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Home My WebLink About8/1/2001 - STAFF REPORTS (29) DATE: August 1, 2001 TO: City Council FROM: Director, Department of Parks, Recreation and Facilities LEASE AND MANAGEMENT AGREEMENTS FOR TAHQUITZ CREEK GOLF RESORT RECOMMENDATION: That City Council approve Amendment No. 1 to the Lease Agreement for the Legend Course and a new Management Agreement for the Resort Course at Tahquitz Creek Golf Resort between the City of Palm Springs and Arnold Palmer Golf Management Company, both in a form acceptable to the City Attorney, commencing September 1, 2001. SUMMARY: The original Lease Agreement and Management Agreement between the City of Palm Springs and Arnold Palmer Golf Management Company(APGMC)were executed in 1995 and stipulated conditions that have since changed, causing both the City and APGMC to seek various modifications to both agreements for operations at Tahquitz Creek Golf Resort. Staff began negotiating these changes under the direction of the City Council in 1999 at the close of the initial five-year term for the Management Agreement. Since that time, with respect to requirements in each contract, APGMC has operated the Legend Course under its original terms and run the Resort Course on a month-to-month basis. The significant changes to each agreement, as agreed to by both the City and APGMC, are noted in the section below. These modifications will be subject to the final form developed and provided by the City Attorney for the Amendment to the Lease Agreement and the new Management Agreement. BACKGROUND: In 1994, the City entered into an agreement with APGMC to manage all golf course operations at Tahquitz Creek Golf Resort,formerly known as Palm Springs Municipal Golf Course. Due to legal requirements attributable to the financing obligation for the expansion of the Resort Course,the City is required to maintain separate agreements for each course at Tahquitz Creek. Therefore,the City developed a Lease Agreement for the property now known as the Legend Course and a similar, but distinctly different, Management Agreement for the property known as the Resort Course with APGMC. The initial term of the Management Agreement was restricted to five years due to Internal Revenue Service regulations. At the completion of this initial term, both the City and APGMC sought to modify these original agreements through a series of negotiations The product of those negotiations are as follows, excluding the relatively minor language changes included in each contract. LEASE AGREEMENT-AMENDMENT NO. 1 1. A cross-default provision will be added, whereby failure to adequately perform obligations leading to a default of contract will automatically trigger default conditions in the companion Management Agreement. 2. Language will be added that allows for the cooperative participation between the City and APGMC in the development of subj ectproperty for the purpose of a hotel. Such language will protect APGMC's proprietary right by contract to operate all golf operations and existing concessions. 30#4 LEASE AND MANAGEMENT AGREEMENTS FOR TAHQUITZ CREEK GOLF RESORT DATE: August 1, 2001 PAGE: Two 3. Accounting and financial reporting information will be based upon a "445 Plan Retail Merchandising Format'thatwill adjust such reporting to a fiscal year format, consistent with City operations.[The"445 Plan"derives its name by creating four 13-week quarters (4 + 4 + 5), thus equaling a 52-week fiscal year.] 4. APGMC will perform quarterly financial reviews, budget analysis, and presentations in addition to development of an approved capital projects program as requested. 5. APGMC will agree to complete pledged improvements, including installation of remaining cart paths and an approved water hazard, but excluding those initially identified for the driving range, at its expense on or before July 1, 2003. 6. APGMC will work with the City to ensure that City staff remains informed and involved in an advisory capacity in the hiring of the General Manager, Golf Pro, Golf Course Superintendent and other key administrative personnel as the City may determine to be appropriate for operation of Tahquitz Creek Golf Resort. 7. Capital Improvement Fund contribution levels will not change. However, the City will allow for distribution from the Capital Improvement Reserve Fund for approved projects on the Legend Course with funds in excess of a $250,000 reserve balance. MANAGEMENT AGREEMENT- CHANGES TO CONTRACT 1. The term of the agreement will be for five years on a fiscal year, rather than calendar year, basis, commencing on July 1, 2001 and ending on June 30, 2006. 2. Compensation will be adjusted by a one-time increase to a rate of$15,000 per month or$180,000 per year. This new rate reflects a one-time adjustment over the previous rate as determined by a regional cost-of-living index for the County of Riverside, California. Additionally: A. APGMC will qualify for a fixed bonus of$75,000 at the end of the fourth fiscal year of the agreement and an additional fixed bonus Of$100,000 at the end of the fifth fiscal year of the agreement if all income and expense controls identified in item"B" below and the gross revenue target in item "C" below are both met. B. Revenue is increased each year, beginning in year one of the agreement, by at least 7% annually and expenses increase by no more than 2% annually from the baselines established on July 1, 2001. Extraordinary and unavoidable cost increases, such as exorbitant and unanticipated utility costs,will be exempted under mutual agreement of APGMC and the City when evaluating expense side cost controls for purposes of award of incentive pay. C. The target goal of$3,229,668 in gross revenue is achieved in fiscal year 2003-2004 ending June 30, 2004 and the target goal of $3,530,645 in gross revenue is achieved in fiscal year 2004-2005 ending June 30, 2005. D. Bonus incentives will be paid in a lump sum at the end of each qualified fiscal year. 3. A cross-default provision will be added, whereby failure to adequately perform obligations leading to a default of contract will automatically trigger default conditions in the companion Lease Agreement. 3DI}Z LEASE AND MANAGEMENT AGREEMENTS FOR TAHQUITZ CREEK GOLF RESORT DATE: August 1, 2001 PAGE: Three 4. Language will be added that allows for the cooperative participation between the City and APGMC in the development ofsubjectproperty for the purpose of a hotel. Such language will protect APGMC's proprietary right by contract to operate all golf operations and existing concessions. 5. Accounting and financial reporting information will be based upon a "445 Plan Retail Merchandising Format"and will be adjusted to a fiscal year format, consistent with City operations. 6. APGMC will perform quarterly financial reviews, budget analysis, and presentations in addition to development of an approved capital projects program as requested. 7. APGMC will work with the City to ensure that City staff remains informed and involved in an advisory capacity in the hiring of the General Manager, Golf Pro, Golf Course Superintendent and other key administrative personnel as the City may determine to be appropriate for operation of Tahquitz Creek Golf Resort. 8. APGMC will develop a long-range capital improvement program, in a form acceptable to the City, which projects improvements anticipated for the property in one-, five-and ten-year increments. This program will be updated and evaluated annually during the budget process. 9. Capital Improvement Fund contribution levels will not change. However, the City will allow for distribution from the Capital Improvement Reserve Fund for approved projects on the Resort Course with funds in excess of a$250,000 reserve balance. 10. APGMC agrees to collect the annual data on behalf of the City for the required inspections for the Army Corps of Engineers' 404 permit. This is contingent upon the City developing the reporting format for the data and being responsible for submitting the data to the Army Corps of Engineers. The data will be collected and a completed report submitted to the City by APGCM by January 15 of each calendar year. All of the aforementioned changes for the Lease Agreement's Amendment No. 1 and the new Management Agreement are conceptual in nature and are subject to a final form acceptable to the City Attorney. All other provisions, other than minor language changes essentially of a clerical and ordinary nature, shall remain the same as in the original Lease Agreement and Management Agreement. i SeOTT MIKESELL, Director XDepartment of Parks, Recreation and Facilities APPROVE City Manager - ATTACHMENTS: 1. Minute order(2) REVIEWED BY DEPT.OF FINANCE W & 3 MINUTE ORDER NO. 6909 APPROVING AMENDMENT NO. 1 TO THE LEASE AGREEMENT FOR THE LEGEND COURSE AT TAHQUITZ CREEK GOLF RESORT BETWEEN THE CITY OF PALM SPRINGS AND ARNOLD PALMER GOLF MANAGEMENT COMPANY, IN A FORM ACCEPTABLE TO THE CITY ATTORNEY, COMMENCING JULY 1, 2001. ------------------ I HEREBY CERTIFY that this Minute Order, approving Amendment No. 1 to the Lease Agreement for the Legend Course at Tahquitz Creek Golf Resort between the City of Palm Springs and Arnold Palmer Golf Management Company, in a form acceptable to the City Attorney, commencing July 1, 2001, was adopted by the City Council of the City of Palm Springs, California, in a meeting thereof held on the 1s`day of August, 2001. PATRICIA A. SANDERS City Clerk MINUTE ORDER NO. 6910 APPROVING A NEW MANAGEMENT AGREEMENT FOR THE RESORT COURSE AT TAHQUITZ CREEK GOLF RESORT BETWEEN THE CITY OF PALM SPRINGS AND ARNOLD PALMER GOLF MANAGEMENT COMPANY, IN A FORM ACCEPTABLE TO THE CITY ATTORNEY, COMMENCING JULY 1, 2001. ------------------ I HEREBY CERTIFY that this Minute Order, approving a new Management Agreement for the Resort Court at Tahquitz Creek Golf Resort between the City of Palm Springs and Arnold Palmer Golf Management Company, in a form acceptable to the City Attorney, commencing July 1, 2001, was adopted by the City Council of the City of Palm Springs, California, in a meeting thereof held on the 1"day of August, 2001. PATRICIA A. SANDERS City Clerk