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HomeMy WebLinkAbout09/06/2011, B 1 - APPROVAL OF AN AMENDMENT TO THE MEMORANDUM OF AGREEMENTS DATED SEPTEMBER 7, 2010, BETWEEN THE CITY Col. na L M"September tember 6,2011 agenba► wpoM 1b.N.A. i CITY OF SAN LUIS OBISPO FROM: Michael Codron, Assistant City Manager Prepared By: Claire Clark, Economic Development Manager SUBJECT: APPROVAL OF AN AMENDMENT TO THE MEMORANDUM OF AGREEMENTS DATED SEPTEMBER 7, 2010, BETWEEN THE CITY AND GARDEN STREET SLO PARTNERS,L.P. RECOMMENDATION: Approve an amendment to the Memorandum of Agreements dated September 7, 2010 (Agreement), between the City of San Luis Obispo ("City") and Garden Street SLO Partners, L.P., a California limited partnership ("Developer"), regarding the Garden Street Terraces Project reducing the minimum requirement for residential units from 13 to 8. DISCUSSION Background On September 7, 2010, the City Council approved the Memorandum of Agreements between the City and the Developer (Attachment 1) for the lease of parking Lot 2 in the downtown. The foundation for the Agreement was established through work that shaped the Garden Street Terraces (GST) development starting in 2005 with an exploration of uses for the City Parking Lot#2 leading to a non-binding Memorandum of Understanding (MOU) dated July 18, 2006. Based on the MOU, Garden Street SLO Partners, L.P., submitted a project application to the City in 2006 to develop a downtown mixed-use center including retail, residential units, hotel, and a public parking facility. The project substantially evolved through multiple redesigns, each one responding to input from community members and City Advisory Bodies. On June 1, 2010, the Council certified the Final Environmental Impact Report (EIR) and approved the GST project based on the EIR's "Reduced Development Alternative" and "Project without Public Parking Alternative". These approvals necessitated substantial project redesign. The Developer submitted revised project plans for architectural review in February 2011 in accordance with Council's certification of the EIR and Reduced Project Alternative. Current Agreement The Agreement (Attachment 2) is a binding conditional agreement that sets forth the basis for terms that will be included in a 99-year, long-term lease of Parking Lot 2 and conveyance of air- space rights above the parking lot. It includes the financial terms of the transaction including rent, one-time payment for replacement of on-site parking spaces, a loan to the developer, plus responsibility for public improvements to Garden Street. B14 J Amendment to Garden Street Terraces Agreement Page 2 The Project Project components are set forth in the Agreement. Although the Agreement is not an approval of the Project, it enumerates required project components and specifies minimum numbers of housing units, hotel rooms and retail square footage to maximize the project's potential to generate revenues as projected during negotiation of the Agreement. Under the terms of the Agreement, the project is required to include no fewer than 45 boutique hotel rooms carrying a three or four star rating, no fewer than 13 residential units, and no less than 20,000 square feet of ground level retail space. As submitted in February 2011, the project plans include 8 of the required 13 units. In balance with the other objectives required of the project, the design resulted in fewer units than originally estimated. Other City objectives required of the project include the EIR's Reduced Development Alternative parameters that significantly reduced the size of the development avoiding some of the project's most visually intrusive elements, increasing protection of historic resources, and better maintaining the existing historic and aesthetic character of Garden Street. In drafting the Agreement, the number of units was based on a good faith estimate that was not achievable in the final form of the project. Furthermore, the units are sized to be responsive to the current economic climate. At approximately 1600 to 2000 square feet on three levels, the units are two bedroom townhomes which, in the developer's experience, meet the market conditions for housing in the Downtown. Summary of Components Agreement Amendment Project as (minimums) (minimums) Proposed Hotel Rooms 45 45 48 Housing Units 13 8 8 Retail, Square Feet 20,000 20,000 25,047 CONCURRENCES Community Development Department concurs with this recommendation. The project as planned meets the requirement to provide housing in the downtown. FISCAL IMPACT Facilitating achievement of project revenue projections continues to be a priority in the Agreement. The change in the minimum number of housing units does not change the revenue producing components of the project. ALTERNATIVE B1-2 Amendment to Garden Street Terraces Agreement Page 3 1. Reject the proposed amendment. This alternative is not recommended because the project requirements under the EIR's Reduced Development Alternative have resulted in the current balance of uses, historic preservation, and height for the project. An increase in the number of units will necessitate a reduction in other components.. ATTACHMENTS 1. September 7, 2010 Council Agenda Report 2. Memorandum of Agreements dated September 7, 2010 Council Reading File: Council Agenda Report dated September 7, 2010, Approval of a Memorandum of Agreements between the City and Garden Street SLO Partners, L.P., regarding a Long-term Lease of Parking Lot Two. file:///T:\Council%20Agenda%20Reoorts\Administration%20CAR\GS'nAgreementAmendmentCAR9-6-2011 doc B1-3 ATTACHMENT 1 council 9-7-201 AQCn6A Qepont �nuwx. 0 CITY O F SAN LUIS O B I S P 0 FROM: Christine Dietrick, City Attorney Michael Codron,Acting Assistant City Manager Prepared by: Claire Clark, Economic Development Manager SUBJECT: APPROVAL OF A MEMORANDUM OF AGREEMENTS BETWEEN THE CITY AND GARDEN STREET SLO PARTNERS, L.P., REGARDING A LONG-TERM LEASE OF PARKING LOT TWO. RECOMMENDATIONS Approve a Memorandum of Agreements (Agreement) between the City of San Luis Obispo ("City") and Garden Street SLO Partners, L.P., a California limited partnership ("Developer"), providing for a long-term, 99-year lease of Parking Lot 2, subject to satisfaction of conditions precedent, and superseding the existing Memorandum of Understanding (MOU) dated July 18, 2006. REPORT-IN-BRIEF On June 1,2010 the City Council certified the Final Environmental Impact Report (EIR)for the Garden Street Terraces Project approving the Reduced Development Alternative, eliminating public parking from the project, and reducing the project's overall size. See Vicinity Map at Attachment 1. - Following certification of the EIR, Council approved a Term Sheet which became the basis from which the Agreement has been drafted. In addition to revised financial terms, the Agreement provides for a long term lease of Lot 2, and a transfer of airspace rights anticipated to be created through a subsequent development application, rather than outright sale of City property. DISCUSSION Background On May 4, 2010, the City Council authorized staff, during closed session, to proceed with negotiations of a final MOU with Developer. Negotiations were based on a term sheet reviewed by the City Council and resulted in the proposed Agreement, which addresses the changed nature of the Garden Street Terraces project. Specifically, the City Council's certification of the Final Environmental Impact Report (EIR), and approval of the Reduced Development Alternative, i 89-- JB14 ATTACHMENT 1 Parking Lot 2 Long-Term Lease Agreement Page 2 eliminate public parking from the project and reduce its overall size. The following is an overview of the steps leading to the creation of the Agreement. 1. Exclusive Negotiation Agreement On August 23, 2005, the Council entered into an Exclusive Negotiation Agreement with Developer for the purposes of exploring use of City-owned Parking Lot 2 as a component of the Garden Street Terraces (GST) proposal. The purposes of the exclusive negotiations were to assess the impacts and feasibility of the proposal, gain a better understanding of the scope of the development review process, and provide Developer with an opportunity to involve the community in the process. Council approved exclusive negotiations because Developer was the controlling owner of property on Broad, Marsh, and Garden Streets surrounding Lot 2 and the proposed project. In addition, the proposed project was anticipated to accomplish several major. City Goals in the 2005-2007 Financial Plan, as well as implement a series of important City Policies. 2. Memorandum of Understandin In 2006, the City and Developer entered into a Memorandum of Understanding (MOU) intended to facilitate the development of a significant downtown mixed use project utilizing both private and public property(Attachment 4). The MOU included provisions for public parking within the project to replace some of the parking that would be lost with development of Parking Lot 2. Based on the MOU, Garden Street SLO Partners, L.P., submitted applications to the City in 2006 to develop a downtown mixed-use center including retail, residential units, hotel, and a 40-space public parking facility. The project had substantially evolved through multiple redesigns, each one responding to input from community members and City Advisory Bodies. However, the elements of the project—retail,residential and hotel—remained consistent. 3. Project Approvals and Direction to Revise MOU In February 2010 the Planning Commission recommended elimination of the public parking from the project based on the environmentally superior alternative identified in the EIR. This, in tum, necessitated review of the MOU which had been prepared on the basis of provision of public parking within the project. Staff sought and received authority and parameters from Council on April 2010 for negotiations and proceeded to negotiate with Developer representatives. On May 4, 2010, staff returned to Council in closed session with the results of the preliminary negotiations and received authorization to proceed with final negotiations of the terms. i _4. Term Sheet Approved and Aueement Developed On June 1, 2010, the Council certified the Final Environmental Impact Report (ETR) and approved the GST project based on the EIR's "Reduced Development Alternative" and "Project without Public Parking Alternative". Following certification of the EIR, Council approved a Term Sheet(Attachment 3) which became the basis from which the Agreement has been dratted. In addition to revised financial terms, the Agreement (Attachment 2) provides for a long term j lease of Lot 2, and a transfer of airspace rights anticipated to be created through a subsequent development application, rather than outright sale of City property to Developer. i �1-5 O ATTACHMENT 1 Parking Lot Long-Term Lease Agreement Page 3 As with the MOU, the proposed Agreement does not confer final project approvals. The approval process will continue with Developer's re-submission of plans to the City's Community Development Department for final Architectural Review in accordance with Council's certification of the EIR and Reduced Project Alternative. In the process of developing and entering into the MOU and, subsequently the Agreement, the City has been acting in its proprietary, or ownership role,not its regulatory role, as it does during the development review process. The Agreement does not in any way alter the Developer's obligation to proceed through the City's standard development review processes and it does not commit the City to issue any final project approvals in the event the Developer does not successfully complete any design or environmental review processes as normally required. Overview of the Agreement The Agreement is a binding conditional agreement that sets forth the basis for terms that will be included in a 99-year, long-term lease of Parking Lot 2 and conveyance of air-space rights above the parking lot. One of the significant changes proposed in the Agreement is that it does not stipulate the outright sale of City property. The City receives consideration in exchange for the long tern lease in the form of annual rent and additional compensation for the removed City parking spaces in the form of a one-time fee. The following discussion explains key Agreement provisions in greater detail. 1. Rent under the Lease The Rent payable by Developer includes the following types of payments: a) Base Rent Developer will pay to the City base rent that is equal to an agreed upon fair market percentage of the re-use value of the real property, to be determined by a qualified appraiser agreeable to Developer and the City, provided that the base rent is no less than the operating net revenue from the operation of Parking Lot 2 as of the date the parking lot is taken out of operation. The current annual net revenue is $167,800 per year. In addition, the base rent will increase periodically based on increases in the Consumer Price Index. Base rent payments will begin to accrue from the date the City delivers possession of the premises to Developer. Rent will be due annually. This tern is similar to the Base Rent term in the MOU however the new base rent will reap greater financial returns for the City because a minimum base rent is set out in the Agreement. b) Percentage Rent In addition to the base rent, Developer shall also pay an additional rent based on hotel room revenues. Beginning with year 15 of the Lease, the City will receive 1.5% of gross individual hotel room revenues that exceed $71,500 per room, per year. This term is an I amended version of the percentage rent charged in the MOU terms, again reaping greater returns for the City because the percentage rent begins in year 15 instead of year 30 as outlined in the MOU. j ATTACHMENT 1 Parking Lot 2 Long-Term Lease Agreement Page 4 c) Rent Reduction Developer will be entitled to a reduction in the base rent in an amount equal to the City's net realized increase in property tax, not including any possessory interest tax paid by Developer. Based on analysis by the Finance Department that amount is currently estimated to be approximately $53,000 annually. This rent reduction represents a term carried over from the MOU. 2. One-Time Fee for Replacement of On-site Parking Lot 2 presently has 62 metered surface parking spaces. The City Council's approval of the Reduced Project Alternative described inthe EIR requires elimination of public parking on the project site, eliminating those spaces from public use. In recognition of this cost to the City, the developer will pay a one-time fee of$30,000 for each of the 62 parking spaces. The total fee of $1,860,000 is untended to offset the construction cost of replacement spaces. The amount per space follows the MOU term that set the amount at $30,000 for each public parking space removed from Lot 2. However,because all 62 public parking spaces will be eliminated under the proposed project, the dollar amount to be paid to the City is significantly greater than contemplated in the MOU($1.2 million greater). This payment does not relieve the developer from the requirement to provide on-site project parking in accordance with City standards. If the project fails to provide all required parking on site,the developer will be required to pay the generally applicable in-lieu parking fee. 3. Loan to Developer The Agreement provides for the City, via the Parking Fund, to provide a loan to the Developer. This loan is at no cost to the City, in an amount not to exceed $2.4 million, to be repaid in 30 years or fewer with compounded interest equal to the City's cost of borrowing equivalent.funds whether or not the City chooses to incur debt. The rate of interest will be set to reflect the City's cost of tax exempt financing if the loan qualifies, or in the alternative at a rate equal to the City's - cost of taxable financing. Due to the economic downturn, this term offers the developer a key financing source and offers the City an opportunity to invest in the long-term health of the community while providing a good vehicle for investment of money from the Parking Fund. The Parking Fund is projected to have a sufficient balance to make this loan and is not expected to have to borrow additional funds to do so. This loan matches the loan contemplated in the MOU to facilitate the project. ! i 4. Public Improvements to Garden Street The Agreement also requires Developer to complete the design,construction, and funding of physical improvements to Garden Street consistent with the currently approved Garden Street Makeover Plan. This term changes the Developer's responsibility from 50%, as stipulated in the MOU, to 100%responsibility. The Garden Street Makeover Plan, which is estimated to cost approximately$300,000,is not currently funded in the City's Capital Improvement Plan. This provision will provide funding for these improvements. j i L3 5-g1-7 ATTACHMENT 1 Parking Lott Long-Term Lease Agreement Page 5 Recitals and Summary of Standard Terms The Recitals section includes basic definitions and a summary of the general concepts contained in the Agreement. 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 an air space subdivision. Additionally, the goals and objectives that the project is intended to accomplish are described in the Recitals. �. The Prnoject The Project details are described in the Agreement. Although the Agreement is not an approval of the Project, the specifics of the conceptual project are contained therein because they are integral to the Agreement. The Agreement cites the approved project components and specifies minimum sizes for housing, hotel and retail uses to protect the City's interest in projected revenues from the project. Under the terms of the Agreement, the project will include no fewer than 45 boutique hotel rooms carrying a three or four star rating, no fewer than 13 residential units, and no less than 20,000 square feet of ground level retail space. Due to the changes required via the City Council's land use and environmentalapprovals, the Agreement contemplates the following counts. Note that the MOU and the Council Approved project columns indicate the maximum count for each use. The Agreement indicates minimum counts to assure that the project has at least these levels of each use. MOU Project Council Approved Agreement Project (maximums) Project(maximums) (minimums) Hotel Rooms 70 63 45 Housing Units 50 33 13 Retail, Square Feet 18,000 27,500 20,000 Public Parking 40 0 0 2. "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 and/or remediation to prepare Lot 2 for construction of the Project. 3. Conditions Precedent to Lease Execution There are a series of obligations that each party must satisfy prior to execution of the Lease of Lot 2 and the conveyance of airspace rights. The City will'not lease Lot 2 or convey the airspace rights unless and until: a) The Project has obtained final design approval in accordance with the Certified EIR; b) The Lease has been evaluated in accordance with CEQA requirements; 13 F!D 1—O ATTACHMENT 1 Parking Lot 2 Long-Term Lease Agreement Page 6 c) Developer has obtained or agrees to obtain, by a date to be specified by the City, building permits for the Project; and d) Developer has provided an acceptable plan that addresses trash and delivery access during construction to the businesses along Hi era Street that currently depend on par ng Lot 2 and the adjacent alleyway for these purposes; 4. Conditions Precedent to Possession or Lot 2 Prior to taking possession of Lot 2,Developer must also: a) Obtain a final binding commitment for construction financing for the project; b) Obtain Building Permits, and c) Receive written authorization from the City to take Lot 2 out of operation. 5. Ageement is a Binding Agreement The Agreement is a binding agreement setting the parameters of the project and terms required to finalize the financial aspects of the transaction. A provision not in the MOU but included in the Agreement is the requirement that the project satisfy all conditions and begin construction on Lot 2 no later than five years from the date of execution of the Agreement. Next Steps If the Agreement is approved, Developer will move forward with submittal of final project plans for Architectural Review and City Council consideration, based on the reduced project entitlements approved by the City Council After design approval of the revised project, and assuming that the Developer has satisfied all conditions precedent, staff will return to the City Council with the final lease consistent with the parameters described in the Agreement. FISCAL IMPACT As outlined below, there are significant fiscal benefits to the City from the project. The General Fund is expected to benefit from increased Transient Occupancy Tax, Sales Tax, and Property Tax revenues immediately upon occupancy. The Parking Fund will benefit from the required one-time payment for the loss of 62 public parking spaces currently in service on Lot 2 and from interest payments from the proposed loan to Developer. General Fund As summarized below, the Council-approved project is estimated to add approximately$450,000 annually to the General Fund. As described earlier in this report, the Agreement adds minimum project requirements and the projected annual net new revenue to the General Fund will be $325,700. i I i ATTACHMENT 1 Parking Lot 2 Long-Term Lease Agreement Page 7 Project Council Agreement' Envisioned Approved "Project" General Fund Revenue Increase in MOU "Project" (minimums) Sales,Tax . Onsite retail 83,000 88,000 87,500 Hotel guest spending 13,000 11,700 8,300 Resident spending 20,000 13,200 5,200 Property Tax 66,000 53,000 41,300 Transient Occupancy Tax 317,000 285,300 183,400 Total $499,000 $451,200 $325 700 As reflected above, the revenue estimates from the Council Approved Project, as well as from the project minimums specified in the Agreement, are less than the project envisioned in the current MOU due to the reduced project size. Revenues received from the project will vary from the estimates above depending upon the actual project built.and the economic conditions in place at the time of construction. In addition to direct General.Fund revenues, the Developer will complete 100% of the design, construction, and financing of physical improvements to Garden Street eliminating that expense from the City's future Capital Improvement costs. Under the MOU the City was to incur 50%of these costs. Parking Fund The following compares the fiscal benefits for the Parking Fund of the proposed terms with the MOU: Parking Fund Fiscal Summary Term Current Proposed Variance One-Time Revenue Replacement Parking 660,000 1,860,000 1,200,000 i On-going Revenue Lending$2.4 million at market rates Unchanged Unchanged i Other Terms with No Direct Cost/Revenues In-lieu fees for any"new demand"deficit at rate Not New Provision in effect at the time(currently$17,072 per Addressed space) Lease Revenue for Parking Lot 2 and Airspace Rights The following summarizes the fiscal benefits associated with the on-going lease revenue of the proposed terms with the MOU: • i V � r B —10 ! ATTACHMENT 1 Parking Lot 2 Long-Term Lease Agreement Page 8 Tenn Current Proposed Variance Ongoing Lease Revenue 1. Minimum Rent 28,000 167,800 139,800 2. Additional Rent a. Fair market rent based on gross receipts None To be as determined in updated reuse appraisal determined b. 1.5%of gross revenues above$71,500 per Same Same room plus minimum rent Begins after 30 years 15 years 3. Rent Reduction 66,000 53,000 13,000 The lease revenue over the term of the 99-year lease is substantial. Under the proposed scenario, minimum rent will increase by CPI, with a minimum adjustment of 3%. In combination with receiving the additional rent after year 15, rather than year 30, the proposed scenario results in substantially more rent than under the MOU terms. For context, under the MOU,minimum rent at year 30 would be$40,000 and under the proposed scenario, it would be$253,000 at year 30. The determination on the appropriate City fund to which Iease revenues will be allocated (e.g. General Fund or Parking Fund) is not relevant to adopting the Agreement and is a decision the City Council will make in the future. All previous discussions of lease revenues related to the MOU were based on the previously contemplated project, which included public parking on-site. In this context, it has been assumed in prior reports to the City Council and the public that lease revenue would be allocated to the Parking Fund. However,the proposed Agreement is based on a project that does not include parking on site,but does include a newly proposed$1.8 million one- time payment to the Parking Fund. Parking Lot 2 was purchased by the General Fund in the 1950's and so it would normally follow that lease revenues for this property, which will not be used for public parking going forward, would be allocated to the General Fund. However, when this issue returns to the Council for a policy decision, staff will present revenue projections comparing the impact to the Parking Fund of receiving the $1.8 million payment and not receiving lease revenues. In addition, staff will have had the opportunity to consult with the appropriate stakeholders to the process before retuming to the City Council for policy direction. ALTERNATIVES ' i 1. Reject the proposed Agreement. This alternative should only be selected if the Council no longer supports the project in conformance with the EIR. If the Garden Street Terraces concept remains supported by the Council, then the Agreement that has been carefully negotiated over the ATTACHMENT 1 Parking Lot 2 Long-Term Lease Agreement Page 9 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 Agreement or may provide direction to negotiate further with Developer on specific terms. The proposed Agreement is intended to serve as a framework to assist in developing future agreements. If Council has major concerns about the proposed Agreement, 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. Proposed Agreement 3. Final Term Sheet June 1,2010 ? 4. 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S It k \• t t f .a1sT t t \r \� � � S iif Y tt. p�;�) � .,'tt s\.Av.�\�Y"♦r\/ ` '."TYl y Y{ x� r(a\ i�'z.n t� {S � n�'.r' %.So_'' � ♦A •'Zi 1�4. 4 1r l' ^� �Yi r� M1 1 ml)a\t � ' �Y ,A C Y�A6 y •F _ ��...^:n t 1 \°Y c � t it �., � {yt i,il� F.. •1 r �J � n t �i 311 t, t . . ,r \\\♦♦1... !/f u�'y.+a� ° .Fj(�"'�(}�`1y, wJl 4 it I; ✓!i �� r: T1. �: do VICINITY MAP iffle No' . 124=06,4 ,"i.ry ��'y➢� ��{� i� sw "t; rx fl c ro' �SH11 i �� ATTACHMENT 2 MEMORANDUM OF AGREEMENTS This MEMORANDUM OF AGREEMENTS (the "Agreement") is made and entered into, effective as of September 7, 2010 (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"), and/or assigns, and supersedes the prior MOU between the parties dated July 18,2006,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, in conjunction with "Parking Lot 2" described below, collectively are referred to as the "Project Area"), the ownership of which is set forth on EXHIBIT 1 to this Agreement; 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, and restaurants, and which will eliminate on-site public parking previously contemplated to be constructed on a portion of the Project Area(collectively,the "Project"); and D. On July 18, 2006, Developer and City entered into an MOU which contemplated the sale of Parking Lot 2 to Developer in exchange for the Developer's construction and lease back to the City of an airspace condominium public parking facility; and E. The Project originally contemplated by the parties has been modified through the City's environmental and development review processes; and F. On June 1, 2010, the City Council of the City provided final approval of the environmental and land use entitlements for the Project by adopting the following resolutions (together,the"Final Entitlements"): i I (i) Resolution No. 10182 (2010 Series), "A Resolution of City of San Luis Obispo Certifying the Final EIR for the Garden Street Terraces Project and Approving the Reduced Development and Project without Public Parking Spaces Alternatives as the Required Project (E 1240-06)," certifying the final environmental impact report for the Project; and (ii) Resolution No. 10183 (2010 Series), "A Resolution of the City of San Luis Obispo Approving A Modified Use Permit and Vesting Tentative Tract Map i T:KiSTMOU ModifiwrionCC Mg.Fmel Docs20103.7\ABc.Fim12010.9.7vlastdoc B1-14 ATTACHMFFJ-r C for 'the Garden Street Terraces Project (U/TR 124-06)" (Resolution No. 10183"), approving Developer's application for a use permit for the Project; and G. The appeal periods for the Final Entitlements have lapsed without any appeal being filed with respect to such Final Entitlements; and H. The Final Entitlements require the Project to be reduced in scale, eliminate the previously contemplated public parking component of the Project, and require review and . approval of final design of the Project by the City Council; and I. As a result of the modified Project, as entitled, Council also approved a Term Sheet setting forth terms to be included in a successor Memorandum of Understanding memorializing the parties' conceptual agreement for the lease of Parking Lot 2 to Developer for a period of 99 years (the"Long Term Lease") in order to facilitate the construction and operation of the Project;and J. The Project as entitled will have an important revitalization effect on the downtown area and, therefore, continues to merit particular consideration by the City; and IC The Project is consistent with key General Plan policies including Land Use Element Policy 4.1, which describes downtown's role as that of ensuring: 1) 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) that the civic, cultural and commercial portions of downtown should be a major tourist destination; and 3), that downtown visitor appeal should be based on natural,historical, and cultural features,retail services, and numerous and varied visitor accommodations. In addition, Land Use Element Policy 4.2.1, together with Housing Element Policy 3.11.2, direct new Downtown development, such as the Project,to include dwellings; and L. The Project will support concepts set forth in the Conceptual Physical Plan for the City's Center(the Downtown Concept Plan), which is to be considered by the City as set forth in Land Use Element Policy 4.16; and M. Negotiations between City and Developer are appropriate in light of Developer's �! ownership or control of the parcels abutting.Parking Lot 2 except those parcels fronting Higuera j. Street and 742 Marsh Street. The Developer has made significant investment to procure the Project entitlements to date. But for the Developer's participation, the Project and the benefits it confers upon the community could not occur; and N. Therefore, the City contemplates that the proposed Long Term Lease (as defined in Recital I above) will be accomplished without a competitive bidding process that the City otherwise might use if the Project, of which the Long Term Lease is a part, did not serve f 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 I. I i 2 I B1-15 ATTACHMENT 2 O. The utilization of City property and the elimination of on site City parking is critical to implement the Project, as entitled by the City Council on June 1,2010; and P. Developer has agreed diligently to pursue final design approval of the Project as entitled; and Q. The parties contemplate later entering into a Property Lease Agreement and other instruments necessary to implement the terms and conditions set forth herein, subject to Developer receiving design approval and completing required environmental review of the Long Term Lease; and R. The core components of the Project contemplated to be a part of the Long Term Lease were part of the Project description included in the final EIR, which was certified by Council Resolution No. 10182 (2010 Series); S. The parties have agreed to execute this Agreement in order to memorialize the core components and terms and conditions precedent to the execution of the contemplated Long Term Lease and related aspects of the Project. AGREEMENTS: NOW, THEREFORE, the parties hereto,intending to be legally bound, do hereby agree as follows with respect to the proposed Long Term Lease and the Project. 1. CONCEPTUAL PROJECT DESCRIPTION. The Project, as entitled, included the following elements, which the parties acknowledge may be modified as to number of units and total retail square footage prior to final design, subject to the limits set forth in Paragraph 2, below: 1.1 HOTEL. A 63-room hotel containing approximately 2,500 square feet of meeting space and a restaurant, bar, gym, and spa facility occupying a total built area of 51,346 square feet; and 1.2 RESIDENTIAL UNITS. 33 residential units ranging in size from 650 square j feet to 1,500 square feet, with the average size of each unit being approximately 1,100 square j feet occupying a total built area of 40,775 square feet;and i 13 RETAIL SPACE. General - 14,341 square feet of retail space on the ground i floors; and 1.4 RETAIL SPACE. Market— 13,248 square feet of retail space; and 1.5 PARKING. 147 parking spaces,not including any public parking spaces. i 2. PERMISSIBLE SCOPE OF CHANGES TO PROJECT COMPONENTS. Developer acknowledges that the inclusion of the following Project components are a necessary I 3 B1-16 ATTACHMENT 2 elements of the consideration for the Agreement and the City's Execution of the Long Term Lease and the parties agree that if the Developer reduces or eliminates any component below the following minimum requirements, the City shall have no obligation to enter into the Long Tenn Lease contemplated herein: 2.1 HOTEL. The Project shall include a hotel that has no fewer than 45 boutique hotel rooms and carries a three-star or four-star rating. 2.2. RESIDENTIAL UNITS. The Project shall include no fewer than 13 Residential units. 2.3 RETAIL SPACE. The Project shall include no less than 20,000 square feet of retail space including ground level retail as approved by the City Council. 3. ENVIRONMENTAL REVIEW OF. LONG TERM LEASE. The Parties (a) acknowledge that(i)the Long Term Lease, which shall be finally negotiated based upon the final approved project design, will require environmental review, (ii)the City shall have no obligation to enter into the Lease, as contemplated herein, until Developer has obtained the requisite environmental determination relating to the Long Term Lease and has agreed to comply with any required mitigations, and (iii) as noted in Recital R above, the core components of the Long Term Lease were part of the Project description included in the final EIR, which was certified by Council Resolution No. 10182 (2010 Series), and. (b) agree to complete such environmental review of the Long Term Lease at the earliest meaningful time after which the proposed final project design is known. 4. LEASE OF PAREING LOT BY CITY Subject to Paragraph 3, above,the City and Developer shall enter into the Long Term Lease with respect to Parking Lot 2, and the City shall convey to Developer certain airspace rights, on the following terms and subject to the conditions precedent set forth in this Agreement: 4.1 PREMISES — LEASE. The premises subject to the Long Tenn Lease shall include the undivided fee interest in Parking Lot 2. 4.2 PREMISES — AIRSPACE. Developer shall be permitted to pursue a subdivision of the airspace above Parking Lot 2 and City shall convey to Developer fee ownership of the airspace lots created by any subdivision that may be approved, while retaining fee ownership of the ground below any subdivided airspace. 5. TERM. The term of the Long Term Lease shall be ninety-nine (99) years. The Long Term Lease shall provide that, at the end of the lease term, Developer shall have no further right to occupy or improve Parking Lot 2 and all rights and title to any and all improvements on or to the Property shall become the sole property of the City, unless a successor lease is negotiated j prior to the expiration of the tern. j 6. BASE RENT. Developer will pay to the City base rent that is equal to an agreed upon fair market percentage of the reuse value of the real property, to be determined by a qualified s 4 B1-17 ATTACHMENT 2 appraiser agreeable to Developer and City, reduced pursuant to Paragraph 9, below and subject to the terms and conditions set forth in Paragraphs 6.1 and 6_2 below. 6.1 The parties acknowledge that the City's annual net revenue from the operation of Parking Lot 2 currently is $167,800 per year, and agree that in no event shall the base rent be less than the amount of the City's annual net revenue from the operation of Parking Lot 2 as of the date the lot is taken out of operation. 6.2 Annual base rent shall be increased on the first day of every third fiscal year by the amount of increase in the Consumer Price Index (Los Angeles-Riverside-Orange County) for each of the 3 years immediately preceding, but in no event shall the increase be less than two percent(2%)nor more than four percent(4%)per year, for a cumulative total increase of not less than six percent (6%) and not more than twelve percent (12%) in any three year period. For purposes of this Agreement, all references to "fiscal year" shall be deemed to be references to the fiscal year of the City. 7. TIME OF RENT PAYMENT. Base rent payments shall begin to accrue on the date on which the City delivers to Developer possession of the premises, which shall mean the date on which the Developer requests and the City agrees, in writing, to cease operation of Parking Lot 2. Rent shall be due and payable in advance on the first day of the first year of the lease term and first day of each fiscal year every year of the lease term thereafter. 8. PERCENTAGE RENT. Beginning on the first day of year 15 of the Long Term Lease, the Developer shall pay an amount equal to one and one-half percent (1.5%) of the amount by which gross individual room revenues for the hotel that is included in the Project exceed the stipulated room revenue threshold of$71,500 per room- 9. oom9. RENT REDUCTION. Developer shall be entitled to a reduction in base rent in an amount equal to the City's Net Realized Increase in Property Tax, not including any possessory interest tax paid by the Developer. 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 fust year of full reassessment for the new Project(following completion of construction and commencement j of occupancy thereof), not including the amount of possessory interest tax paid on the City property, exceeds (y) the net realization from property tax on the same property in effect i immediately prior to the date on which the parties execute the Long Term Lease. The Net Realized Increase in Property Tax shall exclude any and all additional property taxes or assessments levied on the property by virtue of citywide or special district taxes imposed subsequent to the execution of the Lease Agreement and associated documents. 10. DEVELOPER DILIGENCE; LEASE "AS IS." Developer shall perform at its cost and expense such due diligence investigations of Parking Lot 2 as Developer determines to be appropriate. The City shall lease Parking Lot 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 3 5 B1-18 ATTACHMENT 2 Area and the parties shall execute any additional agreements necessary to ensure that Developer will assume full responsibility for such costs. 11. FINAL PROJECT ENTITLEMENTS. 11.1 The City acknowledges and agrees that Developer has successfully completed the processing of all discretionary land use approvals needed to proceed with the final design of the Project. Final design approval and building permits, consistent with conditions of discretionary entitlements and mitigations required by the certified Final EIP, and any subsequent environmental review that may be deemed necessary, will allow construction to proceed. 11.2 The City acknowledges that Developer has provided to the City with respect to the Project, as entitled, a construction phasing plan that has been approved by the Community Development Director. The Parties acknowledge that if any significant changes are made to the project subsequent to the date on which the Final Project Entitlements were approved by the City Council, then the Developer will be required to submit such changes to and obtain Director approval of a revised construction phasing plan. 12. CONDITIONS TO LEASE EXECUTION. The obligations of the Parties to proceed with the Long Term Lease shall be subject to the waiver or satisfaction of the following conditions. 12.1 DEVELOPER REQUIREMENTS. Subject to ParaUanh 3 of this Agreement, the City shall be obligated to enter into the Long Term Lease contemplated by this Agreement if and only if Developer has satisfied or legally bound itself to satisfy the following conditions or the City has waived the conditions: (a) Developer has obtained final design approval to proceed with the Project in accordance with the City's normal design review requirements, which shall be subject to the City Council's final approval [this condition shall not be waived by the City]; (b) The proposed Lease has received final environmental approval and any subsequent Project environmental review necessitated by any changes by the Developer to the Project has been completed [this condition shall not be waived by the City]; (c) Developer has obtained or agrees to obtain, by a date to be specified by the City; building permits for the Project, consistent with the design finally approved by the San Luis Obispo City Council; (d) City shall have no obligation to permit Developer to occupy Parking Lot 2 and City shall retain the right to operate and retain all revenues from its parking lot until such time as Developer has obtained a final, binding commitment letter from a lender of Developer's choice to fund the construction costs of the Project, obtained building permits to construct the Project consistent with the City's approved phasing plan, and has requested and received written authorization from the City to take Parking Lot 2 out of operation; and I 6 B1-19 . 1 ATTACHMENT 2 (e) Developer shall agree to include a provision to permit termination of the Long Term Lease and reversion of all rights in and to Parking Lott to the City if Developer fails to meet agreed upon benchmarks toward Project completion, which shall be set forth in the Long Term Lease; (1) Developer has provided a plan that is acceptable to the City and addresses trash and delivery access, during construction, to the businesses along Higuera Street that currently depend upon Parking Lot 2 and the alleyway adjacent to it for these purposes. 12.2 CITY REQUIREMENTS. Developer shall be obligated to enter into the Long Term Lease if and only if the City has satisfied or legally bound itself to satisfy the following conditions, or the Developer has waived the conditions: (a) City agrees to allow Developer to pursue a subdivision of the airspace above Parking Lot 2 as necessary to facilitate the development of the Project as finally approved by the San Luis Obispo City Council; and (b) City agrees to convey to Developer fee ownership of the airspace lots created by any subdivision that may be approved, 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 Long Tenn Lease and the Project). Developer acknowledges that City shall retain fee ownership of the ground below any subdivided airspace. 13. DATE FOR SATISFACTION OF ALL TERMS AND CONDITIONS. All terms and conditions contained herein shall be completed by and construction of the Project on Lot 2 shall begin no later than five years from the date of execution of this Agreement ("Date of Satisfaction's. Failure to satisfy all terms and conditions by the Date of Satisfaction, without a party waiving a tern or condition, or legally binding itself to satisfy a term or condition, terminates this Agreement. The City Manager shall have the authority to extend the Date of Satisfaction for a time period not to exceed one year. i 14. COMPENSATION TO THE CITY FOR REPLACEMENT OF ON-SITE PUBLIC j PARKING REMOVED. 14.1 The parties acknowledge that Parking Lot 2 currently contains sixty-two (62) spaces and the certified final EIR recommends elimination of public parking on the Project site, the effect of which will be to remove from public use 62 on-site parking spaces that currently are available to the public generally at Parking Lot 2. 14.2 In recognition of the elimination of public parking, the Developer shall pay to the I City, upon the earlier of issuance by the City of building permits for the Project or Developer's j possession of Parking Lot 2 (which possession date shall be deemed to occur on the date on which the City takes parking Lot 2 out of operation at Developer's request), a one-time fee of j Thirty Thousand Dollars ($30,000) for each of the sixty-two (62) public spaces that are to be eliminated on-site in connection with the Project(i.e., 62 parking spaces x$30,000/parking space B1-20 ATTACHMENT 2 =S 1,860,000 total parking replacement fee). The parties further acknowledge that the amount of such $1,860,000 is a replacement parking fee and is not to be construed as meeting the in-lieu parking fees described in Paragraph 14, below,in whole or in part because the amount thereof is intended to contribute to the costs of constructing replacement spaces. 15. IN-LIEU PARKING FEES. If the Project fails to provide all required parking on site, then the Developer will be required to pay the generally applicable in-lieu parking fee at the time building permits are issued. Such payments will be in addition to those set forth in Paragraph 13 above for the replacement of public parking. 16. LOAN TO DEVELOPER. The City, via the Parking Enterprise Fund, will provide a loan to the Developer, at no cost to the City, in an amount not to exceed $2.4 million, to be repaid as follows: 16.1 TERM. The term of such loan shall be for a term of 30 years or such shorter term as to which the Parties may agree. 16.2 INTEREST RATE. The compound interest rate charged shall be equal to the City's costs of borrowing equivalent funds whether or not the City chooses to actually incur more debt. The rate will reflect the City's cost of tax exempt financing if bond counsel confirms that this loan qualifies for such financing. Developer shall otherwise pay a rate equal to the City's cost of taxable bond financing. 17. DEVELOPER PARTICIPATION IN GARDEN STREET IMPROVEMENTS. 17.1 Developer shall complete the design, construction, and funding of physical improvement to Garden Street substantially consistent with 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). The design for said Garden Street Improvements shall be submitted to the City as part of the final Garden Street Terraces Project architectural design review process consistent with paragraphs H and 11 of this Agreement. i 17.2 As part of the Project, Developer shall assure high levels of maintenance, uniformity of street facade appearance and maintenance, adequate security and a variety of other I enhancement improvements to the streetscape of Garden Street from Marsh Street to Higuera, j. some of which will occur on public property or on property not owned by the Developer. Developer shall construct all of the Garden Street improvements, concurrent with project i construction on Garden Street, at its sole expense with no contribution by the City. 18. PREVAILING WAGES. Developer shall be responsible for complying with prevailing I wage requirements which may be applicable to work associated with the Garden Street Makeover Plan improvements that Developer will construct. 19. DOCUMENTATION. The parties agree that, at a'minimum, the documentation to be created as a result of this Agreement may include the following: i 8 B1-21 ATTACHMENT 2 19.1 Lease Agreement; 19.2 Loan Documents and security instrument(s); and 193 A Performance Bond for the Garden Street Makeover improvements. 19.4 Conveyance of airspace rights to Developer. 20. RESPONSUBILITIES OF THE PARTIES 19.1 DEVELOPER. It shall be the responsibility of the Developer diligently to pursue final design approval for the Project and pay all costs associated with Project approvals, including any environmental processing and reimbursement to the City for third party expenses associated with the Long Term Lease, subsequent or supplemental environmental review necessitated by subsequent changes to the Project to comply with approved Project conditions or - mitigations; and for third party expenses (without any mark up) incurred after approval of this Agreement in the preparation of any documents necessary to implement this Agreement and finalize other documents contemplated herein. 19.2 CITY. The City, in its role as landowner, shall cooperate with and furnish information to the Developer regarding the properties included within.the Project. With regard to zoning, land use, and environmental and design review and/or approval, the City's responsibility shall be limited to providing that level of interaction, timely response, and review as provided for in state law, regulations and ordinances of the City of San Luis Obispo. . 21. 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. Agreement. Notwithstanding anything to the contrary in this Agreement, 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 Agreement. 22. HOLD HARMLESS AND INDEMNIFICATION. Developer agrees to hold harmless, defend and indemnify the City, its agents, officers and employees from and against all actions, damages, claims, losses or expense of every type and description to which they may be subjected or put, by reason of, or resulting from any claims arising out of or related to this Agreement. Notwithstanding the foregoing, no indemnification is given hereunder for any action, damage, claim, loss or expense to the extent directly attributable to the intentional acts or negligence of the City or its officers, directors, employees or agents. 9 Bl-22 J ATTACHMENT 2 23. POSSESSORY INTEREST TAXES. The Developer (a) acknowledges that if the Project contemplated by this Agreement is subsequently approved and constructed, then a possessory interest subject to property tax may be created and owed 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. 24. MISCELLANEOUS. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California (without regard to application of the conflict-of-law principles thereunder). Upon the request of either party, each of the undersigned shall make, execute, and deliver such documents and instruments, and shall take such other actions, as may be reasonably necessary to cant' into effect the agreements of the parties described in this Agreement. If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality,validity or enforceability of the remaining provisions hereof, nor the legality, validity, or enforceability of such provision under the law of any other jurisdiction, will in any way be affected or impaired thereby, and the remainder of the provisions of this Agreement will remain in full force and effect. This Agreement (a) represents the entire understanding between the parties regarding the subject matter hereof, and supersedes and replaces all prior and contemporaneous understandings, whether oral or written, regarding such subject matter, and (b) may not be modified or amended, except by a written agreement executed after the effective date hereof by the party sought to be charged by such modification or amendment. If any action is commenced to construe or enforce this Agreement or the rights and duties of the parties hereunder, then the party prevailing in that action shall be entitled to recover its costs and reasonable attorneys' fees in that action, as well as such costs and fees of enforcing any judgment entered therein. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which, taken together, shall constitute one and the same instrument, binding on each signatory thereto. A copy of this Agreement that is executed by a party and transmitted by that party to the other party by facsimile or as an attachment (e.g., mi ".tif' or ".pdf' format) to an email shall be binding upon the signatory to the same extent as a copy hereof containing that party's original signature. I [Signatures appear on the following page] i I i i I i i i i i i 10 I B1-23 ATTACHMENT 2 IN WITNESS WHEREOF, the undersigned have executed this Agreement,effective as of the "Effective Date" set forth above. "CITY:" "DEVELOPER:" CITY OF SAN LUIS OBISPO GARDEN STREET SLO PARTNERS,L.P., . A Municipal Corporation a California limited partnership By DOWNTOWN INVESTORS,LLC,a By: �� pttar�d— California limited liability company,its David F. Romero,Mayor general partner i ATTEST: By atshall,its Manager City Clerk i APPROVED AS TO FORM: ity Attorney i i i i i t 11 B1-24 ATTACHMENT 2 Exhibit " 1 Ownership of Project Area (Per Recital A) wpm Higuera Street I I �p \ r j �• l LS p n ty p i fAA' XtfW' 5554W::riP Ni3!' �r Garden Alley ..rrrr r r r•arrur-r-tr � ,!/ Ql � n Pad�I� Lot �y2 fr f!/rr/ d . �r ro x••ryiaCn Oren' a. -0 MR,/f/r/J!�Y%J,%:il� ff�dd,�/• �t ,� f�c.�,+`-1..,� ,. �, �• ,/f f,���d� s ,�•/rff /��f'/l "^ ON" 7/�1/!i I` l/�r/!`/, /✓%I%.•�f//f,!l/ -0i //,�r'.,�// �/gid/j '/.'O%�%%• � .,,,r r/1f/l%� -�Mar --------- Marsh sh Street I i i i Ground Level Plot Map Legend s axxr na o 2%=0 Denotes City-mimed Panel Denotes Developer Pare t I B1-25 .