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HomeMy WebLinkAboutRDA MOU T PROMENADE 06-19-89R A )mm= ~m, I ~mm~-~ "~_-~'~"?-~-'l, ~ REDEVELOPMENT AGENCY / "'"b NO. 5 ~ .... / L5 -- ' TO: 14~LLZAiq A. HUSTON, EXECUTIVE DIRECTOR FROM: COPlIqUIIITY DEVELOPNEIrr DEPARTPlENT SUBJECT: NEI~I~JIDUN OF UNDERSTAND ZNG TUSTIN PROIqEN~E PROgECT RE~ENDATTON [t ts recommended that a Memorandum of Understanding between CMS Development and the Tusttn Redevelopment Agency be approved and the Chatrman and Executive Otrector be authorized to execute the Memorandum. BACKGROUND i iiiimlll i ii The Tusttn Community Redevelopment Agency at a regular meeting on September 6, 1988 approved an Exclusive Agreement to Negotiate with CMS Develop'ment for the development of a site located in the vtctnity of Newport Avenue and the Santa Ana ([-5) freeway. The property ts more specifically bounded by the [-5 freeway on the north, Newport Avenue on the east, Mttche11 Avenue on the south and on the west by a small frontage along "B" Street. The stte is located in the .South Central Redevelopment Project Area. _, ' To assist CMS Development ("Oeve]oper") ln'~tte acquisition, to reduce potential speculation and to facilitate their obtaining preliminary financing and .pre-leasing commitments, CMS Is requesting that the Redevelopment Agency review and determine what level of Agency assistance on the project Is acceptable and approve a memorandum of understanding agreeing to terms to be utiltzed In preparing a future Disposition and Development Agreement (DDA) for the proposed project. Nhtle a memorandum of understanding is not a legally btndtng contract, there are a number of advantages to l ts use. . The Developer would have more comfort in proceeding with purchase of certaln properties on the site. . . The Developer could proceed with processing development plans for land use approvals necessary on the project with the understanding that a ODA would have to be approved prior to tssuance of any. buJldlng permits. . The Agency would have an opportunity to revtew and approve the general development concept for the project and business terms that would be anticipated tn the DDA on the project before significant staff ttme and attorney expenses were spent tn completing the DDA. 4. The MOU would provide a basts for negotiating a comprehensive DBA. Redevelopment Agency' Report Hemorandum of Understanding June 19, 1989 Page two Attached for the Agency's consideration is a draft Memorandum of Understanding for the project. A discussion of the project and a summary of terms of the Agreement are as follows: DescrlpttmO. n of Site - The site is currently improved with a mixture of deteriorated' imPro'~&ments, including an abandoned gas station near the northeast portion of the site, a series of multi-family residential units in the northwest area and an Alta Dena dairy facility located on Newport Avenue. The portion of the block which will not be incorporated in the site 'includes the Sosin property (Headache Doctor) at the corner of Mitchell and Newport Avenue, improved single family residences along 'C' Street and a new multi-family residential condominium project along 'B' Street. Exclusion of most of these uses from the project site is consistent With the original Exclusive Agreement to Negotiate with CMS and is not expected to be detrimental to the proposed project. It has been generally §elieved that incremental development of individual parcels without a comprehensive development.plan' for the site would render · certain properties undevelopable for commercial uses. This is due to the. current lot configurations on the site which are irregular with minimum visibility and access. sc~ope and Character of Developer - The_Developer proposes a comprehensive development program ~O'~'1 It~'el' site and has agreed to develop, or cause to be developed on the site a 10,240 square foo'l~ retail center, a 3,760 'square foot free-standing Carl's Jr. fast food retail operation and a minimum 105 room Marriott Fairfield Inn. The Fairfield Inn is a new product of the Marriott Corporation. With average room rates of approximately $40.00 per night, the Fairfield Inn targets business and pleasure travelers who are price conscious. Financial pro-forma information for the project provided by the developer anticipates that the project will be completed in three Phases, with Phases I and II devoted to retail uses. The submitte~ proposal indicates that approximately 87,649 sq.ft, of the site in Phase' III will be utilized by the hotel. The Developer intends to rough grade the hotel site and then sell it to Marriott. The subject site will be designed as an integrated project with the placement of structures al.ong Newport Avenue allowing for "visual windows" and shared access. The architect will have to' include elements of an Early California or · Medi tarranean style. The actual development plan and architecture proposed for the project will require zoning and site plan design review approval by the Planning Commission and Agency. .Redevelopmen.t Agency Assistanc.e - Prior to staff's consideration of any Community Devel-opment Department · Redevelopment Agency Report Iqemorandum of Understanding Oune 19, 1989 Page three financial ass!stance for the project, a substantial amount of financial · Information and data on the proposed project was requested from the Developer Including the developer's financial pro-form and a 10 year cash flow analysts for the project. The fiscal tmpact of the City'.and Agency revenues that could be expected from the project was also evaluated. All financial Information for the project Including recommended financial terms obtatned in the attached memorandum have been revtewed and valJdated by the Agency's financial real estate consultant, Alan Kottn wtth the ftrm of Kottn, Regan and ~louchly, Inc. In reviewing the Developer's pro-form, the Ctty's consultant has agreed wtth the developer tn their request., that the project's feasibility .be based on an average annual return on net operating tncome after debt servtce on equtty for an lntttal ten year pertod of 12.5t;. Utilizing development costs and revenues associated with the development, the City's financial consultant belleves that approximately $1,000,000 of Agency assistance ts warranted to asstst the Developer to offset development on land acquisition, stte preparation and Improvement costs as authorized by California Community Redevelopment Law. It ts recommended that the Agency's level of financial assistance and participation tn the project be distributed over 10 years with annual contributions or payments to the Developer-to be based on actual net Increases In sales 'tax, transient occupancy tax and .tax ~crement revenue produced by the project. Under these terms, any Agency assistance for the project wtll be based on performance and the "Developer" bets on themselves. Since the Agency's assts~:ance ~s also for the benefit of th~s Developer, Agency's assistance payments would be repatd ~n whole or part, as applicable, tf the retatl port~on of the project ts sold, transferred or refinanced wtthtn the flrst 10 years after completion of the project. If there ~s no sale, refinancing or transfer of the site by the end of the loth year after project completion, the Agency would be reimbursed ~t's contribution based on the tncrease tn the market value of the fetal1 portlon of the project. Stnce the Developer revenue estimates for the project were tied to two spectfic operators, Carl's Jr. and I~arriott, the Developer wtll be obligated to enter Into a 10 year operating use covenant for these uses on the stte and the Agency would have no financial obligation for assistance If convenants are violated. The pro-form submitted by the Developer estimates that the project' wtll generate approximately $1,860,020 tn net CIty sales tax and .transient occupancy tax revenue and $1,000,400 ~n property tax Increment to the South Central Project area for a total combined net ~ncrease In City/Agency revenues over a 10 year period of $2,861,420. The recommended Agency assistance of $1,000,000 over a 10 year pertod would represent approximately 34~ of estlmate.d C~ty/Agency revenue projected for the project. Based on the projected level of revenue for Community DeVelopment Department· ' Redevelopment Agency Report t4e~'=randum of Understanding ,lune 19, 1989 Page four the project, the Agency's assistance for the project would be patd back tn approximately 5 years. Thts Is consistent wlth the Agency's prevlous policy of destrlng a 5-7 year payback on all Agency assistance provtded on development projects. Christine A. Shtn ile~bn Dtrector of Community Development CAS'ts Attachments .Co'mmunit~ Development Department Project Cost _ SuE ATT AC HMENT "A" / of Pro-forma Information Relevant Measurements Land Buildtng On/Off I nd1 rects Financing Conttngency Extended Carry Sale Proceeds $4,677,699 $ 882,000 $ 618,46i $ 243,440 $ 353,362 $ -0- $ ($2,103,576) TbTAL $4,671,385 Financing Loan Equtty % Equtty To Project Cost $3,027,910 $1,643,475 35.18% lO-Year Average Annual Return On cost NOI Pre-Debt Servt ce 9.45% 1.0.-.Year Average Annua!,,,Return on .Equity NOI Post-Debt Ser vi ce 6.50% lO-Year AgencyI R.e. quired Parttcip.a. til.On to Attain .!2.5% R.etur.n...on Equ!ty After Debt Servlc~ ' $1,000,000 lO-Year Totall,,,Ct.ty/Agency Revenues Net Sa les/Occupancy Tax $1,860,020 Net Property Tax $1,001,400 TOTAL $2,861,420 ,- lO_-y_ear _Net Cityl/AOency Review After Agency Participation $1,875,881 lO-Year Annual Re_turn on AOenlc. y Participation i imll 4.77% HENORANDtlil OF UNDERSTANDZNG FOR THE TUSTZN PROMENADE PRCklECT Ftnal 6-8-89 Thts Memorandum of Understanding by and between CMS Development Co. ('iDeveloper") and the Tusttn Community Redevelopment Agency '("Agency") sets forth In general te~ms the fundamental principles whtch the parttes have agreed upon and wtll provtde the basts for negotiating a comprehensive Disposition and Development. Agreement (DDA). These fundamental principles are as follows: ~. 0 $tte Description The stte contatns approximately 3.39 acres located tn the Ctty of Tusttn ("City") and Is generally bounded by Newport Avenue on the east, 'B' Street on the west and the Santa-Aha (1-5) Freeway on the north as shown on the "stte map" attached hereto as Exhlbtt B and Incorporated heretn by this reference. 2.0 Developieflt Of S, tte 2.1 Developer shall develop, construct or cause to be constructed on the stte retatl center of approximately 10,240 square feet, a free-standing Carl's fast food retail operation of approximately 3,760 square feet and a Marriott' Fairfield Tnn to contatn a mtntmum of 105 rooms. · 2.2 The project shall be developed tn accordance with the following, architectural theme and treatments to be approved by the Agency. The stte shall be destgned as an Integrated project in which the buildings wtll achteve architectural excetlenr,~ both Individually as well as their Integration Into the project as a whole... The architecture shall include elements of an Early California or Mediterranean style. This style shall be evident in all elemeqts of design, from all elevations of the structures down to smaller elements such as trash enclosures. Particular attention will be paid to'massing, scale, color and materials. Materials shall include stucco, tile and brick. Roof treatment shall combine pitched, mission tile roofs and flat roofs. The overall style shall be compatible with and complimentary to the recently completed Tustin Plaza project to the north of the project site along Newport Avenue. Improvements at Newport Boulevard at the Santa Ana (I-5) Freeway off-ramp shall provide the visual interest commensurate to the importance of this location as a major gateway to the site and to the City of Tustin. This area shall contain a major design element or focal point. Placement of structures along Newport Avenue shall allow for visual "windows" into the site from Newport Avenue while providing active use at the street level insofar as it is feasible. Structures in these locations shall whenever possible be designed with storefront windows and entry doors facing the public si dewal k. Memorandum of Understanding Tustt n Promenade Page two .- In general; the destgn of the site shall encourage active participation by pedestrians by providing suttable and attractive amenities, throughout the site. Buildings shall invite pedestrian activity. Large planes of solid walls shall be avoided and wtndows are encouraged at the pedestrian level. Architectural features such as arcades or recessed storefronts shall be used to encourage an Interaction between the activities of the building, and adjacent outdoor pedestrian activity. Colorful awntngs, creattve stgnage, storefront encroachments and other destgn features which add human scale and interest to the streetscape are encouraged where they are consistent wtth the larger destgn theme of the project. All on-site vehicular and pedestrian routes across lot lines should be reciprocal and should be coordinated with Agency. 2.3 The Developer shall submtt, process and obtain all zoning, stte plan and other approvals requtred by the City and Agency. The Agency shall take appropriate action to asstst the Developer consistent with Agency objectt.ves. 2.4 Developer agrees to assist Agency tn obtaining permission from current property owner of Parcel 25 as shown on E:xhlbit A to renovate Improvements on the said Parcel 25 to be consistent wtth the architectural theme and treatments described tn Section 2.2 above. 3.0 Financing 3.1 Based on Agency's revtew of OevelopeE'~ project pro-forma and 10 year cash flow analysts for the project, Develop. e.r wtll initially tncur substantial land acquisition and site preparation costs for the project which reduces the project's feasibility. Agency Is not destrous or in a financial posltton at this ttme, given other project area priorities, to assume front end costs nor administration for land acquisition, assemblage, site preparation and relocation (an obligation where Agency acqutres property). Agency, however, does wish to financially asstst Developer tn causing the property to be assembled and prepared and in improving the projects' financial feasibility over ttme by reducing acquisition and preparation costs to the Developer as authorized by California Community Redevelopment Law and the South Central Redevelopment Plan. The Agency's level -of financial assistance and participation wtll be distributed over 10 years with annual contributions to be based on actual revenue produced by the project. Developer shall be responsible for all up-front development costs required for development, construction and installation of project on-stte and off-stte Improvements, Including land acquisition whether reflected in Developer's pro-forma or not (eg. the presence of no permtt fees or off-site Improvement costs and costs for clean up of any hazardous wastes and contaminated soils on the site to meet State and Federal laws is an oversight but Developer w111 be responslble for these Items). 3.2 Agency shall make available assistance and participation in the project up to a maximum contribution of $1,000,000 unless otherwise noted to the Developer to offset development costs as described in item 3.1 above subject to terms outlined as follows: Memorandum of Understanding- Tustln Promenade Page three 3.2.1 Agency shall make annual payments to Developer in amounts equal to those shown in Co.lumn I on Exhibit A, attached hereto, provided however that the annual payment shall be reduced in any year in which the combined net increase in sales tax, transient occupancy tax or tax increment revenue to which the Agency and City are entitled and which is generated by the project is less than the projected combined estimate of revenue shown on Column II in the schedule. In such case, the annual payment shall be' determined by multiplying the actual combined net sales tax, transient occupancy tax and tax increment revenues generated by the project by the maximum percentage of Agency contribution to City/Agency net revenue generated by the project as shown in Column III of the payment schedule. Any portion of the remaining annual payment which has not become due to the developer in any one year by virtue 'of the annual payment formula described herein, will be considered a shortfall which Developer can make up or recover in a future year over the course of the 10 years if the. original projected and corresponding level of total net revenue that resulted in the shortfall is realized. The total amount of recovery paid to Developer in any one year shall be limited to the extent that total cumulative annual payments to date to Developer shall not exceed the~ cumulative net increase in City and Agency revenues and cumulative. percent of cumulative Agency payments to actual cumulative net combined revenues as shown in Columns IV, V, and VI of the payment schedule. If in any One year the Developer is ahead of the cumulative estimate of City/Agency revenues as shown i~_£xhtbit B, the Agency will apply the amount in excess 'to future years for purposes of determining the maximum annual payment that the Developed'shall receive. 3.2.2 Agency shall make all payments within 60 days following the close of Agency's fiscal year each June 30j beginning the first June 30, following the issuance of a certificate of completion for the project. 3.2.3 Agency during the term of the 10 years described herein anticipates the issuance of bonds for the South Central Project Area. The principal amount of the bonds interest, cost' of issuance and maximum annual debt service on such bonds is unknown at this tinle and may result in the Agency.having to pledge certain tax increment amounts on the bond~ which could affect Agency annual cash flow available to meet financial obligations within the South Central Project Area and still make the annual payments contemplated by this memorandum. Therefore, at the discretion of the Agency the annual payment may be deferred. Should the Agency not make an annual payment as described above, then the difference between the actual payment due to the Developer and the payment amount made by Agency may be carried over by the Agency into subsequent years. Interest shall accrue on the unpaid balance at a rate of 2~ above the prime rate established by the Bank of AmeriC~a N.T. and S.A. provided that the rate Of interest shall not exceed the interest rate legally authorized to be paid by the Agency. Interest shall commence on any Memorandum of Understandtns Tusttn Promenade Page four deferred payment from the date said payment was due. Any outstanding Agenc~ payments together with any outstanding accrued'interest shall be paid to the Developer in full at the end of the ten years by the Agency. 3.2.4 If at the end of the lOth year after issuance, of a certificate of completion for the project, the cumulative City/Agency net revenues from the project exceeds the '$2,861,420 projection of net projected revenues for the project, as shown in Column V. of Exhibit A, the Agency shall make an additional assistance payment to Developer for performance. The amount of payment shall be determined by subtracting the projected cumulative City/Agency revenue in the loth year from the actual cumulative City/Agency revenue generated by the project and multiplying that figure by .10. 3.2.5 The Developer shall provtde to the Agency at the time of filing, a copy of each quarterly sales tax return form filed by or on behalf of all businesses operating on the site from time to tlme pursuant to Revenue and Taxation Code Section 6452 with the Board of Equalization of the State of Callfornta. This information wtll be uttltzed by the Agency for purposes of the payment schedule outllned above. 3.2.6 The reference to. sales tax and transient occupancy tax for purposes of' computing the annual payment is solely for computational purposes. Sales tax. and/or transient occupancy, tax revenues are not pledged.. The Agency's obligation to make annual payments sha~l be an obligation of the Agency secured solely by and 'payable from tax increment revenues of the Agency. The Agency's obligation to make annual payments described herein wtll 'not constitute a debt or "obl t gatt on of the Ctty of Tusttn and neither the faith, credtt nor taxing power of the City wtll be pledged to the payment of contributions described herein. ~ 3.3 The Developer shall require that a .10 year operating use covenant with Carl's Jr. and Marriott Corporation shall be provided as a condition of lease of a portion of the property to Carl's Jr. and as a condition of sale of any portion of the property to Marriott Corporation. The covenant may authorize an equivalent operator provided that Agency has a right to approve such operator. The Agency shall have no liability or obligation for payments if terms of the DDA are violated. 3.4 Agency will potentially incur substantial financial obligations under any DDA (including without limitation expenses for annual payments to Developer and various administrative, consultant and legal expenses) in order to make development of the site financially feasible for Developer. The Agency's antictpate, d expenditures shall in no way be construed to be a loan from the Agency to the Developer. In consideration of Agency contributions of funds, the Agency shall be reimbursed monies from the total net proceeds generated Memorandum of Understand1% :rusttn Promenade Page flve. from a "sale", "transfer" or. "reftnanct'ng" of that portton of the site owned by the Developer durtng the 10 year te~m described discussed tn thts memorandum pursuant to the following: 3.4.1 The Agency shall be reimbursed the amount of payments made to Developer by the Agency to the extent that the net sale or transfer proceeds exceed certified costs of development incurred by Developer by 25?~. The Agency shall be entitled to a reimbursement equal to the total of all payments made to developer prior to close of escrow. 3.4.2 The Agency shall be reimbursed the amount of payments made to the Developer by the Agency to the extent that rife net financing proceeds exceed certified costs of development incurred by Developer by 25~. The Agency shall be entitled to a reimbursement equal to the total of all payments made to Developer prior to close of the escrow on the financing loan. To the extent that Agency does not receive the enttre amount of payments made as of the date of a financing, the difference shall be recovered at subsequent financings according to the same procedures as set forth heretn. 3.5 In the event there is no sale, refinancing or transfer of that portion of the site owned by the Developer at the end of the lOth year after issuance of a certificate of completion for the project, the Agency shall be reimbursed the amount of payments made to the Developer by the Agency to the extent that the net increase in the market value of the development at the end of the lOth year exceeds the certified costs of ~velopment incurred by Developer by 25~. An independent fair market appraisal..of the portion of development owned by the Developer shall be made. 3.6 To determine the market value described in Section 3.5 of this memorandum, the Agency shall select an independent appraiser and have an appraisal performed at its sole cost. The appraiser shall determine fair market'value based on the income approach method of appraisal and in accordance with the California Code of Civil Procedure. If the Developer disagrees with the Agency's appraiser's estimate of fair market value, the Developer'may retain at its own cost an appraiser who shall also appraise the site in the same manner. Upon completion of the second appraiser, the two appraisers shall attempt to reconcile any differences in their appraisals. If such differences cannot be reconciled, the fair market value shall be determined based upon averaging the appraised values. 4.0 Disposition and Development Agreement (DDA) 4.1 The DDA shall be prepared and negotiated within 90 days of the date of approval 'of this MOU. 4.2 The DDA shall include typical enforcement clauses, including liquidated damages, remedies in the event of breach, forfeiture of good faith deposit, termination and right of reverter. Memorandum of Understanding Tustl n Pron~nade Page six It t~ understood that the foregoing principles constitute guidelines for further negotiation and are not legally enforceable obligations at thts tlnm. The parttes will negotiate tn good faith to prepare a binding DOA. In witness whereof, the parttes have executed this nen~randum on the dates set forth below. The date of approval of thts MOU shall be the date of execution by the'party signing last. · TUSTIN COMMUNITY REDEVELOPMENT AGENCY Date Chatrman Date ExecUttve otrect0r ' cms Developnent Date ............. President '" Date ........ Other Officer "' Approved as to form by Agency Counsel James G. Rourke Date CAS-per: L-7 ,4 ' I o~ ,4