, including the City,for daily cleaning and maintenance. Developer will be allowed by City to install gates to the 40 ground level parking spaces in the public lot, and to close that lot to public parking each evening from 2 AM to 7 AM in order to prevent overnight use of those spaces by hotel guests and to keep those spaces available to patrons of the retail and restaurant facilities on site and nearby. 8. PUBLIC IMPROVEMENTS TO GARDEN STREET The Developer agrees to participate in the design, construction and/or the funding of physical improvement of the Garden Street streetscape so as to assist in achieving the goals of the Garden Street Plan. 1 - ISS Al t.1;i 1 N E N T 2 Exhibit " 1 " Existing Property Ownership Map H i g u e r a Street 55598'.4.4"w T96.S9' 0 A s P M1I � P a P P 8 W o No �, No �o N34 NJ1'S5't 9"w x5598'SI"E O.M' S3598'JJ'w QJB'. mmm� mm 68..45' - T1.99' S559B']]'W 89.55' cny RAN Garden Alley City R1W 8 m m mmm� m m N55DBJJ"I° -------------- 5 _ . N B_ YI / AP1t 002.424018^e W�^-`'pm ) q�ry O V IJ IO' W a• Parking Lot#2 APN:0OZ424)22 ; C) O N APN:002.424021 I a 0 N.5598'16'E UL50' N W N B B B B APN:002.424022 APN:001.424-M m APN:002.424018 AM:002.42"18 b n 2 Marsh Street Ground Level Plot Map Legend 1a'rt $fib:t'(A' Rx.00.10M . ODenotes City-Owned Parcel r - 1 "' � Denotes Developer Parcels I i Exhibit ."2A" Preliminary Parking Ownership Map Higuera Street ------------------------------------ ■ ----------------------, I I I I I I I I I I ■ I I I I I I ■ I I I I I I I I ■ I ■ ----------------------- Garden Alley R�D� :y. 1 f � 1 m ca ca■ City Owned Parcel ■ G 0 (Public Parking) Marsh Street Ground Floor Level Plan Legend Rnr.03.17.08 m� Proposed City-Owned Parcel I -11 �� Proposed Developer Owner Parcels AT GC. t` �' lcTENT 2 Exhibit "2B" Preliminary Parking Ownership Map Higuera Street -------------------------------------------------------------- - I I I I I I I I I I � I I I I I I I I I I 1 I I I I I I I j Garden Alley I j R'"4 W � 1 y I O W .O C � i I tli O m � City Owned Parcel i (Hotel Valet Parking) Marsh Street ,o Basement Level Plan Legend +, smle:itsa Rev:a3.1iae _ . - Proposed City-Owned Parcel ��� Proposed Developer Owner Parcel 1 ATTACHMENT 3 MEMORANDUM OF UNDERSTANDING BETWEEN. THE CITY OF SAN LUIS OBISPO AND GARDEN STREET SLO PARTNERS,L.P. EXCHANGE OF CITY LOT No.2 AND DEVELOPMENT OF A NEW PARKING FACILITY AND RELATED IMPROVEMENTS July_,2006 ATTACHMENT 3 TABLE OF CONTENTS FOR MEMORANDUM OF UNDERSTANDING BETWEEN THE CITY OF SAN LUIS OBISPO AND GARDEN STREET SLO PARTNERS,L.P. FOR THE EXCHANGE OF CITY LOT No.2 AND DEVELOPMENT OF A NEW PARKING FACILITY AND RELATED IMPROVEMENTS 1. PROJECT DESCRIPTION...............................................................................................................3 1.1 HOTEL...................................................................................................................................3 1.2 RESIDENTIAL UNITS.............................................................................................................3 1.3 RETAIL SPACE.......................................................................................................................3 2. PARKING FACILITY EXCHANGE...............................................................................................3 2.1 DEVELOPER DILIGENCE;CONVEYANCE"AS IS................................................................3 2.2 CONDITIONS TO CLOSING....................................................................................................3 2.3 CLOSING................................................................................................................................4 2.4 CONSTRUCTION OF NEW PARKING FACILITY....................................................................4 2.5 COMPENSATION TO THE CITY FOR REPLACEMENT OF ON-SITE PUBLIC PARKING REMOVED...........................................................................................................................5 2.6 OFF SITE OVERFLOW PARKING..........................................................................................5 3. CITY FINANCING AND LEASE OF NEW PARKING FACILITY...........................................5 3.1 ADVANCE BY CITY................................................................................................................5 3.2 LEASE OF NEW PARKING FACILITY....................................................................................6 4. DEVELOPER PARTICIPATION IN GARDEN STREET PLANNING.....................................7 5. DOCUMENTATION.........................................................................................................................7 6. RESPONSIBILITIES OF THE PARTIES......................................................................................8 6.1 DEVELOPER...........................................................................................................................8 6.2 CITY.......................................................................................................................................8 7. OTHER MUNICIPAL PROCESSING............................................................................................8 8. NONBINDING NATURE OF UNDERSTANDINGS......................................................._............8 9. POSSESSORY INTEREST TAXES................................................................................................9 EXHIBITS: EXHIBIT 1 Property Ownership Map EXHIBIT 2A Preliminary Parking Ownership Map(Ground Floor Level) EXHIBIT 2B Preliminary Parking Ownership Map(Basement Level Plan) i i - ckv C:\DOCUME-1\ssmnwyc\LOCALS—I\Temp\Purking Lott MOU_07-05-06-rvl.doc ATTACHMENT 3 MEMORANDUM OF UNDERSTANDING THIS MEMORANDUM OF UNDERSTANDING(the "MOU") is made and entered into, effective as of July _, 2006 (the "Effective Date"), by and between THE CITY OF SAN LUIS OBISPO, a chartered California municipal corporation (the "City"), and GARDEN STREET SLO PARTNERS,L.P., a California limited partnership("Developer"),with reference to the following facts: RECITALS: A. Developer and its affiliates have acquired title to or control of all parcels of real property that are owned by parties other than the City and are situated,in that portion'of the City of San Luis Obispo that is bounded by Broad Street, Garden Street, Marsh Street, and the Garden Alley (such parcels, including "City Lot No. 2" described below, collectively are referred to.as the "Project Area"), the ownership of which is set forth on EXHIBIT I to this MOU;and B. The City is the owner of a 62-space parking facility that is situated at the interior of the Project Area; and C. Developer desires to develop and construct'in the Project Area a mixed use Project that will include residential condominiums, a hotel, retail stores, restaurants and associated parking facilities (collectively,the"Project");and D. Developer proposes to include in.the Project a parking facility that will be owned by the City and will contain ninety-six(96)parking spaces,of which(i) forty(40)parking spaces will be situated on street level, will have paiking.meters, and will be used by the public generally, and (ii) fifty-six (56) parking spaces will be situated on subterranean levels and will be reserved for use by guests of the hotel that will be included as part of the Project (such 96-parking-space facility, the "New Parking Facility"); and E. Developer has proposed that the City convey to Developer fee title to City Lot No. 2 in exchange for the Developer's conveyance to the City of fee title to the airspace condominium units comprising the New Parking Facility(the"Parking Facility Exchange"); and F. It appears the Project will have an important revitalization effect on the downtown area, and therefore may be worthy of particular consideration by the City;and G. The Project will benefit the City by helping to achieve two of the Major City Goals in the 2005-01 Financial Plan, to wit: increasing sales and transient occupancy taxes and supporting the downtown, including"the reuse of large or downtown properties for unique boutique hotels"; and H. The Project will further several goals set forth in City's General Plan including: 1) ensuring the Downtown is the cultural, social and political center of the City for its residents as well as home for those who live in its historic neighborhoods, 2) civic, cultural and commercial portions of downtown should be a major tourist destination, 3) downtown visitor appeal should be based on natural, historical, and cultural features, retail services, and numerous and vaned visitor accommodations, and 4) all new, large commercial project should include dwellings;and 1 I ,�� I ATTACHMENT 3 I. The Project supports goals set forth in the San Luis Obispo Downtown Association's San Luis Obispo Downtown Strategic Business Plan, especially goal 2.7 to "fill key gaps in the business mix" including"hotels/B&Bs;"and J. The Project will support concepts set forth in the Conceptual Physical Plan for the City's Center(the Downtown Concept Plan);and K. Negotiations between City and Developer are appropriate in light of Developer's ownership or control of all the parcels abutting City Lot No. 2, but for those parcels fronting Higuera Street, thus,without Developer's participation,the Project and the benefits it confers upon the community would not occur; and L. Therefore, the City contemplates that the proposed Parking Facility Exchange (as defined in Recital E, above) will be accomplished without a competitive bidding process that the City otherwise might use if the Project, of which such exchange is a part, did not serve substantial revitalization objectives furthered by the Project, and if private ownership on the site was fragmented, rather than fully consolidated by the Developer as in this instance;and M. The acquisition of City property and the rearrangement of City parking is critical to implement the Project;and N. In connection with the proposed Project and the proposed Parking Facility Exchange, the City will incur costs not traditionally associated with municipal activities; and O. The City Council previously directed the staff and consultants of the City to prepare this MOU for review by the City Council describing the Project and the proposed Parking Facility Exchange; and P. This MOU is intended to be,and shall be construed as,non-binding in nature;and Q. Notwithstanding this MOU, the parties acknowledge that Developer must proceed through City's development review process, including, but not limited to: consideration by the City's Architectural Review Committee,Cultural Heritage Commission, Planning Commission and City Council, and conformity with the applicable Califomia Environmental Quality Act ("CEOA") process, and the subject project may not be approved as a result of that process; and R. The parties contemplate later entering into a Property Exchange and Construction Agreement;and S. The parties have agreed to execute this MOU in order to memorialize their understandings with respect to the Parking Facility Exchange and related aspects of the Project. SUMMARY OF UNDERSTANDINGS: Now,THEREFORE, the parties hereto have summarized below their current understandings with respect to the proposed Parking Facility Exchange and the Project. 2 1 - ATTACHMENT 3 1. PROJECT DESCRIPTION. The Project includes the following elements: 1.1 HOTEL. A 70-room hotel containing approximately 2,500 square feet of meeting space and a restaurant,bar,gym,and spa facility; and 1.2 RESIDENTIAL UNITS. Fifty(50)residential units ranging in size from 650 square feet to 1,500 square feet,with the average size of each unit being approximately 1,100 square feet. 1.3 RETAIL SPACE. Approximately 18,000 square feet of retail space on the ground floors surrounding the area where City Lot No. 2 is situated, of which approximately 9,000 square feet is and shall continue to be owned by persons other than Developer. 2. PARKING FACILITY EXCHANGE. On the terms and subject to the conditions set forth below, the City shall convey to the Developer title to City Lot No. 2, and Developer shall convey to the City title to the New Parking Facility. 2.1 DEVELOPER DILIGENCE; CONVEYANCE"AS IS." Developer shall perform at its cost and expense such due diligence investigations of City "Lot No. 2 as Developer determines to be appropriate. The City shall convey City Lot No. 2 to Developer on an "AS IS" basis, without any representation or warranty regarding the condition of such property: City shall not be responsible in any way for cleaning, removing, monitoring, cataloguing or otherwise addressing sub-soil conditions, archeological conditions,hazardous materials,etc.that may be found in the Project Area. 2.2 CONDITIONS TO CLOSING. The obligations of the parties to proceed with the Parking Facility Exchange shall be subject to the waiver or satisfaction of the following conditions. (a) CONDITIONS TO CITY CONVEYANCE. The obligation of the City to convey title to Lot No. 2 to Developer shall be subject to the,satisfactionor waiver by the City of the following conditions: (i) Developer has successfully completed the processing of all applications for the Project that are required under CEQA; (ii) Developer has obtained all discretionary entitlements for the Project, including but not limited to consideration by the Architectural Review Commission, Cultural Heritage Committee, and Planning Commission,"and approval thereof by the City Council of the City of San Luis Obispo;and (iii) The building permits for the Project have been issued to Developer. (b) CONDITIONS TO DEVELOPER OBLIGATIONS. The obligation of the City to convey title to Lot No. 2 to Developer shall be subject to the satisfaction or waiver by the City of the following conditions: (i) Developer has obtained a final binding commitment letter from a lender of Developer's choice to fund the construction costs of the Project; (ii) Developer has successfully completed the processing of all applications for the Project that are required under CEQA; (iii) Developer has obtained all discretionary entitlements for the Project, including but not limited to consideration by the Architectural Review Commission, Cultural Heritage Committee, and Planning Commission, and approval thereof by the City Council of the City of San Luis Obispo; ATTACHMENT 3 (iv) Developer has provided a plan that is acceptable to the City and addresses during construction trash and delivery access to the businesses along Higuera Street that currently depend upon Parking Lot No. 2 and the alleyway adjacent to it for these purposes;. (v) Developer has provided a plan that is acceptable to the City that provides for interim public parking for forty (40) vehicles until the new forty (40) surface level parking spaces in the Project are available for public parking purposes and a Certificate of Occupancy has been issued; and (vi) The building permits for the Project have been issued to Developer. 2.3 CLOSING. The closing of the Parking Facility Exchange shall occur through a licensed title company with offices in the City of San Luis Obispo(the"Closine"). At the Closing: (a) CONVEYANCE BY CITY. The City shall convey to Developer fee title to City Lot No. 2, free and clear of all liens and encumbrances securing monetary obligations and free and clear of all covenants, conditions; and restrictions (other than those hereafter negotiated between the City and Developer in connection with the Parking Facility Exchange and the Project). (b) CONVEYANCE BY DEVELOPER. Developer shall convey to the City title to the airspace condominium units comprising the New Parking Facility, free and clear of all liens and encumbrances securing monetary obligations. 2.4 CONSTRUCTION OF NEW PARKING FACILITY. Following the Closing, the Developer shall proceed as promptly as reasonably practicable to undertake and complete the construction of the improvements comprising the New Parking Facility in accordance with plans and specifications approved by the City in connection with its approval of the Project and-the designs for the New Parking Facility. (a) DURATION OF PROJECT. The parties acknowledge that the construction of the New Parking Facility will take approximately two (2) years from the date on which demolition commences. Developer will exercise commercially reasonable efforts to complete construction of the forty (40) parking spaces described in clause°(i)," below,and obtain a certificate of occupancy therefor in order to enable such spaces to be available for use prior to completion of construction of the entire Project. (b) COMPONENTS. The New Parking Facility shall contain ninety-six (96) parking spaces,of which(i) forty(40)parking spaces will be situated on street level,will have parking meters,and will be used by the public generally, and(ii)-fifty-six (56) parking spaces will be situated on subterranean levels and will be reserved for use by guests of the hotel that will be included as part of the Project. Such parking spaces shall be situated approximately in the locations depicted on EXHIBITS 2A (depicting the Ground Floor Level)and 211(depicting the Basement Floor Plan)to this MOU. (e) SPECIFICATIONS AND FINISH. With respect to general design, the New Parking Facility shall generally correspond to the baseline Project set forth in EXHIBITS 2A and 2B hereto. The New Parking Facility shall be constructed in compliance with applicable building and construction standards under City laws, rules, and ordinances. In its capacity as the subsequent owner of the New Parking Facility,and separate from its capacity as regulator, the City shall have rights of specific approval and review of all designs and plans, initially at the concept and schematic plan level, and subsequently at the final plans as set forth herein. (d) CONTRACT ARRANGEMENTS. Prior to initiation of construction of the New Parking Facility, the Developer and City shall enter into a Property Exchange and Construction Agreement pursuant to which Developer shall cause the New Parking Facility to be constructed. The form and content of these documents shall be subject to approval by the City. Such constriction contract shall include,inter alfa, the following provisions: (i) Contractor shall pay prevailing wages. 4 � ^� ATTACHMENT 3 (ii) Developer shall deliver "as-built" plans for the New Parking Facility to City. (iii) Developer shall provide City, upon City's request, reasonable back-up and cost confirmation for any part of the baseline Project. (iv) A completion guarantee in a form satisfactory to City shall be provided by the Developer to commence and. complete construction of the New Parking Facility. (v) City's satisfaction that Developer has a source of funding to pay for the construction costs of the New Parking Facility and the entire Project. (e) CITY RIGHTS OF INSPECTION AND APPROVAL. (i) INSPECTION. During the construction process of the New Parking Facility, the City shall have the right, in its capacity as owner of such New Parking Facility, to review all change orders, to require change orders which the City reasonably deems necessary only in order to ensure consistency or equivalency with the approved plans and specifications, and to inspect all parts of construction at any time. These rights,like the rights of plan review and;approval,are supplementary to and separate from the regulatory functions of the City. (ii) APPROVAL. The City, in its capacity as owner, shall have the right to review completion of the New Parking Facility and assure itself of satisfactory completion in addition to its capacity as building inspector before issuing an initial_ Certificate of Occupancy for the New Parking Facility and confirming "Substantial Completion" of.the New Parking Facility. The City shall not be required to provide final approval of the New Parking Facility until Developer has submitted to the City a complete set of "as built" plans. For purposes hereof, the term "Substantial Completion" shall mean issuance of a certificate of occupancy and completion of the shell and core to a point at which the only remaining requirements for tenant occupancy shall be those things normally designated as tenant improvements. 2.5 COMPENSATION TO THE CITY TO FUND REPLACEMENT OF ON-SITE PUBLIC PARKING REMOVED. The parties acknowledge.that City Lot No. 2 contains 62 spaces, the New Parking Facility will contain only 40 metered spaces for use by the public generally, and therefore the effect of the Project will be to eliminate twenty-two (22) on-site parking spaces that currently are available to the public generally at City Lot No. 2. In recognition of that reduction, the Developer shall pay the City, upon issuance by the City of building permits for the Project, a one-time, in-lieu parking fee of Thirty Thousand Dollars ($30,000) for each of the twenty-two (22) public spaces that are to be eliminated on-site in connection with the Project (i.e., 22 parking spaces x $30,000/parking space = $660,000 total in-lieu parking fee). The parties further acknowledge that the amount of such $660,000 in-lieu parking fee is greater than the currently prevailing rate for in-lieu parking fees because the amount thereof is intended to cover the costs of constructing replacement spaces. 2.6 OFF SITE OVERFLOW PARKING. Developer has requested that the City provide to Developer access to additional off-site parking spaces in order to accommodate peak hotel and event parking at the completed Project site without depleting the supply of on-site public parking. City will cooperate with Developer in exploring potential additional off-site parking spaces. Any such arrangement shall be the subject of a separate agreement negotiated between the parties. 3. CITY FINANCING AND LEASE OF NEW PARKING FACILITY 3.1 ADVANCE BY CITY. On a mutually acceptable date within thirty(30) days following the first date on which the forty (40) public spaces in the New Parking Facility are available for use by the public generally, the City shall advance to Developer the sum of Two Million Four Hundred Thousand 5 ( — �< ATTACHMENT 3 Dollars ($2,400,000), which sum is intended to assist Developer in financing the cost of constructing the New Parking Facility. (a) FIXED AMOUNT. Developer acknowledges that the amount of such advance is being fixed hereunder, and shall not vary regardless of changes in Developer's cost of constructing the New Parking Facility. In the event of cost overruns in the construction of the New Parking Facility, Developer is responsible for the payment of such costs. The City shall have no responsibility or obligation to pay them. (b) CONDITIONS TO ADVANCE. (i) CITY APPROVAL. The City shall have approved the new Parking Facility pursuant to Section 2.2(a)and(b)above,and shall have issued a Certificate of Occupancy therefor. (ii) EXECUTION OF LEASE. The parties acknowledge that the rental payments that Developer shall pay to the City under the "Lease" described in Section 3.2, below, are intended to amortize the amount of such advance over the 307year term of such Lease,and therefore agree that the City's obligation to make such advance shall be conditioned upon the Developer's executing such Lease concurrently with such advance. 3.2 LEASE OF NEW PARKING FACILITY. In consideration of the City's agreement to make the advance described in Section 3.1,above,Developer shall execute with the City a lease(the"Lease")of the New Parking Facility concurrently with the City's advancing such funds to Developer. Such lease shall: (a) TERM. With respect to term, the parties(i) contemplate a term of ninety-nine (99) years, (ii) acknowledge that the lease is subject to periodic public review pursuant to California Government Code § 37380, and (iii) agree that,by reason of the rental payment being measured by reference to the rental income from the New Parking Facility, they believe that the rental rate will reflect then-prevailing market rents for comparable facilities and therefore no adjustment shall be made to the rental provisions of the Lease during the term thereof, so longus there is no material change in the use of the property, i.e. there continues to be a-hotel and retail'uses on the site. In the event Developer or a subsequent owner applies for a change in use or redevelopment of the site, then the City shall have the right to adjust the rent upward(but with no obligation to adjust downward)to current fair market rent. (b) BASE RENT. Require"Developer to pay to the City base rent for the New Parking Facility as follows: (i) INITIAL TERM. During the initial thirty (30) years:of the lease term, the annual base rent shall be an amount equal to the sum of: (x) the real or imputed "Amortization Payment" (as defined below); plus (y) a,"Supplemental Parking Revenue Replacement Payment," reduced by the "Net Realized Increase in Property Tax" (as such terms are defined below). For purposes of the foregoing: (A) The "Amortization Payment" shall be equal to the "all-in"annual payment cost associated with a bond used to finance the VA million or, in the absence of a bond, the annual payment required to amortize the $2.4 million at an imputed "all-in" cost of funds reasonably estimated by the City. For this purpose, the term "all-in" cost of funds shall refer to the direct, out-of= pocket expenses incurred by the City in connection with such bond issuance. (B) The "Supplemental Parking Revenue Replacement Payment" shall be $28,000 per year, representing approximately the City's average revenue per space from metered parking spaces applied to the 22 onsite public metered spaces removed. Developer has offered this payment as a supplementary inducement, notwithstanding Developer's agreement to fund $660,000 in construction costs for replacement parking. Developer may request a reduction in this payment for all or 6 ATTACHRIENT 3 part of any sums paid to the City for public parking made available to Developer for off-site parking, the approval of which shall not be unreasonably withheld by City. (C) The "Net Realized Increase in Property Tax" shall be the amount by which(x) the City's actual revenue realization from property tax in the first year of full assessment for the new Project,exceeds(y)the net realization from property tax on the same property in the fiscal year at the time of close of escrow contemplated in section 2.4 above. The Net Realized Increase in Property Tax shall exclude any and all additional taxes or assessments levied on the property by virtue of citywide or special district taxes imposed subsequent to the execution of the Real Property Exchange Agreement and associated documents. (ii) RENEWAL TERM. During each of the final sixty-nine (69) years of the lease term, the base annual rent shall be equal to the sum of(A) $40;000, plus (13) one and one-half percent (1.5%) of the amount by which (x) gross room revenues for the hotel that is included in the Project,exceeds(y)the sum of$5,000,000,provided there is no material change in use as noted in Section 3.2(a)above. (c) MAINTENANCE OF NEW PARKINGTACILITY. (i) BY DEVELOPER. Except as provided in Section 3.2(c)(ii), below, Developer at its sole cost and expense shall be solely responsible for repairing and maintaining the New Parking Facility for the term of the lease. (ii) BY CITY. The City, at its cost and expense; will install and maintain the parking meters to be installed on the 40 ground=level parking spaces and,'in consideration therefor,will be entitled to retain all proceeds from the meters and fines imposed on persons parking in such spaces. (d) TRIPLE-NET LEASE. Except for the'maintenance obligations of the City with respect to the parking meters described in Section 3.2(c)(ii), above, the Lease is intended to be a "triple net" lease so that the base rent payments described in,Section 3.2(b), above, shall be net of all taxes, as applicable,insurance,and.maintenance and repair costs for the New Parking Facility. (e) OPERATING COVENANTS. Developer may install gates limiting access to the 40 ground-level parking spaces in the New Parking Facility, and to close that portion of the New Parking Facility to public parking each night from 2:00 a.m., to 7:00 a.m., in order to prevent overnight use of those spaces by hotel guests and to keep those spaces available to patrons of the retail and restaurant facilities on site and nearby. 4. DEVELOPER PARTICIPATION IN GARDEN STREET PLANNING. Developer shall participate in the design, construction, and/or the funding of physical improvement of the Garden Street streetscape so as to assist in achieving the goals of the Garden Street Makeover Plan (as memorialized in those certain "Garden Street Improvements Construction Documents" prepared by "firma" (Specification No. CP #9008813) dated 12/4/03). As part of the Project, Developer contemplates the installation of some mechanism to assure high levels of maintenance,uniformity of street facade appearance and maintenance, adequate security and a variety of other enhancement improvements to the streetscape of Garden Street adjoining the Project, some of which will occur on public property or on property not owned by the Developer. Developer's financial contribution to the costs of such Garden Street Makeover Plan shall be fifty percent(50%)or more of the aggregate costs thereof. 5. DOCUMENTATION. The parties agree that, at a minimum, the documentation to be created as a result of this MOU may include the following: 5.1 A Real Property Exchange Agreement; 5.2 A Construction Agreement; 7 1 -� ATTACHMENT 3 53 Applications For Regulatory Approval; 5.4 An Advance Agreement or other written instrument to memorialize the City's agreement to advance the amount described in Section 3.1,above; 5.5 A Lease Agreement;and 5.6 A Performance Bond for New Parking Facility Completion;and 5.7 A surety bond provided by Developer at its cost and expense to guarantee completion of the New Parking Facility, or the return of the City's surface parking lot of ix spaces, public restrooms, landscaping and public art, which meets City standards for such bonds. , This surety bond and guaranty shall be conditioned on the facts and then-known remediation costs associated with any archaeological or environmental hazards impacts associated with the New Parking Facility construction. 6. RESPONSIBILITIES OF THE PARTIES 6.1 DEVELOPER. It shall be the responsibility of the Developer to diligently pursue all aspects of the application for the development of the Project, including all environmental processing, all zoning processing, any supporting technical studies, and any other supporting studies as may be necessary, including visual, traffic and circulation, historical, and archaeological investigation and mitigation. All costs associated with both the processing of entitlements and City approvals and the production of studies and planning for the development shall be paid for (without any mark-up) by the Developer, including reimbursement to the City for those certain third-party expenses(without any mark-up)identified on Exhibit 5 incurred after approval of the initial MOU in the preparation of the required documents identified in Section 6. It is anticipated that costs associated- with,development of the New Parking Facility will be included in the total cost of the New.Parking Facility. 6.2 CITY. The City, in its role as landowner, shall cooperate with and furnish information to the Developer on the properties. With regard to zoning, the City's responsibility shall be limited to providing that level of interaction, timely, response, and review as provided for in regulations and ordinances of the City of San Luis Obispo. 7. OTHER MUNICIPAL PROCESSING. The Parties understand and agree that those approvals required of the City acting in its governmental or regulatory capacity are separate and distinct from those approvals required by the City under this MOU. Notwithstanding anything to the contrary in this MOU, nothing herein shall be interpreted to mean that the City is in any way waiving, limiting, or weakening any regulatory or police power the City may have in any of its governmental capacities. It is intended that the Developer shall be obligated to fulfill such requirements as may be imposed by the City or any other governmental agency or authority having or exercising any jurisdiction over the Project or over any construction to be undertaken by the Developer in,on or about said Project. Refusal or failure by the City in its governmental or regulatory capacity to take a legislative action, issue any permit, license or any other action or approval sought by the Developer for construction of improvements on, or development of, the Project shall not constitute a breach of this MOU. 8. NONBINDING NATURE OF UNDERSTANDINGS. Without obligating either of the parties, this MOU summarizes what the Developer and the City perceive to be the principal terms of the proposed Parking Facility Exchange and the principal features of the Project. No binding obligation is created by this MOU, and no binding obligation can be created other than by execution of both a binding Real Property Exchange Agreement and other associated documents listed in Section 6, above. This MOU is an outline for discussion purposes only, and is not intended to be contractual or binding for any purpose and is not an offer or representation by either party. Rather,this MOU is designed to reflect the ideas being formulated, to provide a framework to attempt to resolve issues and concerns which have been raised, as well as for the resolution of issues and concerns which may arise. In some instances, a tentative, but not 8 ( -a8 ATTACHMENT 3 binding, agreement on a matter is referred to, and in other instances, material agreements are yet to be defined and specified. The fact that any particular component or issue is not addressed in this MOU does not mean that it cannot be the subject of future discussions and negotiations,and the fact that a component is addressed does not mean that it cannot be rejected or modified by either party. Developer further acknowledge and agree that the officers, employees and consultants of the City, or any member of the City Council, do not have authority to bind the City, and the final form of any proposed agreement to be negotiated may have to contain matters not contemplated by this MOU, but which may be needed to accommodate compliance with CEQA, and that there is no agreement by City to reimburse or defray any cost or expense incurred by the Developer. The parties acknowledge that neither party will be contractually bound to any sale, purchase or development or to any element of the proposed development until the final execution of a mutually acceptable final agreement approved and executed by authorized representatives. 9. TERMINATION. Either of the parties may determine that further negotiations will not be fruitful and then terminate this MOU or allow this MOU to lapse without further liability to the other. In the event of termination or lapse of this MOU,or the failure of the parties to otherwise execute those items specified in Section 5 (Documentation)above; the separate Exclusive Negotiating Agreement between the parties entered into on August 23, 2005, subsequently extended through September 30, 2006, and as may be amended from time to time,if applicable,shall also terminate. 10. POSSESSORY INTEREST TAxEs. The Developer: (a) acknowledges that if the Project contemplated by this MOU is subsequently approved and constructed, then a possessory interest subject to property tax may be created and owned by Developer, and the Developer or its interest in the Project and the improvements thereon may be subject to- payment of property .taxes levied on such possessory interests,and(b)agrees to pay all such taxes,however categorized or calculated. [Signatures appear on the following page.] 9 I � Orl J ATTACHMENT IN WITNESS WHEREOF, the undersigned have executed this nonbinding Memorandum of Understandings,effective as of the date first set forth above. CITY OF SAN LUIS OBISPO By: ATTEST: Audrey Hooper,City Clerk APPROVED AS TO FORM: Jonathan Lowell,City Attorney GARDEN STREET SLO PARTNERS, L.P., a California limited partnership By DOWNTOWN..INVESTORS,LLC,a California limited liability company,its generalpartner By Hamish Marshall,its Manager EXHIBITS: EXHIBIT 1 Property Ownership Map EXHIBIT 2A Preliminary Parking Ownership Map(Ground Floor Level) EXHIBIT 211 Preliminary Parking Ownership Map(Basement Level Plan) 10 ( n �,, ATTACHMENT 3 Exhibit " 1 " Existing Property Ownership Map H i g u e r a Street P P G❑rr.c^ Alley c:,F.:. _ APN:002124-016 9 N a) Parking Lot#2 © c r• 1 AM:002124-022Aft:002424421 1 GJ Y_ �n y 1 v I H © i © I © i © 1 AM 002124-022 AM:002424-000 I AM:007424-018 AM:00712A-019 fVarsh Street Ground Level Plot Map Legend rt••Sp' Ror.081506 O Denotes City-Owned Parcel ® Denotes Developer Parcels ATTACHMENT 3 Exhibit "2A" Preliminary Parking Ownership Map Higuera Street I I I I I - _ - - — — Garr.cn Al - _ _ - - z - - r++�n Down / > Developer Owned Parcels (Commercial!Retail) -.. ft � 0 o a 1 City Owned Parcel — -- — \ (Public Parking) L �1l l 1 1 _ _� I Developer Owned Parcels (Commercial/Retail) Marsh Street Ground Floor Level Plan Legend Smb:1':5p' qur,09.15.09 Proposed City-Owned Parcel Proposed Developer Owner Parcels � -32. • ATa'ACHWEPT 3 Exhibit "2B" Preliminary Parking Ownership Map Higuera Street -- — I I I I I I I I I I I Garden Alley --- -- — up L I ! I I ElI r' I Developer Owned Parcel m C ?IJf (Private Residential Parking) _U I R � e I i ii_ II I I I City Owned Parcel I ( ite arki-g)� /f F t 11 Marsh Street Basement Level Plan Legend 9vb:t'•50' Rw:05.15.08 Proposed City-Owned Parcel Proposed Developer Owner Parcel L� 1 - 33 '/1 1, s7 v C3 n L ro r bsz l a "W EE WE ni sm us K lavwr y URI I UalI . ' ■ Of mm • r■ nl;xuwg WMAM 2FMMJ.L R mos mm oz 11 T a vz4ga• U .oIVLM unm me z snps imqm3 / t R _ Tf 1 At r, �a Ic r *� rj 'o+.a'�z2�z5►4 J ' �,jw^ 'may � � r^*- �)• � . � �,\ , . �,}y'y�. T. v :- .•fit` ►ry1 'r-_ �,,,r ��• pQ ams ` `;� � ' � �� — -- I � � / t I `J - �Illlllllll�;���IIIiIIIIPIIII���� council mEmoizanaum 10ty of San Luis Obi a July 18, 2006 RECEIVED TO: Mayor Romero & Members of the City Council JUL 17 2006 FROM: Audrey Hooper, City Cler � - SLO CITY CLERK VIA: Ken Hampian, CAO SUBJECT: Item C1 Amendments to the June 20, 2006, Council Meeting Minutes Council Member Mulholland has requested that pages C1-8 of the minutes be revised as follows: Council Member Mulholland said that she did not support the Nacimiento project or the increase of 8% which is attributable to participation in the project. However, but because she believes the program operating costs are valid, she said she would support an 8% a 4% increase for the current upgrade., but net a 12-074 . If Council concurs, the motion should reflect this revision. i COUNCIL R=CDD DIP {ICAO FIN DIP ACAO P FIRE CHIEF ATTORNEY PW DIR RED FILE CLERK/ORIG POLICE CHF ANhUvWPG AGENDA 13DEPT HEADS REC DIP pt RIA UTIL DIR DATE ITEM # -Z MiIAA& 2 HR DIS! 1` �i4Li G:\301-04 Minutes\Correction to Minutes 06-20-06.doc