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HomeMy WebLinkAbout06 TUSTIN GATEWAY HOTEL AND RETAIL DEVELOPMENT - 3RD AMENDMENT TO DDA GS O� Agenda Item 6 AGENDA REPORT Reviewed: tis 8 City Manager Finance Director N/A MEETING DATE: MAY 20, 2015 TO: JEFFREY C. PARKER, CITY MANAGER FROM: CITY MANAGER'S OFFICE — ECONOMIC DEVELOPMENT DIVISION SUBJECT: TUSTIN GATEWAY HOTEL AND RETAIL DEVELOPMENT - 3rd AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT (DDA) SUMMARY Approval is requested to amend the DDA with Tustin Retail SPE, LLC (Retail Developer) and Olson Real Estate Group (Olson), collectively known as the Developer to obtain from the City a Certificate of Compliance for the retail parcels located within the Tustin Gateway Project. RECOMMENDATION Authorize the City Manager to execute Amendment No. 3 to the Disposition and Development Agreement (DDA) between the City of Tustin and the Developer, Tustin Retail SPE, LLC and Olson Real Estate Group. FISCAL IMPACT Under the proposed amendment, the Developer may obtain a Certificate of Compliance for the retail parcel prior to completing vertical improvements on the Northern Retail Pad. For the Developer to obtain the Certificate of Compliance prior to completing vertical improvements, the Developer within 10 calendar days following execution of the amended DDA must pay the City $75,000 (Immediate Payment). If the Developer, fails or elects to not pay $75,000 within 10 calendars days, as described, the Developer will have until December 4, 2015 to pay the City $100,000 (Second Payment). If by December 5, 2015, the Retail Developer shall have failed to either: (a) obtain a building permit and commence construction of the retail vertical Improvements on the Northern Pad, or (b) pay the Immediate Payment or the Second Payment, the Developer will be deemed to be in Material Default and the City shall have the right to exercise all of its remedies under the DDA. CORRELATION TO THE STRATEGIC PLAN This action correlates to the City's Strategic Plan for Economic and Neighborhood Development(Goal A). DISCUSSION The City and Olson entered into DDA dated as of July 5, 2011 which was subsequently amended twice. The 15` Amendment allowed for the inclusion of the Fairfield Inn and Suites as an acceptable hotel brand. The 2nd Amendment to the DDA dated April 16, 2013 did the following: a) modified the project definition for retail development to range from 10,000 to 16,000 square feet, b) released restrictions for a single drive-through for the southern retail pad only, c) required the developers to participate in funding a traffic signal on Newport Avenue adjacent to their site, and d) Agenda Report — 3rd Amendment to DDA, Tustin Gateway Project May 20, 2015 Page 2 of 2 modified the schedule on the southern retail pad to commence construction no later than December 5, 2013 and on the northern retail pad to commence construction no later than December 5, 2014. Olson completed construction of the hotel parcels, Parcel A (Marriott Residence Inn) and Parcel C (Fairfield Inn and Suites), the City determined that the conditions had been met with respect to each parcel and issued a Partial Certificate of Compliance for each parcel. The Olson hotel entities subsequently assigned their interests to Apple Ten Hospitality Ownership, Inc., the current owner of the hotel parcels. The retail parcel is owned by an Olson entity, Tustin Retail SPE, LLC (Retail Developer). The Retail Developer has previously completed construction of the retail vertical Improvements on the Southern Pad in accordance with the requirements of the Schedule of Performance in the DDA. However, the Retail Developer has failed to commence construction of the vertical improvements on the Northern Pad by December 5, 2014 as required in the DDA. The City issued a notice of Potential Default to the Retail Developer and Olson dated March 31, 2015 for failing to commence construction of the vertical Improvements on the Northern Pad. The Developer does not dispute the potential default and, acknowledges that it could become a "Material Default" under the DDA, thereby enabling the City to exercise various rights and remedies under the DDA. In order to resolve the potential default by the Developer and in the best interest of the City, the 3`d Amendment is offered for the Council's consideration. The new hotel owner has executed this 3rd Amendment to acknowledge and consent to the execution of this 3rd Amendment by the City, Retail Developer and Olson; however, the provisions of this 3rd Amendment do not create, modify or increase the obligations of Olson under the Prior DDA. The Developer has indicated to staff they will exercise their right under the 3rd Amendment by making payment to the City prior to December 5, 2015 to secure a Certificate of Compliance. John A. Buchanan Deputy Director, Economic Development City Manager's Office Attachment — 3`d Amendment to DDA, Tustin Gateway Project AMENDMENT NO.3 TO DISPOSITION AND DEVELOPMENT AGREEMENT 2011-01 (TUSTIN GATEWAY PROJECT) This AMENDMENT NO. 3 TO DISPOSITION AND DEVELOPMENT AGREEMENT 2011-01 (TUSTIN GATEWAY PROJECT) ("Third Amendment") is entered into as of May 20, 2015 ("Third Amendment Effective Date") by and among the CITY OF TUSTIN, a municipal corporation of the State of California ("City"), Olson Real Estate Group Inc., dba R.D OLSON DEVELOPMENT, a California Corporation ("Olson") and TUSTIN RETAIL SPE, LLC, a California limited liability company ("Retail Developer and collectively with Olson, "Developer"). RECITALS A. The City and Olson entered into that certain Tustin Legacy Disposition and Development Agreement 2011-01 (Tustin Gateway Project) dated as of July 5, 2011 (the "Original DDA") as amended by that certain Amendment No. I to Disposition and Development Agreement 2011-01 (Tustin Gateway Project) dated December 6, 2011 ("First Amendment") and by that certain Amendment No. 2 to Disposition and Development Agreement 2011-01 (Tustin Gateway Project) dated April 16, 2013 ("Second Amendment" and collectively with the Original DDA and the First Amendment, the "Prior DDA"); the First Amendment and Second Amendment were executed by and among the City, Olson, Retail Developer (as the owner of Parcel B), and Tustin Gateway RI SPE, LLC ("RI Developer") and Tustin Gateway FIS, LLC ("FIS Developer"), as the owners of Parcel A and Parcel C, respectively. Initially capitalized terms not defined herein shall have the respective meanings assigned to such terms in the Prior DDA. B. Pursuant to the Prior DDA, among other things, the City sold Parcel A to RI Developer, Parcel B to Retail Developer and Parcel C to FIS Developer and such owners and the City agreed to a Schedule of Performance and a scope of development for the Project to be constructed upon the Property. C. RI Developer and FIS Developer completed the hotels to be constructed on Parcel A and Parcel C and the City, having determined that the Conditions Precedent had been met with respect to Parcel A and Parcel C, issued a Partial Certificate of Compliance for each of Parcel A and Parcel C. RI Developer and FIS Developer subsequently assigned their interests in and to Parcel A and Parcel C and the components of the Project, including the Improvements, thereon, to Apple Ten Hospitality Ownership, Inc., a Virginia corporation ("New Hotel Owner"). D. Retail Developer has previously completed construction of the retail vertical Improvements on the Southern Pad in accordance with the requirements of the Schedule of Performance. The Schedule of Performance required commencement of vertical construction on the Northern Pad of Parcel B by December 5, 2014 and Developer has failed to timely commence such work. Tustin/Olson — Amendment No. 3 to DDA I April 29, 2015 E. The City issued a notice of Potential Default to Retail Developer and Olson dated as of March 31, 2015 ("Retail Potential Default Notice") with respect to the failure to commence construction of retail vertical Improvements on the Northern Pad (`Retail Potential Default'). F. Developer does not dispute the Retail Potential Default and, further, acknowledges that in the absence of a cure of the Potential Default pursuant to Section 13.2.2 of the Original DDA within a maximum of 90 calendar days from the date of the Notice of Default, the Retail Potential Default would, without further action of the City, become a "Material Default' under the Agreement, enabling the City to exercise various rights and remedies under the Agreement. G. The City and Retail Developer have agreed to amend the Prior DDA in order to seek to resolve the Potential Default in accordance with the terms set forth below. The Prior DDA as amended by this Third Amendment is referred to herein as the "Agreement." AGREEMENT NOW THEREFORE, in consideration of the foregoing Recitals, which are hereby incorporated in the operative provisions of this Third Amendment by this reference, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties further agree as follows: I. Payments_ 1.1 Immediate Payment. If and only if Developer, within ten (10) calendar days following execution of this Agreement, pays to the City the sum of Seventy Five Thousand Dollars ($75,000) in cash or cash equivalents (`Immediate Payment'), the City shall promptly upon such payment and without requirement for further City action, waive the Retail Potential Default, and the Retail Potential Default shall be deemed to be cured for purposes of Section 9.4.2(fl of the Original DDA. Notwithstanding any other provision of the Prior DDA to the contrary, the right to make the Immediate Payment shall expire at 5:00 pm Pacific Standard Time upon the tenth (10`h) calendar day following the Third Amendment Effective Date (`Immediate Payment Date") without the requirement for the City to provide any notice or cure period and the time period for payment of the Immediate Payment shall not be extended beyond the Immediate Payment Date for any reason. Payment of the Immediate Payment is an option available to Developer and failure of Developer to pay the Immediate Payment shall not be a default under the Agreement. 1.2 Potential Default Additional Cure Rights. If Developer does not to make the Immediate Payment on or before the Immediate Payment Date, then, notwithstanding the provisions of Section 13.2.2 of the Prior DDA, the time period for cure of the Retail Potential Default shall be extended to December 5, 2015 (such that Developer shall have a right to cure the Retail Potential Default by commencement of construction of the retail Improvements on the Northern Pad on or before December 5, 2015). Should Developer fail to obtain a building permit and commence construction of the retail vertical Improvements on the Northern Pad on or before December 5, 2015, Developer shall be in Material Default under the terms of this Agreement. Tustin/Olson — Amendment No. 3 to DDA 2 April 29, 2015 Notwithstanding any other provision of this Agreement to the contrary, if the Developer has not paid the Immediate Payment, the City will agree to waive the Retail Potential Default and the Retail Potential Default shall be deemed to be cured for purposes of Section 9.4.2(f) of the Original DDA if, and only if, Developer pays the City, on or before December 4, 2015, the sum of One Hundred Thousand Dollars ($100,000) in cash or cash equivalents ("Second Payment"). The right to make the Second Payment shall expire on December 4, 2015 at 5:00 pm Pacific Standard Time without the requirement for the City to provide any notice or cure period and the obligation to pay and the time period for payment of the Second Payment shall not be extended beyond December 4, 2015 for any reason. Payment of the Second Payment is an option available to Developer and failure of Developer to pay the Second Payment shall not be a default under the Agreement. 1.3 Waiver of Northern Pad Construction Under Specified Conditions. If Developer has timely paid the Immediate Payment or the Second Payment, then upon such payment, the City hereby agrees that the requirement to commence and complete construction of the Northern Pad shall be waived and the Retail Potential Default shall be deemed to be cured for purposes of Section 9.4.2(f) of the Original DDA, and, further, that upon satisfaction of the Conditions Precedent with respect to the Southern Pad, City shall issue a Certificate of Compliance for Parcel B (including the Southern Pad and the Northern Pad). 1.4 Effect on Declaration of Default. Except as specifically set forth in Section 1. 1, 1.2 and 1.3 with respect to timely payment of the Immediate Payment or the Second Payment, as applicable, nothing in this Section I shall be deemed a waiver of the Retail Potential Default or the occurrence of any Material Default by the City. 2. Failure to Meet Requirements: Material Default 2.1 Material Default. If by December 5, 2015, Retail Developer shall have failed to either: (a) obtain a building permit and commence construction of the retail vertical Improvements on the Northern Pad, or (b) to timely pay the Immediate Payment or the Second Payment, as applicable, then the Retail Potential Default shall automatically, and without further action by the Parties, be deemed to be a Material Default by Developer under the Agreement, and notwithstanding any other provision of the Agreement to the contrary, the City shall have the right to exercise all of its remedies under the DDA with respect to Parcel B, including without limitation, the Right of Purchase and/or the Right of Reversion. Notwithstanding any other provision of this Agreement to the contrary, any City waiver or extension provided with respect to commencement or Completion of the Northern Pad retail vertical Improvements shall be null and void and of no further force or effect. 2.2 Tolling. Developer acknowledges and agrees that any and all obligations of the City with respect to the exercise of its rights and remedies under the Agreement (including without limitation, any obligation to exercise its rights and remedies by a time certain from declaration of a Potential Default or occurrence of a Material Default under the Agreement) are hereby tolled for the period from December 5, 2014 to December 5, 2015 and accordingly extended for a one year period. Tustin/Olson — Amendment No. 3 to DDA 3 April 29, 2015 2.3 Modification to Reversion Action Date Provisions Section 15.4.2(a) of the Original DDA is hereby deleted and replaced with the following: "(a) For all Phases of the Project, Developer fails to Complete any Phase of the Project within three (3) years from the Close of Escrow for such Phase; provided that for the Northern Pad, solely in the event that Developer obtains a building permit and commences construction of the retail vertical Improvements on or before December 5, 2015, Developer fails to Complete construction of the minimum retail vertical improvements on the Northern Pad (comprised of 7,5000 gross leasable square feet of restaurant and/or retail space) on before June 6, 2016, in each case subject only to the notice provisions set forth in Section 13.1;" 3. Release and Waiver 3.1 Release. In addition to the Release contained in Section 4.4.3 of the Prior DDA, Developer, on behalf of itself and each Releasing Party hereby waives, as of the Third Amendment Effective Date, the right of each Releasing Party to recover from, and fully and irrevocably releases, the City and the Released Parties from any and all Claims that the Developer or any Releasing Party may now have or hereafter suffer or acquire arising from or related to: (a) the cost or extent of the work, including any infrastructure work, required to complete the retail vertical Improvements on the Northern Pad; (b) the viability of construction, operation and use of the retail vertical Improvements on the Northern Pad; (c) any restriction on access to the Property, including without limitation, the City's action or inaction in constructing roadway connections to adjacent residential areas; (d) the merchantability of Parcel B or any portion thereof; (e) the presence or lack of surrounding improvements and infrastructure within or adjacent to the Pacific Center East Specific Plan area; (f) the existing entitlements for Parcel B or any pending or future application for entitlements and/or (g) any restrictions in the Declaration with respect to the construction of retail improvements on Parcel B. This release includes Claims of which the Developer is presently unaware or which the Developer does not presently suspect to exist which, if known by the Developer, would materially affect the Developer's release to the Released Parties. The Developer specifically waives the provision of California Civil Code Section 1542, which provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." In this connection and to the extent permitted by law, the Developer on behalf of itself, and the other Releasing Parties hereby agrees, represents and warrants, which representation and warranty shall survive the termination of this Agreement, that (x) it realizes and acknowledges that factual matters now unknown to it may have given or may hereafter give rise to Claims or controversies which are presently unknown, unanticipated and unsuspected, (y) the waivers and Tustin/Olson — Amendment No. 3 to DDA 4 April 29, 2015 releases in this Section have been negotiated and agreed upon in light of that realization and (z) the Developer, on behalf of itself and the other Releasing Parties, nevertheless hereby intends to release, discharge and acquit the Released Parties from any such unknown Claims and controversies. BY INITIALING BELOW, DEVELOPER ACKNOWLEDGES THAT (A) IT HAS READ AND FULLY UNDERSTANDS THE PROVISIONS OF THIS SECTION, (B) IT HAS HAD THE CHANCE TO ASK QUESTIONS OF ITS COUNSEL ABOUT ITS MEANING AND SIGNIFICANCE, AND (C) IT HAS ACCEPTED AND AGREED TO THE TERMS SET FORTH IN THIS SECTION. CITY'S INITIALS DEV OPER'S INITIALS This release shall run with the land for the benefit of the Water Well Parcel, the City. and each Successor Owner owning all or any portion of such land, burdening Parcel B and Developer and the Successor Owners of Parcel B owning all or any portion of such land and all Persons claiming by, through or under the Developer or any Successor Owner. 4. Miscellaneous. 4.1 Agreement Ratified. Except as specifically amended or modified herein, each and every term, covenant, and condition of the Prior DDA as amended hereby is hereby ratified and shall remain in full force and effect. Each and every reference to the "Agreement" in the Prior DDA shall be deemed to refer to the Original DDA as amended by this Third Amendment. 4.2 Governing Law. This instrument shall be interpreted and construed in accordance with the laws of the State of California. 4.3 Binding Agreement. This Third Amendment shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors and permitted assigns. 4.4 Counterparts. This Third Amendment may be executed in two or more counterparts, each of which .shall be deemed an original, but all of which together shall constitute one and the same document. 4.5 City Cost Reimbursement. City has previously provided Developer with a summary invoice of its staff and third party costs and expenses in the sum of $22,000 which has been approved by Developer. Concurrently with and as a condition to execution of this Third Amendment by the City, Developer shall reimburse the City for all costs and expenses set forth in such invoice. 4.6 Time is of the Essence. Time is of the essence with respect to this Third Amendment and each provision hereof. Tustin/Olson —Amendment No. 3 to DDA 5 April 29, 2015 releases in this Section have been negotiated and agreed upon in light of that realization and (z) the Developer, on behalf of itself and the other Releasing Parties, nevertheless hereby intends to release, discharge and acquit the Released Parties from any such unknown Claims and controversies. BY INITIALING BELOW, DEVELOPER ACKNOWLEDGES THAT (A) IT HAS READ AND FULLY UNDERSTANDS THE PROVISIONS OF THIS SECTION, (B) IT HAS HAD THE CHANCE TO ASK QUESTIONS OF ITS COUNSEL ABOUT ITS MEANING AND SIGNIFICANCE, AND (C) IT HAS ACCEPTED AND AGREED TO THE TERMS SET FORTH IN THIS SECTION. ME CITY'S INITIALS DEVELOPER'S INITIALS This release shall run with the land for the benefit of the Water Well Parcel, the City, and each Successor Owner owning all or any portion of such land, burdening Parcel B and Developer and the Successor Owners of Parcel B owning all or any portion of such land and all Persons claiming by, through or under the Developer or any Successor Owner. 4. Miscellaneous. 4.1 Agreement Ratified. Except as specifically amended or modified herein, each and every term, covenant, and condition of the Prior DDA as amended hereby is hereby ratified and shall remain in full force and effect. Each and every reference to the "Agreement" in the Prior DDA shall be deemed to refer to the Original DDA as amended by this Third Amendment. 4.2 Governing Law. This instrument shall be interpreted and construed in accordance with the laws of the State of California. 4.3 Binding Agreement. This Third Amendment shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors and permitted assigns. 4.4 Counterparts. This Third Amendment may be executed in two or more counterparts, each of which .shall be deemed an original, but all of which together shall constitute one and the same document. 4.5 City Cost Reimbursement. City has previously provided Developer with a summary invoice of its staff and third parry costs and expenses in the sum of $22,000 which has been approved by Developer. Concurrently with and as a condition to execution of this Third Amendment by the City, Developer shall reimburse the City for all costs and expenses set forth in such invoice. 4.6 Time is of the Essence. Time is of the essence with respect to this Third Amendment and each provision hereof. Tustin/Olson — Amendment No. 3 to DDA 5 April 29, 2015 4.7 Recitals. The Recitals set forth above are hereby agreed and acknowledged by the Parties and Hotel Owner to be true and correct and are incorporated into this Agreement and the agreements of the Parties are based upon these Recitals. 4.8 Execution by Hotel Owner. Hotel Owner has executed this Third Amendment below in order to acknowledge and consent to the execution of this Third Amendment by the City, Retail Developer and Olson, it being agreed by the City and Olson that the provisions of this Third Amendment do not create, modify or increase the obligations of Hotel Owner under the Prior DDA. IN WITNESS WHEREOF, the City and the Developer have executed this Third Amendment as of the Third Amendment Effective Date. Dated: ATTEST go Dated: APPROVED AS TO FORM M David Kendig, City Attorney Armbruster Goldsmith & Delvac LLP 0 •`City„ City of Tustin, California M Jeffrey Parker, City Manager Amy E. Freilich, Special Counsel {signatures continued on following page) Tustin/Olson — Amendment No. 3 to DDA 6 April 29, 2015 Olson Real Estate Group, Inc. (dba R.D. Olson Development) 0 Robert D. Olson TUSTIN RETAIL SPE, LLC, a California limited liability company, By: TUSTIN GATEWAY SPE, LLC a California limited liability company, its sole member By: OLSON REAL ESTATE GROUP, INC, a California corporation, its Manager Ln Name: Robert D. Olson Title: President By: JOSEPH MARTEL.L] REAL ESTATE INVESTMENTS, INC, a California corporation, its Manager By: Na: Joseph Martelli le: President (signatures continued on following page) Tustin/Olson — Amendment No. 3 to DDA 7 April 29, 2015 Olson Real Estate Group, Inc. (dba R.D. Olson Development) M Robert D. Olson TUSTIN RETAIL SPE, LLC, a California limited liability company, By: TUSTIN GATEWAY SPE, LLC a California limited liability company, its sole member By: OLSON REAL ESTATE GROUP, INC, a California corporation, its Manager By: WWQZ� Name: Robert D. Olson Title: President By: JOSEPH MARTELLI REAL ESTATE INVESTMENTS, INC, a California corporation, its Manager A Name: Joseph Martelli Title: President {signatures continued on following page) Tustin/Olson — Amendment No. 3 to DDA 7 April 29, 2015 ACKNOWLEDGED AND AGREED: APPLE TEN HOSPITALITY OWNERSHIP, INC., a Virginia corporation Name: Title: Tustin/Olson — Amendment No. 3 to DDA 8 April 29, 2015