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HomeMy WebLinkAbout1/19/2000 - STAFF REPORTS DATE: DECEMBER 15, 1999 TO: COMMUNITY REDEVELOPMENT AGENCY FROM: DIRECTOR OF MANAGEMENT & BUDGET APPROVAL OF A DISPOSITION AND DEVELOPMENT AGREEMENT WITH VIP MOTOR CARS, INC., 4095 EAST PALM CANYON DRIVE, AND FDH ENTERPRISES, INC., TO PROVIDE FINANCIAL ASSISTANCE FOR THE RENOVATION AND EXPANSION OF THE AUTO DEALERSHIP RECOMMENDATION: That the Community Redevelopment Agency of the City of Palm Springs ("CRA") approve a Disposition and Development Agreement ("DDA") with VIP Motor Cars, Ltd. and FDH Enterprises, Inc.,.providing tax increment financing-assistance for the rehabilitation and expansion of the automobile dealership in the amount of$1,000,000. BACKGROUND: Since June, staff has been working with VIP Motor Cars to help facilitate a significant expansion of their facility in Palm Springs and preserve the sales tax revenue of one of the largest generators in the city. The dealer is under new ownership (since October 1998) and has an aggressive growth plan, which is good for the entire community. VIP had originally requested a loan of$1 million, to be repaid through a portion of the additional sales tax they produce, and has proposed the creation of about 30 jobs. (The job creation count made them eligible for a HUD 108 loan of about $1,000,000, based on HUD's "one job per $35,000 in assistance" dictum.) The City Council approved a HUD 108 application on VIP Motors' behalf at the September 15 meeting. However, the HUD 108 loan would have brought Davis-Bacon requirements (federal prevailing wage law) to the project, which was estimated to increase the $2,000,000 rehab project cost by as much as 20%, thereby wiping out any financial benefit the HUD 108 loan would have brought to the project through lower interest rates or more favorable terms. Additionally, the real benefit to the dealership was to come with the agreement with the Community Redevelopment Agency that would have repaid the HUD 108 loan (about half the construction cost) through the increase in sales tax generated by the expansion of the dealership. Because of the Davis-Bacon problem and the lack of direct benefit from the loan, the developer asked to withdraw the HUD 109 application prior to City staff sending it on to HUD. There were a number of issues that needed to be ironed out in the drafting of the DDA prior to the Agency considering it for approval. The first was the issue of how the Agency could reimburse the developer for improvements to private property under California Redevelopment Law("CRL"). Most of the tax increment rebate agreements that the Agency has negotiated over the past several years have reimbursed developers for their cost of constructing public improvements, such as streets, sidewalks, curbs and gutters. As a percentage of the overall project cost in this project, however, offsite improvements are relatively small -- probably no more than $50,000 total. Another way to provide a financial benefit to a project is to write down the land costs by purchasing the land and then reselling it at a lower (incentive) price, but that would have involved the purchase and resale of the real property that comprises the dealership, which would have been a lengthy and complicated process. CRL does allow agencies to pay for improvements on properties they lease, though, which �R,a 42 �; leads to the structure of this DDA: the agreement proposes that the Agency lease the real property from FDH Enterprises, Inc., the property owner, and then sublease it to VIP Motor Cars, Ltd. at the same lease rate, minus an amount equal to the sales tax "increment" (the amount of sales tax the dealership generated over a base amount determined by the Agency). The reduced rent to VIP works as a tenant improvement allowance; in this case the subtenant (VIP) will have performed the improvements on the property and will be reimbursed a portion of their cost by the tenant (the Agency). Currently, the aggregated lease (there are three separate properties that comprise the dealerships) will be $58,250 per month, and will increase by an amount no more than the Consumers Price Index. This amount will be paid to the Agency by VIP, and then passed through to FDH by the Agency. The rebate will be a separate calculation and payment, and will be paid on an annual (not monthly) basis to the dealer. VIP Motors and FDH Enterprises have overlapping, but not identical, ownership. They are separate corporations. The amount of rent rebate will be calculated based on the dealership's sales tax performance, but will be paid from the (property)tax increment that flows to the Agency. Sales tax, which flows to the City's General Fund, then becomes the index for the payment but not the source. In this case, the tax increment generated by this project will only represent about half the amount of the rebate paid to the dealer over the term of the lease; the other half will come from the gross tax increment revenue of the project area. This structure preserves a major sales tax source for the General Fund, as well as allowing the General Fund to keep the growth in sales tax revenue. The dealership has asked for assistance in the amount of$1,000,000. This amount actually represents about 12.5% of their overall financial commitment to the project, including acquisition and rehab costs. A spreadsheet is attached that describes the deal points, as well as the Disposition and Development Agreement. JOHN S. YMOND /V Direct Managemeri Budget +% APPROVED: e2G L1�7 City Manager ATTACHMENTS: 1. Resolution 2. Spreadsheet 3. Disposition and Development Agreement—to be provided at meeting Proposed Benefit to VIP Motor Cars, Ltd. through the Disposition and Development Agreement with the Community Redevelopment Agency Incremental Cumulative Sales Tax Tax Increment Benefit to VIP Fiscal (Tax over (Property Tax (Sum of Sales Year Year Base) paid to CRA) Tax Increment) 1 1999-00 0 0 2 2000-01 $72,059 $45,600 $72,059 3 2001-02 $77,679 $46,512 $149,737 4 2002-03 $104,484 $47,442 $254,222 5 2003-04 $111,182 $48,391 $365,403 6 2004-05 $118,133 $49,359 $483,537 7 2005-06 $125,348 $50,346 $608,884 8 2006-07 $132,834 $51,353 $741,718 9 2007-08 $140,600 $52,380 $882,318 10 2008-09 $148,656 $53,428 $1,030,974 11 2009-10 $157,011 $54,496 $1,187,985 12 2010-11 $165,676 $55,586 $1,353,661 Total $554,893 $1,353,661 ( G4? a 1 RESOLUTION NO. 1091 OF THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF PALM SPRINGS, CALIFORNIA, APPROVING A DISPOSITION AND DEVELOPMENT AGREEMENT WITH VIP MOTOR CARS, LTD. AND FDH ENTERPRISES, INC. PROVIDING REHABILITATION ASSISTANCE IN THE AMOUNT OF $1,000,000 FOR PROPERTY IMPROVEMENTS AT AN AUTOMOBILE DEALERSHIP AT 4095 EAST PALM CANYON DRIVE, PROJECT AREA#9 G ------------------- WHEREAS, the Community Redevelopment Agency of the City of Palm Springs, California ("Agency") is constituted under the Community Redevelopment Law (California Health and Safety Code Section 33000 et. seg.) to carry out the purpose as the redevelopment in the City of Palm Springs ("the City"); and WHEREAS, VIP Motor Cars, Ltd. has requested Agency financial assistance in their efforts to expand and upgrade their automobile dealership at 4095 East Palm Canyon Drive, in order to retain the business in Palm Springs, make it a more profitable facility for the dealer and the City, and increase the level of employment; and WHEREAS, expansion of the dealership will create additional sales tax revenue for the City, as well as create additional on-site jobs for documented low and moderate income households, therefore improving the City's ability to provide services to all its residents, as well as overall living conditions for low and moderate income households in the City; and . WHEREAS, Section 33430 of the Community Redevelopment Law allows that an agency may, "for purposes of redevelopment, sell, lease, for a period not to exceed 99 years, exchange, subdivide, transfer, assign, pledge, encumber by mortgage, deed of trust, or otherwise, or otherwise dispose of any real or personal property or any interest in property;" and WHEREAS, Community Redevelopment Law allows agencies to use tax increment to pay for improvements on properties which the agency owns or leases; and WHEREAS, Section 33432 of the Community Redevelopment Law requires that any such lease shall be conditioned on the redevelopment and use of the property in conformity with the redevelopment plan; and WHEREAS, a Notice of Public Hearing concerning the Disposition and Development Agreement was published in accordance with applicable law; and WHEREAS, the California Redevelopment Law requires certain findings before the Agency can enter into this Amendment, as follows: a) Section 3342 1.1 - that the City Council find that the provision of such improvements will effectuate the Redevelopment Plan; b) Section 33445 - that the City Council find that the improvements benefit the Project Area; that no other means of financing the improvements are available; that payment of the funds will assist in eliminating blight, and that assistance to the project is consistent with the Agency's adopted Five Year Implementation Plan. R1091 CM A-N Page 2 WHEREAS, the Agency has considered the staff report, and all the information, testimony and evidence provided during the public hearing on December 15, 1999. NOW, THEREFORE, BE IT RESOLVED by the Community Redevelopment Agency of the City of Palm Springs as follows: SECTION 1. The above recitals are true and correct and incorporated herein. SECTION 2. Pursuant to the California Environmental Quality Act (CEQA), the Community Redevelopment Agency finds as follows: a) In connection with the approval of the DDA, the project is Categorically Exempt because all the work is to occur on existing facilities and there are no changes in the effects of the proposed project or the circumstances in which it is being carried out which require any modification of the Categorical Exemption. b) The Agency finds that the Planning Commission adequately discussed the potential significant environmental effects of the proposed project (land use, traffic/circulation, parking, air quality, noise, aesthetics, geology/soils, water quality, drainage, public utilities, public safety, archaeological/historic resources and light and glare). The Community Redevelopment Agency further finds that the Categorical Exemption reflects its independent judgment. SECTION 3. The Developer proposes to add a new service drive; construct a new two-story office addition to the west side of the Mercedes-Benz building; construct streetscape improvements, additional landscaping, low screen walls and display pads along East Palm Canyon Drive; and redesign and install new exterior lighting. The Developer shall install at the BMW dealership an enclosed "new car" delivery area and a new screen wall west of the service drop-off area, with lighting and streetscape improvements to match the Mercedes-Benz dealership along East Palm Canyon Drive. SECTION 4. The Developers are required to make certain street improvements in keeping with City codes. Such offsite improvements are imperative to this project, such as reconstructing curb, gutter and sidewalks along Cherokee Road and East Palm Canyon Drive. This project improves a blighted corner of Redevelopment Project Area #9G and will increase tax increment to the Agency and sales tax collections to the City. SECTION 5. The Agency proposes, through this Disposition and Development Agreement, to lease the three separate dealership properties from FDH Enterprises, Inc., the property owner, for an aggregated amount of $58,250 in the first year, to increase annually by the Consumer Price Index as published by the U.S. Department of Labor for the Los Angeles-Anaheim-Riverside SMSA. VIP Motor Cars, Ltd. shall, in turn, sublease the three properties from the Agency for an aggregated amount of$58,250 in the first year, to increase annually by the Consumer Price Index as published by the U.S. Department of Labor for the Los Angeles-Anaheim-Riverside SMSA. The amount of payment for the lease and sublease shall be the same. The sublessee shall construct the improvements as described in Section 3 of this resolution, at a cost R1091 Page 3 of at least two million dollars ($2,000,000). Addition, the Agency shall participate in the cost of the improvements, as the lessee's share, as described in Section 3 of this resolution, by rebating annually to the sublessee an amount up to one million dollars ($1,000,000) using tax increment from Project Area #9. The annual amount rebated for the cost of the improvements shall be determined by the combined dealerships' sales tax performance over a base amount determined in the DDA. The agreement shall be for a period of twelve (12) years or until the $1,000,000 is rebated, whichever is sooner. SECTION 6. The Agency does hereby find and determine as follows: (a) The property was originally developed in the 1950's and was occupied by Palm Springs Ford until the 1970's when it departed; however, while the dealership currently has luxury brand names, the dealership itself has declined in economic value over the past two decades due to aging and obsolete facilities and poor visibility from East Palm Canyon Driven. In 1998, the current owners acquired VIP Motor Cars, Ltd. and began negotiating with the manufacturers regarding the manufacturers' requirements for the dealership's facilities. (b) The DDA effectuates the purposes of the Community Redevelopment Law by reversing or alleviating any serious physical, social, and economic burden of the Community which cannot reasonably be expected to be reversed or alleviated by private enterprise acting alone, in that the assistance will facilitate the redevelopment and operation of the automobile dealership by causing the reconstruction and upgrade of the property, placing the property in the hands of a first class and experienced operator, in order to maintain existing sales tax revenue and attract additional commercial development within the City and increase the City's tax base. (c) The DDA effectuates the purposes of the Community Redevelopment Law as it is intended to eliminate blight and promote the health, safety and general welfare of the people of Palm Springs. SECTION 7. The proposed project is consistent with the Implementation Plan for this area, insofar as this project will increase tax increment and will expand an already-existing successful business. It will increase the City's commercial sector by expanding a major retail business in the City, in order to capture a portion of the significant sales tax leakage that occurs in Palm Springs. SECTION 8. Based on foregoing reasons, this DDA is hereby approved and incorporated herein by this reference. R1091 Page 4 SECTION 9. The Chairman of the Agency, and/or his designee, is authorized to execute all necessary documents, in a form approved by the Agency Counsel. ADOPTED this 19th day of January , 2000 AYES: Members Jones, Hodges, Reller-Spurgin, Oden and Chairman Kieindienst NOES: None ABSENT: None ATTEST: COMMUNITY REDEVELOPMENT AGENCY CITY OF PALM SPRINGS, CALIFORNIA By Assistant Secretary Chairman REVIEWED & APPROVED % ��L' Dec-29-99 01 :50pm From-RUTAN AND TUCKER LLP + T-310 P.02/37 F-707 DISPOSITION AND DEVELOPMENT AGREEMENT This DISPOSITION AND DEVELOPMENT AGREEMENT (the "Agreement") is made and entered into as of November _, 1999 ("Effective Date"), by and between the COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF PALM SPRINGS, a public body, corporarc and politic ("Agency"), and VIP MOTOR CARS, LTD, a California limited partnership, wholly owed by VIP MOTOR CARS ACQUISITION, INC (collectively "Developer") and FDH ENTERPRISES, INC. a California corporation ("Owner") All auachmctus and exhibits hereto are incorporated herein by refereuce. RECITALS: A. Agency is a public body, corporate and politic, exercising governmental functions and powers and organized and existing under the Community Redevelopment Law of the State of California (Heahh and Safety Code Section 33000, et sue.). B, Agency desires to implement the Redevelopment Plan for Palm Springs Redevelopment Project Area 9G (the "Project Area") through the disposition by sublease To Developer of a p0122011 of the Project Area designated herein as the "Site", as that term is further defined hercm. C To facihiate redevelopment of the Site, Owner wishes to lease the site To the Agency, and Agency wishes to sublease the Site to Developer, all under the terms of the Lease and Sublease attached hereto as Exhibits "B" and "C", respectively and provide financial assistance to Developer through a land write-down of The sublease payments to facilitate Developer's consmi&cuou of renovations To the automobile dealership facihttes on the Site. D. The parties wish to impose obligations requiring Developer to conrinuously operate the dealerships on the Site in accordance with the terms of this Agrcemera- E Developer is prepared to redevelop the Site in accordance with The terms and condmun� set forth in this Agreement- COVENANTS: Rased upon the foregoing Recitals and for good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, Agency, Developer and Owner hereby agree as follows- ARTICLE ]. PURPOSE OF THE AGREEMENT This Agreement and the Exhibits attached hereto are intended to effectuate the Redevelopmem Plan for the Redevelopment Project Area by providing for the development of the Project, as defined below, on the Site Developer has agreed to participate in the redevelopment of The Site by enTering into This Agrcemeia with Agency. The development of ncV Site pursuant to this Agreement, and the fulfillment generally of this Agreement, are in The u27/01i Oc4