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HomeMy WebLinkAbout10/26/1976 Item #F-3�4n . is a i aCi 12 1976 By the CITY COUNdIL CtrrOt UMN CITY OF NEWPORT BEACH Office of CITY ATTORNEY To: The Honorable Mayor and Members of the City Council From: City Attorney Subject: Balboa Bay Club - Refinancing L GC'T 26 1970 By Ilia CITY COU4'dOIL ClTy. OF NrgWFORT. B ACH October 12, 1976 Pursuant to the terms of the lease agreement between the City of Newport Beach and the Balboa Bay Club, the Balboa Bay Club cannot assign its leasehold interest without the consent of the City Council. Over the past ten years, the Balboa Bay Club has obtained various loans by using the leasehold estate as security for the purpose of paying off existing debts and in order to expand the Club facilities. The loans were made with the prior consent of the City Council. A summary of the more recent refinancing transactions are as follows: 1. In December, 1971, the City Council consented. to and authorized the assignment of all or a portion of the Balboa Bay Club (BBC) leasehold estate and improvements thereon for an amount not to.exceed $13,200,000. 2. In February, 1972, a loan in the amount of $6,650,000 was made by Independence Mortgage Trust (IMT) to the BBC secured by the Terrace Apartments portion of the Bay Club property. Only $3,054,000 was actually funded, the difference being held in reserve in order to pay off other existing encumbrances should it become necessary. 3. In February, 1973, a loan in the amount of $4,594,000 was made by Fidelity Mortgage Investors to the BBC secured by the remainder of the Bay Club property. The Honorable Mayor and Members of the City Council October.12,.1976 Balboa Bay Club - Refinancing 00 4. In December, 1974, the City Council consented to the transfer of IMT's interest ($3,054,000) to Citinational Develop- ment Trust. This transaction was never consummated and the terms of the original loan between IMT and the BBC were subse- quently renegotiated. S. In May, 1976, the City Council again consented to the assignment of the BBC leasehold estate to IMT for the original $3,054,000, plus $225,000 interest. In effect, this action merely reconfirmed the action of February, 1972, and took Citinational Development Trust out of the picture. This means that of the original $13,200,000 authorized, the City Council has consented to loans totaling $11,244,000. Now the BBC is requesting a sale of the Terrace Apartments to Oppenheimer Industries, Inc. and leaseback to BBC for a purchase price of $10,000,000, payable over a twenty -year term. The sale is subject to the existing encumbrances on the property and allows for further refinancing of the leasehold estate of an amount not to exceed 7.5 million dollars. This type of refinancing is referred to in the trade as "wrap around" refinancing, whereby the primary loan wraps around the underlying obligations and is inclusive of the existing encumbrances. In order to accomplish the sale and leaseback as proposed, the City Council would have to consent to an increase in the original $13,200,000 by $1,394,000 for a total of $14,594,000, as well as agree to the sale and leaseback to Oppenheimer. The BBC is requesting that this amount be rounded off to $14,600,000. This amount is computed as follows: -2- The Honorable Mayor and Members of the City Council . October 12, 1976 Balboa Bay Club - Refinancing $13,200,000 - original authorization - 11,244,000 - existing loans 1,956,000 - balance remaining under original consent $10,000,000 - sale price of Terrace Apartments - 6,65Q,000 - existing encumbrance 35 ,000 - amount required - 1,956,000 _ balance remaining under original consent - .amount actually required $13,200,000 - original authorization + 1,394,000 14,594,000 - Total Consent Required + 6,000 $14,600,0 00 Rounded off Representatives of the Bay Club will be present at the Council meeting to answer any questions you may have. As a final note, the Council should keep in mind that all of these transactions are subordinate to the main lease and the City's fee interest in the property for the most part remains unaffected. DENNIS D. O'NEIL City Attorney cc: City Manager City Clerk By RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY y �3 OF NEWPORT BEACH INCREASING THE AUTHORIZATION OF THE AMOUNT BY WHICH THE BALBOA BAY CLUB LEASEHOLD ESTATE MAY BE ENCUMBERED AND APPROVING ASSIGNMENT OF AN INTEREST IN THE BALBOA BAY CLUB LEASEHOLD ESTATE BY SALE TO TERRACE APARTMENTS, LIMITED PARTNERSHIP, A MISSOURI LIMITED PARTNERSHIP, OPPENHEIMER INDUSTRIES, INC., A MISSOURI CORPORATION, AS GENERAL PARTNER, AND BY LEASEBACK TO INTERNATIONAL BAY CLUBS, INCORPORATED WHEREAS, the City of Newport Beach has entered into a lease dated March 24, 1948, with the predecessors in interest to International Bay Clubs, Incorporated, a California corpora- tion, which lease has since been amended by instruments dated April 10, 1950, September 29, 1952 and March 28, 1960, covering the premises in the City of Newport Beach more particularly described in said lease, as amended, which is referred to in the consent to assignment authorized hereby as the "Main Lease "; and WHEREAS, one of the provisions of the said lease provides that the lease may not be assigned without the consent of the City of Newport Beach; and WHEREAS, the City of Newport Beach has heretofore by Resolution No. 7568 on December 13, 1971, authorized certain . assignments of portions of the leasehold estate by deeds of trust and /or by sale leaseback of its leasehold estate and leasehold improvements thereon in an amount not to exceed Thirteen Million Two Hundred Thousand Dollars ($13,200,000); and WHEREAS, International Bay Clubs, Incorporated, successor in interest to Balboa Bay Club, Inc. proposes to sell to Terrace Apartments, Limited Partnership, a Missouri Limited Partnership -1- M M Oppenheimer Industries, Inc., a Missouri Corporation, as General Partner, the Terrace Apartments portion of the leasehold estate created by the Main Lease, as more particularly described in that certain Real.EState and Personal Property Sales Contract to be given by International Bay Clubs, Incorporated, a California corporation, as Grantor, in favor of Terrace Apartments Limited Partnership, a Missouri Limited Partnership, and its successors and assigns for a sale price in the principal sum of Ten Million Dollars ($10,000,000), said sum inclusive of all underlying debt and encumbrances and the right of seller to further refinance such encumbrances so long as the aggregate underlying debt does not exceed Seven Million Five Hundred Thousand Dollars ($7,500,000) and a leaseback to be given by the Terrace Apartments Limited Partnership to International Bay Clubs, incorporated; and WHEREAS, said proposed sale and leaseback will require additional authorization for encumbering the leasehold estate; and WHEREAS, it appears to be in the best interests of the citizens of the City of Newport Beach that the City consent to such assignments described above; NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of Newport Beach hereby consents to the above- described assignments by Real Estate and Personal Property Sales Contract and Leaseback, increasing the aggregate net financing authority from Thirteen Million Two Hundred Thousand Dollars ($13,200,000) to Fourteen Million Six Hundred Thousand Dollars ($14,600,000), subject to all of the terms and conditions set forth in the Consent to Assignment in the form described above or as modified, subject to the approval of the City Attorney and the City Auditor, and -2- hereby authorizes the Mayor and City Clerk to execute said consent to assignments on behalf of the City. ADOPTED this 26th day of October , 1976. Mayor ATTEST: City Clerk DDO /bc 10/27/76 LAW OFFICES OF THOMAS ,I.O'KFETE,,(NC0I ?P0RATFD THOMAS J. O'HEEFE JOHN R.CIIRTIN HOWARD M. LARSEN THOMAS O. STYSI(AL Mr. Dennis O'Neil Attorney of City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92660 Dear Dennis: SVITE 400 2323 NORTH BROADWAY POST OFFICE BOX BOBS SANTA ANA,CALIFORNIA 92106 TELEPHONE (1141 836.1100 October 6, 1976 As I discussed with you over the telephone, the Bay Club intends to effect a sale /leaseback of the Terrace Apartments por- tion of the property leased from the City of Newport Beach. This transaction was anticipated by the City's Resolution No. 7586 adopt- ed on December 13, 1971 which contained an authorization as follows: "1. A sale, coupled with a lease -back, to U.S. Financial or a subsidiary or affiliate thereof or to such other financial institution, corpor- ation, person or persons as may be specifically. approved by the City of Newport Beach of all or a portion of the leasehold estate of Balboa Bay Club, Inc. together with the improvements there- on for a sale price not to exceed the sum of Thirteen Million Two Hundred Thousand Dollars ($13,200,000.00); and /or" I have enclosed a copy of that resolution for your.con- venience. The specific authorization applied to U.S. Financial or a subsidiary or affiliate thereof or to such other financial institu- tions, corporation, person or persons as may specifically approved by the City of Newport Beach. This specific transaction has been substantially delayed by reason of the financial difficulties of U.S. Financial and has only recently been negotiated with Oppenheimer Industries, Inc. Because of the change in parties and an increase in the overall authority requested, it is necessary to obtain this additional specific approval of the City as to new purchasing entity. I have enclosed a schedule prepared by Mr. John Goodman, Treasurer of International Bay Clubs, Incorporated, setting forth the existing and proposed real estate financing recorded and to be recorded against the Lessee's leasehold interest.. This reflects a total of approximately $14,594,000.00, or just under $14,600,000.00, which is the amount of approval currently requested. Considering a nominal six percent (68) annual inflation rate since the December, 1971 authorization of $13,200,000.00 over the approximately five (5) year period that has since elapsed, our request in terms of real Mr, Dennis October 6, Page 2 *9 O'Neil 1976 dollars would still be within is, six percent (68) per year (30 %) inflation. One hundred equals $17,160,000.00, which ized by the Council, adjusted •• the $13,200,000.00 authorization. That times five years equals thirty percent thirty percent (130 %) of $13,200,000.00 represents the original amount author - for inflation. The purchasing entity will be a limited partnership organ- ized by Oppenheimer Industries, Inc. and which will have Oppenheimer Industries, Inc., a Missouri Corporation, as general partner. Oppen- heimer Industries, Inc., a Missouri Corporation, is a wholly owned subsidiary of Oppenheimer Industries, Inc., a Delaware Corporation, whose consolidated annual report I have enclosed for your information. The limited partners will be a group of from ten to forty high- income investors seeking tax shelter and some return on their investment. International Bay Clubs, Inc. has consistently generated more depre- ciation than it can effectively use and the proposed transaction is essentially a financing transaction from the standpoint of IBC, but one on very favorable terms because of the ability to pass the annual depreciation deductions through to the limited partnership investors. Oppenheimer Industries, Inc. is one of the best known tax shelter partnership organizers in the country and we are fortunate to have an organization of its repute and ability to.sponsor our sale /leaseback transaction. The terms of the sale provide for a purchase price of Ten Million Dollars, payable over a twenty year term. The sale is sub- ject to the existing encumbrances on the property and allows further hypothecation of the leasehold estate through re- financing of the leasehold estate and improvements to a total of not to exceed 7.5 Million Dollars. These transactions are of cnurse all subordinate to the lease and the lessor's interest in the property and there- fore do not affect adversely the priority of the City of Newport Beach in any way. In fact, the effect of the transactions is to add the financial strength of the new tenant to that of IBC and its existing encumbrancers as an additional party subject to the terms of the City's lease. The transaction provides for a leaseback to International. Bay Clubs, Incorporated for an additional term of six years with a conditional right to re- purchase the property at the end of that term. There is not intended to be any change in the management or operation of the properties which will be continued. by IBC under its lease agreement. I have modified the resolutions previously approved by the City to develop a draft applicable to this transaction and will forward copies of the same to you as soon as they have been typed. Mr. Dennis O'Neil October 6, 1976 Page 3 Please have the matter placed on the Council agenda of October 12, 1976 at which time we will be available to answer any questions which the Council may have. In the meantime, if you need any further in- formation please do not hesitate to call. Very truly yours,, t��L'jxlG.y� Thomas J. /Keefe TOK /dgc enclosures cc: W. D. Ray John Goodman • MLBOA BAY CLUB Principal City . council Less Amount Proposed Anoroval Principal Payments September 30, 1976 Transaction Reauested i i j $2,881,885 t k 1. ($37,597) 3,243,756' ,$10,000,000 610 to 0 0001 ($10155,712) $6,125,641 .$10,000,000 $10,000;000 i. s ($694,373) $1,805,627 $1,805,627 k. . $4,594,000: r -0- i $2,587,154 $2,587,154 ($694,373) $4,392,781 $4,392,781 $4,5940000 01.,850,085) $10,518,422 $14,392,781 $14,5941000,, Rounding Amt. 6,000 Amount Requested' .$14 „600,000:; t Original Amount. Presently outstanding real estate debt recorded .against the property: Terrace Parcel: i' Union Bank secured by Ist Deed of Trust on Terrace Parcel and is 3rd Deed of Trust on Club Parcel $40000,000. 1 Independence. Mortgage Trust, secured i by a 2nd Deed of Trust on Terrace Parcel. original loan was wrap- around loan totaling $6,650,000 inclusive of Union Bank 'indebtedness 3,2810353 i{ Proposed Transaction: Sale and lease back of Terrace Parcel t subject to existing indebtedness Total Terrace Parcel .... — - - $7,281,353 k Club Parcel: Great Western Savings and Loan a secured by 1st Deed of Trust on Club Parcel $2'.x00,000 #' F Fidelity Mortgage Investors, secured by a 2nd Deed of Trust on Club Parcel." Original loan was wrap- around loan totaling j $4,594,000 inclusive of Great Western Indebtedness $2,587,154 Total Club Parcel $5,087,T54 r" Total Balboa Bay Club $12,368,;502 �' pi