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HomeMy WebLinkAbout9/5/2001 - STAFF REPORTS DATE: SEPTEMBER 5, 2001 TO: COMMUNITY REDEVELOPMENT AGENCY FROM: REDEVELOPMENT DIRECTOR CONTINUATION OF A PUBLIC HEARING TO APPROVE A DISPOSITION AND DEVELOPMENT AGREEMENT WITH PALM SPRINGS NEW MILLENNIUM DEVELOPMENT, LLC TO PROVIDE A LAND WRITE-DOWN TO FACILITATE THE DEVELOPMENT OF THE STAR CANYON RESORT PROJECT, INCLUDING A 210- ROOM LUXURY HOTEL AND 264 TIMESHARE UNITS, ON SOUTH PALM CANYON DRIVE BETWEEN SUNNY DUNES DRIVE AND MESQUITE DRIVE RECOMMENDATION: It is recommended that the Agency approve a Disposition and Development Agreement with Palm Springs New Millennium Development, LLC to provide a land write-down to facilitate the development of the Star Canyon Resort on South Palm Canyon Drive in Merged Project Area #1. SUMMARY: This resolution approves a Disposition and Development Agreement with Palm Springs New Millennium Development, LLC, the developers of the Star Canyon Resort on South Palm Canyon Drive. The resort, which received final land-use approvals from City Council in May, 2000, features a 210-room hotel and 264 time share units (over 13,000 intervals) and will be the first major hotel built in the City since the late 1980's. Based on the analysis of the developer's pro forma, the project had a significant financing gap that could not be feasibly closed with private sector financing. The factors contributing to the gap included increased site development costs related to topography and off-site improvements, competitive pressures on the hotel from other Valley hotels that have received subsidies, the lack of a convenient golf amenity at the project site, and the seasonality of the hotel industry in the desert. Through this DDA the Agency would acquire the hotel site from the land seller for approximately $3.55 million using the Developers' funds, convey the site to the Developer for $1.00, and then repay the Developer for the site over a period of up to 18 years from tax increment generate by both the hotel and time share components of the project. Additionally, the Agency shall reimburse the Developer up to $1.05 million for public improvements, bringing the total present value of assistance to $4.6 million. Land write downs and infrastructure are a few of the ways an Agency can directly assist private development. BACKGROUND: This action continues a public hearing that was opened on July 18, 2001. City Council approved the Star Canyon Resort project on May 17, 2000 by adopting a Mitigated Negative Declaration and approving Case 5.0830, Preliminary Planned Development District 260 and Tentative Parcel Map 29691. The project consisted of the hotel and vacation ownership units, as well as the subdivision of the 11.41 acre project site into 9 parcels, subject to conditions. cm- A Once he began to try to firm up funding commitments, the Developer came to the Agency for financing assistance on the project. The Developer's financial consultant, Holliday Fenoglio Fowler, L.P., identified several factors in the project financing that made the project difficult to finance: Star Canyon does not have its own golf course. The average daily rates (ADRs) of existing Palm Springs Hotels are lower in Palm Springs than in other Coachella Valley cities such as Rancho Mirage, Indian Wells, and Palm Desert. The seasonality of Palm Springs and the entire Coachella Valley substantially lowers occupancy levels and average daily rates. The site location is not centralized to the Coachella Valley. There are only one or two comparable hotels in Palm Springs. Competition from "down Valley" cities is a serious threat. Based on the original development pro formas, the Developer asked for assistance in excess of$10 million. Staff used Keyser Marston &Associates (KMA) to analyze the developer's request; KMA reported that, based on a gap of the size and percentage shown in the Developer's own numbers, the project had a bigger problem than just a minor financing gap. The Agency's informal guidelines for recommending assistance are that the amount of gap financing should be marginal when compared to the project cost—the original request, however, was for a significant percentage of the overall project cost to be paid from public funds generated by the project. In the end, the Agency and the Developer negotiated a much more modest assistance package in line with the Agency's guidelines, but one that was attractive enough to the debt and equity lenders that the project was able to receive financing. The Agency financial participation in the project is as follows: 1. The Developer would make a loan to the Agency of approximately $4.6 million, which would be repaid with interest to the Developer through the net tax increment generated by both the hotel and time share component of the project over a period of up to 18 years. 2. The developer commits to keeping the project as originally proposed and approved, including the architectural upgrades, quality landscaping, and other components. 3. The Agency would take title to the land from the seller for an amount of approximately $3,550,000, including the Developer's carry costs. Star Canyon Resort DDA s a z September 5, 2001 Page 2 4. The Agency agrees to contribute the land to the project when the project is fully funded, all permits have been obtained, and the Developer is prepared to commence construction. The Agency would retain reverter rights if the Developer fails to proceed or complete the project. 5. The Agency will use the additional $1,055,000 to reimburse the Developer for the cost of public infrastructure associated with the Project. 6. The Developer will construct the resort in phases, and receive repayment of the Agency note through the tax increment of the project, net of pass- throughs to other taxing agencies and housing setaside payments. 7. The Developer also agrees to place an additional fee on the time share intervals, equal to $10 per full interval per year, payable through the HOA payment. That fee would be paid to the City to offset a portion of the TOT lost to the City by the rooms not being hotel rooms. The project as proposed by the Developer is extremely attractive and would provide an economic jump-start to the South Palm Canyon Drive area, which has lagged behind the downtown and North Palm Canyon Drive areas in revitalization. While this DDA commits all of the property tax increment from the project to the loan repayment, it will spur additional development in the area that would have not otherwise occurred, and developed a flow of TOT, sales taxes, and in-lieu fees to the City with little "cannibalization" of existing Palm Springs hoteliers by bringing in a brand new to Palm Springs as well as a product more directly competitive with down Valley resorts than with Palm Springs hotels. A Summary Report describing the purchase and sale of the property, as required by California Health and Safety Code Section 33433 (a), is enclosed with the resolution. CJbHN . RAY D �.,Redevelopmei6t D'rector AP' ROV€D Executive Direc r `r ATTACHMENTS: 1. Resolution 2. Dispostion and Development Agreement 3. Summary Report 4. Public Hearing Notice— CC� 5. City Council Concurring Resolution C rd . 42 Star Canyon Resort DDA September 5, 2001 Page 3 SUMMARY REPORT: DISPOSITION AND DEVELOPMENT AGREEMENT BY AND BETWEEN THE PALM SPRINGS COMMUNITY REDEVELOPMENT AGENCY AND PALM SPRINGS NEW MILLENNIUM DEVELOPMENT SEPTEMBER 2001 c ra a INTRODUCTION Before real property acquired by a Community Redevelopment Agency with tax increment proceeds may be sold or leased, the transaction must be approved by the Agency Board in accordance with California Health and Safety Code Section 33433. This Section requires a "Summary Report", which describes and specifies certain information in regard to the proposed transaction, be available for public inspection. DESCRIPTION OF THE PROPOSED AGREEMENT Site and Interests to be Conveyed The Site consists of a single parcel of land of approximately 11.41 acres, subdivided as part of the development into 9 parcels. The Site is located on South Palm Canyon Drive between Sunny Dunes Drive and Mesquite Drive and backs up to Belardo Road. The Developers of the Property, Palm Springs New Millenium Development, LLC, are seeking Agency financial assistance in developing a proposed 210-room resort hotel and 264 vacation ownership units. Part of the assistance will be that the Agency shall purchase the land from the current owner and convey it back to the project when the project is ready to proceed to the construction phase. The Developer will lend the Agency the funds to complete the transaction, which the Agency shall repay over a period of 15 years to the Developer through the tax increment the project has produced, including both the hotel and time share portions. Proposed Development The Developer is building 210 luxury hotel rooms and 264 vacation ownership units on the 11.41 acre site, in addition to underground parking, water features and other site amenities, and restaurants. The hotel will be a major brand, equivalent to Radisson or better. The time share units will be sold in intervals and will be able to be divided into smaller configurations and fractional shares to increase the total number of intervals available for sale. The project contains significant architectural and landscaping upgrades as well significant off-site improvements. The project is in an area that has lagged behind other areas of Palm Canyon Drive in new investment and will provide a major economic boost to the area. Financing The Developer has received commitments of debt- and equity financing sufficient to ensure the project will be built. Within the project financing structure is an equity gap of approximately$4.60 million, which will be covered by the amount of the Agency financial participation. The Agency's percentage share of the overall project cost is approximately 6%and counts as Developer's equity in the financing structure. Agency Responsibilities The Agency agrees to repay the Developer for the $3,550,000 land acquisition costs plus reimburse the developer an additional $1,050,000 for public infrastructure costs, for a total of $4,600,000, plus interest, for a period of up to 18 years. The maximum amount paid over the period is $10.4 million. The loan payment shall be made solely from the tax increment generated by the project; should a portion of the project be undeveloped and the property tax increment not created, the Agency is not obligated to pay non-project-based revenues to repay the note. All tax increment calculations are net of pass-through obligations to other taxing entities, as well as the low/mod housing setaside. ocra 4ow Developer Responsibilities The developer commits to keeping the project as originally proposed, including the architectural upgrades, quality landscaping, and other components. The Agency's standard terms and conditions, including non-discrimination and maintenance covenants, and other terms and conditions remain as in Disposition and Development Agreement for Developer. COST OF AGREEMENT TO THE AGENCY The Agency will commit an amount of up to $10,400,000 to the project from project-created tax increment over a period of up to 18 years to repay a loan made by the Developer to the Agency to execute the land sale from the Current Owner to the Agency. The present value of the assistance, based on Year 2001 dollars, is approximately $4,600,000. C ra A. -lo RESOLUTION NO. OF THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF PALM SPRINGS, CALIFORNIA APPROVING A DISPOSITION AND DEVELOPMENT AGREEMENT WITH PALM SPRINGS NEW MILLENNIUM DEVELOPMENT, LLC TO EFFECTUATE THE DEVELOPMENT OF A RESORT HOTEL AND VACATION OWNERSHIP PROJECT ON SOUTH PALM CANYON DRIVE BETWEEN MESQUITE DRIVEAND SUNNY DUNES DRIVE, IN MERGED PROJECT AREA # 1 (FORMERLY THE SOUTH PALM CANYON PROJECT AREA) WHEREAS,the Community Redevelopment Agency of the Cityof Palm Springs,California ("Agency")is constituted underthe Community Redevelopment Law(California Health and Safety Code Section 33000 et. se to carry out the purpose as the redevelopment in the City of Palm Springs ("the City"); and WHEREAS, Palm Springs New Millennium Development, LLC has requested Agency financial assistance in their efforts to develop a resort on South Palm Canyon Drive, in order to develop the first new hotel in Palm Springs in over twelve (12) years and make it a profitable development for the hotel operator and the City, and increase the level of employment; and WHEREAS, development of the resort will create additional transient occupancy tax and sales tax revenue for the City, as well as create additional jobs for 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, 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 beforetheAgency can enter into this Amendment, as follows: a) Section 33421.1 - that the City Council find that the provision of such assistance 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. WHEREAS,the Agency has considered the staff report, and all the information,testimony and evidence provided during the public hearing on July 18 and September 5, 2001. GCaa-'B 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 received approval of a Mitigated Negative Declaration on May 17, 2000 based on the preparation of an Initial Study and the recommendation of the Planning Commission. Mitigation measures are included in the project design and adopted as part of the Conditions of Approval for the Project. b) The Agencyfinds thatthe 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 Mitigated Negative Declaration reflects its independent judgment. SECTION 3. The Developer proposes to construct a five-story hotel of at least 210 rooms; 264 vacation ownership units (time shares); underground parking;water features and otheramenities;and other landscaping and on-site improvements. 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 Belardo Road and South Palm Canyon Drive. This project improves a blighted parcel in Merged Redevelopment Project Area#1 (formerly South Palm Canyon)and will increase tax increment to the Agency and transient occupancy tax and sales tax collections to the City. SECTION 5. The Agency agrees, through this Disposition and Development Agreement,to borrow approximately$4,600,000 from the Developer to acquire the 11.41 acre site from the current owner for approximately$3,550,000, and to acquire fee title to the site. The Agency agrees to contribute the land to the project for$1.00 when the project is fully funded, all permits have been obtained, and the Developer is prepared to commence construction. The Agency would retain reverter rights if the Developer fails to proceed or complete the project. In addition, the Agency shall use the additional$1,050,000 in loan proceeds to reimburse the Developer for infrastructure costs. The Agency would then repay the loan from the net tax increment generated by the project, including both the hotel and time share portions. Over the 18 years the loan is to be c.ra .a. a repaid, the total tax increment paid to the Developer will be close to $10.4 million. The present value of he assistance, however, remains $4.6 million. In addition, the Developer agrees to place an "in-lieu of TOT"fee on the time share units in the amount of$10 per interval per year, payable through the HOA fees. SECTION 6. The Agency does hereby find and determine as follows: (a) The property is currently vacant and lies between Magruder Chevrolet on the south and the Rock Garden Cafe to the north. The total site is approximately 11.41 acres. Because of the substantial amount of public improvements required as part of the development, including the undergrounding of utilities on Belardo Road, a landscaped median island and traffic signal on South Palm Canyon Drive, street widening on South Palm Canyon Drive, and sidewalks, bikelanes, curbs and gutters, it is only feasible for a major development such as the Star Canyon Resort to develop the property and carry the overhead cost of the public improvements. In addition, there are topographic challenges with grade changes and a significant amount of boulder coverage on the site, which also raises the cost of a new development. (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 development and operation of the resort hotel development causing the upgrade of the property, placing the property in the hands of a first class and experienced hotel operator, in order to increase transient occupancy tax and 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 create new commercial activities in the project area. It will increase the City's commercial sector by developing a major new destination property in the City, in order to capture a portion of the significant resort and leisure tourism leakage that occurs in Palm Springs. . f 1W.3 cra SECTION S. Based on foregoing reasons, this DDA is hereby approved and incorporated herein by this reference. SECTION 9. The Chairman, or his designee, is hereby authorized to execute on behalf of the Agency the Disposition and Development Agreement and other documents necessary to the Agreement, and make minor changes as may be deemed necessary, in a form approved by Agency Counsel. ADOPTED this day of 2001. AYES: NOES: ABSENT: ATTEST: COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF PALM SPRINGS, CALIFORNIA By Assistant Secretary Chairman REVIEWED & APPROVED AS TO FORM 10 • g.q