HomeMy WebLinkAbout22 - Balboa Bay Club Option and Lease Agreement701
AGENDA ITEM NO. 22
CITY OF NEWPORT BEACH
Office of the City Manager
June 24, 1996
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TO: HONORABLE MAYOR AND CITY COUNCILMEMBERS
FROM: Kevin J. Murphy, City Manager�j
SUBJECT: BALBOA BAY CLUB OPTION AND LEASE AGREEMENT
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The City has a current groundlease with the Balboa Bay Club on property
located in the Mariners Mile area on Pacific Coast Highway. The City first
foe tered into a lease with the Balboa Bay Club in 1948, while the current lease
verning the lease and operation of the facility was signed in 1986 for a
twenty-five (25) year period. A copy of the current Groundlease is attached as
Attachment #1. Since the late 1980's the Balboa Bay Club has expressed an
interest in redeveloping the leasehold improvements, and in order to secure the
financing to undertake this effort, required an extension of their current
groundlease which will expire in the year 2011.
In late 1993 the Balboa Bay Club began discussions with City staff about a
redevelopment plan for the property and a lease extension. In May 1994 the
City Council authorized the retention of a real estate appraisal and real estate
economic analysis of the property to comply with the City's Income Property
Policy F-7. A copy of the staff report to the City Council on this matter is
attached as Attachment #2. This City Council Policy requires that the City shall
complete an analysis of income property utilizing... "appraisals or other
techniques to determine the highest and best use of the property." The City is
also required to use reputable and independent consultants in these services.
In October and November 1994 the City's independent consultants, William
Hansen and Associates and Keyser Marston and Associates, presented the
findings of their studies in closed session to the City Council. This followed two
extensive meetings of the Balboa Bay Club Ad Hoc Council Committee on the
same subject. William Hansen and Associates developed the fair market rental
value of the property and Keyser Marston and Associates examined the market
viability of the Bay Club's proposed redevelopment, as well as examining the
financial feasibility of the Bay Club's financial projections. Both consultants
determined the proposed redevelopment plan to be economically viable in the
marketplace and a secure investment for a lender or investor. A copy of these
findings is attached in Attachment #3.
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Prior to the Balboa Bay Club proceeding with their redevelopment plans, the
current, lease of the property required that the dispute between the City and the
State related to tideland and upland boundaries be resolved through one of
several means prior to 1999, or the Terrace Apartment portion of the property
would be required to be converted from rental to visitor serving uses. As a
practical matter, this matter also needed resolution for the purpose of future
financing on the property. In August 1994 the State Legislature approved AB
3139 which clarified that the property underlying the Terrace Apartments was in
fact tidelands, but the current use of the property could be maintained within
certain guidelines through the year 2044. A copy of the legislation is attached
as Attachment #4.
Subsequent to this action, the Balboa Bay Club received approval of their
necessary entitlement permits through the City Planning Commission, City
Council and Coastal Commission. Now, in order to implement their planned
redevelopment and obtain financing for the project, a lease extension has been
requested. The Option and Groundlease Agreements were drafted by special
legal counsel to the City, Mr. Lowell Martindale of O'Melveny and Myers, who is
widely respected in his knowledge of groundleases. Mr. Martindale also
assisted the City Attorney and me in the actual negotiations of the terms of the
proposed Option and Groundlease Agreements.
OPTION AGREEMENT
The City is willing to give the Balboa Bay Club a lease extension on the
condition that the Bay Club complete a redevelopment of the property. The Bay
Club's current lease expires in 2011 and if there were no redevelopment it is
likely that the income from the property and uses would diminish as the term of
the lease draws to a close. The age of the facility requires a full and complete
renovation of the older portions and the newer portions will require constant
and close maintenance to keep the property producing income at the maximum
levels.
The City is also willing to provide a lease extension provided that the future
terms of the revenue from the property keeps the return from the property
current with the fair market rental value of the property. Existing law grants in
trust all State tide and submerged land bordering on the bay to the City
(excepting those portions reserved to the County). This property could not be
sold by the City to a private owner; however, the City is legally permitted to
lease the property and is required to receive a fair market return.
The purpose of the option period is to permit the Bay Club to prepare all the
necessary steps to actually commence the redevelopment including preparing
the plans, obtaining evidence of sufficient financing, and actually pulling the first
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building permit. The option must be exercised within five years of the date of
the signing of the Option agreement.
The City would receive a fee of $250,000 (plus interest @ 8% from the date of
the agreement to execution of the option) for the exclusive right to the option.
Additional details of the Option Agreement are contained within the Executive
Summary and full text of the Option and Groundlease Agreements which were
provided to the City Council on June 10th and are attached again as
Attachment #5.
GROUNDLEASE AGREEMENT
The major issues contained within the Groundlease are embodied within the
Executive Summary which is attached. The City Council has been fully
informed of the major issues throughout the various portions of the negotiations
between the parties. Some of the more significant provisions of the agreement
include the provision for the first class quality construction and maintenance of
the facility, the increase in the base (or contract) rent, provisions to keep the rent
current over the term of the lease, the City's participation in sale proceeds within
the option and first two years of the groundlease term, and finally conditions and
qualifications for future assignment, sale or transfer of the groundlease and
operators.
The Groundlease commences only upon the Bay Club satisfying the conditions
under the Option Agreement and then construction of the new facilities must
begin within 90 days.
Upon approval of the Option and Groundlease by the City, the matter must be
submitted to the State Lands Commission for final approval. Under the terms of
AB 3139, effective July 1, 1995 the City retains 95% of the City's income from
the property with 5% deposited into a State Land Bank Fund, while five years
after the effective date of the new Groundlease, the percentage shared with the
State grows to 10%.
RECOMMENDATION
The City Council approve the Option and Groundlease Agreements with the
Balboa Bay Club and authorize City staff to transmit the documents to the State
Lands Commission for approval.
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ATTACHMENT #1
CURRENT GROUNDLEASE
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Recitals
............................................
1
Agreements...........................................
2
1.
Description of Leased Premises.............
2
2.
Term.......................................
2
3.
Purpose of Lease ...........................
2
4.
Rental Commencement ........................
2
5.
Rental .....................................
2
a. Minimum Rent ..........................
2
b. Percentage Rent .......................
3
6.
Payment of Percentage Rent .................
3
7.
Place of Payment and Filing................
3
8.
Charges for Goods and Services .............
4
9.
Definition of Gross Receipts...............
4
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10.
Books of Account ...........................
5
11.
Utilities, Taxes and Assessments...........
5
12.
Compliance with Laws.......................
6
13.
Improvements, Fixtures and Equipment.......
6
14.
Existing Encumbrance .......................
7
15.
Encumbrances ...............................
7
16.
Assignment of Lease........................
8
17.
Subletting.................................
8
is.
Default ....................................
8
19.
Remedies of Lessor.........................
10
20.
Peaceful Enjoyment .........................
11
21.
Invalidity of Provisions...................
11
22.
Relationship of Parties....................
12
23.
Notices....................................
12
24.
Successors and Assigns.....................
12
25.
Insurance..................................
12
a. Lessor's Nonliability.................
12
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b. Fire Insurance ........................
13
C. Liability Insurance...................
14
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Pace
26.
Restoration ................................
14
27.
Maintenance of Landscaping and
Improvements ...............................
15
28.
MOU.................. I.....................
16
24.
Lease Extension ............................
16
30.
Apartment Uses .............................
16
31.
Pump -Out Station ...........................
17
32.
Traffic Signal. ............................
17
33.
Miscellaneous ..............................
17
a. No Waiver .............................
17
b. Captions ..............................
17
Signatures ...........................................
18
Exhibit
"A" - Legal Description
Exhibit
"B" - Percentage Rent Calculation
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This Lease, made and entered into to be effective this
13th day of May, 1986, by and between the City of Newport
Beach, a chartered municipal corporation, hereinafter
referred to as "Lessor," and the Balboa Bay Club, Inc., a
California corporation, hereinafter referred to as "Lessee."
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Recitals
A. Lessor is the grantee and owner of certain harbor
frontage property located within the corporate limits of
the City of Newport Beach, in the County of Orange, State
of California, hereinafter referred to as the "leased
premises."
B. Lessor, by agreement dated March 24, 1948 (here-
inafter "Existing Lease"), leased the leased premises to
Newport Bay Company, which leasehold interest was subse-
quently assigned to Lessee.
C. Lessee presently operates and maintains a club,
hotel, apartments, a restaurant and lounge, meeting rooms,
boat slips, spa and other recreational and support facili-
ties on the leased premises. The term of the Existing
Lease expires August 31, 1998. Lessee has requested the
City to enter into a new lease having a term of twenty-
five (25) years.
D. Lessor has employed an independent appraiser
(Robert L. Foreman, MAI of Real Estate Analysts of Newport,
Inc.) for the purpose of making recommendations concerning
the increase in rent and other charges based on fair market
rental rates to be included in the new lease. Lessor,
after negotiations with Lessee, has determined that the
provisions contained within this lease provide for a fair,
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economic return to Lessor from the leased premises.
E. This lease provides that Lessor shall become the
owner of all structures and improvements on the premises at
the end of this lease and the lease further constitutes the
re-leasing of property under lease prior to the date of
adoption of the Charter of the City of Newport Beach and
is therefore exempt from the election provisions in Sec-
tions 420 and 1402 of said Charter.
NOW, THEREFORE, IN CONSIDERATION of the foregoing
recitals, and of the mutual covenants set forth below,
Lessor and Lessee hereby agree as follows;
Acreements
1. Description of Leased Premises. Lessor leases to
Lessee certain real property together with all improvements
existing thereon, situated within the corporate limits of
the City of Newport Beach, County of Orange, State of Cali-
fornia, as more particularly described in the attached
legal description marked Exhibit "A" and made a part herein
by this reference.
2. Term. This lease shall extend for a total term
of twenty-five (25) years commencing on the effective date
and expiring at the end of the day preceding the twenty-
fifth (25th) anniversary of the date of execution of this
lease.
3. Purpose of Lease. The leased premises may be
used by the Lessee for any purpose permitted under the City
of Newport Beach general plan and zoning ordinances, and
not prohibited by law.
4. Rental Commencement. Rent as provided in this
lease shall commence to accrue as of July 1, 1486.
5. Rental.
a. Minimum Rent. Lessee agrees to pay to
Lessor, as minimum rental for the use and occupancy of the
leased premises the sum equal to the total aggregate amount
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of the rent paid by Lessee to Lessor during the first full
twelve (12) months from the rental commencement date based
on the Contract Rent plus the 1986 percent of the Margin
Phase -In as hereinafter provided. The Minimum Rent shall
be paid in equal quarterly installments commencing on the
first of October and thereafter on January 1, April 1, and
July 1 of each year.
b. Percentage Rent. If the Percentage Rent, as
hereinafter provided, exceeds the Minimum Rent, Lessee
agrees to pay Lessor the Percentage Rent in lieu of the
Minimum Rent. The Percentage Rent shall be based on a
fixed percent of the Margin Rent for each year of the
remaining term of the Existing Lease plus the Contract
Rent. The Percentage Rent calculation is shown on the
attached Exhibit "B" which is incorporated herein by this
reference.
6. Payment of Percentage Rent. Lessee shall submit
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to Lessor an estimate, prepared by a certified public
accountant, of the percentage rent payable for each fiscal
year of Lessor (October 1 through September 30) or portion
therof, during the term of this lease. The estimate shall
be due within sixty (60) days after the end of Lessee's
fiscal year. Any adjustment in the estimate of percentage
rental shall be due on March 1st of each year for the
preceding lease year and shall be accompanied by a full,
true and correct statement prepared by a certified public
accountant indicating in detail all gross operating reve-
nues received by it in connection with the operation of the
lease premises during that fiscal year or portion thereof
for which such payment is made. In the event the adjust-
ment requires payment by Lessor, the payment shall be made
within thirty (30) days from the date the final accounting
is submitted to Lessor.
7. Place of Payment and Filing. All rent as pro-
vided in this lease shall be payable at, and all statements
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and reports herein required shall be filed with, the Office
of the Finance Director of the City of Newport Beach at
3300 Newport Boulevard, Newport Beach, California 92663.
Rent shall be paid by check and made payable to the City of
Newport Beach.
8. Charges for Goods and Services. Subsequent to
the execution of this lease, Lessee agrees to charge prices
for all goods and services offered and provided on the
leased premises which are competitive with prices charged
at other private clubs located in Southern California
offering similar goods and services.
9. Definition of Gross Receipts. The term "gross
receipts" shall mean the aggregate amount of all sales of
merchandise or services made, ordered or arranged at, in or
about the leased premises by Lessee whether for cash,
charge or credit (and in case of credit or charge sales,
regardless of whether the money for such sales is collected
or not) without deduction or allowance for costs, charges
or expenses for purchase, sale, transportation or delivery
of merchandise, or for labor and material in connection
with the rendition of services. The term gross receipts
shall also include deferred income in the year earned and
telephone receipts. The term gross receipts shall also
include fees and charges made by Lessee for use of any
facilities located at, in or about the leased premises,
including, but not necessarily limited to, hotel, motel or
apartment rentals derived from persons not carrying on and
conducting a business at, in or about the leased premises
or dockage fees and charges.
The term "gross receipts" shall not include
(a) the selling price of goods which are delivered in
exchange for goods returned by customers; (b) the price of
goods returned without exchange upon which a refund for the
purchase price is made; (c) cash or other discounts allowed
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to purchaser of merchandise or services; (d) the amount of
any tax imposed or computed upon the basis of sales made or
services rendered at, in or about the leased premises;
(e) discounts to Gold Card holders, honorary memberships,
promotional billings not actually charged or paid; (f) or
any revenues derived from those revenue-producing activi-
ties of the Balboa Hay Club or affiliated companies or
entities pertaining to business operations in existence or
conducted in the future at locations other than the leased
premises.
Gross receipts shall be reported on the accrual
method of accounting and not cash method.
lo. Books of Account. The Lessee shall maintain and
keep a full, accurate and correct amount of all of its
business carried on and conducted at, in or about the
leased premises and all of its books and records in respect
to said business shall be open to the inspection by Lessor
and of any authorized agent, accountant or employee of
Lessor. The books of accounts and records shall include at
least those that would normally be required to be kept and
examined by an independent accountant in accordance with
generally accepted auditing practices. The books and
records shall be preserved for at least three years after
expiration of Lessee's fiscal year to which the books and
records apply. Lessor, and its employees or agents, shall
have the right to enter in and upon the leased premises at
any time during reasonable business hours to inspect the
premises and, upon demand, all books and records required
to be kept by Lessee pursuant to this section.
11. Utilities. Taxes and Assessments. Lessee shall
pay and discharge prior to delinquency all charges for
water, gas, electricity, telephone, rubbish and garbage
disposal and other public utility services furnished to the
leased premises or the occupants thereof and shall hold
Lessor harmless of and from any and all loss, damage or
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liability by reason of the failure of Lessee to pay and
discharge in full any of said charges. Lessee shall like-
wise pay and discharge prior to delinquency all taxes and
assessments which shall be levied or assessed by the City
of Newport Beach, County of Orange, State of California or
any taxing authority having jurisdiction over the leased
premises against any and all buildings, structures or
improvements placed at, in or about the leased premises by
Lessee and against the leasehold estate created hereby and
shall hold Lessor harmless of and from any and all loss,
damage or liability by reason of the failure of Lessee to
pay and discharge in full any of said taxes and assess-
ments. Lessee hereby expressly acknowledges that Lessor
has given Lessee notice that Lessee's possessory interest
in the leased premises may be taxed.
12. Compliance with Laws. Lessee, in its use and
occupancy of the leased premises, shall fully and com-
pletely comply with all rules, regulations, ordinances and
laws of any governmental authority or authorities having
jurisdiction over the leased premises or of any business or
other activity conducted at, in or about the same.
13. Improvements, Fixtures and Eouipment. Lessee
shall have the right and privilege of erecting and con-
structing such buildings, structures and improvements at,
in or about the leased premises as it may deem to be
desirable or necessary, provided Lessee complies with all
applicable building and zoning ordinances of any govern-
mental authority having jurisdiction over the leased
premises. Lessee shall also have the right to place at, in
or about the leased premises, such trade fixtures and per-
sonal property as may appear to be desirable or necessary
for the operation of any business or other activity. All
buildings, structures, improvements, fixtures and personal
property or equipment placed at, in or about the leased
premises by the Lessee shall, upon the expiration of the
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term
term of this lease or the earlier termination thereof,
belong to and become the property of the Lessor and Lessee
shall receive no compensation therefor; provided, however,
Lessee shall have the right for a period of sixty (60)
days after termination or expiration to remove all trade
fixtures and personal property or equipment placed or
installed at, in or about the leased premises. All per-
sonal property, equipment and trade fixtures not removed by
Lessee within this sixty (60) day period shall, upon the
expiration thereof, become the property of Lessor and
Lessee shall no longer have any right, title or interest
therein.
14. Existing Encumbrance. Nothing in this lease
shall be deemed to modify or negate the rights of any
assignments or encumbrances which were previously autho-
rized by Lessor or placed on the leased premises pursuant
to written consent of Lessor prior to the effective date of
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this lease.
15. Encumbrances. In the event that Lessee requests
Lessor to approve an assignment of Lessee's rights under
this lease, including but not limited to Lessee's leasehold
interest in either the Terrace Apartments parcel or the
Club parcel separately, as collateral security for any bona
fide loan, Lessee shall submit the proposed financing plan
and other related documents to the City Manager of Lessor
for his review and consideration. The City Manager may, in
his discretion, execute a consent to the proposed assign-
ment if the proposed encumbrance will not in any way subor-
dinate Lessor's fee interest in the leased premises and if
the proposed encumbrance is made subject to each and all of
the terms and conditions set forth in this lease, and to
all rights and interests of the Lessor hereunder. Lessee
reserves the right to request the City Council of Lessor to
approve any proposed encumbrance in lieu of the adminstra-
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tive consent as herein provided, which approval shall not
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unreasonably be withheld.
16. Assignment of Lease. Lessee shall not assign
this lease or any interest therein without the prior
written consent of the Lessor, which consent shall not
unreasonably be withheld, and this lease and the leasehold
estate created thereby shall not be assignable by operation
or law or otherwise. No assignment or subletting even with
the consent of Lessor, shall operate to relieve Lessee of
its obligation to pay rent and perform the other obliga-
tions of this lease unless approved by Lessor.
17. Subletting. Lessee shall not sublet the leased
premises or any part or portion thereof for the purpose of
operating and conducting any business enterprise at, in or
about the same for a term in excess of the period of
one (1) year without the prior written consent of the City
Manager of Lessor, which shall not unreasonably be with-
held. Lessee reserves the right to request the City
Council of Lessor to approve any sublease in excess of
one (1) year in lieu of the administrative approval as
herein provided. It is agreed that any consent given by
Lessor or the City Manager of Lessor to Lessee authorizing
it to sublet the leased premises or any part or portion
thereof shall not be construed as a consent to any further
subletting or as a waiver of the right of Lessor to object
to any further subletting to which its prior written con-
sent has not been given.
18. Default,. The occurrence of any one or more of
the following events shall constitute a default by Lessee;
a. Abandonment of the premises by lessee.
Abandonment shall be defined to include, but is not limited
to, the failure of tenant to conduct business on the
Premises for thirty (30) consecutive days or more, unless
the failure to conduct business is caused by damage or
destruction to the premises, or other cause beyond the
control of Lessee; 0
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b. Failure of Lessee to pay rent, or make other
payment required by this lease, as and when due, where the
failure continues for three (3) days after written notice
of default from Lessor; provided, however, that any such
notice shall be in lieu of, and not in addition to, any
notice required under Section 1161 et. seq. of the Code of
Civil Procedure of the State of California, as amended;
C. Failure of Lessee to observe or perform any
express or implied covenant or provision of this lease,
other than as specified in paragraphs a. or b. above, where
the failure continues for thirty (30) days after written
notice of default from Lessor; provided, however that any
such notice shall be in lieu of, and not in addition to,
any notice required under Section 1161 et. seq. of the Code
of Civil Procedure of the State of California, as amended;
provided, further, that if the nature of the default is
such that more than thirty (30) days are reasonably
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required for its cure, then Lessee shall not be in default
if it commences cure within the thirty (30) day period and
thereafter diligently pursues same to completion;
d. The making of: any general assignment for
the benefit of creditors;
e. the filing by or against Lessee of a peti-
tion to have Lessee adjudged a debtor; or to have debts
discharged or a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case
of a petition filed against Lessee, the petition is dis-
missed within thirty (30) days);
f, the appointment of a trustee or receiver to
take possession of substantially all of the assets of
Lessee located at the premises or Lessee's interest in this
lease, where possession is not restored within thirty (30)
days;
g. the attachment, execution or other judicial
seizure of substantially all of Lessee's assets located on
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the premises, or of Lessee's interest in this lease, where
the seizure is not discharged within thirty (30) days;
h. Lessee's convening of a meeting of its
creditors or any class thereof for the purpose of effecting
a moratorium on, or rearrangement of, its debts; or
i. Failure to charge prices for goods and
services offered on the leased premises based on charges of
other private clubs located in Southern California offering
similar goods and services as provided in this lease shall
not constitute a default of this lease.
19. Remedies of Lessor. In the event Lessee defaults
in the performance of any covenant, condition or agreement
contained in this lease, and the default is not curred as
provided in the preceding section, then Lessor, at its
option, may terminate this lease and:
a. Bring an action to recover from Lessee:
(1) The worth, at time of award, of the
unpaid rent which had been earned at the time of the ter-
mination of the lease;
(2) The worth, at time of award, of the
amount by which the unpaid rent (which would have been
earned after termination of the lease and until the time of
award) exceeds the amount of rental loss Lessee proves
could have been reasonably avoided by Lessor;
(3) The worth, at time of award, of the
amount by which the unpaid rent for the balance of the term
after time of award exceeds the amount of rental loss that
Lessee proves could be reasonably avoided by Lessor; and
(4) Any other amount necessary to compen-
sate Lessor for all detriment proximately caused by
Lessee's failure to perform its obligations under this
lease; and
b. Bring an action, in addition to, or in lieu
of the action described above, to reenter and regain pos-
session of the premises in the manner provided by the laws
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• of unlawful detainer in the State of California then in
effect.
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The remedies of Lessor as specified in this
section are not exclusive, but shall be cumulative with, in
addition to, all remedies now or hereafter allowed by law.
20. Peaceful Eniovment. Lessor covenants and agrees
that the Lessee in performing the covenants, terms and
conditions of this lease on the part of lessee to be kept,
observed and performed may and shall have the right at all
times during the term of this lease to quietly and peace-
fully hold, possess, use, occupy and enjoy the leased
premises and all improvements which may from time to time
be placed thereon under and by virtue of this lease.
21. Invalidity of Provisions. In the event this
lease in its entirety shall be declared invalid or void by
a court of competent jurisdiction, the same shall cease and
terminate and Lessee waives any claim of damages or right
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of action against the Lessor by reason of such invalidity,
and Lessee shall only be entitled for a period of sixty (60)
days after the judgment of invalidity is final, to remove
from the leased premised any and all trade fixtures and
equipment and personal property placed by Lessee. In the
event a particular term or provision of this lease shall be
declared invalid or void by a court of competent jurisdic-
tion, Lessee waives any claim for damages or right of
action against the Lessor by reason of such invalidity, but
shall have the option of terminating this lease by a notice
in writing given at any time on or before sixty (60) days
following the final judgment or decree declaring such terms
or provisions to be invalid or void, and in the event this
lease be so terminated, Lessee shall only be entitled to,
for a period of sixty (60) days after final judgment, to
remove, from the leased premises, trade fixtures, equipment
and personal property placed by it on the leased premises.
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Should Lessee not elect to exercise the option in the fore-
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going sentence all of the terms and provisions of this
lease, other than those declared to be invalid or void,
shall remain in force and effect. Lessor, in the event of
the termination of this lease under the terms and provi-
sions of this paragraph, shall refund to Lessee all
unearned rentals paid by Lessee and shall not be entitled
to receive any accrued or unpaid rentals which have not at
the effective date of said termination become due and
payable under the terms hereof.
22. Relationship of Parties. The parties agree that
this lease does not create a partnership relation between
them or that of joint venturers and that it is intended by
the parties that this lease shall only create as between
them the relationship of landlord and tenant.
23. Notices. All notices, demands or communications
of any kind which may be required, or desired to be served
by the Lessor or the Lessee upon the other under terms of
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this lease shall be deemed served, if hand delivered, or
mailed, by registered mail with postage prepaid, as follows:
TO LESSOR: City Manager
City of Newport Beach
3300 Newport Boulevard
Newport Beach, Ca 92663
TO LESSEE: General Manager
Balboa Bay Club, Inc.
1221 west Coast Highway
Newport Beach, CA 92663
24. Successors and Assigns. Each of the covenants,
provisions, conditions and obligations of this lease shall
extend to, bind, and inure to the benefit of the parties,
but nothing in this section shall be construed as a consent
to any assignment by Lessee.
25. Insurance.
a. Lessor's Nonliability. Lessor shall not be
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liable for any loss, damage or injury of any kind or char-
acter to any person or property arising from any use of the
leased premises, or any part thereof, or caused by any
defect in any building, structure or other improvements
thereon or in any equipment or other facility therein, or
caused by or arising from any act or omission of Lessee,
or of any of its agents, members, tenants, employees,
licensees or invitees, or by or from any accident on said
leased premises or any fire or other casualty thereon, or
occasioned by the failure of Lessee to maintain the
premises in a safe condition, or arising from any other
cause whatsoever; and Lessee, as a material part of the
consideration of this lease, hereby waives on its behalf
all claims and demands against Lessor for any such loss,
damage or injury of Lessee, and hereby agrees to indemnify
and hold Lessor entirely free and harmless from all lia-
bility for any such loss, damage or injury to other per-
sons, and from all costs and expenses arising therefrom.
b. Fire Insurance. During the period of this
lease, Lessee shall keep all buildings, structures and
other improvements insured against loss or damage by fire,
with extended coverage endorsement or its equivalent in
such responsible insurance companies as Lessee shall select
and Lessor shall approve, and in amounts not less than
ninety percent (90%) of the insurable value of the build-
ings and other improvements insured, with loss payable
thereunder tc Lessor and Lessee and to any authorized
encumbrancer of Lessee in accordance with their respective
interests therein as provided in this lease and in any
written consent to such encumbrance by the Lessor; pro-
vided, however, any such policy may provide that a loss of
less than $100,000.00 may be paid directly to Lessee and
any authorized encumbrancer without the prior consent of
Lessor. Lessee shall pay all premiums and other charges in
connection with such insurance and from time to time shall
-13-
deposit with Lessor the certificate of the insurance
carrier as to each policy of such insurance and satisfac-
tory evidence of the payment of premiums and other charges
thereunder. Such insurance policies shall contain an
express waiver of any right of subrogation against Lessor,
and shall provide that the Lessor shall be given thirty (30)
days' prior written notice of any cancellation or change in
the provisions of the policy.
C. Liability Insurance. Lessee shall, at its
cost and expense, at all times during the term of this
lease, maintain in force a broad form comprehensive cover-
age policy of public liability insurance by the terms of
which Lessor and Lessee are named as insureds and are
indemnified against liability for the damage or injury to
the property or person (including death) of any member,
sublessee, tenant or invitee of Lessee or any other person
entering upon or using the leased premises; or any struc-
ture thereon, or any part thereof, in any way related to
Lessee's use or occupancy of the leased premises. Such
insurance policy or policies shall be maintained on the
minimum basis of $5,000,000.00 combined single limit
coverage for bodily injury, death and damage to property.
Such insurance policy or policies shall be stated to be
primary and non-contributing with any insurance which may
be carried by Lessor, and shall provide Lessor with
thirty (30) days' written notice of any cancellation or
changes in the provisions of the policy. Lessee shall
deliver to Lessor a certificate of each insurance carrier
as to each such insurance policy.
26. Restoration. If during the term hereof any
building or improvement erected by Lessee on the leased
premises, or any part thereof, shall be damaged or
destroyed by fire or other casualty, Lessee shall, at its
sole cost and expense, repair or restore the same according
to the original plans thereof; or, at Lessee's option,
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ATTACHMENT #2
BACKGROUND TO HIRING
CONSULTANTS
C
Agenda Item No. M
CITY OF NEWPORT BEACH
OFFICE OF THE CITY MANAGER
May 23, 1994
TO: Honorable Mayor And Members Of The City Council
FROM: Balboa Bay Club Ad Hoc Committee
by Kevin J. Murphy, City Manager
SUBJECT: BALBOA BAY CLUB PROFESSIONAL SERVICES
Recommendation:
1. Authorize the Balboa Bay Club Ad Hoc Committee (BBC Ad
Hoc) to retain real estate appraisal services to analyze the
proposed redevelopment of the Balboa Bay Club.
2. Retain Keyser Marston Associates to provide an economic
analysis of the proposed redevelopment plan and lease
extension on an hourly basis in accordance with their
proposal dated March 10, 1994 (attached).
3. Ratify the Scope of Work approved by the BBC Ad Hoc
Committee for consultant services.
4. Approve a Budget Amendment for $40,000 for the
estimated costs of the appraisal and economic analysis.
Backq ound:
On May 6, 1994 the Balboa Bay Club Ad Hoc Committee met and approved a
Scope of Services for professional real estate appraisal and economic services
required to assist City staff in the analysis of the Balboa Bay Club
redevelopment and lease extension proposal. Attached for the City Council's
information is a copy of the report on the Scope of Services that was approved
by the BBC Ad Hoc Committee on May 6th.
City Council Policy F-7, covering Income Property, states that whenever the City
considers a lease of income property (or extension of an existing lease), the
City shall complete an analysis using... "appraisals or other techniques to
determine the highest and best use of the property." In addition, the Cityhall
I
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use reputable and independent appraisers, real estate or business consultants.
In the case of the Balboa Bay Club, the requested redevelopment and lease
extension is a very significant and important business decision for the City and
should be based on good, sound economic analysis.
Since the proposal of the Bay Club is proceeding on the entitlement process, it
is imperative that the analysis proceed expeditiously. It is for this reason that
the BBC Ad Hoc Committee has requested that they be given the authority to
interview on May 24th five appraisal firms and select one to immediately
commence work on the project. The Committee has met on several occasions
to talk about the project and the scope of outside assistance required on the
project. The Committee has met with an MAI appraiser to seek input and advice
on proceeding on an appraisal process. The Committee also met with Cal
Hollis of Keyser Marston Associates to discuss the economic analysis of the
project, the lease terms, and other financial issues. A document on the
qualifications of the Keyser Marston firm is attached for the City Council
members.
The attachments related to this matter are:
May 6, 1994 Memorandum to the BBC Ad Hoc Committee
from City Manager on Scope of Work for Consultant
Services.
2. May 12, 1994 sample letter mailed to five appraisal firms on
appraisal work (including Scope of Work).
3. Proposal dated March 10, 1994 from Keyser Marston on
their proposed assistance on the proposed redevelopment
and lease extension.
4. City Council Policy F-7 on Income Property.
5. Qualifications and experience document on Keyser
Marston.
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171
CITY OF NEWPORT BEACH
OFFICE OF THE CITY MANAGER
May 6, 1994
TO: Honorable Mayor And Members Of The
Balboa Bay Club Ad Hoc Committee
FROM: Kevin J. Murphy, City Manager
RE: BALBOA BAY CLUB CONSULTANT SERVICES
Over the last few months as the Committee has discussed the proposed
redevelopment plan and lease extension proposed by the Balboa Bay Club, it
has become readily apparent that the City staff will need some technical
economic, real estate, and legal services in conjunction with the consideration
of this proposal. Several months ago the Committee met with Calvin Hollis of
Keyser, Marston & Associates, and more recently met with John Adams of John
Adams and Associates, to discuss the use of specialized consultants.
At the conclusion of the April 13th meeting, City staff was instructed to return to
the Committee with a proposed scope of work for consultant assistance on the
project for Committee review and subsequent recommendation to the entire City
Council.
Prior to preparing this memorandum I reviewed the City Council's Income
Property Policy F-7. It is very instructive and provides sound guidance to the
manner by which the City should consider and review the Bay Club's proposal
to redevelop their leased property and extend their lease. I've attached a copy
of the Policy for reference, and in partiHular, t V4000 ask the Committee to Tccus
on items noted as #1, 2 and 6. These policies focus on the process the City
should follow. .."whenever a lease, management contract, concession, sale or
similar action regarding income property is considered by the City." The policy
says we shall do an analysis using ..."appraisals or other techniques to
determine the highest and best use of the property and the highest value of the
property". In addition, the City abBI use reputable and independent appraisers,
real estate or business consultants. Clearly in the case of the Bay Club, which
is a large, highly developed piece of bay front property, this kind of independent
and qualified type of analysis is very prudent on the City's part because the
decisions that are made today may effect the property for many years to come.
p
SCOPE OF WORK •
As discussed above and during prior Committee meetings, it is important that
the City retain competent and qualified independent experts to review the
proposal from the Bay Club. The work that has been discussed would be
broken down into three discrete units or contracts and would likely be working
independently at times, while at other junctures would likely to be working
together to provide staff and the Committee timely information.
The Bay Club Ad Hoc Committee should review and recommend to the City
Council an MAI Appraisal firm which will determine:
1. The Fair Market value of the Bay Club property and improvements,
unencumbered by the current lease.
2. The Fair Market value of the property and improvements, encumbered by
the current lease in place through 2011.
3. The Fair Market value of the property and improvements proposed by the
Bay Club in the proposed development plans and with the proposed
lease term.
4. The determination of Fair Market value shall utilize the market and
income approaches.
5. After determining the Fair Market value of the proposed project,
determine the fair return to the City. This analysis should include a
comparison to other comparable coastal development projects.
The MAI appraisal firm will assist the City in:
Evaluating the financial feasibility of the proposed project in conjunction
with other consultants and City staff.
2. Evaluating the apprcNriate length of any lease extension and the terms of
any lease, particularly from a lenders perspective.
REAL_ ESTATE/ECONOMIC ANALYSIS:
The Bay Club Ad Hoc Committee should review and recommend to the City
Council a real estate/economic analysis consultant to assist the City by:
Reviewing the existing lease terms which the City may wish to modify in
any lease extension. This would include a review of the economic terms, •
options, and a recommendation on appropriate terms and a rationale
supporting the recommendation.
2. Reviewing the current operating income and expense data, supplied by
the Bay Club, as well as financial projections of the proposed
redevelopment of the property to determine the appropriate ground rent
to be paid by the leasee and the financial feasibility of the project.
3. Reviewing the proposed extension of the lease and the appropriate
length of an extension.
4. Examining other land use alternatives for the property and the impact on
the return on investment to the City. These alternatives would be
consistent with current tideland trust restrictions and land use regulations
now in force and effect.
5. Examining the City's operation of all or a portion of the property, with
current uses of the property at the expiration of the current term of the
lease.
6. Assisting the City during negotiations on the terms and economics of an
extended lease agreement.
i LEGAL:
! The Bay Club Ad Hoc Committee should review and recommend to the City
Council special legal counsel to assist the City Attorney in:
1. The drafting of a new ground lease for the property, building in any and
all protections for the City, during construction and use of the property.
2. The drafting of provisions in a new ground lease that will protect the City
and any lender during construction or operation of the property.
3. The negotiation on the terms of any extended lease agreement.
Office of City Manager
(714) 644-3000
May 12, 1994
Iid
The City of Newport Beach is seeking proposals to assist the City in determining
the current and future value of the property under lease to the Balboa Bay Club.
The Balboa Bay Club now operates under a twenty-five year lease which
expires in 2011 and has indicated an interest in redeveloping a portion of the
property and simultaneously has requested a substantial extension of its current
lease.
The City Council has appointed a Balboa Bay Club Ad Hoc Committee to
review this proposal prior to the presentation to the full City Council. The Ad
Hoc Committee has approved the retention of three consultants to assist in the
review of the Bay Club's proposal and this matter will appear before the entire
City Council for approval on May 23, 1994. The Ad Hoc Committee anticipates
approval of retaining consultants for these services and obtaining authorization
to enter into contracts for the services, and based thereon, has approved the
release of this request for proposal.
It is our hope t- receive propos~?s from f :;e firF~s for this service. Your firm has
been recommended to City staff as fully qualified to undertake this complex
coastal work. We would appreciate receiving your proposal no later than May
20 1994 by delivering five sets of your proposal to the City Manager's Office
which is located within City Hall, at 3300 Newport Boulevard. On May 24th,
beginning at 4:30 PM the Ad Hoc Committee will interview the firms submitting
proposals in the City Council Conference Chambers. It is anticipated that the
interviews will last approximately 30 minutes each and cover the material
submitted and the reasons why the City should retain your company's services.
E
SCOPE OF WORK
BALBOA BAY CLUB
APPRAISAL SERVICES
MAY 12,1994
BACKGROUND: The City of Newport Beach currently leases property on
Newport Bay to the Balboa Bay Club under Iease terms through 2011. Under
the terms of the lease the Balboa Bay Club operates and manages a hotel,
restaurant, banquet, lounge, health club facilities, in addition to apartment
units on the site.
The Balboa Bay Club has proposed a redevelopment of a portion of the site
and has requested a lease extension in order to permit the financing of the
improvements. The plans for redevelopment have been submitted to the
Planning Department and an environmental impact report (EIR) has been
prepared and comments have been received from various parties. The City's
Planning Commission will soon be reviewing the proposal from a land use
entitlement standpoint, and the Balboa Bay Club will subsequently require
City Council approval of the land use proposal and an extended lease.
Prior to the City Council's review of the proposed project and lease extension
request, a subcommittee of the City Council, the Balboa Bay Club Ad Hoc
Committee, will be reviewing the project and providing a recommendation
to the entire City Council. This subcommittee has determined that additional
real estate/economic/appraisal and legal assistance will be required to
properly review the proposal and make an informed decision on this
important project. It is anticipated that there will be substantial public input
on this project from a land use and lease term perspective.
On May 6, 1994 the Balboa Bay Club Ad Hoc Committee approved the release
of a request for proposal seeking assistance for appraisal services on this
project. This recommendation, and a recommendation for other professional
assistance is anticipated to be approved by the full City Council on May 23,
1994, and the Committee authorized to retain and employ the necessary
assistance in accordance with the scope of services outlined below.
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Page 2 0
Attached for your information is the Scope of Work that is being requested
under this request for proposal. Inasmuch as time is of the essence on this
project, we are asking for all the work within the proposal to be completed within
90 calendar days from the approval of the project.
If you have any questions on this request for your proposal, please feel free to
contact my office at (714) 644-3000.
Sincerely,
Kevin J. Murphy
City Manager
KJM:mb
Attachment
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SCOPE OF SERVICES
The City is seeking an MAI Appraiser to:
1. Determine the Fair Market rental value of the property, encumbered by
the current lease through 2011.
2. Opine on whether the current and proposed uses are the highest and
best uses for the property, taking into consideration the restrictions on
the property by all governmental agencies.
3. Determine the Fair Market rental value of the property proposed by the
Balboa Bay Club in the proposed redevelopment plans and with the
lease term proposed by the Balboa Bay Club.
4. Determine the Fair Market rental value utilizing the market, income,
or other appraisal techniques determined most appropriate by the
appraiser.
5. Determine, after appraising the fair market rental value of the
proposed project, the fair return to the City. This analysis should
include a comparison to other comparable coastal development
projects.
6. Cooperate with other financial consultants selected by the City to
determine the financial feasibility of the proposed project and the
appropriate length of a lease extension, the terms of the lease,
particularly from a lenders perspective.
SUBMITTALS
In submitting a proposal you should provide to the City the following:
1. A restatement of the scope of services envisioned for the project.
2. A statement of qualifications and experience in providing similar
appraisal work on complex coastal projects within the last 36 months.
Page 3 0
3. A list of five references on work within the last 12 months for contact
by the City staff.
4. An hourly rate for the proposed scope of work and an absolute dollar
figure which will not be exceeded in performing the work, without
prior authorization by City staff.
5. A proposed time schedule for the work.
SELECTION
The Balboa Bay Club Ad Hoc Committee will interview appraisers submitting
proposals on May 24th and it is anticipated that the City Council on May 23,
1994 will authorize the Ad Hoc Committee, working through the City
Manager, to select an appraiser and other consultants to immediately begin
work upon selection by the Ad Hoc Committee on May 24, 1993. The
interviews are anticipated to last thirty minutes and focus on the experience
of the individuals and firms submitting proposals.
INFORMATION
If there is any information on the specifics of the proposal or background of
the Balboa Bay Club property please direct all inquiries through the City
Manager's Office and to the City Manager, Kevin J. Murphy, at (714) 644-3000,
or in writing to 3300 Newport Boulevard, Newport Beach, CA 92660.
0
KEYSER MARSTON ASSOCIATES I N C. ADVIsoRs IN:
REAL ESTATE
500 SOUTH GRAND AVENUE, SUITE 1480 REDEVELOPMENT
LOS ANGELES, CALIFORNIA 90071 ECONOMIC DEVELOPMENT
213/622-8095 FAX 213/622.5204 FISCAL POLLCY
Los ANCELEs
RICHARD L. Born
CALVIN E. HOLLIS, 11
KATHLEEN H. HEAD
DIEGO
March 10 1994
� GGERALvERALD M. TRDABLE
ROBERT J. WETMORE
SAN FuNCIsco
Mr. Kevin Murphy Twor YKEYSER
IM0T71Y C. KELLY
City Manager KATE EARLE FUNK
City of Newport Beach DENISE E. CONLEY
3300 Newport Beach Boulevard
Newport Beach, California 92659
Dear Mr. Murphy:
As requested, Keyser Marston Associates, Inc. (KMA) has prepared
this scope of services proposal and fee estimate to assist the City
in evaluating a lease extension requested by the Balboa Bay Club.
We have designed the work program such that it would be authorized
in phases, at the sole discretion of the City.
TASK 1 - REVIEW EXISTING LEASE
KMA will review the current lease to identify those economic terms
which the City may wish to modify in consideration of a lease
extension. KMA will provide a memorandum to the City which
describes each specific economic issue, the current terms, the
options available for consideration, our recommendations as to the
preferred option, and the rationale for our recommendation. We are
limiting our comments to the economic terms of the lease. We would
point out that the current lease does not seem to have contemplated
either major reconstruction on the property or a conventional
leasehold mortgage to finance such reconstruction. As such, major
lease elements providing lessor and lender protection from
construction risks are not addressed in the lease, nor are typical
lender required post -construction protections contained in the
lease. While not strictly "economic" terms, they are critical to
the development of the site. These issues should be addressed as
part of the lease extension negotiations.
This initial task would be completed within two weeks of
authorization.
TASK 2 - FINANCE ANALYSIS
The current lease provides for both base rent and additional rent
as a percentage of gross income from the property. Additional rent
is based upon a schedule of percentages applied against various
4
Ii
Mr. Kevin Murphy
March 10, 1994
Page 2
business operations on the property. The reconstruction of the
project will modify the current gross operating income and thus
impact the current ground rent paid by the lessee. KMA proposes to
examine current operating income and expense data, to be supplied
by the lessee as well as review operating pro forma projections, to
be prepared by the lessee, which reflect the impact of the proposed
reconstruction. KMA will advise the City, based upon this
analysis, of any recommended changes to the percentage rent terms.
Additionally, KMA will note any areas of concern as to the
projected operating income and expenses for the project, including
identifying potential risks to the City's revenue stream.
This financial analysis would be prepared within 30 days of
authorization and receipt of current and projected operating pro
formas for the project.
TASK 3 - NEGOTIATION ASSISTANCE
If and as requested by the City, KMA would be available to advise
the City during the course of the negotiations, including analyzing
the impact to the City's land rent (current and projected) arising
from any proposed lease terms.
TASK 4 - DOCUMENTATION
KMA would be available to assist the City and its legal counsel in
the drafting of the economic terms of the lease and in preparation
of such explanatory documents as may be necessary to present the
proposed lease terms to the City Council and/or the public.
FEE
KMA proposes to provide services under Tasks 1 and 2 on a fixed fee
basis as follows:
Task 1 - Lease Review $ 3,500
Task 2 - Financial Analysis $11,500
Inclusive in these fees are one meeting each to present the results
of our analysis.
KMA proposes to provide services under Tasks 3 and 4 on an hourly
rate basis, if and as requested by the City. The extent of these
services is difficult to estimate, with the fee dependent upon the
length and complexity of the negotiations. we would suggest, based
upon our experience with similar projects, that a budget of $15,000
to $20,000 be established for these services. We have submitted a
sample consulting contract for your consideration.
KEYSE R M A RSTON ASSOCIATES INC.
i
Mr. Kevin Murphy
March 10, 1994
Page 3
PERSONNEL
KMA will assign Cal Hollis to be the principal in charge of these
services. Mr. Dick Botti, senior principal and co -manager of the
KMA Los Angeles office, will act as a consulting principal.
Limited staff assignments will be made as necessary, primarily to
assist in the financial analysis (Task 2).
We appreciate the opportunity to submit this proposal and are
available to discuss its terms at your convenience.
Sincerely,
KEYSER MARSTON ASSOCIATES, INC.
tmis1�
Calvin E. Hollis
CEH.1p
94174.KMA
99900.9Ci0
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KEYS E R M A RSTON A S SOC I AT ES I N C.y'o
'f J
CONSULTANT SERVICES AGREEMENT
THIS AGREEMENT is made at Newport Beach, California, as of
, 1994 by and between the CITY OF NEWPORT BEACH ("CITY"),
and KEYSER MARSTON ASSOCIATES, INC. ("CONSULTANT"), who agree as
follows:
1. Services: Subject to the terms and conditions set forth in
this Agreement, Consultant shall provide to City the services
described in Exhibit "A".
The parties to this Agreement agree that Consultant, in
performing the services described in Exhibit A. will not make any
warranties or guarantees as to the future value of any real or
personal property, nor will it make any express warranties or
guarantees of estimated or probable construction cost or cost
estimates being exceeded, nor will it guarantee the availability of
funds or specified rates of return and/or interest. Further, the
parties agree that Consultant will not perform services as a
construction manager, appraiser of the fair market value of real
estate, real estate broker or agent, or property manager.
2. Payment. City shall pay Consultant for services rendered
pursuant to this Agreement at the time and in the manner set forth
in Exhibit "B". The payments specified in Exhibit "B" shall be the
only payment to be made to Consultant for services rendered
pursuant to this Agreement. Consultant shall submit all billings
for said services to City in the manner specified in Exhibit "B".
3. Facilities and Equipment. Consultant shall, at its sole cost
and expense, furnish all facilities and equipment which may be
required for furnishing services pursuant to this Agreement.
4. General Provisions. The general provisions set forth in
Exhibit "C" are part of this Agreement. In the event of any
inconsistency between said general provisions and any other terms
or conditions of this Agreement, the other terms or conditions
shall control only insofar as it is inconsistent with the general
provisions.
5. Exhibits. All exhibits referred to herein are attached hereto
and are by this reference incorporated herein.
EXECUTED as of the day first above -stated.
CITY OF NEWPORT BEACH KEYSER MARSTON ASSOCIATES, INC.
By By
"CITY" "CONSULTANT"
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0 EXHIBIT A
SCOPE OF SERVICES
When and as directed by the City, Consultant shall perform
real estate consulting services for the project area to include,
but not be limited to the four tasks outlined in the attached
proposal letter dated February 10, 1994.
METHOD AND TIME OF PERFORMANCE
Consultant shall perform the various services described herein
as described in the attached February 10th proposal.
• 2
EXHIBIT $
COMPENSATION 0
For Task 1, as described in the attached proposal, Consultant
shall be paid a flat fee of $3,500, inclusive of all expenses and
one meeting with City staff to present the findings of this task.
Payment shall be upon completion of the Task 1 memorandum.
For Task 2, as described in the attached proposal, inclusive
of all expenses and one meeting with City staff to present the
findings of this task. Payment shall be upon completion of the
Task 2 memorandum.
For Tasks 2 and 3, if and when authorized, the City agrees to
pay and Consultant agrees to accept compensation on an hourly basis
according to the following fee schedule, which will remain in
effect through December 31, 1994, at which point new rates may be
negotiated:
A. Jerry Keyser*
$150.00
Senior Principal*
$145.00
Principal*
$140.00
Senior Associate*
$120.00
Associate
$105.00
Senior Analyst
$ 90.00
Analyst
$ 80.00
Technical Staff
$ 50.00
Administrative Staff
$ 45.00
Directly related job expenses not included in the above rates
are: Auto mileage, air fares, hotels and motels, meals, car
rentals, taxies, telephone calls, delivery, electronic data
processing, graphics and printing. Directly related job expenses
will be billed at 110% of cost.
MAXIMUM COMPENSATION
The total compensation for all services performed pursuant to
this Agreement shall not exceed the sum of FORTY-FIVE THOUSAND
DOLLARS ($45,000), without prior approval of the City.
*Rates for individuals in these categories will be increased
by 50% for time spent in court testimony.
3 0
METHOD OF PAYMENT
Consultant shall submit monthly requisitions to City
specifying the amount due for services performed by Consultantfs
staff and a list of incurred expenses for the past calendar month.
Upon approval of the services performed and the requisition, City
shall pay Consultant in accordance with such requisition.
Monthly billings will be payable within thirty {30} days of
invoice date. A charge of 1% per month will be added to all past
due accounts.
0 4
GENERAL PROVISIONS
1. Independent Contractor. At all times during the term of
this Agreement, Consultant shall be an independent contractor and
shall not be an employee of City. City shall have the right to
control consultant only insofar as the results of Consultant's
services rendered pursuant to this Agreement; however, City shall
not have the right to control the means by which Consultant
accomplishes services rendered pursuant to this Agreement.
2. Time. Consultant shall devote such time to the
performance of services pursuant to this Agreement as may be
reasonably necessary for satisfactory performance of Consultant's
obligations pursuant to this Agreement.
3. Consultant's Liability. The Consultant shall be
responsible for all injuries to persons and for all damage to real
or personal property of the City or others, caused by or resulting
from the negligence of itself, its employees, or its agents during
the process of or connected with the rendition of services
hereunder. Consultant shall defend and hold harmless and indemnify
the City, the Agency, and all officers and employees of both public
agencies from all costs and claims for damages to real or personal
property, or personal injury to any third party, resulting from the
negligence of itself, its employees, or its agents, arising out of
the Consultant's performance of work under this Agreement.
4. Eaual Employment Opportunity. During the performance of
this Agreement, the Consultant agrees as follows:
a. The Consultant will not discriminate against any employee
or applicant for employment because of race, color, age, religion,
sex, national origin, or physical handicap. The Consultant will
take affirmative action to ensure that applicants are employed, and
that employees are treated during employment, without regard to
their race, color, age, religion, sex, national origin, or physical
handicap. such action shall include, but not be limited to the
following: employment, upgrading, demotion, or transfer,
recruitment or recruitment advertising; layoff or termination;
rates of pay or other forms of compensation; and selection for
training, including apprenticeship. The Consultant agrees to post
in conspicuous places, available to employees and applicants for
employment, notice setting forth the provisions of this non-
discrimination clause.
b. The Consultant will, in
advertisements for employees placed
Consultant state that all qualified
consideration for employment without
religion, sex, age, national origin, or
5
all solicitations or
by or on behalf of the
applicants will receive
regard to race, color,
physical handicap.
:7
0
C. The Consultant will cause the foregoing provisions to be
inserted in all subcontracts for any work covered by this
Agreement, provided that the foregoing provisions shall not apply
to contracts or subcontracts for standard commercial supplies or
raw materials.
5. Consultant Not Agent. Except as City may specify in
writing, Consultant shall have no authority, express or implied, to
act on behalf of City in any capacity whatsoever as a agent.
Consultant shall have no authority, express or implied, pursuant to
this Agreement to bind City to any obligation whatsoever.
6. Products of Consultin . All products of consulting, with
the exception of computer software developed by Consultant, shall
become the property of the City and shall be delivered to the City
before the end of performance under this Agreement. Computer
software remains the property of Consultant.
7. Assignment Prohibited. No party to this Agreement may
assign any right or obligation pursuant to this Agreement. Any
attempted or purported assignment of any right or obligation
pursuant to this Agreement shall be void and of no effect.
8. Changes. The City may, from time to time, request change
in the Scope of Services of the Agreement to be performed
hereunder. Such changes, including any increase or decrease in the
amount of Consultant's compensation, which are mutually agreed upon
by and between the City and the Consultant, shall be incorporated
in written amendments to this Agreement.
4. Termination. This Agreement may be terminated by either
party on thirty (30) days written notice to the other. The
effective date of cancellation being the 30th day of said written
notice. Consultant shall be entitled to the compensation earned by
it prior to the date of termination, computed pro rata up to and
including the date of termination.
10. Attorney's Fees. In the event that it becomes necessary
for either party to this Agreement to bring a legal suit to enforce
any of the provisions of this Agreement, the parties agree that a
court of competent jurisdiction may determine and fix reasonable
attorney fees to be paid the successful litigant.
[.9
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i`X
F-7
INCOME PROPERTY
The City owns and manages an extensive and valuable assortment of property
including streets, parks, beaches, public buildings and service facilities. The
City also owns and operates a yacht basin, a mobile home park, a luxury
residential development and various other income properties. Most of the
income property is tidelands, filled tidelands or waterfront Unencumbered fee
value of income property is estimated at upwards of one hundred million
dollars, and income typically contributes ten percent of all City revenues.
As owner of property, the City is the steward of a public trust, and state law
requires the City to maximize its returns or be subject to a charge of making a
gift of public funds. Nevertheless, the City Council recognizes the importance of
this property not only as a revenue generator, but also as a means to provide
otherwise unfeasible uses and facilities to benefit the community.
In managing its property, the City will continually evaluate the potential of all
City owned property to produce revenue. This may include leasing unused
land, renting vacant space, establishing concessions in recreation areas or other
similar techniques. The City Council will evaluate the appropriateness of
establishing new income properties using sound business principals and after
receiving input from neighbors and users.
The policy of the City Council is that income property be managed in accordance
with the following:
L Whenever a lease, management contract, concession, sale or similar action
regarding income property is considered by the City, an analysis shall be
conducted to determine the maximum or open market value of the
property. This analysis shall be conducted using appraisals or other
techniques to determine the highest and best use of the property and the
highest value of the property.
2 All negotiations regarding the lease, management contracts concession,
sale or similar action regarding income property shall include review of
an appraisal or analysis of the use being considered for the property
conducted by a reputable and independent professional appraiser, real
estate consultant or business consultant.
8. The City shall seek, whenever practical and financially advantageous, to
operate or manage all property and facilities directly with City staff or
contractors.
0 F-7
4. In all negotiations regarding the lease, management contract; concession,
sale or similar action regarding a non-residential income property, the
City shall seek revenue equivalent to the open market value of the highest
and best use, and, whenever possible the City shall conduct an open bid
or proposal process to insure the highest financial return.
S. Whenever less than the open market or appraised value is received or
when an open bid process is not conducted, the City shall make specific
findings setting forth the reasons thereof.
Such findings may include but need not be limited to the following.
(a) The City is prevented by tideland grants, Coastal Commission
guidelines or other restrictions from selling the property or
converting it to another use.
(b) Redevelopment of the property would require excessive time,
resources and costs which would outweigh other financial benefits.
(c) Converting the property to another use or changing the manager,
concessionaire or lessee of the property would result in excessive
vacancy, relocation or severance costs which would outweigh other
financial benefits.
(d) Converting residential property to another use or opening
residential leases to competitive bid would create recompensable
liabilities and other inequities for long-term residents.
(e) The property provides an essential or unique service to the
community that might not otherwise be provided were full market
value of the property be required.
(f) The property serves to promote other goals of the City such as
affordable housing, preservation of open space or marine related
services.
6. Generally, lengths of leases, management contracts, concessions or similar
agreements will be limited to the minimum necessary to meet market
standards and will contain appropriate reappraisal and inflation
protection provisions. Also, all agreements shall contain provisions to
0 assure complete audits periodically through their terms.
aw
F-7
7. All negotiations regarding the lease, management contract, concession,
sale or similar action regarding income property shall be conducted by
the City Manager or his designee under the direction of the City Council
Ad Hoc Income Property Committee or other appropriate committees
prior to consideration by the City Council.
Adopted - July 27,1442
Amended -January 24,1994
Formerly F-24
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KeyserMarstonAssociatesInc.
KEYSER MARSTON ASSOCIATES INC.
500 SOUTH GRAND AVENUE, SUITE 1480
LOS ANGELES, CALIFORNIA 90071
213/622-8095 FAx 213/622-5204
May 10, 1994
Mr. Kevin Murphy
City Manager
City of Newport Beach
3300 Newport Boulevard
Newport Beach, California 92659
Dear Mr. Murphy:
ADVISORS IN:
REAL ESTATE
REDEVELOP
ECONOMIC D ENT
FLscAL PoucY
Los ANGELES
RICHARD L. Bom
CALVIN E. HOLDS, 0
KATHLEEN H. HEAD
SAN DIEGO
GERALD M. TRRABLE
ROBERT 1. Womon
SAN FRmasco
A. JERRY KEYSER
TIMOTHY C. KELLY
KATE EARLE FUNK
DENISE E. CONLEY
Pursuant to your request, KMA is pleased to submit this summary of
our experience in the area of ground lease negotiations. Since
1972, IM has provided real estate advisory services, with a
particular emphasis on public/private real estate transactions.
Over that twenty-two year period, we have had the opportunity to be •
the principal real estate advisors on many of the largest and most
complex public/private real estate ventures developed in
California, including Yerba Buena Gardens in San Francisco,
California Plaza in downtown Los Angeles, and Horton Plaza in San
Diego. Additional assignments included representing the City of
Commerce in the Citadel mixed-use project, the City of Glendale in
the Glendale Galleria expansion as well as a number of assignments
for the cities of Anaheim, Santa Ana, Costa Mesa and Huntington
Beach. Our work in marinas include work for the County of Los
Angeles at Marina Del Rey. Our hotel experience includes the Hyatt
in Garden Grove, the Hilton hotels in Huntington Beach and Burbank,
the Red Lion in Glendale and the Wyndham hotel in Commerce. The
enclosed provides additional information on our firm's experience.
If selected to assist the City of Newport Beach in the Balboa Bay
Club negotiations, we will assign two senior principals from our
Los Angeles office. Assisting me will be Richard Botti, a co-
manager of the Los Angeles office. Mr. Botti has extensive real
estate advisory experience and is currently working on assignments
in Anaheim, Garden Grove, and Brea. His recent private sector
experience includes representing such clients as Aetna Realty
Advisors, The Yarmouth Group, and Texaco.
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Mr. Kevin Murphy
May 14, 1994
Page 2
We hope the enclosed information meets the City's requirements.
Should you require additional information, please do not hesitate
to call.
Sincerely,
K�E�YS�ERR MARSTON ASSOCIATES, INC.
Calvin E. Hollis
CEN. -Ip
EnCA'Swes
94341.KNA
99900.900
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K£ YS ER M A R570Pt ASSOCIATES i NGS
OVERVIEW OF EXPERIENCE
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KE Y S ER M ARSTON ASSOCIATES [ NC.
KEYSER MARSTON ASSOCIATES, INC.
0 OVERVIEW
KMA provides consulting services to a wide variety of private and
public clients. These services encompass market analyses and
highest and best use studies, strategic planning, developer
solicitation, proposal evaluation and negotiations, transaction
documentation, monitoring of participation agreements, including
participating ground leases.
Uniquely, KMA combines its real estate advisory services with a
range of financial services including the projection of public
revenues, and fiscal impact analyses, and economic analyses of
alternative land use options. Additionally, the firm has extensive
experience in the use of public financing as part of the
development process.
To assist in providing these services, KMA has developed
proprietary software for development pro forma analysis, retail
market share analysis, fiscal impact, as well as cash flow models
designed to test the financing ramifications of alternative
redevelopment scenarios. These models are constantly being
upgraded and improved and are often modified to meet the individual
needs of our clients.
The following provides a representative listing of recent Los
Angeles office assignments, which demonstrate our range of
experience:
I. Market Demand Analyses
II. Financial Analyses
III. Developer Solicitation and Evaluation
IV. Fiscal Impact Analyses
V. Ground Lease Negotiations
VI. Computer Capabilities
VII. References
n
KEYSER M A RSTON ASSOCIATES I NC, X11
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I.
A.
MARKET DEMAND ANALYSES
The foundation for all of KMA's real estate advisory services
is an understanding of market demand dynamics. The ability to
internally perform market analyses allows RMA to be confident
that its other real estate services are based on sound market
realities.
RETAIL
JMB Urban
Rocklin
KMA prepared an analysis of the market demand for a major
regional shopping center in Rocklin. Analysis included an
extensive examination of the competition, and population
projections for this high growth area. KMA used the market
assessment as one tool in assisting the developer with
negotiations to obtain development entitlements and public
financial assistance.
May Centers Development
inland Empire
KMA assessed the near-term market opportunities for a regional
shopping center to be located in the Inland Empire. KMA also
identified the trade area for the proposed center, which
encompasses portions of four counties; prepared population
projections for this rapidly growing area and; developed a
retail allocation model to estimate the share of comparison
expenditures potential that a regional mall at the site could
be expected to capture.
City of Long Beach
KMA assessed the near-term opportunities associated with
rehabilitating and repositioning an existing regional retail
center for "value oriented" retailing. The market analysis
tested the depth of demand for the regional mall expansion as
compared to the market opportunities associated with
developing a large scale promotional retail center. The
market demand was quantified using a retail allocation
computer model developed by KMA, which was used to test the
varying impacts associated with expanding the existing center
with anchor Tenants that traditionally serve different market
segments.
City of Alhambra
As part of the specific planning process, KMA projected market
demand for neighborhood and regional serving retail
development along a three mile stretch of a commercial
arterial. During the implementation phase of the process, KMA
identified the density levels required to allow development to
occur on a financially feasible basis. KMA also listed the
market demand for expansion of retailing in downtown Alhambra.
KE yS ER M A RSTO N ASSOCIATES I NC.
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B. RESIDENTIAL
Nikko Capital Company
KMA assessed the market opportunities for the development of
a city block in downtown San Mateo, which was assembled by
Nikko capital Company. Based on an analysis of demographic
and competitive characteristics, KMA recommended the
development of high-rise luxury condominiums. RMA is
continuing to work with the developer throughout the projectfs
predevelopment stages including continuing market research on
specific floor plans and project amenities.
city of Palmdale
MMA performed a financial analysis of the supportable
infrastructure payments that can be made by the developer of
a 2,000 -acre residential subdivision. These payments were to
be earmarked for the provision of public open space, community
facilities and regional serving infrastructure improvements.
The analysis included an assessment of the market demand for
apartment, townhouse, condominium, moderate priced single
family homes, and luxury estate homes.
city of Escondido
KMA performed a market and financial analysis for a major
residential subdivision in Escondido. The analysis included
estimating monthly absorption rates, anticipated sales prices,
sales price premiums and the underlying land values at varying
density levels.
C. OFFICE
City of Santa Ana
KMA identified the office market conditions currently
exhibited within the City of Santa Ana for use in the
evaluation of the density level that optimizes land values.
This analysis was used to quantify the benefits associated
with providing density bonuses in return for developers
assuming responsibility for public serving amenities and/or
regional infrastructure improvements.
Lockheed Aircraft Corporation
Burbank
KMA evaluated the conversion possibilities for properties
owned by Lockheed around the Burbank Airport. The analyses
performed included an analysis of market demand for a campus -
like office park at the airport.
D. HOTEL
San Diego
KMA prepared a market assessment of hotel, retail, restaurant
and conference center uses for the owner of a parcel in San
K£YSER MARSTON ASSOCIATES INC. LSI
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Diego's Mission Bay Park. MMA then prepared a financial
feasibility analysis for hotel/conference center development,
which was the use that generated the highest land value. KMA
assisted the property owner in negotiating with the various
government bodies to secure the necessary approvals to change
the existing land use designation.
City of Irvine
As a part of the specific planning process, KMA projected the
near- to mid-term demand for hotel development within the
Irvine Business Complex. The hotel projections were based on
an analysis of historical hotel development trends, current
performance of existing hotels, in conjunction with projected
employment and population growth. The projections were
performed primarily to evaluate the demand for business
quality hotel development.
City of Indian Wells
KMA prepared market demand projections for hotel and
residential development for use in developing alternative
build -out scenarios. Using the build -out level of development
allowed by the General Plan, MMA prepared public revenue/cost
projections under the alternative development schedules.
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KE YS ER M A RSTON ASSOCIATES INC.,�Al
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IS. FINANCIAL ANALYSES
RMA has substantial experience in conducting pro forma
financial analyses for its public and private sector clients
in a wide range of land use types.
A. RETAIL/MIXED USE
BCTC - Monterey Park
KMA performed a financial assessment of mixed-use retail,
cinema, and office project for the owner of the property.
KMA's analyses was the basis for negotiations with major
anchor tenants as well as the City of Monterey Park.
City of Burbank - Media Center
KMA performed detailed financial analyses of this complex
joint -venture development of over 1 million square feet. KMA
valued the City's participation in projected project profits
and assisted in the negotiations.
City of Commerce - Citadel
The site for the Citadel, was obtained by the City of Commerce
and formerly was the location of the Uniroyal Tire Plant. KMA
analyzed the ground lease proposal from the Trammel Crow
Company and assisted the City in negotiating ground lease
terms for this retail, office, and hotel project.
The Redevelopment Agency of the City of Long Beach
KMA is currently advising the Agency on a variety of projects
including a 3,700 seat cinema/retail/residential complex,
analysis of various hotel expansion alternatives and a program
for the revitalization of Pine Avenue.
City of Brea
KMA is currently assisting the Redevelopment Agency in
structuring a 5 -phase transaction for downtown Brea, involving
two retail components and for -sale and rental housing.
B. RESIDENTIAL
City of Huntington Beach
KMA assisted the Redevelopment Agency in the negotiations for
the disposition of a parcel owned by the City of Huntington
Beach, which was to be developed with a mix of townhouse and
condominium flat units. KMA determined the fair reuse value
for the property, and assisted the Agency in structuring a
transaction that provided an upfront land payment and a
participation share in the project's future income. XMA
assisted the Agency in monitoring the participation agreement
over time.
KE YS ER MA RSTO N ASSOCIATES 1 NC.
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City of Huntington Beach
KMA prepared a policy paper recommending basic standards that
should be established for SRO development, for the use of a
steering committee that was developing an SRO ordinance.
Subsequently, KMA prepared a financial feasibility analysis of
an SRO project proposed to serve very low, low and moderate
income households.
City of Long Beach
MMA performed a financial analysis of a proposed residential
adaptive reuse of a historically significant building in
downtown Long Beach, including the cost premiums associated
with the historic preservation. The analysis was undertaken
to determine the impact of recently adopted development fees
upon the project's feasibility.
City of Glendale
KMA performed an economic analysis of a proposed senior
citizen apartment project for which 100% of the units would be
restricted to very low income households. KMA formulated a
financing strategy that included the use of low income tax
credits, ongoing rental assistance payments and a
participating ground lease.
C. OFFICE
City of Long Beach
XMA currently advises the City of Long Beach on the financial
returns likely to result from various ground lease proposals
for property at the Long Beach Airport. The most recent
proposal analyzed was for major manufacturers of aircraft.
City of Glendale - Carnation Headquarters
As part of its long standing consulting agreement with the
City's Redevelopment Agency, XMA analyzed the financial
characteristics of this 500,000 square foot high-rise office
project in downtown Glendale, and assisted the Agency in
structuring the transaction.
City of Phoenix, Arizona
KMA was selected to assist the City of Phoenix in the analysis
of developer proposals for a multi -phase, 1 million square
foot office project to be developed on property to be acquired
and ground leased by the City. XMA was a member of the City's
three person negotiating team which simultaneously negotiated
business letters from four national developers.
City of Santa Pe springs
XMA assisted the City in developer selection and lease
negotiation for this multi -phase office and industrial park.
The project is developed under a long-term, participating
ground lease.
KE YS E R M A R.S TON ASSOCIATES 1 NC.
FRVIEFTF�
City of Huntington Beach
RMA assisted the Redevelopment Agency in the disposition
negotiations for a 46 acre site owned by the City of
Huntington Beach, that was to be developed with four first
quality hotels, 654 residential units, specialty retail stores
and athletic club facilities. RMP. determined the fair reuse
value of the property, and prepared public revenues
projections to assist in determining the public benefits
associated with the project.
City of Palm springs
RMA prepared financial analyses of three hotels proposed to be
located in downtown Palm Springs. These assignments ranged
from an analysis of the financial feasibility of developing a
first class resort hotel in conjunction with the rehabilita-
tion of an existing golf course; an assessment of a moderate
priced hotel to be developed as a part of a hotel/golf/tennis/
retail/residential mixed-use project; and an evaluation of the
supportable rehabilitation costs for an existing hotel/spa
complex.
City of Glendale - Red Lion
KMA participated in the developer selection process Por a
business quality hotel/meeting facility to be located in
downtown Glendale. KMA assisted the Redevelopment Agency in
negotiating the land sale terms and parking structure
agreement with the selected developer. This Red Lion Hotel
recently opened.
City of Santa Monica
KMA assisted the City in the selection of a developer and in
developer negotiations for a major waterfront hotel site in
the City of Santa Monica. The analysis included an assessment
of the hotel market, financial modelling, and assistance to
legal counsel in structuring the land lease.
KEYS E R M A RS TO N ASSOCIATES INC. y
111. DEVELOPER SOLICITATION AND EVALUATXON
RMA's extensive experience in over 100 communities and with
literally hundreds of development proposals allows the firm to
advise its clients in the crafting and distribution of
development solicitations. RMA has personal contacts
throughout the development community, having worked on
projects involving the major development companies active in
California and the west.
city of Phoenix, Arizona
The Los Angeles office of KMA assisted the city of Phoenix in
the selection of a developer for 1 million square feet of
office space on property to be ground leased from the City of
Phoenix. The City undertook simultaneous negotiations with
four national developers and concluded with business offers
from each. The list was reduced to three in February, and
additional negotiations resulted in enhanced business offers.
The Redevelopment Agency of the City of Long Beach
KMA initially reviewed the market demand for retail uses and
is currently advising the Agency in the selection of a
developer for a promotional retail center along the 605
Freeway.
The Redevelopment Agency of the City of Glendale
104A assisted the Agency in drafting an RFQ/P for a 300 room
hotel in downtown Glendale. KMA evaluated the proposals,
advised in the selection of a final developer and assisted in
the negotiation of a unique development agreement providing
for long-term Agency cash flow participation. The 300 room
Red Lion Hotel was opened in November.
The Redevelopment Agency of the City of Brea
KMA evaluated proposals to redevelop a 50 acre parcel of land
in Brea that is to become the "new" downtown. The assignment
included assisting in establishing program criteria, issuance
of an RFQ, review of responses and developer negotiations.
The Redevelopment Agency of Temple City
XMA assisted the Agency in soliciting and evaluating proposals
to develop a 12 -acre promc`.icnal retail center. Subsequently,
KMA advised the Agency in the negotiation of a development
agreement which includes a participation in the project cash
flow and sales profits. This project is complete.
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KE YS ER M A RSTON ASSOCIATES INC
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FISCAL IMPACT ANALYSES
SMA prepares fiscal impact and fee nexus analyses for public
and private sector clients throughout California.
MICOR ventures, Inc.
KMA analyzed the fiscal impacts associated with the annexation
of 990.7 acres to the City of Calabasas to be subsequently
developed with 250 single family homes. The fiscal analysis
included one-time revenues including exactions and real estate
transfer tax revenues; ongoing costs to City departments such
as fire, police, public works, parks and recreation, and
administration; and ongoing revenues including property tax,
real estate transfer tax, sales tax, utility user tax,
franchise tax, and other taxes to arrive at a net fiscal
impact on the City.
Dominion Project
KMA compared the fiscal impacts to the City of Culver City
associated with the proposed development of 180 condominiums
versus a 400, 000 square foot office/R&D project on a 11.6 acre
site in the Slauson-Sepulveda Redevelopment Project Area. The
revenues projected to accrue to the City included: property
taxes; sale taxes; utility user taxes; various licenses/fees;
and other municipal revenues. In cooperation with City
department heads, KMA also determined estimated increased
municipal costs associated with each development alternative.
Major costs analyzed includes fire, police, transportation,
and parks and recreation.
City of Long Beach
KMA estimated the Redevelopment Agency costs and revenues
associated with implementing a major retail/entertainment
center and residential mixed-use project in downtown Long
Beach. The public costs included land assemblage, the
construction of public improvements and infrastructure. The
Agency revenues included ground lease proceeds, participation
payments, parking revenues, and property tax increment
revenues.
City of Long Beach
KMA estimated the City and Redevelopment Agency costs/revenues
associated with the development of 250 condominium units,
15,000 square feet of retail space and a 600 parking space
garage. The analysis included projections of both one time
and ongoing City and Agency costs and revenues.
Ev
KEYSER MARSTON ASSOCIATES INC.
7)
V. GROMM LEASE NEGOTIATIONS
KMA has substantial experience in assisting public sector
landlords in ground lease negotiations. This experience
allows KMA to provide consulting services which recognize the
unique perspective of a public sector owner of real estate.
City of Commerce
The Citadel
RMA represented the City of Commerce as the ground -lessor for
a hotel, office and retail mixed-use project located on the
historically significant Uniroyal Tire property. KMA analyzed
the ground lease proposal from the Trammel Crow Company and
assisted the City in negotiating ground lease terms for this
factory outlet retail center, office and hotel project.
City of Long Beach
Long Beach Airport
KMA advised the City of Long Beach on the financial returns
likely to result from various ground lease proposals for
property at the Long Beach Airport. The most recent proposal
analyzed was for a 500,000 square foot corporate office
facility.
City of Phoenix, Arizona
City Center
KMA was selected to assist the City of Phoenix in the analysis
of developer proposals for a multi -phase, one million square
foot office project to be developed on property to be acquired
and ground leased by the City. KMA was a member of the City's
three person negotiating team which simultaneously negotiated
business letters from four national developers.
City of Santa re springs
Heritage Industrial Park
KMA assisted the City in developer selection and lease
negotiating for this multi -phase office and industrial park.
The project was developed under a long-term, participating
ground lease.
City of Santa Monica
KMA assisted the City in the selection of a developer and in
developer negotiations for a major waterfront hotel site in
the City of Santa Monica. The analysis included an assessment
of the hotel market, financial modelling, and assistance to
legal counsel in structuring the land lease.
Redevelopment Agency of Long Beach
Mixed-use Project
KMA estimated the Redevelopment Agency costs and revenues
associated with implementing a major residential/commercial
mixed-use project in downtown Long Beach. The public costs
include land assemblage, the construction of public
improvements and infrastructure. The Agency revenues include
ground lease proceeds, participation payments, parking
revenues, and property tax increment revenues.
KEYSE R M ARSTON ASSOCIATES INC. QOM'
YI. COMPUTER CAPABILITIES
RMA has extensive experience in the design, development and
application of computer spreadsheet and database models in
real estate, financial ad market analyses. These models and
programs typically serve as a technical tool for a variety of
analytical purposes; some examples and their applications are
described below.
Pro Forma Model
As a basic tool in performing financial analyses, this model
provides an estimate of development costs and operating
income/ expenses over a selected period, typically ten years.
The results are used typically to project potential
investor/ developer returns (i.e., return on investments,
internal rate of return, etc.), identify gap financing, and
evaluate overall project financial feasibility. The pro forma
model is also used frequently for sensitivity testing, (i.e.,
to determine the impacts of input variable changes on project
results). Another application of this model is in evaluating
alternative deal structures for the purpose of negotiating
development agreements, ground leases, or other business
transactions.
Sources and Uses of Funds
This model is a variation of the pro forma model described
. previously. It basically serves the same purpose as the pro
forma model, but the analysis is presented in a cash inflow
and outflow format. Thus, this model facilitates the amount
and timing of required funds or equity/project assistance
injections for the project.
Cost/Benefit Model
Used primarily in performing cost/benefit analysis for public
entities, this model estimates potential public revenues to be
generated by a proposed development and examines the
associated potential public costs.
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Redevelopment Project Implementation Model
This sophisticated cash flow model allows the user to
determine the Gash flow implications to the Agency of
implementing up to -LS different developments. The program
begins with a portrayal of existing obligations and funding
sources and allows the addition of new developments' costs and
revenues, future bond issues, etc.
Trend Projection
This model is used for projecting future demographic and
economic growth trends in a market area. This information is
then extrapolated and used as the basis for projections of
future market conditions and to estimate future demand.
KEYSE R M ARSTON A SSOCI ATES I NC..,;a
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Market Evaluation
This model is used to estimate the retail expenditures
potential of market area residents, office workers, visitors,
and other market support segments for a specific retail use.
It is particularly helpful in projecting and testing the
respective capture shares required by a proposed use from the
applicable market support segments.
Retail Allocation Model
This model is applied in retail trade area analyses to
identify the primary and secondary trade areas that could be
served by a proposed retail use. Based on an evaluation of
the relative strength of the competing retail facilities in
the vicinity of the subject site and the pertinent locational
factors, the model allocates the retail potential to various
facilities serving the trade area, including the subject site.
Land Use Database
This model primarily sets up a computerized database which
enables city staff to record and update land use inventory and
retail sales information within a specified area and to
monitor changes over time. This database system increases in-
house staff capabilities and facilitates the development and
evaluation of public strategies.
KEYSER MARSTON ASSOCIATES I N C. b
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VIZ. REFERENCES
The following individuals can describe the range of services
that Keyser Marston Associates can provide:
Anaheim Redevelopment Agency
Mr. Richard Bruckner
Redevelopment Services Manager
Ms. Elisa Stipkovich
Community Development Director
210 South Anaheim Blvd., 10th Flr.
Anaheim, CA 92805
(714) 254-4300
Brea Redevelopment Agency
Ms. Susan Georgino
Redevelopment Services Director
Number One Civic Center Circle
Brea, CA 92621
(714) 671-4421
Commerce Redevelopment Agency
Mr. Justin McCarthy
Deputy Executive Director
Mr. Lou Sheppard
City Administrator
2535 Commerce Way
Commerce, CA 90040
(213) 722-4805
Glendale Redevelopment Agency
Ms. Jeanne Armstrong
Director of Redevelopment
633 East Broadway, Room 201
Glendale, CA 91205
(818) 548-2005
Huntington Beach Redevelopment Agency
Ms. Barbara Kaiser
Deputy City Administrator/Economic Development
2000 Main Street
Huntington Beach, CA 92648
(714) 536-5582
Long Beach Redevelopment Agency
Ms. Susan Shick, Director of Community Development
Mr. Fred Solomon, Redevelopment Bureau Manager
333 West Ocean Blvd., Third Floor
Long Beach, CA 90802
(310) 590-6570
K E YS E R MARS TON ASSOCIATES I NC.�
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Santa Ana Redevelopment Agency
Ms. Cynthia Nelson
Executive Director
20 Civic Center Plaza, 6th Flr.
Santa Ana, CA 92701
(714) 647-5360
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KE YS E R M A RSTON ASSOCIATES INC.
CALVIN E. HOLLIS II
Senior Principal •
Mr. Hollis has advised public and private participants in a wide
variety of real estate projects since 1973. with extensive
experience in joint public/private transactions, he has played a
major role in the structuring of development agreements for major
retail, office, and residential projects. Mr. Hollis joined KMA in
1982 and is the co -manager of the Los Angeles office.
Mr. Hollis is vice chair of the Urban Land Institute's (ULI)
National Policy Council and member of the Institute's Membership
Committee, and the California Community Redevelopment Agencies
Associates (CRA) where he serves on the CRA Technical Advisory
Committee. Mr. Hollis has conducted seminars and addressed
conferences sponsored by the ULI, CRA, National League of Cities,
California Department of Commerce, and similar organizations on the
topic of Developer Solicitations.
Mr. Hollis is a graduate of California State University, Los
Angeles in Economics.
Selected Project Experience
Real Estate Advisory Services
Central California Regional Medical Center (Fresno) •
Currently advising the CCFMC in entitlement negotiations with the
City of Fresno for this $150 million regional medical center to be
developed in cooperation with the University of California, San
Francisco.
City of Phoenix
Advised the City in developer solicitation, selection and ground
lease negotiation for multi -phase 1 million square foot office
project.
City of Long Beach
Advised redevelopment agency in developer solicitation and
selection for 84 acre promotional retail center.
All Saints Episcopal Church (Pasadena)
Assisted this 3,000 member downtown Church in the exchange of
easement rights for long-term parking within a major mixed-use
project.
•
KEYSER M ARSTON ASSOCIATES INC.
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City of commerce
Represented the City as lessor for a hotel, office and retail
mixed-use project.
City of Montebello
Represented the City in development agreement negotiations for a 30
acre retail project.
Lance-Kashian and Company (Fresno)
Advising this private development company in the financial
feasibility, entitlement, and infrastructure financing in this
1,000 acre business park.
City of Alhambra
Assisted the City in its negotiations to reestablish its auto
dealership "auto row". Six dealerships were relocated and/or
expanded.
City of West Sacramento
• Has analyzed the development economics of the Riverpoint and
Lighthouse Marina projects.
Advised this national development company in seeking public
approvals and infrastructure financing for 1 million square foot
regional shopping center.
Public Finance
Fiscal Consultant services - Mr. Hollis manages all the firms
fiscal consulting services. Recent assignments have included
financing for the Long Beach Redevelopment Agency, Santa Clara
Redevelopment Agency, Brea Redevelopment Agency, Pomona
Redevelopment Agency and the Santa Monica Redevelopment Agency,
totalling over $300 million in tax allocation financing.
Public/Private Financing - Mr. Hollis advised the Pasadena
Community Redevelopment Agency in the structuring of a complex
multi -family financing including use of tax increment, mortgage
revenue bonds, Mello Roos bonds, and City Credit Enhancement.
KEYSER MARSTON ASSOCIATES
RICHARD L. BOTTI
Senior Principal
Mr. Botti has extensive experience in financial feasibility
analysis and disposition consulting. He has worked in the field of
real estate economic consulting since 1966, and has been affiliated
with KRA since 1975.
Mr. Botti is a graduate of the University of Michigan, Ann Arbor
and holds masters degrees in City and Regional Planning, University
of Michigan, and Business Administration, University of California,
Berkeley.
SELECTED PROJECT EXPERIENCE
Long Beach Redevelopment Agency
Mr. Botti is the principal real estate advisor to the Long Beach
Redevelopment Agency on projects ranging from the multi -use
theater/housing project opening this month to industrial properties
on the west side. Mr. Botti was instrumental in the adoption of
the planning/tenant guidelines for the revitalization of Pine
Avenue.
City of Glendale/Glendale Redevelopment Agency •
An advisor to the City since 1980, services have included market
analysis, developer selection, and negotiation for a series of
office, hotel, restaurant and entertainment development throughout
downtown Glendale. Mr. Botti has also been instrumental in the
adoption of the planning guidelines for downtown Glendale as well
as the identification of a city-wide retail strategy that is
currently being implemented.
Ontario Redevelopment Agency
Currently advising the City in the negotiation of a major retail
project to be anchored by high volume retailers and manufacturers'
outlet stores.
Burbank Redevelopment Agency
Principal real estate advisor to the City in the negotiations of
the 50 acre mixed-use Town Center including office, regional
shopping center and hotel uses. Project includes the first west
coast IKEA store.
•
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KEYS E R M A RSTON ASSOCIATES INC.
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Brea Redevelopment Agency
Currently advising the Agency on a variety of projects including
completing negotiation on a 40 acre downtown multi -use project
comprised of 200,000 square feet of neighborhood retailing, a
specialty retail and theater component, and 500 units of rental and
ownership housing.
Nikko Capital
Currently advising the Japanese investment Company in entitlement
negotiation for a retail and residential project in downtown San
Mateo.
Yarmouth Group
Analysis of market opportunities and resulting sales increases
resulting from the proposed expansion of a major regional shopping
center in San Diego County. Analysis included sensitivity of sales
to varying levels of rehabilitation/ expansion. The analysis was
utilized by the owner to determine the level of additional
investment.
BCTC
Currently providing financial analyses and entitlement negotiation
services to this offshore -owned real estate development company.
The project includes a 280,000 square foot retail and entertainment
complex.
Aetna Realty Investors
Currently advising the client in the highest and best use of a 125 -
acre holding in Arizona. Land uses analyzed included regional
shopping center, promotional shopping center, office, hotel, and
residential.
�Z
KEYSE R MI ARSTON ASSOCIATES INC.
US
KATHLEEN H. HEAD
Principal
Ms. Head, since joining IM in 1983, has performed market and
financial analyses to assess the feasibility of a wide variety of
proposed real estate developments. In that role, she has assisted
clients in the negotiations of land disposition terms, including
participation agreements and public assistance mechanisms. Ms.
Head has also participated in the strategic planning process;
identifying the opportunities for near- to mid-term development,
and recommending implementation strategies.
Ms. Head is a graduate of the University of California, Los Angeles
and holds masters degrees in Business Administration and Urban
Planning from the University of California, Los Angeles.
Selected Project Experience
The Waterfront, Huntington Beach
Determined the reuse value of a 46 -acre parcel owned by the City of
Huntington Beach. Assisted the Agency in the negotiations related
to the disposition of the site for the subsequent development of
four first -quality hotels, 875 residential units, specialty retail
and athletic club facilities.
The Quad, Whittier
Determined the fair reuse value for the Quad regional shopping
center, which was redeveloped as a promotional center, including
over 504,400 square feet of retail space. Participated in the land
disposition negotiations and devised the Agency participation
structure.
City Center, Phoenix
Performed market evaluation for Class A office space in downtown
Phoenix. Assisted in drafting RFP for 1 million square foot civic
center development and 1 million
Analyzed financial implications
short-listed developers.
square foot private development.
of deal structures offered by
Antelope valley Regional Shopping Center, Palmdale
Market demand assessment for 650,000 square foot regional mall
anchored by three department stores. Prepared sales tax
projections to be used for infrastructure bond financing.
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KEYS ER M A RSTON ASSOCIATES INC,
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IBC Rezoning, Irvine
Performed market opportunities/ constraints analysis, fiscal impact
analysis, housing needs assessment and financial implementation
plan for the Irvine Business Complex Specific Plan.
Highway 111 corridor, Rancho Mirage
Assisted the Redevelopment Agency in establishing goals and
objectives for future development. Prepared market assessment to
identify opportunities for resort hotel, specialty retail,
neighborhood retail and office development. Evaluated fiscal
impacts of proposed development. Recommended an implementation
strategy to attract desired development.
Heritage Park, Santa Fe Springs
Assisted Agency in the ground lease negotiations for a 40 -acre
business park/industrial project. Projected City ground lease and
participation revenues over the lease period.
Headquarters Relocation, South coast Air Quality Management
District
Recommended expansion strategy for the SCAQMD headquarters
facility. Analyzed the cost consideration of expansion on-site
versus relocation, identified potential relocation sites and
assessed the impacts of the current employment base.
Sports Arena, Santa Ana
Projected City costs and revenues associated with developing 20,000
seat arena. Quantified the cost differential associated with the
selection of different sites within the City. Participated in land
disposition negotiations with developer/operator. Developed City
participation formula.
'J�\
KEYS ER M ARSTO N ASSOCIATES INC
41
PUBLIC CLIENT LIST
C
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5
KE YS ER M A RSTON ASSOCIATES t NC.�Iy1(/h
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KEYS ER MA RSTO N ASSOCIATES INC."b
0
Redevelopment Agencies
Long Beach
Santa Clara
Los Angeles
Santa Cruz
Alhambra
Lynwood
Santa Fe Springs
Anaheim
Marin City
Signal Hill
Arcadia
Merced
South Gate
Bakersfield
Millbrae
South Lake Tahoe
Banning
Milpitas
South San Francisco
Belmont
Modesto
Stockton
Brea
Monrovia
Thousand Oaks
Burbank
Monterey
Torrance
Campbell
Morgan Hill
Upland
Capitola
Mountain View
Vallejo
Carlsbad
Napa
Victorville
Cathedral City
Oakland
Vista
Chula Vista
Oceanside
Watsonville
Claremont
Orange
West Covina
Commerce
Oxnard
West Sacramento
Concord
Palm Springs
Westminster
Costa Mesa
Palmdale
Yuba City
Cotati
Pasadena
Covina
Culver City
Pinole
Pleasant Hill
Cities
Daly City
Pomona
Antioch
Davis
Portland, OR
Azusa
East Palo Alto
Provo, UT '
Bakersfield
El Cerrito
Rancho Mirage
Belmont
Emeryville
Redlands
Benicia
Escondido
Redwood City
Beverly Hills
Fairfield
Rialto
Boise, ID
Fontana
Richmond
Brisbane
Fremont
Riverside
Carpenteria
Fresno
Roseville
Chula Vista
Garden Grove
Sacramento
Cupertino
Glendale
Salinas
Dariville
Glendora
San Bernardino
Davis
Half Moon Bay
San Clemente
EI Paso de Robles
Hawthorne
San Diego
Eugene, OR
Hayward
San Francisco
Escondido
Hercules
San Juan Capistrano
Eureka
Hollister
San Jose
Fairfield
Huntington Beach
San Leandro
Foster City
Indian Wells
San Pablo
Fremont
La Mesa
La Mirada
San Rafael
San Ramon
Fresno
Huntington Beach
Livermore
Santa Ana
Irvine
KEYS ER MA RSTO N ASSOCIATES INC."b
0
KEYS ER M A RSTON ASSOCIATES I NCX\ I
0
0
Laguna Beach
Tualatin, OR
Port of Redwood City
La Mesa
Tustin
Port of San Francisco
Livermore
Vista
Port of Seattle, WA
Long Beach
Walnut Creek
Richmond Unified School
Los Angeles
Whittier
District
Mammoth Lakes
Sacramento Office of
Menlo Park
Other Governmental
Parks & Recreation
Mill Valley
Agencies
San Diego County
Milpitas
San Diego Metropolitan
Modesto
Alameda County
Transit Development
Mountain View
Arcadia Unified School
Board
Moreno Valley
District
San Diego Housing
Novato
BART
Commission
Oakland
Caltrans
San Diego State
Oakdale
California Coastal
University
Orinda
Conservancy
Foundation
Pacifica
Contra Costa County
San Marcos Unified
Pasadena
GIendale Unified School
School District
Palmdale
District
San Mateo County
Rancho Mirage
Los Angeles County
Harbor District
Redondo Beach
Los Angeles Community
Santa Clara County
Redwood City
College District
Santa Cruz County
Richmond, VA
Los Angeles County
South Coast Air Quality
Salinas
Community
Management District
San Clemente
Development
Southeast Economic
San Carlos
Commission
Development
San Diego
Los Angeles County
Corporation of
San Fernando
Transportation
San Diego
San Gabriel
Commission
State of California Office
San Jose
Marin County
of Real Estate & Design
San Leandro
Metropolitan
San Marcos
Transportation
San Pablo
Commission
Sand City
North County Transit
Santa Ana
District
Santa Cruz
Oakland Unified School
Santa Monica
District
Santa Rosa
Pasadena Chamber of
Santee
Commerce
Seal Beach
Pasadena Unified School
South San Francisco
District
Sunnyvale
Placer County
Thousand Oaks
Part of Los Angeles
Tigard, OR
Port of Oakland
Torrance
Port of Portland, OR
KEYS ER M A RSTON ASSOCIATES I NCX\ I
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ATTACHMENT #3
CONSULTANTS' FINDINGS
0
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AGENDA ITEM NO.4
! CITY OF NEWPORT BEACH
OFFICE OF THE CITY MANAGER
NOVEMBER 28, 1994
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: KEVIN J. MURPHY, CITY MANAGER
SUBJECT: BALBOA BAY CLUB
PURPOSE:
To seek City Council authorization to: (1) begin lease negotiations with the
Balboa Bay Club on a new 50 year ground lease; (2) authorize staff to retain
special legal counsel to assist in the preparation of the lease; and (3) authorize
the staff to establish meetings in the community after January 1st to brief
community members on the results of the City's economic and appraisal
analysis of the proposed Balboa Bay Club lease.
FACTS:
1. The City Council on May 23, 1994 approved the retention of two
professional consultant contracts to assist the City in evaluating
the proposed lease extension requested by the Balboa Bay Club.
The scope of work for the two consultants was approved by the
Balboa Bay Club Ad Hoc Committee and work commenced upon
City Council approval. The Scope of Work was consistent with
City Council Policy F-7 which encompasses how the City
manages our Income Property portfolio.
2. City Council Policy F-7 states that whenever the City considers a
lease of income property (or an extension of an existing lease), the
City shall complete an analysis using..."appraisals or other
techniques to determine the highest and best use of the property".
In addition, the Policy requires that we use reputable and
independent appraisers, real estate or business consultants. In
the case of the Balboa Bay Club this type of independent review is
critical to guarantee that the City makes a sound policy decision
on an asset which is viewed as extremely valuable and visible in
the City's income property portfolio. The decisions we make on
this property will impact the City's income stream for many years
into the future.
-2- 0
3. In two separate meetings in Closed Session in October and
November the two consultants for the City, William Hansen and
Associates and Keyser Marston and Associates, presented their
findings and conclusions. This followed two extensive meetings
on the same matter with the Balboa Bay Club Ad Hoc Committee.
Copies of the complete appraisal are available for the City
Council's review, however, inasmuch as the City may use the
document and its conclusion of fair market rents (including
percentage rents in the various business areas) to negotiate a
new lease, it isn't available for public review or it would undercut
our negotiating position.
4. A copy of the reports submitted by Keyser Marston and Associates
for their Phase 1 and Phase 11 economic analysis is attached for
information and review. In Phase I of Keyser Marston's work they
concluded that there was a market for the product proposed by the
Bay Club in their redevelopment plan and that the economic
projections of the Bay Club were realistic and achievable in the
current and future marketplace. In Phase 11 of the work, which
reviewed various scenarios, including not extending the lease
which expires in 2011 and another scenario which considered the
City's direct management and operation of the apartment and
marina portions of the property, it was concluded that over thirty
years it was in the City's financial best interest to extend the
current lease and undertake the redevelopment project proposed
by the Balboa Bay Club.
5. The City staff is now prepared to negotiate a new lease for the
Balboa Bay Club and anticipates a good deal of dialogue and
negotiation on the terms and conditions of a lease. To assist in
this important document the City Attorney and I recommend that
we utilize a preeminent ground lease attorney in the community,
Lowell Martindale of O'Melveny and Myers, to assist in drafting the
lease and negotiating its terms. Upon approval of this direction
the staff will necotiate awn aaaromiate hourly rate and submit a
budget amendment for review and approval.
6. The City staff anticipates that the community will have a great
interest in this matter and for this reason suggests that the City
Council authorize the staff to establish two community meetings to
present the results of the appraisal and economic analysis.
Inasmuch as this is the holiday season and there may be a large
number of residents travelling at this time of the year, we would
suggest that these meetings be set for early January.
0
-3 -
RECOMMENDATION:
The City Council authorize staff to commence negotiations on a new lease for
the Balboa Bay Club, prepare and return with a budget amendment for special
legal counsel services to assist in the drafting of the agreement and
negotiations, and authorize the establishment of community meetings to provide
information to the community on the work of our two economic and appraisal
consultants.
KEYSER MARSTON ASSOCIATES I N C.
500 SOUTH GRAND AVENUE, SOME 14$0
Los ANGELES, CALIFORNIA 90071
213/622-8095 FAx 213/622-5204
ADVISORS IN:
REAL FS ATE
REDEVELOP
ECONOMIC ENT
FISCAL POLICY
Keyser Marston Associates, Inc. (KMA) has been retained to provide
an analysis and recommendations regarding the possible lease
extension on the Balboa Bay Club (BBC) property. KMA has addressed
a number of issues in the first phase of the study, including an
overview of the current executive meeting/conference facility
market, competitiveness of the Terrace Apartments in the market, a
study to determine the impact should the marina and apartments be
separated from the club/hotel leasehold, and recommendations for
non -rent economic modifications to the lease document. These later
recommendations are provided under separate cover.
The second phase of the study will be submitted within 30 days of
receipt of the City's appraiser assessment of the fair market lease
rate. Utilizing this fair market rate, KMA will examine the
economic consequences to the City based on three lease options: 1)
allowing the entire lease to ex -pi -re in 2011; 2) approving the
proposed lease extension; 3) restructuring the lease to allow for
a partial extension of the ground lease to include the club/hotel
facility only.
The BBC has submitted a redevelopment plan to upgrade the
appearance of the club, improve its hotel and conference facility
layout, and increase its capacity. A portion of the facility will
remain restricted to members only, preserving the exclusive appeal
of the club to expand the current membership base. The public
portion, including hotel rooms, meetings rooms, and restaurants,
will also be improved to capture a portion of the expanding
conference facility market. The following summarizes our review.
%y
LOS ANGELESp,,.�
RICHARD L. Illi 11
CALVIN E. HOULE, H
M E M O R A N D U M
KATHLEEN H. HEAD
SAN DIEGO
GERALD A TRIMBLE
ROBERT J. WETMORE
SAN FRANCISCO
TO:
Mr. Kevin Murphy, City Manager
A. JERRY KEYSER
of Newport Beach
Y Newport
TIMOCit
KATE EA C. KELLY
KATE EARLS FUNK
DENISE E. CONLEY
FROM:
Keyser Marston Associates, Inc.
SUBJECT:
Balboa Bay Club Lease
Phase I Study
DATE:
September 14, 1994
Keyser Marston Associates, Inc. (KMA) has been retained to provide
an analysis and recommendations regarding the possible lease
extension on the Balboa Bay Club (BBC) property. KMA has addressed
a number of issues in the first phase of the study, including an
overview of the current executive meeting/conference facility
market, competitiveness of the Terrace Apartments in the market, a
study to determine the impact should the marina and apartments be
separated from the club/hotel leasehold, and recommendations for
non -rent economic modifications to the lease document. These later
recommendations are provided under separate cover.
The second phase of the study will be submitted within 30 days of
receipt of the City's appraiser assessment of the fair market lease
rate. Utilizing this fair market rate, KMA will examine the
economic consequences to the City based on three lease options: 1)
allowing the entire lease to ex -pi -re in 2011; 2) approving the
proposed lease extension; 3) restructuring the lease to allow for
a partial extension of the ground lease to include the club/hotel
facility only.
The BBC has submitted a redevelopment plan to upgrade the
appearance of the club, improve its hotel and conference facility
layout, and increase its capacity. A portion of the facility will
remain restricted to members only, preserving the exclusive appeal
of the club to expand the current membership base. The public
portion, including hotel rooms, meetings rooms, and restaurants,
will also be improved to capture a portion of the expanding
conference facility market. The following summarizes our review.
%y
Page 2
EXECUTIVE MEETING MARKET
KMA conducted a site inspection of the existing club/hotel facility
which suggests that the BBC would benefit from a general upgrade in
appearance and meeting facilities. The proposed redevelopment plan
addresses these issues. With the upgraded look and more efficient
conference facility layout, the BBC would be more competitive with
the Orange County coastal hotel/conference facility market.
Information regarding recent trends in the national corporate
meeting market was found in the Meetings & Conventions trade
group's 1994 Meetings Market Report. Statistics for 1993 reflect
an increase in total meeting expenditures as well as higher
attendance figures. While the total number of meetings scheduled
from 1991 to 1993 remains relatively flat, the overall results
reflect a rebound in the meetings market due to a 19% jump in
corporate profits in 1993, a general recovery of the nation's
economy, and an increased emphasis on employee training. The
average corporate group size was 69 last year and 82% of corporate
meetings have fewer than 100 attendees. The conference facilities
proposed by the BBC caters to corporate groups ranging from 5 to
250 people. "Successful Meetings"' State of the Industry 1993
publication cites decisive evidence that small meetings are on the
rise and upper class facilities which provide premium service to
these groups experience the most success.
On a local basis, the Newport Beach hotel market survey, attached
as Table 1, suggests the majority of meetings in the area currently
average approximately 45-50 attendees. The more upscale
conference -oriented facilities, such as the Four Season's Hotel and
the Surf and Sand in Laguna Beach, command the highest average room
rates. With similar upgrades, the BBC could compete effectively in
the existing market, helped further by its desirable bay -front
location.
In 1993, the BBC hosted nearly 1,500 business and social functions
in its existing facilities, of which only 20% required overnight
stays. An upgraded facility, marketed effectively, could capture
additional business and draw more multiple day events to the club.
APARTMENTS
A survey of the coastal luxury apartment market shows that the
majority of the Terrace Apartment rents are within current market
standards. The 3BR Suites and Penthouse units at the Terrace are
the most expensive in the survey, ranging from $3,700 to $4,500;
however, 13 of the 15 units in this range are currently leased,
suggesting that the high prices are not prohibitive.
KE YS ER M A RSTO N A SSOC 1 ATES INC. [l i
Page 3
The general occupancy rates in the area are very good. The Terrace
has the lowest occupancy of all comparables, at 91%, which may in
part be contributed to the fact that residents must either be a
member of the BBC or pay an additional $250/month fee to live in
the units. This perception of exclusivity may deter the general
public from viewing these units, even though the member dues do not
push Terrace rents above market rates. The vacancy level is also
reflective of the overall downturn in the economy.
As shown on Table 2 attached, competitors' rental rates range from
$0.88/sf to $1.91/sf. The Terrace Apartments' rental rates
(including 3BR suites and penthouses) range from $1.27/sf -
$1.77/sf for members and $1.47/sf - $1.87/sf for non-members. (The
difference represents a mandatory club affiliation fee.) other
2BR/2BTH units with bay views, either located directly on the water
or on the bluffs above the bay, command monthly rents from $1,500
(Park Newport) to $2,400 (Newport Marina). A 2BR/2BTH unit at the
Terrace leases for between $1,900 - $2,350 for members and $2,050
to $2,500 for non-members. All properties surveyed are similar in
age, interior finishes and occupancy levels.
The Terrace Apartments offer the best marina views of any of the
comparables (with the possible exception of the Anchorage
Apartments). The competitive units located away from the water
which offer some bay views from the bluffs, such as Promontory
Point and Park Newport, make up for the distance from the water
with their "self-contained community" amenities. These amenities
are similar to those currently offered by the BBC to Terrace
residents. The proposed BBC renovation will enhance these
amenities.
The coastal luxury rental market in Newport Beach commands very
high rents largely due to the ocean and bay views available in this
area and the inability to create new units. Projects which offer
both view and non -view units are still able to command high rents
due to amenity packages and the Newport Beach economy in general.
To the extent the BBC is committed tc its current policy of
upgrading the carpet, paint and kitchen/ bathroom tile in their
units as they become available, the Terrace units are not
considered to be obsolete relative to the current market and should
be able to compete while maintaining their historic premium rents.
LEASEHOLD BIFURCATION
Based on the findings shown in the Newport Beach Apartment study
attached, it is reasonable to assume that the Terrace Apartments
could command rents at or near their current levels based on their
proximity to the water and unit size, even if they were no longer
part of the BBC. To compare, the Newport Marina Apartments, which
have similar unit characteristics but fewer amenities and no
KEYSER MARSTON ASSOCIATES I N CJL\
6
0 Page 4
private marina, rent waterfront units for $2,000 - $2,800/month.
There is the danger that the higher priced 3BR suites and
penthouses at the Terrace may be more difficult to lease without
incentives or membership packages currently provided by the BBC.
Approximately 50%-60% of the residents are long time renters (over
5 years) and are active members of the club. The remaining
residents are required to join the club after one year and begin
paying initiation fees and membership dues in addition to the rent
upon move -in. separating the apartments from the BBC leasehold
would not affect these member residents as they would still receive
the benefit of the club amenities (excluding room service, maid
service and other on-site apartment services).
However, the loss of the apartment revenues would have other
effects on the club. At the current lease level, the apartments
contribute approximately 20%-25% of the BBC's annual gross income
and an estimated 90% of net operating income based upon the 8/12/94
allocation of income and expense by William Hansen & Associates.
The stability of the apartment rental income may be required in
order to secure financing for the proposed BBC renovation. It is
likely that a lender would require at least 25 to 30 years of
future apartment income in order to approve the necessary
financing, rather than the 17 years remaining in the existing
lease.
The improvements will be integral to the future success of the club
and hotel facility as a whole. This ultimately impacts the
integrity of the lease extension and percentage rents received by
the City.
CONCLUSIONS
KMA's research suggests there is a strong and growing market for
executive conference facilities and hotels in the Newport Beach
area. The improvements proposed by the BBC address the issues of
image and layout efficiencies which should enable the BBC to
effectively compete with other facilities in the market. This,
coupled with the club's ideal location, indicate the project should
be competitive, increasing room nights and meeting room
utilization.
Removal of the marina from the leasehold extension would likely
have little effect on the BBC's operations. Club members currently
leasing slips would not lose their privileges if the City
controlled the marina. In addition, the level of revenue generated
by the marina is not great enough to have a material impact on the
BBC's operations or their ability to secure financing for the
improvements. Furthermore, future actions by the Coastal
Commission regarding improved public access to the property may
KEYSER M A RSTON ASSOCIATES INC. qlj
Page 5 0
make any perceived benefits of the marina area's exclusivity moot.
The apartments, on the other hand, contribute a substantial sum to
the BBC's operating income and the loss of this revenue through
leasehold bifurcation would likely jeopardize the BBC's ability to
secure financing for the proposed improvements. The apartments
represent a stable source of cash flow that hotel, restaurant, and
other "transient" revenues cannot provide. The future success of
the club and hotel facility is dependent upon the club's ability to
compete in the market. The proposed improvements are necessary in
order to reach that end.
94671.NP9
16091.0002
KEYS ER M A RSTON A SSOCI AT ES INC." -['
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$dQ
KEYSER MARSTON ASSOCIATES I N C. ADYISORs IN:
REAL ESTATE
REDEVELOPMENT
500 SOUTH GRAND ,SUITE 14$0 ECONOMIC DEVELOPMENT
1.05 ANGELES, CALIFORNIAFORMA 90071
213/622-$095 FAx 213/622-5204 FSCAL POLICY
Los ANGELES
RicHAxD L, Born
CALVIN E. HOLLIS, II
KATHLEEN H, HEAD
SAN DIEGO
GERALD M. TRIMBCE
ROBERT J. WETMORE
M E M O R A N D U M
SAN FRANGSCo
A. JERRY KEYsER
i TwoTHY C, KELLY
KATE EARLE FUNK
DENSE E. CONLEY
TO: Mr. Kevin Murphy, City Manager
City of Newport Beach
FROM: Cal Hollis
Keyser Marston Associates, Inc.
SUBJECT: Balboa Bay Club
Lease Alternatives Analysis Memorandum
DATE: October 25, 1994
0
Enclosed is a summary of the subject memorandum detailing the
alternatives analyzed and the assumptions utilized. Prior to the
issuance of a final memorandum, we thought it would be helpful for
the committee to review this summary and react to the alternatives
and assumptions. I would propose we get this reaction at our
meeting on Wednesday at which time I will present this material.
The alternatives presented are as follows:
Scenario 1 Balboa Bay Club expansion as proposed, rent terms
per Bill Hansen, except phase-in of percentage
rents per current lease is assumed.
Scenario 2A No lease extension. City takes over marina in
2011, leases club/hotel portion under a scope of
development similar to that proposed by BBC.
Apartment lease income is increased to reflect the
value of city -owned apartment improvements.
Scenario 2B Same as 112A" except hotel/club is not rebuilt, land
is ground leased at fair market rental rate
(today's value increased by CPI to 2011).
We had discussed a third scenario whereby the City would "develop"
the hotel/club parcel at the end of the lease itself. As we
reviewed this alternative, it became clear that there is too much
uncertainty to fairly evaluate this alternative. A review of other
experiences with the restaurant/banquet facilities suggest that
this level of development will not generate a greater land value
than that assumed under alternative Scenario 2B. The more dense
commercial uses needed to create the higher land values are not
consistent with city ownership, development and management (i.e.,
a health club and hotel operation).
The analysis, based upon the assumptions utilized, suggests the
following:
1) When taken over a 30 -year period, the three scenarios
generate, in net present value, roughly equivalent returns to
the City.
2) For the initial 10 and 20 years of the analysis, the lease
extension alternative generates substantially greater net
present values returns to the City. This advantage is
overcome by the other two alternatives during the final third
of the 30 year analysis period.
3) The above conclusions are due to the fact that the current
proposal generates substantially more lease revenues
initially, while the "no extension" alternatives allows the
City to retain the "equity" developed by the City in the
apartment and marina improvements at the end of the current
lease.
Following the meeting with the committee, we will finalize the
report to reflect their comments.
CEH:lp
94797.NP8
7so9ti)002
Is
•
C
KEYSER MARSTON ASSOCIATES INC
1
DEAF
SUMMARY OF MAJOR ASSUMPTIONS
BALBOA BAY CLUB ANALYSIS
NEWPORT BEACH, CALIFORNIA
I. SCENARIO 1 -- NEAR TERM CLUB EXPANSION
This scenario assumes a new lease and expansion for the Balboa Bay
Club ("Club"). This analysis assumes the lease terms as proposed
for the entire 30 year period covered by the analysis.
Additionally, the lease is assumed to include the phase in
percentages remaining for the current lease. Expansion to the Club
meeting rooms and hotel facilities is assumed to occur over a 2
year period ending in fiscal year 1998/99.
A. Apartments
Rehabilitation and construction of the club hotel and meeting space
will not create undue hardship or deteriorate the living
environment. Nevertheless, rents will not increase during first 2
years and will increase at an annual rate of only 1.5% during
construction.
As a result of the expansion, rents will return to market rates and
increase 3% annually after construction. Vacancy rates will not
increase over time.
B. Marina
Capital improvements will be made to the marina facilities as
planned. A 20% per year reduction in revenues will be incurred
during the 2 year marina reconstruction period to reflect
inconveniences created by repairs.
Rehabilitation and construction of the club, hotel and meeting
space will not create undue hardship or deteriorate the marina
environment. Hence, marina revenues will remain level during hotel
construction.
Vacancy levels will not increase in the marina as a result of the
Club expansion, as it is assumed that demand for the facilities
will remain strong.
After club expansion, demand for slips will increase as club
membership increases. Beginning in year 2001/02, revenues will
increase by 5% for 2 years in addition to inflationary increases.
0 1
C. Club Operation •
The Club will remain in operation during the construction period.
No operational inconveniences will occur which would decrease total
membership during this period.
Prior to the completion of construction it is assumed that
membership revenues will remain constant.
After completion of construction, memberships will increase over a
two year stabilization period. After stabilization (year 1999/00),
membership fees will increase 3% annually.
D. Hotel & Meeting Rooms
During construction, hotel and meeting room revenues will decrease
to $1.04 million annually to account for a reduction in usable
space. Over a 2 year stabilization period, revenues will increase
to $6.055 million ($4.78 million in real terms) as the new and
upgraded facilities become available.
After stabilization, hotel and meeting room revenues will increase
3% annually to account for inflation.
Sales from other revenues sources will remain as a constant
percentage of all other revenues based on the 1994/1995 percentages
provided by the appraisal report. •
2 •
II. SCENARIO 2 -- NO IMPROVEMENTS OR LEASE E%TENSION
This scenario assumes that the City does not extend or change the
lease terms. Hence, the Balboa Bay Club is not rebuilt or expanded
in the near-term. It is assumed that the deterioration of the Club
will continue at a gradual rate and then slowly accelerate toward
the end of the lease. Deterioration in marina and apartment
operations will be delayed, but will accelerate later in the lease
term as needed capital investment does not occur.
The specific assumptions with respect to the performance of the
project through the remaining term of the lease will follow. In
addition, this scenario has been differentiated into two extension
alternatives (extensions A & B) which account for the City's usage
of the project following the maturity of the current lease term.
A. Apartments
Vacancy level will remain at 6% through year 2004/05. Beyond year
2004/05 vacancy will increase according to the following table to
reflect increases in deferred maintenance:
Operating
Vacancy
Year
Rate
2005/06
7%
2006/07
8%
2007/08
9%
2008/09
101%
2009/10
20%
2010/11
50%
As a reflection of the current economy, it is assumed that rental
rates will remain constant over the next two years. Rents are
assumed to increase thereafter at 3% per year until 2008/09, when
rent rates will remain constant, reflecting deferred maintenance.
B. Marina
Capital improvements will be made to the marina facilities in the
first 2 years as currently planned. A 20% per year reduction in
revenues will be incurred during the 2 year reconstruction period
to reflect the inconveniences created by the repairs.
0 3
0`
Vacancy rates will remain constant through year 2005/06 and
increase thereafter according to the following schedule to account
for deterioration of the marina due to deferred maintenance:
Operating Vacancy
Year
Rate
2005/06
7%
2006/07
8%
2007/08
9%
2008/09
10%
2009/10
150
2010/11
30%
C. Club Revenues
Without the proposed improvements of the Club, it is assumed that
membership dues, guest fees and other membership revenues will
remain constant for the first 2 years. Thereafter, as the economy
improves, gross revenues will increase 3% annually through year
2000/01. Due to the uncertainty of the Club's future, from year
2001/02 through 2005/06 revenues are expected to decline 5%
annually and from year 2006/07 to the end of the current lease term
revenues are assumed to decline l0% annually. Initiation fees will
decline at 5% per year until year 2005/06, at which point
initiation fee revenues will terminate.
D. Hotel. and Meeting Rooms
Hotel and meeting room revenues will remain constant at current
levels over the first 2 years. Between years 1996/97 and 2006/07
revenues will increase 3% annually as the expanded economy creates
additional demand for meetings and conferences. From 2007/08
through the end of the lease term revenues will decrease 10%
annually.
For projection purposes, sales from other revenues sources, i.e.,
food, beverage, et. cetera will remain as a constant percentage of
all other revenues based on the 1994/1995 rate.
E. Lease Extensions
The following assumptions were made regarding new lease terms and
site disposition for the project upon conclusion of the current
lease term. The assumptions describe two alternative disposition
approaches.
1. Extension Scenario A
No significant improvements to the property will be made
during the remaining term of the existing lease other than
those listed below.
At the end of the current lease period (2011), a similar club/
hotel program to the one proposed, as used in Scenario 1, is
developed and the proposed lease percentage rents are applied
through the remaining period of this analysis.
For the Terrace Apartments, new lease terms equal 9% of the
capitalized value of the stabilized/ improved property income,
less rehab costs of $25,000/unit (in 1994 dollars), as shown
in Table A. Revenues decrease by 50% during 2011/12 to allow
for rehabilitation. Rents are assumed to return to market
levels after rehabilitation and 1 year of absorption.
The marina is assumed to be operated by the City. It is
assumed that the City will be responsible for reconstructing
the marina over a 2 year period. Marina revenues are expected
to decline by 20% during reconstruction period to account for
inconveniences caused by the repairs and then return to market
rates by the following year. Net marina revenues after
current lease maturity are calculated as a percentage of gross
revenues based on the appraiser's estimate of expenditures to
gross income upon stabilization after adjustment for property
tax. Marina reconstruction is assumed to be financed by bond
issuance ($1.2 million +10% issuance costs and reserve funds
in 1994 dollars) for 10 years at 7% interest. Additionally,
the City will fund a replacement reserve (earning 5% interest
annually) equal to a payment of $1.2 million in 1994 dollars
every 10 years.
Meeting room and hotel facilities are assumed to be leased
under proposed percentage rents and improved after termination
of the current lease agreement. club membership fees are
assumed to stay level during a construction period of 2 years.
Upon completion of construction, membership and initiation
fees are assumed to return to market rates after a two year
stabilization period.
2. Extension Scenario B
Scenario B uses all of the assumptions of Scenario A, except
as they relate to the area currently being used by club
meeting rooms and hotel facilities. Club meeting rooms and
hotel facilities are assumed to be demolished after the term
of the current lease. Land is assumed to be leased for 9% of
appraised value ($8.0 million in 1994 dollars) and increased
every 5 years by 3% compounded annually.
0 5
66
It is assumed that loss of facilities will not cause a
reduction in the market rents of the apartments.
No percentage revenues are assumed.
94774_NFB
16091.0002
0
0
aTABLE 1
PROJECTED GROSS REVENUES
SCENARIO 1- NEAR TERM EXPANSION OF CLUB FACILITIES
BALBOA BEACH CLUB
NEWPORT BEACH, CALIFORNIA
PREPARED BY KEYSER MARSTON ASSOCIATES, INC.
FILE: BBC-KMA.XLS Expansion
DATE: 10/25/941
ANALYST: EDF
on I
OPERATING
CLUBMEMBERSHIP
HOTEL&
TOTAL
YEAR
APARTMENTS
MARINA
DUES
INI ITATION
MTG ROOMS
OTHER
REVENUES
1
1994195
$3,150,000
$696.000
$2,500,000
$204,000
$1,910.000
$4,460.000
$12,916,000
2
1995196
3,150,000
698,000
2,500,000
200,000
1,910,000
4,460,000
12,916,000
3
1996/97
3,197,000
870,000
2,500,000
200,000
1,040,000
4,118,000
11,925,000
4
1997/98
3,245,000
870,000
2,500,000
200,000
1,040,000
4,143,000
11,998,000
5
1998 / 99
3,294,000
870,000
2,500,000
200,000
1,040,000
4,169,000
12,073,000
6
19.99100
3,545,000
941,000
3,716,000
297,000
2,306,000
5,699,000
16,504,000
7
2000101
3,651,000
1,018,000
4,932,000
394,000
4,613,000
7,705,000
22,313,000
8
2001102
3,761,000
1,049,000
6,149,000
492,000
5,879,000
9,140,000
M470,000
9
2002103
3,874,000
1,080,000
6,333,000
507,000
6,055,000
9,414,000
27,263,000
10
2003104
3,990,000
1.112,000
6,523,000
522,000
6,237,000
91696,000
26,080,000
11
2004/05
4,110,000
1,145,000
6,719,000
538,000
6,424,000
9,988,000
28,924,000
12
2005106
4,233,000
1,179,000
6,921,000
$54,000
6,617,000
10,287,400
29,791,000
13
2006/07
4,360,000
1,214,000
7,129,000
571,000
6,816,000
10,596,000
30,686,000
14
2007/08
4,491.000
1,250.000
7,343,400
588,000
7,020.000
10,914,000
31,606,000
15
16
2008109
2009/10
4,626,000
4,765,000
1.268,000
1,327,000
7,563,000
7,790,000
606,000
624,000
7.231,000
7,448,OOD
11,242,000
11,579,000
32,556,000
33,533,000
17
2010111
4,908,000
1,367,D00
8,024,DDO
643,000
7,671,000
11,927,000
34,540,000
18
2011112
5,055,000
1,408,000
8,265,060
662,000
7,901,000
12,256,000
35.576,000
19
2012113
5,207,000
1,450,000
8,513,000
682,OD0
8,138,000
12,653,000
36,643,000
20
2013/14
5,363,000
1,494,000
8,768,000
702,000
8,382,000
13,032,000
37,741,000
21
2014/15
5,524,000
1,539,000
9,031,000
723,000
8,633,000
13,423,000
38,873,000
22
2015116
5,690,400
1,585,000
9,302,000
745,000
8,892,000
13,826,000
44,040,000
23
2016/17
5,861,000
1,633,000
9,581,400
767,000
9,159,000
14,241,000
41,242,000
24
2017118
6,037,000
1,682,000
9,866,000
790,000
9,434,000
14,669,000
42,480,000
25
2018119
6,218,000
1,732,000
10,164,000
814,000
9,717,000
15,108,000
43,753,000
26
2019/20
6,405,000
1,784,000
10,469,000
838,000
10,009,000
15,562,000
45,067,000
27
202D/21
6,597.000
1,838,OD0
10.783,400
863,000
10,309,000
16,029,000
46,419.000
28
2021/22
6,795,000
1,893,000
11,106,000
889,000
10,618,000
16,509,000
47,810,000
29
2022/23
6,999,000
1,950,ODO
11,439,000
916,000
10,937,000
17,005,000
49,246,000
30
2023/24
7,209,000
2,009,ODO
11,782,000
943,000
11,265,DDO
17,515,400
50,723,000
PREPARED BY KEYSER MARSTON ASSOCIATES, INC.
FILE: BBC-KMA.XLS Expansion
DATE: 10/25/941
ANALYST: EDF
on I
CHART 1
PROJECTION OF GROSS REVENUES
SCENARIO 1 - NEAR TERM EXPANSION OF CLUB FACILITIES
BALBOA BAY CLUB
NEWPORT BEACH, CALIFORNIA
APARTMENT GROSS REVENUES
YEAR END (JUNE 30)
CLUB GROSS REVENUES
a
YEAR END (JUNE 30)
MARINA GROSS REVENUES
III 111
If11i♦
0 111 111
Iff !11
. !it tti
It1 i11
111 111
YEAR END (JUNE 30)
TOTAL GROSS REVENUES
.
YEAR END (JUNE 30)
$0 1
9 A
YEAR END (JUNE 30)
PREPARED BY KEYSER MARSTON ASSOCIATES, INC.
0
FILE: BBC-KFMJCLS EwwWon Chart
DATE: 10125/94
ANALYST:EDF
0�1
aTABLE 2
PROJECTED GROSS REVENUES
SCE SCENARIO 2A - NO NEAR TERM IMPROVEMENT, FACILITIES REBUILT AFTER CURRENT LEASE
BALBOA BEACH CLUB
NEWPORT BEACH, CALIFORNIA
OPERATING
CLUB MEMBERSHIP
HOTEL&
TOTAL
)TAR
APARTMENTS
MARINA
DUES
1NITITATION
MTG ROOMS
OTHER
REVENUES
1
1994195
$3,150,000
$696,000
$2,500,000
$200,000
$1,910.000
$4,378,000
512,834,000
2
1995196
3,150,000
696,000
2,500,000
190,000 '
1,910,000
4,373,000
12,819,000
3
1996/97
3,245,000
870,000
2,575,000
181,000
1,967,000
4,576,000
13,414,000
4
1997/98
3,342,000
870,000
2,652,000.
172,000
2,026,DDD
4,692,DDO
13,754,000
5
1998 /99
3,442,000
896,000
2,732,000
163,000
2,087,000
4,825,000
14,145,000
6
1999100
3,545,000
923,000
2,814,DDD
155,000
2,150,000
4,964,000
14,651,ODD
7
2000/01
3,652,000
951,000
2,898,000
147,000
2,215,000
5,106,000
14,969,000
8
2001102
3,761,000
979,000
2,753,000
140,000
2,281,000
5,133,000
15,047,000
9
2002/03
3,874,000
1,009,000
2,615,000
133,000
2,349,000
5,167,000
15,147,000
10
2003104
3,990,000
1,039,000
2,464,000
126,000
2,419,400
5,207,000
15,265,000
11
2004105
4,110,000
1,070,000
2,360,000
120,000
2,492,000
5,256,000
15,408,000
12
2005106
4,168,000
1,079,000
2,242,000
0
2,567,000
6,217,000 '
15,293,000
13
2006/07
4,268,000
1,099,000
2,018,000
0
2,644,000
5,192,000
15,221,000
14
2007/08
4,348,000
1,120,000
1,816,000
0
2,3$0,000 '
5,003,000
14,667,000
15
2068/00
4,429,000
1,141,000
1,634,000
0
2,142,000
4,839,000
14,185,000
16
2009/10
3,937,000
1,110,000
1,471,000
0
1,928000
4,373000
12819,000,.
17
2010/11
2,461 W0541,000
1,324,000
OI
1735,000 `
3345,040
9,80804tl1
18
2011/12
1,231,ODO
753,000
1,324,000
0
867,500
2,162,000
6,337,500
19
2012/13
2,610,ODO
753,000
1,324,000
186,000
867,500
2,972,OD0
8,712,500
20
2013/14
5,363,000
1,146,000
3,253,000
373,000
3,253,000
6,931,000
20,319,000
21
2014/15
5,524,000
1,539,000
6,506,000
698,000
6,506,000
10,755,000
31,528,OD0
22
2015116
5,690,000
1,559,000
9,302,000
745,000
8,892,000
13,569,000
39,747,000
23
2016/17
5,861,000
1,606,000
9,581,040
767,400
91159,000
13,965,000
40,939,000
24
2D17/18
6,037,000
1,654,000
9,868,000
790,000
9,434,000
14,384,000
42,167,000
25
2018/19
6,218,000
1,704,000
10,164,000
814,000
9,717,000
14,816,000
43,433,000
26
2019120
6,405,000
1,755,000
10,469,000
838,000
10,009,000
15,261,000
44,737,000.
27
2020/21
6,597,000
1,807,000
10,783,000
863,000
10,309,000
15,718,000
46,077,000
28
2021/22
6,795,000
1,862,000
11,106,ODD
589,000
10,618,000
16,190,000
47,400,000
29
2022/23
6,999,000
1,917,000
11,439,000
916,000
10,937,000
16,675,000
48,$83,OD0
30
2023/24
7,209,000
1,975,000
11,782,000
943,000
11,265,000
17,175,000
60,349,000
NOTES:
'
YEAR IN WHICH GROSS REVENUES FIRST DECLINE
=YEAR IN WHICH CURRENT LEASE TERMINATES
PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBC-KMA.XLS No Improve
DATE: 10/25/94
ANALYST: EDF
CN�\
CHARY 2
PROJECTION OF GROSS REVENUES
SCENARIO 2A - NO NEAR TERM IMPROVEMENT, FACILITIES REBUILT AFTER CURRENT LEASE
BALBOA BAY CLUB
NEWPORT BEACH, CALIFORNIA
APARTMENT GROSS REVENUES
YEAR END (JUNE 30)
CLUB GROSS REVENUES
YEAR END (JUNE 30)
$14,000,000
$12,000,000
$10,000,000
$6,0D0,000
$6.000,000
$4,000,000
$2,000,000
$0
I
MARINA GROSS REVENUES
gI g o m m m
.- 1 A $ R iii 9 Z?i
YEAR END (JUNE 30)
HOTEL 6 MEETING ROOM GROSS REVENUES
$14,000,000
$12,000,000
$10,000,000
$6,000,000
$6,000,000
$4,000.000
$2,000,OD0
$0
§ - R � A
YEAR EN} (JUNE 30)
TOTAL GROSS REVENUES
I
is
•
$o
n n so o � tv na sY i(1 to n m oe Y
YEAR END (JUNE 90)
•
PREPARED BY KEYSER MARSTON ASSOCIATES, INC, FILE: BBC-KMA.XLS No improve Chart
DATE: 1012S94
ANALYST: EDF
E
CHART 3
PROJECTED REVENUES
COMPARISON OF SCENARIOS'
BALBOA BAY CLUB
NEWPORT BEACH, CALIFORNIA
$14,000,000
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
m m p a r a pro a w r
� m N N Ca'1 N fV � fay N
YEAR END (JUNE 30)
SCEW, i SCEN5 pm
APARTMENT REVENUES
$14000000 CLUB MEMBERSHIP REVENUES
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
[O O r O M m w N
m W fOV tOV N N N N N N
YEAR END (JUNE 30)
------sc lot lSCEN o1/.
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$0
rn
W
$14,000,000
$12,000,000
$10,0001000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
YEAR END {JUNE 30)
...... scsrua�ot-scewuozl
MARINA REVENUES
& MEETING ROOM REVENUES
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0 tp�� mp Op pp
W 0 N f i ta\` tOV N N m N
YEAR END (JUNE 30)
• � • • • . 5CSNM1NIP t-SCEntRtOM
TOTAL REVENUES
r w opro n W ,h m n .Sw, p� A
YEAR END (JUNE 30)
... SCENARIO
—SCENARIO 2A
• NOTE: 'FOR THIS COMPARISON, THE REVENUE FROM SCENARIO 1 IS COMPARED TO REVENUE FROM SCENARIO 2A. WHERE THE CLUB IS
REBUILT AFTER THE CURRENT LEASE TERMINATES
PREPARED BY KEYSER MARSTON ASSOCIATES, INC.
FILE: BBGKMA.XLS GmuRevO=p
DATES: 10127194
ANALYST: EDF
TABLE 3
ESTIMATED CITY GROUND LEASE REVENUES
SCENARIO 1 - NEW LEASE AND NEAR TERM EXPANSION AS PROPOSED
BALBOA BAY CLUB
NEWPORT BEACH, CALIFORINA
NET PRESENT VALUE ® 9% $19,838,000
NOTES:
1 SEE TABLE 1
2 ASSUMES NEW LEASE TERMS
3 PHASE IN OF PERCENTAGE RENTS OF 76.9%,84.59% & WAS% FOR YEARS 1, 2& 3,
RESPECTIVELY, TO REFLECT PHASE IN FROM ORIGINAL LEASE
PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBC-KMA.RLS Scemd0/
DATE: 10/25/94
ANALYST:EDF
PERCENTAGE
OPERATING
TOTAL GROSS
GROUND
YEAR
REVENUES'
LEASE
1
1994195
$12,916,000
$925,000 3
2
1995/96
12,916,000
1,017,000 3
3
1996/97
11,925,000
1,114,000 3
4
1997/98
11,998,000
1,214,000
5
1998/99
12,073,000
1,223,000
6
1999/00
16,504,000
1,500,000
7
2000/01
22,313,000
1,830,000
8
2001/02
26,470,000
2,068,000
9
2002/03
27,263,000
2,129,000
10
2003104
28,080,000
2,193,000
11
2004/05
28,924,000
2,259,000
12
2005106
29,791,000
2,327,000
13
2006/07
30,686,000
2,396,000
14
2007108
31,606,000
2,468,000
15
2008/09
32,556,000
2,542,000
16
2009/10
33,533,000
2,619,000
17
2010/11
34,540,000
2,697,000
18
2011112
35,576,000
2,778,000
19
2012113
36,643,000
2,862,000
20
2013/14
37,741,000
2,948,000
21
2014/15
38,873,000
3,036,000
22
2015/16
40,040,000
3,127,000
23
2016117
41,242,000
3,221,000
24
2017/18
42,480,000
3,318,000
25
2018/19
43,753,000
3,417,000
26
2019/20
45,067,000
3,520,000
27
2020/21
46,419,000
3,625,000
28
2021/22
47,810,000
3,734 0000
29
2022123
49,246,000
3,846,000
30
2023/24
50,723,000
3,962,000
NET PRESENT VALUE ® 9% $19,838,000
NOTES:
1 SEE TABLE 1
2 ASSUMES NEW LEASE TERMS
3 PHASE IN OF PERCENTAGE RENTS OF 76.9%,84.59% & WAS% FOR YEARS 1, 2& 3,
RESPECTIVELY, TO REFLECT PHASE IN FROM ORIGINAL LEASE
PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBC-KMA.RLS Scemd0/
DATE: 10/25/94
ANALYST:EDF
aTABLE 4
CITY REVENUE
SCENAJ 2A -CURRENT LEASE THROUGH 2011; NEW APT. LEASE, CITY OWNED MARINA & HOTEL/CLUB RECONSTRUCTION AFTER 2011
BALBOA BAY CLUB
NEWPORT BEACH, CALIFORNIA
PREPARED BY REYSER MARSTON ASSOCIATES, INC. FILE BBC-NMAXLS SeMn4o A
DATE IMAM
ANALYST: EDF
TOTAL
PERCENTAGE
NEW
NEW HOTEL&
MARINA
TOTAL
OPERATING
PROJECT GROSS
RENTFROM
APARTMENT
CLUB LEASE
NET
CITY
YEAR
REVENUES'
EXISTING LEASE'
LEASE REVENUES 3
REVENUES 4
INCOME'
REVENUE
1
1994195
$12,834,000
$913,000
3913.000
2
1995196
12,819,000
1,004,000
1.004,000
3
1998197
13,414,000
1.176,000
1.178.0DO
4
1997198
13,754.000
1,300.000
1,900A00
5
1998199
14,145,000
1,338,000
1,338,000
6
199910D
14,551,000
1,378,000
1,379.000
7
2006101
14,969,000
1,418,000
1,416,000
8
2001102
15,047,000
1,443,000
1,443.000
9
2002103
15,147,00D
1.470,000
1,470,000
10
2003104
15,265,000
1,498,000
1,498,000
11
2004105
15,408,000
1.528,000
1 A28,ODO
12
2005106
15293,000
1,538,400
1,538,000
13
2006107
15,221,000
1,548,000
1,548,000
14
2007/08
14,667,000
1,531,000
1,531,000
15
2008/09
14,185,000
1,519,000
1519,000
16
2009110
12,819,ODO
1.385.000
1.385.000
17
2010111
9061000
11025,000
1,025,000
18
2011 M2 '
5,564,500
$685,000
$224,000
$36,000
927,000
19
2012113
7,959,500
1,652,000
274,000
38,000
1,964,000
20
2013114
19,173,000
2,639,000
706,000
330,000
3,875,000
21
2014115
29,989,000
2,639.000
1,263,000
621,000
4,523,000
22
20/5/16
38,188,000
2,639,000
1,684,000
838,000
4,959,000
23
2016117
39.333,000
3.059.324
1.735.000
671AM
5,465,324
24
2017118
40,513,000
3,059,324
1,787,000
706,000
5552,324
25
2018/19
41,729,000
3,059,324
1,841,000
743,000
5,643,324
26
2019120
42,982,000
3,059,324
1,896.000
781,000
5.736,324
27
2020/21
44,270,000
3,009,324
1,953,000
820,000
5,832,324
28
2021122
45,598.000
3.546.595
2,011.000
1.170,000
6,727595
29
2022/23
46,966,000
3,546595
2,071,000
1,211,000
8,828595
30
2023124
48,374,000
3,546,595
2,134,000
1,254,000
8,934,595
NET PRESENT VALUE 0 9%
$16,811,000
NOTES
1
EXCLUDES GROSS MARINA REVENUES AFTER YEAR B0/02011
2
ASSUMES CURRENT LEASE TERMS THROUGH 2011, PHASE IN OF PERCENTAGE RENTS OF 78.8%, 51.59%& 8218%FOR YEARS 1,
2 83, RESPECTIVELY
3
BASED ON 9% RETURN OF NET VALUE OF APARTMENT (WE TABLE A).
ASSUMES 3% ANNUALLY COMPOUNDED ESCALATION EVERY &YEARS
4
ASSUMES PROPOSED LEASE RATES
S
CALCULATED AS A
PERCENTAGE OF GROSS INCOME BASED ON APPRAISER'S ESTIMATE OF EXPENSE(LESS PROP. TAX) TO GROSS REVENUE RATIO
NET OF ALLOWANCE OF $310,000 ANNUALLY
FOR INITIAL MARINA BOND AND REPLACEMENT RESERVE OF &210,000 ANNUALLY
PREPARED BY REYSER MARSTON ASSOCIATES, INC. FILE BBC-NMAXLS SeMn4o A
DATE IMAM
ANALYST: EDF
TABLES
CITY REVENUE
SCENARIO 26 — CURRENT LEASE THROUGH 2011; NEW APT. LEASE, CITY OPERATED MARINA B GROUND LEASE ON REMAINING LAND IN 2012
BALBOA BAY CLUB
NEWPORT BEACH, CALIFORNIA
TOTAL
PERCENTAGE
NEW
MARINA
NET
OPERATING PROJECT GROSS
RENT FROM
APARTMENT
GROUND
NET
CITY
YEAR
REVENUES'
EXISTING LEASE'
LEASE REVENUES'
LEASE'
INCOME °
INCOME
1 1984195
$12,834,000
$913,090
U13MO
2 1995196
12,819,000
1,004,000
1,004.000
3 1998 / 97
13,414,000
1,176,000
1,176,000
4 1997/98
13,754,000
1,300,000
11300,000
5 1998/99
14,145,000
1,338,000
1,338,000
6 1999t00
14,551,000
1,378,009
1.378p0O
7 2000/01
14.969,000
1.418,000
1.418A00
8 2001/02
15,047,000
1,443,000
1,443,000
9 2002/03
15,147,000
1,470,000
1,470,000
10 2003/04
15,265,000
1,498,000
1,498,000
11 2004105
15,408,000
1,528,ODD
1,528,000
12 2005106
15,293,ODO
11536,900
11536,000
13 2006/07
15,221,000
1,648,000
1,548,000
14 2007108
14,667,000
1,531,000
1,531,000
15 2008109
14,185,000
1,519,000
1,519,000
16 20D9110
12,819,000
1,385,000
1,385,000
17 2010111
9,803,000
1,025,000
119251000
18 2011 J 12 '
1,231,000
$655.000
$1,190,000
$38.000
/,893,ODO
19 2012/13
2,610,000
1,652,000
1,190,000
38,000
2.880,000
20 2913/14
5,363,000
2,639,000
11190,000
330,000
4,159,000
21 2014115
5,524,000
2,539,000
1,190,000
621,000
4,450,ODD
22 2015116
5,690,ODD
2,639,000
1,190,000
638.000
4,465AM
23 2016117
51861.000
3,059,324
1,380.00D
671,000
5,110,324
24 2017118
6,037,000
3,059,324
1,380,000
706,000
5,145,324
25 2018/19
6,218,000
3,059,324
1,380,000
743,000
5,182,324
26 2019120
6,405,000
3,059,324
1,380,000
781,000
6,220,324
27 2020/21
6,597,000
3,059,324
1,380,000
820,000
5,259,324
28 2021122
6.795.000
3.546.595
1,600=
1.170.000
81316,595
29 2022123
6,999,000
3,546,595
11600,000
1,211,000
6,357,595
30 2023/24
7,209,000
3,546,595
1,600p00
1,254,000
6,400,595
NET PRESENT VALUE 0 9%
$18,314,000
NOTES:
/ ONLYAPARTMENT REVENVESAFTER 20102011
2 ASSUMES CURRENT LEASE TERMS THROUGH 2011, PHASE IN OF PERCENTAGE RENTS OF 76.9%,8158%892.48% FOR YEARS 1,
2 A 3, RESPECTIVELY
3 BASED ON 9% RETURN
OF NET VALUE OF APARTMENT (SEE TABLE
A). ASSUMES 3% ANNUALLY COMPOUNDED ESCALATION EVERY B YEARS
4 9.0% RETURN ON APPRAISER'S ESTIMATE OF LAND VALUE (38 MILLION IN 1994 DOLLARS) INCREASED EVERY 5 YEARS BY 3% COMPOUNDED ANNUALLY.
3 CALCULATED AS A PERCENTAGE OF GROSS INCOME BASED ON APPRAISERS ESTIMATE OF E%PENSE(LESS PROP. TAX) TO GROSS REVENUE RATIO
NET OF ALLOWANCE Of 8310,000 ANNUALLY FOR INRVO. MARINA BOND AND REPLACEMENT RESERVE OF 8210,00DANNuA1LY
NEW LEASE, RECONSTRUCTION
PREPARED BY XEYSER MARSTON ASSOCIATES, INC.
FILE BBGRM kXLS Sewllo B
DATE 102594
ANALYST: EDF
0
CHART 4
COMPARISON OF NET CITY INCOME
BALBOA BAY CLUB
NEWPORT BEACH, CALIFORNIA
$7,000,000
$6,000,000
trt ttr
W $4,000,000
2
v
z
f-
m
z $3,000,000
rrr trr
rtt trt
$0
m
r
n m .- c9 In n m r cn W
N N N N N N N Na N N N N
YEAR END (JUNE 30)
—d—Scenario 1 Scenario 2A - - - Scenario 2B
PREPARED BY KEYSER MARSTON ASSOCIATES, INC.
FILE: BBC-KMA.XLS Not Income Chart
DATE:1QZ194
ANALYST: EDF
COMPARISON OF NOMINAL AND NET PRESENT VALUE OF CITY REVENUES
SCENARIOS 1, 2A & 2B
BALBOA BAY CLUB
NEWPORT BEACH, CALIFORNIA
+ 111 111
1 111 111
1 111 111
1 11 » » 11
1 111 111
1
.1 x111!!
+ 111 a f t
1 tot 111
1 I!I 111
1111 111
1 111 111
1
SCENARIO SCENARIO 2A SCENARIO 2B
$10,000,000
$8,000,000
$B4O00,OOO
$4,000,000
$2,000,OOo
$0
NPV YEARS i -10
SCENARIO SCENARIO 2A SCENARIO 20
NPV YEARS 11- 20
1' • R' r l a 5
NOMINAL REVENUES YEARS 21-30
t ati IIt
•+ 11t lit
t ItR tii
1 111 111
1 111 111
1
•
+ 111 11!
1 rIr 111
1 f11 It1
1111 Y 11
11111!1
! 111 111
SCENARIO1 SCENARIO 2A SCENARIO 20
NPV YEARS 21 -30
SCENARIO SCENARIO 2A SCENARIO 2B
SCENARIO SCENARIO 2A SCENARIO 2S
NPV YEARS 1 - 30
SCENARIO SCENARIO 2A SCENAR1028
PREPARED BY KEYSER MARSTON ASSOCIATES, INC
0
•
$MARIOI SCENARI02A SCENARIO 20 •
FILE: BBC-KMA.KLS NPV
DATE: tOt25M
ANALYST: EDF
C
C
n
TABLE A
VALUE OF TERRACE APARTMENTS
BALBOA BAY CLUB
NEWPORT BEACH, CALIFORNIA
GROSS INCOME (STABILIZED)'
(LESS) OPERATING EXPENSES 2
NET OPERATING INCOME
CAPITALIZED VALUE
(LESS) REHABILITATION EXPENSE
ADJUSTED VALUE
REQUIRED ANNUAL RETURN
9% CAPITALIZATION RATE
144 UNITS $44,000 /UNIT 3
9%
$5,363,000
(2,154,000)
$3,209,000
$35,656,000
(6,336,000)
$29,320,000
$2,639,000
NOTES:
1 ASSUMES STABILIZED RENTS AS OF YEAR 2013114
2 ASSUMES APPRAISER'S ESTIMATED RATIO OF EXPENSES TO GROSS INCOME UPON STABILIZATION
3 REHABILITATION COST EQUALS $25,000 PER UNIT PER YEAR IN 1994 DOLLARS, COST IS FOR
REPLACEMENT OF INTERIOR IMPROVEMENTS SUCH AS CABINETS, PLUS SYSTEM UPGRADES.
PREPARED BY KEYSER MARSTON ASSOCIATES, INC.
FILE: BBC-KMA.XLS Apartment Value
DATE: 10r,594
ANALYST: EDF
•
ATTACHMENT #4
AB 3139 LEGISLATION
C
06-18-1996 01�25PM FROM BBC
TO
CALIFORNIA LEGISLATURE
STATE CAMTOL
SACRAMENTO. CALIFORNIA
9ZV 14
August 31, 1994
Honorable Willie Lewis Brown, Jr.
Speaker
California State Assembly
State Capitol, Room 219
Sacramento, California 95814
Bear Mr. Speaker.,
",_'_0 P. Etc
we are the author and principal coauthor of Assembly Sill
3139, sponsored by the City of Newport Beach, which allows
the State Lands Commission to extend the lease on a specific
parcel of tide and submerged land.
When the Committee on Consumer Protraction, Governmental Effi-
ciency and Economic Development reviewed AS 3139 for concur-
rence in the Senate amendments, the Committee asked us to
place a letter in the Journal to further explain the bills
intent.
It is the Legislatures intent, and it is our understanding
that the project developers agree, that maximum public access
shall be provided pursuant to, among other things, Chapter
3, Article 2 of Division 20 of the Public Resources Code, to
the lands affected by Chapter 74 of the Statutes of 1998, as
amanded by AS 3139, in order to be consistent with the public
trust.
We appreciate your consideration in this matter.
Co a11y,
XJi
C�l: FR GI,R MARIAN 8 £4o2i"
OT
Assembly District Senator, 35th District
w`\
06-16-1996 01:25PM FROM BBC
Display 1993-1994 Bill Text - INFORMATION
BILL NUMBER: AB 3139
BILL TEXT
TO : ,.;7020 P. CC
PAGE i
PASSED THE ASSEMBLY
AUGUST
31,
PASSED THE SENATE
AUGUST
29,
].9'^•z
AMENDED IN SENATE
AUGUST
27,
144<
AMENDED IN SENATE
AUGUST
23,
19^
AMENDED IN ASSEMBLY
APRIL 19,
199 -
INTRODUCED BY Assembly Member Pringle
(Principal coauthor: Senator Berges;,i,
FEBRUARY 23, 1994
An act to amend Section 6 of, and to add Section 4.5 ._u, Chapter 74 of the
Statutes of 1978, relating to tide and submerged lands the City of Newport
Beach.
LEGISLATIVE COUNSEL'S DIGEST
AB 3139, Pringle. Tidelands: Newport Beach.
Existing law grants in trust to the City of Newport Saach all tide and
submerged lands, whether filled or unfilled, bordering 2:can and under the
Pacific Ocean or Newport Bay, which were within the cor.crate limits of the
city on July 25, 1919, subject to specified conditions.
This bill would permit a current nonconforming reside:;-ial use of a
specified parcel within that grant to continue to be use;' for a specified
period, subject to Specified conditions. The bill woulr, require all money
received by the city from that use to be deposited, as 1,rascribed, and to be
available for specified purposes. The bill would make :'elated legislative
findings and declarations.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 4.5 is added to Chapter 74 of the statutes of 1978, to
read:
Sec. 4.5. (a) The Legislature hereby finds and declares all of the
following:
(1) In Section 1 of this act, the Legislature grantee certain tide and
submerged lands in trust to the City of Newport Beach upnn express conditions
and for certain public trust uses and purposes, but primarily for the
promotion and accommodation of commerce, fishing, and navigation.
(2) Portions of those tide and submerged lands were filled and reclaimed
�11D
06-18-1996 01:26PM FROM BBC TO P,O
PAGE
Display 1993-1994 Bill Text - INFORMATION
SILL NUMBER: AB 3134
BILL TEXT
2
a result of the implementation in the 1920's of a plan c_ improvement,
including the development of lower Newport Bay as a hazel to promote and
accommodate commerce, fishing, recreational boating, an.: navigation. In
addition to those filled tide and submerged lands, an aduitional parcel, as
described in Section 6 of this act, as amended by the act adding this section,
hereafter designated Parcel D, has been filled and reclaimed as part of the
public project of developing lower Newport Bay as a harbor.
(3) Prior to a judicial determination in 1452 that Parcel D and certain
adjoining lands were state tidelands and submerged lands granted to the city
pursuant to Chapter 70 of the Statutes of 1927, the legal. character of the
property was subject to question. In 1948, the city leased Parcel D and
adjoining property to a private entity which constructed a private club on the
adjoining property and a residential apartment complex c` 142 units on Parcel
D. The term of that lease was extended in 1966, and the lease requires that
the use of Parcel D conform to public trust purposes as ��= Decer,Jaer 31, 1998,
in the absence of an act of the Legislature, a judicial. Tetermination, or an
agreement with the State Lands commission,
(4) Since 1985, the residential apartment complex �,, 2arcel D has produced
substantial income, all of which the city has used to ci:ectly promote and
support public use of tide and submerged lands held i:: -rest br the city by
providing services to those public trust Sands, incl _ lifeguards, beach
cleanup, police, and fire protection, and by construct..,-. facilities which
improve the quality and extent of public use of, and _ to, tide and
submerged lands,
(5) Private residential use of tide and submerged :.r.:5s, whether filled or
unfilled, is in conflict with the common law public tr::-,t and the intent of
the Legislature in enacting this act.
(6) Many members of the public have made the apartment complex their
residence for many years and have come to look upon the t-u_artments as their
permanent home despite the nature of their tenancy.
(7) Parcel D, a relatively small portion of the publi.. gust lands in
Newport Bay, has been filled and reclaimed so that it is no lor:ger submerged
or below the mean high tide line, is not in its present :tate usable for
public trust uses and purposes, and, given the large amount of public trust
lands that the City of Newport Beach makes available to .the public, Parcel D
may be more valuable as a generator of revenue devotee to the support of
public trust purposes than as a parcel used by the public for trust purposes,
(8) Public trust land adjacent to Parcel D has been developed as a private
club with extremely limited public access. The current lessee of the private
club and Parcel D has proposed, and the city has approved, a redevelopment
plan which, if implemented, will allow full public access to the majority of
the site currently occupied by the private club and will generate
substantially more tideland revenue from existing uses. However, the current
lessee will be required to pledge revenue from the apartment complex on Parcel
D to secure the financing necessary to implement the redevelopment plan, and
any uncertainty regarding the permissible use of Parcel D could impede or
prevent redevelopment and postpone, for more than 17 y=ars, the public's right
of access to the property.
(b) In view of the potential hardships resulting from. the removal of the
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BILL TEXT
IN
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current tenants on or before December 31, 1998, the ecc-,, be:;efit to the
trust from the revenue generated by the continuing use c Farce D as an
apartment complex, the benefits to the public if revenue generated by Parcel D
is used to secure the financing necessary to implement t'ne redevelopment plan
for the adjoining property, which will dramatically imYrove public access to
tide and submerged lands, the availability of current public facilities and
the potential needs for expanded facilities for public trust uses and purposes
and in recognition of the facts set forth in paragraphs (2), (3), (4), (5),
(6), and (7) of subdivision (a), and in view of the amount of public trust
land remaining in Newport Bay that is suitable for public trust use, the
current nonconforming residential use of Parcel D may=cntirue for the
duration of its useful life, until the structure is recaacd, until the current
or new lease expires, or until five years after expiratian of the financing
secured by Parcel D revenues, whichever occurs first, bue in no event later
than December 31, 2044, subject to the requirement that s._ revenue be devoted
to public trust uses and purposes as provided in subdi.�isio. (f).
(c) if the city determines that land use, economic co,Citions, and public
needs associated with Parcel D will extend beyond the terx of the present
lease, the city shall apply to the State Lands Commissic: for a determination
by the commission that the continuation of that nonconf._:-ing use for an
additional period is in the best interest of the public. .. it furtherance of
public trust purposes. If the commission makes that fining, Parcel D may be
leased for residential purposes for an additional period, but in no event
beyond December 31, 2044.
(d) The consideration received by the city for any re lease or
amendment to the current lease which includes Parcel D sham be the fair
market rental value of the real property and improveme:v:z, subject to any
presently existing contractual obligations during the p-,iod the property is
used for private purposes.
(e) The form of any future lease or amendment of the current lease
involving Parcel D, and the consideration to be received by the city, shall be
subject to approval by the State Lands commission.
(f) (1) Effective July 1, 1995, all money received by the city from the
existing lease or any future lease that includes Parce' c shall be deposited
in the following trust funds;
(A) Ninety-five percent shall be deposited in a city tidelands trust fund
with the revenue available only for purposes consistent with the promotion of
public trust uses, inc�'uding public access, over the remaining tide and
submerged lands granted to the city.
(B) Five percent shall be deposited in the Land Bank Fund to be available,
without regard to fiscal years, pursuant to subdivision (c) of Section 8625 of
the Public Resources Code, for expenditure by the state ;ands commission for
purposes of providing necessary state review of management of public trust
property as provided by Sections 6301 and 6306 of the P:blic Resources Code.
(2) Five years after the effective date of any new lease or amendment to
the current lease, the revenue percentages shall be modified to provide for
the deposit of 90 percent in the city tidelands trust fund as specified in
subparagraph (A) of paragraph (1) and 10 percent in the Land Bank Fund as
specified in subparagraph (B) of paragraph (1).
(g) Nothing in this act is intended to limit the application of the is
\\2i
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BILL NUMBER: AS 3139
BILL TEXT
California Coastal Act of 1976 (Division 20 (commencing w, -1--h Section 30000) of
the Public Resources Code) or the jurisdiction of the Cat_`ornia coastal
Commission.
SEC. 2. Section 6 of Chapter 74 of the Statutes of 1978 is amended to read:
Sec. 6. The parcels of real property referred to in "his act are described
as follows:
PARCEL A
Beginning at Station No. 8 in the Line of Mean High Tide per judgment
rendered in case No. 20436, superior Court of California. County of orange,
recorded in Book 651, page 72 of needs, records of said orange County, said
Station No. 8 being at the easterly terminus of that certain course in said
Line of Mean High Tide shown as "North 71( 541 002 West, 1:13.34 Feet" on a
map of Tract No. 4003 recorded in Book 188, pages 13 through 19 of
Miscellaneous Maps, records of said Orange County, saic Neginni.ng being a
11122 iron pipe as shown on said map of Tract No. 4003; thence along said Line
of Mean High Tide, South 85( 401 372 East, 606.01 feet t.. point in a line
parallel with and 100.03 feet easterly from the easter_, _ire of Lot G as
shown on a map filed in Book 9, pages 42 and 43 of Reca�z �,f surveys, records
of said Orange county; thence along said parallel line, S.cth 160.46 feet to a
point in the Ordinary High Tide Line per judgment rend -i. -l' .n Case No. 24026,
Superior Court of California, County of Orange, recor&c-5 .rn Book. 199, page 275
of official Records of said Orange County, said point bei;„ the True Point of
Beginning of this description; thence along said Ordinar igh Tide Line the
following courses: North 82( 301 002 West, 297.66 feet c., Gn angle point
therein; thence South 84( 001 002 West, 160.00 feet; thence South 57( 001 002
West, 100.00 feet; thence south 32( 521 002 East, 243.24 feet to a line that
is parallel with and distant 28.00 feet northerly, measured at right angles,
from the U.S. Bulkhead Line, as shown on U.S. Engineer's ?dap of Harbor Lines
of Newport Bay, dated March 20, 1936, and approved April 78, 1936; thence
leaving said Ordinary High Tide Line and along said parai_.el line East, 148.00
feet to the southeasterly corner of Lot 19 as shown on a map filed in Book 9,
pages 42 and 43 of Record of Surveys, records of said orange County; thence
along the easterly line of said Lot 19 North 100.00 feet; thence East 40.00
feet; thence South 100.00 feet; thence East 198.10 feet to a line parallel
with and distant 20.00 feet westerly, measured at right angles from that
certain course and southerly prolongation thereof, recited as, "south, 160.46
feet"j thence along said parallel line North 132.00 feet; thence East 20.00
feet: thence North 104.64 feet to the True Point of Beginning of this
description.
Containing 2,694 acres, more or less.
PARCEL B
Beginning at U.S. Bulkhead station No. 200 as shown on map entitled "Harbor
Lines, Newport Bay Harbor, California," sheet i of 2 of File Map No. 958,
dated March 20, 1936, and approved April 28, 1936, and on file in the office
of the U.S. Engineer, Los Angeles, California, also being on the ordinary High
Tide Line per judgment rendered in Case No. 24026, superior Court of
California, county of Orange, recorded in Book 199, page 275 of Official
Records of said orange County, said beginning being a 22 iron pipe as shown on
4
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BILL NUMBER: AB 3139
BILL TEXT
a map of Tract 3867, recorded in Book 3D1, pages 40 thr-,_�'n 4E of
Miscellaneous Maps, records of said Orange County; thenc- Tong said ordinary
High Tide Line, as described in said Book 199, page 275, bff:cial Records,
North 39( 481 002 west, 36.44 feet to a point in a line z:�at is parallel with
and distant 28.00 feet northerly, measured at right angles, from the U.S.
Bulkhead Line as shown on said U.S. Engineer's Map, said point also being the
True Point of Beginning of this description; thence continuing along said
Ordinary High Tide Line, North 39( 481 002 West, 432.17 feet; thence leaving
said Ordinary High Tide Tine, South 56( $61 292 West, 32.24 feet to a point in
a nontangent curve, concave northwesterly and having a radius of 171.63 feet,
a radial line of said curve from said point bears North 57( 481 002 west;
thence southerly and southwesterly along said curve 76.50 feet through a
central angle of 25( 341 202 to a point of nontangency with a line that is
parallel with and distant 105.32 feet southwesterly, measured at right angles,
from that certain course recited above as "North 39( 40 2 fest, 432.17
feet"; thence along said parallel line, South 30( 481 U:;2 East, 328.27 feet to
said line described above as being parallel with and distant 28.00 feet
northerly, measured at right angles, from the U.S. Bu 1':_ d Line as shown on
said U.S. Engineer's Map; thence along said parallel FIst, 137.09 feet
to the True Point of Beginning of this description.
Containing 0.925 acre, more or less.
PARCEL C
Beginning at U.S. Bulkhead Station No. 200 as shown cr Tap e --titled "Harbor
Lines, Newport Bay Harbor, California," sheet 1 of 2 of File Map No. 958,
dated March 20, 1936, and approved April 28, 1936, and z7. `ile In the office
of the U.S. Engineer, Los Angeles, California, also being on the ordinary Hig
Tide Line per judgment rendered on Case No. 24026, superior Court of
California, County of orange, recorded in Book 199, pa,, -,e '75 of official
Records of said Orange County, said beginning being a 22 .ron pipe as shown on
a map of Tract No. 3867, recorded in Book 301, pages 40 i.,rough 46 of
Miscellaneous Maps, records of said Orange County; thence along said Ordinary
High Tide Line as described in said Book 199, page 275 of official Records,
North 39( 481 002 West, 539.22 feet to the True Point of Reginning of this
description; thence continuing North 39( 481 002 West, 146.59 feet; thence
South 23( 571 302 West along the southwesterly prolongation of that certain
course described in said Case No. 24026 as -North 23( 571 302 East, 138.90
feet" a distance of 126.34 feet to a line that is parallel with and distant
113.32 feet southwesterly, measured at right angles, from.; that certain course
recited above as "North 39( 461 002 West, 146.59 feet"; thence along said
parallel line, South 39( 481 002 East, 137.64 feet to a point in a nontangent
curve, concave northwesterly and having a radius of 131.63 feet, said curve
being concentric with and 40.00 feet northwesterly, measured radially, from
that certain curve described in Parcel 8 above as having a radius of 171.63
feet, a radial line of said curve from said point bears North 39( 281 522
West; thence northeasterly and northerly along said curve 74.56 feet through a
central angle of 32( 271 232; thence tangent to said curve, North 18( 031 452
East, 50.27 feet to the True Point of Beginning of this description.
Containing 0.387 acre, more or less.
PARCEL D
That portion of Lot 171, Block 54 of Irvine's Subdivision in the City of 0
0
0
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BILL NUMBER: AS 3139
BILL TEXT
Newport Beach, County of Orange, State of California, af. shown on a map filed
in Book 1, Page 88 of Miscellaneous Record Maps in the office of the County
Recorder of the county described as follows:
Beginning at a point on the U.S. Bulkhead line extending from U.S. Bulkhead
station No. 129 to U.S. Bulkhead Station No. 130 as that Bulkhead line and
Bulkhead stations are laid out and shown on a map of Newport Bay, California,
showing harbor lines approved by the War Department, January 18, 1917, that
point being distant South 61( 011 072 East, measured along the Bulkhead line,
700.00 feet from the point of intersection of the Bulkhead line with the
southwesterly prolongation of the centerline of Irvine Avenue as shown on a
Map of First Addition To Newport Heights recorded in Book 4, Page 94 of
Miscellaneous Maps in the Office of the County Recorder, that point of
intersection being the most southerly corner of Lot H of Tract No. 919 as
shown on a map recorded in Book 29, Pages 31 through 34 cf Miscellaneous Maps
in the Office of the County Recorder; thence North 28( 581 532 East 154.19
feet to a point in the southwesterly line of the 100 foot right-of-way of
California state Highway ORA -60-S, that point being on a nontangent curve in
the right-of-way line concave northeasterly and having radius of 2050.00
feet, that paint being on a line radial to Engineer's siat._on 5+56.15 in the
centerline of that highway, the radial line bears Nora, "c; 371 572 East;
thence along that southwesterly line through the follcs;n;, courses: along the
curve southeasterly 142.79 feet through a central angle :,; 3( 591 272; thence
tangent from that curve South 74( 211 302 East 662.08 :tee'_; thence leaving the
southwesterly line of that 100 foot right-of-way, Sout;, < 581 532 West
195.71 feet; thence South 27( 001 002 East 16.66 feet; thence Sough 28( 581
532 West 130.00 feet to a point on that Bulkhead line, the point being distant
South 61( 011 072 East 798.00 feet from the Point of Beginning; _hence along
the Bulkhead line North 61( 011 072 West 798.00 feet to the point of
beginning.
6
C
11
ATTACHMENT #5
EXECUTIVE SUMMARY,
OPTION AGREEMENT AND
GROUNDLEASE AGREEMENT
-2- •
• The Option Agreement may not be assigned without the City's approval
and unless assignee meets certain net worth and experience tests.
• If BBC sells, transfers, conveys or assigns within twenty-four months of
completion of the entire project (including the Option period), then the
City participates in 20% of the net proceeds after deductions for project
costs and a 15% profit.
• The term of the new Ground Lease is fifty (50) years commencing upon
the completion of the steps necessary to exercise the option to lease the
property (see Option Agreement summary below).
• Commencement of construction of the new improvements must
commence within ninety (90) days of the new lease and must be
completed within three years.
• BBC agrees to renovate and maintain the hotel in a first class condition
and agrees to keep all the other facilities in a condition equal to other •
quality facilities in the area.
• The Rent is the greater of $1,125,000 ("Base Rent") or the "Percentage
Rent" as reflected below in the various categories:
CATEGORYPERCENTACI
Dues Revenues
6%
Apartment Revenues
16.5%
Marina Revenues
31%
Storage Revenues
20%
Charter Commission Revenues
20%
Charter Revenues
6%
Room Revenues
5%
Beverage Revenues
5%
Food Revenues
3%
Retail Revenues
5%
Miscellaneous Revenues
10% is
C
-3-
Base Rent is adjusted after the first eight years, and every five years
thereafter, based upon the prior five years total rent, with base rent then
adjusted to 75% of the total rent.
• During a thirty (30) month period upon the commencement of the lease,
the City agrees to payment of 50% of the Base Rent to ease the financial
burden during the construction period.
• BBC may not transfer, assign or sell the leasehold interest without the
City's consent and the future owner meets certain criteria including net
worth tests and experience standards.
• If BBC does sell, convey, transfer or assign the leasehold, then the City
shares 20% in the net proceeds after certain deductions for costs and
profit.
• The agreement provides for a capital replacement reserve which is
intended to assure the City that the facility will be maintained in a first
class condition over the life of the lease.
• The agreement contains numerous other provisions which are normally
provided between a landlord and tenant in a Ground Lease including:
regular audits of records, requirements for qualified managers,
insurance, indemnification, default, rights of access, and termination.
FINAL DRAFT 9
by and between
THE CITY OF NEWPORT BEACH
and
BBC PROPERTY, INC. 0
June_, 1996
NB1-215179NI5
X� f
• OPTION AGREEMENT FOR THE LEASE OF REAL PROPERTY
THIS OPTION AGREEMENT FOR THE LEASE OF REAL PROPERTY (this "Agreement")
is made as of June _, 1996, by and between THE CITY OF NEWPORT BEACH, a charter
city and municipal corporation ("Optionor"), and BBC PROPERTY, INC., a New York
corporation ("Optionee").
RECITALS
A. Optionor is the grantee of that certain parcel of real property located in the City of
Newport Beach, County of Orange, State of California, as more particularly described
on Exhibit A attached hereto (the "Premises"), pursuant to the provisions of the
Beacon Bay Bill (Chapter 74 of the Statutes of 1978).
B. Optionee, as successor in Interest to Balboa Bay Club, Inc., is currently occupying
and in possession of the Premises pursuant to that certain Lease between Optionor,
as lessor, and Balboa Bay Club, Inc., as lessee, dated May 13, 1986 (the "Existing
Lease").
• C. On November 3, 1992, a majority of the electors of the City of Newport Beach
approved Measure M which authorized the City Council of the City of Newport Beach
to lease tidelands and waterfront property consistent with the provisions of State
law.
D. The California State Lands Commission has reviewed the form of this Agreement, and
the New Lease attached hereto, and determined that such instruments are In
conformance with the provisions of relevant statutes, rules and regulations and have
approved such instruments.
E. The City Council of the City of Newport Beach has determined that this Agreement,
and the New Lease attached hereto, are consistent with the Charter of the City of
Newport Beach, and its General Plan and Zoning Ordinances applicable thereto, and
of all other. applicable State and local laws, Including, without limitation, the Land
Use Plan of the Local Coastal Program.
F. The City Council of the City of Newport Beach has determined that it Is in the best
interests of the citizens of the City of Newport Beach to maintain the use and
character of the Premises for the general uses permitted thereon by the General Plan
and Zoning Ordinances of the City applicable thereto, and to enter into the New
Lease under the terms and conditions set forth therein.
•
NB1-215179A15 2 0&10/90
G. Optionor and Optionee each desires to enter into an option agreement whereby
Optionor will grant to Optionce an option to terminate the Existing Lease
concurrently with the entering Into by the parties of the New Lease for the Premises
as more particularly set forth hereinafter.
NOW, THEREFORE, with reference to the foregoing recitals, and in consideration of the
mutual covenants and agreements contained herein, and other good and valuable
consideration the receipt of which is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
I . Grant of Option. Optionor hereby grants to Optionee an exclusive right and option
(the "Option") to lease the Premises for the rent and upon the terms and conditions
set forth In the Ground Lease attached hereto as Exhibit B and incorporated herein
by this reference (the "New Lease").
2. Option Consideration. In consideration for the Option, and notwithstanding the
provisions of Section 5.b of the Existing Lease, it shall be a condition precedent to
the exercise by Optionee of the Option (and the obligation of Optionor to execute the
New Lease) that Lessee shall pay to Lessor, concurrently with and as a condition
precedent to the exercise of,the Option, the sum of Two Hundred Fifty Thousand
Dollars ($250,000), with Interest on such sum at eight percent (895) per annum from
the date hereof to the date of such payment. In further consideration of the Option,
Optionee has further agreed herein to undertake certain design and planning work
in connection with the Project (as defined in the New Lease), at its sole cost and
expense, in the manner and at the times set forth herein.
3. Option Term. Optionee may exercise the Option at any time prior to 5:00 p.m.
California time on the fifth (5) anniversary of the date hereof (the "Option Term");
provided, however, that Optionee shall have no right to exercise the Option at any
time Optionee Is in material default hereunder or under the Existing Lease, and, in
the event of any such default arising after the exercise of the Option but prior to
execution of the New Lease by all parties thereto, such prior exercise by Optionee of
the Option shall be deemed null and void and of no force or effect ab Initio unless
Optionee shall have cured such default within any applicable cure period but In no
event later than the date the New Lease would otherwise become effective.
NBi-215179.V75
3
00096
0
• 4. Conditions Precedent to the Exercise of Option. As a condition precedent to
the exercise of the Option by Optionee, Optionee shall, at its sole cost and expense,
(i) complete the processing for and obtain any and all permits, licenses and
entitlements from any governmental or quasi -governmental agency or authority
having jurisdiction over the renovation and reconstruction of the Improvements
located on the Premises, as contemplated by this Agreement and the New Lease,
Including issuance of a Coastal Development Permit from the California Coastal
Commission and the approval of this Agreement and the New Lease by the California
State Lands Commission. (Ii) obtain the approval of Optionor to the Conceptual Plan,
Design Development Plans, and Final Plans (as set forth In Sections 6, 7 and 8
hereinafter), (Iiq provide evidence reasonably satisfactory to Optionor that Optionee
has the financial resources available to it and/or has arranged and entered into a
financing commitment from an institutional lender for financing the construction and
renovation of the Project in accordance with the Final Plans, and (iv) have obtained
and paid for building permits for construction of the improvements in accordance
with the Final Plans approved by Optionor.
5. Cooperation of Optionor. Optionor shall cooperate with Optionee In Optionee's
reasonable efforts to obtain all required permits and approvals, and shall execute
such applications and other undertakings reasonably required in its capacity as the
owner of the Premises to enable Optionee to file for and obtain all permits, licenses,
variances, permissions and consents necessary to construct the Project and
otherwise to perform Its activities under this Agreement; provided, however, that
• nothing herein shall imply any obligation inconsistent with or result In any diminution
of Optionors legislative, quasi -legislative or administrative rights, obligations and
prerogatives as a municipal public agency, Including, without limitation, Optionor s
rights, obligations and prerogatives in connection with reviewing and approving or
disapproving any application for any license, permit or entitlement for the
development, construction or use of the Premises.
•
6. Conceptual Plan. Not later than the later of (1) nine (9) months following approval
of this Agreement by the California State Lands Commission or (ii) June 30, 1997,
Optionee shall prepare, or cause to be prepared, and shall submit to Optionor for its
review and approval, a proposed conceptual plan for the design, construction,
furnishing and equipping of the Project (the "Conceptual Plan"). All elements of the
Conceptual Plan shall be prepared in writing by an experienced, reputable and
licensed architectural firm and shall Include those elements typically included in such
types of plans and as required by applicable ordinances and regulations of the City
of Newport Beach, but In all events shall include the following: (i) the general
configuration, size and relationship of the Project and all amenities relating thereto,
Including all parking (surface and structured), restaurants, lounges, banquet rooms
and similar public assembly areas. all guest support, health, exercise, recreational
and sports facilities; (11) conceptual elevations and representational sections for all
Improvements, features and elements to be constructed on the Property; (111) a
general description of the various elements, functions and layout of the improvements
NBt-215179M 5
rd
OM 0/96
(interior and exterior); (iv) a site plan of the Premises showing all improvements to
be constructed thereon and showing the relation of all said improvements to the
adjacent properties and showing the circulation and access plans; (v) schematic
drawings of the Project; and (vi) outline specifications for all exterior lighting and
landscaping on the Premises. Optionor's right to approve the Conceptual Plan shall
be limited to assuring that the proposed Improvements are of first class quality and
consist of the type and quality required by this Agreement and the New Lease, and
Optionor shall not have any right to disapprove any component of the Conceptual
Plan which would have the effect of changing the plan previously approved by the City
In connection with the zoning of the Premises. It is not intended by the Optionor's
review and approval rights under this Agreement that Optionor will Impose esthetic
judgments on Optionee unless such design criteria proposed by Optionee shall, in the
reasonable judgment of Optionor, result in Improvements which are inconsistent with
the standards required by this Agreement and the New Lease. Any disapproval by
Optionor must specify with reasonable particularity the portion or portions
disapproved and Optionor's suggestions of alternatives it would approve. On or
before three (3) months following its submission by Optionee to Optionor for
approval. Optionor and Optionee shall have agreed upon the Conceptual Plan. The
proposed conceptual plan shall be deemed approved If Optionor does not disapprove
all or specific portions of the proposed conceptual plan within thirty (30) days
following receipt thereof from Optionee. if Optionee shall fail to submit a proposed
conceptual plan to Optionor by June 30, 1997, Optionor may by written notice to
Optionee, terminate this Agreement and any right of Optionee to enter Into the New
Lease shall thereafter be of no force or effect. If, by three (3) months following
submission of the proposed conceptual plan to Optlonor for Its approval, the parties
are unable to agree upon the Conceptual Plan, or the proposed Conceptual Plan is
not deemed approved as aforementioned, either party may by written notice to the
other party terminate this Agreement. In such event, this Agreement shall thereafter
be of no force or effect, and any right of Optionee to enter into the New Lease shall
thereafter be of no force or effect, without affecting the continuation of the Existing
Lease.
7. Design Development Plans. Not later than one year following approval of the
Conceptual Plan by Optionor, Optionee shall prepare, or cause to be prepared,
proposed design development plans, containing all of the elements typically contained
in such plans and as required by applicable ordinances and regulations of the City of
Newport Beach, and shall within such time period submit said proposed design
development plans to Optionor for its review and approval. The "Design Development
Plans" shall include: (i) a site plan (scale 1" equals 40') indicating the Items
provided for in the Conceptual Plan and showing in addition thereto principle
utilities, setback lines, general drainage plans including the capacities of storm drain
and sewer lateral lines; (ii) a proposed lighting and circulation system for both
vehicular and pedestrian travel; (iii) principal building plans, sections and elevations
(minimum scale 1/8" equals 1'), study models and prospective sketches indicating all
exterior architectural information and all interior architectural information relating
N01415179.V15
5
06!10196
• to the principal hotel lobby; (iv) designs for lighting and signing the principal hotel
lobby and all exteriors of improvements to be constructed on the Premises; and (v)
construction schedules showing the principal stages, phases and durations of
construction. On or before three (3) months following Optionee's submission of same
to Optionor, the parties shall have agreed upon the Design Development Plans for the
Project. The proposed Design Development Plans shall be deemed approved If
Optionor does not disapprove all or specific portions of the proposed Design Develop-
ment Pians within thirty (30) days following submission thereof to Optionor by
Optionee. Optionor shall not withhold its approval of the design development plans
submitted by Optionee if and to the extent that such design development plans
conform In all material respects with, and are a logical extension of, the Conceptual
Plan approved by Optionor. If Optionor reasonably believes that the proposed Design
Development Plans submitted by Optionee do not so conform. Optionor shall advise
Optionee in writing of any questions or objections which Optionor has with respect
thereto. Optionor shall set forth its comments, suggestions and objections to the
proposed Design Development Plans with reasonable specificity In order to permit
Optionee to address such concerns. If Optionee shall fall to submit proposed design
development plans to Optionor by the date which Is one year following approval of the
Conceptual Plan by Optionor, Optionor may by written notice to Optionee. terminate
this Agreement and any right of Optionee to enter into the New Lease. If Optionee
does submit the proposed Design Development Pians to Optionor by such date, and
within three (3) months following such submission, the parties are unable to agree
• upon the Design Development Plans, or the proposed Design Development Plans are
not deemed approved as aforementioned, either party may submit the matter to
arbitration as provided in Section 29 for resolution. All dates for compliance by
Optionee with its obligations under this Agreement shall be extended by the number
of days necessary to resolve such dispute, but only with regard to such obligations
of Optionee the performance of which are reasonably delayed as a result of such
dispute.
8. Final Plans and Specifications.
(a) Optionee shall submit to Optionor, for Optionor's review and approval, final
and full plans and specifications (the "Final Plans") for the Project, including
architectural, landscaping, structural, beating and ventilation systems,
utilities, sections and detailed designs for lighting and signing of the exterior
of the Project, all of which shall conform In all material respects to the
Conceptual Plan and the Design Development Plans approved by Optionor.
Optionor's right of approval with respect to the Final Plans shall include the
same Items subject to Optionor's approval with respect to the Conceptual Pian
and the Design Development Plans. Optionor shall advise Optionee in writing
of any questions or objections which Optionor has if Optionor reasonably be-
lieves that the Final Plans do not so conform in all material respects and shall
state its objections with reasonable specificity. In such event, unless
• Optionee disputes Optionor's disapproval and submits such matter to
NBI.215179NI5
B 96/10196
`L"
arbitration as hereinafter provided, Optionee shall make subsequent
submissions of Final Plans in order to comply with such questions or ob-
jections Optionor may have. Landlord shall be deemed to have approved the
Final Plans if Landlord falls either to give its written approval or state in
writing Its questions or objections to any Final Plans submitted by Optionee
within forty-five (45) days after the date of said submission. If within ninety
(90) days following submission of the Final Plans to Optionor for review and
approval, the parties are unable to agree upon the Final Plans, or the Final
Plans are not deemed approved as aforementioned, the matter may be
submitted to arbitration by either party as provided in Section 29 for
resolution. All dates for compliance by Optionee with Its obligations under
this Agreement shall be extended by the number of days necessary to resolve
such dispute, but only with regard to such obligations of Optionee the perfor-
mance of which are reasonably delayed as a result of such dispute.
(b) Optionee acknowledges that the approvals by Optionor required In this
Section 8 are separate and distinct from any review, approval, permitting or
licensing required by the City In its municipal capacity, such as demolition,
grading and building permits. The issuance by the City of any such approval,
permit or license shall not constitute approval of any matter requiring the
consent or approval of Optionor under this Agreement.
9. Building Permits. Optionee shall apply for and thereafter diligently prosecute to
Issuance or denial, at its sole cost and expense, the procurement of all necessary
•
building permits from the City as well as any other governmental entity having
jurlsdiction over the Premises for the construction of the Project in accordance with
the Final Plans which have been approved by Optionor to the extent such approval
is required by the terms of this Agreement. In that regard, should the City or any
other governmental entity having jurisdiction over the Premises require that Optionee
modify a portion of the approved Final Plans, Optionee shall be required to consult
with Landlord and, If compliance with governmental requirements may be achieved
In more than one manner or fashion and the manner or fashion of Optionee's pro-
posed compliance shall not be consistent in all material respects with the Conceptual
Plan and the Design Development Plans, to obtain Optionor's prior written approval
of the manner or fashion of Optionee's proposed compliance; which approval shall
not be unreasonably withheld or delayed. Any dispute between the parties regarding
Optionor's approval (or the need for such approval) of the manner or fashion of
Optionee's proposed compliance shall be submitted to arbitration in accordance with
Section 29; provided, however, that the agreement to arbitrate disputes shall apply
solely to approvals required by Optionor pursuant to this Agreement, and shall not
apply to any determination by the City in Its municipal capacity in connection with the
Issuance of permits or licenses, Including any matter concerning compliance with any
ordinance, resolution, condition of approval, law or regulation applicable to the
construction, operation or maintenance of the Project. All dates for compliance by
Optionee with its obligations under this Agreement shall be extended by the number
NBi-215179.V15
7
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• of days necessary to resolve such dispute, but only with regard to such obligations
of Optionee the performance of which are reasonably delayed as a result of such
dispute.
10, Delivery of Plans. In the event of expiration or termination of this Agreement for
any reason other than default by Optionor, Optionee shall deliver to Optionor a copy
of all plans and specifications for the Project, Including the Conceptual Pian, Design
Development Plans and Final Plans, and all components thereof, and Optionor shall
have the right to use such pians and specifications in any manner it determines In
connection with the development of the Premises, subject only to the contractual
rights and limitations imposed by the unrelated third party originators of such plans
and specifications.
11. Exercise of the Option.
(a) Provided that the conditions precedent set forth in Sections 3, and 8 through
8 are satisfied, Optionee may exercise the Option by:
(1) delivering to Optionor written notice of such exercise prior to the
expiration of the Option Term; and
(11) delivering to an escrow established by the parties with First American
• Title Insurance Company in Santa Ana, California (the "Escrow"), two
(2) executed and, with respect to the Memorandum of Ground Lease,
acknowledged originals of the New Lease and the Memorandum of
Ground Lease; and
•
(ill) delivering to the Escrow a certified check or other immediately
available funds in the amount of Two Hundred Fifty Thousand Dollars
($250,000), plus interest thereon at eight percent (8%) per annum
from the date hereof to the date of such payment, in payment of the
sum required by Section 2.
(b) Within five (5) days of its receipt of the notice described in Section I I (a),
Optionor shall deliver to escrow two (2) executed and, with respect to the
Memorandum of Ground Lease, acknowledged originals of the New Lease and
the Memorandum of Ground Lease.
(c) Upon receipt of the instruments referred to in Sections 11(a) (fi) and 11(b),
escrow bolder is instructed to deliver executed counterparts to the parties,
deliver to Optionor the funds set forth In Section 11(a)(ill), and record the
Memorandum of Ground Lease in the Official Records of the County of Orange.
(d)
N$1.215179.Vi5
The parties shall execute such further instructions as the escrow holder shall
reasonably require. Optionee shall bear all costs of title Insurance which
8 MW96
Optionee elects to purchase In connection with this Option or the New Lease,
All other fees and charges of the escrow shall be paid by the parties In
accordance with customary practice In Orange County.
12. State of Title. The parties acknowledge that Optionee has obtained a commitment
for title Insurance under Order No. 963807 from First American Title Insurance dated
May 24. 1996 (the "Title Report") showing the state of title to the Premises.
Optionee hereby approves all exceptions to title shown In said Title Report (the
"Permitted Exceptions"), and the parties acknowledge and agree that leasehold
title to the Premises granted pursuant to the New Lease shall be subject to the
Permitted Exceptions. It shall be a condition precedent to Optionee's obligations
under this Agreement that the title company is able and willing to Issue a leasehold
policy of title insurance In favor of Optionee (and any institutional lender providing
financing for the construction and renovation of the Project in accordance with the
Final Plans) in form and substance satisfactory to Optionee. In the event such
condition precedent Is not satisfied or waived by Optionee prior to consummation of
the transaction as contemplated In Section 11(c), this Agreement may be terminated
by Optionee upon written notice to Optionor and the parties shall have no further
liability or obligation thereunder.
13. Broker's Commissions. in connection with this Agreement and upon exercising
the Option and entering Into the New Lease, Optionor and Optionee each represents
to the other that it has not entered Into any agreement or Incurred any obligation
which might result In the obligation to pay a sales or brokerage commission or
finder's fee with respect to this transaction. Optionor and Optionee each agrees to
indemnify, defend, protect and hold the other harmless from and against any and all
losses, claims, damages, costs or expenses (including attorneys' fees) which the
other may incur as a result of any breach of the foregoing representation. The
representations and obligations of Optionor and Optionee under this Section 13 shall
survive the exercise of the Option.
14. Memorandum of Option. Optionor and Optionee agree that no memorandum or
short form of this Agreement, or other public notice or filing of this Agreement, shall
be recorded in the public records of any authority or agency, including the Official
Records of the County of Orange, State of California.
15. Assignment.
(a) Except as hereinafter set forth in this Section 15, Optionee may not transfer,
assign or hypothecate this Option, or its Interest therein, In whole or in part,
without the prior written consent of Optionor In each Instance having first
been obtained, which consent shall not be unreasonably withheld or delayed.
The consent by Optionor to any transfer, assignment or hypothecation shall
not constitute a waiver of the necessity for such consent to any subsequent
assignment, transfer or hypothecation. This prohibltioil against assignment,
NBt 415179.VI5
E
11U i
� A
• transfer or hypothecation shall be construed to Include a prohibition against
any sale, hypothecation, transfer of possession, or any assignment or transfer
by operation of law or otherwise. Optionor shall be deemed to be reasonable
in not granting Its consent if the proposed purchaser, transferee or assignee
fails to meet all of the following criteria:
(i) the proposed purchaser, transferee or assignee, or. If the proposed
purchaser, transferee or assignee is a wholly owned subsidiary, its
parent, or the constituent general partners of the proposed purchaser,
transferee or assignee shall have a net worth at least equal to the
greater of (1) Four Million Dollars ($4,000,000), or (11) ten percent
(10%) of the fair market value of the leasehold estate created by the
New Lease. For purposes of determining the fair market value of the
leaschold estate created by the New Lease, such value shall be
conclusively determined by the purchase price to be paid by the
proposed purchaser, transferee or assignee for the interest to be
acquired, as evidenced by information reasonably required by Optionor
(for purposes of calculating such net worth, It shall be permissible to
Include as an asset of said proposed purchaser, transferee or assignee
Its anticipated equity In the Project and the leasehold estate created
by the New Lease),
(11) the proposed purchaser, transferee, or assignee shall either be a
• Qualified Manager (as defined in the New Lease) or, if the proposed
purchaser, transferee, or assignee Is not a Qualified Manager, shall
have entered into a binding agreement with a Qualified Manager to
manage the Project, it being acknowledged herein that continued
management of the Project by a Qualified Manager Is an affirmative
obligation of Optionee hereunder; and
(Ili) the proposed purchaser, transferee, or assignee (or, with respect to a
transfer of a controlling interest, the person or entity acquiring such
controlling interest) shall have a reputation for honesty, integrity and
sound business practices.
(b) Grant or Denial of Consent. Optionor shall grant or deny its approval of,
or request additional reasonable information and/or documentation with
respect to, any proposed transfer, hypothecation or assignment within thirty
(30) days following Optionor's receipt of notification from Optionee regarding
the proposed transfer, hypothecation or assignment. Following a request
from Optionor for additional reasonable Information and/or documentation as
provided herein. Optionor shall have ten (10) days from Optionor's receipt of
such additional Information and/or documentation in which to grant or deny
Its approval of the proposed transfer, hypothecation or assignment and/or
transferee. Optionor shall be deemed to have granted its approval If Optionor
•
NBi•215179.V15 10 06A0190
Cti
shall not request additional information and/or documentation within such
thirty (30) day period and Optionor shall not notify Optionee within the time
periods herein specified of Its decision either to grant or deny Its approval.
From and after the effective date of a transfer or assignment by Optionee of
the Existing Lease and this Agreement, the transferror or assignor shall
thereafter be relieved from any further liabilities or obligations under this
Option and Optionor shall look solely to the assignee for performance of such
obligations hereunder and under the Existing Lease.
(c) Assignment to Affiliate. Optionee shall have the right, without Optionor's
consent, to assign this Option:
(i) to a partnership or limited liability company controlled by Optionee and
in which Optionee Is a general partner or member thereof and owns a
legal and beneficial Interest therein of not less than twenty-five percent
(25%), or tp a corporation controlled by Opt€once and in which
Optionee owns and controls not less than twenty-five percent (25%) of
all issued and outstanding stock of such corporation in every class with
full and unrestricted voting rights and privileges; or
(€t) as security pursuant to a Mortgage;
provided, however, that any assignment by Optionee under this Section 15(c)
shall not relieve Optionee from liability hereunder.
(d) Limitation on Transfer of Interest in Optionee. If Optionee is a
corporation, an unincorporated association, a partnership or a joint venture,
'the transfer, assignment or hypothecation (except for a hypothecation in
connection with a loan transaction of the type contemplated by Article XIV of
the New Lease) of a controlling ownership Interest In such entity, whether In
a single transaction or multiple transactions and whether to a single person
or multiple persons, shall be deemed an assignment within the meaning of this
Section 15. Furthermore, any transaction by which Optionee undergoes a
merger or other reorganization, including a sale of all or substantially all of
its assets, wherein Optionee is not the surviving corporation (or the stock
holders of Optionee Immediately before the merger or reorganization do not
retain control of the surviving corporation) shall be deemed, for purposes of
the foregoing, a transfer of this Agreement. If Optionee Is or becomes a
publicly traded entity, any sale or other transfer of any outstanding stock of,
or limited partnership interests In, Optionee shall not be deemed an
assignment within the meaning of this Section 15 unless said sale or other
transfer is made by a person or entity owning a controlling interest in
Optionee and results in a change in the person(s) or entity(les) having control
of Optionee.
NB1.215179.Vf S
11 06M 0196
0
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(e) Existing Mortgagee. Optionor acknowledges that, pursuant to the terms of
• the deed of trust currently encumbering the Premises, this Agreement shall
be and become part of the security for such loan. Optionor further agrees that
the terms and conditions of that certain Lessor's Estoppel Certificate,
Acknowledgement and Consent to Assignment of Leasehold Estate by Deed of
Trust dated May 21, 1989, by and between Financial Security Assurance, Inc.
and Optionor shall apply with full force and effect to this Agreement.
16. Participation In Sale Proceeds. In the event Optionee (1) sells, conveys,
transfers or assigns all or any portion of its interest in this Agreement, or the
leasehold estate created by the Existing Lease (other than to a Mortgagee as
security), or (11) sells, transfers or conveys any interest in Optionee or its constituent
shareholders, including the stock of Optionee of any kind or class, common or
preferred, or the beneficial or equitable ownership interest in such stock or in
Optionee (collectively, a "Sale"), at any time prior to twenty-four (24) months
following the Issuance of the final certificate of occupancy for the Project, as
contemplated in the New Lease, Optionee shall pay to Optionor an amount equal to
twenty percent (20%) of the Net Proceeds (as hereinafter defined). For purposes of
this Section 16:
(a) "Net Proceeds" shall mean the entire consideration paid or payable to or for
the benefit of Optionee or its constituent shareholders in connection with a
Sale (whether In cash, note, in kind or other consideration) less (1) Project
• Costs (as hereinafter defined) and (11) reasonable and customary actual out-
of-pocket costs and expenses of Optionee incurred in connection with
consummating such Sale (excluding any payment made to any Mortgagee or
lender to release any Mortgage or other security or otherwise);
•
(b) "Project Costs" shall mean and be limited to:
NBT-215179NI5
(i) Five Hundred Thousand Dollars ($500.000), in reimbursement of all
third party predevelopment costs Incurred and paid by Optionee prior
to the date of this Agreement:
(if) all third party costs and expenses Incurred and paid by Optionee In
connection with the design, development, construction and renovation
of the Project from and after the date of this Agreement through the
date of such Sale (including, without limitation, any required offsite
Improvements, demolition of existing improvements, permit and license
fees and charges, signage, furniture, fixtures and equipment,
architecture, design and engineering fees, Insurance bonds,
construction management fees, legal and other professional fees
related to construction of the Project, financing fees and payments of
principal on any new loan obtained by Optionee in connection with the
construction and renovation of the Project, plus interest thereon at the
12 amass
�V�,
rate of Interest charged on the loan obtained by Optionee In connection
with the construction and renovation of the Project (excluding any •
equity kicker, shared appreciation or other similar payment);
(iii) an amount equal to fifteen percent (15%) of the sum of subparagraphs
(1) and (ii) above; and
(iv) Thirty Million Dollars ($30,000,000), representing the appraised value
of Optionee's interest in the Premises as of May 15, 1996.
(c) Project Costs shall exclude any operating cost or expense of the operation of
the business of Optionee on the Premises other than predevelopment and
development costs set forth above, any fees paid to Optionee or Its Affiliates
for any purpose, ground rent payable under this Lease, and any other costs
or expenses not specifically described In subparagraph (b)(1) through (iv)
above. From time to time, but not less often than quarterly, Optionee shall
provide Optionor with a certified schedule of Project Costs with reasonable
supporting documentation.
(d) Net Proceeds shall not include any proceeds of a Sale which are not
distributed to or for the benefit of Optionee or its constituent shareholders,
and which are used by Optionee in the payment of costs and expenses
incurred in the construction and renovation of the Project.
17. Successors in Interest. Subject to Section 15, this Agreement shall Inure to the •
benefit of and be binding upon the successors, personal representatives, heirs and
assigns of the parties hereto.
18. Time Periods. Unless "business day" 1s specified, the term "day" means a calendar
day. Nevertheless, whenever action must be taken under this Agreement during a
certain period of time or by a certain date that ends or occurs on a day which is not
a business day, the time for performance shall be extended to the next business day.
The term "business day" means any day other than a Saturday, Sunday or Federal or
State of California holiday.
19. Attorneys' Fees. If either party files any action or brings any proceeding against
the other arising out of this Agreement or any agreement executed pursuant hereto,
the prevailing party shall be entitled to recover as an element of its costs of suit, and
not as damages, reasonable attorneys' fees to be fixed by the court.
20. Notices. Any notice, request, demand, instruction or other communication to be
given to either party hereunder shall be In writing and shall be deemed to have been
duly given when personally delivered, twenty-four (24) hours after deposited with a
reliable overnight carrier guaranteeing next day delivery, postage prepaid, addressed
NB1.215179.V15 13 06A 0/96
�`w
as set forth below, or forty-eight (48) hours after mailed by United States registered
• mail, return receipt requested, postage prepaid as follows:
If to Optionor: City of Newport Beach
3300 Newport Boulevard
P.O. Box 1768
Newport Beach, CA 92658-8915
Attention: City Manager
With copy to: O'Melveny & Myers
610 Newport Center Drive
Suite 1700
Newport Beach, CA 92660-6429
Attention: Lowell C. Martindale, Jr.
If to Optionee: BBC Property, Inc.
1221 West Coast Highway
Newport Beach, CA 92663
Attention: General Manager
With copy to: Pinto. Gromet, Dubia & Worcester
2 Park Plaza
Suite 300
• Irvine, CA 92714
Attention: Saul B. Pinto
Either party may change its address for purposes of receiving notice hereunder by
giving notice to the other party pursuant to the provisions hereof. Refusal to accept
delivery of any notice, request, demand, instruction or other communication shall be
deemed to be delivery thereof.
21. Time is of the Essence. Except as expressly provided otherwise in the
Agreement, time is of the essence of this Agreement.
22. Entire Agreement. This Agreement contains all of the agreements of the parties
hereto with respect to the matters contained herein, and no prior agreement or
understanding pertaining to any such matter shall be effective for any purpose. No
provision of this Agreement may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective successors in Interest.
23. Interpretation. This Agreement shall not be construed more strictly against, one
party than against the other, it being recognized that both parties have contributed
substantially and materially to the preparation of this Agreement.
•
NBI.215179.V15 14 001096
24. Governing Law. The language In all parts of this Agreement shall be construed in •
accordance with the internal laws of the State of California (without regard to
conflicts of law principles).
25. Section Headings. Headings at the beginning of each numbered section of this
Agreement are solely for the convenience of the parties and are not a part of this
Agreement.
26. Counterparts. This Agreement and any amendment or supplements to it may be
executed in counterparts, and all counterparts together shall be construed as one
document.
27. Waiver. No covenant, term or condition of this Agreement shall be deemed to have
been waived by any party hereto unless such waiver Is In writing signed by the party
against whom such waiver Is asserted.
28. Attorneys' Fees. If any party incurs any expense, including reasonable attorneys'
fees and expenses, In connection with any action or proceeding against the other,
arising out of or in connection with this Agreement, whether or not such action
proceeds to trial, the sums so paid by the prevailing party shall be due from and be
paid by the nonprevalling party on demand.
29. Arbitration. In the event of a dispute regarding the approval or disapproval by
Optionor of the Design Development Plans and/or the Mal Plans, or any changes
•
thereto as provided in Sections 7, 8 or 9 hereof, If the parties are unable to resolve
such dispute, the parties shall proceed under this arbitration provision. Within ten
(10) days following the expiration of the ninety (90) day period described in Sections
7 or 8(a), respectively, the parties shall meet to select an independent architect
satisfactory to both parties to wham the matter shall be referred for resolution. If
the parties are unable to mutually select such independent architect within such ten
(10) day period, each party shall select an architect of its choice within five (5) days
thereafter. Within five (5) days following the selection of the last selected architect,
the two (2) architects so selected shall select a third architect to assist in resolving
the dispute. If the two (2) architects so selected are unable to mutually select the
third architect, either party shall be entitled to petition the presiding judge of the
Orange County Superior Court to select such third architect. Any architect selected
hereunder must be licensed and have not less than (10) years experience ln,botel
design. If only one architect Is utilized, the cost of such architect shall be shared
equally by the parties. If more than one architect is selected, each party shall bear
the cost of Its own architect as well as one-half of the cost of the third architect. De
architect(s) selected shall meet with each of the parties independently as well as
jointly within ten (10) days following the selection of the last architect to act
hereunder. Within ten (1.0) days following such joint meeting, the architect(s) shall
render its/their determination resolving the dispute.
N137.215179NI5 15 MOM
\,,a
IN 14ITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and
• year first written above.
•
NB1.215179.V15
CITY OF NEWPORT BEACH,
a municipal corporation
UA
BBC PROPERTY, INC.,
a New York corporation
16
86/1"6
EXHIBIT A
LEGAL DESCRIPTION OF THE PREMISES
nei-215179.VI5 A -I MOM
E
E
EXHIBIT B
GROUND LEASE
M -215179N15
h
��1
FINAL DRAFT
GROUND LEASE
by and between
CITY OF NEWPORT BEACH,
a municipal corporation
"Landlord"
and
BBC PROPERTY, INC.,
a New York Corporation
"Tenant"
Dated as of _
NBi-21513GN18
1.111I2917
0
0
0
GROUND LEASE
TABLE OF CONTENTS
ARTICLE I DEFINITIONS, GRANT AND TERM ......................... 2
1.1 Definitions ... ............ ........... .............. 2
ARTICLE 11 GRANT OF LEASE AND TERM ............................ 10
2.1 Lease ........ ............. 10
12 Term . ......... ........ ........................... 10
2.3 Quiet Possession ...................................... 10
2.4 Ownership of Improvements 11
ARTICLE III CONSTRUCTION AND IMPROVEMENT OF PREMISES
—.1— .... I ..... I .............. ........ 12
3.1
Improvements to be Erected by Tenant .....................
12
3.2
Coastal Approval and Entitlements ........................
12
3,3
Compliance With Laws ..... ........ ...... — ......
12
14
Lien Free Completion ..................................
13
3,1
As"Bullt Drawings ... * , * * ............ * * , * ........
11
• 3.6
Tenant's Architects and Contractors .......................
14
3.7
Costs of Construction ................... ..............
14
3.8
Renovation and Maintenance of Hotel ......................
14
3.9
Renovation and Maintenance of Apartments ...... .....
15
3.10
Maintenance of Marina Operations ........................
15
111
Landlord's Cooperation . ................................
16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES ....................
16
4.1
Landlord's Representations and Warranties .................
16
4.2
Tenant's Representations and Warranties ...................
17
ARTICLE V
RENT ...............................................
17
5.1
Rent .......... ........... ........................
18
5.2
Percentage Rent ......................................
18
5.3
Base Rent During Construction ...........................
19
5.4
Periodic Adjustments of Base Rent ........................
19
5.5
Fair Market Adjustment of Base Rent ......................
19
5.6
Payment of Rent ......................................
20
5.7
Charges for Goods and Services .........................
20
5.8
Reconciliation of Annual Rent ............................
20
0
NBI-215136.V7$
6OW96
5.9 Place for Payment of Rentals ....... . .................... 21 •
5.10 Records and Reports of Sales ............................ 21
5.11 Additional Rent ....................................... 22
5.12 No abatement or Reduction in Rent ........................ 22
5.13 No Partnership Created ................................. 22
5.14 Net Lease ........................................... 23
ARTICLE VI TENANT'S OBLIGATION WITH RESPECT TO
MAINTAINING PREMISES ............................... 23
6.1 Repairs and Maintenance ............................... 23
6.2 Taxes and Assessments ................................. 23
6.3 Capital Replacement During Term ......................... 24
ARTICLE VII USE OF PREMISES .................................... 25
7.1 Use of Premises ...................................... 25
7.2 Pump -Out Station ..................................... 26
7.3 Environmental Requirements ............................ 26
ARTICLE VIII CONDUCT OF BUSINESS BY TENANT ...................... 26
8.1 Standards of Operation ................................. 26
8.2 Management ......................................... 27 •
8.3 Competition by Tenant .................................. 27
8.4 Use of Name .......................................... 28
ARTICLE IX ALTERATIONS, FIXTURES AND SIGNS ..................... 28
9.1 Tenant's Right to Make Alterations ........................ 28
9.2 Prohibition Against Liens ............................... 28
9.3 Signs ............................................... 28
ARTICLE X INSURANCE, INDEMNITY AND CASUALTY ................... 29
10.1 Insurance ........................................... 29
10.2 Indemnification ....................................... 32
10.3 Settlement of Insurance Claims ........................... 34
10.4 Casualty ............................................ 34
10.5 Casualty Late in Term .................................. 34
10.6 No Abatement of Rent .................................. 34
ARTICLE XI UTILITIES ........................................... 35
11.1 Utilities ............................................. 35
•
N61.215136.1'16 6WV96
Au
ARTICLE XII ESTOPPEL CERTIFICATES .............................. 35
12.1 Estoppel Certificates ................................... 35
ARTICLE XIII ASSIGNMENT AND SUBLEASING ......................... 36
13.1 Limitation on Right to Assign ............................ 36
13.2 Grant or Dental of Consent .............................. 37
13.3 Non -Application to Guest Rooms and Facilities ............... 37
13.4 Assignment to Affiliate ....... ....................
..:... 38
13.5 Limitation on Transfer of Interest In Tenant ................. 38
13.6 Participation in Sale Proceeds ........................... 39
ARTICLE XIV
HYPOTHECATION .....................................
41
14.1
Tenant's Right to Hypothecate ............................
41
14.2
Notice to and Rights of Mortgagees ........................
42
14.3
Nonsubordination of Fee ...... . .........................
45
14.4
Equipment Financing ...................................
45
14.5
Cross Collateralization of Premises .......................
46
ARTICLE XV
WASTE AND GOVERNMENTAL REGULATIONS ...............
46
15.1
Waste or Nuisance ....................................
46
• 15.2
Governmental Regulations ...............................
46
15.3
Tenant's Right to Contest Governmental Regulations ..........
46
ARTICLE XVI
EMINENT DOMAIN ....................................
47
16.1
Lease Governs ........................................
47
16.2
Termination of Lease ...................................
47
16.3
Partial Taking; Rental Abatement .........................
47
16.4
Partial Taking; Restoration ..............................
48
16,5
Distribution of Award ..................................
48
16.6
Allocation of Award; Partial Taking ........................
48
16.7
Allocation of Award; Temporary Taking .....................
49
16.8
Allocation of Award; Total Taking .........................
49
16.9
Conduct of Proceedings .................................
49
16.10
Notices .............................................
50
ARTICLE XVII
DEFAULT PROVISIONS .................................
50
17.1 Events of Default ...................................... 50
17.2 Remedies Upon Default ................................. 51
17.3 Landlord Acting for Tenant's Account ...................... 52
N61-215130XIB 010"6
17.4
Limited Liability; Non -Recourse Ground Lease ...............
52
ARTICLE XVIII
LANDLORD'S ACCESS ..................................
53
18.1
Landlord's Right of Access ..............................
53
ARTICLE XIX
MISCELLANEOUS .....................................
53
19.1
Waiver ..............................................
54
19.2
Accord and Satisfaction .................................
54
19.3
Entire Lease .........................................
54
19.4
Termination of Existing Lease ............................
54
19.5
Force Majeure........................................
54
19.6
Notices .............................................
55
19.7
Captions and Section Numbers ...........................
56
19.8
Construction of Language ...............................
56
19.9
Broker's Commission ...................................
56
19.10
Limitation of Landlord's Obligations .......................
56
19.11
Landlord's or Tenant's Discretion .........................
56
19.12
Interest .............................................
57
19.13
Successors ..........................................
57
19.14
Applicable Law .......................................
57
19.15
Landlord's and Tenant's Rights are Cumulative ...............
57
19.16
Saving Clause ........................................
57
19.17
Attorneys' Fees and Expenses ............................
57
19.18
Injunctive Relief ......................................
57
19.19
Appraisal ............................................
57
19.20
Recording ...........................................
58
19.21
Incorporation of Preamble, Recitals and Exhibits .............
58
N61.215136.V1 B 6/66/96
•
•
0 GROUND LEASE
THIS GROUND LEASE (this "Lease") is made as of , _, by and
between THE CITY OF NEWPORT BEACH, a charter city and municipal corporation
("Landlord"), and BBC PROPERTY, INC., a New York Corporation ("Tenant").
RECITALS
A. Landlord is the grantee of that certain parcel of real property located in the City
of Newport Beach, County of Orange, State of California, as more particularly
described on Exhibit A attached hereto (the "Premises"), pursuant to the
provisions of the Beacon Bay Bill (Chapter 74 of the Statutes of 1978).
B. Tenant is currently occupying and in possession of the Premises pursuant to that
certain Lease between Landlord, as lessor, and Tenant, as lessee, dated May 13,
1986 (the "Existing Lease"). The Premises are operated as a multi -use hotel and
club facility by International Bay Clubs, Inc., an Affiliate of Tenant, operating under
the name "Balboa Bay Club."
C. On November 3. 1992, a majority of the electors of the City of Newport Beach
approved Measure M which authorized the City Council of the City of Newport
Am of
to lease tidelands and waterfront property consistent with the provisions
of State law.
D. The California State Lands Commission has determined that this Lease conforms
with the provisions of relevant statutes, rules and regulations and has approved
this Lease.
E. The City Council of the City of Newport Beach has determined that this Lease is
consistent with the Charter of the City of Newport Beach, and its General Plan and
Zoning Ordinances applicable thereto, and of all other applicable State and local
laws.
F. The City Council of the City'of Newport Beach has determined that it is in the best
Interests of the citizens of the City of Newport Beach to maintain the use and
character of the Premises for the general uses permitted thereon by the current
General Plan and Zoning Ordinances of the City applicable thereto, and to enter
into this Lease under the terms and conditions set forth herein.
G. Landlord and Tenant entered into that certain Option Agreement for the Lease of
Real Property dated as of June —, 1996 (the "Option Agreement") granting
Tenant the right to enter into a new lease for the Premises on the terms and
conditions set forth herein. Tenant has duly exercised such option, all conditions
• precedent to such exercise have been satisfied, and there exists no event of default
NBI-215136NIB 1 6106M
under the Existing Lease or the Option Agreement as of the date of the exercise
of the option by Tenant or the date hereof. •
H. Landlord and Tenant each desires to terminate the Existing Lease and
concurrently therewith enter into this Lease.
J. Landlord and Tenant agree that the Option Agreement and this Lease fully comply
with and completely satisfy the obligations of Landlord and Tenant under all prior
agreements and understandings, including all prior Memoranda of Understanding
and the Existing Lease.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS, GRANT AND TERM
1.1 Definitions. For purposes of this Lease, the following definitions shall apply:
"Accounting Period" means a calendar quarter.
"Affiliate" means any individual, corporation, partner, partnership, limited
liability company, trust or other entity which directly or indirectly Controls, is •
directly or indirectly Controlled by, or is under common Control, whether it be
direct or indirect, with the specified entity.
"Apartment Revenues" means Gross Revenues derived by the Tenant Parties
from the rental of apartments within the Project, whether for transient or long-
term occupants, plus any portion of any Award made on account of a temporary
Taking allocated to "Apartment Revenues" pursuant to Section 16.7 of this Lease.
"Charter Commission Revenues" means Gross Revenues derived by the Tenant
Parties from commissions received for arranging boat charters of bay or ocean
going vessels for guests trips and special purpose occasions, including Newport
Harbor cruises, whether or not such charters depart from or arrive at the
Premises, plus any portion of any Award made on account of a temporary Taking
allocated to "Charter Commission Revenues" pursuant to Section 16.7 of this
Lease.
"Charter Revenues" means Gross Revenues derived by the Tenant Parties from
operating or managing the boat charters of bay or ocean going vessels for guests
trips and special purpose occasions, including Newport Harbor cruises, whether
or not such charters depart from or arrive at the Premises, plus any portion of any
N61.215136.V16
6/06/96
•
V,a
Award made on account of a temporary Taking allocated to "Charter Revenues"
pursuant to Section 16.7 of this Lease.
"City" means the City of Newport Beach, located in the County of Orange, State
of California, a charter city formed pursuant to the laws of the State of California.
References in this Lease to the City (as distinguished from Landlord) are Intended
to distinguish actions, rights and powers of the City in the exercise of its municipal
and legislative powers and authority and the discharge of its legislative and
municipal responsibilities from the actions of Landlord pursuant to this Lease.
This Lease shall not limit, preclude or infringe upon the municipal and legislative
powers and authority of the City, or the discharge of its legislative and municipal
responsibilities, whether or not any of such actions, authority, powers or
responsibilities are discretionary, administrative or mandatory under law.
"Commencement Date" means the date set forth in the introductory paragraph
of this Lease.
"Control", "Controlled by" or "Controlling" means the possession, direct or
Indirect, of the power to direct or cause the direction of the management and
policies of an entity whether through ownership of an Interest therein, through
ownership of voting securities, by contract or otherwise.
"Constituent Member" means any constituent partner, joint venturer, holder of
• a beneficial interest or shareholder in Tenant, or in any partnership, joint venture,
trust or corporation holding a direct or indirect interest in Tenant.
0
"County" means the County of Orange, State of California.
"Default Rate" means the then Prime Rate plus five percent (5%) per annum.
The Default Rate shall change as and when the Prime Rate shall change.
"Dry Storage Revenues" means Gross Revenues derived by the Tenant Parties
from the dry storage of small boats on the Premises on behalf of guests, members
and other persons, plus any portion of any Award made on account of a temporary
Taking allocated to "Dry Storage Revenues" pursuant to Section 16.7 of this Lease.
"Dues Revenues" means Gross Revenues derived by the Tenant Parties from
membership dues and fees for membership in or use of the club, spa, recreational
facilities or beach at the Project (exclusive of security deposits), and Bay Window
Magazine subscriptions and sales, plus any portion of any Award made on account
of a temporary Taking allocated to "Dues Revenues" pursuant to Section 16.7 of
this Lease; provided, however, that charges for or Income derived from any service
or facility included In any other category of Percentage Rent, such as, by way of
example and not limitation, food and beverage revenues or rental of guest rooms,
shall not be Included in Dues Revenues.
NSI-2I5136NIB
6!66/96
�4
"Event of Default" means the occurrence of any of the events listed in Section •
17.1 and the expiration of any applicable notice and cure period provided in said
Section.
"Final Plans" means the final plans approved by Landlord as provided In the
Option Agreement.
"Fiscal Year" means the period of October 1 through September 30 of each year
of the Term.
"Food and Beverage Revenues" means Gross Revenues derived by the Tenant
Parties from the sale of food and beverages (including food and beverages from all
facilities, off -premises food and beverage sales, cover charges, service charges
and miscellaneous banquet revenue), plus any portion of any Award made on
account of a temporary Taking allocated to "Food and Beverage Revenues"
pursuant to Section 16.7 of this Lease, but shall not include (1) the value of gratis
meals furnished to Tenant's employees as an Incident of their employment,
(ii) gratuities paid to employees, and (Iii) the value of meals provided in connection
with charitable events when no Tenant Party receives payment therefor other than
by reason of a charitable contribution.
"Force Majeure" means, without limitation, such events as: strikes; lockouts;
acts of God; inability to obtain labor, materials, equipment or supplies; breaches
of contract by contractors, subcontractors or material suppliers which materially •
effect the critical path of construction of the Improvements contemplated by this
Lease; breaches of contract by any lender with a lien on the Project which
materially effect the critical path of construction of the improvements
contemplated by this Lease (but In no event shall such event of Force Ma}eure
result in any permitted delay In performance by Tenant of any obligation under this
Lease by a period In excess of six (6) months); governmental restrictions;
moratoriums, initiatives, referenda imposed by or occurring within the County or
other governmental agency which now or hereafter has jurisdiction over the
Premises; war or enemy action or invasion; civil commotion; Insurrection; riot;
mob violence; malicious mischief or sabotage; unusual failure of transportation;
fire or any other casualty; flood; earthquake; unusually adverse weather
conditions; a Taking; any litigation or other judicial or administrative proceeding
or the passage, promulgation or application of any law, order or regulation of any
governmental, quasi -governmental, judicial or military authority; either party's
delay In responding to the other party's request for approval or consent which the
requesting party Is required to obtain hereunder beyond the period of time the
responding party is given under this Lease to respond-, or other similar causes
beyond the control of the delayed party; any of which has the effect of delaying,
hindering or preventing such party's performance of Its obligations hereunder. if
the event of Force Ma/eure arises out of a party's delay in responding to the
other's request for consent or approval, then the delayed party shall notify the
N61-215136NIB
4
610MG
)p
other party of such event of Force Majeure promptly after the delayed party has
• knowledge that such delay will or may occur as a result thereof, and the delayed
party shall use reasonable efforts to minimize the effects thereof. With respect to
the occurrence or threat of any event of Force Majeure, the delayed party agrees
to notify the other party promptly after the delayed party has knowledge that such
event of Force Majeure may or will occur.
"Furnishings" means all furniture, furnishings, fixtures and equipment used in
the operation of the Project, Including: all wall coverings, draperies, blinds,
shades, shutters and other window coverings, curtain rods, valances and other
window treatments; tapestries, paintings, art and sculpture; carpets, rugs and
other floor coverings; bar, saloon, lounge, dining, banquet, meeting and guest
room furniture and furnishings; laundry, valet and dry cleaning equipment; office
and material handling equipment and machinery; maintenance, janitorial, cleaning
and engineering equipment; all kitchen equipment and facilities (whether or not
permanently attached), and machinery, equipment and furnishings used in food
and beverage storage, preparation, heating and refrigeration; and all trade
fixtures.
"Gross Revenues" means all gross receipts of every kind and nature, whether for
cash, credit or barter, from any business, use or occupation, or any combination
thereof, transacted, arranged or performed, in whole or in part, on, from or for
services from the Premises, whether operated by the Tenant or by a sublessee,
• licensee or concessionaire if such sublessee, licensee or concessionaire is an
Affiliate of Tenant for Room Revenues, Food and Beverage Revenues, Apartment
Revenues, Marina Revenues, Dry Storage Revenues, Charter Revenues, Charter
Commission Revenues, Dues Revenues, Retail Revenues and Miscellaneous
Revenues. In the computation of Gross Revenues for any of the above mentioned
categories thereof, there shall be excluded therefrom the following amounts:
(i) rebates, refunds and discounts (exclusive of credit card discounts or
commissions paid to a credit card system) to customers given in the ordinary
course of obtaining such revenues; (ii) excise, sales and use taxes collected
directly from patrons or guests or as a part of the sales price of any goods or
services, such as gross receipts, admission, cabaret or similar taxes, which are
accounted for by Tenant to any governmental agency; (iii) income or interest
derived from cash, securities and other property acquired and held for investment
by Tenant (including income or interest earned on any amounts held in operating
or replacement reserves for the Project); (iv) proceeds of insurance other than
business interruption or rental loss insurance, (v) advertising, promotional or
charitable billings not actually charged or paid; and (vi) bad or uncollectible debts.
Sales upon credit shall be considered cash sales and shall be included in the gross
receipts for the period during which the goods or services are delivered or
performed. All Gross Revenues shall be computed without deduction or allowance
for costs, charges or expenses for the purchase, sale, transportation or delivery
•
NB1.215136.V78
R
6/06/96
of merchandise or services, or for labor and materials in connection with the
rendering of services or the sale of goods. •
"Hazardous Material" means any flammable explosives, asbestos, asbestos
containing materials, radioactive materials, hazardous wastes, petroleum
polychlorinated biphenyls, toxic substances or related Injurious materials, whether
Injurious by themselves or in combination with other materials, "hazardous
waste," "extremely hazardous waste" or "restricted hazardous waste" as defined
in Chapter 6.5 of Division 20 (Section 25100 et seq.) of the California Health and
Safety Code, as amended, or any successor statute, (b) "hazardous substance" as
defined in the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 et seq.), as amended, or any successor
statute, (c) "hazardous material" as defined in the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), as amended, or any successor
statute, (d) "hazardous waste," "solid waste," "sludge," "used oil," "recycled oil,"
and "re -refined oil" as defined In the Resource Conservation and Recovery Act of
1976 (42 U.S.C. Section 6901 et seq.), as amended, or any successor statute,
(e) "hazardous substance" as defined in the Carpenter -Presley -Tanner Hazardous
Substance Account Act, Chapter 6.8 of Division 20 (Section 25300 et seq.) of the
California Health and Safety Code, as amended, or any successor statute,
(f) "hazardous substance" as defined in Chapter 6.7 of Division 20 (Section 25280
et seq.) of the California Health and Safety Code, as amended, or any successor
statute, (g) "hazardous material," "hazardous substance" or "hazardous waste'
as defined in Chapter 6.9 of Division 20 (Section 25501 et seq.) of the California •
Health and Safety Code, as amended, or any successor statute, (h) "hazardous
substance" as defined in the Clean Water Act (33 U.S.C. Section 1251 et seq.), as
amended, or any successor statute, or (i) any substance, materials or wastes now
or in the future listed in (1) the United States Department of Transportation
Hazardous Materials Table (49 C.F.R. Section 172.101), as amended or any
successor; (2) the Environmental Protection Agency list (40 C.F.R. Part 302), as
amended or any successor; (3) the list published In Title 26 of the California
Administrative Code, as amended or any successor; or (4) any other list published
by any federal or state governmental entity now or in the future.
"Hazardous Material Activity" means any storage, holding, release, emission,
discharge, generation, abatement, disposition, handling or transportation of any
Hazardous Material from, on or otherwise relating to the Premises exclusive of use
of minor quantities of Hazardous Materials In the ordinary course of business in
compliance with applicable law.
"Inventories and Supplies" means Inventory and supply Items, including
chinaware, glassware, linens, silverware, utensils, uniforms, office supplies, paper
supplies, guest room supplies, cleaning supplies and other consumable supplies,
food and beverage inventories and goods held for resale or used or intended for
use in connection with the conduct of Tenant's business on the Premises.
•
NB 1.215136.V1 B 6 BN696
,A%
"Lease Interest Rate" means the then Prime Rate plus two percent (2%) per
annum. The Lease Interest Rate shall change as and when the Prime Rate shall
change.
"Leasehold" means the leasehold estate created by the terms and subject to the
conditions of this Lease.
"Marina Revenues" means Gross Revenues derived by the Tenant Parties from
the rental of boat slips and temporary dock or slip fees and charges (exclusive of
utility reimbursements paid by slip renters) plus any portion of any Award made
on account of a temporary Taking allocated to "Marina Revenues" pursuant to
Section 18.7 of this Lease.
"Miscellaneous Revenues" means all Gross Revenues derived by the Tenant
Parties from the Project excepting those receipts previously categorized under
Apartment Revenues, Charter Revenues, Charter Commission Revenues, Dry
Storage Revenues, Dues Revenues, Food and Beverage Revenues, Marina
Revenues, Retail Revenues and Room Revenues derived from the Project, including
but not limited to sales from gift and other shops, rentals or agreements for other
guest services, vending machines revenues, any revenue or income related to
telephone and telecommunication operations, any revenue or income related to
cable or video television operations, parking charges or fees, proceeds of business
interruption or rental loss Insurance (net of Tenant's reasonable costs of settling
• the claim giving rise to such proceeds with the insurance carrier), plus any portion
of any Award made on account of a temporary Taking allocated to "Miscellaneous
Revenues" pursuant to Section 18.7 of this Lease, plus all rentals or other
payments from sublessees, licensees or concessionaires who are not Affiliates of
Tenant, and any other Gross Revenues which may be received from time to time
which are not specifically provided for In the categories described in Apartment
Revenues, Charter Revenues, Charter Commission Revenues, Dry Storage
Revenues, Dues Revenues, Food and Beverage Revenues, Marina Revenues, Retail
Revenues and Room Revenues.
0
"Mortgage" means any deed of trust, mortgage or similar security instrument
entered into by Tenant encumbering the leasehold estate created by this Lease, as
permitted by this Lease, including an assignment of this Lease as security
therefor.
"Mortgagee" means the holder of or beneficiary under a Mortgage.
"Partial Taking" means a Taking which does not constitute a Total Taking or a
Temporary Taking.
"Percentage Rent" means the rental calculated in accordance with Section 5.2
of this Lease.
N81-215136.Vi8 t 606x98
"Premises" means the parcel of land located in the City of Newport Beach, County
of Orange, State of California, as more fully described In Exhibit A attached hereto
and by this reference incorporated herein.
"Prime Rate" means the prime or base rate of interest, or equivalent rate of
Interest, however termed, as announced from time to time and as so Identified by
Bank of America. "Prime Rate" means the prime or base rate of Interest, or
equivalent rate of interest, however termed, as announced from time to time and
as so identified by The Wall Street Journal if at any time Bank of America shall fall
or cease to publish and announce a prime or base rate of Interest.
"Project" means all Improvements, elements and features constructed or to be
constructed on the Premises, including a private membership club, hotel, rental
apartments, boat slips, spa and health club, food and beverage facilities,
recreational facilities, parking facilities, and all other amenities and services
customarily found in projects in Southern California of the type, size and quality
described herein, all in accordance with the final Plans approved by Landlord
pursuant to the Option Agreement.
"Qualified Manager" means, as to the hotel portion of the Project, during any
time the hotel portion of the Project Is being managed by Tenant or an Affiliate, an
Individual employed by Tenant or such Affiliate who Is an experienced hotel
operator with a good reputation for honesty and integrity and who has not less
than ten (10) years experience in the operation and management of first class
hotel facilities, and who does not own, lease, manage or have an Interest in any
other hotel prohibited by Section 8.3 (except for ownership of less than a
Controlling Interest in a corporation whose capital stock is pubiically traded); and
during any time the hotel portion of the Project is being managed on behalf of
Tenant by an independent operator under a management contract, a regionally
recognized hotel operator of first-class resort hotels of the type, size and quality
of the hotel portion of the Project, who has the financial ability to perform Its
obligations under a conventional management agreement for the management and
operation of the hotel portion of the Project, who enjoys a reputation for honesty
and integrity, who is experienced In the management and operation of hotels
meeting the first-class standards of the Project, and who does not own, lease,
manage or have an Interest in any other hotel prohibited by Section 8.3 (except for
ownership of less than a Controlling interest In a corporation whose capital stock
Is publically traded). As to the restaurant portions of the Project, a "Qualified
Manager" means, a Qualified Manager of the hotel portion of the Project, or during
any time the restaurant portion of the Project is being managed by Tenant or an
Affiliate, an individual employed by Tenant or such Affiliate who Is an experienced
restaurant operator with a good reputation for honesty and Integrity and who has
not less than ten (10) years experience in the operation and management of first
class restaurant facilities; and during any time the restaurant portions of the
Project is being managed on behalf of Tenant by an independent operator under
N81-215136NIS
1.1
1q
a management contract, a regionally recognized restaurant operator of first-class
restaurants of the type, size and quality of the restaurant portions of the Project,
who has the financial ability to perform its obligations under a conventional
management agreement for the management and operation of the restaurant
portions of the Project, who enjoys a reputation for honesty and Integrity, and who
is experienced In the management and operation of restaurants meeting the first-
class standards of the Project.
"Reserve Account" shall have the meaning ascribed to It In Section 6.3.
"Retail Revenues" means Gross Revenues derived by the Tenant Parties from the
sale of goods and services from retail shops, including clothing and other soft
goods, hair and beauty salons, gift and sundries shops , plus any portion of any
Award made on account of a temporary Taking allocated to "Retail Revenues"
pursuant to Section 16.7 of this Lease.
"Room Revenues" means Gross Revenues derived by the Tenant Parties from the
rental, or any other fee or charge in connection therewith, of hotel rooms intended
for overnight accommodations upon the Premises, meeting rooms and similar
facilities, including revenues derived from telephone, telex, facsimile and other
such equipment and facilities , plus any portion of any Award made on account of
a temporary Taking allocated to "Room Revenues" pursuant to Section 16.7 of this
Lease.
. "Taking" means any acquisition of or damage to all or any portion of the
Premises, or any interest therein or right accruing thereto, pursuant to or In
anticipation of the exercise of the power of condemnation or eminent domain, or
by reason of the temporary requisition of the use or occupancy of the Premises,
or any part thereof, by any governmental or quasi -governmental authority, civil or
military, or any other agency empowered by law to take property in the State of
California under the power of eminent domain.
0
"Tenant" means the person or entity owning the Leasehold estate created by this
Lease.
"Tenant's Investment" has the meaning ascribed to It in Section 2.4.
"Tenant Parties" means Tenant and any and all of its Affiliates.
"Temporary Taking" means a Taking for a temporary period or use of the
Premises or the Project or any portion thereof.
"Term" has the meaning ascribed to It in Section 2.2.
NBI-21S136.VtB
0
AlMT R0
"Total Taldng" means a Taking of all of the Premises and the Project other than
for a temporary purpose; or a Taking of so much of the Premises or the Project as •
to render the balance of the Premises unsuitable for the construction or operation
of a Project of the type and in the manner set forth In this Lease.
ARTICLE 111
GRANT OF LEASE AND TERM
2.1 Lease. In consideration of the covenants to be observed and performed by the
parties hereunder, Landlord hereby leases to Tenant, and Tenant hereby hires
from Landlord, the Premises. Landlord reserves all oil, oil rights, gas, minerals,
mineral rights, natural gas rights and other hydrocarbon substances in and under
the Premises and the right to grant and transfer the same, together with all
necessary and convenient rights to explore for, develop, produce and extract and
take the same, subject to the express limitation that any and all operations for the
exploration, development, production, extraction and taking of any such substance
shall be carried on at levels below the depth of five hundred feet (500') from the
surface of the land by means of wells, derricks and other equipment from surface
locations on adjoining or neighboring land so long as such activities do not
interfere with or impair the operation, business or aesthetics of the Project, and
subject further to all restrictions and regulations concerning the drilling for, and
production of, oil, gas, minerals, petroleum and other hydrocarbon substances
specified in the Newport Beach City Charter or the Newport Beach Municipal Code.
2.2 Term. The term ("Term") of this Lease shall commence on the Commencement •
Date and shall expire upon the fiftieth (50th) anniversary thereof (the "Expiration
Date"), unless sooner terminated as herein provided.
2.3 Quiet Possession.
(a) Tenant shall be entitled to peaceably and quietly use and enjoy the
Premises for the Term, without hindrance or interruption by Landlord
(other than in exercise of Landlord's rights should Tenant be in breach or
default hereunder) or any other person or persons claiming by, through or
under Landlord. Landlord shall in no event be liable in damages or
otherwise, because of the interruption or termination of any service
provided by the City (such as, water or sewer service), or a termination,
Interruption or disturbance of any service attributable to any act or neglect
of Tenant or its servants, agents, employees, licensees, business invitees,
or any person claiming by, through or under Tenant; provided, however,
Tenant's obligations hereunder, other than its obligation to pay Rent in
accordance with Article V, shall be excused to the extent such interruption
or termination interferes with the performance by Tenant of Its obligations
hereunder.
N81$15136N18
10 (WOO/96
•
• (b) Tenant has satisfied Itself, by its own Investigation and research, regarding
all physical conditions affecting Tenant's use and enjoyment of the
Premises and construction of the Project on the Premises (including soil
conditions and on-site and off-site improvements which may be needed).
By execution of this Lease, Tenant shall be deemed to have accepted the
Premises in an "AS IS" condition. Tenant acknowledges that It has had the
advice of such independent professional consultants and experts as It
deems necessary in connection with its investigation of the Premises, has
(to the extent it deems necessary) independently investigated the condition
of the Premises, including the soils, hydrology and seismology thereof, and
the laws and regulations relating to the construction and operation of the
Project on the Premises, Including environmental, zoning and land use
entitlement requirements and procedures, height restrictions, floor area
coverage limitations, and similar matters, and has not relied upon any
statement, representation or warranty of Landlord of any kind or nature in
connection with its decision to execute and deliver this Lease and its
agreement to perform the obligations of Tenant hereunder. In connection
with the matters set forth in this Section 2.3(b), Tenant acknowledges that
it (or its affiliated predecessors in interest) has been In possession and
occupancy of the Premises under the Existing Lease and predecessor
leases since 1948, and Tenant Is fully familiar with the condition of the
Premises. As between Landlord and Tenant, Tenant shall be solely
responsible for any condition on the Premises which may interfere with the
• construction, operation or maintenance of the Project.
2.4 Ownership of Improvements. Except as hereinafter provided, Tenant shall be
the owner of all improvements presently existing or hereafter constructed by
Tenant upon the Premises (as the same may be altered, expanded and/or Improved
from time to time), and all Furnishings, Inventories and Supplies and all other
personal property located on the Premises or in the Project (hereinafter referred
to collectively as the "Tenant's Investment"). Tenant shall retain all rights to
depreciation deductions and tax credits arising from its ownership of the Tenant's
Investment. At any time during the Term, upon Tenant's request therefor, and
within a reasonable period of time following said request, Landlord agrees to
confirm, in writing, that Landlord has no present possessory interest in any part
of the Tenant's Investment. Following the expiration or earlier termination of this
Lease, all improvements constituting fixtures to the Premises that cannot be
removed without causing damage to the Project shall automatically revert to and
become the property of Landlord without compensation or payment to, or
requirement of consent or act of, Tenant, and Tenant shall thereafter have no
further rights thereto or interest therein, Including any rights to depreciation
deductions or tax credits with respect thereto. Following the expiration or any
earlier termination of this Lease, Tenant shall retain its ownership in all items of
personal property comprising a portion of Tenant's Investment which may be
removed without causing damage to the Project; provided, however, if Tenant fails
•
NBt•215136.V1B 11 6/06/96
to remove the same within thirty (30) days following the expiration or earlier
termination of this Lease, any part of Tenant's Investment remaining on the •
Premises after said 30 -day period had expired shall become the sole property of
Landlord without compensation or payment to, or requirement of consent or act
of, Tenant, and Tenant shall thereafter have no further rights thereto or interest
therein. Upon the expiration or earlier termination of this Lease for any reason,
Tenant shall surrender the Premises and the Project to Landlord in good condition
and repair, reasonable wear and tear and acts of God excepted. Furthermore, at
such time, Tenant shall surrender all keys to any and all parts of the Project to
Landlord and shall inform Landlord of all combinations of locks, safes and vaults.
if any. In the Project or elsewhere on the Premises. Tenant agrees to execute,
acknowledge and deliver to Landlord any instruments reasonably requested by
Landlord to carry out the intention of this Section 2.4. Tenant's obligations and
Landlord's rights under this Section 2.4 shall survive the expiration or earlier
termination of this Lease.
ARTICLE III
CONSTRUCTION AND INIPRO17EMENT OF
3.1 Improvements to be Erected by Tenant. Tenant shall, at its sole cost and
expense, use its best efforts to design, construct, furnish and equip the Project
(including parking facilities adequate to fully comply with all applicable
ordinances, resolutions and conditions of approval of the Project) upon the
Premises as herein provided. Construction of the improvements, consisting of •
issuance of one or more building permits for construction of the Project (including
demolition of existing improvements), shall commence on or before ninety (90)
days following commencement of the Term (as said date is extended by events of
Force Majeure). Tenant shall, at its sole cost and expense, use its best efforts to
construct and complete the Project, which shall include all Improvements and
amenities as are contemplated in the Final Pians approved by Landlord under the
Option Agreement and as otherwise required by the terms of this Lease or by
applicable law so that completion is achieved on or before three (3) years
following the date of commencement of the Term (as said date is extended by
events of Force Majcure),
3.2 Coastal Approval and Entitlements. Tenant represents that it has obtained
a Coastal Development Permit (as such term is used in the certified land use plan
encompassing the Premises and approved by the California Coastal Commission)
for the Project. and to the extent not already obtained, Tenant shall, at its sole
cost and expense, apply for, process and use Its best efforts to obtain all other
approvals (including environmental approvals) and use permits or variances
required under applicable law for the construction and/or operation of the Project.
3.3 Compliance With Laws. Subject to its right to contest as contained In Section
15.3 below, Tenant shall cause the construction of the Project, and any subsequent •
NBi-215136.V7 B 12 WO"6
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improvements on the Premises, to be completed in substantial accordance with
all applicable laws, ordinances, resolutions, plans, permits, conditions, rules,
regulations and orders of all governmental authorities having jurisdiction over the
Premises, construction of improvements thereon, or the conduct of Tenant's
business thereat. Upon request of Landlord, Tenant shall furnish Landlord with
copies of any or all certificates and approvals relating to any work or installation
done by Tenant that may be required by any governmental authority or by all
applicable underwriters and insurers.
3.4 Lien Free Completion. Tenant agrees that the Project shall be constructed free
of liens for labor and materials, using quality materials and workmanship, and
substantially in accordance with the Final Plans and all applicable underwriters
and insurance requirements, zoning regulations, building codes and requirements
of any governmental authority having jurisdiction over the Premises. Tenant shall
promptly discharge any such lien or claim of lien made or filed against the
Premises; provided, however, that Tenant shall have the right to contest In good
faith and with reasonable diligence the amount or validity of any such lien or claim
of lien so long as Tenant shall provide Landlord, at Tenant's sole cost and expense,
with such bond or other security as Landlord may reasonably require to Insure
payment thereof and prevent any sale, foreclosure or forfeiture of all or any part
of the Premises. Tenant shall notify Landlord in writing of any and all liens and
claims of lien made or tiled against the Premises within fifteen (15) days after
Tenant becomes aware of the filing thereof. Tenant shall Immediately satisfy any
• final judgment or decree and cause the lien to be discharged. Any judgment shall
be deemed final for the purposes of this provision unless enforcement thereof is
stayed pending appeal. If Tenant fails promptly to discharge liens or claims of
lien, or to contest such liens or claims of lien and In connection therewith provide
the security required under this Section 3.4 or, after having compiled with the
provisions of this Section 3.4, there is an adverse order, judgment, decree or
award with respect to Tenant or Landlord and Tenant fails to satisfy the final
judgment, order, decree or award and cause the lien to be discharged, Landlord,
following reasonable written notice to Tenant, may, in its sole discretion, procure
the release and discharge of any such lien and any judgment or decree thereon
and, in furtherance thereof, may in its reasonable discretion, effect any settlement
or compromise. All amounts reasonably expended by Landlord in connection with
the provisions of this Section 3.4 (including attorneys' fees, charges and
expenses), together with Interest thereon at the Default Rate from the date of
expenditures to the date of reimbursement, shall be payable by Tenant
Immediately following demand therefor.
3.5 AS -Built Drawings. Upon completion of the work, Tenant shall furnish Landlord
with a set of drawings and specifications for all completed construction hereafter
occurring on the Premises which accurately reflect the nature and extent of all
work done on or to the Premises after the date hereof, and, where such drawings
and specifications are prepared in connection with any work or improvement
0
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contemplated in this Lease, any existing improvements on the Premises all marked
to show such construction "as built." is
3,6 Tenant's Architects and Contractors. All improvements and landscaping
(other than minor seasonal plantings) on the Premises and any subsequent
repairs, alterations, additions or improvements to any of the foregoing shall be
designed, selected or constructed, as applicable, by qualified and licensed (where
required) architectural, design, engineering and construction firms selected by
Tenant.
3.7 Costs of Construction. Tenant shall bear all costs and expenses associated
with the design, construction, furnishing, equipping and supplying of the Project,
which costs and expenses include without limitation: (1) utility hook-up and
connection fees and all distribution facilities, conduits, pipelines and cables
required in connection with the development of the Project, (ii) all design,
engineering, financing and construction costs, and (iii) all necessary use permits
or variances, and all grading, building and like permits required to construct and
operate the Project, including the Coastal Development Permit and any fees
assessed on the Premises by any governmental or quasi -governmental agency or
authority in connection with any regional transportation or other public
Improvements, and school district taxes, development fees and assessments.
3.8 Renovation and Maintenance of Hotel. Subject to Sections 10.4 and 10.5
hereof, Tenant shall maintain the hotel component of the Project, and each part •
thereof, and the furniture, fixtures, appliances and personal property used in
connection therewith, In a condition of repair and maintenance at least
comparable to other first class hotels in the Newport Beach area (such as, on the
date hereof, the Marriott Fashion Island); provided, however, that Tenant shall not
be required by this Section 3.8 to make any material capital investment in the
hotel component of the Project to upgrade facilities, systems and equipment which
are included in comparable quality hotels designed and constructed after the date
of Landlord's approval of the Final Plans as provided In the Option Agreement, but
which were not customary in such other quality hotels at the time of such design
approval. From time to time, but no more frequently than once in any consecutive
six (6) month period, upon request of Tenant, Landlord shall provide an estoppel
certificate to Tenant certifying whether, in the opinion of Landlord, the Project,
and each part thereof, and the furniture, fixtures, appliances and personal
property used in connection therewith, has or has not been maintained In a
condition of repair and maintenance at least comparable to other first class hotels
in the Newport Beach area as of the date of such certificate. Tenant shall maintain
the hotel with not less than one hundred forty (140) guest rooms and all related
facilities necessary or desirable to achieve the standard contemplated in this
Lease, including food and beverage services, banquet, conference and meeting
facilities, restaurants, sundries and gift shops, and spa and health club; provided,
however, if during the Term, Tenant reasonably determines that maintenance of
•
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• such number of guest rooms or related facilities is not as economically
advantageous as some other permitted use, Tenant shall be entitled to reduce the
number of required guest rooms or related facilities to allow for such other
permitted uses so long as there is no material reduction in economic benefits
accruing to Landlord or the City from the Project by reason of such change In use;
provided, however, in no event may the number of hotel rooms be reduced below
one hundred twenty-five (125) without the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed.
3.9 Renovation and Maintenance of Apartments. Tenant shall maintain the
apartment component of the Project, and each rental unit therein, and the
furniture, fixtures, appliances and personal property used in connection therewith,
in a condition of repair and maintenance comparable to other quality apartment
rentals in the Newport Beach area; provided, however, that Tenant shall not be
required by this Section 3.9 to make any material capital investment in the
apartment component of the Project to upgrade facilities, systems and equipment
which are not included in the apartment component of the Project as of the date
of Landlord's approval of the Final Plans as provided in the Option Agreement.
Tenant shall, from time to time as each apartment unit is leased, but not less
frequently than once every five (5) years during the Term hereof, renovate each
apartment unit to maintain such quality by cleaning and/or replacing the carpeting,
floor coverings and/or window coverings as reasonably required and painting the
• unit interior walls. Subject to Sections 10.4 and 10.5, Tenant shall maintain and
operate the Terrace Apartment Building as apartment units available for rental at
all times during the Term in a manner which will not result in termination of the
authorization of such use as an apartment complex under Paragraph 8(b) of
Assembly Bill No. 3139 effective September 22, 1994.
3.14 Maintenance of Marina Operations. Tenant shall maintain the marina
facilities, and the fixtures, appliances and personal property used in connection
therewith, in a condition of repair and maintenance at least comparable to
comparable quality of marina operations in the Newport harbor throughout the
Term; provided, however, that Tenant shall not be required by this Section 3.10 to
make any material capital investment in the marina component of the Project to
upgrade facilities, systems and equipment which are included in the existing
marina as of the date of Landlord's approval of the Final Plans as provided W, the
Option Agreement. Tenant shall maintain and operate not less than one hundred
forty (140) slips suitable for boats of up to one hundred (100) feet in length for
rental throughout the Term to the general public who are members of the Balboa
Bay Club. and shall make such slips available for rental at comparable rental rates
for comparably sized and maintained marina facilities in the Newport Harbor from
time to time during the Term. Tenant shall not enter into rental or leasing
agreements for boat slips (i) for a term of longer than one (1) year unless such.
agreements have provision for adjustment of rent to full fair market rental value
• not less often than each year, or (ii) with any person for a discounted or reduced
nei•215136NIB 15 MGM
1ST
rental below comparable rental rates of the slip based upon membership in any 40club, facility or business arrangement between Tenant, or any affiliated entity, and
a renter of a slip.
3.11 Landlord's Cooperation. Landlord shall cooperate with Tenant in all of
Tenant's efforts to construct, operate and maintain the Project as set forth in this
Article III, and shall execute such applications and other undertakings as shall be
reasonably required in its capacity as the owner of the Premises to enable Tenant
to file for and obtain all building permits, licenses, variances, permissions and
consents necessary to construct, operate and maintain the Project and otherwise
to perform its activities under this Article Ill; provided, however, that nothing
herein shall imply any obligation inconsistent with or result in any diminution of
Landlord's legislative, quasi-judicial or administrative rights, obligations and
prerogatives as a municipal public agency, including Landlord's rights, obligations
and prerogatives in connection with reviewing and approving any license, permit
or entitlement for the development, construction or use of the Premises.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Landlord's Representations and Warranties. As a material inducement to
Tenant to enter into this Lease, Landlord represents and warrants the following
as of the date hereof: •
(a) Power and Authority. That it is a municipal corporation duly organized,
validly existing and in good standing under the laws of the State of
California; that it has all necessary power and authority to enter into this
Lease and to carry out the transactions contemplated herein; and that the
execution and delivery hereof and the performance by Landlord of
Landlord's obligations hereunder will not violate or constitute an event of
default under the terms and provisions of any agreement, ordinance,
regulation, lease, law or court order to which Landlord is a party or by
which Landlord is bound the remedy for which default would have a
material adverse effect on Landlord's ability to perform its obligations
hereunder.
(b) Authorization; Valid Obligation. That all actions required to be taken
by or on behalf of Landlord to authorize it to execute, deliver and perform
its obligations under this Lease have been taken, and that this Lease Is a
valid and binding obligation of Landlord enforceable in accordance with Its
terms, except as the same may be affected by bankruptcy. Insolvency,
moratorium or similar laws, or by legal or equitable principles relating to
or limiting the rights of contracting parties generally.
N81.215136_Vt8
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• (c) Executing Parties. That the persons executing this Lease on behalf of
Landlord have full power and authority to bind Landlord to the terms
hereof.
(d) Possessory Rights. Landlord has no knowledge that anyone has any
right to occupy, possess or use the Premises, or any part thereof, other
than Tenant under the Existing Lease, rights imposed as a condition of
approval of the construction or operation of the Project by governmental
authorities having jurisdiction over the Premises, rights derived as a matter
of law by virtue of the Premises being tidelands, and any person deriving
such rights by agreement or conduct of Tenant.
(e) Actions, Suits or Proceedings. Landlord has no knowledge of any
actions, suits or proceedings pending or threatened before any commission,
board, bureau, agency instrumentality, arbitrator(s), court or tribunal that
would affect the Premises or the right of Tenant to occupy or utilize same.
4,2 Tenant's Representations and Warranties. As a material inducement to
Landlord to enter into this Lease, Tenant represents and warrants the following
as of the date hereof.
(a) Power and Authority. That it is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York; that
it is qualified to conduct business in the State of California; that it has all
necessary power and authority to enter Into this Lease and to carry out the
transactions contemplated herein; and that the execution and delivery of
this Lease and the performance by Tenant of Its obligations hereunder will
not violate or constitute an event of default under the terms and provisions
of any agreement, ordinance, regulation, law or court order to which Tenant
is a party or by which Tenant is bound.
(b) Authorization; Valid Obligations. That all actions required to be taken
by or on behalf of Tenant to authorize it to execute, deliver and perform its
obligations under this Lease have been taken, and that this Lease is a valid
and binding obligation of Tenant enforceable in accordance with Its terms,
except as the same may be affected by bankruptcy, insolvency, moratorium
or similar laws, or by legal or equitable principles relating to or limiting the
rights of contracting parties generally.
(c) Executing Parties. That the persons executing this Lease on behalf of
Tenant have full power and authority to bind Tenant to the terms hereof.
Nur-215136NI8 17 &0"6
ARTICLE V
RENT •
5.1 Rent. Subject to the limitations of Section 5.3 below, commencing upon the
Commencement Date, Tenant shall pay to Landlord the greater of (1) annual rent
In the sum of One Million One Hundred Twenty -Five Thousand Dollars
($1,125.000) (the "Base Rent") as adjusted pursuant to Section 5.4 below. or
(li) the percentage rent set forth in Section 5.2 (the "Percentage Rent"). Base
Rent and Percentage Rent are hereinafter referred to as "Rent."
5.2 Percentage Rent. Percentage Rent shall equal the total of the percentages set
forth below of the corresponding categories of Gross Revenues on an annual basis
from each transaction, sale or activity of Tenant on or from the Premises;
CATEGORY PERCENTAGE RENT
Dues Revenues 6%
Apartment Revenues 16.5%
Marina Revenues 31%
Storage Revenues 20%
Charter Commission Revenues 20% 40
Charter Revenues 6%
Beverage Revenues 5%
Food Revenues 3%
Retail Revenues 5%
Miscellaneous Revenues 10%
To the extent that Gross Revenues include proceeds of business interruption or
rental loss insurance which are based upon or in compensation for Percentage
Rent payable under this Lease, the Percentage Rent owed for any of the foregoing
activities for which such proceeds of business interruption or rental loss Insurance
were received during the period affected by such insurance claim shall be the
greater of (i) the amount of such proceeds of business Interruption or rental loss
N81.21513G.V18 18 610"6 0
• insurance relating to Percentage Rent payable to Landlord hereunder, or (ii) the
amount of Percentage Rent calculated as set forth above after deduction from
Gross Revenues of the amount of such proceeds of business Interruption or rental
loss insurance relating to Percentage Rent.
5.3 Base Rent During Construction. Notwithstanding Section 5.1 above, from and
after the Commencement Date until the earlier of (1) thirty (30) months following
the Commencement Date, or (II) such time as certificates of occupancy have been
issued with respect to the renovation of the hotel portion of the Project as
contemplated In this Lease, the Base Rent payable hereunder shall be limited to
Forty -Six Thousand Eight Hundred Thirty -Three and 34/100 Dollars ($46,833.34)
per month; provided however, Tenant shall remain obligated to pay Percentage
Rent to the extent it exceeds such Base Rent during such period.
5.4 Periodic Adjustments of Base Rent. Upon the first day of the ninety-seventh
(97th) month following the Commencement Date, and the first day of every sixty-
one months thereafter (respectively, an "Adjustment Date"), Base Rent shall be
adjusted to a sum equal to seventy-five percent (7510) of the average annual total
of Rent payable during the immediately preceding five (5) years. Following receipt
of the report of Gross Revenues and Percentage Rent for the year immediately
preceding an Adjustment Date, Landlord shall calculate the adjustment in Base
Rent, If any, and shall notify Tenant in writing of such adjustment. Subject to
• Tenant's right to contest, in good faith, Landlord's calculation of the adjustment
to Base Rent, any such adjustment shall be effective as of the relevant Adjustment
Date, and Tenant shall pay any accrued and unpaid Base Rent from the Adjustment
Date to the date of receipt of Landlord's notice of adjustment in Base Rent no later
than fifteen (15) days following receipt of Landlord's notice of adjustment in Base
Rent.
•
5.5 Fair Market Adjustment of Base Rent. Upon the twenty-sixth (26th)
anniversary of the Commencement Date (the "Market Adjustment Date"), the Base
Rent shall be increased or decreased, as the case may be, based upon the
determination of the fair market rental value of the Premises in the manner set
forth in Section 19.19. For purposes of appraising the fair market rental value of
the Premises, the appraisers shall determine such value including payment of
minimum rent and percentage rent in excess thereof in the categories set forth In
Section 5.2 above. The Base Rent shall be adjusted to equal seventy-five percent
(75%) of the full fair market rental value of the Premises as so determined. in the
event the adjusted Base Rent determined pursuant to this Section 5.5 is one
hundred twenty percent (120%) or more of the average annual Base Rent payable
during the five (5) Fiscal Years preceding the Market Adjustment Date, the amount
by which the new Base Rent exceeds one hundred twenty percent (120%) or more
of the average annual Base Rent payable during the five (5) Fiscal Years preceding
the Market Adjustment Date shall be added to Base Rent at the rate of twenty-five
N0b215138.vi8
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608/98
1q 1
percent (25%) thereof per year in the ensuing four (4) Fiscal Years. For example,
If the amount by which the new Base Rent exceeds one hundred twenty percent
(120%) or more of the average annual Base Rent payable during the preceding five
(5) Fiscal Years is $4,000, then Base Rent shall be increased by $1,000 in each
of the ensuing four (4) Fiscal Years. Landlord and Tenant agree to use the
appraisal methodology utilized by Landlord's appraisal conducted by William
Hansen & Associates, dated November 4, 1994, In the computation of the market
rent upon the commencement of this Lease.
5.6 Payment of Rent. Base Rent shall be payable on the first'(Ist) day of each
Accounting Period during the Term; provided, however, to the extent that
Percentage Rent for such Accounting Period exceeds the Base Rent paid during
such Accounting Period, the differential shall be payable in arrears concurrent
with the next installment of Base Rent. Any installment of Rent payable during any
Accounting Period shall equal the greater of (1) Percentage Rent computed from
the commencement of that particular Fiscal Year to the end of the Accounting
Period for which such Rent is due, or (ii) the Base Rent due from the
commencement of that particular Fiscal Year to the end of the Accounting Period
for which such Rent is due, in each instance less the aggregate amount of any Rent
previously paid to Landlord during such Fiscal Year.
5.7 Charges for Goods and Services. Tenant agrees to charge prices for all
goods, services and facilities (including boat slip rentals) offered at or provided on
or from the Premises comparable with prices for such goods and services charged
at other private clubs in Southern California; provided, however, (i) that for
purposes hereof, the rent charged for_ slips in the marina shall be adjusted, where
necessary, to eliminate any discounts or reduced fees and charges at such clubs
based upon payment of membership fees or other comparable arrangements, and
(ii) nothing herein shall limit or impair Tenant's ability to charge less than such
amounts if, in the exercise of Tenant's reasonable business judgment, such lesser
amounts will stimulate revenue increases or in connection with advertising,
promotions, discounts to employees, guests or charitable functions.
5.8 Reconciliation of Annual Rent. Within thirty (30) days following receipt by
Landlord of the annual statement set forth in Section 5.10(b), the Percentage Rent
due for such Fiscal Year shall be determined, subject to audit as set forth In
Section 5.10(e), and the amount of Rent paid or payable for such Fiscal Year shall
be adjusted accordingly. Landlord shall credit the amount of any Rent received
from Tenant pursuant to Section 5.6 which is in excess of the amount of Rent
determined to have been due and payable for such Fiscal Year, such excess to the
installments of Rent next following. Tenant shall pay, within five (5) days following
such determination, but in no event later than one hundred and sixty (160) days
NB 1.21513G.V18
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•
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following the end of such Fiscal Year, the full amount of Rent determined to have
been due and payable for such Fiscal Year.
5.9 Place for Payment of Rentals. All payments of Rent shall be made in lawful
money of the United States of America and shall be paid to Landlord at Landlord's
address as set forth in Section 19.6 or to such other parties and/or to such other
address as Landlord may from time to time designate in writing to Tenant.
5.10 Records and Reports of Sales.
(a) Quarterly Statement. Tenant shall provide to Landlord a statement
setting forth in reasonable detail the amount of Tenant's Gross Revenues
(including a breakdown among the categories set forth in Section 5.2
above) for the immediately preceding Accounting Period within twenty (20)
days following the end of each Accounting Period.
(b) Annual Statement. Tenant shall provide to Landlord a statement setting
forth in reasonable detail the amount of Tenant's Gross Revenues for the
preceding Fiscal Year within one hundred twenty (120) days following the
end of each Fiscal Year.
(c) Payment of Percentage Rent. Tenant shall accompany the statement
. of Gross Revenues for each Accounting Period and the Fiscal Year with a
payment of the amount by which Percentage Rent exceeds the Base Rent
paid during such Accounting Period calculated In accordance with Section
5.2 of this Lease.
(d) Books and Records. Tenant shall prepare and keep full, complete,
accurate and proper books, records and accounts of all business conducted
by Tenant or its Affiliates from the Premises, in accordance with generally
accepted accounting principles consistently applied, which shall include
equipment to record all sales at the time of the transaction. Tenant shall
keep at the Premises records of Tenant's Gross Revenues for a period of
not less than three (3) years after the expiration of the Fiscal Year to which
such records relate and upon request shall furnish Landlord true and
accurate statements thereof. Within one hundred twenty (120) days
following the close of each Fiscal Year, Tenant shall deliver to Landlord an
audited statement prepared by a nationally recognized Independent firm of
certified public accountants showing in reasonable detail, on a Fiscal Year
basis, the amount of Tenant's Gross Revenues (including a breakdown
among the categories set forth in Section 5.2 above) for the immediately
preceding Fiscal Year.
NB I -2i 513O.Vi ft 21 VOW%
(e) Audit Rights. Landlord shall have the right upon two (2) days prior notice
to Tenant and during normal business hours, but not more often than one •
(1) time during each Fiscal Year of the Term, to audit the Tenant's
statements of Gross Revenues, and supporting records and data. Within
ten (10) days of receipt of such audit, Tenant shall pay Landlord the
additional Rent found to be due plus Interest thereon at the Lease Interest
Rate if the audit discloses an understatement of annual Gross Revenues.
However, if the audit discloses Rent has been overpaid by Tenant, the
excess shall be applied to any amounts then due from Tenant to Landlord,
and the balance, If any, shall be credited against Base Rent thereafter due
from Tenant, Tenant shall pay for the reasonable cost of Landlord's audit
if Landlord's audit discloses a total underpayment of Rent for any Fiscal
Year which is in excess of five percent (5%). Landlord shall have the right
to receive a copy of the results of any audit conducted at the request of
Tenant of Tenant's statements of Gross Revenues during the Term.
Promptly following the completion of any such audit, Tenant shall deliver,
or cause to be delivered, to Landlord a copy of the result of such audit
regardless of whether Landlord shall have made a demand therefor.
(f) Annual Forecast of Operations. On or before May 1 of each year
during the Term, Tenant shall provide Landlord, for informational purposes,
with a forecast for the ensuing Fiscal Year of the amount of (i) Gross
Revenues expected to be received by Tenant, and (Ii) Percentage Rental
expected to be payable hereunder (by categories of Percentage Rental). On •
or before September 30 of each year during the Term, Tenant shall provide
Landlord with a forecast for the ensuing twelve (12) month period of
budgeted capital improvements, replacements, repairs and maintenance
that Tenant anticipates expending during such twelve (12) month period to
maintain the Project in a manner consistent with the original quality of the
Project upon completion of construction In accordance with the Final Pians
as required by Section 6.3.
5.11 Additional Rent. Tenant agrees to pay, as rental for the Leased Premises,
within ten (10) days of Landlord's demand therefor, unless a different time for
payment is expressly provided herein, all other amounts Tenant is obligated to pay
Landlord under the provisions of this Lease in addition to Rent ("Additional
Rent").
5.12 No Abatement or Reduction In Rent, Except as expressly provided to the
contrary elsewhere in this Lease. Tenant shaII not be entitled to any abatement,
set-off or reduction in Rent or Additional Rent hereunder.
N61-215196.Vi6 22 6/06/96 •
•
5.13 No Partnership Created. Landlord and Tenant shall In no event be construed
or held to be partners, co-owners, joint venturers or associates of one another to
the conduct of Tenant's business on the Premises, or in its ownership of the
Project. The relationship between Landlord and Tenant is and at all times shall
remain that of lessor and lessee for all purposes.
5.14 Net Lease. The Rent set forth In this Article V herein is based upon the
assumption that Landlord will not have to pay any expenses or incur any liabilities
of any kind in any way relating to, or in connection with, the Premises during the
Term except for refunds, interest, credits or other payments herein specifically set
forth. Accordingly, Tenant will promptly pay all costs of every kind and description
relating to or arising out of the Premises during the Term.
ARTICLE VI
TENANT'S OBLIGATION WITH RESPECT TO N'IAINTAINING
6.1 Repairs and Maintenance. Tenant shall at all times during the Term keep In
good order, condition and repair the entire Premises and all improvements and
buildings located thereon, Including the structural and non-structural portions of
the Project, the entrances, the windows, partitions, doors, lighting and plumbing
fixtures, heating, ventilation and air conditioning systems, the grounds and all
landscaping, the paving and other hardscape surfaces, and all fixtures, equipment
and appurtenances relating to the Premises and/or the Project, subject to
reasonable wear and tear, fire and other casualty, consistent with the continued
operation of a project of the type, size and quality of the Project.
6.2 Taxes and Assessments.
(a) Except as otherwise expressly permitted elsewhere in this Lease, during
the Term, Tenant shall pay prior to delinquency the amount of all taxes and
assessments levied against, or on account of, the Premises, provided,
however, that, if by law any such tax or assessment is payable or may at
the option of taxpayer be paid in installments, Tenant may pay the same,
together with any accrued interest payable on the unpaid balance of such
tax or assessment, in installments as the same become due and before any
fine, penalty, Interest or cost may be added thereto for the nonpayment of
any such Installment and Interest. Taxes and assessments shall be
prorated for the final year of the Term (or earlier termination) based upon
the number of days during such final year that this Lease Is in effect.
Notwithstanding the foregoing, in no event shall Tenant be liable for
Increases in taxes or assessment, If any, attributable to a "change in
ownership" of Landlord's Interest in the Premises.
0 N61�215136.M 23 6ro6/96
(b) Tenant shall pay, before delinquency, all taxes and assessments levied
against, or on account of, all fixtures, equipment and personal property •
located in or upon the Premises and/or the Project.
(c) Landlord and Tenant agree to consult with each other and to keep each
other advised concerning any controversy or contest pertaining to the
amount or validity of any tax or assessment referred to in this Section 6.2,
which tax or assessment Tenant is required to pay or reimburse to
Landlord under the terms of this Lease. Tenant shall have the right, at
Tenant's sole cost and expense, to contest the amount or validity of any tax
or assessment levied upon, imposed, assessed, or proposed to be assessed,
against the Premises and/or the Project or any of the personal property
therein to the extent permitted by applicable law; provided, however,
Tenant shall do the following: (1) comply with all laws, orders, rules and
regulations respecting such contest; (ii) give Landlord prior written notice
of Tenant's intent to so contest said amount or validity; and, (III) at
Landlord's sole option, either (A) demonstrate to Landlord's reasonable
satisfaction that the proceedings to be initiated by Tenant shall conclusively
operate to prevent the sale of the Premises, the Project and all personal
property thereat, or any part thereof, to satisfy such tax or assessment
prior to final determination of such proceedings, or (B) furnish a good and
sufficient bond or surety or other assurance as requested by and
reasonably satisfactory to Landlord, or (C) provide a good and sufficient
undertaking as may be required or permitted by law to accomplish a stay •
of any such sale. Nothing in this subsection 6.2(c) shall be deemed or
construed as relieving, modifying or extending Tenant's covenant to pay any
such tax or assessment at the time and In the manner provided In this
Section 6.2.
6.3 Capital Repairs and Replacements. If during each rolling three (3) year
increment of the Term, commencing upon the third (3rd) anniversary of the
completion of construction of the hotel portion of the Project, Tenant falls to
expend a sum equal to at least four percent (4%) of Gross Revenues per annum
during such period on repairs, replacements and renewals of Furnishing, for
routine repairs and maintenance and non-structural refurbishments of the Project
(including capital improvements, but excluding substantially complete replacement
of long term capital improvements, such as replacement of the roof, mechanical,
electrical or similar building systems, or major portions thereof), Tenant shall
deposit in a separate account (the "Reserve Account") with a commercial bank
or savings and loan association approved by Landlord, or with or under the control
of Tenant's Mortgagee if such Mortgagee shall so require, an amount equal to the
difference between the sum actually expended by Tenant for the foregoing
purposes during such period and four percent (4%) of Gross Revenues per annum
Nsi•215136.vr8 24 610"6 •
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• during such period which Reserve Account shall be used by Tenant for the specific
purpose of accumulation therein and disbursing therefrom funds to be used solely
for the foregoing purposes. Tenant shall not withdraw funds from the Reserve
Account In any ensuing Fiscal Year until Tenant has expended for the foregoing
purposes In such Fiscal Year a sum of not less than four percent (4%) of Gross
Revenues during such Fiscal Year. Nothing herein contained shall be construed
as a limitation on Tenant's obligations under other provisions of this Lease to
repair, maintain and replace the Furnishings or the Premises, and each portion
thereof. At all times after the Reserve Account has been established, Tenant shall
Include in each annual forecast to be submitted to Landlord pursuant to Section
5.10(f) above a reconciliation of funds expended for the foregoing purposes, and
evidence of all amounts contained in and all deposits and withdrawals from the
Reserve Account during the preceding Fiscal Year. Notwithstanding anything to
the contrary contained herein, Tenant shall not be obligated to make other than
ordinary repairs and replacements of Furnishings during the final five (5) years of
the Term and during such five (5) year period the amount that Tenant shall be
required to expend or reserve under this Section 6.3 shall be reduced to two
percent (2%) per annum. Upon expiration or earlier termination of this Lease, all
funds required to be maintained in the Reserve Account shall be allocated first to
any repairs, maintenance, replacements and renewals necessary to place the
Project and Furnishings In a first class condition and any excess shall be the sole
property of Tenant.
• ARTICLE VII
USE OF PREMISES
7.1 Use of Premises. The Premises may be used solely for construction, renovation,
maintenance and operation of the Project, which shall include the right to (i)
operate or enter into businesses or grant licenses, concessions or subleases
covering less than ten thousand (10,000) square feet of space in the Project In the
aggregate to third parties provided that the same shall be done in arm's length
transactions to persons unrelated to Tenant on commercially reasonable terms,
and (Ii) leases or subleases of apartment units in the Project. Tenant shall be
permitted to grant licenses, concessions or subleases to Affiliates on customary
terms for fair market value so long as all gross revenues derived by any such
Affiliate in connection with any such license, concession or sublease shall be
Included within the appropriate category of Gross Revenues hereunder. The
licenses, concessions and/or subleases granted by Tenant In connection with Its
operation of the Project shall only be for businesses that provide goods and/or
services principally for the purpose of catering to the needs and desires of hotel
guests and club members, and the businesses conducted by such licensees,
concessionaires or sublessees shall be conducted in a manner consistent with the
quality of services required to be offered at the Project by the terms of this Lease.
• N61.215136.V78 25 fift Nfi
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In no event shall Tenant engage in any activity for the exploration, production,
extraction, taking or transport of any oil, oil rights, gas, minerals, mineral rights, •
natural gas rights and other hydrocarbon substances or minerals in and under the
Premises.
7.2 Pump -Out Station. At all times during the Term, Tenant covenants and agrees
to install and maintain a vessel holding tank pump -out facility In the marina area
of the Premises convenient and available for use by the public, which facility shall
at all times be maintained and operated in accordance with all applicable Federal,
State or local laws, regulations and ordinances.
7.3 Environmental Requirements.
(a) Tenant shall not use, nor permit the use of, any Hazardous Material in the
construction, reconstruction or renovations of, or additions to the Project
In violation of any applicable law, regulation, code or ordinance. Tenant
shall, at its expense, comply, and require each of its subtenants, licensees
and/or concessionaires of space in the Project or elsewhere on the
Premises to comply, with all applicable laws, regulations, codes and
ordinances relating to any Hazardous Material or to any Hazardous
Material Activities, including obtaining and filing all applicable notices,
permits, licenses and similar authorizations.
(b) Tenant shall indemnify, defend, protect and hold Landlord, its City Council, •
boards, commissions, agents, servants and employees, harmless from and
against any and all liability, claims, actions and out-of-pocket costs or
expenses of any kind or nature, including damage to any property and injury
(including death) to any person (collectively, "Claims"), arising directly or
Indirectly from any Hazardous Material Activity of, Tenant or any of
Tenant's agents, employees, independent contractors, Invitees, licensees,
guests, subcontractors, and Affiliates during the Term, provided, however,
that Tenant shall have no liability under this Section 7.3(b) for any portion
of any Claim which arises out of the negligence or willful misconduct of any
party indemnified under this Section 7.3(b). The foregoing indemnity shall
Include all costs and expenses of removal, remediation of any kind and
disposal of any such Hazardous Material, and all reasonable consultants'
fees, attorneys' fees and Investigation costs and all other reasonable costs,
expenses and liabilities incurred by any indemnified party or their counsel
from the first notice that any Claim is to be made or may be made. The
obligation of Tenant under this Section 7.3(b) shall survive the expiration
or earlier termination of the Term.
NBt-215136.ViB 26 6/66/96 •
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• ARTICLE VIII
CONDUCT OF BUSINESS BY TENANT
8.1 Standards of Operation. Tenant shall continuously (except for reasonable
Interruption during repairs, maintenance or renovations and during any delay
caused by an event of Force Majeure) during the Term, diligently operate, or cause
to be operated, the Project in a first-class manner and as otherwise required by
this Lease. Tenant shall stock and maintain adequate working capital and
adequate inventories of food, beverages, operating equipment and supplies.
8.2 Management. Tenant agrees that at all times during the Term, the hotel and
restaurant portions of the Project shall be managed and operated by Tenant, an
Affiliate of Tenant or a Qualified Manager. It shall not be deemed a default by
Tenant under the Lease if at any time during the Term it shall be determined that
the then manager of the hotel and/or restaurant portions of the Project is not a
Qualified Manager so long as the applicable management agreement or
employment contract shall give Tenant the right to terminate said agreement and
Tenant shall promptly take all reasonable steps to terminate said agreement and
remove said manager from the Premises.
8.3 Competition by Tenant. Beginning on the Commencement Date and continuing
for a period of five (5) years following substantial completion of the construction
• and renovation of the Project, as contemplated In the Final Plans approved by
Landlord under the Option Agreement, Tenant agrees for itself and its Affiliates
that Tenant and its Affiliates shall not own, lease, manage or operate, or
participate in the ownership, lease, operation or management of, including any
ownership interest in any partnership, joint venture or other equity participation,
any business venture or operation similar to the Project, or any component or
business conducted within or as part of the Project, located on Newport Harbor
(that is, Its nearest boundary is within fifteen hundred (1,500) feet of the
waterfront). It is expressly acknowledged and agreed that Landlord is entering
into this Lease in reliance upon this covenant, and the rental payable to Landlord
hereunder would be adversely affected by a violation of this covenant by Tenant,
and Landlord would not enter into this Lease in the absence of such a covenant.
The foregoing restriction shall not apply to (i) any Mortgagee who shall have
acquired Tenant's leasehold estate hereunder pursuant to a judicial or non -judicial
foreclosure of its Mortgage or a deed or other conveyance in lieu of such
foreclosure, or (ii) any entity which shall be an institutional investor with a diversi-
fied investment portfolio containing projects operated under three (3) or more
trade names and under management agreements with three (3) or more
unaffiliated national chain management companies. The foregoing prohibitions on
ownership shall not be deemed to apply to ownership of less than a Controlling
interest in any publicly traded corporation, or ownership of hotels in a diversified
• N81 -215138.V18 27 6/06106
investment portfolio of insurance companies, pension funds or similar institutional
investors containing hotels operated under three (3) or more trade names with
management contracts with three (3) or more unrelated national hotel chain
management companies. The restrictions set forth In this Section 8.3 shall not be
deemed to apply to any operations of Tenant or Its Affiliates (or any successor
thereto) substantially similar to the Project that are owned, leased or operated by
Tenant or its Affiliates (or any successor thereto) as of the date of this Lease or
In which Tenant or any Affiliate (or any successor thereto) participates in the
ownership, lease or operation as of the Commencement Date.
8.4 Use of Name. At all times during the Term, the Project shall be operated
utilizing the words "Balboa Bay' in its name; provided, however, any Qualified
Manager may operate the Project under its trade name in conjunction with the
foregoing words.
ARTICLE IX
ALTERATIONS, FIXTURES AND SIGNS
9.1 Tenant's Right to Make Alterations. Tenant shall have the right, at any time
and from time to time, to make any repair, alteration or addition which Tenant
deems advisable to the improvements constructed upon the Premises by Tenant;
provided, however, that all such repairs, alterations or additions to the Project
shall be consistent with the Premises being used for the purposes permitted by •
this Lease and be of the type and quality required by this Lease, shall be at least
equal to the quality of the design and construction of the Project contemplated in
the Final Plans.
9.2 Prohibition Against Liens. Tenant shall not create nor permit to be created
or to remain, any lien, encumbrance or charge (whether levied on account of any
mechanic's, laborer's or materialmen's lien or any conditional sale, title retention
Lease or chattel mortgage) against the Premises or the Project, or any part
thereof or interest therein, except for equipment leases, title retention agreements
and similar instruments In connection with financing of the purchase or lease of
Furnishings. Subject to Tenant's right to contest such liens as set forth In this
Lease, if any mechanic's, laborer's or materialmen's lien shall at any time be filed
against the Premises and/or the Project, or any part thereof or interest therein,
Tenant shall with all due diligence cause the same to be discharged of record by
payment, bonding in accordance with applicable law, or transfer of such lien to
other security pursuant to applicable law.
9.3 Signs. Tenant will not place or suffer to be placed or maintained on the exterior
of any improvements or on the Premises any signs, logos or advertising unless
.such signs, logos or advertising are consistent with the signage program outlined
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on Exhibit Cattached hereto and otherwise conform to the signage regulations of
the City and the Coastal Commission, as applicable.
ARTICLE X
INSURANCE, INDEMNITY AND CASUALTY
10.1 Insurance. Tenant shall maintain at its sole cost and expense during the Term,
unless otherwise specified, the following types of insurance under conditions and
In at least the amounts and forms specified below:
(a) Insurance Carriers, Forms of Policies. All primary insurance (as
compared to excess insurance) described under this Article X shall be
maintained by Tenant with insurance carriers licensed and approved to do
business in California, having a general policyholders rating of not less than
"A" and financial rating of not less than "VII" (or, if any Leasehold
Mortgagee shall require a higher rating, such higher rating) In the most
current Best's key Rating Guide. In no event will such Insurance be
terminated or otherwise allowed to lapse without replacement prior to
expiration or earlier termination of this Lease. Tenant may provide the
insurance described in this Article X in whole or In part through a policy or
policies covering other liabilities and properties of Tenant or its Affiliates;
provided, however, that any such policy or policies shall: (a) allocate to the
Project the full amount of insurance required hereunder, and (b) contain,
permit or otherwise unconditionally authorize the waiver contained in
Section 10.1(1) below.
W Eiidenee of Insurance. As evidence of specified insurance coverage,
Landlord shall receive certificates issued by Tenant's Insurance carriers or
authorized representatives acceptable to Landlord showing such policies
in force for the specified period. Such evidence shall be delivered to
Landlord prior to the Commencement Date. Each such policy shall not be
subject to material alteration or cancellation without thirty (30) days' prior
written notice to be delivered to Landlord. Should any policy expire or be
canceled before expiration of the Lease and Tenant fails immediately to
procure other Insurance as specified, Landlord reserves the right to
procure such insurance and to receive payment from Tenant for the cost
thereof. Tenant shall also allow Landlord to inspect such evidence of
Insurance Tenant obtains from its contractors.
(c) Damages. Nothing contained in these insurance requirements is to be
construed as limiting the type, quality or quantity of Insurance Tenant may
maintain or the extent of Tenant's responsibility for payment of damages
resulting from its operations under this Lease,
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(d) Workers' Compensation Insurance. Tenant shall maintain full
Workers' Compensation Insurance for all persons whom it employs In •
accordance with the requirements of the most current and applicable State
Workers' Compensation Insurance Laws in effect.
(e) Comprehensive General Liability Insurance. Tenant shall maintain
Comprehensive General Liability Insurance with a combined single limit for
bodily injury and property damage of Ten Million Dollars
($10,000,000)(which amount shall be subject to periodic adjustment in
accordance with subsection (1) below) covering Operations. Independent
Contractors, Products and Completed Operations" Contractual Liability
specifically covering the indemnifications of Landlord contained in this
Lease, Broad Form Property Damage, Severability of Interest or Cross
Liability clauses, Personal Injury, Liquor Law Liability, and Explosion,
Collapse and Underground Hazards (X,C,U). In the event Liquor Law
Liability insurance shall become commercially unavailable at reasonable
rates and terms In the amounts required above, Tenant shall be permitted
to obtain such lower limit as then may be commercially available at
reasonable rates and terms in the commercial insurance marketplace,
provided that, in no event, may Tenant be permitted to obtain or maintain
Liquor Law Liability insurance with a limit of coverage lower than Five
Million Dollars ($5,000,000) (which amount shall be subject to periodic ad-
justment In accordance with subsection (1) below). The limits of liability of
the insurance coverage specified in this paragraph may be provided by any •
combination of primary and excess liability insurance policies.
(f) Automobile Liability Insurance. Tenant shall maintain owned, hired
and non -owned automobile liability insurance covering all use of all
automobiles, trucks and other motor vehicles utilized by Tenant In
connection with the Premises with a combined single limit for bodily Injury
and property damage of Five Million Dollars ($5,000,000)(which amount
shall be subject to periodic adjustment in accordance with subsection (1)
below).
(g) Property Insurance -Construction. During construction of any
improvements on the Premises, Tenant shall maintain builder's risk
insurance against "all risk" of physical loss, including the perils of flood,
collapse and transit, with commercially reasonable deductibles, covering
the total cost of work performed, equipment, supplies and materials
furnished on a replacement cost basis. Tenant shall be permitted to obtain
and maintain the flood insurance required hereunder In such amounts and
forms as are available, from time to time, under the National Flood
Insurance Program.
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(h) Property Insurance -Operations. Upon completion of construction of
the Project but in no event prior to the time that the insurance required
under Section 10. i (g) above ceases, Tenant shall obtain Insurance on the
Project and shall maintain insurance continuously during the Term, against
"all risk" perils of physical loss and "Boiler and Machinery" perils, including
fire, lightning, riot and civil commotion, vandalism and malicious mischief,
and insurance against loss or damage from explosion of boilers, generators,
transformers, heating apparatus and air conditioning systems and against
such other risks or hazards as may customarily be insured against for
projects in Southern California of the type, size and quality of the Project.
Such insurance shall be in amounts not less than ninety percent (90%) of
the then full replacement cost of the Project without deduction for
depreciation, and otherwise sufficient to satisfy the requirements of any
Mortgagee. Such policies of insurance shall contain the 'Replacement Cost
Endorsement." Such full replacement cost shall pertain to the Project and
Furnishings and be determined not less often than each two (2) years
during the Term.
(i) Waiver of Subrogation. Each policy of insurance procured pursuant to
this Article X shall contain a waiver by the insurer of the right of
subrogation against either party hereto for negligence of such party. To the
extent such insurance is not impaired thereby, Landlord and Tenant each
hereby waives any and all rights of recovery against the other, and against
its shareholders, officers, directors, employees, subsidiaries, partners,
servants, agents and representatives, for loss or damage arising from any
cause Insured against under the form of insurance policies required to be
carried pursuant to this Article X or under any other policy of insurance
carried by either Landlord or Tenant. Tenant and Landlord each agrees to
use reasonable efforts to obtain Its liability insurance carriers' permission
as to such waiver of subrogation.
(j) Compliance. Tenant shall at all times use diligent efforts to observe and
comply with the requirements of all policies of Insurance In force with
respect to the Premises or the Project, or any part thereof, and Tenant
shall so perform and satisfy the requirements of the companies writing
such policies If it Is commercially reasonable to do so. Tenant shall, if any
subtenant, licensee, concessionaire or other user of any portion of the
Premises or Project engages in any activity in violation of the requirements
of all policies of Insurance In force with respect to the Premises or the
Project, or any part thereof, take steps, immediately upon becoming aware
of such activity, to remedy or prevent the same, as the case may be.
n81.215136.M
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(k) Additional Insured. Landlord shall be included as an additional named
Insured under the coverage specified in Sections 10.1(e) and (f) above. The
insurance required under Sections 10.1(e) and (0 shall be primary and any
other insurance maintained by any such additional insured shall be non-
contributing with said Insurance required hereunder. Landlord shall be
Included as additional named insured as its Interest appears In regard to
insurance described in Sections 10.1(g) and (h).
(1) Index. Each sum which, by the terms of this Article X, is subject to
periodic adjustment In accordance with this subsection (1) shall be In-
creased on each seven (7) year anniversary of the Commencement Date
during the Term by the percentage of any increase for the preceding year
in the Consumer Price Index for All Urban Consumers, Los Angeles -
Anaheim -Riverside, All Items (1982-84 Base), published by the Bureau of
Labor Statistics, Department of Labor. The successor or most nearly com-
parable Index published by some other branch or department of the United
States Government shall be used if said Bureau shall cease to publish the
Consumer Price Index.
Indemnification.
(a) To the fullest extent permitted by law, Tenant hereby agrees to defend,
indemnify, protect and hold Landlord harmless from and against any and
all liability, claims, damage, penalties, actions, demands or expenses of any
kind or nature, including damage to any property and injury (including
death) to any person (collectively, "Claims"), arising from Tenant's use or
occupation of the Premises or the Project, or from any activity, work or
things done, permitted or suffered by Tenant or any omission of Tenant on
or about the Premises or the Project, or from any litigation concerning any
of the foregoing in which Landlord is made a party defendant. Tenant shall
not be required hereunder to defend, indemnify or bold Landlord or any
other person or entity Indemnified under this Section 10.2(a) harmless
from or against any of the aforementioned Claims to the extent such Claims
arise out of the negligence or willful misconduct of Landlord or any other
person or entity indemnified hereunder. This obligation to indemnify shall
include reasonable attorneys' fees and investigation costs and all other
reasonable costs, expenses and liabilities incurred by Landlord or its
counsel from the first notice that any Claim Is to be made or may be made.
To the fullest extent permitted by law, Landlord, In Its capacity of Landlord
hereunder but not in Its municipal capacity, hereby agrees to defend,
Indemnify, protect and hold Tenant harmless from and against any and all
Claims to the extent such Claims arise out of the negligence or willful
misconduct of Landlord, in its capacity of Landlord hereunder but not in its
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municipal capacity, or any other person or entity indemnified by Tenant
under the first sentence of this Section 10.2(a). This obligation to
indemnify shall also include reasonable attorneys' fees and investigation
costs and all other reasonable costs, expenses and liabilities Incurred by
Tenant or its counsel from the first notice that any such Claim 1s to be
made or may be made.
(b) Any sums paid by an indemnified party, with interest at the Lease Interest
Rate, costs and damages, shall be due from and paid by the indemnifying
party within thirty (30) days of demand therefor. Upon receiving knowledge
of any Claim that an indemnified party believes is covered by this Indemnity,
such Indemnified party shall give the Indemnifying party notice of the
matter and an opportunity to defend it, at the indemnifying party's sole cost
and expense, with legal counsel reasonably satisfactory to such Indemnified
party. The indemnified party may also require the indemnifying party to so
defend the matter. So long as the indemnifying party shall be defending any
such Claim, the indemnified party shall not settle such claim without the
consent of the indemnifying party.
(c) Effective upon the Commencement Date, Tenant shall obtain and maintain
during the Term, combined rental income and/or business interruption and
extra expense insurance against loss of Tenant's income from the Project
for a period of twelve (12) months due to the perils covered by the
Insurance referred to in Section 10.1(h) above, in an amount sufficient to
cover the Rent payable under the terms of this Lease. If the improvements
located on the Premises shall be destroyed or damaged resulting In any
reduction In income received by Tenant from the Project, the proceeds of
such rental income and/or business interruption insurance shall be utilized
by Tenant, subject to the rights of a Mortgagee, In payment of such Rent
and other charges hereunder until such time as the improvements so
damaged or destroyed have been fully restored and placed In full operation.
(d) Notwithstanding Section 10.2(b), Tenant shall accept any tender of defense
by Landlord pursuant to the terms of Section 10.2(b) (unless the
complaining party alleges facts that reasonably indicate active negligence
or willful misconduct by the City or Its employees) and Tenant shall protect
and hold Landlord harmless from and against the subject Claim and defend
Landlord as required under Section 10.2(b)c provided, however, that Tenant
shall not be liable for any such Claim to the extent and in proportion that
such Claim is finally determined by a court of competent jurisdiction (or in
a negotiated settlement agreed to by Landlord) to be attributable to the
negligence or willful misconduct of Landlord.
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10.3 Settlement of insurance Claims. Subject to the rights of Tenant's
Mortgagees, If all or any part of the Project shall be damaged or destroyed by an
insured peril or otherwise, Tenant shall have the exclusive right to negotiate and
accept any proposed settlement, adjustment or compromise of any claim; provided,
however, subject to the rights of Tenant's Mortgagees, Landlord is hereby author-
ized and empowered by Tenant, at Landlord's option and In Its sole discretion, to
settle, adjust or comprise any and all claims if Tenant elects to terminate under
Sections 10.4 or 10.5 below.
10.4 Casualty. Except as provided in Section 10.5 below, Tenant shall promptly cause
the Project or the Premises, or any part thereof, which is damaged or destroyed,
whether or not required to be insured against under this Article X, to be repaired
and restored to its original condition (subject to changes necessary to comply with
then existing laws applicable thereto and any changes In design approved by
Landlord), at Tenant's sole cost and expense. To the extent the insurance
proceeds are insufficient to cover the cost of such repair and restoration, Tenant
shall make up the deficiency out of Tenant's own funds. Subject to events of Force
R9afeure, such repair and restoration shall be commenced in good faith and with
reasonable diligence within a reasonable period of time following the casualty and
shall be completed with due diligence. Notwithstanding the foregoing, in the event
the cost of such repair and restoration exceeds the sum of (I) the amount of
insurance proceeds available to Tenant plus (ii) the amount of the deductible by
an amount which Tenant reasonably determines renders reconstruction of the
Project economically not feasible, Tenant shall have the option to terminate this
Lease and surrender possession of the Premises to Landlord. Subject to the rights
of Mortgagees, in the event of such a termination, Tenant shall pay to Landlord the
amount of the deductible and assign to Landlord any and all rights Tenant may
have in and to the insurance proceeds on account of such damage or destruction.
10.5 Casualty Late in Term. If the Project or any part thereof is damaged or
destroyed at any time following the fortieth (40th) year of the Term and the costs
of restoration and repair are estimated to exceed thirty percent (30%) of the then
full replacement cost of the Project and Tenant elects not to repair or restore said
damage or destruction, then either party shall have the right to terminate upon the
other party's receipt of written notice of termination given not later than ninety
(90) days following the occurrence of such damage or destruction. Subject to the
rights of any Mortgagee, Landlord shall have the right to receive and retain all
insurance proceeds paid or payable to Tenant on account of any damage or
destruction to the Project If this Lease is terminated by Landlord or Tenant under
this Section 10.5; provided, however, that Tenant shall receive out of any such
insurance proceeds the amount of actual out-of-pocket expenses incurred by
Tenant in obtaining any settlement of insurance claims and the costs of restoring
the Premises to a good and orderly condition and even grade, if any.
N151.2151343.V19
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10.6 No Abatement of Rent. Except as provided in Sections 10.4 and 10.5 above,
throughout the Term, no direct or indirect destruction of or damage to the Project
by fire or other casualty whatsoever, whether such damage or destruction be
partial or total, shall (1) permit Tenant to surrender or terminate the Lease, or (Ii)
except to the extent of rent abatement insurance paid to Landlord, relieve Tenant
from its obligation to pay in full the Rent and other sums and charges payable by
Tenant hereunder or from any other obligation under the Lease, except as
otherwise expressly set forth herein; provided, however, that If any such direct
damage Is caused by the negligence or willful misconduct of Landlord, Rent shall
be suitably abated until such damage or destruction is repaired or restored;
provided, further, however, nothing herein shall limit or restrict Landlord's right
to retain rental abatement insurance proceeds.
ARTICLE II
UTILITIES
11.1 Utilities. Tenant shall be solely responsible for obtaining and promptly paying all
hook-up or connection fees and other charges for heat, gas, water, air
conditioning, electricity, sewerage, cable television or any other utility used or
consumed in or upon the Premises. Upon written request of Tenant, Landlord
agrees to join In the grant of such easements and licenses upon the Premises to
any supplier of utilities to the Project as necessary to construct, install, operate
and maintain any facilities, conduits, transmission lines and pipelines for the
provision of utility services to the Project; provided, however, that all such
conduits, transmission lines and pipelines, and all facilities and improvements
associated with utility services and located upon the Premises, shall be located
below grade in subterranean easements.
ARTICLE III
ESTOPPEL CERTIFICATES
12.1 Estoppel Certificates. Within fifteen (15) days after each request therefor by
either party, the other party agrees to deliver a certificate to any person
designated by the requesting party (including a proposed Mortgagee or purchaser),
or to the requesting party, certifying (if such be the case) that this Lease Is in full
force and effect, that, to the best of such party's knowledge at that time, there are
no Events of Default by Tenant hereunder or any defaults by Landlord hereunder
and that no events have occurred which, with the giving of notice or the passage
of time or both, would constitute an Event or Default with respect to Tenant or a
default with respect to Landlord hereunder, or stating those claimed by the
responding party, and that, to the best of such partys knowledge, there are no
defenses or off -sets In favor of either party hereto, or stating those claimed by the
responding party, and/or certifying whether any consent or approval required
NB1.215138.V18
35
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Oil
under this Lease has been denied or granted by the responding party and whether
any specified rights have been waived or deemed waived or expired. Any such
certificate shall also contain a warranty that the person signing has the authority
to execute the certificate on behalf of such party. Each such estoppel certificate
shall identify the Lease and all amendments, shall specify the date to which Rent
has been paid, and shall specify the then applicable Base Rent payable hereunder.
If the responding party falls to execute and deliver any such certificate within the
aforementioned time period, Insofar as the requesting party and any person
designated by the requesting party Is concerned, the other party shall be
conclusively deemed to have acknowledged that the certificate as submitted by the
requesting party is correct. The requesting party or the person designated by the
requesting party as the recipient of said certificate (including, but not limited to,
a proposed Mortgagee or purchaser) may rely on the certifications made by the
responding party or the certifications deemed made thereby (if such certificate is
not delivered within such fifteen (15) day period). Nothing In this Section 12.1
shall be construed as reducing the period of time that any party has under the
terms of this Lease to respond to a request by the other party for a consent or an
approval.
ARTICLE XIII
ASSIGNMENT AND SUBLEASING
13,1 Limitation on Right to Assign. Except as hereinafter set forth in this Article
XIII and in Article XIV of this Lease, Tenant will not transfer, assign or
hypothecate this Lease, or its Interest therein, in whole or in part, nor sublease
(which term shall be deemed to include allowing anyone else to occupy) all or any
part of the Premises and/or the Project, without the prior written consent of
Landlord in each instance having first been obtained, which consent shall not be
unreasonably withheld or delayed. The consent by Landlord to any transfer,
hypothecation, assignment or subleasing shall not constitute a waiver of the
necessity for such consent to any subsequent assignment, transfer, hypothecation
or subleasing. This prohibition against assigning or subleasing shall be construed
to include a prohibition against any sale, hypotbetation, transfer of possession,
or any assignment or subleasing by operation of law or otherwise. Landlord shall
be deemed to be reasonable in not granting its consent if the proposed purchaser,
transferee, assignee or sublessee fails to meet all of the following criteria:
(a) the proposed purchaser, transferee, assignee or sublessee, or, if the
proposed purchaser, transferee, assignee or sublessee is a wholly owned
subsidiary, its parent, or the constituent general partners of the proposed
purchaser, transferee, assignee or sublessee shall have a net worth at least
equal to the greater of (I) Four Million Dollars ($4,000,000) (increased
each five (5) years from the date of the Option Agreement by the
NB1.21513G.V18
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•
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• percentage of any increase over such period in the Consumer Price Index
for All Urban Consumers, Los Angeles -Anaheim -Riverside, All Items (1982-
84 Base), published by the Bureau of Labor Statistics, Department of La-
bor), or (ii) ten percent (10%) of the fair market value of the leasehold
estate created by this Lease. The successor or most nearly comparable
index published by some other branch or department of the United States
Government shall be used If said Bureau shall cease to publish the
Consumer Price Index. For purposes of determining the fair market value
of the leasehold estate created by this Lease, such value shall be
conclusively determined by the purchase price to be paid by the proposed
purchaser, transferee, assignee or sublessee for the interest to be
acquired, as evidenced by information reasonably required by Landlord (for
purposes of calculating such net worth, it shall be permissible to include
as an asset of said proposed purchaser, transferee, assignee or sublessee
its anticipated equity In the Project and the leasehold estate created
hereby);
(b) the proposed purchaser, transferee, assignee or sublessee shall either be
a Qualified Manager or, if the proposed purchaser, transferee, assignee or
sublessee is not a Qualified Manager, shall have entered into a binding
agreement with a Qualified Manager to manage the Project, It being
acknowledged herein that continued management of the Project by a
Qualified Manager is an affirmative obligation of Tenant hereunder; and
• (c) the proposed purchaser, transferee, assignee or sublessee (or, with respect
to a transfer of a Controlling interest under Section 13.5, the person or
entity acquiring such Controlling interest) shall have a reputation for
honesty, Integrity and sound business practices.
13.2 Grant or Denial of Consent. Landlord shall grant or deny its approval of, or
request additional reasonable information and/or documentation with respect to,
any proposed transfer, hypothecation, assignment or sublease within thirty (30)
days following Landlord's receipt of notification from Tenant regarding the
proposed transfer. Following a request from Landlord for additional reasonable
information and/or documentation as provided herein, Landlord shall have ten (10)
days from Landlord's receipt of such additional information and/or documentation
in which to grant or deny Its approval of the proposed transfer and/or transferee.
Landlord shall be deemed to have granted Its approval if Landlord shall not
request additional information and/or documentation within such thirty (30) day
period and Landlord shall not notify Tenant within the time periods herein
specified of Its decision either to grant or deny Its approval. From and after the
effective date of an assignment by Tenant of Its entire Leasehold, the assignor
shall thereafter be relieved from any further liabilities or obligations under this
• NBi-215186.V1B 37 6/0"6
Lease and Landlord shall look solely to the assignee Tenant for performance of
such obligations hereunder. •
13.3 Non -Application to Guest Rooms and Facilities. This Article XIII shall have
no application to (i) rental of guest rooms or suites or other guest facilities within
the Project, (ii) rental of apartment units In the Project in the ordinary course of
business for a term of not more than one year or such longer term if the rent paid
by the apartment tenant adjusts annually to the fair rental value of the unit, (iii)
rental of stores and shops contained within the Project, (iv) rental of boat slips In
the marina in the ordinary course of business for a term of not more than one
year, or (v) the granting of concessions, licenses or subleases in the normal course
of operations, provided that the term of any such concession, license, rental or
sublease shall not extend beyond the Term hereof.
13.4 Assignment to Affiliate. Tenant shall have the right, without Landlord's
consent, to assign this Lease:
(a) to a partnership or limited liability company Controlled by Tenant and In
which Tenant is a general partner or member thereof and owns a legal and
beneficial Interest therein of not less than twenty-five percent (2596), or to
a corporation Controlled by Tenant and in which Tenant owns and controls
not less than twenty-five percent (25%) of all issued and outstanding stock
of such corporation in every class with full and unrestricted voting rights
and privileges; or •
(b) as security pursuant to a Mortgage:
prodded, however, that any assignment by Tenant under this Section 13.4 shall
not relieve Tenant from liability hereunder.
13.5 Limitation on Transfer of Interest in Tenant. If Tenant is a corporation, an
unincorporated association, a partnership or a joint venture, the transfer,
assignment or hypothecation (except for a hypothecation in connection with a loan
transaction of the type contemplated by Article XIV hereof) of a Controlling
ownership interest In such entity, whether in a single transaction or multiple
transactions and whether to a single person or multiple persons, shall be deemed
an assignment within the meaning of this Article XIII. Furthermore, any
transaction by which Tenant undergoes a merger or other reorganization, including
a sale of all or substantially all of its assets, wherein Tenant is not the surviving
corporation (or the stock holders of Tenant immediately before the merger or
reorganization do not retain Control of the surviving corporation) shall be deemed,
for purposes of the foregoing, a transfer of this Lease. If Tenant is or becomes a
publicly traded entity, any sale or other transfer of any outstanding stock of, or
nui-215136.v16
6106/96 •
limited partnership Interests in, Tenant shall not be deemed an assignment within
the meaning of this Article XIII unless said sale or other transfer is made by a
person or entity owning a Controlling interest in Tenant and results in a change
in the person(s) or entity(les) having Control of Tenant.
13.6 Participation In Sale Proceeds.
(a) In the event Tenant (I) sells, conveys, transfers or assigns all or any portion
of its interest in this Lease and the leasehold estate created hereby (other
than to a Mortgagee as security and other than a transfer to a partnership,
limited liability company, joint venture or other entity pursuant to a
transfer in which Tenant receives only an Interest in such entity in
consideration of its contribution of this Lease and the leasehold estate
created hereby), (ii) subleases all or substantially all of the Premises,
whether in one or more transactions, or (iii) sells, transfers or conveys any
interest in Tenant or its constituent shareholders, including the stock of
Tenant of any kind or class, common or preferred, or the beneficial or
equitable ownership interest in such stock or in Tenant (collectively, a
"Sale"), at any time prior to twenty-four (24) months following the
issuance of the final certificate of occupancy for the Project, as constructed
and renovated in accordance with the Final Plans, as contemplated in the
Option Agreement, Tenant shall pay to Landlord an amount equal to twenty
percent (20%) of the Net Proceeds (as hereinafter defined). For purposes
• of this Section 13.6:
(i) "Net Proceeds" shall mean the entire consideration paid or payable
to or for the benefit of Tenant or its constituent shareholders In
connection with a Sale (whether in cash, note, in kind or other
consideration, but excluding a transfer to a partnership, limited
liability company, joint venture or other entity pursuant to a transfer
in which Tenant receives only an interest in such entity In
consideration of its contribution of this Lease and the leasehold estate
created hereby) less (i) Project Costs (as hereinafter defined) and (ii)
reasonable and customary actual out-of-pocket costs and expenses of
Tenant incurred In connection with consumating such Sale (excluding
any payment made to any Mortgagee or lender to release any Mortgage
or other security or otherwise);
(ii) "Project Costs" shall mean and be limited to;
(A) Five Hundred Thousand Dollars ($500,000), In reimbursement
of all third party predevelopment costs incurred and paid by
Tenant prior to the date of the Option Agreement;
0 N81.215136-VIB 39 &VOGW
(b)
N81.215138.V18
(B) all third party costs and expenses incurred and paid by Tenant
in connection with the design, development, construction and
renovation of the Project from and after the date of the Option
Agreement through the date of such Sale (including, without
limitation, any required offsite improvements, demolition of
existing improvements, permit and license fees and charges,
signage, furniture, fixtures and equipment, architecture, design
and engineering fees, insurance bonds, construction
management fees, legal and other professional fees related to
construction of the Project, financing fees and payments of
principal on any new loan obtained by Tenant in connection with
the construction and renovation of the Project, plus interest
thereon at the rate of interest charged on such loan (excluding
any equity kicker, shared appreciation or other similar
payment);
(C) an amount equal to fifteen percent (1510) of the sum of
subparagraphs (A) and (B) above; and
(D) Thirty Million Dollars ($30,000,000), representing the
appraised value of Tenant's interest In the Premises as of May
15, 1996.
(iii) Project Costs shall exclude any operating cost or expense of the
operation of the business of Tenant on the Premises other than
predevelopment and development costs set forth above, any fees paid
to Tenant or its Affiliates for any purpose, Rent payable under this
Lease, and any other costs or expenses not specifically described in
subparagraph (b) (i) through (iv) above. From time to time, but not
less often than quarterly, Tenant shall provide Landlord with a
certified schedule of Project Costs with reasonable supporting
documentation.
(iv) Net Proceeds shall not include any proceeds of a Sale which are not
distributed to or for the benefit of Tenant or Its constituent
shareholders, and which are used by Tenant in the payment of costs
and expenses incurred in the construction and renovation of the
Project.
The rights of Landlord under this Section 13.6 shall be subject and
subordinate to the rights of any Mortgagee.
EM
610"6
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ARTICLE XIV
HYPOTHECATION
14.1 Tenant's Right to Hypothecate. Subject to any restrictions set forth in this
Article XIV, Tenant may, from time to time, without Landlord's consent or
approval, assign, hypothecate, mortgage, pledge or alienate Tenant's leasehold
estate and rights hereunder (including Tenant's Interest in any subleases, licenses
and concession agreements) to a lender or lenders as security for payment of any
indebtedness of Tenant Incurred in connection with the design, approval,
construction, furnishing, renovation, remodeling, equipping and completion of the
Project or any portion thereof as contemplated In the Final Pians and any
refinancing of the existing debt secured by the Premises in connection therewith,
and thereafter any refinancing of the Project and/or Tenant's leasehold estate;
provided, however, that any such lender shall be an institutional lender, such as,
without limitation, a bank, savings and loan or thrift institution, pension fund, real
estate investment fund, publicly traded limited partnership, or insurance company.
In no event shall Tenant, or Its successors in Interest, borrow any sum of money
secured by a Mortgage in excess, In the aggregate, of the greater of (I) ninety
percent (90%) of the appraised value of the Project and Tenant's leasehold
Interest hereunder as reflected in an appraisal thereof completed no earlier than
one hundred eighty (180) days prior to the date such loan Is funded, which
appraisal shall be subject to Landlord's reasonable approval if such appraisal is
not required and approved by such lender, or (11) an amount which results In
Tenant having a net equity in the Project of not less than Four Million Dollars
($4,000,000) (increased each five (5) years by the percentage of any increase over
such period in the Consumer Price Index for All Urban Consumers, Los Angeles -
Anaheim -Riverside, All Items (1982-84 Base), published by the Bureau of Labor
Statistics, Department of Labor). The successor or most nearly comparable Index
published by some other branch or department of the United States Government
shall be used if said Bureau shall cease to publish the Consumer Price Index;
Provided, however. that In connection with any refinancing of debt secured by the
Premises, the Mortgage may be In the amount of the debt being refinanced at the
time of such refinancing. In calculating whether the borrowed funds exceed ninety
percent (90%) of the appraised value of the Project, any participation in net
revenues from operations, or proceeds of sale or refinancing granted to the
Mortgagee which are fully contingent shall not be included. The limitation on
borrowing set forth in the immediately preceding sentence shall not apply to any
Mortgagee who acquires the Project and the leasehold interest hereunder through
foreclosure or deed -in -lieu thereof, or to a Tenant who shall have acquired the
Project and the leasehold Interest hereunder from a Mortgagee (or the trustee
under a Mortgage) following a foreclosure of its Mortgage or its acceptance of a
deed-in-Iieu thereof. If requested by Tenant, Landlord agrees to execute its written
consent to any such assignment, hypothecation, mortgage, pledge or alienation,
N8 i •2151 XV18
41
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14.2
which consent shall be in form and content reasonably satisfactory to Tenant and
Landlord. In no event shall Landlord have any obligation to subject its interest in
the Premises or this Lease to the lien of any mortgage given by Tenant. Any such
lien whether evidenced by a mortgage, deed of trust or otherwise shall be referred
to herein as a "Mortgage," and the holder or holders of or beneficiary under any
Mortgage shall be referred to herein as the "Mortgagee." The Mortgagee may
enforce such Mortgage and acquire title to the leasehold estate in any lawful way
and, pending foreclosure of such Mortgage, the Mortgagee may elect to take
possession of and operate the Premises and the Project, or any portion thereof,
subject to its Mortgage, perform all obligations performable by the Mortgagee, and
upon foreclosure of such Mortgage by power of sale, judicial foreclosure or
otherwise, or upon acquisition of the leasehold estate by a deed, assignment or
other conveyance in lieu of foreclosure, the Mortgagee may elect to sell and assign
the leasehold estate hereby created without restriction (other than the
requirement that the assignee of the leasehold estate satisfy the requirements of
this Lease with respect to management of the Premises by a Qualified Manager).
Except for payment of any delinquent rent or other payments due hereunder and
obligations reasonably susceptible of cure by the Mortgagee or any such assignee,
the Mortgagee or any such assignee of the leasehold estate shall not be liable to
perform the obligations imposed upon Tenant by this Lease prior to the period
such person or entity has ownership of said leasehold estate or possession of the
Project or the Premises or any portion thereof subject to the Mortgage.
Notice to and Rights of Mortgagees.
(a) When giving notice to Tenant with respect to any default hereunder,
Landlord shall contemporaneously serve a copy of each such notice upon
any Mortgagee who shall have given Landlord a written notice specifying its
name and address. When giving any other notice to Tenant hereunder of a
type which a Mortgagee has requested to receive in writing, Landlord shall,
at the same time, serve a copy thereof upon such requesting Mortgagee
provided it shall have also given Landlord written notice specifying its name
and address. Any Mortgagee shall have the right, but not the obligation, to
cure a default by Tenant under this Lease, and Landlord shall accept any
such performance by any Mortgagees as though the same had been done or
performed by Tenant. The Mortgagees shall have an additional reasonable
period of time following the expiration of the applicable cure period granted
Tenant hereunder to effectuate such cure.
(b) In case of a monetary default by Tenant under this Lease, Landlord will
take no action to obtain possession of the Premises or the Project
(including possession by a receiver) or to effect a termination of this Lease
by reason thereof unless Landlord shall have served a copy of such notice
NB1.215136.V1B
42 6/06/96
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•
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• upon any Mortgagee and the default has continued for a period of thirty
(30) days beyond the date the Mortgagee shall have received said notice.
In the case of any non -monetary default by Tenant under this Lease.
Landlord will take no action to obtain possession of the Premises or the
Project (including possession by a receiver) or to effect a termination of
this Lease by reason thereof unless Landlord has served a copy of a notice
of such default upon any Mortgagee and such non -monetary default
continues for a period of sixty (60) days beyond the date the Mortgagee
received said notice and the Mortgagee shall not have done any of the
following:
(i) commence to cure such default, If such default is capable of cure by
the Mortgagee without the Mortgagee obtaining possession of the
Premises, within said sixty (60) day period, and, thereafter, diligently
proceed to cure such default; or
(if) commence to obtain possession of the Project (including possession
by a receiver) within said sixty (60) day period, and, thereafter,
diligently proceed to obtain said possession, and, once said
possession is obtained, commence and diligently proceed to cure
such default In the case of a default which is capable of being cured
only after the Mortgagee has obtained said possession; or
• (iii) Institute foreclosure proceedings within said sixty (60) day period,
and, thereafter, complete such foreclosure proceedings or otherwise
acquire Tenant's interest under this Lease with reasonable and
continuous diligence in the case of a default which cannot be cured
in the manners set forth in (1) or (ii) above.
With respect to (Ii) or (Iii) above, no Mortgagee shall be required to
continue such possession or continue such foreclosure proceedings if the
default which prompted the service of such a notice has been cured or, If
for any other reason such Mortgagee elects to discontinue the same. The
Mortgagee's period for taking any such action shall be extended by the
period of any stay if the Mortgagee Is prohibited from taking any action
described in (ii) or (iii) above by order of any court having jurisdiction over
any bankruptcy or similar proceedings involving Tenant.
(c) If this Lease is terminated by Landlord on account of any Event of Default
or Is terminated as a result of the rejection of this Lease by a trustee In a
bankruptcy proceeding involving Tenant and the Mortgagee shalt have
arranged to the reasonable satisfaction of Landlord to cure all then -existing
defaults of Tenant under this Lease which are reasonably within the
• N81-21513G.V18 43 Gtl W6
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Mortgagee's ability to cure, then Landlord, within thirty (30) days after
receiving a written request therefor which request shall be given within
thirty (30) days after such termination, and upon payment to it of all
expenses (including reasonable attorneys' fees and expenses) incident
thereto, shall execute and deliver a new lease of the Premises to the
Mortgagee or its nominee or to a purchaser, assignee or transferee, as the
case may be, which new lease shall contain the same terms and provisions
of this Lease.
(d) The Mortgagee may exercise, with respect to the Premises and Project or
any portion thereof, any right, power or remedy under such Leasehold
Mortgage which does not materially conflict with the provisions of this
Lease in the event of a default under any Leasehold Mortgage.
(e) During the period that a Mortgagee shall be in possession of the Premises
and/or Project and/or during the pendency of any foreclosure proceedings
instituted by a Mortgagee, the Mortgagee shall pay or cause to be paid the
Rent specified in this Lease and all other charges of whatsoever nature
payable by Tenant hereunder which have been accrued and are unpaid and
which will thereafter accrue during said period, to the extent the amount
of such charges are known or reasonably ascertainable by the Mortgagee.
It shall be an Event of Default if, following the acquisition of Tenant's
leasehold estate by the Mortgagee or its designee, the Mortgagee or party
acquiring title to Tenant's leasehold estate fails to commence the cure of
all defaults hereunder to be cured and thereafter diligently process such
cure to completion, except (1) such defaults which cannot in the exercise
of reasonable diligence be cured or performed by the Mortgagee or party
acquiring title to Tenant's leasehold estate, and (li) non -monetary defaults
requiring performance of some affirmative obligations susceptible of cure
by Mortgagee upon obtaining possession of the Premises and which the
Mortgagee confirms in writing to Landlord that the Mortgagee will require
its successor to accomplish and which in all events shall be accomplished
by the Mortgagee or its successor within ninety (90) days following the
obtaining of possession of the Premises by Mortgagee or Its designee. Any
default that cannot reasonably be cured by the Mortgagee or party
acquiring title to Tenant's leasehold estate shall be, and shall be deemed
to have been, waived by Landlord (but only with respect to the Mortgagee
or other party acquiring said title) upon completion of the foreclosure
proceedings or acquisition of Tenant's interest in this Lease by any
purchaser at the foreclosure sale or who otherwise acquires Tenant's
Interest in the Premises. The parties agree that the foregoing provision
shall not be deemed or construed to preclude Landlord from exercising any
NBI-215136NI8
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44 6/06/96 0
•
•
•
of Landlord's rights or remedies against Tenant personally if and to the
extent otherwise permitted under the terms of this Lease.
(f) Nothing herein shall preclude Landlord from exercising any of Its rights or
remedies with respect to any other default by Tenant during any period of
any such forbearance, subject to the rights of any Mortgagee as herein
provided.
(g) All notices by Landlord to a Mortgagee shall be given, in the manner
provided under Section 19.6, addressed to the Mortgagee at the address
last specified to Landlord by the Mortgagee, and any such notice shall be
deemed to have been given and served when received by the Mortgagee.
(h) The Mortgagee whose Leasehold Mortgage would be senior in priority If
there were a foreclosure shall prevail if two or more Mortgagees exercise
their rights hereunder, and there is a conflict which renders it impossible
to comply with all such requests. Any Mortgagee who pays any rent or
other sums due hereunder which relate to periods other than during its
actual ownership of the leasehold estate shall be subrogated to any and all
rights which may be asserted against Tenant by Landlord with respect to
such period of time.
(I) Landlord shall have no obligation to pay any fees and expenses of any kind
or description incurred in connection with the procurement of any
Leasehold Mortgages pursuant to this Article XIV.
All amendments or modifications to, or any voluntary termination or cancellation
of (other than as expressly permitted hereunder), this Lease shall require the
written approval of any Mortgagee (if its respective Mortgage so requires).
14.3 Nonsubordination of Fee. In no event will Landlord be required to subordinate
or subject its fee interest In the Premises to the lien of any Mortgagee or any other
person or entity providing financing to Tenant for any purpose. All such financing
shall be the sole responsibility of Tenant.
14.4 Equipment Financing. Landlord understands that Tenant may lease and/or
purchase with purchase money financing certain of the Furnishings which may be
installed in or used In connection with the Project from time to time during the
Term. Landlord hereby agrees, upon written request of Tenant, to release, waive
or subordinate its landlord's lien to any such equipment ]eases, retained title
contracts, security interest or other forms of purchase money financing and to
execute documents, In form and substance reasonably satisfactory to Landlord,
that permit the equipment lessors, title and lien holders, as applicable, the right
N8i-215136.118
45
WOW96
1%l
to enter the premises for the sole purpose of exercising their rights to the
Furnishings subject to such leases, retained title contracts, security interest or •
other forms of purchase money financing.
14.5 Cross Collateralization of Premises. Tenant shall not assign, hypothecate,
mortgage, pledge or alienate Tenant's leasebold estate and rights hereunder
(including Tenant's interest in any subleases, license agreements and concession
agreements) to a lender as security for the payment of indebtedness of Tenant
which mortgage, pledge or other security agreement does not provide for the full
release and reconveyance of such mortgage, pledge or security interest upon
payment of a sum equal to the maximum amount of financing permitted by Section
14.1 (less any principal sums paid under the loan agreements and plus any sum
expended by the Mortgagee in the exercise of Its rights under the loan
agreements).
ARTICLE XV
WASTE AND GOVERNMENTAL REGULATIONS
15.1 Waste or Nuisance. Tenant shall not commit or suffer to be committed any
waste or nuisance in or upon the Project or the Premises. This provision shall In
no way preclude or restrict Tenant in the lawful performance of its rights to
operate the Project pursuant to the provisions of this Lease.
15.2 Governmental Regulations. Tenant, at its sole cost and expense, shall comply •
with and observe, without exception, all of the laws, rules, ordinances, orders,
regulations and requirements of all county, municipal, state, federal and other
applicable governmental authorities, now in force, or which may hereafter be In
force, having jurisdiction over the Premises, the Project and/or the operations to
be conducted by Tenant thereon or thereat. Without limiting the generality of the
foregoing, Tenant shall obtain all permits and licenses (such as building permits
and operating permits and licenses) as may be required by any such governmental
authorities and shall make such alterations, changes, additions or improvements
in the Premises, the Project and its operations thereat as may be required by any
such governmental authorities (and approved by Landlord), including structural
changes. Landlord shall cooperate to the extent reasonably necessary to permit
Tenant to comply with the provisions of this Section 15.2 within the time periods
necessary for such compliance.
15.3 Tenant's Right to Contest Governmental Regulations. Tenant shall have
the right to contest by appropriate proceedings conducted in good faith and with
reasonable diligence, without cost or expense to Landlord, the validity or
application of any law, ordinance, order, rule, regulation or requirement of the
nature referred to In Section 15.2. Tenant may delay compliance with any law,
nuia15136.vi8 46 610"11 •
0
ordinance, order, rule, regulation or requirement until the final determination of
• such proceeding if compliance may legally be delayed pending the prosecution of
any such proceeding without the incurrence of any lien, charge or liability of any
kind against the Premises or Tenant's interest therein and without subjecting
Tenant or Landlord to any liability, civil or criminal, for failure so to comply
therewith. Even If such lien, charge or civil liability would be Incurred by reason
of any such delay, Tenant may, following reasonable notice to Landlord, contest
as aforesaid and delay as aforesaid, provided that such contest or delay does not
subject Landlord to criminal liability, damages or expense, and provided that
Tenant furnishes Landlord security, reasonably satisfactory to Landlord, against
any loss or Injury by reason of such contest or delay. Landlord shall not be
required to join in any proceedings referred to in this Section 15.3 unless the
provisions of any applicable law, rule or regulation then in effect shall require that
such proceedings be brought by and/or in the name of Landlord or shall otherwise
require that Landlord be a party thereto, in which event Landlord shall join In the
proceeding or permit the same to be brought in its name, provided Tenant shall
pay all expenses in connection therewith. Tenant shall not contest the validity or
application of any land use permits or approvals affecting the Premises and in
existence as of the date of this Lease.
ARTICLE XVI
EMINENT DOMAIN
• 16.1 Lease Governs. Subject to the rights of any Mortgagee, the rights and
obligations of the parties with respect to any Award, as defined in Section 16.5,
shall be as provided in this Article XVI if there is any Taking during the Term of
this Lease.
16.2 Termination of Lease. This Lease shall terminate effective on the date of
surrender of possession of the Premises, or so much thereof or interest therein
as has been taken, to the condemning authority in the event of a Total Taking.
Tenant shall continue to pay all Rental due hereunder and, in all respects, keep,
observe and perform all of the terms, covenants and conditions of this Lease to be
kept, observed and performed by Tenant until the date of such termination.
16.3 Partial Taking; Rental Abatement. If there is a Partial Taking, this Lease
shall remain in full force and effect with respect to that portion of the Premises
not taken, and a fair and equitable proportion of the Rental shall be abated
according to the nature and extent of the Partial Taking, and the duration and
extent of the interruption of Tenant's operations due to such taking and restoration
of the Project.
0 NBt-215136.V18 47 6/66/96
16.4 Partial Taking; Restoration. If there Is a Partial Taking, Tenant may, at Its •
sole cost and expense, whether or not the condemnation award on account of such
Taking shall be sufficient for the purpose, promptly commence and diligently
proceed to effect restoration of the Project on the remaining portion of the
Premises as nearly as possible to their value, condition and character immediately
prior to such Taking.
16.5 Distribution of Award. All awards and damages received on account of any
Taking, whether partial or total (including all amounts in respect to both the
Premises, Improvements constructed thereon, and personal property located
thereon or thereat), Including Interest received, if any, whether such award or
damages are paid in respect to the Taking of the fee or leasehold interest in the
Premises (hereinafter collectively referred to as the "Award"), shall be paid
promptly by the person(s) receiving the same to an escrow agent mutually
acceptable to Landlord, Tenant, and any Mortgagee, to be released as hereinafter
provided upon appropriate instruction from the parties hereto. The Award may be
paid to a Mortgagee who will then act as the escrow agent if such Mortgagee
agrees in writing for the express benefit of Landlord and Tenant to be bound by the
terms of Sections 16.6 and 16.8 below. The Mortgagee whose lien shall have the
highest priority shall be selected to act as escrow agent if there shall be more than
one Mortgagee who shall so agree in writing.
16.6 Allocation of Award; Partial Taking. Any Award in a Partial Taking shall be •
distributed by the aforementioned escrow agent in the following order of priority:
(a) First, to Landlord, Tenant and all Mortgagees, as herein provided, as
reimbursement for all costs and expense Incurred by each of them In the
collection of the Award, Including fees and expenses incurred in the
condemnation proceeding unless Landlord is the condemning authority;
(b) Second, to Tenant, as reimbursement for the costs and expenses of
restoration of the Project, as such costs and expenses are incurred by
Tenant;
(c) Third, to the Mortgagees, In the order of their respective priorities, such
sum as is necessary to reduce the aggregate principal amount of the liens
thereof unless and to the extent such liens are to remain against the
Leasehold; and
(d) Fourth, if Landlord and Tenant are unable to agree upon the allocation of
the balance of the Award, if any, It shall be deposited by said escrow agent
Into a court of competent jurisdiction to be equitably allocated between
Landlord and Tenant based on the respective interests of Landlord and
NBI-213136.V18 48 sr "6 •
• Tenant in the balance of said Award as determined by said court after
taking into account the interests of Landlord and Tenant previously
compensated in the distributions provided for in (b) and (c) of this Section
16.6.
16.7 Allocation of Award; Temporary Taking. In the event of a Taking for
temporary use or occupancy, this Lease shall continue In full force and effect
without reduction or abatement of any Rent payable hereunder, and Tenant shall
be entitled to claim, recover and retain any Award made on account of such
temporary Taking remaining after paying the reasonable costs and expenses of
Tenant incurred In collecting such Award; provided, however, that If the period of
such temporary Taking extends beyond the Term of this Lease, such Award shall
be apportioned between Landlord and Tenant as of the date of expiration of the
Term of this Lease.
16.8 Allocation of Award; Total Taking. Any Award in a Total Taking shall be
distributed by the aforementioned escrow agent in the following priority:
(a) first, to Landlord, Tenant and all Mortgagees, as herein provided, as
reimbursement for all costs and expenses Incurred by each of them in the
collection of the Award, including fees and expenses incurred In the
condemnation proceeding;
• (b) second, to the Mortgagees, in the order of their respective priorities, such
sum as is necessary to satisfy and discharge the liens thereof; and
(c) if Landlord and Tenant are unable to agree upon the allocation of the
balance of the Award, If any, it shall be deposited by said escrow agent into
a court of competent jurisdiction to be equitably allocated between
Landlord and Tenant based on the respective Interests of Landlord and
Tenant in the balance of said Award as determined by said court after
taking into account the Interests of Landlord and Tenant previously
compensated In the distribution provided for In Section 16.8(a).
The determination of the value of Tenant's and Landlord's respective interests In
the Project and the Premises for the purposes of Section 16.8(c) shall be made as
if the Lease were to continue in full force and effect until the Expiration Date.
16.9 Conduct of Proceedings. Subject to the rights of any Mortgagee to participate
therein, Tenant and Landlord shall jointly commence, appear in and prosecute any
action or proceeding involving a Taking of the Premises, or any part thereof*or
Interest therein, by condemnation or under the power of eminent domain, or
NBi-21513G.V1 o 49 6/0"6
16.10
17.1
otherwise and shall jointly make any compromise or settlement in connection
therewith.
Notices. Upon any party receiving notice of or becoming aware of any
condemnation proceedings, or threat thereof, such party shall promptly give
written notice to the other party in the manner specified in Section 19.8 below.
ARTICLE XVII
DEFAULT PROVISIONS
Events of Default. The occurrence of any one or more of the following shall
constitute a default by Tenant under this Lease:
(a) failure of Tenant to pay any Rent or Additional Rent due hereunder within
three (3) days after written notice from Landlord; provided however, that
any such notice shall be in lieu of, and not in addition to, any notice
required by the Code of Civil Procedure of the State of California, as
amended from time to time; or
(b) any failure by Tenant to perform any of the other terms, conditions or
covenants of this Lease to be observed or performed by Tenant other than
a failure to pay any Rent or Additional Rent due hereunder within thirty
(30) days after written notice from Landlord; provided, however, that any
such notice shall be in lieu of, and not in addition to, any notice required by
the Code of Civil Procedure of the State of California, as amended from time
to time. A default by Tenant described in this Section 17.1(b) which is not
reasonably susceptible of cure within thirty (30) days after receipt of
Landlord's notice of default shall be deemed cured if Tenant commences to
cure said default within thirty (30) days of receipt of Landlord's notice of
default and Tenant, in fact, diligently proceeds to cure said default and does
cure said default within a reasonable period of time thereafter; or
(c) Tenant becoming insolvent or filing any debtor proceedings, or should any
adjudications in bankruptcy be rendered against Tenant, or should Tenant
take or have taken against it, in any court pursuant to any statute either of
the United States or of any State, a petition in bankruptcy or insolvency or
for reorganization or for the appointment of a receiver or trustee of all or
a portion of Tenant's property, and should the same not be discharged
within one hundred twenty (120) days thereafter; or
(d) Tenant making an assignment for the benefit of creditors, or petition for or
enter into an arrangement; or
N81 -215136.V 18
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(e) The abandonment or vacation of the Project by Tenant for a period of fifteen
• (15) consecutive days after written notice to Tenant (except for such
abandonment or vacation attributable to any event of Force Majeure or by
the remodeling, reconstruction, alteration or repair of the Project); or
•
•
(f) the appointment of a trustee or receiver to take possession of substantially
all of the assets of Tenant located at the Premises or Tenant's Interest In
this Lease or the Premises, where possession Is not restored within one
hundred twenty (120) days; or
(g) Tenant permitting this Lease or any substantial portion of its property on
the Premises or any portion of its interest in the Premises or the Project
to be taken under any writ of attachment or execution, and should the same
not be discharged within ninety (90) days thereafter.
17.2 Remedies Upon Default.
(a) Except as provided in Section 17.4 and subject to the rights of Mortgagees,
should there be an Event of Default by Tenant under this Lease and should
Landlord, as a result thereof, elect to re-enter, as provided in this Article
XVII, or should it take possession pursuant to legal proceedings or
pursuant to any notice provided for by law, Landlord shall be entitled to
proceed In accordance with and recover the amounts specified in California
Civil Code Sections 1951.2 and 1951.4. Landlord may either terminate this
Lease, or it may from time to time without terminating the Lease, make
such alterations and repairs as may be necessary in order to continue
operation of business at the Premises, and relet the Premises, or any part
thereof, for such term or terms (which may be for a term extending beyond
the term of this Lease) and at such rent and charges and upon such terms
and conditions as Landlord in its sole discretion may deem advisable; upon
each such reletting all Rental received by Landlord shall be applied, first,
to the payment of any Indebtedness other than Rental due hereunder from
Tenant to Landlord; second, to the payment of any costs and expenses of
such reletting, including brokerage fees and attorneys' fees and expenses
and of costs of such alterations and repairs; third, to the payment of Rental
due and unpaid hereunder, and the residue, if any, shall be held by
Landlord and applied in payment of future Rental as the same may become
due and payable hereunder. Tenant shall pay any such deficiency to
Landlord if such Rental received from such reletting during any month is
less than that which would be due during that month from Tenant
hereunder. Such deficiency shall be calculated and paid monthly. No such
reentry or taking possession of the Premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a
NBI-215136-VIO
51 6MG196
written notice of such intention is given to Tenant or unless the termination
thereof is decreed by a court of competent jurisdiction. Notwithstanding
any such reletting without termination, Landlord may at any time elect to
terminate this Lease for such Event of Default. Should Landlord at any
time terminate this Lease for any such Event of Default, in addition to any
other remedies It may have, it may recover from Tenant all damages it may
reasonably incur by reason of such Event of Default, including the cost of
recovering the Premises and its reasonable attorneys' fees and expenses.
(b) Following an Event of Default by Tenant hereunder, Tenant shall promptly
deliver to Landlord all plans and specifications and all working drawings
prepared in connection with the development of the Project not previously
delivered to Landlord. Tenant's obligations under this Section 17.2(b) shall
survive the expiration or earlier termination of this Lease.
17.3 Landlord Acting for Tenant's Account. If Tenant shall fail in the performance
of any provision, covenant or condition on its part to be performed under this
Lease, Landlord may, at is option, any time after the expiration of any applicable
notice and cure period granted to Tenant and Mortgagees under this Lease (unless
Landlord reasonably believes there to be an emergency threatening damage to
Landlord's interest In the Premises or the Project, in which event no notice is
required and Landlord may act Immediately), perform the same for the account of,
and at the expense of Tenant. The sums so paid or reasonably Incurred by
Landlord, together with Interest at the Default Rate, costs and damages shall be
due from and paid by Tenant, as Additional Rental, on demand.
17.4 Limited Liability; bion -Recourse Ground Lease.
(a) Notwithstanding anything to the contrary contained in this Lease, including
without limitation the remedies of Landlord contained in this Article XVII,
except as otherwise provided in Subsection (b) below, if at any time
following completion of the Project, as contemplated in the Final Pians,
Tenant shall fail to perform or pay any covenant or obligation on its part to
be performed or paid hereunder, and as a consequence thereof, Landlord
or its successors and assigns shall obtain a money judgment against
Tenant, Landlord agrees to look solely to the interest of Tenant in the
Project for the satisfaction of such judgment, and if such interest is
Insufficient to satisfy the judgment amount, Landlord shall have no right of
action nor shall Tenant be liable for any such Insufficiency.
(b) Notwithstanding the foregoing provisions of Subsection (a) above, nothing
herein is intended to relieve Tenant from the performance of any of Its
obligations hereunder, but rather to limit Tenant's liabilities as aforesaid.
Nal-2151XV18 52 "6196
• Nothing In paragraph (a) shall be deemed to prejudice the rights of
Landlord against Tenant, and Tenant shall be fully liable to Landlord for
damages suffered by Landlord, to the extent provided by law:
(i) as a result of fraud, misrepresentation or gross negligence by
Tenant;
(II) as the result of the retention of any rental or other income arising
with respect to the Premises which Is collected by Tenant after
Landlord has given notice to Tenant that it is in default under the
Lease (to the full extent of such rental or other income collected by
Tenant after the giving of any such notice);
(III) for the fair market value as of the time of giving of any notice
referred to in (ii) hereinabove of any personal property or fixtures
located, attached and/or used in connection with the Project which
are removed or disposed of by Tenant; and
(iv) as the result of the misapplication of any proceeds under any
insurance policies, condemnation awards or settlements
attributable to all or any portion of the Premises or Project.
• ARTICLE XVIII
LANDLORD'S ACCESS
18.1 Landlord's Right of Access. Upon reasonable prior notice to Tenant, Landlord
and Landlord's agents shall have the right to enter the Premises and/or the Project
during regular business hours for the purpose of determining Tenant's compliance
with any provision, covenant or condition on Tenant's part to be performed under
this Lease; provided, however, that Landlord shall not Interfere with the normal
conduct of Tenant's business on the Premises. Landlord hereby agrees to
indemnify, defend with counsel satisfactory to Tenant and hold Tenant free and
harmless from any and all losses, costs, damages or expenses suffered or
incurred, directly or Indirectly, by activities conducted by Landlord or Landlord's
agents under this Section 18.1. Tenant agrees to have available to Landlord at
reasonable times and upon reasonable notice a representative who may
accompany Landlord's representative in the exercise by Landlord of its right of
entry and access.
• N81.215136.V18 53 6/606
ARTICLE XIX
MISCELLANEOUS
19.1 Waiver. The waiver by either Landlord or Tenant of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of such
term, covenant or condition or any subsequent breach of the same or any other
term, covenant or condition herein contained. The subsequent acceptance of any
Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease other than the
failure of Tenant to pay the particular Rent so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance. No covenant, term
or condition of this Lease shall be deemed to have been waived by Landlord or
Tenant, unless such waiver is in writing signed by the party against whom such
waiver is asserted.
19.2 Accord and Satisfaction. Except as otherwise expressly provided in this Lease,
no payment by Tenant or receipt by Landlord of a lesser amount than the Rent
herein stipulated shall be deemed to be other than on account of the earliest
stipulated Rent, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such Rent or pursue any other remedy in this Lease.
19.3 Entire Lease. This Lease and the Option Agreement set forth all the covenants,
promises, conditions and understandings between Landlord and Tenant, oral or
written, relating to the subject matter hereof. No subsequent alterations,
amendments, changes or additions to this Lease shall be binding upon Landlord
and Tenant unless reduced to a writing, signed by them and approved by the
Mortgagees, if and to the extent required under their respective Mortgages.
19.4 Termination of Existing Lease. Concurrently with execution of this Lease by
the parties, the Existing Lease Is hereby terminated; provided, however, that any
accrued and unpaid rental obligations of Tenant thereunder not included in the
rental obligations of this Lease shall be immediately due and payable and remain
in full force and effect under this Lease.
19.5 Force Majeure. The performance of any act required hereunder shall be excused
for the period of any delay, hindrance or prevention of such act due to an event of
Force Majeure and the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay. The performance of
such act shall be excused if either party shall be indefinitely prevented from the
performance of any act required hereunder by reason of such event of Force
NB1.215138.V18
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• Majeure. No event of Force Majeure shall excuse the timely payment of money
when due hereunder except as otherwise expressly provided in this Lease.
19.6 Notices. Any notice, request, demand, instruction or other communication to be
given to either party hereunder shall be in writing and shall be deemed to have
been duly given when personally delivered, twenty-four (24) hours after deposited
with a reliable overnight carrier, guaranteeing next day delivery, postage prepaid,
addressed as set forth below, or forty-eight (48) hours after mailed by United
States Registered Mail, return receipt requested, postage prepaid as follows:
If to Landlord: City of Newport Beach
3300 Newport Boulevard
P. 0. Box 1768
Newport Beach, California 92658-8915
Attention: City Manager
With copy to: City of Newport Beach
3300 Newport Boulevard
P. 0. Box 1768
Newport Beach, California 92658-8915
Attention: City Attorney
• Melveny & Myers
61
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660-6429
Attention: Lowell C. Martindale, Jr.
If to Tenant: c/o International Bay Clubs, Inc.
1221 West Coast Highway
Newport Beach, California 92663
Attention: General Manager
With copy to: Pinto, Gromet, Dubia & Worcester
2 Park Plaza, Suite 300
Irvine, California 92714
Attention: Saul B. Pinto
And: Tenant's Mortgagee(s) provided Landlord has received
notice of and the address of such Mortgagee(s)
Any notice party may change its address for purposes of receiving notice
hereunder by giving notice to the other party pursuant to the provisions hereof.
• N61 -215136.V16 55 6166/96
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Refusal to accept delivery of any notice, request, demand, Instruction or other
communication shall be deemed to be delivery thereof. In the event of a partial •
assignment of either Landlord's or Tenant's interest under this Lease, no notice
or payment shall be given or made to any such partial assignee, but only to one
person, firm or corporation as shall have been duly designated by an instrument
executed and acknowledged by all such partial assignees and a duplicate original
shall have been served upon the other party hereto. Notice or payment shall be
given or made only to the last assignee of this Lease as a whole or the one person,
firm or corporation named in the most recent designation duly made and served.
Neither Tenant nor Landlord shall have any liability to see to the proper
distribution of any notice or payment so made to the other party.
19.7 Captions and Section Numbers. The captions, section numbers, article
numbers and index appearing in the Lease are inserted only as a matter of
convenience, and in no way define, limit, construe or describe the scope or Intent
of such section or article, nor In any way affect this Lease.
19.8 Construction of Language. The language in all parts of this Lease shall be
construed simply, according to Its fair meaning, and not strictly for or against
either Landlord or Tenant. The term "permit" shall be Interpreted to include
"cause to be permitted or suffered to be permitted", and the term "include" shall
be interpreted not to imply any limitation on the more general preceding provision,
unless in each instance otherwise expressly provided in this Lease.
19.9 Broker's Commission. In connection with the transaction contemplated by this •
Lease, Landlord and Tenant each represents to the other that it has not entered
into any agreement or Incurred any obligation which might result in the obligation
to pay a brokerage commission or finder's fee with respect to this transaction.
Landlord and Tenant each agree to indemnify, defend, protect and hold the other
harmless from and against any and all losses, claims, damages, costs or expenses
(including attorneys' fees) which the other may incur as a result of any claim made
by any person to a right to a brokerage commission or finder's fee in connection
with this transaction to the extent such claim is based, or purportedly based, on
the acts or omissions of Landlord or Tenant, as the case may be.
19.1 Q Limitation of Landlord's Obligations. Landlord shall not be called upon or
required at any time to make any improvements, alterations, changes, additions,
repairs or replacements of any nature whatsoever in or to the Premises.
19.11 Landlord's or Tenant's Discretion. Landlord or Tenant, as applicable, shall
not have a right to unreasonably withhold, condition or delay such consent or
approval If Landlord's or Tenant's consent or approval is required hereunder
unless the provision of the Lease states that such approval or consent Is in the
N81.2151XV18 56 6/Q6/96 •
• sole or absolute discretion of the applicable party. Whenever Landlord's or
Tenant's approval or consent is required under this Lease, Landlord or Tenant, as
applicable, shall be deemed to have granted such approval or consent if Landlord
or Tenant, as applicable, has failed to respond to such request within the period
of time expressly given such party to respond under the applicable section hereof
or, if no deadline for a response Is given under the applicable section, within thirty
(30) days of Its receipt of such written request delivered In accordance with the
terms of Section 19.6.
•
19.12 Interest. Interest shall accrue at the Lease Interest hate on any sums owed by
Tenant to Landlord, or vice versa, starting from the first date of delinquency and
continuing until the full amount including interest is paid.
19.13 Successors. Except as herein otherwise provided, the terms hereof shall be
binding upon and shall inure to the benefit of the successors and assigns,
respectively, of Landlord and Tenant.
19.14 Applicable Law. This Lease and all provisions hereof, irrespective of the place
of execution or performance, shall be construed and enforced in accordance with
the laws of the State of California without giving effect to conflict of laws
provisions.
19.15 Landlord's and Tenant's Rights are Cumulative. The rights and remedies
conferred upon both Landlord and Tenant in this Lease and by law are cumulative.
19.16 Saving Clause. If any provision of this Lease, the deletion of which would not
adversely affect the receipt of any material benefit by any party hereunder or
substantially Increase the burden on any party hereto, shall be held to be invalid
or unenforceable to any extent, the same shall not affect in any respect whatsoever
the validity or enforceability of the remainder of this Lease.
19.17 Attorneys' Fees and Expenses. If either party incurs any expense, including
reasonable attorneys' fees and expenses, in connection with any action or
proceeding against the other, arising out of or in connection with this Lease,
whether or not such action proceeds to trial, the sums so paid by the prevailing
party shall be due from and be paid by the nonprevailing party on demand.
19.18 Injunctive Relief. In addition to any remedies expressly mentioned In this
Lease, the other party shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity if there is any breach or threatened breach by
either party of any of the covenants or provisions of this Lease.
N61.215136.V78
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19.19 Appraisal. If an appraisal is required under the terms of this Lease for the
purposes of determining "fair market value", unless otherwise specified herein, •
such appraisal shall be determined by the appraisal by three (3) disinterested real
estate appraisers, each with at least ten (10) years' experience in the appraisal
of similar property interests, one being chosen by Landlord, one by Tenant, and the
third by the other two appraisers. The average of the two appraisals closest in
value shall be deemed the "fair market value". Landlord shall pay the costs of the
appraiser selected by Landlord, Tenant shall pay the costs of the appraiser
selected by Tenant, and Landlord and Tenant shall split the costs of the third
appraiser.
19.20 Recording. Landlord and Tenant shall execute for purposes of recordation in the
Office of the County Recorder a memorandum or short form of this Lease in the
form attached hereto as Exhibit B. The cost and expenses of recording the
memorandum or short form of the Lease shall be home by the party asking for the
memorandum to be recorded. Each party agrees that it will not record the Lease
In its entirety.
19.21 Incorporation of Preamble, Recitals and Exhibits. The preamble, recitals
and exhibits hereto are hereby incorporated into this Lease and made a part
hereof.
N61,215136.V18
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IN FITNESS WHEREOF, Landlord and Tenant have duly executed and delivered this Lease
as of the day and year first above written.
LANDLORD:
Attest:
City Clerk
Approved as to Form:
City Attorney
CITY OF NEWPORT BEACH,
a municipal corporation
G. 4
TENANT:
BBC PROPERTY, INC.,
a New Pork Corporation
Its:
Its:
NBI-21513441$ 59 f(M95
EXHIBIT A
LEGAL DESCRIPTION OF LEASED PREMISES •
(TO COME)
NB1.21 5136.'18
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EXHIBIT B
MEMORANDUM OF GROUND LEASE
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
International Bay Clubs, Inc.
1221 W. Coast Highway
Newport Beach, California 92663
MEMORANDUM OF GROUND LEASE
This Memorandum of Ground Lease ("Memorandum")
(the "Commencement Date"
NEWPORT BEACH, a municipal corporation ("Landlord")
New Pork Corporation ("Tenant").
RECITALS
is entered into effective as of
), by and between THE CITY OF
and BBC PROPERTY, INC., a
A. Landlord and Tenant have entered into that certain Ground Lease (the "Lease")
dated as of the Commencement Date relating to certain real property located in
the City of Newport Beach, County of Orange, State of California described more
particularly on Exhibit A attached hereto and by this reference made a part hereof
(the "Premises"). Landlord and Tenant each desires to execute this
Memorandum for recordation in the real property records of the County of Orange
In order to memorialize the existence of the Lease.
NO«' THEREFORE, with reference to the foregoing recital, the parties hereto agree as
follows:
Lease of Premises. Landlord hereby leases to Tenant, and Tenant hereby hires
from Landlord, the Premises, on the terms and conditions set forth in the Lease.
2. Term. The term of the Lease shall be for a period of fifty (50) years commencing
upon the Commencement Date, unless sooner terminated pursuant to the
provisions of the Lease.
NB1-215 F 3G.V1 B fi14B/9G
10)
3. Incorporation of Lease. This instrument is a memorandum of the Lease and Is
subject to all of the terms and conditions of the Lease. The terms of the Lease •
shall prevail if there Is any Inconsistency between the terms of this Instrument and
the terms of the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum as of the
date first set forth above.
THE CITY OF NEWPORT BEACH,
a municipal corporation
BBC PROPERTY, INC.,
a New York Corporation
By: _
Its:
By: _
Its:
NBI•21513GA18
•
• STATE OF CALIFORNIA )
ss.
COUNTY OF ORANGE )
•
•
On before me personally appeared , personally
known to me (or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within Instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the person, or
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
(SEAL)
STATE OF CALIFORNIA
) ss.
COUNTY OF ORANGE
Notary Public
On before me personally appeared , personally
known to me (or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the person, or
entity upon behalf of which the person acted, executed the instrument.
(SEAL)
Nui-zrsias.via
WITNESS my hand and official seal.
Notary Public
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On before me personally appeared , personally
known to me (or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on'the Instrument the person, or
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
(SEAL)
Notary Public
N81.215136N18
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0 N81.215136A1B
EXHIBIT C
SIGNAGE REGULATIONS
[TO COME)
6/06/96
Authorized to Publish Advertisements of all kinds rding public notices by
Dccree of the Superior Court of Orange County, 1111illifornla. Number A•6214,
September 29, 1961, and A-24831 June 11, 1963,
N
K*-T*Td i
STATE OF CALIFORNIA)
) ss.
County of Orange )
I am a Citizen of the united States and a
resident of the County aforesaid; I am over
the age of.eighteen years, and not a party to
or interested in the below entitled matter. I
am a principal clerk of the NEWPORT
BEACH -COSTA MESA [DAILY PILOT, a
newspaper of general circulation, printed and
published in the City,of Costa Mesa, County
of Orange, State of California, and that
attached Notice is a true and complete copy
as was printed and published on the
following dates:
June 14, 1996
I declare, under penalty of perjury, that the
foregoing is true and correct.
Executed on June 14 , 199 6
at Costa Mesa, California.
Signature
SAL
IS
ETHER GIVEN that said pub -
'k baar'irq will be held on
the 241h day of June, iM,
at the hour of 7:08 p.m, In
the City Hall Coun`cii
'Chambers, .3300 Newport
8swkward, Newport Beach,
CA .02663, at which time
and piece interested per.
sons'. may.. appear and be
heard thereon. If you chart•
lenge ttas proJect in cane,
you may belimited to i`
Ing only those. Issues you
or serrwone else raised at
the public hearing de.
scribed In this.. nageeor In
ad to the taty'. at, or
1e, the public hearing.
information ,cep,. (714).
1�6_.11111
JUN -24-1996 11:45 FROM
3
TO 1E,17i-F::--7-7'6443U20 P.02
"RECEIVED AFTER AGENDA
INTER:" _
CHAPMAN
U n i v e r s i t y
Orange, California 92666
Office of The President 1714) 997.6612 * FAX (724) 997-6w7
41ht '4
June 20, 1996 ;r
,z
The Hon. John W. Hedges, Mayor
Members of the Newport Beach City Council
City of Newport Beach
3300 Newport Boulevard
Newport Beach, California 92663
Dear Mayor Hedges and Members of the City Council:
My name is James L. Doti. I reside in Villa Park and serve as president of
Chapman University and on the Board of Governors of the Balboa Bay Club.
I am writing to express my enthusiastic support of the proposed lease and option
agreement between the City of Newport Beach and the Balboa Bay Club. That support is
based on the following reasons.
Perhaps most important is the fact that this agreement would allow for a private
party to invest substantial capital to complete a greatly needed renovation project. This
would be at the risk of a private party rather than the City of Newport Beach. Yet the city
and its citizens and business community would benefit considerably from the project.
The renovation will entice more visitors to the Balboa Bay Club which in turn will
increase spending and overall economic activity in the area. In addition, the renovation
will make it possible to develop a first-class facility that will reflect credit on the overall
image and identity of the City of Newport Beach,
As a person who has been involved in analyzing and measuring the economic
impact of major development projects, I am often asked to evaluate the extent to which
public bodies, including cities and redevelopment agencies, should provide public funds
to incentivize the private commitment of capital resources. In this case, the City of
Newport Beach has a wonderful opportunity to receive a positive economic stimulus
without the commitment of any public funds. All that is needed is the city approval of an
JUN -24-1996 11:45 FROM
The Hon. John W Hedges, Mayor, and
Members of the Newport Beach City Council
June 20, 1996
TO E. r 443020 F.07
.m
agreement which essentially is a lease extension that will make it possible for a private
rather than a public body to commit significant capital resources — resources that are
destined to have a significant positive economic impact on the City of Newport Beach.
I should also add that the planned renovation will allow for expanded services that
would attract more conference -related activity. For example, there have been several
instances where I would have brought educational meetings or board conferences to the
Balboa Bay Club. Unfortunately, the size of the present conference facilities at the club
was not adequate for our needs. This conference activity with all the related expenditures
and concomitant economic impacts could have come to Newport Beach. Expand this one
example by some multiple to get an idea of the lost revenue to the city and its business
community. In a more positive vein, think of how much could be gained if the proposed
agreement is approved.
Copy: Kevin Murphy, City Manager
06-24-1996 20:52RM FROM BBC
0
N
MARIAN BERGESON
SUPERVISOR, FIFTH DISTRICT
e,14 7,020 P. 1212
"RECEIVED AFTER AGENDA
PRINTED:" �a
ROUPT E. THOMAS MALL OF ADMINISTRATION
10 CIVIC CENTER PLAZA, SANTA ANA, CALIFORNIA 42102-4re
PHONE (714) 836.3660 FAX (714) 834-2470
Mr. David C. Wooten, President
International Bay clubs, Incorporated
1221 West Coast Highway
Newport Beach, CA 92663
Dear David:
I regret that I am unable to attend tonight's Council meeting to express my enthusiasm for
the option agreement and ground lease between The Balboa Bay Club and the City of
Newport Beach. Please convey my strong support for these agreements and for the many
changes which will accompany the expansion of the Club.
Having worked closely as a State Senator with the City of Newport Beach and yourselves
on the State Lauds Commission lease agreement, I continue to be a strong advocate for
the increased public access the redevelopment will provide, Further, this expansion will
be important in continuing the City's strong economic development program and the
dynamics of the project will energize Mariners mile.
The Balboa Bay Club is an institution within our City -- and it is also a partner in the
community. Your support for the many activities benefiting young and old alike is well
respected and certainly appreciated.
I look forward to the new and improved Balboa Bay Club and to the exciting changes it
will bring.
Cordially,
MARIAN BERGESON
Supervisor, Fifth District
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