Loading...
HomeMy WebLinkAbout09 EXTENSION AND AMENDMENT OF EXCLUSIVE NEGOTIATING AGREEMENT WITH CD-MS (TUSTIN) LLC FOR A PORTIONDocusign Envelope ID: 2619F8D5-EE21-4A8C-8DD7-D812FC80B859 MEETING DATE TO FROM Agenda Item 9 Initial Reviewed: LL City Manager Finance Director MARCH 4, 2025 ALDO E. SCHINDLER, CITY MANAGER BRIAN MONCRIEF, DEPUTY CITY MANAGER — REAL PROPERTY SUBJECT: EXTENSION AND AMENDMENT OF EXCLUSIVE NEGOTIATING AGREEMENT WITH CD -MS (TUSTIN) LLC FOR A PORTION OF TUSTIN LEGACY DISPOSITION AREA 8B SUMMARY: Request for approval of an extension of the Exclusive Negotiating Agreement with CD -MS (Tustin) LLC to continue the negotiating period for the disposition and development of a portion of Disposition Area 8B at Tustin Legacy for an additional 270 days. RECOMMENDATION: It is recommended that the City Council take the following actions: 1. Approve an extension of the Exclusive Negotiating Agreement for an additional period of 270 days in accordance with Section 4.2 of the Exclusive Negotiating Agreement, as amended. 2. Authorize the City Manager to execute an amendment to the Exclusive Negotiating Agreement reflecting the 270-day extension request submitted by CD -MS (Tustin) LLC subject to non -substantive additions or modifications as may be deemed necessary and/or recommended by the City's special real estate counsel or the City Attorney prior to the end of the Exclusive Negotiating Agreement Negotiating Period. FISCAL IMPACT: Pursuant to the terms of the Exclusive Negotiating Agreement, all Exclusive Negotiating Agreement extensions requiring City Council approval require a $100,000 non-refundable deposit. Pursuant to the Exclusive Negotiating Agreement, the City retains this deposit if the Disposition and Development Agreement is not executed, or if the Disposition and Development Agreement is executed but close of escrow does not occur. If the Disposition and Development Agreement is executed and close of escrow occurs, the deposit (without interest accrued) is applicable to the purchase price. Prior Exclusive Negotiating Agreement extension deposits have been waived; however, CD -MS (Tustin) LLC has Docusign Envelope ID: 2619F8D5-EE21-4A8C-8DD7-D812FC80B859 City Council Agenda Report CD -MS Tustin ENA Extension and Amendment March 4, 2025 Page 2 committed to providing the required extension deposit for this Exclusive Negotiating Agreement extension request. CD -MS (Tustin) LLC also has a deposit account with the City that will continue to fund the City transaction expenses incurred by staff and third -party consultants including the retention of legal counsel associated with the negotiation and drafting of the Transaction Documents. CORRELATION TO THE STRATEGIC PLAN: The extension of the Exclusive Negotiating Agreement with CD -MS (Tustin) LLC contributes to the fulfillment of the City's Strategic Plan Goal A: Economic and Neighborhood Development. Specifically, this item implements Strategy 1 which is to develop critical phases of Tustin Legacy. BACKGROUND AND DISCUSSION: On September 19, 2023 (Effective Date), the City Council authorized the City Manager to enter into an Exclusive Negotiating Agreement (ENA) with CD -MS (Tustin) LLC (Developer) to negotiate the disposition and development of a portion of Disposition Area 813 at Tustin Legacy for a senior congregate care facility project. The ENA provided for an initial negotiating period of 270 days from the Effective Date, which could be extended for one (1) additional period of 90 days at the discretion of the City Manager, which was granted. On August 20, 2024, the City Council authorized the City Manager to extend the ENA for an additional 90 days with an option, at the City Manager's discretion, to grant a further extension of the ENA by an additional 90 days to March 17, 2025 which was granted. The ENA Negotiating Period, with the previously approved extensions, will expire on March 17, 2025. Any additional ENA Negotiating Period extensions would require approval by the City Council and require a $100,000 deposit that is applicable to the purchase price. To date, the Developer has expended over $1.66 million in advancing the Transaction Documents, entitlements and design development drawings for the project. As part of the ENA extension request granted on December 16, 2024 until March 17, 2025, the Developer informed the City that it is necessary to re -vision the project to evaluate (1) a standalone Independent Living building and a standalone Assisted Living and Memory Care building and (2) a separately owned and operated community focused on more active seniors with services that serve both communities. This adjustment was needed to create a more favorable project for outside investment and completion of the transaction documents. The Developer also committed to milestones within this timeframe to evaluate Surplus Land Act (SLA) implications, update the conceptual design for the new project, update the business plan reflecting the new design, and identify terms and conditions of the draft Transaction Documents that will need to be updated based on the new project. The re -visioned project features separate parcels for Active Senior Living and Assisted Living/Memory Care. In industry terms, Active Senior refers to a more engaged and active Docusign Envelope ID: 2619F8D5-EE21-4A8C-8DD7-D812FC80B859 City Council Agenda Report CD -MS Tustin ENA Extension and Amendment March 4, 2025 Page 3 resident within the Independent Living use. The prominent corner of Warner Avenue and Armstrong Avenue is designated for Active Senior housing, maintaining the same high quality architectural standards as the previous project design. The revised layout includes a central corridor with shared amenities such as a space dedicated for physician visits, a physical therapy office, a grab -and -go market, coffee and espresso bar, and a salon. Additionally, Active Senior residents will have access to a luxury clubhouse dining room, with the second floor of the clubhouse featuring an indoor/outdoor community space for events, offering scenic views of the Santa Ana Mountains. The re -visioned project will require a new entitlement process given the significant changes from the previous project design. Also, as part of the re -visioned project there will be an introduction of affordable senior units. The Developer has concluded that there is a lack of surety that affordable housing will not be enforced on the Active Senior portion of the project by the California Department of Housing and Community Development (HCD); therefore, the Developer is providing affordable housing in the Active Senior portion of the community. This determination was made irrespective of the project's revised design and is based on the fundamental understanding that any capital partners and lenders will require affordable housing to mitigate potential future SLA enforcement issues. The Developer is also requesting to form a Joint Venture (JV) with a new operator, Clearwater Senior Living (Clearwater) to replace the former proposed operator, Morningstar Senior Living. Clearwater has extensive experience managing Active Senior communities and currently operates Assisted Living and Memory Care communities in North Tustin and Newport Beach. Under the JV agreement, Clearwater will share pursuit costs with Confluent and engage its preferred equity partner, which has invested in other senior communities in Orange County. To reflect the time needed to complete the Transaction Documents and new entitlement process, the Developer has submitted a letter to the City dated February 24, 2025 (included as Attachment 1) requesting an additional ENA extension of 270 days based on the City's determination that sufficient progress has been made towards fulfilling the terms of the ENA. If approved by the City Council, the 270-day extension would expire on December 12, 2025. Any additional ENA extensions beyond December 12, 2025, would require approval by the City Council. The Developer is providing the required $100,000 ENA extension deposit as part of the ENA extension request. Pursuant to the ENA, the City retains this deposit if the Disposition and Development Agreement is not executed, or if the Disposition and Development Agreement is executed but close of escrow does not occur. If the Disposition and Development Agreement is executed and close of escrow occurs, the deposit (without interest accrued) is applicable to the purchase price. Staff believe that adequate progress has been made in the re -visioning of the project. The requested extension reflects an appropriate amount of time to complete a new entitlement process for the updated project and finalize the Transaction Documents. Due to the expiration of the current ENA Negotiating Period on March 17, 2025, staff is requesting City Docusign Envelope ID: 2619F8D5-EE21-4A8C-8DD7-D812FC80B859 City Council Agenda Report CD -MS Tustin ENA Extension and Amendment March 4, 2025 Page 4 Council approval of the ENA extension and amendment as recommended, which will be executed by the City Manager and the Developer prior to the end of the current ENA Negotiating Period (March 17, 2025). Signed by: Brian oncrlef Deputy City Manager — Real Property Signed by: pli f P Ke—n I nII 61KIP1411,Iguee Real Property Manager Attachments: Signed by: avi, �Wibin�t,� Ryan wlon ek Deputy Director of Real Property 1. Letter requesting extension of ENA from the Developer dated February 24, 2025 Docusign Envelope ID: 2619F8D5-EE21-4A8C-8DD7-D812FC80B859 Fconfluent development February 24, 2025 VIA ELECTRONIC MAIL and VIA FEDERAL EXPRESS OVERNIGHT DELIVERY City Manager City of Tustin 300 Centennial Way Tustin, CA 92780 Attention: Aldo Schindler Email: CityManager(abtustinca.org WITH COPIES TO: Real Property Division City Manager's Office City of Tustin 300 Centennial Way Tustin, CA 92780 Attention: Brian Moncrief Email: DCM-RPktustinca.org City Attorney Woodruff, Spradlin & Smart 555 Anton Blvd., Suite 1200 Costa Mesa, CA 92626 Attention: David Kendig, Esq. Email: dkendig(i-bwoodruff.law Hepner & Myers LLP 1241 Johnson Avenue, Suite 360 San Luis Obispo, CA 93401 Attention: Amy E. Freilich. Esq. Email: afreilich(i�,HepnerMyers.com Re: Request for Extension pursuant to that certain Exclusive Negotiating Agreement (Tustin Legacy Portion of Disposition Area 8B with an Effective Date of September 19, 2023 (as amended, the "ENA"), entered into by and among the City of Tustin ("City") and CD -MS (Tustin) LLC, a Colorado limited liability company ("Developer"). Dear Mr. Schindler: Confluent Development, LLC, a Colorado limited liability company ("Confluent") is the Manager for the Developer. Please note that unless otherwise stated, capitalized terms used below shall have the same meaning as set forth in the ENA. In December, Confluent was granted a 90-day Exclusive Negotiation Agreement (ENA) extension to achieve key milestones, including a new concept design and renderings, updated underwriting, and a comprehensive review of the Surplus Land Act and its impact on our project. We are pleased to report that these milestones have been successfully completed, and Confluent is now proposing an additional ENA extension to complete the design and entitlement process, and the DDA, for the project. 2215 Market St (303) 573-6500 Denver, CO 80205 www.ConfluentDev.com fax (303) 573-6503 Docusign Envelope ID: 2619F8D5-EE21-4A8C-8DD7-D812FC80B859 Operator After careful consideration, Confluent Development requests approval for Clearwater Senior Living, headquartered in Newport Beach, as the new operating partner. Clearwater has extensive experience managing Active Senior communities and currently operates Assisted Living and Memory Care communities in North Tustin and Newport Beach. Under our joint venture agreement, Clearwater will share pursuit costs with Confluent and engage its preferred equity partner, which has invested in other senior communities in Orange County. A complete operator change on the project was not contemplated in the December ENA extension request and our team has done a fantastic job getting the Clearwater team up to speed and fully engaged on the project since that time. Design Confluent has introduced a revised concept design featuring separate parcels for Active Senior Living and Assisted Living/Memory Care. In industry terms, Active Senior refers to a more engaged and active resident within the Independent Living use. The prominent corner of Warner and Armstrong is designated for Active Senior housing, maintaining the same high architectural standards as our previous design. The revised layout includes a central corridor with shared amenities such as a space dedicated for physician visits, a physical therapy office, a grab -and -go market, coffee and espresso bar, and a salon. Additionally, Active Senior residents will have access to a luxury clubhouse dining room, with the second floor of the clubhouse featuring an indoor/outdoor community space for events, offering scenic views of the Santa Ana Mountains. The James Since December, we learned The James, an 8-story and 350 unit urban infill Independent Living, Assisted Living, and Memory Care project, has commenced construction within close proximity to our site. Our team has taken this into account while refining the community's design and pivoting toward an Active Senior model. A key factor in securing capital investment will be differentiating our project from The James. Our strategy focuses on attracting a younger Independent Living resident, offering larger units, and providing more open space —areas where The James falls short. We believe these elements will provide a competitive advantage for our development. Capital Partners Confluent has observed a notable shift in development capital interest. While challenges persist — such as the preference for acquiring existing income -generating assets —some investors are beginning to reallocate funds into development opportunities. These investments are reserved for the highest -quality projects, and we believe our project is well -positioned within this category. Surplus Land Act Confluent's review of the Surplus Land Act was conducted in collaboration with our local partner, BBK, and internal legal counsel. Based on that research there is a lack of surety that affordable housing will not be enforced on the Active Senior portion of the project. Our path forward is to provide affordable housing into the Active Senior portion of the community. This determination was made irrespective of the project's revised design and is based on the fundamental understanding that our capital partners and lenders will require affordable housing to mitigate potential future conflicts. The requirement to comply with the Surplus Land Act's affordability will have a negative impact on revenue and will result in a reduction of the purchase price. 2215 Market St (303) 573-6500 Denver, CO 80205 www.ConfluentDev.com fax (303) 573-6503 Docusign Envelope ID: 2619F8D5-EE21-4A8C-8DD7-D812FC80B859 Request for ENA Extension Confluent is requesting a 270-day extension to proceed with building design, finalize the negotiation of the DDA, and finalize our entitlements. To date Confluent has invested $1,660,000 into the development of the project with an expected investment of $2,470,000 for the remainder of this year. Additionally, Confluent will pay the extension deposit of $100,000 to the City as outlined in Section 4.2.4. of the ENA. Below is a detailed outline of our proposed milestones for the 270-day extension: Milestones: Days 1-90 (March 18 to June 16) • Bi-Weekly - Continue meetings with Real Property and other City departments as applicable to maintain open lines of communication to ensure advancement of both the project design and business elements of the project. • On -Going - Continue negotiation of the Disposition and Development Agreement (DDA). • March - Initiate Schematic Design (SDs) with our design team partners. • April - Complete the joint venture agreement between Confluent Development and Clearwater Living. • April - Engage the Preliminary Design Review process with Staff. • May - Provide an updated business plan to the City. • June - Submit the Entitlements Package to the City. Milestones: Days 91-270 (June 17 to December 13) • Bi-Weekly - Continue meetings with Real Property and other City departments as applicable to maintain open lines of communication to ensure advancement of both the project design and business elements of the project. • July - Complete Schematic Design plans • September - Finalize Entitlements Package for Planning Commission and City Council hearings • October - Initiate Design Development plans • October - Complete negotiation of the Disposition and Development Agreement (DDA) and Finalize for City Council hearings. • October & November - Present DDA, CUP, Design Review and DA to Planning Commission and City Council for approval. Given the ENA criteria that the City Council must grant an extension of this phase of the ENA, Confluent is asking for consideration of the significant funds and time dedicated to the necessary project operator and programmatic changes needed to bring a successful senior living project - for both market demand and attraction to capital - to the City of Tustin. Please do not hesitate to reach out to me or my team with any questions. Sincerely, Matthew G. Derrick Managing Director Confluent Senior Living 2215 Market St (303) 573-6500 Denver, CO 80205 www.ConfluentDev.com fax (303) 573-6503