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HomeMy WebLinkAbout09-10-1979 Item #H-2dN SEP 10 T9 so CITY OF NEWPORT BEACH By the (;4y COuwGU. Office of CITY "tow YFAC -1 CITY ATTORNEY To: The Honorable Mayor and Members of City Council From: Acting City Attorney Subject: Balboa Bay Club Refinance Request - Club Portion of Lease September 10, 1979 International Bay Clubs, Inc., lessee of the Bay Club site, has requested consent by the City Council for a refinancing proposal on the Club facilities of the Balboa Bay Club site, Pursuant to the underlying lease between the'City and Inter- national Bay Clubs, Inc., the City Council consent to such a transaction is required. On October 12, 1976, the City Council approved a similar request by International Bay Clubs, Inc., for a sale /leaseback of the Terrace Apartments portion of the lease. I am attaching a copy of a memo from Dennis O'Neil dated October 12, 1976, to this memo to explain that transaction and the history of the financing of the Bay Club to that time. The present proposal is another sale /leaseback to a limited partnership of which Oppenheimer Industries, Inc., a Delaware corporation, is the general partner. The partnership would acquire the Club portion of the leasehold for a purchase price of $11 million. International Bay Clubs, Inc., will have an option to reacquire the property for six years after the con- summation of the transaction. During that period of time the Bay Club will be paying rent to the new limited partnership for the use of the Club facilities.. International Bay Clubs, Inc., desires to increase the underlying debt against the lease- hold interest not to exceed $5 million as a part of this trans- action. As part of the arrangement for the security on the loan, title to the leasehold estate and improvements will be assigned to First American Trust Company under a landholding trust agree- ment. This will give the same security as would be found in a 09 September 10, 1979 Balboa Bay Club Refinance Request - Club Portion of Lease Page Two 0* conventional deed of trust financing arrangement. The proposed financing arrangement will be junior to and sub- ject to the City's lease agreement. I am enclosing a letter from Thomas J. O'Keefe, attorney for International Bay Clubs, Inc., dated July 31, 1979, which generally outlines this transaction. The July 31 letter contemplated a September con- summation of the agreement for refinancing. However, during August, 1979, the matter was withdrawn by International Bay Clubs, Inc., only to be reactivated during the week of September 3, 1979. International Bay Clubs, Inc., desires to have this transaction approved so the refinancing can be con - summated on October 1, 1979. Normally this matter could be heard by the City Council on September 24, 1979, but since that meeting has been cancelled, International Bay Clubs, Inc., desires to have the matter heard and considered by the City Council at its September 10 meeting. To approve the transaction the City Council would have to adopt a resolution authorizing the transaction and increasing the authorization of encumberance. Since there has been little time to review, in detail, all the final documents on the transaction, we are proposing that the City Council approve the financing transaction and authorize the consent to assignment subject to the approval of the City Attorney and the City auditor. Should the Council choose to adopt the resolution, we will work with the City's auditor to be absolutely certain that the City's secured position on the leasehold estate will not in any way be derogated. Representatives of International Bay Clubs, Inc., will be present at the City Council meeting to answer any questions any Council members may have in regard to this transaction. H gh Coffin To: From: Subject: CITY OF NEWPORT BEACH Office of CITY ATTORNEY The Honorable Mayor and Members of the City Council City Attorney Balboa Bay Club - Refinancing October 12, 1976 G-1, -3 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 *0 4. In December, 19740 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- 90 The Honorable Mayor and Members of the City Council October 12, 1976 Balboa Bay Club - Refinancing $13,200,000 - 11,244,000 1,9 6,000 $10 ■000,000 -6 ■650,000 3,350,0 -1 ■956 000 1, ,000 $13,200,000 + 1,394,000 14,594,00 + 1 6,000 0, 0 go - original authorization - existing loans - balance remaining under original consent - sale price of Terrace Apartments - existing encumbrance - amount required balance remaining under original consent - .amount actually required - original authorization - Total Consent Required 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 DDO /bc cc: City Manager City Clerk LAW OFFICES OF THOMAS J. O'KEEFE, INCORPORATED July 31, 1979 Mr. Hugh Coffin Acting City Attorney City of Newport Beach 3300 Newport Blvd. Newport Beach, California Dear Hugh: SUITE 400 2323 NORTH BROADWAY POST OFFICE BOX 6099 SANTA ANA,CALIF NIA 92706 y O ra�t!'fD MY WOW AUG 0219790� CITY OF 92663 As I discussed with you over the telephone, Oppenheimer Industries, Inc., through a partnership they intend to form, desires to effect a purchase leaseback of the club half. portion of the Balboa Bay Club property from International Bay Clubs, Inc. This transaction would be substantially similar to that approved by the City Council in their action of October 12, 1976 concerning the Terrace Apartment half of the property. The essential terms of the transaction are that Oppeneheimer Industries, Inc. would form a new limited partnership of which Oppenheimer Industries, Inc., a Delaware corporation, would act as general partner. The partnership - intends to purchase the club portion of the Bay Club's leasehold interest and improvements, subject to the City lease, for a purchase price of $11,000,000. The anticipated closing date would be in September of 1979. There would be a down payment of one per- cent on the purchase price, and thereafter, the debt would be serviced at a rate of ten and one -half percent interest only until the sixth anniversary after the closing, at which time International Bay Clubs, Inc. will have the option to repurchase the leasehold interest. The transaction is effectively.a financing transaction in which the Oppenheimer partnership may benefit from numerous tax deductions generated by the assumption of various operating expenses and interest, while the Club will benefit from a low cost source of funds. The Club will have the right to increase the underlying debt against the lease- hold interest not to exceed $5,000,000. In order to secure the performance both of International Bay Clubs, Inc. and the new Oppenheimer partnership, title to the leasehold estate and improvements will be assigned to First American Trust Company Mr. Hugh Coffin July 31, 1979 Page Two io under a land holding trust agreement which will specify the remedies in the event of any default. Those will, in effect, be the same as those available to any secured lender under . a.deed of trust. The proposed financing transaction will generate funds necessary for the refinancing of various other secured obligations of International Bay Clubs, Inc., and will, in all instances, be junior to and subject to the City's lease agreement. We therefore request that you have placed on the Council's agenda for the meeting on August 13, 1979 our request for the City's approval of transfer of title to the Club portion of the property to a land holding trust with First American Trust Company, and an assignment of beneficial interest under that trust to the proposed Oppenheimer partnership or other investors, on the condition that such assignment affect only the leasehold estate of International Bay Clubs, Inc., and that such assignment remain junior to and subject to the rights of the City as lessor under the lease agreement between the City and the Club affecting the property. I will be happy to go through the drafts of documents with you and answer any questions you might have at your convenience: Please let me know when.a meeting with you might be appropriate. Very truly yours, Thomas J. 101 Keefe / TJO:jg cc: International Bay Clubs, Inc. SEP 10 1979 By fhe CITY COUNCIL RESOLUTION NO., 9643 CITY OF !!!!4WPM KAICM A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH APPROVING ASSIGNMENT OF AN . INTEREST IN THE BALBOA BAY CLUB LEASEHOLD ESTATE BY SALE TO THE BALBOA BAY LIMITED PARTNERSHIP, A MISSOURI LIMITED.PARTNERSHIP, OPPENHEIMER INDUSTRIES, INC.., A MISSOURI CORPORATION, AS GENERAL PARTNER, AND.BY LEASE BACK TO INTERNATIONAL BAY CLUBS, INCORPORATED, WITH REPURCHASE AGREEMENT WHEREAS, the City of Newport Beach has entered into i 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 the 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 pro- vides 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. 7586 on December 13, 1971, authorized certain assignments of portions of the leasehold estate by.deeds of trust and /or by sale lease -badk of its leasehold estate and leasehold improvements thereon; and WHEREAS, the City of Newport. Beach has heretofore by Resolution Noc 8915.on October 26, 1976, authorized certain assignments of portions of the leasehold estate by deeds of tX''u � and /or by sale lease -back of its leasehold estate and leasehold .improvements thereon; and WHEREAS, International Bay Clubs, Incorporated, successor in interest to Balboa Bay Club, Inc., proposes to sell to The so Balboa Bay Limited Partnership, a Missouri limited partnership, Oppenheimer Industries, Inc., a Missouri corporation, as General Partner, the portion of the leasehold estate created by the Main Lease, as more particularly described in that certain Contract For Assignment Of Leasehold, Real and Personal Property Interest (non Terrace parcel), to.be given by International Bay Clubs, Incorporated, a California corporation, directly or through one or more newly formed subsidiary corporations which will hold title separately to each of the two portions of the leasehold, estate through First American Trust Company as Trustee of a land holding trust to facilitate the sale and assignment in favor of The Balboa Bay Limited Partnership and its successors and assigns, or similar investor groups for a sale price in the prin- cipal sum of Eleven Million Dollars ($11,000,000.00), 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 Five Million Dollars ($5,000,000.00) and a lease -back to be given by The Balboa Bay Limited Partnership to International Bay Clubs, Incorporated; or subsidiary corporation,and repurchase by it; and WHEREAS, the proposed assignment or assignments are to remain junior to and subject to the rights of the City of Newport Beach as Lessor, pursuant to this resolution of consent and the terms.of the lease as heretofore amended; 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, directly or indirectly through one or. more newly formed subsidiary corporations which will hold title -2- separately to each.of. the two portions of the leasehold estate. through Pirst American Trust Company as Trustee of a land holding trust to facilitate the sale and assignment.in favor of The Balboa Bay Limited. Partnership and its successors and assigns, or similar investor group by Contract for Assignment of Leasehold, Real and.Personal Property Interest (non Terrace parcel) and Leaseback and Repurchase Agreement, subject to all. of the terms and conditions set forth in the Consent to Assign ment in the form described above or as modified, subject to the e approval of the City Auditor and City Attorney,,provided no impairment in City's right, title and interest in the real property is created thereby, and hereby authorizes. the Mayor and City Clerk to execute said consent to.assignments on behalf of the City. ADOPTED this 10th day of September , 1979. Mayor ATTEST: City Clerk