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HomeMy WebLinkAboutRDA Item No. 5CITY OF LADE LSII`IOR.,JE DREAM EXTREME- REPORT TO REDEVELOPMENT AGENCY TO: HONORABLE CHAIRWOMAN AND MEMBERS OF THE REDEVELOPMENT AGENCY FROM: ROBERT A. BRADY EXECUTIVE DIRECTOR DATE: MARCH 8, 2011 SUBJECT: ASSIGNMENT AND ASSUMPTION OF DISPOSITION AND DEVELOPMENT AGREEMENT AND RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE APPROVING THAT CERTAIN AMENDED AND RESTATED DISPOSITION AND DEVELOPMENT AGREEMENT BY AND AMONG THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE, MCMILLIN SUMMERLY LLC AND CIVIC PARTNERS ELSINORE LLC Background On December 26, 2002, the Agency entered into a Disposition and Development Agreement ("Original DDA") with Laing-CP Lake Elsinore ("Laing" or "Developer"), and Civic Partners-Elsinore ("Civic" or "Master Developer") with respect to the conveyance of certain Agency-owned property to Laing and the development of that property and other properties within the Eastlake Specific Plan. The East Lake Specific Plan is located partially within the boundaries of Redevelopment Project Area No. II and partially within the boundaries of Redevelopment Project Area No. III. In recognition of the extraordinary costs of developing properties in the East Lake Specific Plan, including massive grading, site preparation and installation of critical public improvements, and to facilitate the phased development of such properties, the Agency agreed to provide financial assistance to the Developer and the Master Developer. The Original DDA pledged a portion of tax increment revenues from Developer-owned properties (namely, the proposed residential development commonly known as the Summerly Project comprised of 1,481 residential lots and a golf course) to the Developer and a portion of tax increment revenues from Master Developer-owned properties to the Master Developer. In addition, a portion of the tax increment from other Specific Plan area properties was pledged to reimburse the Developer for certain Extraordinary Infrastructure Costs. AGENDA ITEM NO. 5 Page 1 of 14 Amended and Restated Disposition and Development Agreement March 8, 2011 Page 2 The Original DDA was entered into as settlement of previous litigation among the parties and/or related to prior agreements involving the development in the East Lake Specific Plan. In 2009, after completing construction of the golf course, significant grading work and construction of nine model homes, the managing member of Laing declared bankruptcy, the project stalled and the lender (Bank of America) foreclosed on the Developer properties. Following the bankruptcy, the Agency notified Laing, Bank of America and the Master Developer that Laing was in default of the terms of the Original DDA, primarily due to the failure to timely construct the Summerly Project. The notice was disputed by Bank of America and the Agency, the bank and the Master Developer commenced negotiations to resolve the dispute. Bank of America ultimately transferred ownership of the Summerly Project to a development entity formed by McMillin Homes, "McMillin Summerly LLC" ("McMillin"). McMillin Homes is an established residential developer. In connection with that transfer, McMillin, Civic and the Agency have been in negotiations to clarify several issues in the Original DDA and resolve the notice of default. Notably, the Original DDA was adopted prior to the applicable Specific Plan for the Summerly Project. As a result, the project phasing under the Original DDA does not correspond to the phasing under the Specific Plan - particularly with respect to the timing of construction of the golf course and the mass grading activities undertaken by Laing in connection with the golf course development. Consequently, timing of completion of project phases and payment of tax increment as set forth in the Original DDA does not match up with the actual development of the Summerly Project. In addition, the Original DDA was extremely complex which led to ambiguities and difficulties in implementation. Moreover, with the passage of approximately 8 years, various components of the Original DDA (such as the land transfer, most of the mass grading and construction of the golf course) have been completed. In order to rectify these and other issues, the Agency, McMillin and Civic propose to amend the Original DDA by entering into an Amended and Restated DDA which is before the Agency Board for consideration tonight. As a preliminary matter, the Agency Board is being asked to approve the assignment and assumption of the Developer's rights and obligations under the Original DDA by McMillin. Discussion A complete copy of the proposed Amended and Restated Disposition and Development Agreement ("Amended and Restated DDA") has been distributed to the Agency Board and is on file with the Agency Secretary as a public record available for inspection. An Executive Summary of the Amended and Restated DDA is attached to this report. Page 2 of 14 Amended and Restated Disposition and Development Agreement March 8, 2011 Page 3 The Amended and Restated DDA is the culmination of nearly a year's collaborative effort among the Agency, McMillin and Civic to (i) clarify the parties' intent as to the timing, phasing and scope of work, (ii) eliminate ambiguities and provide greater certainty in the protocols and requirements relating to the commencement and completion of the phases and the accrual, reporting, calculation and payment of tax increment revenues, (iii) reflect the current status of the project, and (iv) avoid the delay and expense of protracted litigation. The Amended and Restated DDA also provides increased financial benefits to Agency and City. The Amended and Restated DDA reflects McMillin's plan to complete the approximately 100 acre Phase 1 of the Summerly Project and then proceed with seven smaller phases of approximately 30 acres each. For purposes of the Original DDA and the Amended and Restated DDA, the "Project" consists of the work and improvements necessary to ready the developable portions of the Developer Property and the Master Developer Property for vertical construction. The Amended and Restated DDA provides greater certainty as to the scope of work required to complete each phase and a more certain development schedule - generally the Developer must commence and complete a phase every 18 months. Subject to the Developer's right to purchase extensions, failure to commence or complete a phase within the time permitted will result in Agency's right to immediate termination. Fiscal Impact The Amended and Restated DDA does not change the overall financial structure of the Original DDA or the pledge of tax increment revenues, but does provide increased financial benefits to the Agency and City. In addition, the Developer has agreed to reimburse the Agency up to $365,000 for attorney and consultant costs related to the bankruptcy, foreclosure, subsequent negotiations and preparation of the Amended and Restated DDA. Recommendation That the Agency Board take the following actions: 1. Approve the assignment and assumption by McMillin of all of the Developer's rights and obligations under that certain Disposition And Development Agreement entered into as of December 26, 2002, by and among the Redevelopment Agency of the City of Lake Elsinore, Laing-CP Lake Elsinore, LLC and Civic Partners Elsinore LLC pursuant to Section 205 thereof; and 2. Approve Resolution No. 2011- , Resolution of the Redevelopment Agency of the City of Lake Elsinore Approving that certain Amended and Restated Disposition and Development Agreement by and among the Page 3 of 14 Amended and Restated Disposition and Development Agreement March 8, 2011 Page 4 Redevelopment Agency of the City of Lake Elsinore, McMillin Summerly LLC and Civic Partners-Elsinore LLC. Prepared by: Barbara Leibold, Agency Counsel Approved by: Robert A. Brady Executive Director Attachments: 1. Executive Summary of Amended and Restated DDA 2. Resolution Approving Amended and Restated DDA Page 4 of 14 EXECUTIVE SUMMARY PROPOSED AMENDED AND RESTATED DISPOSITION AND DEVELOPMENT AGREEMENT BY AND AMONG THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE, MCMILLIN SUMMERLY LLC AND CIVIC PARTNERS-ELSINORE LLC March 8, 2011 PURPOSE To (i) promote the phased development of the Summerly Project, (ii) clarify the parties' intent as to the timing, phasing and scope of work, (iii) eliminate ambiguities and provide greater certainty in the protocols and requirements relating to the commencement and completion of the phases and the accrual, reporting, calculation and payment of tax increment revenues, (iv) reflect the current status of the project, and (v) avoid the delay and expense of protracted litigation and maximize financial benefits to Agency and City by way of settlement. PROJECT Developer and Master Developer shall complete or cause to be completed the work and improvements necessary to ready the developable portions of the Developer Property and the Master Developer Property for vertical improvements in accordance with the terms and conditions set forth in the DDA ("Project"). The Project shall generally consist of (i) rough grading, (ii) erosion control improvements and (iii) specified backbone infrastructure improvements. The Links at Summerly Golf Course constructed on the Developer Property constitutes a component of the Project and is deemed complete. PHASING • Instead of the 4 phases indicated on the East Lake Specific Plan adopted by Laing, Developer shall build out the remaining Specific Plan Phases 2, 3 and 4 in seven smaller phases of approximately 30 acres each designated as A-G on the Phase Map attached to the Amended and Restated DDA. • Though Developer currently proposes developing those phases in the alphabetical order indicated on the map, Developer has the right to request a change in the order and submit a revised phasing map. The City has the right to condition its approval of any such change on reasonable evaluation of the improvements necessary to complete the Page 5 of 14 Executive Summary March 8, 2011 Page 2 phase, such as earlier completion of a backbone street providing access to more than one phase. Developer will at all times comply with any City planning, permit or similar requirements in connection with each phase. • Master Developer phases: (i) detached residential development- minimum 30 acres (ii) retail/mixed use/industrial/office/hotel/attached residential - minimum 4 acres SCHEDULE OF PERFORMANCE • Though Developer estimates completion of the items previously submitted as necessary to complete Phase 1 of the project within 6 - 9 months, the DDA requires that such work be completed within 12 months of executing Amended DDA. • Because Phase 1 is substantially larger than the subsequent phases (404 lots in Phase 1 versus an average of approximately 150 lots for Phases A through G), the DDA requires that development starts on Phase A within 18 months after completion of Phase 1. • Each Phase A through G will be completed with 18 months of commencement. Phases B through G will be commenced within 18 months of commencement of the previous phase. • City/Agency staff and Developer representatives have prepared a list of Developer improvements for each phase that must be completed in order for the Agency to issue a "Release of Project Development Covenants" and entitles the Developer to receive increment from the completed phase. • To commence a phase, Developer will submit a written notice of commencement, acknowledging the list of components of that phase, the action taken to commence and the date of commencement. City will have the right to modify list of improvements only if the order of the phases is changed, and such changes are incorporated in a writing approved by the parties. Developer will provide written request for release of project development covenants evidencing completion of each Phase. Page 6 of 14 Executive Summary March 8, 2011 Page 3 • Developer will provide written status updates on each phase every 6 months. • If Developer commences more than one phase at a time, Developer must finish all the phases within 18 months, but gets a "credit" towards the time required before starting the next subsequent phase. The credit for each phase is equal to 18 months. For example, if Developer commences two phases, it would not be required to start another phase for 36 months. • If Developer is unable to finish a phase within 18 months, it can purchase an extension of up to 6 months provided it notifies the Agency of its election at least 30 days prior to the expiration of the first 18 months, and pays the Agency a fee for the extension. The amount of the fee is as follows: a. 1 month = $10,000 b. 2 months = $25,000 C. 3 months = $40,000 d. 4 months = $60,000 e. 5 months = $80,000 f. 6 months = $100,000 • Extension fee adjusted annually by CPI. Developer can purchase less than a 6 month extension, but can only exercise one purchase per Phase as opposed to incremental extensions. • Developer is entitled to purchase not more than an aggregate of 24 months of extensions. Though Developer has the right to buy phase extensions, such extensions would not extend the required "outside" completion date for the Summerly project as outlined in the revised Schedule of Performance attached to the Amended and Restated DDA. • Master Developer under the DDA has the same requirements to provide written description and notice of commencement of a phase, but, as long as the Developer is performing in a timely manner with respect to phases A through G, Master Developer is not required to commence a phase until March 31. 2024. Page 7 of 14 Executive Summary March 8, 2011 Page 4 • Master Developer must complete each commenced phase within 18 months or any purchased extension period. • If Developer defaults, then Master Developer must commence a phase within 24 months from any termination resulting from the default but in no event later than March 31, 2024. Subsequent Master Developer phases are subject to 18 month cycles. DEFAULTS • The DDA may be terminated as to Developer Property if Developer fails to complete a phase within the 18 month performance period, or, if Developer has purchased an extension, within the extension period (an "Incurable Default'). The Developer has no opportunity to cure a default in the schedule of performance. Other defaults are subject to traditional notice and cure rights. • In the event the Developer fails to timely complete a Phase, Agency has the right to terminate the DDA as to that phase and any future phase that has not been commenced. If Developer has commenced more than one Phase at the time of default, Developer may complete the initiated Phase within the 18 month time permitted by the schedule of performance or the purchased extension period. Developer will continue to receive Tax Increment only from completed phases. • Master Developer would be provided notice of a Developer default and have an opportunity to cure defaults other than failure to complete a Phase in accordance with the Schedule outlined above. The Master Developer has no cure rights as to an Incurable Default of the Developer. • The DDA may be terminated as to Master Developer Property if Master Developer fails to complete a phase within the 18 month performance period, or, if Master Developer has purchased an extension, within the extension period (an 'Incurable Default'). The Master Developer has no opportunity to cure a default in the schedule of performance. Other defaults are subject to traditional notice and cure rights. • In the event the Master Developer fails to timely complete a Phase, Agency has the right to terminate the DDA as to that phase and any future Page 8 of 14 Executive Summary March 8, 2011 Page 5 phase that has not been commenced. If Master Developer has commenced more than one Phase at the time of default, Master Developer may complete the initiated Phase within the 18 month time permitted by the schedule of performance or the purchased extension period. Master Developer will continue to receive Tax Increment only up to 50% of the reimbursable project costs incurred in connection with completed phases. CONSEQUENCES OF TERMINATION • Accrued tax increment in terminated Developer phases will be released from the DDA obligations and will be paid to the Agency subject to payment first to "earned and unpaid" Developer obligations. Future tax increment allocated to the Agency from defaulted phases of the Developer Property will be available to reimburse Developer for "Extraordinary Infrastructure" completed after approval of the Amended and Restated DDA but NOT unreimbursed Extraordinary Infrastructure completed prior to the Amended and Restated DDA. The Agency may withhold tax increment payments in the event of a default; provided, however, that Agency will be required to make such payments as to completed phases if the tax increment is being used to service issued and outstanding bonds. Tax increment payments will resume in accordance with the Amended DDA upon satisfactory cure of default. FINANCIAL PROVISIONS • As consideration for Amended and Restated DDA, Developer will pay Agency $215,000 to reimburse it for costs incurred through February 28, 2010 as a result of Laing's default under the DDA, including consultant and attorney fees. • As consideration for Amended and Restated DDA, Developer will also reimburse the Agency for additional attorney fees up to $150,000 associated with amending and modifying the DDA beginning and after March 1, 2010. Page 9 of 14 Executive Summary March 8, 2011 Page 6 • Developer and Master Developer pledge to the City a share of the Developer's Share of Unrestricted Tax Increment Revenue beginning in the 9th fiscal year following the recordation of the Release of Development Covenants for Phase 1 o The City share will be 15% of the Developer's portion of Unrestricted Tax Increment Revenue o The 9th fiscal year following the recordation of the Release of Development Covenants for Phase 1 is expected to be fiscal 2019/2020 o The cap on the Developer's Share of Unrestricted Tax Increment Revenue has been deleted • Commencing in the 9th fiscal year following the recordation of the Release of Development Covenants for Developer's Phase 1, Master Developer pledges to the City a 15% share of the Master Developer's Share of Unrestricted Tax Increment Revenue for all Master Developer projects other than the Diamond Specific Plan. • The cap of the Master Developer's Share of Unrestricted Tax Increment Revenues is 50% of Master Developer project costs. • Payments of tax increment to the Master Developer will be made from all Master Developer Properties but only as to 50% of costs incurred in connection with completed Phases. EXTRAORDINARY INFRASTRUCTURE • The parties agree to engage a third party value engineer (at Developer's Cost) to define the Extraordinary Infrastructure completed prior to the Amended and Restated DDA and determine the amount of eligible reimbursement. • Future Extraordinary Infrastructure completed after the Amended and Restated DDA and the invoicing/audit for reimbursement of such costs are set forth in DDA. • Extraordinary Infrastructure Cap adjusts annually until amounts reimbursed by Agency, however, there is no increase in Cap for calendar years 2008, 2009 and 2010, when the Project was inactive. Page 10 of 14 Executive Summary March 8, 2011 Page 7 • Source of funds for Extraordinary Infrastructure reimbursement include Net Available Specific Plan Area Tax Revenues, Developer Property as to which the DDA has been terminated (only for Extraordinary Infrastructure developed after the date of the Amended DDA), Master Developer Property as to which the DDA has been terminated, Master Developer Property after cap, Development Agreement Fees paid by Developer, CFD reimbursements, subdivision improvement agreements, development impact fees paid by other developers for specified improvements. HOUSING FUND • Master Developer may build affordable housing that meets "inclusionary requirements" and access Low and Moderate Income Housing Funds generated from Developer and Master Developer Properties. In order to access these funds, the Master Developer must submit an affordable housing project proposal to the Agency for consideration every three to five years. In the event an affordable housing project proposal is not approved by the Agency, with the times set forth in the DDA, the accrued Housing Fund revenues are released to the general Housing Fund account. • Agency may, but is not required, to use other Low and Moderate Income Housing Funds to fund a financial gap demonstrated in an affordable housing project proposal submitted by Master Developer and approved by Agency. Page 11 of 14 RESOLUTION NO. 2011- RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE APPROVING THAT CERTAIN AMENDED AND RESTATED DISPOSITION AND DEVELOPMENT AGREEMENT BY AND AMONG THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE, McMILLIN SUMMERLY LLC AND CIVIC PARTNERS- ELSINORE LLC WHEREAS, the Redevelopment Agency of the City of Lake Elsinore ("Agency") is engaged in activities necessary to execute and implement the Redevelopment Plans for the Rancho Laguna Redevelopment Project Areas Nos. II and III ("Redevelopment Project Areas"); and WHEREAS, in order to implement the Redevelopment Plans for the Redevelopment Project Areas, the Agency has previously entered into that certain Disposition and Development Agreement ("Original DDA") by and between the Agency, Laing- CP Lake Elsinore LLC and Civic Partners-Elsinore LLC; and WHEREAS, the parties to the Original DDA commenced performance of the activities contemplated therein, including the conveyance of certain Agency property to Laing, the commencement of massive rough grading, the completion of the golf course and the construction of certain backbone infrastructure improvements as provided under the Original DDA; and WHEREAS, in 2009, the managing member of Laing declared bankruptcy, the project stalled, the lender (Bank of America) foreclosed on the Laing properties and the Agency notified Laing, Bank of America and the Master Developer that Laing was in default of the terms of the Original DDA; and WHEREAS, McMillin Summerly LLC acquired the Laing properties from Bank of America and, together with Civic Partners-Elsinore LLC, engaged in negotiations with the Agency to resolve all disputes concerning Agency's 2009 notice of default; and WHEREAS, the Agency, McMillin Summerly LLC and Civic Partners- Elsinore LLC propose to enter into an Amended and Restated DDA in order to (i) clarify the parties' intent as to the timing, phasing and scope of work, (ii) eliminate ambiguities and provide greater certainty in the protocols and requirements relating to the commencement and completion of the phases and the accrual, reporting, calculation and payment of tax increment revenues, (iii) reflect the current status of the project, and (iv) avoid the delay and expense of protracted litigation by resolving all disputes. NOW, THEREFORE, THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Page 12 of 14 AGENCY RESOLUTION NO. 2011- PAGE 2 OF 3 SECTION 1. The Agency has approved the assignment and assumption by McMillin Summerly of all of the developer's rights and obligations under the Original DDA. SECTION 2. The Agency hereby approves the Amended and Restated DDA and authorizes the Executive Director to execute the Amended and Restated DDA substantially in the form on file with the Agency Secretary and in such final form as approved by Agency Counsel consistent with the terms set forth in the Executive Summary dated March 8, 2011. The Agency further authorizes the Executive Director to administer the Amended and Restated DDA on behalf of the Agency and to sign all documents and instruments necessary to implement and carry out the Amended and Restated DDA on behalf of the Agency in such form as is reasonably acceptable to the Agency Counsel. SECTION 3. The Agency Secretary shall certify to the passage and adoption of this resolution and the same shall thereupon take effect and be in force. PASSED, APPROVED AND ADOPTED at a regular meeting of the Redevelopment Agency of the City of Lake Elsinore, California, this 8th day of March, 2011. MELISSA MELENDEZ, CHAIRWOMAN ATTEST: VIRGINIA BLOOM AGENCY SECRETARY APPROVED AS TO FORM: BARBARA LEIBOLD, AGENCY GENERAL COUNSEL Page 13 of 14 AGENCY RESOLUTION NO. 2011- _ PAGE 3OF3 STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF LAKE ELSINORE }SS I, VIRGINIA BLOOM, Agency Secretary of the Redevelopment Agency of the City of Lake Elsinore, California, hereby certify that Resolution No. 2011- _ was adopted by the Redevelopment Agency of the City of Lake Elsinore, California, at a regular meeting held on the 8th day of March 2011, and that the same was adopted by the following vote: AYES: NOES: ABSENT: ABSTAIN: VIRGINIA BLOOM AGENCY SECRETARY Page 14 of 14