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HomeMy WebLinkAbout06/24/1998 - Adjourned Regular Meeting• CITY OF NEWPORT BEACH City Council Minutes Adjourned Regular Meeting June 24, 1998 - 5:00 p.m. ROLL CALL Present: Mayor Edwards, Debay, Glover, O'Neil, Hedges, Thomson and Noyes (arrived at 5:30 p.m.). Absent: None CURRENT BUSINESS 1. LEASE WITH LJR LIDO PARTNERSHIP L.P. FOR TIDELANDS ASSOCIATED WITH LIDO MARINA VILLAGE (C -8216) (contd. from 6/22/98). Mayor Edwards announced that the adjourned meeting was being held to continue the discussion regarding the proposed lease, to receive an update and additional information, and to take action, if necessary. City Manager Murphy stated that staff met following the City Council • meeting of June 22, 1998, to summarize the issues that the City Council had brought up at that meeting and to put together a package to answer those questions. Assistant City Manager Wood, with the assistance of a PowerPoint presentation, discussed the property itself. Assistant City Manager Wood stated that the property is comprised of two tidelands areas, the "owned slips ", adjacent to Lido Marina Village and proposed as a 50 -year lease, and the "leased slips" area, proposed as a 25 -year lease. Assistant City Manager Wood stated that the proposed lease gives the lessee the right to marina operations only, and not to future development of the uplands area. Assistant City Manager Wood went on to explain the revenue that is currently generated by the property and what might be generated with the proposed lease. Assistant City Manager Wood also discussed the fair market value of the property and introduced Richard Fuller of MAI, who was in the audience and performed the appraisal of the property. Assistant City Manager Wood explained that the proposed lease is for fifty years for several reasons, including to facilitate the redevelopment of Lido Marina Village, to comply with a requirement of the lender and to give the City the ability to outline redevelopment milestones required of the lessee. • Assistant City Manager Wood explained that LJR Lido Partnership is a limited partnership, with the two main partners being James Ratkovich Associates and Lehman Brothers Holdings. Assistant City Manager Wood Volume 52 - Page 98 INDEX C- 3216/Lido Marina Village Tidelands (38) City of Newport Beach City Council Minutes June 24, 1998 IT 1. • stated that LJR Lido Partnership has been in escrow on the property since September, closing escrow on two of the buildings so far. Assistant City Manager Wood covered the defaults and insurance coverage requirements of the lease. In closing, Assistant City Manager Wood outlined the alternatives to the City with regards to the subject property. Council Member Hedges requested that the course the City was planning to take regarding the matter be discussed before discussing details of fair rental value and other issues. Council Member Hedges stated that the ultimate use of the uplands and its relationship to the tidelands should be determined first. Mayor Edwards stated that an outline of the proposed terms of the lease was approved at the City Council meeting of June 8, 1998, with no discussion and feels that the City Council has made the policy consideration on the direction of the project. Council Member Hedges stated that alternatives were not given to the City Council at the time the outline was approved. Council Member Hedges said he does not feel that the City Council is bound by the approval of the outline. • Motion by Council Member Debav to move forward with a discussion on the concept of entering into a lease agreement with LJR Lido Partnership L.P., with the idea that something will be done to improve the area. There was a brief discussion about the necessity of having such a motion, with Council Member Hedges and Mayor Pro Tem O'Neil concerned about the intent of the motion. Mayor Edwards clarified that the motion only states that the City Council is agreeing to continue discussing this lease, and not that an agreement with LJR Lido Partnership will be approved. City Manager Murphy responded to Council Member Hedges' question about the proposed lease and a lack of other alternatives presented to the City Council. City Manager Murphy stated that the applicant, LJR Lido Partnership, is the buyer in escrow and needs the security of the lease. City Manager Murphy stated that the City does not control the uplands, but structured the lease to actively include the City in any redevelopment plans for the area. Council Member Hedges confirmed with City Manager Murphy that the City is the trustee of the upland property at the Balboa Bay Club, which is not the case for the Lido Marina Village. Council Member Hedges feels that LJR Lido Partnership does not need the tidelands lease at this time to redevelop the property, and feels that the milestones for redevelopment in the . proposed lease are not aggressive enough. Council Member Glover stated that she felt that this meeting was to gather Volume 52 - Page 99 City of Newport Beach City Council Minutes June 24, 1998 INDEX • information about the proposed lease, and that she supports the Substitute motion by Council Member Hedges to discuss the reuse of the uplands property and to hold off on discussions of the lease negotiations until the City Council comes to a conclusion on how it wants to proceed on the alternatives with respect to the use of the tidelands. The substitute motion died for lack of a second. The main motion carried by the following roll call vote: Ayes Thomson, Debay, O'Neil, Noyes, Glover, Mayor Edwards Noes: Hedges Abstain: None Absent: None City Manager Murphy responded to Council Member Glover's question about the ability of the City to enter into a 50 -year lease by stating that a provision in the City Charter, Section 1402, gives the City Council the authority to lease City -owned property so long as the term of the lease is limited to a term permitted by State law. City Manager Murphy stated that the City confirmed with the State Lands Commission that the City would be legally • entitled to enter into the proposed agreement. City Manager Murphy confirmed for Council Member Glover that the two properties currently under 50 -year tideland leases are the Balboa Bay Club and the Beacon Bay properties, and that other potential areas in the City include the Bahia Corinthian Yacht Club and the Balboa Yacht Club. Assistant City Attorney Clauson added that other upland property owners that have commercial docks and slips adjoining their properties could also potentially be interested in long-term leases. Council Member Glover confirmed with City Manager Murphy that neither the Balboa Bay Club nor Beacon Bay lease required a vote of the people. City Manager Murphy and Assistant City Attorney Clauson stated that Section 1402 of the City Charter used to require a vote of the people, but the Section was amended in 1992. Mr. Jim Ratkovich, LJR Lido Partnership, stated that he feels the main issues remaining are all related to value. Mr. Ratkovich stated that LJR Lido Partnership hired Mr. Richard Fuller, at the recommendation of the City, to analyze the fair market value of the property. Mr. Ratkovich said he was prepared to cover other issues and questions of the City Council, but suggested that Mr. Fuller speak first. • Mr. Richard Fuller, MAI, stated the purpose of his assignment was to estimate the fair market rental value of the site and present the basis for the estimate. Mr. Fuller stated that the appraised was a limited appraisal, Volume 52 - Page 100 City of Newport Beach City Council Minutes June 24, 1998 o►` • meaning that the focus of the study was the Newport Harbor area the findings were presented in a restricted report. Mr. Fuller stated that the fair market rental value of the tidelands at the Lido Marina Village includes the marina area only, whereas at the Balboa Bay Club, the tidelands includes the marina area as well as the land where the buildings are located, which makes the percentage of rent considerably higher. Mr. Fuller stated that several leases were looked at in the study, but that the lease he gave the most credence to was the Bahia Corinthian tidelands lease because he felt it was the most comparable. Mr. Fuller went on to discuss the lineal feet of slips within the tidelands and the annual tidelands rental. The analysis concluded that the fair market rental value of the tidelands was $14 per lineal foot, or 9% of the rental fee collected by the operator. Mayor Pro Tem O'Neil asked about the County tidelands leases in the Newport Harbor area. Mr. Fuller stated that those leases were not looked at in the study. In response to Mayor Pro Tem O'Neil's question about the reliability of a limited appraisal, Mr. Fuller stated that a limited appraisal is not as reliable as a full appraisal, but that the reliability of this appraisal is relative to the comparability of the proposed lease to the Bahia Corinthian • Yacht Club lease. Mr. Fuller stated that a full appraisal would take approximately sixty days. Council Member Debay read from information contained in the staff report that the Bahia Corinthian Yacht Club appraisal did take into account leases in other cities and harbors. Council Member Thomson stated that he felt that bayfront lineal feet should be used instead of lineal feet for docks or slips. Mr. Fuller disagreed and said that the total income generated from the property should be looked at or how many lineal feet of dock space can be offered to the public. Mayor Pro Tem O'Neil clarified with Mr. Fuller that the use of the Bahia Corinthian Yacht Club did represent fair market value because it was an agreed -upon transaction by both parties. Council Member Glover confirmed with Mr. Fuller that the Balboa Bay Club figures are higher because they include revenue from the functions on the land area of the tidelands, which means the land area is included in the percentage of return. City Manager Murphy further explained that at the Balboa Bay Club, the City is the trustee and lessor of both the water and the land portion of the tidelands. This is not true at the Lido Marina Village site. Council Member Hedges confirmed with Mr. Fuller that he was hired by Mr. • Ratkovich. Council Member Noyes confirmed with Mr. Fuller that other cities along the Volume 52 - Page 101 City of Newport Beach City Council Minutes June 24, 1998 • coast were not used in the study. INDEX Mr. Ratkovich referred to available maps and a photo, and discussed the area under consideration. Mr. Ratkovich also stated that the City's boat slip rental fee is constant throughout the City and would not change under a new lease. The current rate is twenty -eight cents per square foot. Mr. Glen Sonnenberg, James Ratkovich & Associates, added that the project is a blighted project with multiple ground leases and owners, and different provisions for each. Mr. Sonnenberg stated that LJR Lido Partnership has been trying to negotiate with the various entities to make the project a single cohesive project. Mr. Sonnenberg responded to earlier questions and explained that, for economical reasons, LJR Lido Partnership cannot buy the uplands property before the lease agreement is approved. The boat slips represent a third of the income. Mr Sonnenberg stated that LJR Lido Partnership has every practical incentive to develop the property once purchased. Mr. Sonnenberg stated that LJR Lido Partnership did not come to the City with a specific plan for the project because it would rather give it a lot of thought, seek input and do it right. Mr. Sonnenberg understands that the project will require approval at every step in the future. • Mr. Sonnenberg explained that the LJR Lido Partnership multiple signature line is to limit liability and separate all assets from others. Mr. Sonnenberg encouraged the City Council to approve the lease agreement. Council Member Hedges asked Mr. Sonnenberg what return he would expect to receive from the project and the entitlements. Council Member Hedges said that the amount of return expected by LJR Lido Partnership would have a direct impact on what projects were proposed. Mr. Sonnenberg responded by stating that LJR Lido Partnership would rather work with the community on what project is developed, and that most likely a minimum 10% return would be sought. Mr. Sonnenberg stated that if LJR Lido Partnership does not come to the City with an entitlement proposal, the lease is terminated, and that the City also has the right to not approve any entitlement proposal presented. Mr. Sonnenberg is confident that the City and the citizens will be happy with the efforts of LJR Lido Partnership. Mr. Sonnenberg feels that the lease provisions require that LJR Lido Partnership performs to the City's satisfaction. Mayor Pro Tern O'Neil stated that he feels that LJR Lido Partnership has made the commitment to go forward with developing a quality project, but questioned why the commitment has not been made to redevelop more than 38,000 square feet of the property. Council Member O'Neil stated that other alternatives should be discussed and that the City Council should not be . pressed for time. Mr. Sonnenberg stated that he feels that LJR Lido Partnership would desire Volume 52 - Page 102 City of Newport Beach City Council Minutes June 24, 1998 INDEX • to enter into a development agreement with the City or to work with the City on a redevelopment plan. Mayor Pro Tem O'Neil stated that he feels that LJR Lido Partnership and the City share a common vision, but that many questions are still yet to be answered and the City Council has not had adequate time to review the lease. Mayor Edwards stated that the day escrow is closed, LJR Lido Partnership has every incentive to develop. Council Member Noyes agreed with Mayor Pro Tem O'Neil that the City Council should not be required to make the decision in such a short period of time, and he encouraged the public to speak on the matter. Council Member Hedges confirmed that the total leaseable space in the uplands property is 127,000 square feet. Mr. Allan Beek, 2007 Highland, feels that the City staff, the City Council and the applicant have all done their jobs. Mr. Beek does, however, suggest that the map and photo, used earlier in the meeting, be corrected to show the true property line. Mr. Beek also suggested that an additional appraisal be done that compares the rates with the County lease rates in the Newport • Harbor area. Mr. Beek stated that something better than a cost of living indicator or a 2% escalator should be used. Mr. Beek stated that he feels that the term of the lease is excessive and that the lease should make clear that party boats are not permitted at the marina. Mr. Beek concluded by stating that the process has moved too fast. Mr. Bob Caustin, 471 Old Newport Boulevard, Defend the Bay, stated that the appraisal being relied upon is not as reliable as a more detailed appraisal would be. Mr. Caustin also suggested that the conditional use permits currently in place need to be looked at to make sure they are being adhered to properly. Mr. Caustin referred to Page 5, Paragraph C of the proposed lease agreement, as an example of parts of the lease that need to be looked at in more detail. Mr. Jim Landis, 327 Fullerton Avenue, stated that the seller of the property, Mr. Gary Friedman, was heard from on Monday night and Mr. Landis does not believe that Mr. Friedman needs the money or cares what the City Council decides. Mr. Landis stated that he feels that the applicant would do an upscale project and he encouraged the City Council to approve the lease agreement. Council Member Glover stated that she feels that it is a positive aspect of the proposed lease agreement that there is no entitlement. Motion by Council Member Glover to request that LJR Lido Partnership . work with Mr. Richard Fuller to have a full appraisal of the property performed within the next two months. Volume 52 - Page 103 City of Newport Beach City Council Minutes June 24, 1998 • The motion died for lack of a INDEX Mr. Gordon Atkinson, Jr. discussed the history of the area, having been associated with a retail store in the area for forty years. Mr. Atkinson stated that the area is in very bad shape and the City should fully support the efforts of LJR Lido Partnership. Mr. Michael Sell, 319 Orchid, stated that he knows both Mr. Ratkovich and Mr. Sonnenberg and agrees that it is a very difficult project to pursue. Mr. Sell stated that he supports the approval of the proposed lease agreement, that Mr. Ratkovich and Mr. Sonnenberg will do what they say they will do and that the area is in need of help. Mr. Tim Collins, 412 Belvue Lane, representing a citizens committee that is working on a bay management plan, stated that he empathizes with the developer, but feels that the City should address the things brought up when the revitalization of the peninsula was discussed. Mr. Collins stated that he is not necessarily opposed to the project but that he is opposed to any piecemeal process. Mr. Tony Gleason, Yacht Mischief, stated that he has worked with James Ratkovich and Associates, and he feels the City should work with them and move forward on the project. • Mr. Brad Rowlands, resident, recommended approval of the lease as presented. Motion by Mayor Edwards to approve the lease. Mayor Edwards stated that he feels all questions asked have been answered, and if nothing is done, the area will not be improved. Mayor Edwards stated that the incentive is there for the applicant to develop, and he feels the project will benefit the entire City. Council Member Debay stated that she feels the long -term lease gives security to both parties and that she understands the need for the lease agreement to be in place before the applicant purchases the uplands. Council Member Debay stated that, under the current ownership, the area will continue to deteriorate. Council Member Debay stated that any projects on the property would have to go through the normal planning process. Mayor Pro Tem O'Neil stated that he will not support the motion because he does not feel that he has had adequate time to review the lease. Mayor Pro Tem O'Neil feels that other alternatives should be looked at, more public input should be sought and the lease should be further reviewed by outside counsel. Mayor Pro Tem O'Neil would, specifically, like to see the possibility of a redevelopment agency being looked at. • Council Member Hedges stated that current City policies and codes keep the tidelands and the uplands areas together, meaning that the owner of the uplands would have fist consideration for the tidelands lease. Council Volume 52 - Page 104 City of Newport Beach City Council Minutes June 24, 1995 INDEX • Member Hedges feels that the proposed lease has many problems, including the minimum redevelopment requirement of only approximately 25% of the leasable area of Lido Marina Village. Council Member Hedges stated that approving the lease first does not give the City the assurance it needs that redevelopment will happen in the future. Substitute motion by Council Member Hedges to not approve the lease, but to begin immediate discussions with LJR Lido Partnership L.P., if they become the new owners of the property; to agree to consider formally a redevelopment agency, if deemed necessary to facilitate the redevelopment of the Lido Marina Village; to facilitate, on an expedited basis, entitlement approval for the redevelopment plan prior to consideration of any tidelands lease; and to give LJR Lido Partnership first right of refusal on a negotiated 50 -year tidelands lease upon granting of the entitlement for redevelopment. Council Member Glover stated that redevelopment in the City has never happened and she does not feel it will happen in the future. Council Member Thomson stated that he does not feel that the proposed lease is the right lease, but appreciates the applicants' time and effort. Council Member Thomson stated that he feels there are flaws in the lease that need to be corrected, and that he will support the substitute motion. • Council Member Glover confirmed with City Manager Murphy that, under the motion, the negotiations would take place with LJR Lido Partnership if they became the new owners of the property. Council Member Thomson disagreed that LJR Lido Partnership should have first right of refusal. Substitute motion amended by Council Member Thomson to delete reference to giving LJR Lido Partnership first right of refusal on a negotiated 50 -year tidelands lease. Amendment to the substitute motion accepted by Council Member Hedges. Mayor Edwards stated that he will not support the substitute motion and is hopeful that, if it passes, LJR Lido Partnership will still be interested in improving the area. Substitute - substitute motion by Council Member Debav to continue the discussion on the lease until a full appraisal is received by the City and reviewed by outside counsel, with the goal of accomplishing this in 30 to 45 days, and then to have the item reconsidered by the City Council. Mr. Ratkovich responded to the possibility of the substitute - substitute motion being carried out by stating that the seller has agreed to grant a 30- day extension if LJR Lido Partnership pays a six - figure amount. Mr. Ratkovich stated that if the City Council's reason for the 30 -day extension • was to look at the issues associated with the lease, he could pay the amount and work with the City. If, however, the 30 -day extension was being done to look at entitlements, redevelopment agencies and related issues, he would Volume 52 - Page 105 • City of Newport Beach City Council Minutes June 24, 1998 IILIW�1:1 not be interested in paying the amount. Mr. Ratkovich stated that there are not significant differences between a limited appraisal and a full narrative appraisal as far as the relevance to this agreement is concerned. Council Member Glover withdrew her second to the substitute - substitute motion, based upon the information provided by Mr. Ratkovich. Mr. Sonnenberg reiterated that if the extension of time involved entitlements or if there should even be a lease, he agreed with Mr. Ratokvich that LJR Lido Partnership would not continue to pursue the purchase of the uplands property. Mr. Sonnenberg stated that if the extension of time was to discuss the lease and fair market value, LJR Lido Partnership would have to make the decision whether or not to continue with the purchase. Substitute - substitute motion by Council Member Noyes to continue the item for thirty days and set a public hearing on the matter. Council Member Noyes stated that he would like to move forward with the review of the lease. Council Member Noyes said he would not vote to approve the lease, at this point, and would like the public to have the opportunity to comment further on the matter. • Mr. Ratkovich asked if the City Council could form a committee to review the lease and continue the ongoing negotiations of the lease during the thirty -day period. Mayor Edwards stated that Council Member Noyes' motion does not give the applicant any assurance that the lease will be considered by the City Council at the end of the thirty -day period. Council Member Hedges stated that his substitute motion does not preclude the applicant from completing the transaction to purchase the property, and that it only decreases his rate of return until a 50 -year lease is approved. Mayor Edwards disagreed and stated that he feels that the applicant needs to generate the cash flow now to keep the lender involved with the purchase. Council Member Glover, Mayor Edwards and Mayor Pro Tent O'Neil each stated that they felt the City Council was sending false hopes to the applicant. The substitute - substitute motion failed by the following roll call vote Ayes Debay, Noyes Noes: Hedges, Thomson, O'Neil, Glover, Mayor Edwards Abstain: None Absent: • None Volume 52 - Page 106 • • ►�J City of Newport Beach City Council Minutes June 24, 1995 The amended substitute motion to not approve the lease, but to begin immediate discussions with LJR Lido Partnership L.P., if they become the new owners of the property; to agree to consider formally a redevelopment agency, if deemed necessary to facilitate the redevelopment of the Lido Marina Village; and to facilitate, on an expedited basis, entitlement approval for the redevelopment plan prior to consideration of any tidelands lease carried by the following roll call vote: Ayes Thomson, Noyes, O'Neil, Hedges Noes: Debay, Glover, Mayor Edwards Abstain: None Absent: None PUBLIC COMMENTS Mr. Charles Greco, 17650 Locust Street, Fountain Valley, presented the City Council with a letter contesting Resolution 95 -116, Section 4. Mr. Greco requested that the resolution be brought back to the Harbor, Beaches and Parks Committee to rewrite Section 4. Mr. Greco referred to his letter which listed the reasons behind his request. City Clerk - 7:35 p.m. aaaeax�anrrr��t�����af .xxx «��x•+rx Recording Secretar //l//v �'. Mayo Volume 52 - Page 107 INDEX