Report to Mayor and City Council
Tuesday, November 20, 2018
Consent
SUBJECT:
Title
CONSIDER AN EXCLUSIVE RIGHT TO NEGOTIATE WITH GRAPEVINE DEVELOPMENT, LLC, FOR THE DEVELOPMENT OF A HOSPITALITY/ ENTERTAINMENT CENTER ON CELL 1 OF A 157-ACRE PARCEL OWNED BY THE CARSON RECLAMATION AUTHORITY, THE FORMER CAL-COMPACT LANDFILL, AND A TIME-LIMITED RIGHT TO PROPOSE ON CELLS 3, 4, AND 5 (CITY COUNCIL)
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I. SUMMARY
The City Council is being asked to consider entering into an Exclusive Right to Negotiate Agreement (“ENA”) with Grapevine Development, LLC of Sherman Oaks, California (“Grapevine”) for the development of a hospitality and regional entertainment center on Cell 1 of the 157-Acre Former Cal Compact Landfill. On November 7, 2018 the City Council and Carson Reclamation Authority approved a Deposit and Reimbursement Agreement with Grapevine, and the Authority also approved the ENA, as amended. The terms are described below.
II. RECOMMENDATION
Recommendation
1. APPROVE an Exclusive Negotiating Agreement with Grapevine, LLC.
2. AUTHORIZE the Mayor to execute all documents related to the Agreement in a form acceptable to the City Attorney.
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III. ALTERNATIVES
Take another action the City Council deems appropriate.
IV. BACKGROUND
The Authority issued a Request for Proposals (RFP) in October 2017 for the development of the four remaining cells of the Former Cal Compact Landfill Site, other than Cell 2, which was under negotiation with Macerich at the time for a high fashion outlet mall. The review process under the RFP involved several steps, which included a review of the five initial proposals submitted by the various development teams that responded to the RFP and meetings between staff and the development teams. Thereafter, a Council Subcommittee was established, along with a specific review process by which the Authority would follow to select a development team for the Site based on the terms and conditions outlined in the RFP and under a Term Sheet issued by the Authority to the various development teams that had previously responded to the RFP.
In April and May Authority staff conducted preliminary interviews with the proposed Grapevines, including Hopkins Real Estate Group, Rand Resources LLC, Shopoff Development, and Grapevine. The Council Subcommittee then scheduled a meeting on May 31, 2018 intended to hear presentations from these development teams to review their development proposals, on the condition that each team submit a $50,000 deposit (Participation Deposit) in order to participate in the meeting and be considered in the Subcommittee’s selection process. Despite the invitation extended by the Authority to participate in that meeting, only one development team paid the Participation Deposit.
Several of the teams had internal issues within their teams to cause them to miss the payment deadline and the meeting itself.
Grapevine was the only developer who came forward on May 31. Following Grapevine’s presentation, the Subcommittee determined they should be given priority in the selection process. There was period of about a month where the other Developers could make the Participation Deposit and schedule a Subcommittee Meeting, but were required to acknowledge that their proposals were only “backup” proposals in the event of a failure of the Authority and Grapevine to enter an ENA, and ultimately a Conveyancing Agreement.
None of the other proposers selected that option during the first month.
One other proposer, however, an off-shoot of one of the original proposers, did produce a $50,000 check and submitted a new proposal for consideration. After the initial month, the Authority determined that that the acceptance of such deposits and continued consultation between staff and the backup development teams may create a cloud over the impartial review of Grapevine’s development proposal. In order to assure a fair and untangled process, in early August the Authority returned the one Participation Deposit other than Grapevine’s and stated that it would no longer accept any deposits from Developers wishing to participate in the selection process until the Subcommittee had fully completed its review and consideration of Grapevine’s development proposal.
At the May 31 meeting, Grapevine presented two options for the development of the remaining Cells on the Site: (1) a specific site proposal for Cell 1; and (2) conceptual proposals and options for the development of the other remaining Cells if selected to develop all four remaining Cells (“Option 2”).
The Subcommittee was interested in both options and decided to recommend that Grapevine be awarded the opportunity to develop a project on all four remaining Cells.
Grapevine was then tasked with providing the Authority (i) an initial specific project proposal for Option 2 together with a financial pro forma in accordance with the terms of Section 13 of the Term Sheet, and (ii) following review and discussions with staff and the Authority’s consultants, a final project proposal for Option 2 (including site plan, building masses, and detailed uses), a final pro forma for all uses by use, and a copy of all executed agreements regarding any partnerships Grapevine has entered into for the development of a project on all four remaining Cell.
All of these items remain in flux, as both the Cell 1 site plan in the proposed ENA is different than the site plan in the original proposal, and may be amended further during the ENA period; and, Grapevine is still developing the concepts and site plan for the remaining three cells but is having difficulty locking in users without some measure of site control over the property. Therefore, the pro forma review as described in the section above is not complete, as the site elements are not locked down.
Initial Term
The initial term of the ENA shall commence on the date approved by the Authority, and shall terminate 120 days after (the “Initial Term”). During the Initial Term, Grapevine (i) will conduct its due diligence with respect to the Property and the Project, (ii) develop with Authority additional business terms of the transaction, (iii) develop a preliminary project financial pro forma justifying the transaction, (iv) determine what changes are required to the Specific Plan and EIR, if any, (v) develop an initial Project schedule in cooperation with the Authority, and (vi) produce a preliminary Project site plan and sample elevations. Prior to the expiration of the Initial Term, Grapevine shall have obtained approval from Authority for:
(a) Site Plan and Identification of Uses, specifying the conceptual framework to guide the overall development of the Project and showing location of significant uses; the preliminary design plan for the Project, including design themes to allow evaluation of the architectural design and site layout; building elevations and design themes; and, order and review a preliminary title report.
(b) Conveyance Agreements General Terms, which shall include the following: (i) a specific schedule for development of the Project; (ii) standard use restrictions consistent with the operation of a hotel and sports/entertainment venue; (iii) rights and limitations of Grapevine to assign or transfer its obligations prior to completion of the Project; (iv) provisions ensuring that the Authority retains responsibility for installing and operating the Remedial System; (v) provisions for clearing title; (vi) the agreement by Grapevine to proceed diligently in good faith to perform its obligations and to reimburse Authority for certain of its out of pocket third-party costs of negotiating the transaction; (vii) Grapevine’s responsibility to indemnify Authority and City from certain claims against the Project; and (viii) other provisions as identified herein.
(c) Project pro forma
(d) Terms Regarding Tax Sharing under which Grapevine would receive debates/refunds of local sales taxes produced by the Project and payable by tenants to the City to facilitate the development and operation of the Project.
(e) Partners. In addition to the information publicly available regarding Grapevine and its personnel, provide adequate disclosure of their joint venturers, if any, who are participants or principals of the Project, and other relevant information requested by Authority, concerning the above.
(f) Tenants. Grapevine shall diligently contact potential tenants for the Project and shall keep Authority updated on all contacts and letters of intent or commitment from prospective tenants.
(g) Schedule. During Initial Term, Grapevine shall work in the following phases: (i) in the first 60 days, develop and submit a preliminary Site Plan and description of uses, a preliminary pro forma together with a projection of tax revenues generated by the Project, a preliminary description of necessary changes to the Specific Plan and the EIR, an identification of its proposed partners and sources of financing, and any proposed changes to the Major Deal Terms; (ii) in the subsequent 30 days, Grapevine and Authority staff shall meet, review and revise the preliminary Site Plan and preliminary pro forma, proposed changes to the Specific Plan and EIR, and the Major Deal Terms; and (iii) in the last 30 days, present the final Site Plan and description of uses along with the detailed project pro forma, and the parties will finalize the Major Deal Terms.
Extended Term
At the end of the Initial Term and upon Authority’s approval of (x) completion of the tasks set forth above, and (y) Grapevine’s compliance with all Preconditions, the term shall be extended upon Grapevine’s exercise of its Right to Extend for a period of nine (9) months for the following purposes: (i) to obtain from the City any required additional entitlements for the Project or modifications to the Specific Plan, any required additional CEQA processing or modifications to the EIR, and negotiate and enter into a development agreement for the development of the Project (“Development Agreement”), and (ii) to negotiate with the Authority the Conveyance Agreements, Tax Sharing terms and other necessary agreements for the transfer and development of the Project Surface Lot to Grapevine (the “Extended Term”, or, together with the Initial Term, the “Term”).
Option to Develop Remainder Cells
During the Initial Term, Grapevine shall, in addition to the Cell 1 Site Plan, have the exclusive option to prepare a plan to develop one or more or all of the Reminder Cells.
The elements of the plan (“Remainder Cell Plan”) shall include: (i) a site plan; (ii) a designation of proposed uses; (iii) a description of financial partners and financing sources; (iv) a description of proposed tenants; (iv) an outline necessary Specific Plan amendments or revisions or amendments to the EIR; (vi) a description of public revenues generated from the Remainder Cell Plan project; (vi) a financial pro forma and needed tax assistance; (vii) a description of public benefits; and (viii) a development schedule. It is intended that any development project for the Remainder Cells accomplish the following objectives: (a) procure sufficient tax revenue to finance the project and make a substantial contribution to the City’s general fund, (b) create an iconic regional attraction drawing visitors to the City, and (c) create a core town center for the community to foster City pride and identity.
During the Initial Term, it is the intent of the parties that Authority shall not approve any development proposal from any other third party Developer.
At the end of the Initial Term, however, Authority will evaluate Grapevine’s Remainder Cell Plan against the Authority’s objectives, whether it is feasible and practical, and the extent to which tax assistance will be required. Generally, the Authority will apply the same criteria to its evaluation as it will for the Cell 1 Project. In the sole and absolute discretion of Authority, Authority may (i) determine to negotiate an exclusive right to negotiate agreement (“ENA”) with Grapevine for one or more Remainder Cells, or (ii) determine to negotiate with a different Developer. The parties acknowledge and agree that CAM Carson, LLC has a Right of First Negotiation following the conclusion of negotiations with Grapevine for any Remainder Cells. Authority shall have no liability to Grapevine for choosing not to enter an ENA with Grapevine for the Remainder Cell(s). Pursuant to the ENA, Grapevine has an option to submit a plan for the development of one or more of the additional Remainder Cells, and in the event the Authority approves of the Developer’s proposed plans for one or more Remainder Cells and the Parties execute an exclusive negotiation agreement for such development proposal, Grapevine shall be required to deposit an additional amount with the City as a good faith performance deposit, which deposit shall be governed by a separate deposit/reimbursement agreement or an amendment to this Agreement.
Reimbursements, Deposits, and Carrying Costs
In connection with the RFP process for the development of the Project, Grapevine has paid City (i) a nonrefundable deposit in the amount of $50,000 (the “Participation Deposit”), and (ii) a nonrefundable deposit in the amount of $200,000 to City (the “ENA Deposit”).
Following the execution of this Agreement, Grapevine shall pay a deposit in the amount of $1,000,000 to City, which shall be refundable to Grapevine pursuant to the terms and conditions set forth in the ENA and under the Reimbursement Agreement described below. There is a separate deposit of $1,000,000 to be used by the City toward the processing of the Conveyancing Agreement as well as entitlement costs incurred by the City.
Additionally, the Authority has and continues to incur certain carrying costs to maintain the 157 Acre Property (collectively, “Carry Costs”). Grapevine has agreed to pay for 100 percent of the Carry Costs incurred by the Authority for the Cell 1 portion of the 157 Acre Property; such reimbursement will commence as of the date that the City Council/Authority Board approves the ENA and Reimbursement Agreement. Among other things, these costs include maintaining and operating the Remedial Systems installed on the Property and are approximately $22,500 per month for Cell 1.
V. FISCAL IMPACT
The City has already received $250,000 in deposits. In addition, the Authority and City will receive two $1,000,000 deposits from Grapevine to be used as osts described above.
Finally, Grapevine will commence paying its $22,500 pro rata costs toward to Site Carrying Costs.
VI. EXHIBITS
1. Exclusive Negotiating Agreement with Grapevine, LLC (pgs. 7-43)
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Prepared by: John S. Raymond, Assistant City Manager