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HomeMy WebLinkAbout09 - Approval of an Exclusive Negotiating Agreement with Lido House Hotel, LLC for the Lease of Property at 475 32nd Street (PA21-00712)Q �EwPpRT CITY OF O � ®_ z NEWPORT BEACH cq<iFo�P City Council Staff Report July 27, 2021 Agenda Item No. 9 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Seimone Jurjis, Community Development Director - 949-644-3232, sjurjis@newportbeachca.gov PREPARED BY: Fauna Shrago, Management Analyst, fshrago@newportbeachca.gov PHONE: 949-644-3206 TITLE: Approval of an Exclusive Negotiating Agreement with Lido House Hotel, LLC for the Lease of Property at 475 32" d Street (PA21- 00712) ABSTRACT: For City Council's consideration is a two-year exclusive negotiating agreement (ENA) between the City of Newport Beach (City) and Lido House Hotel, LLC, regarding the lease of the current Fire Station No. 2 site located at 475 32" d Street (Property). Lido House, LLC is the current entity that constructed and operates the Lido House Hotel which is adjacent and contiguous to the Property. RECOMMENDATION: a) Find this action proposed herein is not a project subject to the California Environmental Quality Act (CEQA) in accordance with Section 21065 of the California Public Resources Code and Sections 15060 (c)(2), 15060 (c)(3), and 15378 of the California Code of Regulations Title 14, Division 6, Chapter 3 (CEQA Guidelines); and b) Approve an Exclusive Negotiating Agreement with Lido House Hotel, LLC. DISCUSSION: On September 9, 2014, the City and Olson Real Estate Group, Inc. (RD Olson), entered into a Ground Lease Agreement (Lease) for the redevelopment of the former Newport Beach City Hall premises, located at 3300 Newport Boulevard, to be used as a boutique hotel and spa. On May 3, 2016, the parties entered into the First Amendment to Lease, and RD Olson further entered into an Assignment and Assumption of Lease (Assignment) with Lido House Hotel, LLC (Lessee). 9-1 Approval of an Exclusive Negotiating Agreement with Lido House Hotel, LLC for the Lease of Property at 475 32nd Street (PA21-00712) July 27, 2021 Page 2 In 2017, the City Council approved the purchase of a property located at 2807 Newport Blvd. to use as the new location for the Fire Station No. 2 facility. Fire Station No. 2 is currently located at 475 32nd Street (Property) and the existing structure is considered an essential facility and has come to its end of its useful life. The new fire station is currently under construction and should be completed by spring 2022. With the understanding the City is relocating its Fire Station No. 2 facility, Lessee approached the City in late 2020 with a request to extend its current Lease to include the adjacent Property to expand the hotel along with public benefits, including, but not limited to, construction of public parking spaces. If approved, the ENA will establish a period of time and preliminary terms during which both parties will have the opportunity to negotiate the full terms of an amended Lease agreement allowing Lido House Hotel, LLC rights to the Property. The proposed preliminary terms set forth in the ENA include: a) lease rate of the Property; b) scope of development costs; c) detailed site plans, elevations, and utility plan of the Property; d) evidence of Lessee's financial health, e) financial plans to address methods of construction and permanent financing; f) assessment of the physical and environmental conditions of the Property and demolition plans of the existing building; and g) development schedule. FISCAL IMPACT If approved, staff will return with an amended Lease agreement that will include a detailed analysis of the increase in City revenue from the hotel. ENVIRONMENTAL REVIEW: The approval of an exclusive negotiating agreement to discuss a future development project is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Decisions related to a defined project, including whether or not to authorize any development or lease of the property, will be subject to CEQA. The City will conduct appropriate environmental review prior to a decision by the City to lease the property, amend the City's General Plan, Coastal Land Use Plan, and/or Zoning Ordinance, approved a site development plan, and/or authorize construction on the property. 9-2 Approval of an Exclusive Negotiating Agreement with Lido House Hotel, LLC for the Lease of Property at 475 32nd Street (PA21-00712) July 27, 2021 Page 3 NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers them). Notice was also sent by email to interested individuals. ATTACHMENT: Attachment A — Exclusive Negotiating Agreement 9-3 Attachment A Exclusive Negotiating Agreement EXCLUSIVE NEGOTIATING AGREEMENT WITH LIDO HOUSE, LLC This EXCLUSIVE NEGOTIATING AGREEMENT (the "Agreement") is made and entered into to be effective as of , 2021 ("Effective Date"), by and between the City of Newport Beach, a charter city and municipal corporation ("City"), and Lido House, LLC, a California limited liability company ("Developer"). City and Developer are sometimes hereinafter individually referred to as a "Parry" and collectively as the "Parties." RECITALS The following Recitals are a substantive part of this Agreement: A. City is a municipal corporation duly organized and validly existing under the laws of the State of California with the power to carry on its business as it is now being conducted under the statutes of the State of California and the Charter of the City. B. The City entered into a lease agreement with Developer on September 9, 2014 for the development of a hotel with one hundred thirty (130) guest rooms and related facilities ("Lease") on City owned land at 3300 Newport Boulevard, Newport Beach, California and more particularly depicted in Exhibit "A" which is attached hereto and incorporated herein by reference to this Agreement ("Hotel"). C. Developer proposes extending the lease to the contiguous real property located at 475 32"1 Street, Newport Beach, California to Developer, and more particularly depicted in Exhibit "A" which is attached hereto and incorporated herein by reference to this Agreement ("Site") for the potential expansion of the Hotel along with public benefits including, but not limited to, construction of public parking spaces ("Proposal"). D. The Proposal is subject to refinement and modification as mutually agreed to by the Parties during negotiations. E. The Parties desire to enter into this Agreement to establish a period during which they will cooperate to explore the feasibility of refining the Proposal and during which time Developer shall have the exclusive right to negotiate the Proposal with City with respect to the terms of an agreement or agreements to provide for the Proposal ("Proposed Lease Amendment"). NOW, THEREFORE, it is mutually agreed by and between the Parties as follows: 1. Term of Agreement. The term of this Agreement ("Term") shall be two (2) years after the Effective Date; provided, however, that the City Manager and Developer shall have the right to approve an extension of the Term for a cumulative maximum of six (6) months without the requirement of any official action by the City Council if the City Manager determines that satisfactory progress is being made to achieve the objectives and complete the tasks set forth herein additional time is necessary to finalize discussions or negotiations on mutually satisfactory terms. 9-5 2. Proposal Terms. The following nonexclusive list of items related to the Proposal are the subject of negotiations during the Term: (a) lease rate for the Site including an increase in the base rent for the Hotel in the annual amount of Fifty Thousand Dollars and 00/00 ($50,000.00); (b) scope of development, the cost of which shall be borne solely by Developer, for the expansion of the Hotel along with public benefits to the City including, but not limited to, the construction of additional public parking; (c) preparation by the Developer of a detailed site plan, elevations, and utility plan, as applicable, for the Proposal that depicts the proposed building locations, elevations, building square footages and uses, parking, access points, landscaped areas, pedestrian and vehicular circulation, and utility relocation; (d) preparation of a pro forma provided by Developer and reviewed by the City for the Proposal that details satisfactory evidence of Developer's ability to finance and complete the Proposal including anticipated rents, estimated profit, appropriate return measurements, development and operational costs that includes the (i) all costs of abatement and demolition and development of a surface parking lot; (ii) all costs associated with the development of public parking spaces; (iii) all costs associated with expansion of the Hotel; (iv) all costs associated with utility relocation; (v) an increase in the annual base rent for the Lease in the amount of Fifty Thousand Dollars and 00/00 ($50,000.00); and (vi) all other terms including Site taxes, possessory interest or other taxes and percentage rent on sales; (e) financial plan provided by Developer and reviewed by the City for the Proposal addressing the proposed methods of construction, permanent financing, and amounts and sources of equity and debt capital; (f) assessment of the physical and environmental condition of the Site conducted by the Developer and scope of work necessary for the renovation and/or demolition of the existing building including abatement of any asbestos and/or lead, the cost of which shall be borne solely by Developer; and (g) development schedule for the Proposal. 3. Submission of Documents for Review and Comment. 3.1 Within sixty (60) days of the Effective Date of this Agreement, Developer shall submit the following information to the City or its agents: (a) detailed scope of development, site plan, elevations, and utility plan (as applicable) that incorporates the information specified in Sections 2(b) and 2(c) of this Agreement; (b) detailed pro forma that incorporates the information specified in Section 2(d) of this Agreement; 2 9-6 (c) detailed financing plan that incorporates the information specified in Section 2(e) of this Agreement; and (d) development schedule for completion of the Proposal. In the event that the City requests changes to the aforementioned documents or additional information, Developer shall provide the information requested or resubmit a revised site plan, pro forma, financing plan, scope of development, and/or development schedule to the City within thirty (30) days of City's written request. The City shall review and either approve such submissions or return the submissions to Developer for further revision as soon as practical but, in any event, within forty-five (45) days. Developer acknowledges and agrees that design and architectural review by the City and its consultants will be required at each stage of review of the Proposal and that sketches, plans, and ultimately working drawings, specifications and similar documents will be required to be submitted for review and approval ("City's Design Review"). Developer further acknowledges and agrees that the City, acting not as a Party but under its general police powers as a charter city and municipal corporation, may conduct all applicable review and that building design, including, but not limited to, the selection of building elevations, construction materials, parking layout and landscaping, which will not be final until approved by the City pursuant to Newport Beach Municipal Code including, but not limited to, Title 20 (Planning and Zoning) and Title 21 (Local Coastal Program Implementation Plan). Developer acknowledges and agrees that the City's Design Review rights provided herein, are distinct and separate from those additional rights which the City may exercise under its general police powers as a municipal corporation and charter city. 3.2 Within thirty (30) days of the Effective Date of this Agreement, City shall submit the following information to Developer: (a) an appraisal of the Site for purposes of establishing the amount of rent payable to the City to lease the Site; and (b) copies of reports, studies, surveys and other data and information, if any, on the physical condition of the Site. 4. Good Faith Negotiations. During the entire Term of this Agreement, City and Developer shall negotiate in good faith pursuant to the terms set forth herein to achieve the objectives and accomplish the tasks described in this Agreement. Nothing herein shall be deemed a covenant, promise, or commitment by either Party to approve or enter into a Proposed Lease Amendment with the other Party on any particular terms or conditions. The Parties' approval and execution of this Agreement is merely an agreement with respect to certain tasks preliminary to the execution of the Proposed Lease Amendment and an agreement to enter into a period of negotiations according to the concepts presented herein, reserving full and final discretion with City and Developer as to the final terms of the Proposed Lease Amendment as required by law. If, for any reason, City and Developer have not each executed a mutually acceptable Proposed Lease Amendment by the expiration of the Negotiation Period, and provided that the Parties have not committed a material default hereunder, this Agreement shall automatically terminate and shall be of no further force or effect. 3 During the period of exclusive negotiation, the City agrees to negotiate exclusively with the Developer during the Term of this Agreement to the extent permitted by law and shall not solicit another parry for the Property or enter into any agreement with any other party regarding the development of the Property. The City acknowledges and agrees that but for this exclusivity, the Developer would not have entered into this Agreement. 5. Administrative Costs and Expenses; Developer Deposit. Developer shall be responsible for all costs and expenses incurred by the City related to this Agreement including, but not limited to, costs of City staff time, consultant fees and attorneys' fees. Prior to City's execution of this Agreement, Developer shall deposit with City an initial sum of Twenty -Five Thousand Dollars ($25,000.00) ("Deposit Amount") that the City will use to reimburse itself for the costs related to the preparation and implementation of this Agreement. Said funds shall be maintained in a separate account by the City ("Deposit Account"). Within ten (10) business days of a request by the City, Developer shall deposit additional sums to replenish the Deposit Account so that the amount of funds on deposit with the City is maintained at Twenty -Five Thousand Dollars ($25,000.00). From and after the Effective Date, the Deposit Account may be used by the City to pay the City's costs including, without limitation, City staff time, consultant fees and attorneys' fees required in connection with the drafting, negotiation and execution of this Agreement, the Lease Amendment, or termination of this Agreement ("City Transaction Expenses") provided that City agrees that City Transaction Expenses to be charged Developer shall not exceed Fifty Thousand Dollars and 00/100 ($50,000.00) prior to execution of the Proposed Lease Amendment. 6. Land Use & Environmental Requirements. The development of the Proposal shall be subject to all rules, regulations, standards, and criteria required by law and as set forth in the City's General Plan, Coastal Land Use Plan, Newport Beach Municipal Code, the California Environmental Quality Act, this Agreement, and the Lease Amendment. Developer shall be responsible for obtaining all approvals and entitlements necessary for the Proposal. Developer shall be also be responsible for all costs related to the Proposal incurred, including, but not limited to, City staff time, consultant fees, and other fees, associated in any way with obtaining necessary approvals and entitlements for the Proposal including the environmental review associated with the Proposal including, but not limited to, compliance with the California Environmental Quality Act (collectively, "Costs"). Developer shall place funds on deposit with the City to pay for the Costs pursuant to the City's fee schedule. 7. Physical Condition of the Site. City and Developer shall cooperate and exchange such information as may be available to either of them regarding the physical condition of the Site (or applicable portions thereof). 8. Hazardous Material Assessment. The Proposed Lease Amendment may address applicable clean-up issues, if any. In the event an environmental audit evidences a need for clean- up of any portion of the Site, the City, by this Agreement, does not agree in any respect to undertake or complete such clean-up. In the event that during the Term, the Developer conducts or causes to be conducted any environmental audits and/or testing on any portion of the Site, the Developer shall submit copies of any reports resulting from such tests or studies to the City. Such environmental audits and/or testing shall be conducted at the sole cost and expense of the 4 9-8 Developer. Neither Parry makes any representation or warranty as to the accuracy or completeness of reports prepared by third parties and delivered to the other Party. Developer shall indemnify, defend and hold harmless City from and against all claims, liabilities or damages, and including expert witness fees and reasonable attorneys' fees and costs, arising out of any such testing, inspection or investigatory activity on the Site by Developer. In addition, following any such testing, inspection or investigatory activity, Developer shall return, and repair if necessary, the Site to the condition it was in prior to the Developer's investigatory activities. 9. Miscellaneous. 9.1 Notices. Any notices, requests or approvals given under this Agreement from one Party to another may be personally delivered or deposited with the United States Postal Service for mailing, postage prepaid, to the address of the other Party as stated in this paragraph, and shall be deemed to have been given at the time of personal delivery or, if mailed, on the third day following the date of deposit in the course of transmission with the United States Postal Service. Notices shall be sent to the following addresses: To City: Grace K. Leung City Manager 100 Civic Center Drive Newport Beach, CA 92660 With a copy to: Aaron Harp City Attorney 100 Civic Center Drive Newport Beach, CA 92660 To Developer: Lido House, LLC Attn: Robert D. Olson 520 Newport Center Drive, Suite 600 Newport Beach, CA 92660 9.2 Termination. Each Party reserves the right to terminate this Agreement, with or without cause, upon ten (10) days prior written notice to the other Party, thereby withdrawing from such negotiations without any liability to the other Party, except that (i) each Party shall be obligated to promptly return to the other Party all information and materials which such Party has received from the other Party pursuant to this Agreement and (ii) the rights and obligations of the Parties set forth in Section 9.3 shall remain in full force and effect. The Parties, by their respective execution hereof, knowingly agree, notwithstanding anything herein to the contrary, that, except with respect to the rights and obligations set forth in Section 9.3 hereof, neither of them shall have any right to specific performance of this Agreement, nor any other equitable or damage remedies under the law. Each Party makes such release with full knowledge of Civil Code Section 1542 and hereby waive any and all rights thereunder to the extent of this release, if such Section 1542 is applicable. Section 1542 of the Civil Code provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor." 9.3 Developer Documents. In the event of termination of this Agreement, for any reason including, but not limited to, expiration, termination or breach of this Agreement, Developer shall deliver to the City, within ten (10) business days, a copy of all surveys, soils/environmental reports, site plans, pro forma, and other documents prepared by Developer or third parties that are associated in any way with this Agreement. Notwithstanding the foregoing, in no event, however, shall Developer be obligated to make available (or cause to be made available) any proprietary or confidential documents including reports or studies that have been superseded by subsequent reports or studies, or any of the following confidential and proprietary materials: (1) information contained in financial analyses or projections (including Developer's budgets, valuations, cost -basis information and capital account information); (2) material that is subject to attorney -client privilege or that is attorney work product; (3) organizational, financial and other documents relating to Developer or its affiliates (other than evidence of due authorization and organization, and the financing plan required under this Agreement); or (4) material that Developer is legally required not to disclose other than by reason of legal requirements voluntarily assumed by Developer after the Effective Date. Developer makes no representation or warranty as to the accuracy or completeness of reports prepared by third parties and delivered to the City. 9.4 Cooperation. The Parties agree to cooperate with each other in promptly supplying information and analyses relating to the Proposal. 9.5 Assignment. Neither Parry shall have the right to assign any of their rights or obligations set forth in this Agreement. 9.6 Entire Agreement, Amendments, and Waivers. This Agreement sets forth the entire agreement between the Parties with respect to the subject matter set forth herein and supersedes all prior discussions and negotiations between the Parties with respect thereto. No amendment to this Agreement shall be effective unless set forth in a writing signed by an authorized signator of each Party. No waiver of any provision of this Agreement shall be enforceable against a Party unless it is set forth in a writing executed by such Party. 9.7 Assurances to Act in Good Faith. The City and Developer each agree to take all actions contemplated by this Agreement, including timely depositing funds as required herein, and shall use their respective best efforts to negotiate a Proposed Lease Amendment in accordance with the provisions of this Agreement. 9.8 Attorneys' Fees. In the event of any litigation between the Parties arising out of or concerning this Agreement, the prevailing Party shall not be entitled to recover from the other Party its actual and reasonable attorneys' fees. 0 9-10 9.9 Interpretation. This Agreement shall be interpreted as a whole and in accordance with its fair meaning and as if each Parry participated equally in its drafting. Captions are for reference only and are not to be used in construing meaning. 9.10 Governing Law. This Agreement shall be governed by the laws of the State of California. Any legal action brought under this Agreement must be instituted in the Superior Court of Orange County, State of California, in an appropriate court in that county, or in the Federal District Court in the Central District of California. 9.11 Purpose of Agreement. It is expressly understood and agreed by the parties that this is an Agreement regarding the conduct of good faith contract negotiations only and does not convey any interest in the Site whatsoever. This Agreement is not intended to constitute a binding agreement by the City to lease the Site or commit the City to develop all or any portion of Site, to financially participate with the Developer in the development of the Proposal, nor is it intended to constitute a binding agreement to enter into a Proposed Lease Amendment or any other contract. No Party shall be legally bound to consummate construction of the Proposal unless and until a Proposed Lease Amendment or other contract has been executed and delivered by the Parties. Notwithstanding any other provision hereof, neither the Developer nor the City shall be under any obligation to approve or execute any Proposed Lease Amendment during or upon conclusion of the Negotiating Period. Any Parry may refuse to approve and execute any Proposed Lease Amendment at its sole and absolute discretion, with or without cause. In the event that a Proposed Lease Amendment is approved and executed by the Parties, this Agreement shall be superseded by such Proposed Lease Amendment. It is expressly understood that notwithstanding this Agreement, the Proposal may be modified or not implemented at all depending on a number of factors including but not limited to compliance with the California Environmental Quality Act. 9.12 No Commissions. The City shall not be liable for any real estate commission or any broker's fees which may arise in relation to the Proposal. The City represents that it has engaged no broker, agent, or finder in connection with this transaction, and the Developer agrees to hold the City harmless from any claim by any broker, agent, or finder retained by the Developer. Agreement. 9.13 Time of Essence. Time is of the essence of each provision set forth in this [SIGNATURES ON FOLLOWING PAGE] 7 9-11 APPROVED AS TO FORM: Aaron A Harp, City Attorney City ofNewport Beach ATTEST: Leilani Brown, City Clerk IN WITNESS WHEREOF, the Parties hereto have executed this Agreement to be effective as of the date first set forth hereinabove. CITY OF NEWPORT BEACH, a California municipal corporation and charter city Brad Avery, Mayor City of Newport Beach DEVELOPER: Lido House, LLC, a California limited liability company By: Robert D. Olson Its: Manager 8 9-12 EXHIBIT A DEPICTION OF THE SITE 9-13