HomeMy WebLinkAbout07 - Balboa Bay Resort��.waoRr
CITY OF
NEWPORT BEACH
City Council Staff Report Agenda Item No. 7
October 22, 2013
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: City Manager's Office
Dave Kiff, City Manager
949-644-3002, dkiff@newportbeachca.gov
PREPARED BY: Rob Houston —Assistant to the City Manager
APPROVED:
TITLE: Approval of A New Lease for the Balboa Bay Club
ABSTRACT:
The new owners of the Balboa Bay Club — currently in the process of being renamed
the Balboa Bay Resort - seek a new lease to extend the current term out to a full 50
years.
Authorize Mayor Curry to sign the new lease for the Balboa Bay Club, in substantially
the same form as the attached lease, and find that the base rent, percentage rent and
extension rent are reflective of fair market value, as required by the Newport Beach
Municipal Code, City Council Policy F-7 and the Beacon Bay Bill, as amended.
FUNDING REQUIREMENTS:
The City will receive a $1,900,000 Extension Rent payment from the tenant as
consideration for the additional 13 years of lease term. Payment will be made in three
installments, the first payment of $1,500,000 will be made at lease execution, and two
subsequent payments of $200,000, plus 4% interest per annum, will be made on the
first and second anniversary of execution of the lease_
Base rent, which is due to be adjusted next on December 25, 2013, has been increased
pursuant to the terms of the existing lease by $130,110 per year to $2,202,378 annual
base rent. The incremental increase in base rent as well as the Extension Rent will be
allocated to the tidelands Harbor Fund.
Approval of A New Lease for the Balboa Bay Club
October 22; 2013
Page 2
DISCUSSION:
The Balboa Bay Club, ("Club") was built along Newport Harbor in 1948 on filled state tide
and submerged lands. These lands were granted to the City in trust to administer and
oversee via the "Beacon Bay Bill." The Club covers a 15 acre parcel on Newport
Harbor that includes a 160 -room resort hotel; a 130 -slip marina, 145 apartments and a
private "members only" club. The City administers the tidelands upon which the Club is
located on behalf of the State and therefore negotiates leases with any tenants that.
wish to use the tidelands area.
Under new ownership, the Club has begun a, series of phased facility renovations and
upgrades. The new owners have asked the City, in consideration of their investment, to
extend the term of the lease from the 37 years remaining on their lease term to the full
50 year term that the Beacon Bay Bill, as amended, allows.
Consistent with the Newport Beach Municipal Code and City Council Policy F-7, the City
retained consultants to ascertain the fair market value of the 1.3 year rent extension.
These, analyses done by Allan D. Kotin and Associates and PKF Consulting - are
attached.
Following these analyses and negotiations, we believe that the lease extension is worth
$1,900,000. We proposed that this payment will be made in an upfront payment of
$1,500,000 followed by two installment payments of $200,000 plus 4% 'interest per
annum over the next two years.
The new, lease :also contains updated language that covers modern insurance,
requirements, changes from .a fiscal to calendar year ,accounting term, adds. 15%
percentage rent should the tenant sublease space for a cell tower at the premises, and
updates the lease premises exhibitsand legal descriptions:
As the Club is located on tidelands, the new lease required the approval of the State
Lands Commission. This was, done on September, 20, 2013. The, base rent,
percentage rent and extension rent were reviewed by the State Lands Commission and
determined to be fair market value for the Club.
The new, lease is now ready for City Council review and approval,
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action 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 1.5060(c)(3) (the activity is not a project as defined in Section 15378)
Approval of A New Lease for the Balboa Bay Club
October 22, 2013
Page 3
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.
NOTICING:
This agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers this item).
Submitted by:
Rob Houston
Assistant to the City Manager
Attachments: A. Proposed New Balboa Bay Club Lease
B. PKF Valuation Report
C. Kotin Lease Extension Valuation Report
AMENDED AND RESTATED GROUND LEASE
by and between
CITY OF NEWPORT BEACH,
a Califomia municipal corporation
"Landlord"
and
BALBOA BAY CLUB VENTURES, LLC.,
a Califomia limited liability company
°Tenant'
Dated as of 2013
1.1
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS, GRANT AND TERM
Definitions................................................................................................... 2
ARTICLE II
GRANT OF LEASE AND TERM
2.1. Lease.......................................................................................................... 8
2.2 Term ....... ........................................................................................... ........, 8
2.3 Quiet Possession...........................................::......................_.................. 8
2.4 Ownership of Improvements............................................................................. 9
ARTICLE III
CONSTRUCTION AND IMPROVEMENT OF PREMISES
3.1
Improvements to be Erected by Tenant...:..................................:..............:....:...10
3.2
Coastal Approval and Entitlements ... ..............................
.................. ............... ..10
3.3
Compliance With Laws............................................................_......................10
3.4
Lien Free Completion........................................._............................................10
3.5
As -Built Drawings ........................... :..............................................................
11
3.6
Tenant's Architects,and Contractors..:.......................................:.........................11
3.7
Costs of Construction.....................................................................................11
3.8
Renovation and Maintenance of Hotel ..... ........M. ...... ;.........
...... : --:...............11
3.9
Renovation and Maintenance of Apartments.......................................................12
3.10
Maintenance of Marina Operations......................................................................12
3.11
Inspection Rights..................................................::.......::.............................13
3.12
Landlord's Cooperation...................................................................................13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Landlord's Representations and Warranties...:........................................................:..13
4.2 Tenant's Representations and Warranties...................................................................14
ARTICLE V
RENT
5.1
Rent............................................................................................................................14
5.2
Percentage Rent..........................................................................................................14
5.3
Extension Rent.............................................................................................................16
5.4
Periodic Adjustments of Base Rent..................................:..........................................16
TABLE OF CONTENTS
Page
5.5
Fair Market Adjustment of Base Rent... .......................................................................
16
5.6
Payment of Rent.........................................................................................................17
5.7
Charges for Goods and Services................................................................................17
5.8
Reconciliation of Annual Rent.....................................................................................17
5.9
Place for Payments of Rentals....................................................................................17
5.10
Records and Reports of Sales.....................................................................................18
5.11
Additional Rent............................................................................................................19
5.12
No Abatement or Reduction in Rent............................................................................19
5.13
No Partnership Created...............................................................................................19
5.14
Net Lease....................................................................................................................19
ARTICLE VI
TENANT'S OBLIGATION WITH RESPECT TO MAINTAINING PREMISES
6.1
Repairs and Maintenance... ......................................................................
_ ..... ........... 19
6.2
Taxes and Assessments.............................................................................................20
6.3
Capital Repairs and Replacements.............................................................................20
6.4
Reserved.............................................................................................................::......20
ARTICLE VII
USE OF :PREMISES
7.1 Use of Premises..........................................................................................................21
7.2 Pump -Out Station........................................................................................................21
7.3 Environmental Requirements......................................................................................22
ARTICLE VIII
CONDUCT OF BUSINESS BY TENANT
8.1
Standards of Operation...............................................................................................22
8.2
Management...............................................................................................................22
8.3
Competition by Tenant................................................................................................23
8.4
Use of Name...............................................................................................................23
ARTICLE XI
ALTERATIONS, FIXTURES AND SIGNS
9.1. Tenant's Right to Make Alterations..............................................................................23
9.2 Prohibition Against Liens_--.........................................................................................23
9.3 Signs...........................................................................................................................24
TABLE OF CONTENTS
Page
ARTICLE X
INSURANCE, INDEMNITY AND CASUALTY
10.1
Insurance...................................................................................................................24
31
10.2
Indemnification............................................................................................................'28
10.3
Settlement of Insurance Claims...................................................................................29
10.4
Casualty..,...............................................................,..............................................:....29
...:........... 37
10.5
Casualty Late in Term .;........................................................................................,......29
10.6
No Abatement of Rent.................................................................................................
30
ARTICLE XI
UTILITIES
11.1 Utilities........................... ............................................... ................................................ 30
ARTICLE XII
EXTOPPEL CERTIFICATES
12.1 Estoppel Certificates .... ..................................................................... .......,:......30
ARTICLE XIII
ASSIGNMENT AND SUBLEASING
13.1
Limitation on Right to Assign..,..................,..................................................................
31
13.2
Grant or Denial of Consent..........................................................................................32.
13.3
Non -Application of Guest RoomsandFacilities...........................................................32
13,4
Assignment to Affiliate.................................................................................................32
...:........... 37
13.5
Limitation on Transfer of Interest in Tenant................................................................33
ARTICLE XIV
HYPOTHECATION
14.1
Tenant's Right to Hypothecate.............................:..........................:.............................33
14..2
Notice to and Rights of Mortgagees............................................................................34,
14.3
Nonsub'ordlnation of Fee .......... ..................................................................................37
14.4
Equipment Financing........................................................................
...:........... 37
14.5
Cross Collateralization of Premises.............................................................................37
TABLE OF CONTENTS
Page
ARTICLE XV
WASTE AND GOVERNMENTAL REGULATIONS
15.1 Waste or Nuisance.......................................................................................................37
15.2 Governmental Regulations........................................._...................................:....:.......37
15.3 Tenant's Right to Contest Governmental Regulations ............................ ............... 38
ARTICLE XVI
EMINENT DOMAIN
16.1
Lease Governs............................................................................................:................38
1.6.2
Termination of Lease...................................................................................................38
16.3
Partial Taking; Rental Abatement...............................................................................
38
16.4
Partial Taking; Restoration............................................................................................
38
16.5
Distribution of Award ................. :.............................................................................
... 39
1.6.6
Allocation of Award; Partial Taking..............................................................................
39
16.7
Allocation of Award; Temporary Taking.................................................................39
16.8
Allocation of Award; Total Taking .... .................................................................
.......... 39
16.9
Conduct of Proceedings..............................................................................................40
16.10
Notices........................................................................................................................40
ARTICLE XVII
DEFAULT PROVISIONS
17.1 Events of Default...................................................:.....................................................40
17.2 Remedies Upon Default ....... ..... :.............................................................................. 41
1T.3 Landlord Acting for Tenant's Account..........................................................................42
17A Limited Liability; Non -Recourse Ground Lease ...................................... ................42
ARTICLE XVIII
LANDLORD'S ACCESS
18:1 Landlord's Right of Access..........................................................................................43
ARTICLE XIX
MISCELLANEOUS
19.1
Waiver........_...................................................................................................................43
19.2
Entire Lease........................................:......................................................................43
19.3
Termination of Existing Lease.........................................................................::..........43
19.4
Force Majeure...................:.........................................................................................44
iv
TABLE OF CONTENTS
Page
19.5
Notices........................................................................................................................44
19:6,
Captions and Section Numbers...................................................................................45
19.7
Construction of Language...........................:............................_.......................,....,...,45
19.8
Broker's Commission................:........................................................:........................45
19.9
Limitation of Landlord's Obligations..............................................................................45
19.10
Landlord's or Tenant's Discretion....................................................................._..........
45
19.11
Interest.................................::.....................................................................................
45.
19.12
Successors..................................................................................................................46
19.13
Applicable Law............................................................................................................46
19.14
Landlord's and Tenant's Rights are Cumulative................:...........................:.............46
19.15
Saving Clause.............................................................................................................46
19.16
Attorneys' Fees and Expenses....................................................................................46
19.17
Injunctive Relief...........................................................................................................46
19.18
Appraisal.......................................................................................:.............................46
19.19
Recording....................................................................................................................46
19.20
Incorporation of Preamble, Recitals and Exhibits........................................................46
v
AMENDED AND RESTATED GROUND LEASE
THIS AMENDED AND RESTATED GROUND 'LEASE '("Lease') is made as of
.2013 ("Commencement Date'-), by and between THE CITY OF NEWPORT BEACH, a charter
city and California municipal corporation ("Landlord" or "City"), and BALBOA 8AY CLUB
VENTURES,, LLC, a California limited liability company ("Tenant"). Landlord and Tenant are at
times individually referred tows "Party" and collectively as "Parties" herein.
RECITALS
A. Landlord is 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 and
depicted in Exhibit A attached hereto and incorporated by reference herein
("Premises"), ,Pursuant to theprovisions of the Beacon Bay Bill (Chapter 74 of Statutes
of 1978, as amended).
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 October 25, 2000
("Existing Lease"). The Premises are operatedas, a multi -use hotel and club facility by
Tenant, operating under the name 'Balboa Bay Club". Tenant is a wholly-owned
subsidiary of International Bay Clubs, LLC.
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 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 has determined that this Lease is consistent with
the Charter of the City of Newport Beach, and its General Plan and Zoning Ordinance
applicable thereto, and all other applicable State, federal and local laws.
F. The City Council of the City of Newport Beach has determined that it is in the best
interests of citizens of the City of NewportBeach 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 acknowledge and agree that there exists no event of default under
the Existing Lease ,as,ofthe date hereof.
H. Landlord and Tenant waive all notice and other applicable provisions and hereby
terminate the Existing Lease.
Landlord and Tenant agree that this Lease fully complies with and •completely satisfies
the obligations of Landlord and Tenant under all prior agreements and understandings,
including 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,
"Business Day" means Monday through Friday, except for state.or federal holidays.
"Calendar Year" means the period of January 1 through December 31 of each year of the.
Term.
"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 guest 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 guest 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 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
efnd 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 ofvoting securities, .by contract or
otherwise.
"Constituent Member" means any constituent partner, joint, venture, holder of a., beneficial
interest or shareholder in Tenant or in any partner"ship, joint venture; :trust or corporation holding
a director indirect interest in Tenant.
"County" means the County of Orange, State of California.
"Default Rate" means the then Prime Rate plus five percent (50/6) 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 fromthe 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 Re -venues" 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 anyservices 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.
"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.
"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 (i) 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 therefore 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 of supplies; breaches of contract by contractors,
subcontractors or materials. suppliers which materially affect 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 .affect the critical path of construction of the improvements
contemplated by this. Lease, (but in no event shall such event of Force Majeure 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;
not;•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 Majeure 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
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 thatsuch event of Force Majeure may or will occur.
"Furnishing(s)" means all furniture, furnishings, fixtures and equipment used in the operation of
the Project, including: all wall coverings, draperies, blinds, shades, shutters ad 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 furnishing; 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, DryStorage Revenues, Charter Revenues,
Charter Commission Revenues, Dues Revenues, Retail Revenues and Miscellaneous
Revenues, In the computation of Gross Revenues for any of the abovementioned 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) incomeor 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)up to five percent (5%) of
Tenant's 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 of merchandise or
services, or for Tabor 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 byphenyls, 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 (Sections 25100 et seq.) of the California Health
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.
Sections 9601 et seq.), as amended, or any successor statute; (c) "hazardous material" as
defined in the Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 et seq.), as
amended, or any successor statute, (d) "hazardous waste," "sludge," "used roil," "recycled oil,"
and "re -refined oil" as defined in the Resource conservation. and Recovery Act of 1976 (42
U.S,C. Sections 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 (Sections 253' 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 (Sections 25280 -et seg:) 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 (Sections 25501 et seq.) of the California Health and
.Safety Code, as amended, or any successor statute, (h) "hazardous he
as defined in
the Clean Water Act (33 U.S.C. Sections 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 City or 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 ordinarycourse of business incompliance with applicable law.
"Inventories and Supplies means inventory and supply items, including chinaware, 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:
"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 Patties 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 Talking allocated
to "Marina Revenues" pursuantto Section 16.7 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 16':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, RetailRevenues arid Room Revenues.
"`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 the Lease,
including an assignment of this Lease as security therefor.
"Mortgagee",means the holderof 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.
"Premises" means the parcel of land located in the City of Newport Beach; County of Orange,
State of California; as more fully defined in Recital "A' of this Lease.
"Prime Rate" means the prime or base rate or 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 as so identified by the, Wall Street Journal if at any time Bank of
America shall fail 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.
"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 hasnot less than ten (10) years experience in the operation and
management of first class hotel facilities; 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 portlon of
the Project, who enjoys a reputafion for honesty and integrity, who is experienced in the
management and operation of hotels meeting the first-class standards of the Project. 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 or the Project is being
managed by the 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 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.
"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
Projector any portion thereof.
"Term" has the meaning ascribed to it in Section 2.2.
"Total Taking" 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 operation of the Project in the manner,set forth in this Lease.
ARTICLE II
GRANTOF 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 (501h) anniversary thereof ("Expiration
Date"), unless: sooner terminated as herein provided.
2.3 Quiet Possession.
(a) Tenant shall be entitled 10 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 of 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.
(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 1.948, 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 du,.ring 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 to interest therein, including any rights to depreciate
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 to remove the same
within thirty (30) calendar days, following the expiration or earlier termination of this
Lease, any part of Tenant's Investment remaining on the Premisesafter said thirty (30)
calendar 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,
casualty, 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
12
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. Notwithstanding any other provision of
this Lease, as permitted by California Public Resources Code Section 6312, or any
successor statute, the Parties agree that upon expiration or earlier termination of this
Lease the City shall have no liability or obligation to pay compensation for any
improvements made to the Premises.
ARTICLE III
CONSTRUCTION AND IMPROVEMENT OF PREMISES
3.1 Reserved.
3.2 Coastal Approval and Entitlements. Tenant acknowledges and 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 variance 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 any subsequent improvements on the Premises, to be
constructed and 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 there at. Upon request of Landlord, Tenant shall fumish 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 any alterations, renovations, or
improvements to the Project shall be constructed free of liens for labor and materials, using
quality materials and workmanship, and substantially in accordance with City approved 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 filed against the Premises within fifteen (15) calendar 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
complied with the provisions of this Section 3.4, there is an adverse order, judgment, decree or
IE
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 as the Default Rate from the date of expenditures to
the date of reimbursement, shall be payable by Tenant with five (5) calendar days following
demand therefore. Upon completion of any work of improvements to the Project and expiration
of all applicable lien periods, Tenant shall provide Landlord with an updated preliminary title -
report to Landlord that such work on improvements and, construction has been completed and
that there are no outstanding mechanics lien claims which have not been otherwise cured as
provided hereinabove.
315 As -Built Drawings. Upon completion of any work under this Article, 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 inconnection with any work or improvement contemplated in this Lease, any
existing improvements on the Premises all marked to show such construction "`as built."
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, maintenance, furnishing, equipping and supplying of
the Project,, which costs and expenses. include without limitation: (i) utility hook-up and
connection feels 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 Premisesby 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).. 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 estoppels 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
11
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 such number of
guest rooms or related facilities is not as economically advantageous as some 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,.
appliance 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.. 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 Terrance Apartment, building as apartment units available
for rental at all times during the Term in a manner consistent. with the provisionsi of the Beacon
Bay Bill.
3.1,6 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 Newport Harbor throughout the Term.. Tenant shall maintain and operate slips of
varying number and 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. Newport Harbor from time-
to -time during the Term. Tenant shall be entitled to fluctuate the number of slips and to vary
configuration or operation, in order to increase the revenue generated by the marina operations;
provided that any proposed reduction in the number of slips or reconfiguration of the design or
layout of the marina shall be submitted to the City for its, prior written approval. 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, rental. below
comparable rental rates of the slip based upon membership in any club„ facility or business
arrangement between tenant, or any affiliated entity, and a renter of a.slip.
3.11 Inspection Rights. Not more than once in any calendar year, Landlord
shall have the right to conduct a physical inspection of the condition of the hotel, apartments,
and marina facilities to insure Tenant's compliance with its maintenance and repair obligations
set forth in this Article III. Unless otherwise agreed to by Landlord and Tenant, such inspection
shall take place within sixty (60) calendar days of the due date for the annual forecast of
budgeted capital improvements, replacements; repairs and maintenance pursuant to Section
5.10(f) herein, with the exact dates to be determined by Landlord and Tenant after consultation.
Landlord shall have the right to conduct a physical inspection, consisting of a visual review of all
of the common areas of the hotel, the marina and the apartments, and a representative number
of hotel rooms and apartments, depending upon availability.
12
112 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 III.;; provided,
however, that nothing herein shall imply any obligation inconsistent with or result in .any
diminution of City's legislative, quasi-judicial or administrative rights, obligations .and
prerogatives in connection with reviewing and approving any license, permit for entitlement for
the development, construction or use of the Premises.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 .Landlord's Representations and Warranties. As 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- City is a municipal corporation~duly organized,
validly existing and in good standing under the laws of the State of California; that City
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.
(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
suits or proceedings pending or threatened before
agency instrumentality, arbitrator(s), court of tribunal
the right of Tenant to occupy or utilize same.
73
has no knowledge of any actions,
any commission, board, bureau;
that would affect the Premises or
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 Tenant is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of California;
'that Tenant has. all necessary power and authority to he
into this Lease and to carry
out the transactions and obligations 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 beaffected
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.
ARTICLE'V
RENT
5.1. Rent. Commencing upon the Commencement Date, Tenant shall pay to
Landlord the greater of (i) annual rent in the sum of Two Million Two Hundred Two Thousand.
Three Hundred Seventy -Eight Dollars ($2,202,378) ('Base Rent") as adjusted pursuant to
Section 5.4 below, or (ii) the percentage rent set forth in Section 5.2. ("Percentage Renf')..Base
Rent and Percentage Rent are hereinafter referred tor 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:.
14
CATEGORY PERCENTAGE RENT
Dues Revenue
6%
Apartment Revenues
1`6.5%
Marina Revenues
'31%.
Storage Revenues
20%
Charter Commission Revenues
20%
Charter Revenues
6%
Room Revenues
56/6
Beverage Revenues
5%n
Food Revenues
3%
Retail Revenues
5%
Miscellaneous Revenues
1:0%
Cell Tower
15%
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 foregoingactivities for which such proceeds of
business interruption or rental loss insurance were received during the period affected by such
insurance claim shall be greater of (i) the amount of such proceeds of business interruption or
rental loss 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 Extension Rent, In consideration of Landlord's agreement to enter into.this
Leaseand. extend the Term, Tenant shall pay to Landlord: (i) One Million Five Hundred
Thousand Dollars ($1„500,000) upon execution of this Lease; and (ii) Two Hundred Thousand
Dollars ($200,000) upon the first anniversary, of the Commencement Date and' a second
payment of Two Hundred Thousand Dollars ($200,000) at the second anniversary of the
Commencement Date ("Extension Rent"). The Extension Rent shall accrue interest at a, rate of
four percent (4%) per annum and the payments shall be due as shown on the table below. The
total Extension Rent due to the City, shall be One Million Nine Hundred, Thousand Dollar
($1,900;000) plus applicable interest. The Extension Rent shall be in raddition to the Base
Rent, Percentage Rent, and other amounts payable by Tenant ,under this Lease. Tenant may
pay the Extension Rent early at anytime provided the Tenant pays the applicable remaining
principal`plus any accrued interest..
is
CITY OF NEWPORT BEACH
Amortization Schedule
Principal:
$406,g00.00
Required Pmt:
$212,078
Interest' Rate per
Est. Total
year:
4.000%
Pmts:
$424,157
Term (years):
2
Est. Total Int
$24,157
Payment
Payment.
Remaining CUmUlative
Number
Amount
Principal
Interest Principal Interest
1 $212.078.43
2 $212,078;43
$166,078.43 16, 000.00
$203;;921.57 $8,156:86
$2,252,430.70 $1,900,000.00 $352,430.70
16
$203;921.57 $00.00
$00.00 $24,156.86
5.4 Periodic .Adjustments of Base Rent. Upon the first day of the sixty-first
(61st) month following the Commencement Date, and the first day of every sixty-one (61)
months thereafter (respectively, an "Adjustment Date"), Base rent shall be increased or
decreased as the case may be, to a sum equal to seventy-five percent (75%) of the average
annual total of Rent payable during the immediately preceding rive (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) calendar days following receipt of Landlord's notice of adjustment in Base
Rent.
5.5. Fair Market Adjustment of Base Rent. Upon the nineteenth 0g`h)
anniversary of the Commencement Date ("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 Base 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) Calendar Years
preceding the Adjustment Date, the amount by which the new Base Rent exceeds one hundred
twenty percent (1'20%) or more of the average annual Base Rent payable during the five (5)
Calendar 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) Calendar Years preceding the Market Adjustment Date shall be
added to Base Rent at the rate of twenty-five percent (25%) thereof per year in the ensuing four
(4) Calendar 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) Calendar Years is $4,000, then Base Rent shall be Increased by $1,000 in
each of the ensuing four (4) Calendar Years. Landlord and Tenant agree to use the appraisal
methodology provided in Exhibit B, which is attached hereto and incorporated by reference.
5.6 Payment of Rent. Base Rent shallbe payable on the first (1 st) 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 Calendar 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 Calendar 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 Calendar 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, services and facilities charged at other private
17
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 theexercise 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;) calendar days following
receipt by Landlord of the annual statement sel.forth in Section 5.10(b), the Percentage Rent
due for such Calendar Year shall be determined, subject to audit as set forth in Section 5.1.0(e),
and the amount of Rent paid or payable for such Calendar 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
Calendar Year, such excess to the installments of Rent next following. Tenant shall pay, within
five (5) calendar days following such determination, but in no event later than one hundred and
sixty (.160) calendar days following the. end :of such Calendar Year; the full amount of Rent
determined to have been dueand payable for such Calendar 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 on-line at
www.newportbeachca.gov; in person or by United States' mail, or overnight. mail service, at the
Cashier's Office located -at 100 Civic Center Drive,,: Newport Beach, CA 92658', or to such other
address as Landlord may from time -to -time designate in writing to the. Tenant. The Tenant
assumes all risk of loss and responsibility for late chargesand delinquency rates if Rent is not
timely received by the Landlord regardless of the method of transmittal.
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) calendar 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
Calendar Year within one hundred twenty (1.20) calendar days following the end of each
Calendar Year.
(c) Payment of Percentage Rent. Tenant shall accompany the statement of
Gross Revenues for each Accounting Period and the Calendar 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
1'S
Revenues for a; period of not less than three (3) years after the expiration of the
Calendar Year to which such records relate and upon request shall furnish Landlord true
and accurate statements thereof. Within one hundred twenty (120) calendar days
following the close of each 'Calendar Year, Tenant shall deliver to Landlord an audited
statement preparedby a nationally recognized independent firm of certified public
accountants showing in reasonable detail, on a Calendar 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 Calendar Year.
('e) Audit Rights. Landlord shall have the right upon two (2) calendar days prior
notice to Tenant and during normal business hours, but riot more often than one (1) time
during each Calendar Year of the Term, to audit the Tenant's statements of Gross
Revenues, and supporting records and data. Within ten (10) calendar 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 Calendar 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, orcause, 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 December 31 of each year
during the Term, Tenant shall provide Landlord, for informational purposes, with a
forecast for the ensuing Calendar 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 December 31 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 ,anticipatesexpending during such twelve (12.) month period to maintain the
Project in a manner consistent with the original quality of the Project and as required by
this Lease..
5.11 Additional Rent. Tenant agrees to pay as rental for the Premises, within
ten (1'0) calendar 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 shall not be entitled to any abatement, set-off or
reduction. in Rent. or Additional Rent. hereunder.
5:13' No Partnership Created. Landlord and Tenant shall in no event be
construed or held to be partners, co-owners, joint ventures or associates of one .another, in the
conduct. of Tenant's business on the Premises, or in its ownership of the Project. The
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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 MAINTAINING PREMISES
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
Terra (or earlier term ination)'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.
(b) Tenant shall pay, before delinquency, all taxes and assessments levied
against, or on account of, all fixtures, equipment, 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 lax or assessment Tenant
is required to payor 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, assessed, or proposed to be assessed, against the
Premises and/or the Project or any of the fixtures, equipment and personal property
therein to the extent permitted by applicable law•, provided however, Tenant shall do the
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following; (i) 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 year
increment of the Term, commencing upon the Commencement Date, Tenant fails to expend a
sum equal to at least four percent (49/9) of Gross Revenues per annum during such three. (3)
year period on repairs, replacements and%or 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: ("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 three (3)
year period and four percent (4%) of Gross 'Revenues per annum 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 Calendar Year until. Tenant has
expended for the foregoing, purposes in such Calendar Year sum of not less than four percent
(4%) of Gross Revenues during. such Calendar 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 thei furnishing or Premises, and each portion thereof. Al 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 Calendar 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, as determined by Landlord, and any
excess shall be the sole propertyof Tenant.
6`.4 Reserved.
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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 or 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
business 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 business 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. 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. The portion of the Premises used for
residential apartment purposes (`Parcel D") is subject to the use restrictions in Chapter 728 of
the Statutes of 1994, and to the approval of the City that will occur through a separate written
amendment to this Lease (e.g., allowable uses, applicable rent; etc.).
7.2 Pump -Out Station. At all times during the Term. Tenant covenants and
aarees to 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 Affiliates, subtenants, licensees and/or concessionaires of space
In the. Project or elsewhere on the Premises to comply; with all applicable taws,
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 an 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
22
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.
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 this 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 and secure a Qualified Manager.
8.3 Competition by Tenant. From and up to five (5) years following the
Commencement Date, Tenant agrees for itself and its Affiliates that Tenant and its Affiliates
shall not own, lease or operate, or participate in the ownership, lease, or operation of, including
any ownership interest in any partnership, joint venture or other equity participation, any
business venture or operation similar to the hotel, private membership club and marina
operations conducted by Tenant as part of the Project, located on Newport Harbor (that is, its
nearest boundary is within fifteen hundred (1,500) feet of the waterfront of Newport Harbor). 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 deed or other conveyance in lieu of such foreclosure; (ii) any
entity which shall be an institutional investor with a diversified investment portfolio containing
projects operated under three (3) or more trade names and under management agreements
with (3) or more unaffiliated national chain management companies; or (iii) any business
venture or operation similar to the. Project located upon land owned/managed by the City. 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.
investment portfolio of insurance companies, pension funds or similar institutional investors
containing hotels operated under three (3) or more trade names with management contracts
23
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
operatetheProject 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,
thatall such repairs; alterations or additions to the Project shall be consistentwith the Premises
being used for the purposes permitted by this Lease.and be of the type and quality as other first
class hotels in the Newport Beach area.
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 befiled 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 City's Municipal. Code, and other applicable
taws and regulations.
ARTICLE X
ALTERATIONS, INDEMNITY AND CASUALTY
10.1 Insurance. 'Without limiting. Tenant's indemnification of Landlord, Tenant will
obtain, provide and maintain at its own expense during the Term of this Lease, a .policy or
policies of insurance of the type, amounts and form acceptable to Landlord. The policy or
policies shall provide,, at a minimum; those items described below.
(a) Coverage Requirements
(i) Workers' compensation insurance providing statutory benefits and
Employer's Liability Insurance in an amount not less than One Million
24
($:1. million) dollars each accident, each employee and policy limit.
Coverage shall include .USL&H and Maritime Coverages as appropriate.
In addition, Tenant shall require each subtenant or subcontractor to
similarly maintain workers compensation insurance and employer's,
liability insurance, including USL&H and 'Maritime Coverages as
appropriate, in accordance with the laws of the State of California for all of
the subtenant's or subcontractor's, employees. The insurer shalt agree to
-waive all rights of subrogation against Landlord, its officers, agents;
employees and volunteers for losses arising from work performed by
Tenant for Landlord, by endorsement to the policy:
Commercial general liability insurance in an amount not. less than Ten
Million Dollars. ($10,000,000) per occurrence and Ten Million Dollars
($,10,000,000) General Aggregate for bodily injury, personal injury, and
property damage, which amount shall be subject to periodic adjustment in
accordance with Subsection 10.1(c)(ii) below. Coverage shall be at least
as broad as that provided by Insurance Services Office form CG 00 01
and may be arranged' through any combination of primary and excess
insurance as required to achieve the limits specified provided that .any
excess liability policy does not restrict coverage provided in the primary,
policy. Other policy forms ,may be acceptable if more appropriate to the
exposures, such as Marina Operator's Liability insurance. None of the
policies required herein shall be in compliance with these requirements if
they include any limiting endorsement that has, not been first submitted to
City and approved in writing.
Business automobile coverage for bodily injury and property damage
liability for all activities of the Tenant arising out of or in connection with
the services to be performed under this Lease, including coverage for any
owned, hired, non -owned or rented vehicles, in an amount not less than
Five Million Dollars and 00/100 Dollars ($5,000,000.00) combined single
limit for each occurrence.
(iv) '"AII Risk" property insurance and Boiler -and Machinery insurance for the
full replacement cost of the Improvements (as improved or altered by
Minor Alterations or Structural Changes, if any) (and the Project), without
deduction for depreciation. Flood insurance shall apply per location with
a minimum limit of $500,000 Building/$500;000 Contents, provided no
flood, insurance coverage. shall be required for the apartments, "All Risk"
coverage shall be at least as broad as provide in Insurance Services
Office special causes of loss form (CP 10 30), Boiler and Machinery and
Flood coverage maybe arranged separately. Policies must include
business income coverage sufficient to allow Tenant to meet. its.
obligations under this Lease for payment of rents. Any coinsurance
requirement in the policy shall be eliminated through the attachment of ari
agreed value endorsement, the activation of an agreed value :option, or as
is otherwise appropriate under the particular policy form.
(v) Builder's, risk insurance during construction; reconstruction or alteration of
any Improvements ('as improved or altered by Minor Alterations or
25
Structural Changes, if any) on the Premises [or the Project),, against "all
risk'. of physical loss, including, without limitation, the perils of flood,
collapse and transit, with deductibles acceptable to Landlord, covering the
total cost of work performed, equipment; supplies :and material furnished
on a replacementcostbasis.
(vi) Contractor's pollution liability insurance for contractors or subcontractors
performing construction work written on a form acceptable to City
providing coverage for liability arising out of sudden, accidental and
gradual pollution. The policy limit :shall be no less than $1,000,000 per
claim and in the aggregate. When this insurance is required; all activities
comprising the work shall be specifically scheduled on the policy as
"covered operations." The policy shall provide coverage for the hauling of
waste from the Premises to the final disposal location, including non -
owned disposal sites. Products/completed operations coverage shall
extend a minimum of three (3) years after completion of the work..
(vii) Pollution legal liability applicable only to the marina operations at the
Project, including coverage for bodily injury; property damage,, including
loss of use of damaged ,property or of property that has not been.
physically injured or destroyed; cleanup costs; and defense, including
costs and expenses incurred in the investigation, defense, or settlement
of claims; all in connection with:any loss arising from the insured facility..
Coverage :shall be maintained in an amount .of at least $1,000,000 per
loss, with an annual aggregate of at least $1;000,000.
(viii) Liquor liability coverage in the amount of not, less than Tem Million Dollars
($10,000,000) shall be obtained.
(b) Endorsements: Policies shall contain or be endorsed to contain the following
provisions:
(i) Landlord, its elected or appointed officers, officials, employees„ agents
and volunteers are to be covered as n aadditional ,insured under all
general, liquor and pollution liability policies with respect to liability arising
out of Tenant's activities related' to this Lease and with respect to use or
occupancy of the Premises.
(ii) Policies shall be considered primary insurance as respects to Landlord,
its elected or appointed officers, officials, employees; agents and
volunteers as respects to all claims, losses, or liability arising, directly or
indirectly from Tenant's. operations. Any insurance maintained by
Landlord, including any self-insured retention Landlord may have; shall be
considered excess insurance only and not contributory with the insurance
provided hereunder.
(iii) Liability insurance shall act for each insured and additional insured as
though,a separate policy had been written for each, except with respect to
the limits of liability of the insuring company.
26
(iv) The insurer waives all rights of subrogation against Landlord, Its elected
or appointed'officers, officials, employees, agents and volunteers.
(v) Any failure to comply with reporting provisions of the policies shall not
affect coverage provided to Landlord; its elected or appointed' officers,.
officials, employees, agents or volunteers.
(Vi) The insurance required by this Lease shall .not be suspended, voided,
canceled, or reduced in coverage or in limits except after thirty (30)
calendar days (ten (10) calendar days written notice of non-payment of
premium) written notice has been received by .Landlord. It is Tenant's
obligation to ensure that provisions for such notice have been
established.,
(vii) Landlord shall be included a toss payee under the commercial property
insurance.
(c) Additional Requirements
(i) All insurance shall be written on an occurrence -made form except.
Pollution; Liability; and
(ii) In the event Landlord determines that (i) the Tenant's activities in the
Premises creates an increased or decreased risk of loss to the Landlord,
(ii) greater insurance coverage is required due to the passage of time, or
(iii) changes in the industry require different coverages be obtained,
Tenant agrees that the minimum limits of any insurance policy required to
be obtained by Tenant may be changed accordingly upon receipt of
written notice from Landlord; provided that Tenant shall have the right to
appeal a determination of increased coverage to the City Council within
fourteen (14) calendar days of receipt of notice from the Risk Manager in
the manner provided in Municipal Code Section 17.65.010 et seq. (or any
amended or successor Code section or ordinance) If Tenant fails to
timely appeal a decision, it .shall be deemed final. With respect to
changes in insurance requirements that are avaitable.from Tenant's then -
existing insurance carrier, Tenant shall deposit certificates evidencing
acceptable:'insuranco policies with Landlord incorporating such changes
within thirty (30) days of receipt of such notice. With respect to changes
in insurance requirements that are not available from Tenant's then -
existing insurance carrier, Tenant shall deposit certificates evidencing
acceptable insurance policies with Landlord, incorporating such changes,
within ninety (90) days of receipt of such notice.
(iii) All insurance policies shall be issued, by an insurance company currently
authorized by the California Insurance Commissioner to transact business
of insurance in the State of California, with an assigned policyholders'.
Rating of A- (or higher) and Financial Size Category Class VII (or larger)
in accordance with the latest edition of Best's. Key Rating Guide, unless
otherwise approved by Landlord.
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(iv) Any deductibles applicable to the commercial property or insurance
purchased in compliance with the requirements of this section shall be in
commercially reasonable amounts and approved by Landlord'..
(v) All licensees, sub -Tenants and concessionaires shall be subject to the
insurance requirements, contained, herein unless written approval is
granted by the Landlord'.
(vi) By requiring insurance. herein, Landlord does not represent that coverage
and limits will necessarily be adequate to protect Tenant, and such
coverage and limits shall not be deemed as a limitation on Tenant's
liability under the indemnities granted to Landlord in this Lease.
(vii) Tenant shall give Landlord prompt and timely notice- of any claim made or
suit instituted arising out of or resulting from Tenant's performance. under
this Lease:
(viii) Tenant shall provide certificates of insurance, with original endorsements
as required. above; to Landlord as evidence of the insurance coverage
required herein. Insurance certificates must be approved by Landlord
prior to commencement of performance or issuance of any permit.
Current certification of insurance shall be kept on file with Landlord at all
times during the Term of this Lease.
(ix) All required insurance shall be in force on the Commencement Date, and
shall be maintained continuously in force throughout the term of this
Lease. In addition; the cost of all required insurance shall be borne by
Tenant.
(x) If Ten ant fails or refuses to maintain insurance as required in this Lease,
or fails to provide, proof of insurance, then, subject to :the notice and cure
provisions set forth in Article, XVII, Landlord has the right to .declare: this:
Lease in default without further notice to Tenant, and Landlord shall be
entitled to exercise all available remedies.
(xi) Tenant agrees, not to keep on the Premises or permit =to be kept; used, or
sold thereon, anything prohibited by any fire or other insurance policy
covering the Premises. Tenant shall, at its sole expense, comply with all
reasonable requirements, for maintaining fire and other insurance
coverage on the Premises.
10.2 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 expensesofkind or nature, including
damage to any property and. injury (including death) to any person (collectively,
"Claims"), arising from. Tenant's or Affiliates use occupation of the: Premises or the
Project, or from any activity; work or things done, permitted or suffered by,Tenant or
Affiliate or any omission of Tenant or Affiliate on or about the. Premises or the Project, or
9E
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 hold 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 10 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 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 Claire is 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 Partywithin
thirty (30) calendar days of written 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, withlegal 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 above, in an
amount sufficient to cover the Rent payable under the terms of this Lease. If the
improvements located ron 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 andplaced
in full operation.
(d) Notwithstanding Section 10.2(b), Tenant, shall accept any tender of defense
by Landlord pursuant to the terms of Section 1.0.2(b), (unless the complaining party'
alleges. facts that reasonably indicate active negligence or willfulmisconduct by the
Landlord or its employees) and Tenant shall protect and hold Landlord harmless from
and against, the subject. Claim and defend Landlord as required under Section 102(b);
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.
Fi]
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 authorized and empowered by Tenant, and 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 Arlicle .X, to be repaired and restored to its
original condition or such other condition as may be mutually agreed upon by the Parties
(subject to changes necessary to comply with then existing laws applicable thereto 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 Majeure, 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 (t) 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 tight to terminate upon the other Party's receipt of written notice of termination
given not later than ninety (90) calendar 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.
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 par -tial or total, shall (i)
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
30
abated until such damage or destruction is repaireo or restored; provided; further, however,
nothing herein shall limit or restrict Landlord's right to retain rental ,abatement insurance
proceeds.
ARTICLE XI'
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„ Landlordagrees to join in the .grant of such
easements and licenses upon the Premises to any supplier of utilizes 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 XII
ESTOPPEL CERTIFICATES
12.1 Estoppel Certificates, Within fifteen, (15) calendar 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 or 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, wou'ld 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 Party's 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 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
fails, 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)
calendar 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
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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, hypothecation, 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) Ten
Million Dollars ($10,000,000.00) (increased each five (5) yearsfrom the Commencement
Date by the percentage of any increase over such period in the Consumer Price Index
for All Urban Consumers, Los Angeles -Riverside -Orange County, CA, All Items,
published by the Bureau of Labor Statistics, Department of Labor), .or (ii) ten percent
(10%) of the fair market of the leasehold estate created by this Lease. The successor or
most nearly comparable index published by some other brand 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 subleasewith in thirty (30) calendar days following
Landlord's receipt of written notification from Tenant regarding the proposed transfer. Following
a request from. Landlord for additional reasonable information and/or documentation. la's provided
32
herein, Landlord shall have ten (10) calendar 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) calendarday period
and Landlord has ,not notified 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 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 fora term
of not more .than one (1) 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
term of not more than one (1) year, or (v)' the granting of concessions; licenses or subleases in
the, normal course of operations, provided that the term of anysuch 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 (25%), 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
uhrestricted voting rights and privileges; or
(b) as security pursuant.to a Mortgage;
provided, however, that any assignment by Tenant under this Section 13.4 shall not
relieve Tenant from liability, hereunder.
1.3.5 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 Tenantundergoesa 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 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(ies)
having Control of Tenant.
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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 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 (i) ninety percent (906/6') 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) calendar 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 (ii) an amount which results in Tenant having a.
net equity in the Project of not less than Ten Million Dollars ($10,000,000) (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- Riverside -Orange County, CA, All Items, 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 (900/6) of theappraised 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 Mortgageor its
acceptance of a deed -in -lieu thereof. If requested :by Tenant, Landlord agrees to execute its
written consent to any such assignment, hypothecation, mortgage, pledge or alienation, 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 subject to the terms of this Lease. Except for
34
payment of any delinquentRent or other payments due hereunder and obligationsreasonably
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 pos"session of the Project or the Premises or any portion thereof subject to the
Mortgage.
14.2 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 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 the 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 Leaseby reason thereof unless Landlord
shall. have served a copy of such notice upon any Mortgagee and the default has
continued' for a period. of thirty (30) calendar 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 a default upon ,any
Mortgagee and such non -monetary default continues for a period of sixty (60) calendar
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 bythe
Mortgagee without the Mortgagee obtaining possession of the Premises, within. said
sixty (60) calendar day period, and, thereafter, diligently proceed to cure such
default; or
(ii) commerce to obtain possession of the Project (including possession by
a receiver) within said sixty (60) calendar 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) calendar day
period, and,, thereafter, complete such foreclosure proceeding 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 (i) or (ii) above..
35,
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 -laking 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 shall have arranged to the reasonable
satisfaction of Landlord to cure all then -existing defaults of Tenant under this Lease
which are reasonably within the Mortgagee's ability to cure, then Landlord, within thirty
(30) calendar days after receiving a written request therefor which request shall be given
within thirty (30) calendar 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 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 commerce the cure of all defaults hereunder to be cured and
thereafter diligently process such cure to completion, except (i) 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 (ii) 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)
calendar 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 sate 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 of Landlord's rights or
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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 rightsof 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,:
served, and received by the Mortgagee three (3) calendar days after mailing of said
notice by Landlord.
(h) The Mortgagee whose Leasehold Mortgage; would be; senior in priority if
there were a foreclosure shall prevail if two (2) 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 and expenses of any kind
or description incurred in connection with the procgfement of any Leasehold Mortgages
pursuant to this Article XIV.
(j) Landlord agrees to include in this Lease by mutually agreed amendment
from time -to -time any provision which may reasonably be requested by any proposed
lender for the purpose of Implementing the Mortgagee -protection provisions contained in
this Lease and allowing such lender reasonable means to protect or preserve. the lien of
the: leasehold mortgage on the occurrence of a default under the terms of this Lease;
provided; however, that such amendment shall not have an adverse effect on Landlord's
rights or obligations. under this Lease. Landlord and Tenant each agree to execute and
deliver (and to acknowledge,, if necessary, for recording purposes) any agreement
necessary to effect any such amendment agreed to by Landlord, acting within Landlord's
sole and absolute discretion,
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 anyother
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 Furnishing 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 such
equipment leases, retained title contracts; security interest or other forms of purchase money
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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 to enter the
Premises for the sole purpose of exercising their rights to the. Furnishings subject to such
leases, retained title contract, 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 leasehold 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 or 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 maybe 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, ordinance, rule regulation or requirement until the final
determination of such proceeding if compliance may legally be delayed pending the prosecution
of any proceeding with 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
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this Section 1,5.3 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 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 Rent due hereunder and; in all respects, keep, observe and performall 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 Talking; Rent 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 Rent 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.
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 feeor 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 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 (1,) Mortgagee who shall so agree in writing.
16.6 Allocation of Award;. Partial Taking, Any Award in z Partial Taking shall
be distributed by the aforementioned escrow agent in the following order of priority:.
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(a) First, to Landlord, Tenant and all Mortgagees, as herein provided, as
reimbursement for .all costs,and expenses incurred in the condemnation proceeding
unless Landlord is the condemning authority;
(b) Second, to Tenant,. .as reimbursement for the costs and expenses or
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
conipetentjurisdiiction 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 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 At 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) Third„ 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 otherwise and shal1 jointly make any
compromise or settlement'in connection, therewith.
16.10 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 19.6 below.
ARTICLE XVII
DEFAULT PROVISIONS
17.1Events of Default.. The occurrence of any one (1) 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) calendar 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) calendar 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) calendar days after
receipt of Landlord's notice of default shall be deemed cured if Tenant commences to.
cure said default within thirty (30) calendar 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) calendar days thereafter; or
(d) Tenant making an assignment for the benefit of creditors, or petition for or
enter into an arrangement; or
(e) The abandonment or vacation of the Project by Tenant for a period of fifteen
(15) consecutive calendar 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
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M The appointment of a trustee or receiver to take possession of ,substantially
all of the assets of Tenant located at the Premises where possession is not restored
within one hundred twenty (120) calendar 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) calendardays 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
take possession pursuant to legal proceedings or pursuant to any notice provided for by
taw, Landlord shall be entitled to proceed in accordance with and recover the amounts
.specified in California Civil Code Sections 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 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 Rent received by Landlord shall be applied, first, to the
payment of any indebtedness other than Rent 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 alternations and repairs;
third, to the payment of Rent.dueand unpaid hereunder; and the residue; if any; shall be
held by Landlord and applied'in payment of future Rent as the same may become due
and payable hereunder. Tenant shall pay anysuch deficiency to Landlord if such Rent
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 Landlords part to terminate this Lease unless a 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 or remodeling of the Project not previously delivered to
Landlord. Tenant's. obligations under the 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 unifier 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
42
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 Non -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'
oth'enivise provided in Subsection (b),below, if at any time 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 aga,'inst 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 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. Nothing in Subsection (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 Tenantthat it is i.n. 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 of 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
43
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 Landlolrd's representative in the
exercise by Landlord of its right ofentry and access.
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 Entire Lease. This Lease sets 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 extentrequired under their respective Mortgages.
19.3 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..4 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 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 Majeure. No event of Force .Nfajeure shall excuse the timely
payment of money when due hereunder except as otherwise expressly provided in this Lease,
19.5 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
100 Civic Center Drive
Newport Beach, California 92658
Attention: City Manager
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With copy to: City of Newport Beach
100 Civic Center Drive
Newport Beach, California 92655
Attention: City Attorney
If to Tenant: c/o International Bay Clubs, Inc.
1221 West Coast Highway
Newport Beach, California 92663
Attention: General Manager.
With copy to: The Busch Firm
2532 Dupont Drive
Irvine, California 92612
Attention: George P. Mulcaire
Pacific Hospitality Group, LLC
2532 Dupont Drive
Irvine; California 92612
Attention: Kory J. Kramer
And: Tenant's Mortgagee(s) provided Landlord has received
Written notice of and the address of such Mortgagee(s)
Any notice party may change its address for purposes of receiving notice hereunder by giving
written notice to the other party pursuant to the provisions hereof. Refusal to accept delivery of
any notice, 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 (1)
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 (1) 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.
19.6 Captions and Section Numbers. The captions, section numbers, article
numbers and index appearing in this Lease are inserted only as a matter of convenience, and in
no way define, limit, construe or describe the scope or intent o,` such section or article, nor in
any way affect this Lease.
19.7 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.
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19.8 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 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.
19.9 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.
19.10 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 sole or absolute discretion of the applicable
Party. Whenever Landlord's or Tenants approval or consent is required under this Lease,
Landlord or Tenant, as applicable, shall be deemed to have granted such approval or consent ff
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) calendar days of its
receipt of such written request delivered in accordance with the terms of Section 19.6.
19.11 Interest. Interest shall accrue at the Lease Interest Rate 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; provided, however, that if the due date for any
payment of Rent or other amounts due hereunder does not fall on a Business Day, then the due
date for such payment shall be extended until the first Business Day following such date.
19.12 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.
19.13 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 Jaws
of the State of California without giving effect to conflict of law's provisions, Venue shall be in
Orange County, California.
19.14 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.
19.15 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.
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19.16 Attorneys' Fees and Expenses. In the event of any litigation or other
action arising under this Lease the prevailing Party shall not be entitled to attorneys' fees.
19.17 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.
19.18 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 (1)
appraiser being chosen by Landlord, one (1) appraiser by Tenant, and the third appraiser by the
other two (2) appraisers. The average of the two (2) 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.
19.19 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 C, and incorporated herein by reference.. The cost and expenses of
recording the memorandum or short form of the Lease shall be borne by the Party asking for the
memorandum to be recorded. Each Party agrees that it will not record the Lease in its entirety.
19.20 Incorporation of Preamble, Recitals and Exhibits. The preamble, recitals
and exhibits hereto are hereby incorporated into this Lease and made a part hereof.
[SIGNATURES ON NEXT PAGE]
47
IN WITNESS WHEREOF, Landlord and Tenant. have duly executed and delivered this Lease as
of the day and year first written above.
Attest:
Leilani L Brown
City Clerk
Approved as to Form:
CITY ATTO E FFICE
Aaron C. Harp:
City Attorney
LANDLORD:
CITY OF NEWPORT BEACH;
a California municipal corporation
By:
Keith D. Curry
Mayor
TENANT`.
BALBOA BAYCLUB VENTURES, LLC,
a California limited liability company
0
0
Kevin C. Martin
President
Todd M. Pickup
Secretary
[END OF SIGNATURES]
go
EXHIBIT A
LEGAL DESCRIPTION & PREMISESDEPICTION
ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF
ORANGE, CITY OF NEWPORT BEACH, DESCRIBED AS FOLLOWS;
PARCEL1:
THAT PORTION OF LOT 171, BLOCK 54 OF IRVINE'S SUBDIVISION, AS SHOWN ON A
MAP RECORDED IN BOOK 1, PAGE 88 OF MISCELLANEOUS RECORD MAPS, IN THE
OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALFORNIA, AND THAT
PORTION OF THE NAVIGABLE TIDE AND SUBMERGED LANDS, DESCRIBED AS
FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE EXTENDING FROM US.
BULKHEAD STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130, AS SAID BULKHEAD
LINE AND BULKHEAD STATIONS, INCLUDING THE PIERHEAD LINES AND STATIONS,
SAID PIERHEAD LINES BEING PARALLEL WITH AND 80 FEET BAYWARD OF SAID
BULKHEAD LINES, ARE LAID OUT AND SHOWN ON A MAP OF NEWPORT BAY,
CALIFORNIA, SHOWING HARBOR LINES APPROVED BY THE WAR DEPARTMENT,
JANUARY 18, 1917, SAID POINT BEING DISTANCE SOUTH 61 DEGREES 01' 07" EAST,
MEASURED ALONG SAID BULKHEAD LINE, 1498.00 FEET FROM THE INTERSECTION OF
SAID 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 OF SAID ORANGE COUNTY, SAID POINT
ALSO BEING ON THE SOUTHEASTERLY BOUNDARY LINE OF PARCEL 1, PER A DEED
OF TRUST RECORDED MARCH 30, 1966 IN BOOK 7884, PAGE 298 OF OFFICIAL
RECORDS IN THE OFFICE OF THE COUNTY OF THE COUNTY RECORDER OF SAID
ORANGE COUNTY; THENCE ALONG' SAID SOUTHEASTERLY BOUNDARY LINE, THE
FOLLOWING COURSES: NORTH 28 DEGREES 58' 53" EAST 130.00 FEET; THENCE
NORTH 27 DEGREES 00' 00" WEST 16.66 FEET: THENCE NORTH 28 DEGREES 58,53"
EAST 195.71 FEET TO A POINT IN THE SOUTHWESTERLY LINE OF THE 100 -FOOT
RIGHT-OF-WAY OF THE CALIFORNIA STATE.
HIGHWAY ORA -60-13, THENCE LEAVING SAID SOUTHEASTELY BOUNDARY, SOUTH 74
DEGREES 21' 30" EAST ALONG SAID SOUTHWESTERLY LINE, 130.08 FEET TO THE
BEGINNING OF A TANGENT CURVE CONCAVE NORTHLY, HAVING A RADIUS OF 2550.00
FEET; THENCE EASTERLY 715-57 FEET ALONG SAID CURVE THROUGH A CENTRAL
ANGLE OF 16 DEGREES 04' 41" TO AN INTERSECTION WITH THE NORTHEASTERLY
PROLONGATION OF THE NORTHWESTERLY LINE OF TRACT NO. 1140, AS SHOWN ON A
MAP THEREOF RECORDED IN BOOK 36, PAGE 28 OF MISCELLANEOUS MAPS, IN THE
OFFICE OF THE COUNTY RECORDER OF SAID ORANGE THENCE SOUTH 28 DEGREES
58' 53" WEST 705.03 FEET TO SAID PIERHEAD LINE; THENCE NORTH 61 DEGREES 01'
07" WEST 776.91 FEET ALONG SAID PIERHEAD LINE, TO THE SOUTHWESTERLY
PROLONGATION OF THE, SOUTHEASTERLY LINE OF SAID PERCEL 1: THENCE ALONG
SAID PROLONGATION AND SAID SOUTHEASTERLY LINE, NORTH 28 DEGREES 58'53"
EAST 80.00 FEET TO THE POINT OF BEGINNING.
PARCEL2:
THAT CERTAIN PARCEL OF LAND MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE, EXTENDING FROM U.S.
BULKHEAD STATION NO. 130, AS SAID BULKHEAD LINE AND BULKHEAD STATIONS,
INCLUDING THE PIERHEAD LINES AND STATIONS, 'SAID PIERHEAD LINES BEING
PARALLEL WITH AND 80 FEET BAYWARD OF SAID BULKHEAD LINES, ARE LAID OUT
AND SHOWN ON A MAP OF NEWPORT BAY, CALIFORNIA, SHOWING HARBOR LINES
APPROVED BY THE WAR DEPARTMENT, JANUARY 18, 1917, WHICH SAID POINT IS
DISTANT SOUTH 61 DEGREES 01'07" EAST, MEASURED ALONG SAID BULKHEAD LINE,
700.00 FEET FROM THE INTERESECION OF SAID BULKHEAD LINE WITH THE
SOUTHWESTELY PROLONGATION OF THE CENTERLINE OF IRVINE AVENUE, AS
SHOWN ON A MAP OF FIRSTADDITION TO NEWPORT HEIGHTS RECORDED IN BOOK 4,
PAGE 94 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTRY RECORDER OF
SAID COUNTY, SAID POINT OF INTERSECTION BEING THE MOST SOUTHERLY CORNER
OF LOT H TRACT NO. 919 AS PER MAP RECORDED IN BOOK 29, PAGES 31 TO 34
INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY; THENCE NORTH 28 DEGREES 58'53" EAST 154.19 FEET TO A POINT IN
THE SOUTHWESTERLY LINE OF THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNIA
STATE HIGHWAY ORA -60-B, SAID POINT BEING RADIAL TO ENGINEER'S STATION
6+56.15 IN THE CENTERLINE OF SAID HIGHWAY, SAID RADIAL BEARS NORTH 19
DEGREES 37' 57" EAST FROM SAID POINT, SAID SOUTHWESTERLY LINE BEING A
CURVE CONCAVE NORTHEASTERLY AND HAVING A RADIUS OF 2050.00 FEET; THENCE
SOUTHEASTERLY ALONG SAID SOUTHWESTERLY LINE, THROUGH A CENTRAL ANGLE
OF 3 DEGREES 59' 27" 142.79 FEET TO A TANGNT LINE; THENCE SOUTH 74 DEGREES
21' 30" EAST ALONG SAID TANGENT LINE AND SAID SOUTHWESTERLY LINE, 662.08
FEET; THENCE SOUTH 28 DEGREES 50' 53" WEST 195.71 FEET; THENCE SOUTH 27
DEGREES 00'00" EAST 16.66 FEET; THENCE SOUTH 28 DEGREES 58'53" WEST 210.00
FEET TO SAID PIERHEAD LINE; THENCE NORTH 61 DEGREES 01' 07" WEST ALONG
SAID PIERHEAD LINE,, A DISTANCE OF 798.00 FEET TO A POINT WHICH BEARS SOUTH
28 DEGREES 58' 53" WEST 80.00 FEET FROM THE POINT OF BEGINNING; THENCE
NORTH 28 DEGREES 58'53" EAST 80.00 FEET TO THE POINTOF'BEGINNING.
EXCEPT THAT PORTION DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE SOUTHERLY LINE OF THE 100 -FOOT RIGHT OF WAY
OF THE CALIFORNIA STATE HIGHWAY ORA -60-13, SAID POINT OF BEGINNING BEING AT
RIGHT ANGLES TO ENGINEER'S STATION 7+95.46 IN THE CENTERLINE OF SAID
HIGHWAY; THENCE SOUTH 15 DEGREES 38' 30" WEST 44.00 FEET; THENCE NORTH 74
DEGREES 21' 30" WEST 34.00 FEET; THENCE NORTH 15 DEGREES 38' 30" EAST TO AN
INTERSECTION WITH THE SAID SOUTHERLY LINE OF THE STATE HIGHWAY; THENCE
SOUTHEASTERLY ALONG SAID SOUTHERLY LINE TO THE POINT OF BEGINNING.
PARCEL 3:
A NON-EXCLUSIVE EASEMENT FOR INGRESS AND EGRESS OVER THAT CERTAIN
PARCEL OF LAND INCLUDED WITHIN A STRIP OF A LAND 25.00 FEET IN WIDTH, THE
NORTHEASTERLY LINE OF WHICH IS 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 SAID BULKHEAD
LINE AND BULKHEAD STATIONS, INCLUDING THE PIERHEAD LINES AND STATIONS,
SAID PIERHEAD LINES BEING PARALLEL WITH AND 80 FEET BAYWARD OF SAID
BULKHEAD LINES, ARE LAID OUT AND SHOWN ON A MAP OF NEWPORT BAY,
CALIFORNIA, SHOWING HARBOR LINES APROVED BY THE WAR DEPARTMENT,
JANUARY 18, 1917, WHICH SAID POINT IS DISTANT SOUTH 61 DEGREES 01' 07° EAST,
MEASURED ALONG SAID BULKHEAD LINE, 700 FEET FROM THE INTERSECTION OF
SAID 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 OF SAID COUNTY, SAID POINT OF
INTERSECTION BEING THE MOST SOUTHERLY CORNER OF LOT H OF TRACT NO. 919,
AS PER MAP RECORDED IN BOOK.29, PAGES 31 TO 34 INCLUSIVE OF MISCELLANEOUS
MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY THENCE NORTH
28 DEGREES 58'53" EAST 154.19 FEET TO A POINT IN THE SOUTHWESTERLY LINE OF
THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNIA STATE HIGHWAY ORA -60-13, SAID
POINT BEING RADIAL TO ENGINEER'S STATION 6+56.15 IN THE, CENTERSINE OF SAID
HIGHWAY, SAID RADIAL BEARS NORTH 19 DEGREES 37'57" EAST FROM SAID POINT,
SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE NORTHEASTERLY AND
HAVING A RADIOUS OF 2050.00 FEET; THENCE SOUTHEASTERLY LINE, THROUGH A
CENTRAL ANGLE OF 3 DEGREES 591 27", 142.79 FEET TO A TANGENT LINE; THENCE
SOUTH 74" DEGRESS 21' 30" EAST ALONG SAID TANGENT LINE .AND SAID
SOUTHWESTERLY LINE, 662.08 FEET TO THE TRUE POINT OF BEGINNING; THENCE
SOUTH 74 DEGREES 21' 30" EAST 130.08 FEET TO THE BEGINNING OF A CURVE ON
SAID SOUTHWESTERLY LINE, CONCAVE NORTHEASTERLY, HAVING ARADIUS OF
2550.00 FEET; THENCE SOUTHEASTERLY 715.56 FEET ALONG SAID CURVE, THROUGH
A CENTRAL ANGLE OF 16 DEGREES 04'40" TO THE NORTHEASTERLY PROLONGATION
OF THE NORTHWESTERLY LINE OF TRACT NO. 1140, AS PER MAP RECORDED IN BOOK
36, PAGE 28 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER
OF SAID COUNTY.
THE SOUTHWESTERLY LINE OF SAID 25.00 -FOOT STRIP IS TO BE SHORTENED SO AS
TO TERMINATE IN SAID NORTHWESTERLY PROLONGATION AND LENGTHENED SO AS
TO TERMINATE ON A LINE WHICH BEARS SOUTH 28 DEGREES 58'53" WEST FROM THE
TRUE POINT OF THE BEGINNING.
PARCEL 4:
A NON-EXCLUSIVE EASEMENT FOR AUTO PARKING PURPOSES OVER THE
SOUTHWESTERLY .20.00 FEET OF THE NORTHEASTERLY 45.00 FEET OF THAT CERTAIN
PARCEL MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE EXTENDED FROM U.S.
BULKHEAD STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130, AS SAID BULKHEAD
LINE AND BULKHEAD STATIONS, INCLUDING THE PIERHEAD LINES AND STATIONS,
SAID PIERHEAD LINES BEING PARALLEL WITH AND 80 FEET BAYWARD OF SAID
BULKHEAD LINES, ARE LAID OUT AND SHOWN ON A MAP OF NEWPORT BAY,
CALIFORNIA, SHOWING HARBOR LINES APPROVED BY THE WAR DEPARTMENT,
JANUARY 18, 1917, WHICH SAID POINT IS DISTANT SOUTH 61 DEGREES 01° 07" EAST,
MEASURED ALONG SAID BULKHEAD LINE, 700.00 FEET FROM THE INTERSECTION OF
SAID 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 OF SAID COUNTY, SAID POINT OF
INTERSECTION BEING THE SOUTHERLY CORNER OF LOT H OF TRACT NO. 919, AS
SHOWN ON A MAP RECORDED IN BOOK 29, PAGES 31 TO 34 INCLUSIVE OF
MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY; THENCE NORTH 28 DEGREES 58' 53' EAST 154.19 FEET TO A POINT IN THE
SOUTHWESTERLY LINE OF THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNIA STATE
HIGHWAY ORA -60-13, SAID POINT BEING RADIAL TO ENGINEER'S STATION 6+56,15 IN
THE CENTERLINE OF SAID HIGHWAY, SAID RADIAL BEARS NORTH 19 DEGREES 37,57"
EAST FROM SAID POINT, SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE
NORTHEASTERLY AND HAVING A RADIUS OF 2050.00 FEET; THENCE SOUTHEASERLY
ALONG SAID SOUTHWESTERLY LINE, THROUGH A CENTRAL ANGLE OF 3 DEGREES 59'
27", 142.79 FEET TO A TANGENT LINE; THENCE SOUTH 74 DEGREES 21' 30" EAST
ALONG SAID TANGENT LINE AND SAID SOUTHWESTERLY LINE, 662.08 FEET TO THE
TRUE POINT OF BEGINNING; THENCE SOUTH 28 DEGREES 58' 53" WEST 195.71 FEET;
THENCE SOUTH 27 DEGREES 00' 00" EAST 16:66 FEET; THENCE SOUTH 28 DEGREES
58'53" WEST 480.00 FEET TO A LINE PARALLEL WITH SOUTHWESTERLY 350.00 FEET
FROM SAID BULKHEAD LINE; THENCE SOUTH 61 DEGREES 01'17" EAST 235.68 FEET
ALONG SAID PARALLEL LINE; THENCE NORTH 29 DEGREES 30' 13" EAST 697.99 FEET;
THENCE NORTH 11 DEGREES 45' 40" EAST 49.32 FEET TO SAID SOUTHWESTERLY LINE
OF THE STATE HIGHWAY, SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE
NORTHEASTERLY, HAVING A RADIUS OF 2,550.00 FEET; THENCE NORTHWESTERLY
118.56 FEET ALONG SAID CURVE, THROUGH A CENTRAL ANGLE OF 2 DEGREES 39-50-
TO
9'50"TO THE NORTHWESTERLY TERMINUS THEREOF; THENCE NORTH 74 DEGREES 21' 30"
WEST 130.08 FEET TO THE TRUE POINT OF BEGINNING.
Balboa Say Club A
Ise Area - Patcel 1) �
I
ptr-
Balboa Say Club A
Ise Area - Patcel 1) �
I
EXHIBIT B
VALUATION METHODOLOGY
Sales Comparison Approach:
The sales comparison approach considers that an informed
purchaser would pay no more for a property than the cost of acquiring
another property with the same utility. It is the process of analyzing sales
(or leases) of similar properties, with dates of sale (lease) near in time to
the date of valuation in order to derive an indication of the subject property
value. This approach is most applicable when an active market provides
sufficient quantities of reliable data which can be verified from authoritative
sources.
In addition to rental survey information, the sales comparison
approach also provides the basis in estimating the underlying land value
for the subject property. However, special consideration must be given not
only to current market conditions, but also to the tidelands classification of
the subject ownership (see Condition of Title). In addition, the lack of
recent data tends to limit the overall reliability of the sales comparison
approach.
Cost Approach:
Use of the Cost Approach is limited since this appraisal excludes
consideration of the existing leasehold improvements. Technically, the
cost approach has been utilized in identifying elements of accrued
depreciation and determining the necessity for renovation of certain
leasehold improvements (see Improvement Description).
Income Approach:
As applicable to an income producing property, the income
approach involves a set of procedures utilized to convert the anticipated
benefits of net cash flow and property reversion into property value.
In application to the subject appraisal problem, the historical
'income produced from the various revenue generating sources of the
leasehold operation have been processed. This analysis provides the
basis for estimates of stabilized income and projecting future income
proposed leasehold renovation.
In addition„ the residual net operating income provides a basis to
measure the appropriate level of land rent .applicable to the individual
revenue. sources..
Return on Asset Value:
Many ground leases provide for rent and/or revaluation of rent to be
based upon a percentage of underlying land value. Comparison and
measurement of economic rent is typically expressed as an annualized
percentage rate. Utilizing rates of return on competitive. investment
alternatives as applied to the indicated site value (derived from sales
comparison and residual analysis) provides an additional measure of
economic land rent.
Reconciliation:
The, final' step in the valuation process involves reconciling the
various techniques and methods to a final conclusion of fair market rental
value. The mixture of uses comprising the highest and best use of the site
require rental estimates for various use classifications.
For this reason and depending upon the availability and accuracy of
applicable data, certain rent categories may be; best related to the survey
data of the sales comparison approach while other categories may be
more accurately estimated based upon the residual analysis of the income
approach. The return on asset value provides a check to the cumulative
rent generated from the various categories.
EXHIBIT C
MEMORANDUM O'FGROUND LEASE
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
City of Newport Beach
1'00 Civic Center Drive,
P.O. Box 1768
Newport Beach, California 92658-8915
Attn: City Clerk
(Exempt from Recording Fees Pursuant to Cal. Gov.,§27383
(SPACE ABOVE THIS LINE FOR RECORDER'S USE)
MEMORANDUM OF GROUND LEASE
This Memorandum of Ground Lease ("Memorandum") is entered into and effective as of
, ("Commencement Date"), by and between THE CITY OF NEWPORT
BEACH, a charter city and California municipal corporation ("Landlord"), and BALBOA BAY
CLUB VENTURES, LLC;. a California limited .liability company ("Tenant").
RECITALS
A. Landlord and Tenant have entered into that certain Ground Lease ("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 ("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.
NOW 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.
'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 Memorandum and the, terms of the
Lease:
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum as of the date
first set forth above.
Attest:
Leilani I. Brown
City Clerk
Approved as to Form:
CITY'ATT. ' 'S OFFICE
C �r-
Aaron C. Harp
City Attorney
LANDLORD:
CITY OF NEWPORT BEACH,
a California municipal corporation
By:
Keith D. Curry
Mayor
TENANT:
BALBOA BAY CLUB VENTURES, LLC
a California limited liability company
0
In
Kevin C. Martin
President.
Todd M. 6
'Secretary
Exhibit A
ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF
ORANGE, CITY OF NEWPORT BEACH, DESCRIBED AS FOLLOWS;
PARCEL1:
THAT PORTION OF LOT 171; BLOCK 54 OF IRVINE'S SUBDIVISION, AS SHOWN ON A
MAP RECORDED IN BOOK 1, PAGE 88 OF MISCELLANEOUS RECORD MAPS, 1N THE
OFFICE OF THE COUNTY RECORDER OF ORANGE COUNTY, CALFORNIA, AND THAT
PORTION, OF THE NAVIGABLE TIDE AND SUBMERGED LANDS, DESCRIBED AS
FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE EXTENDING FROM US.
BULKHEAD STATION NO. 129 TO U.S. BULKHEAD STATION NO. 130, AS SAID BULKHEAD
LINE AND BULKHEAD STATIONS, INCLUDING THE PIERHEAD LINES AND STATIONS,
SAID PIERHEAD LINES BEING PARALLEL WITH AND 80 FEET BAYWARD OF SAID
BULKHEAD LINES; ARE LAID OUT AND SHOWN ON A MAP OF NEWPORT BAY,
CALIFORNIA, SHOWING HARBOR LINES APPROVED BY THE WAR DEPARTMENT,
JANUARY 18, 1917, SAID POINT BEING DISTANCE SOUTH 61 DEGREES 01' 07" EAST,
MEASURED ALONG SAID BULKHEAD LINE, 1498.00 FEET ,FROM THE INTERSECTION OF
SAID 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 OF SAID ORANGE COUNTY, SAID POINT
ALSO BEING ON THE -SOUTHEASTERLY BOUNDARYLINE OF PARCEL 1, PER A DEED
OF TRUST RECORDED MARCH 30, 1966 IN BOOK 7884, PAGE 298 OF OFFICIAL
RECORDS IN THE OFFICE OF THE COUNTY OF THE COUNTY RECORDER OF SAID
ORANGE COUNTY; THENCE ALONG SAID SOUTHEASTERLY BOUNDARY LINE, THE
FOLLOWING COURSES: NORTH 28 DEGREES 58' 53" EAST 130.00 FEET; THENCE
NORTH 27 DEGREES 00' 00" WEST 1.6.66 FEET: THENCE NORTH 28 DEGREES 58' 53
EAST '195.71 FEET TO A POINT IN THE SOUTHWESTERLY LINE OF THE 100 -FOOT
RIGHT=OF-WAY OF THE CALIFORNIA STATE.
HIGHWAY ORA -60-13, THENCE LEAVING SAID SOUTHEASTELY BOUNDARY, SOUTH 74
DEGREES 21' 30" EAST ALONG .SAID SOUTHWESTERLY LINE, 130.08 FEET TO THE
BEGINNING OF A TANGENT CURVE CONCAVE NORTHLY, HAVING A RADIUS OF 2550.00
FEET; THENCE EASTERLY 715.57 FEET ALONG SAID CURVE THROUGH A CENTRAL
.ANGLE OF 16 DEGREES 04' 41" TO AN .INTERSECTION WITH THE NORTHEASTERLY
PROLONGATION OF THE NORTHWESTERLY`LINE OF TRACT NO. 1140,.AS SHOWN ON A
MAP THEREOF RECORDED IN BOOK 36, PAGE 28. OF MISCELLANEOUS MAPS, IN THE
OFFICE OF THE COUNTY RECORDER OF SAID ORANGE THENCE SOUTH 28 DEGREES
58' 53"'WEST 705.03 FEET TO SAID PIERHEAD LINE; THENCE NORTH 61 DEGREES 01'
07" WEST 776.91 FEET ALONG' SAID PIERHEAD LINE, TO THE SOUTHWESTERLY
PROLONGATION OF THE SOUTHEASTERLY LINE OF SAID PERCEL 1: THENCE ALONG
SAID PROLONGATION AND SAID SOUTHEASTERLY LINE, NORTH 28 DEGREES 58' 53"
EAST 80,.00 FEET TO THE POINT OF BEGINNING.
PARCEL 2:
THAT CERTAIN PARCEL OF LAND MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE, EXTENDING FROM U.S.
BULKHEAD STATION NO. 130, AS SAID BULKHEAD LINE AND BULKHEAD STATIONS,
INCLUDING THE PIERHEAD LINES ,AND STATIONS, SAID PIERHEAD LINES BEING
PARALLEL WITH AND 80 FEET BAYWARD OF SAID BULKHEAD LINES, ARE LAID OUT
AND SHOWN ON A MAP OF NEWPORT BAY, CALIFORNIA, SHOWING HARBOR LINES
APPROVED BY THE WAR DEPARTMENT, JANUARY 18, 1917, WHICH SAID POINT IS
DISTANT SOUTH 61 DEGREES 01'07" EAST, MEASURED ALONG SAID BULKHEAD LINE,
700.00 FEET FROM THE INTERESECION OF SAID BULKHEAD LINE WITH THE
SOUTHWESTELY PROLONGATION OF THE CENTERLINE OF IRVINE AVENUE, AS
SHOWN ON A MAP OF FIRSTADDITION TO NEWPORT HEIGHTS RECORDED IN BOOK 4,
PAGE 94 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTRY RECORDER OF
SAID COUNTY, SAID POINT OF INTERSECTION BEING THE MOST SOUTHERLY CORNER
OF LOT H TRACT NO. 919 AS PER MAP RECORDED IN BOOK 29, PAGES 31 TO 34
INCLUSIVE OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDEROF
SAID COUNTY; THENCE NORTH 28 DEGREES 58'53" EAST 154.19 FEET TO A POINT IN
THE SOUTHWESTERLY LINE OF THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNIA
STATE HIGHWAY ORA -60-8, SAID POINT BEING RADIAL TO ENGINEER'S STATION.
6+56.15 IN THE CENTERLINE OF SAID HIGHWAY, SAID RADIAL BEARS NORTH 19
DEGREES 37' 57" EAST FROM SAID POINT, SAID SOUTHWESTERLY LINE BEING A
CURVE CONCAVE NORTHEASTERLY AND HAVING A RADIUS OF 2050.00 FEET;. THENCE
SOUTHEASTERLY ALONG SAID SOUTHWESTERLY LINE, THROUGH A CENTRAL ANGLE
OF 3 DEGREES 59' 27" 142.79 FEET TO A TANGNT LINE; THENCE SOUTH 74 DEGREES
21' 30" EAST ALONG SAID TANGENT LINE AND SAID SOUTHWESTERLY LINE, 662.08
FEET; THENCE SOUTH 28 DEGREES 50' 53" WEST 195.71 FEET; THENCE SOUTH 27
DEGREES 00' 00" EAST 16.66 FEET; THENCE SOUTH 28 DEGREES 58'53" WEST 210.00
FEET TO SAID PIERHEAD LINE; THENCE NORTH 61 DEGREES 01' 07° WEST ALONG
SAID PIERHEAD LINE, A DISTANCE OF 798.00 FEET TO A POINT WHICH BEARS SOUTH
28 DEGREES 58' 53" WEST 80.00 FEET FROM THE POINT OF BEGINNING; THENCE
NORTH' 28 DEGREES 58'53" EAST 80.00 FEET TO THE POINT OF BEGINNING.
EXCEPTTHAT PORTION DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE SOUTHERLY LINE OF THE 100 -FOOT RIGHT OF WAY
OF THE CALIFORNIA STATE HIGHWAY ORA -60-B, SAID POINT OF BEGINNING BEING AT
RIGHT ANGLES TO ENGINEER'S STATION 7+95.46 IN THE CENTERLINE OF SAID
HIGHWAY; THENCE SOUTH 15 DEGREES 38'30" WEST 44.00 FEET; THENCE NORTH 74
DEGREES 21'30" WEST 34.00 FEET: THENCE NORTH 15 DEGREES 38'30" EAST TO AN
INTERSECTION WITH THE SAID SOUTHERLY LINE OF THE STATE HIGHWAY; THENCE
SOUTHEASTERLY ALONG SAID SOUTHERLY LINE TO THE POIN T OF BEGINNING.
PARCEL 3:
A NON-EXCLUSIVE. EASEMENT FOR INGRESS AND EGRESS OVER THAT CERTAIN
PARCEL OF LAND INCLUDED WITHIN A STRIP OF A LAND 25.00 FEET IN WIDTH, THE
NORTHEASTERLY LINE OF WHICH IS 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 SAID BULKHEAD
LINE AND BULKHEAD STATIONS, INCLUDING. THE PIERHEAD LINES AND STATIONS;
SAID PIERHEAD LINES BEING PARALLEL WITH AND 80 FEET BAYWARD OF SAID
BULKHEAD LINES, ARE LAID OUT AND SHOWN ON A MAP OF NEWPORT BAY,
CALIFORNIA, 'SHOWING HARBOR LINES APROVED BY THE WAR DEPARTMENT,
JANUARY 18, 1917, WHICH SAID POINT IS DISTANT SOUTH 61 DEGREES 01'07" EAST,
MEASURED ALONG 'SAID BULKHEAD LINE, 700 FEET FROM THE INTERSECTION OF
SAID 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 OF SAID COUNTY, SAID POINT OF
INTERSECTION BEING THE MOST SOUTHERLY CORNER OF LOT H OF TRACT NO. 91.9,
AS PER MAP RECORDED IN BOOK 29, PAGES 3.1 TO 34 INCLUSIVE OF MISCELLANEOUS
MAPS IN THE OFFICE OF THE COUNTY' RECORDER OF SAID COUNTY; THENCE NORTH
28 DEGREES 58'53" EAST 1,54.19 FEET TO A POINT IN THE SOUTHWESTERLY LINE OF
THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNIA STATE HIGHWAY ORA -60-13, SAID
POINT BEING RADIAL TO ENGINEER'S STATION 6+56.15 IN THE CENTERSINE OF SAID
HIGHWAY, SAID RADIAL BEARS NORTH 19 DEGREES 37'57" EAST FROM SAID POINT,
SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE NORTHEASTERLY AND
HAVING A RADIOUS OF.2050.00 FEET; THENCE SOUTHEASTERLY LINE, THROUGH A
CENTRAL ANGLE OF 3 DEGREES 591 27", 142.79 FEET TO A TANGENT LINE; THENCE
SOUTH 74 DEGRESS 21` 30" EAST ALONG SAID TANGENT LINE AND SAID
SOUTHWESTERLY LINE, 662.08 FEET TO THE TRUE POINT OF BEGINNING; THENCE
SOUTH 74 DEGREES 21' 30" EAST 130.08 FEET TO THE BEGINNING OF A CURVE ON
SAID SOUTHWESTERLY LINE, CONCAVE NORTHEASTERLY, HAVING ARADIUS OF
2550.00 FEET; THENCE SOUTHEASTERLY 715.56 FEET ALONG SAID CURVE, THROUGH
A CENTRAL ANGLE OF 1'6 DEGREES 04'•40" TO THE NORTHEASTERLY PROLONGATION
OF THE NORTHWESTERLY LINE OF TRACT NO. 11,40, AS PER MAP RECORDED' IN BOOK
36, PAGE 28 OF MISCELLANEOUS MAPS` IN THE OFFICE OF THE COUNTY RECORDER'
OF'SAID COUNTY.
THE SOUTHWESTERLY LINE OF SAID 25.00 -FOOT STRIP IS TO BE SHORTENED SO AS
TO TERMINATE IN SAID NORTHWESTERLY PROLONGATION AND LENGTHENED SO_ AS
.TO TERMINATE ON A LINE WHICH BEARS SOUTH 28 DEGREES 58'53" WEST FROM THE
TRUE POINT OF THE BEGINNING.
PARCEL 4:
A. NON-EXCLUSIVE EASEMENT FOR. AUTO PARKING PURPOSES OVER THE
SOUTHWESTERLY 20.00 FEET OF THE NORTHEASTERLY 45..00_ FEET OF THAT CERTAIN
PARCEL MORE PARTICULARLY DESCRIBED AS FOLLOWS:.
BEGINNING AT A POINT ON THE U.S. BULKHEAD LINE EXTENDED FROM U.S.
BULKHEAD STATION 'NO- 129 TO U.S. BULKHEAD STATION NO, 130, AS SAID BULKHEAD
LINE AND BULKHEAD STATIONS; INCLUDING THE PIERHEAD LINES AND STATIONS,
SAID PIERHEAD LINES BEING PARALLEL WITH AND 80 FEET BAYWARD OF SAID
BULKHEAD LINES, ARE LAID OUT AND SHOWN ON A MAP OF NEWPORT BAY,
CALIFORNIA„ SHOWING HARBOR ,LINES APPROVED BY THE WAR DEPARTMENT,
JANUARY 18, 1917,''WHICH SAID POINT IS DISTANT SOUTH 61 DEGREES 01" 07" EAST;
MEASURED ALONG SAID BULKHEAD LINE; 700.00 FEET FROM THE INTERSECTION OF
SAID BULKHEAD LINE WITH THE SOUTHWESTERLY PROLONGATION OF THE
CENTERLINE OF IRVINE AVENUE, AS SHOWN ON A MAPOF FIRST ADDITION TO
NEWPORT HEIGHTS RECORDED IN BOOK 4,PAGE 94 OF 'MISCELLANEOUS MAPS IN
THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, SAID POINT OF
INTERSECTION BEING THE SOUTHERLY CORNER OF LOT H OF TRACT NO. 919, AS
SHOWN ON A MAP RECORDED IN :BOOK 29, PAGES 31 TO 34 INCLUSIVE OF
MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY; THENCE NORTH 28 DEGREES 58' 53" EAST 154.19 FEET TO A POINT IN THE
SOUTHWESTERLY LINE OF THE 100 -FOOT RIGHT OF WAY OF THE CALIFORNIA STATE
HIGHWAY ORA -60=B, SAID POINT BEING RADIAL TO ENGINEER'S STATION, 6+56.15 IN
THE CENTERLINE OF SAID HIGHWAY; SAID RADIAL BEARS NORTH 19 DEGREES 37'57"
EAST FROM SAID POINT, SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE
NORTHEASTERLY AND HAVING A RADIUS OF 2050.00 FEET; THENCE SOUTHEASERLY
ALONG SAID SOUTHWESTERLY` LINE, THROUGH A CENTRAL ANGLE OF DEGREES 59'
27", 142,79 FEET TO A TANGENT LINE; THENCE SOUTH 74 DEGREES 21' 30" EAST
ALONG' SAID TANGENT LINE AND SAID SOUTHWESTERLY LINE, 662.08 FEET TO THE
TRUE POINT OF BEGINNING; THENCE SOUTH 28 DEGREES 58'53" WEST 1.9531 FEET;
THENCE SOUTH 27 DEGREES 00'00" EAST 16.66 FEET; THENCE' SOUTH 28 DEGREES
58' 53" WEST 480.00 FEET TO A LINE PARALLEL WITH SOUTHWESTERLY 350.00' FEET
FROM SAID BULKHEAD LINE; THENCE SOUTH 61 DEGREES 01' 17" EAST 235,68 FEET
ALONG SAID PARALLEL LINE; THENCE NORTH 29 DEGREES 30'13" EAST 697.99 FEET;
THENCE NORTH 11 DEGREES 45'40" EAST 49.32 FEET TO SAID SOUTHWESTERLY LINE.
OF THE STATE HIGHWAY, SAID SOUTHWESTERLY LINE BEING A CURVE CONCAVE
NORTHEASTERLY„ HAVING A RADIUS OF 2,550.00 FEET;, THENCE NORTHWESTERLY
118.56 FEET ALONG SAID CURVE, THROUGH A CENTRAL ANGLE OF 2 DEGREES 39,501,
TO THE NORTHWESTERLY TERMINUS THEREOF; THENCE NORTH 74 DEGREES 21'30"
WEST 130.08 FEET TO THE TRUE POINT OF BEGINNING.
State of California
County of
On
ACKNOWLEDGMENT
before me,
(insert name and title of the officer)
personally appeared
who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they executed
the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the
instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the
foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature (Seal)
State of California
County of
On
ACKNOWLEDGMENT
before
(insert name and title of the officer)
personally appeared ,
who proved to me on'the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they executed.
the -same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of Which the person(s) acted, executed the
instrument,
I certify under PENALTY OF PERJURY under the taws of the State of California that the
foregoing paragraph is true and correct.
WITNESS my hand and official seal.
'Signature (Seal)
ACKNOWLEDGMENT
State of California
County of
On before me,
(insert name and title of the officer)
personally appeared
who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and, acknowledged to me. that he/she/they executed
the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the
instrument.
certify Under PENALTY OF PERJURY under the laws of the State of California that the
foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature. (Seal)
PKK
November 9, 2012 CONSULTING
USA
Mr. Seimone Jurjis
Building Manager/Chief Building Officer
City of Newport Beach
'3300 Newport Boulevard
P.O. BO 1768
Newport Beach, CA 92663
Dear Mr. Jurjis:
Pursuant to your request, we have completed an analysis of the Balboa Bay Club lease
terms under three distinct scenarios, including (1) "as is" assuming the terms of the
existing lease; (2) "as renovated' assuming a 12 -year lease extension; and, (3) "as
renovated" assuming no extension is granted. The conclusions of this report set forth the
present value of the anticipated rental revenues and value upon sale to the City of
Newport Beach assuming the terms of each scenario as described further herein. The
following summarizes the scope and methodology of work followed by a discussion of
our findings.
;Methodology
As we understand it, Eagle Four Partners and Pacific Hospitality Group, LLC the entity
which recently purchased the Balboa Bay Club has recently begun preliminary discussions
with the City of Newport Beach relative to a potential 12 -year extension of the current
lease.
To determine the City's fiscal position as the lessor of the land underlying the Balboa Bay
Club we evaluated the projected lease revenues and the reversionary value of the
improvements assuming three distinct scenarios as follows:
(1) The current ownership continues to operate the Balboa Bay Club "as is" for the
remainder of the approximately 38 years remaining on the current ground
lease per the terms set forth, including that the property is well-maintained
throughout the projection period in accordance with Section 6.3 of the lease
through the continued capital improvement investment of 4.0 percent
annually. Further, our assumptions of future revenues in Scenario 1 do not
assume any material changes in the operation of the Balboa Bay Club, or any
substantial renovations or alterations to its operations "as is' today, outside of
normal preventative maintenance and normal upkeep.
(2) Current ownership negotiates a 12 -year tease extension with the City of
Newport Beach, effectively extending the lease to October 25, 2061. In
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exchange for the extension of the current ground lease, ownership thereby
commits to a planned $12 million capital improvement plan to renovate the
Balboa Bay Club.
(3) Ownership goes forward with its proposal to invest $12 million into the hotel
to upgrade the facilities, but does not get an extension to the current lease, and
therefore the improvements revert back to the City of Newport Beach on
October 24, 2049.
In order to determine future revenues and rental income we reviewed information
provided by you to better understand the historical operations of the Balboa Bay Club,
specifically revenues and rental income generated by each component of the Club to the
City of Newport Beach.
In order to do so, we reviewed the following documents:
o Ground Lease by and between the City of Newport Beach and the Balboa Bay
Club, Inc., dated October 25, 2000.
o Annual audited schedules of receipts and percentage rental expense for the
years 2007 to 2011, prepared by KPMG LLP.
o City of Newport Bach — Gross Compliance Review, dated December 2, 2009.
o City of Newport Beach —TOT compliance review, dated September 1, 2011.
o City of Newport Beach — Compliance with Ground Lease and Section 12.1
Estoppel Certificate, dated September 1, 2011..
o City of Newport Beach — Compliance with Ground Lease and Section 12.1
Estoppel Certificate, dated May 1.6, 2012.
Ground Lease Agreement Overview
The Balboa Bay Club and the City of Newport Beach have a Ground Lease agreement
granting the Balboa Bay Club possession of a certain parcel of land located in the City of
Newport Beach. The parcel is operated as a multi -use hotel and club facility by the Balboa
Bay Club. The current lease was entered into by the City of Newport Beach and Balboa
Bay Club, Inc. on October 25, 2000 and will expire October 24, 2049. The terms of the
lease stipulate the annual payment of the greater of (1) a pre -established minimum rent.
($2,072,266) or (2).a percentage of each of the revenue categories, which range from 3.0
to 31.0 percent of net revenues on a category basis.
Based on our review of the financial statements provided, the percentage rent paid has
exceeded the minimum rent each year on a calendar basis from 2007 through 2011. As a
point of reference the Balboa Bay Club's audited 2011 total revenues and ground lease
payments by category, are presented as Exhibit 1 of Addendum B.
Ftgr 12
N/r. Seimanr.rurjfs
Ciro ofNeap on Bruch
Potential Planned Renovation
For the purpose of the analysis in Scenarios 2 and 3, we have assumed that the subject
hotel will soon embark on a two-phase, approximately $12 million renovation that will
significantly upgrade and modernize the facility to better take advantage of its desirable
location and bay front orientation. The initial phase will include renovations to the
subject's lobby and public spaces, including significant improvements to the food and
beverage facilities and configuration to take advantage of indoor/outdoor dining
opportunities. The second phase of the renovation, which is scheduled to start towards the
end of 2013 and be completed before mid -2014, will be focused on the guestrooms and
ballroom space and include significant upgrades to the design and the furniture, fixtures,
and equipment of the subject's guestrooms and meeting space. As a result of the
renovation, the subject is anticipated to generate greater revenues in the rooms, food, and
beverage departments above what is assumed in Scenario 1, as more fully detailed in
Exhibits 2A and 2B of Addendum B.
Assumptions R Findings
After a thorough review of the documents made available regarding the historical
performance of the Balboa Bay Club, we are prepared to make an estimate of the present
value of the lease income during the assumed lease terms and the reversionary value of
the subject, assuming a sale of the property by the City of Newport Beach upon taking
possession of the improvements at the expiration of the lease term. Using the
methodology and specific assumptions set forth herein, we have concluded to a present
value for Scenarios 1, 2, and, 3.
To arrive at our value conclusion we have assumed and utilized the following key data
and assumptions.
As shown in Exhibit 2A of Addendum B, we have projected revenue growth for
the Balboa Bay Club on an annual basis from 2012 to 2061. In the short to mid-
term revenue growth is projected above the level of general inflation which is
reflective of an industry wide recovery. Beginning in 2016 and for the
remainder of the projection period; revenues are projected to grow at 3.0
percent.
? As shown in Exhibit 2B of Addendum B, based on the projected positive
impacts of the planned substantial $12 million renovation we have estimated
that the subject's rooms, food, and beverage revenues will grow at a greater
rate than assumed in the "as is" scenario. As a result, between 2013 and 2017
the subject's overall net operating income is projected to increase at a greater
rate, and specifically by between 0.3 percent and 1.4 percent depending upon
the year of comparison.
h1sw I
111r. S4P1?0n ?1 ji5.
City ofNotporr Beach
Y The reversionary value of the Balboa Bay Club was calculatedby deriving a
current estimate of the potential net operating, income for the year immediately
following the termination of the lease. The net operating income (which 'has.
been inflated to future dollars at a rate of 3.0 percent) is then capitalized at a
rate of 8.0 percent to determine the value upon sale. Lastly, to obtain the net
proceeds upon sale of the property, we have deducted a sales commission of
1.5 percent to determine the actual proceeds upon sale.
> Overall operating expenses for the 'Balboa Bay Club were estimated using,
industry averages for frill -service hotels located throughout. the United States. As
noted in Exhibit. 3 of Addendum B, in 2011 the average net operating income
of U.S. full-service hotels was 22.7 percent of total revenues. The, Balboa Bay
Club operates a number of non-traditional departments (membership, rental
apartments, marina, etc.) that are likely more profitable on a percentage basis
than a' traditional stand-alone hotel. However, unlike a standard Hotel the
'Balboa Bay Club is subject to current ground lease payments of approximately
8.0 percent of total revenues on an annual basis (Exhibit 5A of Addendum B).
Therefore, taking into account the specific attributes of the ,property wehave
utilized an expense ratio of 80.0 percent,, which corresponds to a net operating.
income of 20.0 percent of total revenues.
> It is important to note that as a result of our projected increases in rooms, food,
and beverage revenues in Scenarios 2 and 3, the overall rent owed to the City
of Newport Beach is equal to approximately 7.7 percent of net revenues in
201.7 and beyond, as the aforementioned categories are calculated at an
individual rates less than the current overall 8.0 percent average (Exhibit 513).
Therefore, while we have projected material increase in rental revenue to the
City following the renovation in 2013, the rent expressed as a percentage is
marginally less than currently represented,, and projected in Scenario 1.
Based on our knowledge of investor trends, comparable sales and industry
surveys presented as Exhibit 6 of Addendum B, we are of the opinion that an
overall discount rate of 11.0 percent is appropriate -to valuethe projected rental
income streams in each scenario.. We have also used a similar discount rate. to
estimate the reversionary value of the subject property, assuming a sale at the
end of each of the respective lease.terms.
➢ As shown in Exhibit 7 of Addendum B, the present valueof the projected rental
income to the City of Newport Beach, assuming, the current terms of the lease
and a sale of the properly at the expiration of the lease on October 25, 2049 is
approximately $47.0 million.
i As shown in Exhibit 8 of Addendum B., the present value of the. projected rental
income to the City of Newport Beach, assuming a 12 -year extension of the
A0. SBrntone.Aujrs
Ci7v u f Awporl Beach,
current lease, taking into account the increased net operating 'income of the
property assuming renovation, and a sale of the property at the expiration of the
lease on October 25, 2061 is approximately $46.4 million.
As shown in Exhibit 9 of Addendum B, the present value of the projected rental
income to the City of Newport Beach, assuming the current terms of the lease,
the planned $1.2 million renovation, and,a sale, of the property at the expiration
of the lease on October 25, 2049 to be approximately $48.8 million.
It important to note that we were not, provided with actual, detailed financial statements
for the Balboa Bay Club in connection with this assignment. As such our income
projections are based upon industry average for similar hotels and an understanding of the
additional ground lease payments made to the city, which are not typical of on average
hotel; Thus while we find our estimates to be reasonable, in light offurther information
we reserve the right to revise ou.r findings.
We thank you for the opportunity to conduct this study and look forward to discussing our
findings with you.
Sincerely,
PKF Consulting
Bruce Baltin
Senior Vice President
ADDENDA
A. STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
B. DATA POINTS, FINANCIAL PROJECTIONS, AND PRESENT VALUE
ANALYSIS
Addendum A
Statement of Assumptions and Limiting Conditions
STATEMENT OF ASSUMPTIONS AND LIMITINGCONDITIONS
This report is made with the following assumptions and limiting conditions:
Economic and Social Trends - The consultant assumes no responsibility for economic, physical Or demographic' factors
which may affect or alter the. opinions77n this report if said economic, physical or demographic factors were not present.as
of [he•clate of the letter of transmittal accompanying this report. The consultant. is not obligated to predict future political;
economic or social trends.
Information furnished by Others— In preparing this report; the. consultant: was required to rely on'in(ormation furnished'
by other individuals or found in .previously existing records and/or documents. Unless otherwise indicated, such
information is presumed to be. reliable. However, nowarranty, either express or implied, is given by the consultant for
the accuracy of such information and the consultant assumes no responsibility for information relied upon later found to
have been inaccurate. The consultant reserves the right to make such adjustments to the analyses, opinions and
conclusions set forth in this report as may be required'by consideration of additional data or more reliable data that may
become,aviilal?le.
Hidden Conditions,- The consultant assumes no responsibility for hidden or unapparentconditions of the property,
subsoil, ground water or structures that render the subject properly more or less valuable. No responsibility' is.assumed
for arranging, for engineering, geologic or environmental studies than may be required to discover such hidden or
unapparem- conditions.
Hazardous Materials -The consultantt has not been provided any information regarding the presenceof.any material or
substance on orin any portion of the subject properly or improvements thereon, whichmaterial or substance possesses or
may possess toxic, hazardous and/or other harmful and/or dangerous .characteristics. Unless otherwise stated in the
report, the consultantdid not .become.aware of the presence of any such material or substanceduring the consultant's
inspection of the subject property. However; the consultant isnot.qualified to investigate or testfor (he presence of such
materials or substances. The presence of such materials or substancesmay adversely affect the Val Lie' of the .subject
property. The value estimated in this report is predicated on the assumption that: no such material or substance is. present
on or in the subject property orin such proximity thereto that it would cause'a foss in value. The consultant assumesno
responsibility for [lie presence of any such substance or material on or in the subject. property, nor for any expertise or
engineering knowledge required to discover the presence of suchsubstance or material. Unless otherwise statedo. this
reporLassumes thesubject property is incompliance with all federal,state and local environmental laws, regulations and
rules.
Zoning and Land Use: - .Unless otherwise stated, the projections were .formulated ,assuming the hotel to be in full
compliance with all applicable zoning and land use regulationsand restrictions.
Licenses and Permits - Unless otherwise stated, the property is assumed to have•all required licenses,. permits; certificates,
consents or other legislative and/or adrrmfnistrative authority from any local,. state or national government or private entity
or organization: have been or can be obtained or renewed for any useon which thevalue estimate contained in this
report is based.
Engineering SurveK- No engineering survey hasbeen made by thecopsultant. Except as specifically staled, data relative
to size and area of the subject. property wastaken from sources considered reliable and no encroachment of the subject
property isconsidered to exist.
Subsurface Rights - No opinion is expressed as to the value of subsurface oil, gas or mineral rights or whether the.
properly is subject to surfaceentryfor the exploration or removal of such materials, except anis expressly slated.
Maps, Plats and Exhibits Maps, plats and, exhibits included in this report are .for illustration only to serve asan aid in
visualizing -matters discussed within the report. They,should not be considered as surveys or relied. upon for any other
purpose,nor should they be removed from; reproduced or used apart from. the report,
Legal Matters- No opinion is intended to be 'expressed for matters which require legal expertise or specialized
investigation or knowledge beyond that customarily employed by real estate consultants.
Right of Publication -'Possession of [his report;,ora copy of it, doesnotcarry with ..it the right of publication Without the
written consent of the consultant, this ,report may not be used for any purpose by any person .other [Ilan the party to
whom it is addressed_ In any event, this repos. may be used only with proper written qualification and only in ts,enti rely
for its stated purpose;
STATEMENT OFASSUMPTIONS AND LIMITING CONDITIONS
(continued)
Testimonv in Court . Testimony or attendance in court or at any other hearing is not required by reason of rendering this
appraisal, unless such arrangements are made a reasonable time in advance of said hearing. Further, unless othenvise
indicated, separate arrangements shall be made concerning compensation for the consultant's time to prepare for and
attend any such hearing.
Archeological Significance.- No investigation has been made by the consultant and no information has been provided to
the consultant regarding potential archeological significance of the subject property or any portion thereof. This reporl.
assumes no portionof the subject property has archeological significance.
Compliance with the American Disabilities Act -The Americans with Disabilities Act ("ADA") became effect'
ive.lanuary
26, 1992. We assumed that the property will be in direct. compliance with thevariousdetailed requirements of the ADA.
Definitions and Assumptions - The definitions and assumptions upon -which our analyses, opinions and conclusions are
based are set forth in appropriate sections of this report and are to be part of these general assumptions as if included here
in their entirety.
Dissemination of Material - Neither all nor any pan of the contents of this report shall be disseminated to the general
public through advertising or sales media, public relationsmedia, news media or other public means of communication
without the prior written consent and approval of the consultant(s),.
Distribution and Liability to Third Parties - The party for whom this report was prepared may distribute copies of this
appraisal report only in its entirety to such third parties as may be selected by the party for whom this report was
prepared; however, portions of this report shall not be given to third panics without our written consent. Liability to third
parties will not be accepted.
Use in Offering Materials - This report; including all cash flow forecasts, market surveys and related data, conclusions,
exhibits and supporting documentation, may not be reproduced or references made to the repori or to PKF Consulting in
any sale offering, prospectus, public or private placement memorandum; proxy statement or other document ("Offering
Material') in connection with a merger, liquidation or other corporate transaction unless PKF Consulting has approved in
writing the teat of any such reference or reproduction prior to the distribution and filing thereof.
Limits to Liability - PKF Consulting cannot be held liable In any cause of action resulting in litigation for any dollar
amount which exceeds the total fees collected from thisindividual engagement.
Legal Expenses- Any legal expenses incurred in defending or representing ourselves concerning this assignment will be
the responsibility of [liecliene,
Addendum B
DATA POINTS, FINANCIAL PROJECTIONS,
AND PRESENT VALUE ANALYSIS
Exhibit 7 - BBC Historical Revenues & Rent
Exhibit 2A - Projected NOI Growth (Scenario 7)
Balboa Bay Club
Year
Annual 2011 Revenues and
Rent
Status
Category
Net Revenue
% Rent
Rent
Club Dues & Fees
'$4;831,022
6.0%
$ 289,861
Apartments
5,039,762
16.5
831,561
Marina
2,149,470
31.0
666336
Dry Boat Storage
5,925
20.0
1,185
Guest Rooms
8,732,089
5.0
436,604
Meering Rooms
229,784
5.0
11,489
Food
9,140,884
3.0
274,227
Beverage
3,226,202
5.0
161,310
Retail
1,002,253
5.0
50;113
Miscellaneous
1,233.113
10.0
123.311
Total/Average
.535,590,504
8.0%
52,845,997
Exhibit 2A - Projected NOI Growth (Scenario 7)
Exhibit 2B - Projected NOI Growth (Scenarios 2 and 3)
Actual & Projected NOI Growth Rates
Year
Balboa. Bay Club
All US. Hotels
Status
2010
2.7%
9.8`5,
Actual
2011
9.9
12.7
Actual
2012
10.0
12'.6
Projected
2013
9.6
10.9
Projected
2014
7.o
N/A
Projected
2015
5.0
NIA
Projected
2016
3.0
NIA
Projected
2017
3.0
NIA
Projected
2018
3.0
N/A
Projected
Exhibit 2B - Projected NOI Growth (Scenarios 2 and 3)
Actual & Projected NOI Growth Rates
Year
Balboa Bay Club
All U.S. Hotels
Slalus
2010
2.7%
9.8%
Actual
2011
9.9
12.7
Actual.
2012
10.0
12.6
Projected
2013
9.5
10.9
Projecled
2014
7.9
NIA
Projecled
2015
6.4
N/r1
Projected
2016
4.0
N/A
Projected
2017'
3.3
N/A
Projected
2018.
3.0
NIA
Projected
Exhibit 3 — Comparable Hotel Operating Performance
FULL-SERVICE HOTELS
Summary Operating Statement
Dollars Per Available and Occupied Room
Figure Number 10
mnDdIMPM
chulpFmm
muPauem
mil Daus Per
Anibhle Rnam
Prim Yum
of Reamoe
OMTW Ham
Resmn
RW=
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Iii
63Y
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140
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•159
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11
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2Z
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88818
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RU%
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10,525
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S
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13
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467'
OehmOpmted Uepadm %
1.0
03
73.4
6.46,
l
Tmal0.ymmmml 6PM-s
5
24,145
-37%
425%
S
RN
ToW Depadmenlal income
5
3ZO
82%
575%
5
1771
Uhdul6buted Dpemalin; Eapmaa
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5
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93Y
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69
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1971
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w
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5
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ME
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IU%
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6A
Income W= rued Clara
5
15J,18
IU%
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5
61M
rad Chagm
Pmpu¢yan4 mTa
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I -u4
WX
3.7%
S
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u
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'ToN Fn A Grams
5
zM
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4_8%
S
IDJG6
xeloperdbrinm re
5
12,91
147%
727%
5
P—M, yxotoamp-7
JM%
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A-29 Odly Ras
5
149Se
4.4%
,WAR
I
116
73%
AnazFW x- 4
Z9
—
• crani e,w®de�l,�.
Exhibit 4 — BBC Historical Lease Payments
Historical Ground lease Rent Payments
Year
.Amount
% of Total Revenue
2007
$3,288,907
7.6%
2008
3,239,726
7.9
2009
2,732,290
8.7
2010
2,673,434
8.3
2011
2,845,997
8.0
Average
$2,956,071
8.0
Exhibit 5A — BBC Projected Lease Payments — Scenario 7
Historical Ground Lease Rent Payments
Year
Amount
% of Total Revenue.
2012
$3,13.1,964
8.0%
2013
3,413,841
8.0
2014
3,652,810
8.0
2015
3,835,451
8.0
2016
3,950,514
810
2017
4,069,029
8.0
Exhibit 58 — BBC Projected Lease Payments — Scenarios 2 and 3
Historical Ground Lease Rent, Payments
Year
Amount
%ofTotalRevenue .
2012
$3,131,964
8.0%
2013
3,426,723
8.0
2014
3,698,396
7.9
2015
3,935,573
7.8
2016
4,091,957
7.8
2017
4,228,394
7.7
Exhibit 6 — Comparable Hotel Discount Rates
Overall
Discount Rale
Average
Range
PKF Consulting USA
I-losphality Investment Survey 2012.
11.3%
8.0-20.0%
Full -Service Hotels
PricewaterhouseCoopers (PwC)
Real Estate Investor Survey
First Quarter 2012
10.9%
8.5-12.0%
Full -Service Lodging Segment
Real Estate Research Corporation
Real Estate Report
Summer 2012
10.3%
9.0-12.0%
All Hotels
Exhibit 7=.Current Lease .Term Projected Rental Income & Reversion - Scenario 1
Scenario i
Assuming Current
Lease Term
8.00%
19.0%.
Year
Rent
Discount Rate
Present Value
2012
$3,131.;964
0:900900911
$2;821,590
2013'
3,413,841
0.81162243
.2,770,750
2014
3,652;810
0.73119138
20670;903
2015
3;835,451
0.65873097
2,526,530
2016
3,950,514
0.59345133
2;344,438,
2017
4,069;029
0.53464684
2-,175,469
201,8
4,1.91,100
0.48165841
2,018,679
2019
4,316;833
0.433,92650
1,873,188
2020
4,446,338
0.39092477
1.,738;184
2021
4,579,729
0.35218448
1,61.2,909
2022.
4;717,1.20
0.31728331
1,496,664
2023
4;858,634
0.26584082
11!388;796
2024.
5,004,393-
0.25751426
1,288,703
2025
5,154,525
033199482
1,195,823
2026
5,309,161
0.20900435
7,,109;638
2027
5,468,435
0.7.8829220
1,029,664
2028'
5,632,488
0.16963262
955,454
2029
5,801,463
0.15282218
886,592
2030
5,975,507
0.13767764
822,694
2031
6,154;772
0.12403391
7631400
2032
6;339,415
0:11174226
708,381
2033
6,529,598
0.16066870
657,326
2034
61725,486
0.09069252
609,951
2035•
6;927,250
0.08170498
565,991
2036
7,135,068
0.07360809.
525,199
2037
7,3491120
0.06631359
487,347
2038
7,569,593
0.05974197
452;222
2039
7,796,681
0.05382160
419,630
2040
8,030,582
0.04848793
389,386
2041
8,271,499
0.04368282
361,322
2042
8,599,644
0.03935389
335,281
2043
8,775,233
0.03545395
311,117'
2044
9,038,490
0.03194050
288,694
1-045
9,309,645
0'.02877522
267,887
2046
9,588;934
0.02592363
248,580
2047
9,876;603
0.02335462
230,664
2048
10,172;901
0.02104020
214,040
2049°
8,526,006
0.01895513
161,6,12
Reversion
$332;200,000
0.01895513
6,296,895
Total
$47,021,591
*Partial Year.
Exhibit 8•- Extended Lease Term Projected Rental Income & Reversion -,Scenario 2
Scenario 2
Assuming .Expanded Lease Term &.Renovation
8.00%
11.0%
Year
Rent
Discount Rate
Present Value`
2012
5.3,131,964-
0.90090090
$2,82.1,590
2013
3,426,723
0.81162243
2;78,,,205
2014
3,698,396
0,73119138.
2',704,235
2015
3,935,573-
0.65873097
2;592,484
2015
4,091,957
0.59345133
2,428,377
2017
4,228,394
0.53464084
2,260;672
2018
4,355_,246
0.48155841
2;097,741
2019
4,485;903-
0.43392650
1,946,552
2020
4,620,480
0;39092477
1,806,260
2021
4,759,094
0.35218448
1,676,079-
20.2,2
4,901,867
0.31728331.
1;555,281
2023
5,048';923
0.28584082
1',443,188
2024
5,200,391
.025751426
1,339,175
2025
5;356,403
0;23199482
1.,242,658
2026
5,517,095
0.20900435
1,153,097'
2029
5,682,608
0.18829220
1,069,991
2028.
5,853;086
0.16963262
992,874
2029
6;028,678-
0.15282218
921,316
2030
5;209,539
0.13767764
854,915
2031:
6,395,825
0.12403391
793,299
2032
6,587,700
0.11174226
736,124
2033
6,785,339
0.10066870
583,070
2034
6,988,891
0.09069252
633;840
2035
7,.198,557
0.08170498
588;158
2036
7,414,534
0.07360809
545;768
2037
7,636,949
0.06631359
506,434
2038
7,866,058
0:05974197
469,934
2039
8,102,040
0.05382160
436,065
2040.
8,345,101
0,04848793
404,637
2041
:8,595,454
0.04368282
375,474
2042
81853,317
0.03935389
348',412
2043
%118,917
0:03545395
323,302
.2044
9,392,484
0.03194050
300,001
2045
9,674,259
0.028,77522
278379
.2046
9,964y487'
0.02592363
258;316.
2047
10,263,421
0.02335462
239';698
2048
10,571,324
0.02164020
222,423
2049
10,888,464
0.01895513
206,392
.2050
11,215,118
0.01707670
19.1,517
2051
11,,559,571
0.01538441
177,914
2052
11,898,118
0.01385983
164,906
2053
12,255,062
0.01248633
153,021
:2054.
12,622,7.14
0.01124895
141.,992
.2055
13,001,395
0.01013419
131,759
.2056
13,391,437
0.00912990
122,262
:2057
13,793,180
0.00822513
11.3,451
2058
14,206,975
0.00741003
105,274
2059
14,633,785
0.00667570
97,68.7
.2060
15,072,180
0.00601415
90;646
2061'
12,6321139
0.00541815
681443
Reversion
$508,900,000
0.00541.815
2;757,297
Total
$461353,382
*Partial Year
Exhibit 9 - Current Lease Term_ & Assumed Renovation -
Projected Rental Income & Reversion - Scenario 3
Scenario.3
Assuming Current Lease Term &Renovation
8.00%
11.0%
Year
Rent
Discount Rate
Present Value
2012
-$ 3,1.31,964
0.90090090
$2,821.,590
2013
3,426,723
0.811'62243
.2,781,205
2014
3,698,396
0.73119138-
.2,704,235
2015
3,935,573
0.65873097
.2,592;484
2016
4,091;957
0.59345133
:2,428,377
2017.
4,228,394
0,53464084
2,260,672
2018
4,355;246
0.48165841
2,097,741
2019
4,485903
0.43392650
1,946,552
2020
4,620,480
0.39092477'
11806,260
2021
44759,094
0.35218448.
1,676iO79
2022
4,901,867
0,31728331
1,5551281
2023
5;048;923.
0.28584082
1;443,188
2024
5,200,391
0.25751426
1,339,175
2025
5,356,403
0.23199482
1,242;658
2026
5,517,095
0.20900435
1,153,097
2027
5,662,608
0.18829220
1,069,991
2028
5;853,086
0.16963262
992,874
2029
6,028,678
0.15282218
921,316
2030
6,209,539
0.13767764
854,915
2031
6,395,825
0.1.2403391
793,299
2032
:6;587,700
0,111.74226
736,124.
2033
6,785',331
0.10066870
683;070
2034
6,988';891
0.09069252
633,840
2035
7,198,557
0.08970498
588;'158.
2036
7,414,514
0.07360809
545,768
.2037
7,636,949
0:06631359
50'6,434
2038
7,866,058
0.05974197
469,934.
2039
8,102,040
0;05382160
436,065
2040
8,345,101
0.04848793
404,637'
2041'
8,595,454
0:04368282
375,474
2042
8,853,317
0:03935389
348,412
.2043
'9,118,917
0.03545395
323,302
2044
9,392,484
0:03194050
300,001
2045
9,674,259
0.02877522
278,379
2046
9;964„487
0:02592363
258,316
2047
10,263,421.
0.02335462
239,698
2048
10,571,324
0.02104020
222;423
.2049'
8,859,928
&01895513
167,941
Reversion
$356,900,000
0.01895513
6,765,087
Total
$48,764,049
`Partial Year
RDIGA
213.623.3841
Cell 21J.369.3841
Fax 866.685:1377
,Allan D..Kotin &Associates
Real Estate- Consulting hbrPublic Private Joint Ventures
akofin0aadkotin.com-
949 South Hope`Street; Los. Angeles, CA 90015
www.adkotin.com
Confidential Memorandum
TO: Michael Torres, DeputyCity.Attomey DATE: April 6, 2013
City of Newport Beach
CC:Rob Houston, Assistant to the City Manager
FROM:. Allan D.Koun
RE: COMMENTS ON VALUE OFTOTENTIALLEASE EXTENSION FOR ,BALBOABAY
CLUB
At your request„ Allan D. K06n. &. Associates (ADKRA) has reviewed :materials provided by the
client in connection with the valuation of the lease extension for the Balboa Bay Club Resort. We
reviewed the analysis provided by PKr Consulting and dated November 2012. The background for
this evaluation effort is a request by the new lessee of the Balboa Bay club for a 12 -year extension of
the current ground lease: to restore the: ground lease tern to 50 years from its present 38 years.
At your direction, analysis is focused on four interrelated issues:
What is an appropriate:value of the extension in terms of its increase in the market value, of
the leasehold irrespective of proposed improvements?
2. How will the proposed' .lease extension effect the ability of the lease lessee to obtain
leasehold financing over time or, alternatively stated, how much more.: financing proceeds
can the lessee expect with the lease extension?
3. How, if at all, with does theappropriatecompensation to the City for the extension change to
reflect the substantial proposed inveslment.in new improvements and the resulting increase
in ground rent.
4. Does there exist a rational basis :for or formula for re -pricing the extension fee ':should the
lessee elect not to pay it now but in the future?
SUbI'MARYOBSERV'ATIONS
ADK&A would estimate that the value.of the extension is approximately $ L9 million. This'is based
some extrapolation. Frons the PKF data and some modification of the PKF assumptions.
The proposed improvement program is not dependent on the extension, will likely recover its full
cost wellwithin the present term, and reflects a general pattern of periodic renovation in hotels.
There is, therefore, no persuasive reason to waive or reduce the fee for the commitment to renovate.
The fornnula used by A'DK&A to derive the extension value can be objectively aliplied in the future
although the likely consequence is a much a higher fee.
Confidential Memorandum.
Re: VALUATION of REQUESTtiD LE'*SE E.\'TE\SIO\ FOR BALBOA BAY CLUB
VALUATION OFTHE EXTENSION
ADK&A has been involved in approximately 18 lease extensions on behalf of the Los Angeles
County Department of Beaches and Harbors which operates Marina del Rey. The process of valuing
lease extensions has itself evolved over time. With the current approach used by LA County , the
starting point for all such evaluations are to simply look at the :nominal market value of the leasehold
with the current and proposed extended lease terms without regard to ;proposed improvements
changes in operation, etc. Clearly, the leasehold with a longer remaining tenn is more valuable
without any other changes.
The easiest way to reflect this is to establish what the "fee" capitalization rate would be for such a
property. if. the property is owned in fee there is no need to reflect any decline in value over time
due to an expiring lease. If the asset is in a strong location. and well-maintained, it will have the same
or higher value at sale than it does the time of acquisition.
The situation is quite different with respect properties on ground lease. If an investor requires, for
example, a "10% return but }mows that within 30 years he will have to give back the property; his
valuation of the income stream to arrive at an appropriate price necessarily incorporates both -return
on capital, i.e. the 10% target rate, and the return of capital which will require that the 10% be
expressed as an amortization constant over 30 years. With the examples given above, the 10% return
rate becomes a 10.61 % amortizing rate over 30 years. That rate increases as the remaining lease term
gets shorter, and goes clown as it gets longer.
This is the method that has been used by ADK&A extensively on behali'o'f Los Angeles County in
Marina del Rey as a starting point for negotiations as to the value of an extension.
Applying this approach to the Balboa Bay Club presents certain challenges based on the information
provided by PKF. First of all, the appropriate rates are to be applied to net. operating income (NCID
after payment of ground rent which is not cited by .PKF in their document. Instead, PKF estimates
the total revenues, and a very generalized example calculation of the relationship of NOi to total
revenue for a typical project with similar operation. In the experience of ADK&A, successful high-
end hotels have net operating incomes in the general neighborhood of 30% to 33% of their gross
revenues. This is in some contrast to the 22.7% example given by PKF. ADK&A has elected to use
the higher ratio to derive NOi from the gross revenues.
The next question is what is the appropriate capitalization rate. in their Exhibit 7, PKF shows a
family of rates and then assigns an 11% cap rate to this property. ADK&A finds it rather puzzling
insofar as the Balboa Bay Club is a high prestige property, and waterfront properties in particular
tend to have lower rather than higher cap rates.
Com mcntson BBCLeaseExt040613'FB.doex
Allan D. Kolin & Associates Page 2 April 6, 2013
III P] I���
Confidential Memorandum
Re: VALUATION OF REQUESTED LEASE EXTENSION FOR BALBOA BAY CLUB
The ADK&A experience with recently constructed or renovated hotels at equal or lesser locations
suggests that a 9.5% cap rate is more appropriate.
Combining these various assumptions with those given by PKFyields an estimated current value
within 30 -year remaining term of approximately $87.8 million; with a 50 -year term this value
increases to 589.7 million. Note that these values are based on the 9.5% cap rate, Therefore, the
indicated value df the lease extension is ,S1.9 million which is the increase in value attributable
purely to the longer term. The results are summarized in the attached Exhibit 1.
Even using the 11% cap rate, which in ADK&.A opinion is much too.high, there is still a S1 million
premium associated with the additionalterm.
Although ADK&A does not agree with either PKF'schoice of cap rate or the implied calculation of
NOI at 22.7% of revenue,, it should be noted for the record that the use of those numbers reduces the
calculated extension value to approximately S710:000.
IMPACT ON FINAcNCIN(; PROCEEDS
It may be argued that the discussion of capitalization rates is somewhat theoretical, but the amount
of money that the owner of a leasehold can borrow from institutional lenders is much more directly
measurable. The reason for this is that lenders making loans on ground leaseholds typically want to
have a remaining lease tern at least five years longer than the amortization term of the loan. Even
though commercial loans are often due well short of their nominal amortization term, die general
practice is not to make 30 -year amortization loans on leaseholds with less than 35 years remaining.
ADK&A has undertaken to quantify the impact of the 12 -year loan extension on the ability of the
lessee to refinance the project using very general and deliberately conservative financing
assumptions. Since the typical hold period used for pro forma analysis is approximately 10 years
measured either from purchase or Qom stabilization, ADK&A has assumed a sale in year 12 which
is 10 years after improvements are completed, a 6% interest rate, a 30 -year amortization' term, and a
debt service coverage ratio of 1.6. This high debt service coverage ratio reflects both the caution
associated with financing hotels and the fact that using the 95% cap ratesuch a loan would typically
be about 75% of market value.
The calculations under these assumptions are shown in Exhibit 2 (lower right comer) which shows
the. estimated difference in loan proceeds in the 1 I th year is to be SI 1.7 million.
ConnncntsonBBCLensur_xt040613 FB.doux
Allan D. Kot'in & Associates Page 3 April 6, 2013
RDIGIN
Confidential Memorandum
Re: VA.LU rt0,\ OF REQUESTED LEASE C\ rENSIoix FOR BALBOA BAY CLUS
Clearly, the value of the extension must be lower than SI 1.7 million since this .viH not occur for
more than 10 years. ADK&A has chosen a very high discount rate of IS% to arrive at a present
value of that difference, predicated on the fact that 18% tends to be minimum equity return for real
estate investors and that the loan proceeds would be used to retire equity. Using this discount rate,
the present value of the increased loan proceeds is S1.9 million.
LNPACr OF PROPOSED UNN ESI"smN r IN I kIPROVED PERFORINL4\CE
The argument has been made by the lessee that, because they commit to make a major investment in
die resort that will raise both their income and the ground rent to the City; Ville extension fee should
be reduced or waived. There are two critical questions that must be answered if this argument for
relief is to be considered:
• Would the improvements in the reinvestment occur anyway or is the extension necessary for
them to be made? .Alternatively stated, will the lessee fully recover his investment inside the
current term.?
• .Are the proposed improvements a normal part of long tern operation or are they so
exceptional as to require any concession by the City as landlord?
Only to the extent that the lease extension term is so short as to make it infeasible to undertake the
required periodic improvements is there a necessary connection between upgrading of the hotel,
which happens periodically, and the need for a lease extewsion.
There are two reasons to assume that the improvements would occur anyway, even without the
extension. One is that, according to the City, the improvements have already begun which seems
inconsistent with any claim that an extension is needed to justifythe improvement program.
The second reason derives from the prior experience of ADIC&A in analyzing similar requests for
extensions from other hotel owners subject to long term ground leases, and also deals with the
second question about common practice for hotel operations.
Although ADK&A has not had the opportunity to review either current or projected operating
numbers for this request, in the past where such information has been provided it has turned out that
the cost of the improvements was fully recovered together with at least a standard market return
within a 10-15 year period.
This finding is completely consistent with the widely recognized necessity for all hotels to have
periodic extensive refurbishing and updating if they are to be competitive. In an earlier era, the
CummcnwnBBCL. scExiO4QGl31BAocs
Allan D. Kotin & Associates Nee 4 Apel 6,2013
11DIG11
Confidential Memorandum
Re: VALUATION on REQUESTED LEASE. CxTENSION FOIL BALBOA BAY CLUB,
timine between such renovations could often be 20-25 years, but as the pace of change and
refinement in the. hotel market increases, this recycling now typically occurs at much shorter
intervals.
A FORMULA FOB RESETTINC THE Ex -TENSION
For most operating purposes, the remaining term of the lease is irrelevant except very close to
expiration; however, the remaining term is critical in either refinancing or selling the leasehold. It
may therefore be possible for the city to negotiate a formula by which the lessee can purchase an
extension at a later date. Such a formula would be similar to the one shown in Exhibit 1. For
periodic recalculation of the appropriate extension fee it would be necessary first to establish the
correct cap rate, presumably through reference to some external source. This cap rate, with two
alternative amortization terms, one for the current lease term and the other for the requested
extension, would be applied to the most recent audited net operating income would generate two
estimates of value. The difference would be the extension fee.
While this approach is relatively straightforward and easy to implement, it does have the
disadvantage for the lessee of sharply increasing the fee over time. By way of example, using the
same NOI as in Exhibit I and assuming that 13 years from now the lessee seeks to extend his then
remaining term of 25 years to 50 years, the resulting fee would range from S5 -S8 million depending
on whether a9.5% or I I % cap rate was used.
File Reference: BidboaCn1cs040213.s1sx
CetnlnenlsnnBBCLftiscr` tO90613 FB.docx
Allan D. Kotin fi Associates Pages April G, 201,3
11DIGIN
Confidential Memorandum
Re: VALUATION OF RF'QUFSCED LEASEE.\'FE\SIO\ FOR BALBOA BAY CLUB
EX BIT 1
BALBOA BAY CLUB - VALUATION OF. EXTENSION DUE TO CHANGE IN EFFECTIVE CAPRATE
DERIVATION OF CURRENT NET INCOME
Actual Revenues for 2011
NO[ as Percent of Revenues
Est. NOI for 20ll before Ground Rent
Deduct Sand Rent Paid 2011
N01 after Ground Rent In 2011
N01 after -Ground Rent in 2012
Total
535,590.504
30.0%
Per Room
Source
5222,441 PKF Exhibit 1
30.0% PKF Exhibit 3 at 22-7% raised by ADK&A
$10,677.151
566,732
-52.915,997
-517,787
$7;831.154
$4$945
58:614,270
553,839 Increased from 2011 by SOY, per Exhibit 2A
DERIVATION OF ALTERNATIVE VALUE ESTIMATES
Capitalization rate as appllied to fee 9.500% 11.000% 9.5%per AOK&A, 1.1% per Exhibit 7,8
RESULTING VALUE $90,676,522. $78,311,542
Years. Remaining on Lease
Adjusted Cap Rate to Recover Investment
RESULTING VALUE.
'Years Remaining on Lease
Adjusted Cap Rate to Recover Investment
RESULTING VALUE
NET INCREASEDUE TO EXTENSION
38 38
9.81296 11.213% .Assumes investor recovers value over term
$87,794,095 $76,827,136
50
50.
9.603%
11.060% .Assumes investor recovers value over term
$89;706,484
$77,887,238
$1,910,000
41,060,000
Com ntenisonBBCLeaseEx104U613.1'B.doex
Allan"D. Kotin & Associates' Page April 6, 2013
ADIGIN
Confidential Memorandum
Re: VALUATION OFRrQUEsTED LEASE EXT-ENSION FOR BAI.IlOA BAY CLUB
EXE"IT 2
BALBOA BAY CLUB - ESTIMATED AVAILABLE DEBT FINANCING UNDER ALTERNATIVE GROUND LEASE TERMS
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Commem=nBBCL=eExt04061j FB.docx
Allan D. Kolin S AssociatesPage'7 April 6.3013
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Commem=nBBCL=eExt04061j FB.docx
Allan D. Kolin S AssociatesPage'7 April 6.3013